Annual Results For the Year Ended 31 December 2018

Cathay International Holdings Limited

("Cathay" or the "Company" or together with its subsidiaries, the "Group")

Annual Results for the Year Ended 31 December 2018

Hong Kong, 29 March 2019 - Cathay International Holdings Limited (LSE: CTI.L), an operator and investor in the growing healthcare sector in the People's Republic of China (the "PRC"), today announces its Annual Results for the year ended 31 December 2018.

Group Operational Highlights

• The Group was adversely impacted by a slowing economy, regulatory changes and fierce competition amongst inositol producers

• Reacting to the current regulatory climate, Lansen reviewed its business strategy and implemented new strategic initiatives, including:

• Concentrating on developing self-owned products

• Restructuring sales force and reducing selling expenses

• Managing working capital and lowering inventories

• Haizi initiated a rigorous cost reduction process during H2 2018 in order to achieve a competitive cost structure amongst peers. Actions included:

• Formulating a more optimal production process

• Evaluating auxiliary raw material suppliers

• Streamlining staff structure

• Haizi formed an associate with local government subsidiary to build a new phytin plant with a production capacity of 6,000 tonnes. Haizi owns 9.99% of the plant by providing technical know-how and cash totalling approximately USD0.3 million

• Natural Dailyhealth assembled an experienced sales team in Shanghai to build a strong client base across key product categories

• 26 healthcare product applications awaiting approval from China Food and Drug Administration ("the CDFA") - approvals expected to start in 2019

• Three new health food products expected to launch to the market in 2019, the first of which is targeted to launch in Q2

• The Group is developing its cosmetics line to replace reduction in sales of agency products and to supply franchised cosmetology institutions with products to complement Fillderm - product lines expected to launch in Q2 2019

• The Group is building its own cosmetic centres in Beijing and is building alliances with cosmetology institutions across the country

• The hotel achieved strong results following the rapid development of Shenzhen's high-tech industries

Group Financial Highlights

• Revenue decreased by 26.9% to USD84.3 million (2017: USD115.3 million)

• Gross profit decreased by 42.6% to USD30.4 million (2017: USD53.0 million)

• Operating loss of USD13.6 million (2017: operating profit of USD0.5 million)

• Gross profit margin decreased to 36.1% (2017: 46.0%)

• Finance costs increased to USD10.5 million (2017: USD10.2 million)

• Share of profits from Zhejiang Starry Pharmaceutical Company Limited were USD1.7 million (2017: USD1.7 million)

• Net loss of USD18.3 million (2017: net profit of USD0.7 million)

• Loss attributable to owners of the parent increased to USD18.6 million (2017: USD6.9 million)

Commenting on the annual results, Mr. Lee Jin-Yi, CEO of Cathay International Holdings Limited said:

"The Group has made a number of strategic changes and implemented new initiatives in order to address the current economic climate and regulatory challenges in China. We are optimistic that these changes will, over-time, have a positive impact and see the group return to sustainable growth. As always, I would like to thank our shareholders, whose support throughout these challenging times is greatly appreciated."

-- ENDS --

For further enquiries, please contact:

Cathay International Holdings Limited

Eric Siu (Finance Director) Tel: +852 2828 9289

Patrick Sung (Director and Controller)

Consilium Strategic Communications

Mary-Jane Elliott/Matthew Neal/Lindsey Neville Tel: +44 (0) 203 709 5700

About Cathay

Cathay International Holdings Limited (LSE: CTI.L) is a main market listed investment holding company and an operator and investor in the growing healthcare sector in the People's Republic of China (the "PRC"). The Company and its subsidiaries (collectively the "Group") aim to leverage on growth opportunities in the strong and growing domestic demand for high quality healthcare products in the PRC and build its portfolio companies into market sector leaders with competitive edge. Cathay has already demonstrated a strong track record of identifying high growth potential investment opportunities in this area including: Lansen, a leading specialty pharmaceutical company focused on rheumatology and dermatology in the PRC; Haizi, a company engaged in the manufacture, marketing and sale of inositol and its by-product, di-calcium phosphate; Natural Dailyhealth, a company engaged in production and sales of plant extracts for use as key active ingredients in healthcare products; and Botai, a company engaged in collagen products.

The Group employs approximately 1,500 people across the PRC, including over 30 specialist corporate and business development staff based at the holding company's offices in Hong Kong and Shenzhen. Cathay also has a hotel investment. For more information please visit the Company's website: www.cathay-intl.com.hk.

Chairman's Statement

During the course of 2018, the Group encountered slower growth in the economy, further regulatory changes to reduce drug prices and fierce competition among inositol producers, all of which have had an adverse impact on our revenues and profits.

The two-invoice system, which allows only one distributor between a manufacturer and a hospital, has caused a sharp decline in Lansen's sales of agency products such as Hepai leflunomide tablets, Guangwei mycophenolate mofetil and Yuze skincare products. The new pilot 11 major cities joint procurement system has also squeezed margins on the tender price of Lansen's pharmaceutical products.

