Final Results

27th Jun 2014 16:08



 

(b) Basis of consolidation (cont'd)

 

The acquisition of China Natural Pharmaceutical Limited ("CNP") by the Company on 26 September 2006 has been accounted for as a reverse acquisition in accordance with IFRS 3 "Business Combinations".

 

The Company became the legal parent of CNP by way of share exchange agreement. According to the share exchange agreement, the shareholders of CNP transferred the entire issued share capital of CNP to the Company in consideration for 73,390,800 ordinary shares of GBP 0.01 each. This business combination is regarded as a reverse acquisition whereby CNP, the legal subsidiary, is the acquirer and has the power to govern the financial and operating policies of the legal parent so as to obtain benefits from its activities.

 

(c) New IFRS standards and interpretations newly adopted

 

The Group has adopted the following new and amended IFRS standards and IFRIC interpretations:

 

· Amendments to IAS 12 "Deferred tax: Recovery of Underlying Assets"; and

· Amendments to IAS 1 "Presentation of items of Other Comprehensive Income"

 

The adoption of these revised standards has not had a material impact for the Group's result for the year and equity

 

(d) New IFRS standards and interpretations not yet adopted

 

The following standards, amendments and interpretations are not yet effective and have not yet been adopted early by the Group:

 

· Amendments to IFRS 7, IAS 1, IAS 19, IAS 27, IAS 32, IAS 36 and IAS 39;

· IFRS 9 Financial Instruments ;

· IFRS 10 Consolidated Financial Statements;

· IFRS 11 Joint Arrangement;

· IFRS 12 Disclosure of Interests in Other Entities;

· IFRS 13 Fair Value Measurement;

 

The management does not anticipate that the adoption of the above IFRS (including consequential amendments) and interpretations will result in any material impact to the financial statements in the period of initial application.

 

 

3. SIGNIFICANT ACCOUNTING POLICIES

 

The significant accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

 

(a) Subsidiaries

 

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. When assessing whether the Group has power, only substantive rights (held by the Group and other parties) are considered.

 

Details of the subsidiaries of the Company at 31 December 2013 are as follows :-

 

					Percentage of equity holding held by the Company				Proportion of voting
	Name of	Place of	Registered		Directly		Indirectly		power held		Principal
	subsidiary	establishment	capital		%		%		%		activities
	China Natural Pharmaceutical Limited ("CNP")	BVI	US$1,000		100		-		100		Intermediate holding company
	Taihua Natural Plant Pharmaceutical Company Limited ("TNP")	PRC	HK$10,500,000		-		100		100		Production and sales of pharmaceutical drugs

 

 

 

 

(b) Revenue recognition

 

Revenue from sales of goods is recognised when the significant risks and rewards of ownership of goods have been transferred to the buyerand measured at the fair value of the consideration received or receivable. Where a period of extended credit is given such that the time value of money is material the amounts receivable are discounted using prevailing market interest rates. The unwinding of this discount is recognised as interest on trade receivables and presented within other revenue.

 

Interest income is recognised on an effective interest basis.

 

(c) Segment reporting

 

Operating segments, and the amounts of each segment item reported in the financial statements, are identified from the financial information provided regularly to the Group's most senior executive management for the purposes of allocating resources to, and assessing the performance of, the Group's various lines of business and geographical locations.

 

Individually material operating segments are not aggregated for financial reporting purposes unless the segments have similar economic characteristics and are similar in respect of the nature of products and services, the nature of production processes, the type or class of customers, the methods used to distribute the products or provide the services, and the nature of the regulatory environment.

 

(d) Property, plant and equipment

 

Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses.

 

Depreciation of property, plant and equipment is calculated on the straight-line basis to write off the cost of each asset to its estimated residual value over its estimated useful life. The estimated useful lives of property, plant and equipment are as follows :-

 

Buildings 20 - 40 years

Plant and machinery 5 - 8 years

Furniture, fixtures and equipment 5 - 10 years

Motor vehicles 5 years

 

 

 

 

(e) Land use rights

 

Land use rights represent operating lease payments paid to the PRC government authorities and a local cooperative for rights of 20 to 60 years.

 

Land use rights are stated at cost less accumulated amortisation and impairment losses. Land use rights are amortised using the straight-line basis over the unexpired period of the rights.

 

(f) Impairment of assets

 

Where an indication of impairment exists, or when annual impairment testing for an asset is required, recoverable amount is estimated. The recoverable amount is calculated as the higher of the asset's or cash-generating unit's value in use and its fair value less costs to sell, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case, recoverable amount is determined for the cash-generating unit to which the asset belongs.

 

An impairment loss is recognised if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to profit or loss in the period in which it arises.

 

(g) Biological assets

 

A biological asset is defined as a living plant controlled by an enterprise which is involved in the agricultural activity of the transformation of biological assets for sale, into agricultural produce, or into additional biological assets.

 

The fair values of Chinese Yew tree biological assets are based on the present value of expected net cashflows from the trees discounted at a current market-determined pre-tax rate (the "Valuation Methodology").

 

In the absence of an active open market, self-bred seedlings are stated at cost at the end of the reporting period and will be transferred to the category of infant trees upon transfer from the nursery to the plantation at their carrying value.

 

A gain or loss arising on initial recognition of biological assets at fair value less estimated harvesting and initial processing costs is recognised in profit or loss.

 

Agricultural produce harvested from the Group's biological assets is transferred to inventories at its deemed cost. The fair value of agricultural produce is based on market prices of Chinese Yew output from third party suppliers.

 

The biological assets growing on land that is occupied under an operating lease should be considered as biological assets where such living plants have a productive life that falls within the length of the operating leases. Accordingly shorter life plants cultivated on land utilised in accordance with an operating lease, are recognised as biological assets, and carried at fair value.

 

 

 

 

 

 

(h) Intangible assets

 

Intangible assets are stated in the consolidated statement of financial position at cost less accumulated amortisation and any impairment losses (see note 3(f)).

 

Amortisation of intangible assets is charged to profit or loss on a straight-line basis over the assets' estimated useful lives unless such lives are indefinite. Intangible assets represent non-patented technical know-how, which are amortised over their estimated useful lives.

 

(i) Inventories

 

Inventories are stated at the lower of cost and net realisable value. Cost is determined on the weighted average basis and, in the case of work in progress and finished goods, cost comprises direct materials, direct labour, and an appropriate proportion of overheads.

 

Net realisable value is based on estimated selling price less all further costs expected to be incurred to completion and disposal.

 

(j) Trade and other receivables

 

Trade receivables are measured at amortised cost using the effective interest method less allowances for impairments in respect of doubtful debts. An estimate for doubtful debts is made when there is objective evidence of impairment.

 

Other receivables, deposits and prepayments, and amounts due from related companies are recognised and carried at cost less allowance for any uncollectible amounts.

 

(k) Trade and other payables

 

Liabilities for trade and other payables which are normally settled on credit term of 180 days are carried at cost which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the Group.

 

Trade and other payables are not discounted as the time value of money in respect of these liabilities is not considered material.

 

(l) Provisions

 

A provision is recognised when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation.

 

When the effect of discounting is material, the amount recognised for a provision is the present value at the end of the reporting period of the future expenditure expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in finance costs in profit or loss.

 

 

 

 

(m) Loans and borrowings

 

All loans and borrowings, which are interest-bearing, are initially recognised at cost, being the fair value of the consideration received net of issue costs associated with borrowing, and are subsequently measured at amortised cost using the effective interest rate method. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement.

 

Gains and losses are recognised in net profit or loss when liabilities are derecognised, as well as through the amortisation process.

 

(n) Borrowing costs

 

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets (that is, assets that necessarily take a substantial period of time to get ready for their intended use), are capitalised as part of the cost of those assets. Capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use.

 

Other borrowing costs are recognised as expenses in the period in which they are incurred.

 

(o) Operating leases

 

Leases where substantially all the rewards and risks of ownership of asset remain with the lessor are accounted for as operating leases. Rentals applicable to such operating leases are charged or credited to profit or loss on a straight-line basis over the lease terms.

 

(p) Research and development costs

 

Research and development costs are expensed as incurred.

 

An intangible asset would be recognised for certain development expenditure if applicable conditions were met, but to date all such expenditure has been expensed as incurred.

 

(q) Retirement benefits

 

Obligatory retirement benefits in the form of contribution under a defined contribution retirement schedule administered by local government agencies are charged to profit or loss as incurred.

 

 

 

(r) Foreign currency translation

 

The functional currency and the presentation currency of the Company are GBP and RMB respectively.

 

The functional currency of TNP is Renminbi ("RMB"), and the audited financial statements of TNP 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 end of the reporting period, differences on translation of monetary assets and liabilities are recognised in profit or loss.  Transactions in currencies other than RMB are translated at rates ruling on the transaction dates.