Lansen has responded to these difficult trading conditions by developing more self-owned products to replace agency products, reducing selling expenses and restructuring its salesforce and is improving cash flow by shortening the working capital cycle and lowering inventories. Haizi also initiated a rigorous cost reduction process during the second half of 2018. Whilst these measures could have an adverse impact on our financial performance in the short-term, we believe such endeavors will improve our competitiveness over time. Natural Dailyhealth assembled an experienced sales team in Shanghai to build a strong client base across key product categories. It also started to work on downstream healthcare products, targeting to launch a few new health food products in 2019. Botai has added to Fillderm another product specification and to market through Lansen's aesthetic clinic in Beijing. Benefited from the strong Shenzhen hospitality market, hotel recorded growth in both rooms and food and beverage segments.

Group revenue decreased by 26.9% to USD84.3 million (2017: USD115.3 million). Group recorded net loss of USD18.3 million (2017: net profit of USD0.7 million). Group loss attributable to owners of the parent increased to USD18.6 million (2017: USD6.9 million).

Pharmaceutical segment

Due to the challenging regulatory environment for pharmaceutical businesses in China, Lansen, our major subsidiary listed on the Hong Kong Stock Exchange, has reviewed its business strategy and, as a result, has implemented a number of new strategic initiatives in order to manage these challenges. Lansen has dedicated more resources to developing and marketing its own products, such as Pafulin, Sicorten plus and certain featured pharmaceutical products rather than agency products, which are difficult to manage under the two-invoice system and, as a result, sales of agency products have declined.

Anticipating further reductions in drug prices, Lansen drastically restructured its sales force and reduced its selling expenses. During this transitional period of restructure, sales of Lansen's own products declined. Lansen has also focused on better managing its working capital and strengthening its cash flow, actively reducing the inventory levels of its distributors from USD30.0 million to USD17.7 million, resulting in a decrease in sales and gross profit contributions from the pharmaceutical products. The revised operating strategies did not materially affect the sales of Lansen's products to the ultimate consumers. The market consumption of its key product, Pafulin, reduced by 4.7% or USD2.4 million. The streamline of the sales organisation and related spending did, however, significantly lower Pafulin's selling and marketing expenses to market consumption ratio from 37.2% to 25.4%.

As the Government begins to reduce the, already heavy, workload at tier one hospitals and steers patients towards smaller hospitals, Lansen has had to broaden its coverage of hospitals in target cities. As such, Lansen has begun to build a sales force ("same-city team"), mainly working on a commission basis, to cover such tier two hospitals. Lansen will carefully balance the cost effectiveness, and its internal control, while building this new team.

The Group expects the pharmaceutical business to return to growth as the new sales structure stabilises, the same-city team produces sales and featured pharmaceutical products advance. Furthermore, we believe we will achieve the growth at a much lower selling to expense ratio compared to 2017 or prior.

Healthcare segment

Haizi

Haizi is working to achieve a competitive cost structure among its competitors. High costs and an inadequate supply of phytin contributed to our unattractive inositol costs. Whilst working closely with suppliers to increase the supply of corn fluid needed for phytin production, Haizi began to outsource its supply of phytin and purchased 565 tonnes from a third party to feed its inositol production. Furthermore, Haizi formed an associate with a local government subsidiary to build a new phytin plant with an annual production capacity of 6,000 tonnes. Haizi owns 9.99% of this new phytin plant by providing technical know-how and cash totaling approximately USD0.3 million. This associate also secured a long-term contract with a large local corn starch manufacturer for the supply of corn fluid for its phytin production, at competitive pricing. Haizi will be an off-taker of the phytin produced.

During the second half of 2018, Haizi formulated a more optimal production process, evaluated auxiliary raw material suppliers and streamlined its staff structure to reduce production costs at its existing phytin facilities. Together with an increased supply of phytin from our new facility, and third-party outsourcing, these new initiatives should put Haizi in a favorable cost position.

Haizi's food grade di-calcium phosphate ("DCP") strategy remains the same and the production level will be determined by the number of sales orders received. Any excess DCP capacity, post fulfilling the initial demand for food grade DCP, will be utilised as feed grade production.

Natural Dailyhealth

Natural Dailyhealth has assembled an experienced sales team in Shanghai and has begun to build a major client base across key product categories including bilberry, Ginko, GPC and Lingzhi extracts. After a few years effort, Natural Dailyhealth's key products and key customers marketing strategy is expected to see positive results in 2019.

Natural Dailyhealth has applied to the CFDA for registration of 26 healthcare products to expand its business downstream. However, as the government's approval agency is currently restructuring its internal processes, the approval of such applications is seeing delays. Our applications are expected to start gradually being approved in 2019. At the same time, there are also three new health food products expected to launch in the market in 2019, the first of which, with preliminary marketing programs formulated and ready for execution, is targeted to launch in the second quarter.

Additionally, the Group has invested a large amount of resource to build its own cosmetic centers in Beijing and is planning to build alliances with cosmetology institutions across the country to form a sales network. Natural Dailyhealth's healthcare products will bring value and synergy to the alliance.