 

For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Company and CNP, the Group's foreign operations, are translated into the presentation currency of the Group (i.e. RMB) at the rate of exchange prevailing at the end of the reporting period, and their income and expenses are translated at the average exchange rates for the year, unless exchange rates fluctuate significantly during the period, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated as a separate component of equity (the foreign currency translation reserve). Such exchange differences are recognised in profit or loss in the period in which the foreign operation is disposed of.

 

The financial statements of the Company and CNP have been translated from GBP and HKD to RMB at the following exchange rates :-

 

Year-end rates Average rates

 

31 December 2013 £1 = RMB10.0827 £1 = RMB9.6978

HKD1 = RMB0.7885 HKD1 = RMB0.7991

 

(s) Income tax

 

Income tax comprises current and deferred tax. Current income tax is calculated based on the results for the year, adjusted for items which are not assessable or are disallowed.

 

Deferred tax is provided, using the liability method, on all temporary differences at the end of the reporting period between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates that have been enacted or substantively enacted at the end of the reporting period.

 

 

(s) Income tax (cont'd)

 

Deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, carry-forward of unused tax assets and unused tax losses can be utilised.

 

The Group does not recognise deferred tax liabilities, or deferred tax assets, on temporary differences associated with investments in subsidiaries where the parent company is able to control the timing of the reversal of the temporary differences and it is not considered probable that the temporary differences will revserse in the foreseeable future.

 

(t) Share-based payments

 

The cost of granting share options and other share-based remuneration to employees and Directors is recognised in profit or loss on a straight-line basis over the vesting period, based on the Group's estimate of shares that will eventually vest. These share-based payments are measured at fair value at the date of grant by use of the option pricing model known as the Black-Scholes formula using assumptions deemed to be consistent with the price which the incentive might have been worth if it was traded in the open market.

 

For equity-settled transactions with non-employees, the costs are recognised in profit or loss (or where they relate to issue costs, taken against the share premium account if appropriate) with measurement normally based on the fair value of goods or services received.

 

(u) Cash and cash equivalents

 

Cash and cash equivalents comprise cash at bank and in hand, demand deposits with banks, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value.

 

 (v) Related parties

 

For the purposes of these consolidated financial statements, parties are considered to be related to the Group if the Group has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group and the party are subject to common control or common significant influence. Related parties may be individuals (being members of key management personnel, significant shareholders and/or their close family members) or other entities and include entities which are under the significant influence of related parties of the Group where those parties are individuals, and post-employment benefit plans which are for the benefit of employees of the Group or of any entity that is a related party of the Group.

 

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

 

In the process of applying the Group's accounting policies, management make various estimates and judgements (other than those involving estimates) based on past experience, expectations of the future and other information. The key sources of estimation uncertainty and the critical judgements that can significantly affect the amounts recognised in the financial statements are :-

 

Critical judgement

 

Forsythia plantation

Management has considered whether the prepaid lease arrangements described in note 10 should be classified as operating or finance leases. Although 20 years is an extended period of time, land has an indefinite useful life, and accordingly the lease term can reasonably be seen as less than the major part of the economic life of the underlying land. At the end of the lease all rights in the land revert to the lessor. Taking these factors into account, management has concluded that it does not enjoy substantially all the risks and rewards incidental to ownership of the land, and has concluded that these arrangements should be accounted for as operating leases.

 

Management has also considered whether biological assets that are growing on land that is occupied under an operating lease should also be recognised as biological assets in the group's accounts in accordance with the requirements of IAS 41. Management has concluded that where plants have a productive life that falls within the length of the operating leases, the assets can be properly said to be controlled by the company, and accordingly shorter life plants cultivated on land utilised in accordance with an operating lease, are recognised as biological assets, and carried at fair value.

 

However, where the group benefits from harvesting plants that have a useful life in excess of the length of the operating lease applying to the underlying land, management has concluded that it does not control the assets and accordingly does not recognise the land owner's biological assets in the group's balance sheet.

 

Consistent with these judgments, agricultural produce harvested from the landowner's biological assets is considered to be outside of the scope of IAS 41 and is recognised at cost. (Whereas agricultural produce from the group's recognised biological assets is recognised at the point of harvest at fair value less costs to sell, in accordance with IAS 41.)

 

Key Sources of Estimation Uncertainty

 

Fair Value of Biological Assets

Management estimates the current market prices less estimated harvesting and initial processing costs of biological assets at the end of the reporting period with reference to market prices. Management considers that there is presently an absence of effective financial instruments for hedging against the pricing risks with the underlying agricultural produce. Unexpected volatility in market prices of the underlying agricultural produce could significantly affect the fair values of these biological assets and result in fair value re-measurement changes in future accounting periods.