Cosmetics segment

The Group began to build its cosmetic business through the sales of Fillderm, the only collagen injection product manufacturer approved by the CFDA in China. The Group markets Fillderm mainly through Lansen's aesthetic clinic in Beijing. In order to better meet market demands, Fillderm will be marketed under two specifications, a 0.5ml package and a 1.0ml package and will be the only injection type products available in Lansen's aesthetic clinic. At present, the market strategy of Fillderm is still in development and has not yet brought significant economic benefits to the Group. However, the domestic beauty market has great potential and, according to the Group's current strategy, Fillderm will complement the Group's cosmetic products to attract cosmetology institutions with the aim of establishing a large-scale alliance in China to form its own network. The Group will continue to invest in the development of this business throughout 2019.

The Group has focused on developing its cosmetics line in 2018 partly to replace the reduction in sales of agency products, including replacement products for Kefumei (comfy collagen dressing mask) and Yuze brand skin care products, and partly to supply franchised cosmetology institutions with products to complement Fillderm. By cooperating with agents, independent research and development institutes and third parties, the Group expects to launch its own product lines starting in the second quarter of 2019.

Investment

In June 2018, Lansen disposed of 2,400,000 Starry shares (2017: 4,175,000 Starry shares) at a price of RMB27.22 per share (2017: RMB43.11 per share) for aggregate proceeds of RMB65.3 million (2017: RMB180.0 million) (equivalent to approximately USD9.8 million in 2018 and USD26.1 million in 2017), before deducting transaction costs and related tax. The Group plans to continue reducing its holding in Starry shares, as and when appropriate, in 2019. As at year end, Lansen still has a 10.6% equity interest in Starry, shares in which are listed on the Shanghai Stock Exchange. A circular in relation to seeking shareholders approval on further disposal of Starry shares was posted on 27 March 2019.

Hotel

The hotel achieved strong results in 2018 following the rapid development of Shenzhen's high-tech industries. Occupancy rates increased to 78.0% from 73.2% and overall income increased by 8.9%. The Group expects challenges in the hotel room sales in 2019 due to a slowing economy but the hotel will strive to improve food quality, and enhance the promotion of its restaurants, to increase food and beverage sales and profitability this year.

Finally, I would once again like to express my gratitude to our shareholders and the directors for their long-term support. We have continued to encounter many challenges in the Chinese market and the management team has initiated a number of new strategic initiatives in order to address these challenges. The Group will endeavor to complete these transformations in the near future in order to create long term competitiveness and deliver value to shareholders.

Financial and Operation Review

Group Results

The Group's revenue decreased by 26.9% to USD84,295,000 compared to USD115,338,000 last year. Due to the implementation of operating strategies to focus on own branded products, and to better manage working capital and cash flows, the pharmaceutical and cosmetic segments recorded a significant decrease in sales in 2018. Lansen's sales were USD54,705,000 (2017: USD86,379,000). Haizi's sales of inositol and DCP were USD7,752,000 (2017: USD6,845,000) mainly due to higher volumes of DCP sold in 2018. The average price of inositol maintained at USD5 per kg. Natural Dailyhealth's sales decreased to USD6,852,000 (2017: USD8,306,000) and the Hotel's revenue grew to USD14,811,000 (2017: USD13,604,000).

The Group's gross profit decreased by 42.6% to USD30,433,000 (2017: USD53,014,000), again, mainly due to lower pharmaceutical and cosmetic product sales. Gross profit at Lansen decreased to USD30,271,000 (2017: USD51,889,000) and the gross loss of Haizi decreased to USD2,864,000 (2017: USD3,027,000). Botai's gross profit decreased to USD185,000 (2017: USD619,000) due to preparation of the revised marketing strategy of the collagen injectable fillers. Natural Dailyhealth's gross profit decreased to USD538,000 (2017: USD1,610,000). Hotel's gross profit increased to USD3,118,000 (2017: USD2,763,000). The Group's gross profit margin decreased to 36.1% (2017: 46.0%) mainly due to the lower proportion sales of high margin pharmaceutical products.

The Group incurred operating loss of USD13,599,000 (2017: profit of USD480,000) mainly due to implementation of operation strategies in Lansen which resulted a decline of operating profits. Haizi and Natural Dailyhealth also increased their operating losses but this was partially offset by the increase in hotel's operating profit of USD354,000. The increase in corporate expenses to USD5,489,000 was mainly due to lower reversal of share option expenses of USD473,000 (2017: USD944,000) and an increase in professional fees.

The Group's finance costs increased by 2.9% to USD10,461,000 (2017: USD10,167,000) due to the increase in the effective LIBOR borrowing rate. Interest expense capitalised during the year was USD416,000 (2017: USD266,000). The effective interest rate was 5.3% (2017: 4.5%).

The Group's share of profits from Starry, a 10.6% owned associate company primarily engaged in the production and sales of iohexal for X-CT scanners, was USD1,688,000 (2017: USD1,731,000). The decrease in contribution was mainly due to the disposal of 2.0% interest in Starry in June 2018 which resulted a net gain of USD5,066,000 (2017: USD15,422,000) on such partial disposal.