 

Further details on assumptions used and the sensitivity of the fair value of those assumptions are within note 12.

 

 

 

 

Key Sources of Estimation Uncertainty (cont'd)

 

Depreciation of property, plant and equipment

Property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives, after taking into account their estimated residual values. The determination of the useful lives and residual values involves management's estimation. The Group assesses annually the residual values and the useful lives of the property, plant and equipment and if the expectation differs from the original estimate, such a difference may impact the depreciation in the year the estimate is changed and the future period.

 

Allowance for bad and doubtful debts

The Group makes provision for impairment of trade and other receivables based on an assessment of the recoverability of trade and other receivables. Provisions are applied to trade and other receivables where there is objective evidence that indicates the balances may not be collectible. The identification of doubtful debts requires the use of judgement and estimates based on the credit history of the customers or debtors and the current market conditions. Where the expectation is different from the original estimate, such difference will impact the carrying amount of receivables and impairment allowance in the period in which such estimate has been changed.

 

Allowance for inventories

The management of the Group reviews an ageing analysis at the end of each reporting period, and makes allowance for obsolete and slow-moving inventory items identified that are no longer suitable for use in production. The management estimates the net realisable value for such finished goods based primarily on the latest invoice prices and current market conditions. The Group carries out an inventory review on a product-by-product basis at the end of each reporting period and makes allowances for obsolete items.

 

Income tax expense

The Group is subject to income tax in the PRC. There are certain transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current income tax and deferred tax provisions in the period in which such determination is made.

 

 

5. REVENUE AND OTHER INCOME

 

Revenue on sale of goods represents the fair value of consideration received or receivable, net of value added tax ("VAT"), consumption tax ("CT") and other sales taxes and additional levi, after allowances for goods returns and trade discounts.

 

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

 

		2013		2012
		RMB'000		RMB'000
	Revenue   Other revenue	52,302		39,206
	Government subsidy	-		290
	Interest on trade receivable	1,954		377
	Interest income	151		270
	Total revenue	54,407		40,143

 

 

 

6.	PROFIT BEFORE INCOME TAX	2013			2012
		RMB'000			RMB'000
	Profit before income tax is arrived at after charging/(crediting) :-
	Auditors' remuneration
	- Fees payable to the Company's auditor for the audit of the
	Company's financial statements	205			215
	Fees payable to the Company's auditor and its associates
	for other services
	- Other services charge pursuant to legislation	92			95
	- Taxation services	13			13
	Operating lease payments	220			239
	Directors' remuneration
	- Salaries	820			832
	- Pension scheme costs	120			121
		940			953
	Other staff costs
	- Salaries	1,641			1,877
	- Pension scheme costs	663			653
		2,304			2,530
	Depreciation	261			236
	Amortisation of prepaid lease payments	2,950			1,300
	Amortisation of land use rights	38			38
	Amortisation of intangible assets	-			36
	Increase in allowance for write-down of inventories	1,939			356
	Increase/(reversal) of allowance for bad debts	1,051			(35	)

 

In addition to the auditors' remuneration disclosed above, fees of RMB261,000 (2012: RMB261,000) were paid to PKF Hong Kong.

 

The average monthly number of employees (including Executive Directors) for the year for each of the Group's principal divisions was as follows :-

 

		2013		2012
	Sales representatives	33		33
	Production and quality control	31		38
	Administration department	18		22
	Plantation area	1		1
		83		94

 

7. Income tax expense

 

(a) Under tax law, a unified income tax rate is set at 25% for both domestic enterprises and foreign-invested enterprises.

 

Accordingly, TNP is subject to PRC enterprise income tax at the rate of 25% on its assessable profit for the years ended 31 December 2012 and 2013.

 

Income tax expense in the consolidated statement of profit or loss represents :-

 

		2013		2012
		RMB'000		RMB'000
				(restated)
	Current tax :-
	Provision for the year	1,944		1,735
	Deferred tax - Note 7(b)
	Provision for the year	(732	)	(90	)
	Income tax expense	1,212		1,645

 

The income tax expense of the Group's profit before income tax differs from the theoretical amount that would arise using the tax rate applicable to profit of the Group as follows :-

 

		2013		2012
		RMB'000		RMB'000
				(restated)
	Profit before income tax	3,302		2,880
	Income tax based on the PRC statutory tax rate of 25%	825		720
	Tax effect of non-taxable income	(389	)	-
	Tax effect of non-deductible expense	373		495
	Tax effect of unrecognised tax losses	403		430
	Income tax expense	1,212		1,645

 

At the end of the reporting period, the Group has unused tax losses of RMB 12,921,000 (2012 : RMB 11,309,000) which represent the maximum benefit from unutilised tax losses of Taihua plc, which can be carried forward to offset against future taxable profits. The deferred tax assets of RMB 2,584,000 (2012 : RMB 2,261,000) relating to the tax losses have not been recognised as it is not certain whether the potential taxation benefit will be realised in the foreseeable future. All unutilised tax losses can be carried forward indefinitely.