The Group's loss after finance and tax was USD18,295,000 (2017: profit of USD656,000). After deducting the minority interests of Lansen, Group's loss for the year attributable to owners of the parent was USD18,596,000 (2017: USD6,921,000).

Group's Net Assets and Gearing

The Group's net assets at 31 December 2018 were USD117,099,000 (2017: USD150,392,000). Net assets per share at 31 December 2018 were USD0.31 (2017: USD0.39).

The Group's cost of investment in Starry was USD23,954,000 under the equity accounting basis. Based on Starry's closing price on 31 December 2018, the market value of the investment in Starry was approximately USD49,103,000. The difference between the book value and the market value of Starry was not included in the consolidated financial statements.

The Group increased its net borrowings to USD164,068,000 (2017: USD157,944,000) mainly due a net increase of USD7,385,000 at corporate level. Net gearing ratios for the Group and Lansen were 138.0% (2017: 105.6%) and 60.7% (2017: 56.5%). Taking Starry's market value as at 31 December 2018 into consideration, Group's net gearing ratio was 113.6%.

Lansen

Lansen's revenue decreased to USD56,872,000 from USD89,484,000.

Sales from pharmaceutical products decreased by 29.6% to USD48,055,000 (2017: USD68,229,000), of which Pafulin's sales dropped by 35.7% to USD32,436,000 (2017: USD50,454,000), sales of MMF tablets were down 18.0% to USD3,389,000 (2017: USD4,133,000) and sales of Hepai decreased by 82.6% to USD408,000 (2017: USD2,345,000). Sales of Bio-Rad and Sicorten Plus were USD448,000 (2017: USD 872,000) and USD2,552,000 (2017: USD3,385,000) respectively. Generic drugs sales were up by 31.7% to USD8,649,000 (2017: USD6,569,000).

Lansen is strategically focusing on developing and marketing its owned products to reduce its reliance on agency products. In 2017, the agency arrangement with Comfy Collagen Dressing mask (Kefumei) was terminated. Lansen also exited from marketing Yuze brand skincare products in second half of 2018. As a result, sales of cosmeceutical products decreased by 82.3% to USD2,338,000 (2017: USD13,196,000). Sales of Yuze brand skincare products decreased to USD1,866,000 (2017: USD5,015,000). Sales of Kefumei were USD7,109,000 in 2017. Lansen has invested in Robustnique Corporation Limited ("Robustnique") and appointed Robustnique to develop a series of owned skincare products for Lansen's branded "San Parietti" including a facial mask series. It is expected to launch the San Parietti products and a facial mask in the first half of 2019. To accelerate Fillderm sales, Lansen has established its own aesthetic clinic in Beijing and is working with cosmetology institutions and other distribution channels to serve their customers.

Healthcare products (including plant extracts and healthcare products) decreased 19.6% to USD6,479,000 (2017: USD8,059,000) due to a decrease in sales of health supplement extracts resulting from the loss of one major customer.

Lansen's gross profit decreased by 41.7% to USD30,271,000 (2017: USD51,889,000) mainly due to decrease in sales of Pafulin and agency products resulting from the strategic decision to reduce the market inventory to enhance the working capital cycle and focus on self owned products. The gross profit margin decreased to 53.2% (2017: 58.0%) mainly due to a lower proportion of high gross margin Pafulin sales. Lansen's operating loss was USD52,000 (2017: operating profit of USD9,984,000). Operating profit margin was -0.1% (2017: 11.2%) due to lower profit margin of Pafulin resulting from lower production volume. Administrative expenses were USD15,340,000 (2017: USD10,807,000).

During the year, Lansen disposed of 2,400,000 Starry shares (2017: 4,175,000 Starry shares) and made a gain of USD5,066,000 (2017: USD15,422,000). As at 31 December 2018, Lansen still holds 10.6% interest or 12,775,000 shares in Starry. Certain intangible assets USD1,212,000 (2017: USD2,476,000) were either written off or impaired. Net effects of one-off items were USD5,904,000 (2017: profit of USD10,874,000).

Botai

Botai will sell 0.5ml Fillderm via Lansen and concentrates on selling 1.0ml Fillderm directly. Botai has also worked on developing small molecule collagen facial masks, to enrich the product line. It is expected the marketing of the collagen masks will be launched in the first half of 2019.

Botai's revenue was USD270,000 (2017: USD1,425,000). Its gross profit was USD185,000 (2017: USD619,000) and its operating loss was USD778,000 (2017: USD903,000).

Natural Dailyhealth

Following the realignment of the plant extract and health supplement businesses between Lansen and Natural Dailyhealth, Natural Dailyhealth's revenue decreased by 17.6% to USD7,440,000 (2017: USD9,026,000) mainly due to the decrease in sales of choline glycerophosphate extracts and bilberry extracts. Gross profit decreased by 66.6% to USD538,000 (2017: USD1,610,000) mainly due to sales of substandard ginkgo extracts which adversely affected gross profit by USD758,000. Operating loss was USD2,560,000 (2017: USD1,463,000) mainly due to lower gross profit.