 

 

 

(b) Deferred tax liability recognised by the Group and movements thereon during the current and prior yearare as follows :-

		Fair value		Change in
		gain of		fair value of		Other
		biological		harvested		timing
		assets		products		Differences		Total
		RMB'000		RMB'000		RMB'000		RMB'000
	At 1 January 2012 as restated	1,043		-		-		1,043
	Credit to profit or loss for the year - Note 7(a)	(231	)	141		-		(90	)
	At 31 December 2012 and 1 January 2013	812		141		-		953
	Charge to profit or loss for the year - Note 7(a)	122		6		(860	)	(732	)
	At 31 December 2013	934		147		(860	)	221

 

At the reporting date the aggregate amount of temporary differences associated with investments in subsidiaries for which deferred tax liabilities have not been recognised was RMB 7,013,000 (2012 : RMB 6,437,000). These differences arise on the profits retained by those subsidiaries that would be subject to withholding taxes if dividends were paid to their parent companies. Deferred tax has not been recognised in the statement of financial position as the Group is in a position to control the timing of the reversal of these temporary differences and it is probable that such differences will not reverse in the foreseeable future.

 

 

8. 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 year.

 

			2013		2012		2012
					(restated)		(as previously reported)
Profit attributable to equity holders of the
Company (RMB'000)			2,090		1,235		1,551
Weighted average number of ordinary shares
in issue (thousands)			81,737		81,737		81,737
Earnings per share (RMB per share)			0.026		0.015		0.019

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share

 

The Company has only one category of dilutive potential shares - share options. A calculation is done to determine the number of shares that could have been acquired at fair value based on the monetary value of the subscription rights attached to outstanding share options. It is compared with the number of shares that would have been issued assuming the exercise of the share options.

			2013		2012		2012
					(restated)		(as previously reported)
Profit attributable to equity holders of the
Company (RMB'000)			2,090		1,235		1,551
Weighted average number of ordinary shares
in issue (thousands)			81,737		81,737		81,737
Adjustment for share options (thousands)			-		741		741
Weighted average number of ordinary shares
for diluted earnings (thousands)			81,737		82,478		82,478
Diluted earnings per share (RMB per share)			0.026		0.015		0.019

 

 

9. Property, plant and equipment

 

						Furniture,
						fixtures
				Plant and		and		Motor
		Buildings		machinery		equipment		vehicles		Total
		RMB'000		RMB'000		RMB'000		RMB'000		RMB'000
	Cost :-
	At 1 January 2012	3,022		4,137		233		749		8,141
	Additions	-		344		-		-		344
	At 31 December 2012	3,022		4,481		233		749		8,485
	Depreciation :-
	At 1 January 2012	1,466		3,672		185		685		6,008
	Provided	165		33		38		-		236
	At 31 December 2012	1,631		3,705		223		685		6,244
	Net book value :-
	At 31 December 2012	1,391		776		10		64		2,241
	At 31 December 2011	1,556		465		48		64		2,133
	Cost :-
	At 1 January 2013	3,022		4,481		233		749		8,485
	Additions	-		66		-		-		66
	At 31 December 2013	3,022		4,547		233		749		8,551
	Depreciation :-
	At 1 January 2013	1,631		3,705		223		685		6,244
	Provided	165		86		10		-		261
	At 31 December 2013	1,796		3,791		233		685		6,505
	Net book value :-
	At 31 December 2013	1,226		756		-		64		2,046
	At 31 December 2012	1,391		776		10		64		2,241

 

10. PREPAID LEASE PAYMENTS

 

				RMB'000
	Cost :-
	At 1 January 2012			26,000
	Additions			33,000
	At 31 December 2012, 1 January 2013 and 31 December 2013			59,000
	Amortisation :-
	At 1 January 2012			1,300
	Provided			1,300
	At 31 December 2012 and 1 January 2013			2,600
	Provided			2,950
	At 31 December 2013			5,550
	Net book value :-
	At 31 December 2013			53,450
	At 31 December 2012			56,400

 

On 11 January 2011, TNP signed an agreement with Qin Bang Forsythia Cooperative in respect of leasing 893 hectares of Forsythia plantation for the period from 11 January 2011 to 11 January 2031, which are located in the Luonan region of Shanxi Province, the PRC.