Natural Dailyhealth revamped its sales infrastructure in H1 of 2018 and will continue to develop a high-end customer base across key products such as ginkgo, bilberry, ginseng and choline glycerophosphate extracts.

Haizi

During the year, Haizi produced 1,273 tonnes (2017: 1,090 tonnes) and sold 1,247 tonnes (2017: 1,233 tonnes) of inositol and produced 8,179 tonnes (2017: 6,504 tonnes) and sold 8,601 tonnes (2017: 6,110 tonnes) of DCP.

During the first half of 2018, Haizi suffered from low levels of corn fluid supplied by the corn starch manufacturers at the Gongzhuling plant. Limited by its own environmental requirements, the corn starch manufacturers put restrictions on the amount of corn fluids that could be returned to their facilities, which resulted in a sharp drop in the output of phytin. However, as DCP sales increased in 2018, Haizi's revenue increased by 12.6% to USD7,787,000 (2017: USD6,914,000). Haizi's gross loss was USD2,864,000 (2017: USD3,027,000) and operating loss increased to USD6,853,000 (2017: USD5,364,000) because of higher administration expenses caused by inventory and certain plant equipment provisions and staff redundancy costs.

Haizi will continue to improve its costs by improving capacity utilisation whilst reducing expenses.

Hotel Operations

Benefitting from a strong Shenzhen market, the Hotel's revenue increased by 8.9% to USD14,811,000 (2017: USD13,604,000). Room revenue increased by USD963,000 to USD9,978,000 (2017: USD9,015,000). Average room rate was at USD118 (2017: USD113) and revenue per room was USD92 (2017: USD83).

Room occupancy increased to 78.0% (2017: 73.2%) due to an increase in transient customers and more bookings from international corporate clients. Food and beverage revenue increased slightly to USD4,406,000 (2017: USD4,166,000).

The Hotel's gross profit increased by 12.8% to USD3,118,000 (2017: USD2,763,000 and operating profit increased by 13.3% to USD3,015,000 (2017: USD2,661,000). The gross profit margin increased to 21.1% (2017: 20.3%) resulting from growth in room revenue.

Colliers International (Hong Kong) Limited, an independent firm of qualified professional valuers, revalued the Hotel at USD148,600,000 (2017: USD154,000,000). The Company has considered that the hotel's current room configuration might not be optimal and is reviewing alternative options. The existing revaluation is based on a best use scenario. The Company and the hotel management team are working on the phasing of reconfiguration plan to enable the hotel to operate during the reconfiguration development.

The Hotel continues to provide a high quality service to its customers and was consistently rated as one of the top 10 hotels in Shenzhen on TripAdvisor.

The Hotel will continue to improve its quality of service by conducting staff training and continuing to address customers' needs. It will also focus on increasing the number of high end corporate clients to improve average room rates and its food and beverage business.

The Company anticipates that these trading conditions and trends will continue in 2019.

Analysis of the Group's Revenue and Gross Profit by Business Sectors

The Group's revenue and gross profits, classified into three focused business sectors, namely, pharmaceutical, healthcare and cosmetics; together with the hotel, were as follows:

Consolidated Statement of Profit or Loss

Consolidated Statement of Comprehensive Income

Consolidated Statement of Financial Position

Consolidated Statement of Changes in Equity

NoteS:

1. BASIS OF PREPARATION

The preliminary results and the consolidated financial statements of the Group have been prepared in accordance with all applicable International Financial Reporting Standards, International Accounting Standards ("IASs") and Interpretations (hereinafter collectively referred to as "IFRSs") issued by the International Accounting Standards Board ("IASB"). The consolidated financial statements also comply with IFRSs as issued by the IASB as adopted by the European Union. The differences between IFRSs as adopted by the European Union and IFRSs as issued by the IASB have not had a material impact on the consolidated financial statements for the years presented.

The consolidated financial statements have been prepared under historical cost basis except for hotel properties, certain unlisted equity investments and certain financial liabilities that are measured at fair values at the end of each reporting period. The consolidated financial statements are presented in United States Dollars ("USD"), which is the same as the functional currency of the Company. All values are rounded to the nearest thousand except when otherwise indicated.

The Group had incurred a net loss of USD18,295,000 during the year ended 31 December 2018 and, as of that date, the Group's current liabilities exceeded its current assets by USD83,521,000 (2017: USD58,771,000). The consolidated financial statements have been prepared based on the assumption that the Group can operate as a going concern and will have sufficient working capital to finance its operations in the next twelve months from 31 December 2018.