 

Pursuant to the terms of the lease, TNP will manage the cultivation and benefit from the harvest from the plantation. The annual lease cost is RMB1,300,000 per annum, but it is a term of the lease that all 20 years were paid in advance. This payment has been capitalised and treated as a prepaid lease payment within non-current assets and will be amortised over the lease term of 20 years.

 

On 17 December 2012, TNP signed an agreement with Qin Yuan Forsythia Cooperative in respect of leasing 1,013 hectares of Forsythia plantation for the period from 1 January 2013 to 31 December 2032, which are located in the Luonan region of Shanxi Province, the PRC.

 

Pursuant to the terms of the lease, TNP will manage the cultivation and benefit from the harvest from the plantation. The annual lease cost is RMB1,650,000 per annum, but it is a term of the lease that all 20 years were paid in advance. This payment has been capitalised and treated as a prepaid lease payment within non-current assets and will be amortised over the lease term of 20 years.

11. LAND USE RIGHTS

 

The Group's interests in land use rights represent prepaid operating lease payments and their net book value is analysed as follows :-

 

				RMB'000
	Cost :-
	At 1 January 2012, 31 December 2012 and 31 December 2013			1,911
	Amortisation :-
	At 1 January 2012			427
	Provided			38
	At 31 December 2012 and 1 January 2013			465
	Provided			38
	At 31 December 2013			503
	Net book value :-
	At 31 December 2013			1,408
	At 31 December 2012			1,446

 

12. biological assets

 

Biological assets represent Chinese Yew trees (infant trees and seedlings) and Eucommia bush. The role of Chinese Yew trees is to provide the raw material for the extraction of Paclitaxel compound. For many years the Group has purchased this raw material from third party suppliers. In 2006, 2007 and 2008, it planted Chinese Yew trees in its own plantation.

 

		Chinese Yew Trees		Eucommia bush		Total
		RMB'000		RMB'000		RMB'000
	At 1 January 2012	14,107		-		14,107
	Prior year adjustment	(9,159)		54		(9,105	)
	At 1 January 2012 as restated	4,948		54		5,002
	Transfer of harvested produc as restated	(567	)	-		(567	)
	Net change in fair value	(359	)	-		(359	)
	At 31 December 2012 as restated	4,022		54		4,076
	Transfer of harvested product	(590	)	-		(590	)
	Net change in fair value	1,077		-		1,077
	Valuation at 31 December 2013	4,509		54		4,563

 

Eucommia bush is the key raw materials to make one of the traditional Chinese medicine ("TCM") products. The Group does not harvest them as demand for TCM products are low. The quantity of these plants are a fraction of the whole plantation, the directors considered they are immaterial for fair value measurement, accordingly they are recognised at costs.

 

 

The number of infant Chinese Yew trees can be summarised in follows :-

 

		2013				2012
		Infant Trees		Mature Trees		Infant Trees		Mature Trees
	Infant Trees planted in 2006	-		60,000		-		60,000
	Infant Trees planted in 2007	-		50,000		-		50,000
	Infant Trees planted in 2008	-		65,000		65,000		-
	Infant Trees planted in 2009	-		-		-		-
	Infant Trees planted in 2011	-		-		-		-
	Infant Trees planted in 2012	-		-		-		-
	Total Infant Trees planted	-		175,000		65,000		110,000

 

The initial harvest from infant Chinese Yew trees is 5 years after planting. The trees continue to mature and are estimated to have a harvestable life of 15 years. The harvest from any one Chinese Yew tree is 2kg per harvest. The trees can be harvested on a 3-4 year cycle.

 

In previous years it has not been possible to measure the fair value of infant trees reliably and they have therefore been valued at cost. However, as the trees approached maturity and the directors expected to commence harvesting during 2011, the trees were valued at their fair value less harvesting and initial processing costs in compliance with IAS 41 in the financial statements for the year ended 31 December 2010. However, as the permit to harvest in 2011 was not obtained from the relevant government body the first harvest now has take place in 2012. The effect of applying IAS 41 on the basis of valuation in the current year has been to increase the value of the biological assets by RMB1,077,000 (2012 : decreased by RMB 359,000).

 

The infant Chinese Yew trees are still undergoing biological transformation leading to them being able to produce material from which Paclitaxel compound can be extracted. Once these infant trees become mature and productive they are transferred into the mature trees category.

 

In arriving at the fair value less estimated harvesting and initial processing costs of the infant trees, the following major assumptions were made :-

 

(a) The market price variable represents the current price paid by the Group to its third party suppliers plus an allowance for inflation. No consideration has been given to any potential impact on the market price of the Chinese Yew resulting from the commencement of harvesting at the Group's own plantation.

 

(b) The harvest yield per tree is dependent on the age and health of the trees. This is affected in turn by climate, location and soil condition. Generally, harvesting can commence once the tree is 5 years old and will cease when it is 20 years old.

 

 

(c) The estimation of the costs of harvesting and initial processing have been determined by reference to actual costs incurred by the Group in the current year.

 

(d) A discount rate of 13% has been applied in determining the valuation.

 

(e) The harvest quantity is limited by reference to the local Government "Forestry Stocking Amounts" regulations. No consideration has been given to the potential impact of a change in these regulations.

 

(f) Other key assumptions include :-

 

(i) The demand for Chinese Yew will remain at current levels throughout the life of the plantation. The plantation does have a potential output approximately double the current demand.

 

(ii) Projected cashflows do not take into account taxation.

 

(iii) Cashflows are based on the current plantings and take no account of the impact of any additional or replacement plantings in the future.

 

The Group is exposed to number of risks in relation to its Chinese Yew plantation :-

 

(a) Regulatory and environmental risk

 

The Group is subject to laws and regulations in the jurisdiction in which it operates. The Group has established environmental policies and procedures aimed at compliance with local environmental and other laws. Management performs regular reviews to identify environmental risks and to ensure that the systems in place are adequate to manage those risks.

 

(b) Demand risk

 

The Group is exposed to risk from fluctuations in the demand for Paclitaxel and thus Chinese Yew. The Group undertakes regular reviews of its forecast of future demand for Paclitaxel and will modify its harvesting strategy as appropriate. The effect of a 10% decrease in market price of agricultural produces from the harvested trees on the fair value of the plantation would be RMB 697,000.

 

(c) Climate and other risks

 

The Group's plantation is exposed to the risk of damage from climatic changes, diseases, forest fires and other natural forces. The Group has extensive processes in place aimed at monitoring and mitigating those risks, including regular forest health inspections.

 

(d) Discount rate risk

 

The Board of Directors have assessed the model for assessing the fair value of the plantation and, bearing in mind the Group's capital costs and the risks associated with the project, the Board have decided that a discount rate of 13% is appropriate. Were circumstances to change that would warrant an increase in that rate by 1.0% to 14%, the fair value of the assets would fall by RMB 235,000.

 

 

 

 

13.	INTANGIBLE ASSETS	2013		2012
		RMB'000		RMB'000
	Cost :-
	At beginning of the year and at end of the year	1,350		1,350
	Accumulated amortisation :-
	At beginning of the year	1,350		1,314
	Charge for the year	-		36
	At end of the year	1,350		1,350
	Net book value :-
	At end of the year	-		-

 

Intangible assets represent non-patented technical know-how obtained. They are amortised on a straight-line basis over their estimated useful lives. The amortisation charge for the year is included in cost of sales in the consolidated statement of profit or loss.

 

14.	Inventories	2013		2012
		RMB'000		RMB'000
				(restated)
	Raw materials	4,371		1,902
	Work in progress	7,493		9,915
	Finished goods	1,860		4,310
		13,724		16,127
	Less : Write-down	(3,804	)	(1,866	)
		9,920		14,261

 

The amount of inventory recognised as an expense during the year was RMB 39,464,000 (2012 : RMB 25,703,000).

 

The allowance for provision of inventories made in this year was RMB 1,939,000 (2012 : Nil).

 

At 31 December 2013, the value of inventories carried at net realisable value was RMB 3,352,000 (2012: RMB 973,000).

 

 

 

 

 

15.	Trade receivableS	2013		2012
		RMB'000		RMB'000
	Trade receivables	61,642		43,098
	Less : Allowance for bad debts	(3,603	)	(2,591	)
		58,039		40,507

 

The Group has granted general credit term of 180 days (2012: 180 days) to its customers.

 

The Directors consider that the carrying value of trade receivables approximates its fair value due to the short-term maturity.