As in the past, the Group will start negotiation with the relevant banks on extension or renewal of the bank borrowings a few months prior to their respective maturities and obtain the approvals from the relevant banks before their respective maturities. Notwithstanding the positive operating cash flow from certain of its subsidiaries, as at the end of reporting period, the Group has commenced discussions with few banks. The Group does not foresee that the bank borrowings will not be renewed or extended before maturity as the fair value of pledged assets outweighs the amount of bank borrowings. The Group is also exploring options to secure long term funding, including debt and/or equity, to re-finance part of the bank borrowings and further partial disposals of equity interest in an associate. Accordingly, the Group should be able to meet in full its financial obligations as and when they fall due for the next twelve months from 31 December 2018 without significant curtailment of operations. The directors of the Company are accordingly satisfied that it is appropriate to prepare the consolidated financial statements on a going concern basis.

Should the Group be unable to continue in business as a going concern, adjustments would have to be made to the consolidated financial statements to reduce the values of the assets to their net realisable amounts and to provide for any further liabilities which might arise and to reclassify non-current assets and non-current liabilities to current assets and current liabilities respectively. No such adjustments were reflected in the consolidated financial statements.

2. ADOPTION OF NEW OR REVISED IFRSs

2.1 Adoption of new or revised IFRSs that has been issued by IASB and has been endorsed for use in the European Union - effective from 1 January 2018

Except for as explained below, the adoption of these new or revised IFRSs has no material impact on the Group's consolidated financial statements.

Annual Improvements to IFRSs 2014-2016 Cycle, Amendments to IFRS 1, First-time Adoption of International Financial Reporting Standards

The amendments issued under the annual improvements process make small, non-urgent changes to standards where they are currently unclear. They include amendments to IFRS 1, First-time Adoption of International Financial Reporting Standards, removing transition provision exemptions relating to accounting periods that had already passed and were therefore no longer applicable. The adoption of these amendments has no impact on these consolidated financial statements as the periods to which the transition provision exemptions related have passed.

IFRS 9, Financial Instruments

(i) Classification and measurement of financial instruments

IFRS 9 replaces IAS 39, Financial Instruments: Recognition and Measurement for annual periods beginning on or after 1 January 2018, bringing together all three aspects of the accounting for financial instruments: (1) classification and measurement; (2) impairment and (3) hedge accounting. The adoption of IFRS 9 from 1 January 2018 has resulted in changes in accounting policies of the Group and the amounts recognised in the consolidated financial statements.

The following tables summarised the impact, net of tax, of transition to IFRS 9 on the opening balance of retained earnings and non-controlling interests as of 1 January 2018 as follows:

IFRS 9 basically retains the existing requirements in IAS 39 for the classification and measurement of financial liabilities. However, it eliminates the previous IAS 39 categories for financial assets of held to maturity financial assets, loans and receivables and available-for-sale financial assets. The adoption of IFRS 9 has no material impact on the Group's accounting policies related to financial liabilities and derivative financial instruments. The impact of IFRS 9 on the Group's classification and measurement of financial assets is set out below.

Under IFRS 9, except for certain trade receivables (that the trade receivables do not contain a significant financing component in accordance with IFRS 15), an entity shall, at initial recognition, measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss ("FVTPL"), transaction costs. A financial asset is classified as: (i) financial assets at amortised cost ("amortised cost"); (ii) financial assets at fair value through other comprehensive income ("FVOCI"); or (iii) FVTPL (as defined in above). The classification of financial assets under IFRS 9 is generally based on two criteria: (i) the business model under which the financial asset is managed and (ii) its contractual cash flow characteristics (the "solely payments of principal and interest" criterion, also known as "SPPI criterion"). Under IFRS 9, embedded derivatives is no longer required to be separated from a host financial asset. Instead, the hybrid financial instrument is assessed as a whole for the classification.

A financial asset is measured at amortised cost if it meets both of the following conditions and it has not been designated as at FVTPL:

• It is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and

• The contractual terms of the financial asset give rise on specified dates to cash flows that meet the SPPI criterion.

A debt investment is measured at FVOCI if it meets both of the following conditions and it has not been designated as at FVTPL:

• It is held within a business model whose objective is to achieved by both collecting contractual cash flows and selling financial assets; and

• The contractual terms of the financial asset give rise on specified dates to cash flows that meet the SPPI criterion.

On initial recognition of an equity investment that is not held for trading, the Group could irrevocably elect to present subsequent changes in the investment's fair value in other comprehensive income. This election is made on an investment-by-investment basis. All other financial assets not classified at amortised cost or FVOCI as described above are classified as FVTPL. This includes all derivative financial assets. On initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or FVOCI at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

The following accounting policies would be applied to the Group's financial assets as follows:

The following table summarises the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of the Group's financial assets as at 1 January 2018:

Note: As at 1 January 2018, unlisted equity investments were reclassified from available-for-sale financial assets at cost to financial assets at FVTOCI. These unlisted equity investments have no quoted price in an active market. The Group intends to hold these unlisted equity investments for long term strategic purposes. In addition, the Group has designated these unlisted equity investments at the date of initial application as measured at FVTOCI. As at 1 January 2018, the previous carrying amount and the fair value are the same and the fair value loss of approximately USD385,000 has been included in the opening FVOCI reserve.

The Group did not designate or de-designate any financial assets at FVTPL as at 1 January 2018.

(ii) Impairment of financial assets

The adoption of IFRS 9 has changed the Group's impairment model by replacing the IAS 39 "incurred loss model" to the "ECLs model". IFRS 9 requires the Group to recognised ECLs for trade receivables and financial assets at amortised cost earlier than IAS 39. Pledged bank deposits and cash and cash equivalents are subject to ECLs model but the impairment is immaterial for the current period.

Under IFRS 9, the loss allowances are measured on either of the following bases: (1) 12 months ECLs: these are the ECLs that result from possible default events within the 12 months after the reporting period: or (2) lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a financial instrument.

Measurement of ECLs

ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive. The shortfall is then discounted at an approximation to the assets' original effective interest rate.

The Group has elected to measure loss allowances for trade receivables using IFRS 9 simplified approach and has calculated ECLs based on lifetime ECLs. The Group has established a provision matrix that is based on the Group's historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.

For all other financial instruments, the Group recognises a loss allowance based on 12-month ECLs unless there has been a significant increase in credit risk of the financial instrument since initial recognition, in which case the loss allowance is measured based on lifetime ECLs. When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group's historical experience and informed credit assessment and including forward-looking information. The Group's other financial instruments are considered to have low credit risk since there was no recent history of default.

The Group assumes that the credit risk on a financial asset has increased significantly when contractual payment are more than 30 days past due.

The Group considers a financial asset in default when contractual payment are 90 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancement held by the Group.

Presentation of ECLs

Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets.

Impact of the ECL model

(a) Impairment of trade receivables

As mentioned above, the Group applies the IFRS 9 simplified approach to measure ECLs which adopts a lifetime ECLs for all trade receivables. To measure the ECLs, trade receivables have been grouped based on shared credit risk characteristics and the days past due.

The loss allowance for trade receivables as at 1 January 2018 was determined as follows:

The loss allowances for trade receivables as at 31 December 2017 reconcile to the opening loss allowances as at 1 January 2018 as follows:

The increase in loss allowances for trade receivables upon the transition to IFRS 9 as at 1 January 2018 were USD5,174,000. The loss allowances decreased by USD5,632,000 (net of exchange realignment) for trade receivables during the year ended 31 December 2018.

(b) Impairment of other financial assets at amortised cost

Other financial assets at amortised cost of the Group include bills receivables and other receivables. The directors of the Company consider that the impairment on the above assets is immaterial.

(iii) Hedge accounting

Hedge accounting under IFRS 9 has no impact on the Group as the Group does not apply hedge accounting in its hedging relationships.

(iv) Transition

The Group has applied the transitional provision in IFRS 9 such that IFRS 9 was generally adopted without restating comparative information. The reclassifications and the adjustments arising from the new ECLs rules are therefore not reflected in the consolidated statement of financial position as at 31 December 2017, but are recognised in the consolidated statement of financial position on 1 January 2018. This means that differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 are recognised in retained earnings and reserves as at 1 January 2018. Accordingly, the information presented for 2017 does not reflect the requirements of IFRS 9 but rather those of IAS 39.

The following assessments have been made on the basis of the facts and circumstances that existed at the date of initial application of IFRS 9 (the "DIA"):

• The determination of the business model within which a financial asset is held;

• The designation and revocation of previous designations of certain financial assets and financial liabilities as measured at FVTPL; and

• The designation of certain investments in equity investments not held for trading as at FVOCI

If an investment in a debt investment had low credit risk at the DIA, then the Group has assumed that the credit risk on the asset had not increased significantly since its initial recognition.

IFRS 15, Revenue from Contracts with Customers

IFRS 15 supersedes IAS 11 Construction Contracts, IAS 18 Revenue and related interpretations. IFRS 15 has established a five-steps model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at the amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.

The Group has adopted IFRS 15 Revenue from Contracts with Customers from 1 January 2018 which resulted in changes in accounting policies. In accordance with the transition provisions in IFRS 15, the Group has adopted the new rules retrospectively. The Group assessed the impacts of adopting IFRS 15 on its consolidated financial statements. Based on the assessment, the adoption of IFRS 15 has no significant impact on the Group's revenue recognition. Accordingly, certain comparative information may not be comparable as comparative information was prepared under IAS 18, IAS 11 and the related interpretations. Revenue for sales of goods are recognised at point in time as when there is evidence that the control of the goods has been transferred to the customer, the customer has adequate control over the goods and the Group has no unfulfilled obligations that affect customer accepting the goods.

Upon the adoption of IFRS 15, if there is any satisfied performance obligation but where the Group does not have an unconditional right to consideration, the Group should recognise a contract asset. Similarly, a contract liability, rather than a payable, is recognised when a customer pays consideration, or is contractually required to pay consideration and the amount is already due, before the Group recognised the related revenue. No contract asset is recognised upon transition and at the end of the reporting period.

To reflect these changes in presentation, "advance from customers" amounting to USD776,000, which was previously included in trade and other payables are now reclassified as contract liabilities as at 1 January 2018, as a result of the adoption of IFRS 15.