 

Movements on the allowance for trade receivables are as follows :-

 

		2013		2012
		RMB'000		RMB'000
	At 1 January	2,591		2,642
	Increase/(reversal) in allowance for trade receivables	1,012		(51	)
	At 31 December	3,603		2,591

 

As at 31 December 2013, trade receivables of approximately RMB8,088,000 (2012 : RMB10,889,000) were past due but not impaired.  These related to a number of independent customers for whom there is no recent history of default.  The ageing analysis of these receivables is as follows :-

 

		2013		2012
		RMB'000		RMB'000
	Outstanding balances with ages :-
	4 - 6 months	-		-
	7 - 9 months	-		1,883
	10 - 12 months	1,038		2,681
	Within one year	1,038		4,564
	Between one to two years	5,873		6,274
	Between two to three years	1,129		-
	Over three years	48		51
		8,088		10,889

 

 

 

 

 

16.	other receivables	2013		2012
		RMB'000		RMB'000
	Other receivables	783		394
	Less : Allowance for bad debts	(69	)	(30	)
		714		364

 

The Directors consider that the carrying value of other receivables approximates its fair value due to the short-term maturity.

 

Movements on the allowance for other receivables are as follows :-

 

		2013		2012
		RMB'000		RMB'000
	At 1 January	30		14
	Increase in allowance for other receivables	39		16
	At 31 December	69		30

 

As at 31 December 2013, other receivables of approximately RMB 714,000 (2012 : RMB364,000) were past due but not impaired.  These related to a number of independent parties for whom there is no recent history of default.  The ageing analysis of these receivables is as follows :-

 

		2013		2012
		RMB'000		RMB'000
	Outstanding balances with ages :-
	Within one year	443		126
	Between one to two years	47		230
	Between two to three years	217		5
	Over 3 years	7		3
		714		364

 

 

17.	deposits and prepayments	2013		2012
		RMB'000		RMB'000
	Deposits	103		1,989
	Prepayments	2,688		1,676
		2,791		3,665

 

 

 

 

18. AMOUNTS DUE to RELATED companIES

 

The amounts represents amounts due to the following related companies in which Liyi Chen, a Director of the Company, is also a shareholder and Director.

 

		2013		2012
		RMB'000		RMB'000
	Sino Rise Offshore Limited	40		40
	Xian Hai Sheng Technology Co. Ltd	1,108		1,108
		1,148		1,148

 

The amounts are interest-free, unsecured and repayable on demand.

 

 

19. CASH AND CASH EQUIVALENTS

 

As at 31 December 2013, about 97.68% of the cash and bank balances of the Group were denominated in Renminbi, the remainder were held in GBP and HKD at the year end. Conversion of Renminbi balances into foreign currencies is subject to the rules and regulations on foreign exchange controls promulgated by the PRC government.

 

20.	tRADE PAYABLES	2013		2012
		RMB'000		RMB'000
	Trade payables	2,236		571

 

21.	accrued expenses and other payables	2013		2012
		RMB'000		RMB'000
	Salaries payable	176		167
	Accruals	4,167		4,019
	Pensions payable	5,800		5,015
	Salaries tax payable	2,090		1,404
	Sales tax payable	1,465		759
	Other payables	1,024		1,270
		14,722		12,634

 

22. AMOUNT DUE TO A SHAREHOLDER

 

The amount is interest-free, unsecured and repayable on demand.

 

 

23.	Amounts due TO directors	2013		2012
		RMB'000		RMB'000
	Chun Chai	26		26
	Liyi Chen	6,695		6,782
		6,721		6,808

 

The amounts are interest-free, unsecured and repayable on demand.

 

24.	SHARE Capital	2013		2012
	Authorised :-
	185,000,000 ordinary shares of GBP0.01 each	GBP 1,850,000		GBP1,850,000
	Issued and fully paid :-
	81,737,330 ordinary shares of GBP0.01 each	RMB 12,357,000		RMB12,357,000

 

Taihua plc has one class of ordinary shares which carry no right to fixed income.

 

Share options

 

On 31 August 2009, the Company granted 1,632,946 share options to the Non-Executive Directors. The exercise price of the options is GBP0.07 per ordinary share. The exercise period begins one year from the date of grant and ends on the tenth anniversary of the date of grant. The total estimated fair value of the options at the date of grant was RMB494,000. The options have been valued using the Black-Scholes model with the following main assumptions :-

 

	Grant date		31 August 2009
	Exercise price		GBP0.07
	Expected life		5.5 years
	Expected volatility		30.79%
	Expected dividend yield p.a.		0%
	Risk-free rate		2.71%
	Expected forfeiture p.a.		0%

 

Volatility is the average annualised volatility of returns of the underlying stock's comparables.

 

No share-based payments were charged to profit or loss during both years.

ENDFR SEAFLWFLSEIM

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Related Shares:

TAIH.L