Amendments to IFRS 15, Revenue from Contracts with Customers (Clarifications to IFRS 15)

The amendments to IFRS 15 included clarifications on identification of performance obligations; application of principal versus agent; licenses of intellectual property; and transition requirements.

The adoption of these amendments has no impact on these consolidated financial statements as the Group had not previously adopted IFRS 15 and took up the clarifications in this, its first, year.

2.2 New or revised IFRSs that have been issued by IASB but are not yet effective or yet to be endorsed for use in the European Union

The following new or revised IFRSs, potentially relevant to the Group's consolidated financial statements, have been issued, but are not yet effective and have not been early adopted by the Group.

1 Effective for annual periods beginning on or after 1 January 2019

2 Effective for annual periods beginning on or after 1 January 2020

3 Effective for annual periods beginning on or after 1 January 2021

4 Effective for annual periods beginning on or after a date to be determined

* Not yet endorsed by the European Union

IFRS 16, Leases

IFRS 16, which upon the effective date will supersede IAS 17 Leases and related interpretations, introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. Specifically, under IFRS 16, a lessee is required to recognise a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. Accordingly, a lessee should recognise depreciation of the right-of-use asset and interest on the lease liability, and also classifies cash repayments of the lease liability into a principal portion and an interest portion and presents them in the statement of cash flows. Also, the right-of-use asset and the lease liability are initially measured on a present value basis. The measurement includes non-cancellable lease payments and also includes payments to be made in optional periods if the lessee is reasonably certain to exercise an option to extend the lease, or not to exercise an option to terminate the lease. This accounting treatment is significantly different from the lessee accounting for leases that are classified as operating leases under the predecessor standard, IAS 17.

In respect of the lessor accounting, IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently.

IFRS 16 will primarily affect the Group's accounting as a lessee of leases for offices which are currently classified as operating leases. The application of the new accounting model is expected to lead an increase in both assets and liabilities and to impact on the timing of the expense recognition in the statement of profit or loss over the period of the lease. As at 31 December 2018, the Group's total future minimum lease payments under non-cancellable operating leases were USD1,795,000. An assessment indicates that these arrangements will meet the definition of a lease under IFRS 16, and hence the Group will recognise a right-of-use asset and a corresponding lease liability in respect of all the leases unless they qualify for low value or short-term leases upon the application of IFRS 16.

The application of new requirement may result in changes in measurement, presentation and disclosure as indicated above. The Group intends to elect the practical expedient to apply IFRS 16 to contracts that were previously identified as leases applying IAS 17 and IFRIC 4 Determining whether an Arrangement contains a Lease and not apply this standard to contracts that were not previously identified as containing a lease applying IAS 17 and IFRIC 4. Therefore, the Group will not reassess whether the contracts are, or contain a lease which already existed prior to the date of initial application. Furthermore, the Group intends to elect the modified retrospective approach for the application of IFRS 16 as lessee and will recognise the cumulative effect of initial application to opening retained profits without restating comparative information.

IFRIC 23, Uncertainty over Income Tax Treatments

The interpretation supports the requirements of IAS 12 Income Taxes, by providing guidance over how to reflect the effects of uncertainty in accounting for income taxes.

Under the interpretation, the entity shall determine whether to consider each uncertain tax treatment separately or together based on which approach better predicts the resolution of the uncertainty. The entity shall also assume the tax authority will examine amounts that it has a right to examine and have full knowledge of all related information when making those examinations. If the entity determines it is probable that the tax authority will accept an uncertain tax treatment, then the entity should measure current and deferred tax in line with its tax filings. If the entity determines it is not probable, then the uncertainty in the determination of tax is reflected using either the "most likely amount" or the "expected value" approach, whichever better predicts the resolution of the uncertainty.

3. OPERATING SEGMENTS

Information reported to the executive directors, being the chief operating decision maker ("CODM"), for the purposes of resource allocation and assessment of segment performance based on the types of goods delivered.

Management currently identifies the Group's five products and service lines as operating segments as follows:

1) the Lansen segment is focused on the manufacture, marketing and sale of pharmaceuticals, cosmeceutical products and plant extracts and healthcare products in the PRC;

2) the Haizi segment is engaged in the manufacture, marketing and sale of inositol and its by-product, di-calcium phosphate;

3) the Natural Dailyhealth segment is engaged in the production and sales of plant extracts for use as key active ingredients in health products;

4) the Botai segment is engaged in the production and sales of collagen injectable fillers and development of collagen related products; and

5) the Hotel operations segment is a hotel located in the Lowu district of Shenzhen in the PRC.

These operating segments are monitored and strategic decisions are made on the basis of adjusted segment operating results. Segment information can be analysed as follows for the reporting periods under review.

Inter-segment transactions are priced with reference to prices charged to external parties for similar order. Central revenue and expenses are not allocated to the operating segments as they are not included in the measure of the segments' profit/(loss) that is used by CODM for assessment of segment performance.