Final Results

2015 was a challenging year with a significant, weather induced, reduction in Forsythia harvest and no opportunity to increase sales of APIs or TCMs as the Company worked towards GMP reaccreditation.

The Board of Directors have made two one-off adjustments to the financial statements that need explaining so that the underlying performance of the business can be understood.

Firstly, the Bad Debt provision has been increased by RMB24.369m from RMB3.4m to RMB27.369m. Following a review of the recoverability of trade receivables by the Board of Directors, together with the current economic slowdown in China, the Directors have decided to revise Group's provision policy and make full provision against trade receivables which are outstanding more than 12 months. However, the Directors will make every effort to recover the cash from its customers.

Secondly, the Board of Directors have decided to cease production of Paclitaxel for foreseeable future, following a review of the market conditions and risks concluded at the end of June 2016. Competition from semi-synthetic Paclitaxel has driven the market price down to RMB 280/gram which is lower than Taihua's costs of extraction. As a consequence, this has resulted in a full impairment for the plantation of Biological Asset, amounting to RMB4.387m. The ability to extract Paclitaxel might be retained so that should market conditions improve extraction can recommence.

Forsythia

The tonnage in 2015 fell to 704 tonnes (2014: 1,146 tonnes). The reason was the particularly poor weather in the plantation area. The plantation is at, on average, 1,200 m altitude and as such is susceptible to spring snows and frosts during the flowering period. The average selling price excluding sales tax was RMB 38.9/kg (2014: RMB 37.8/kg).

APIs

As already mentioned, the Company has now ceased to extract Paclitaxel. However, the production of Pacliataxel and Homoharringtonine had been suspended from August 2015 pending the Company's GMP reaccreditation, which was issued in January 2016. Now that this has been awarded the Directors do not believe there are any regulatory impediments to recovering lost Homoharringtonine market share.

TCMs

Progress in developing wider distribution of TCMs, particularly Bian Tong Pian, had been prevented by the GMP reaccreditation process. That has been achieved so Taihua is actively seeking distribution of its TCM products.

Bian Tong Pian sales totalled 193,000 boxes (2014: 191,600 boxes). The average price per box fell to RMB11.15 (2014: RMB13.30). This was due to the Chinese government introducing a bidding system for many healthcare products to reduce prices and improve transparency.

Balance Sheet

Cash fell to RMB8.354m (2014: RMB46.876m). This was in the main due to the capital investment necessary to meet the requirements for GMP reaccreditation.

2015 has been a challenging year and the Board of Directors wish to place on record their appreciation of the patience shown by shareholders. The reaccreditation of GMP was a key milestone for Taihua and it is hoped that the removal of this impediment to growth will allow the company to return to a more stable and successful environment

Qualified Opinion by Auditors

The Board reports, regrettably, that the auditors have given a qualified opinion in this annual report and accounts. This is because the auditors have been unable to confirm a significant trade receivable of RMB9.69million (net of a provision of RMB6.06million) with one customer, Xi'an Tianyi Bio-Technology Co., Ltd. ("Xi'an Tianyi").

The Company understands that the transaction between Taihua Natural Plant Pharmaceutical Co., Ltd. ("TNP"), the trading subsidiary of the Group and Xi'an Tianyi was undertaken on behalf of a third party, Xi'an Weike Bio-Technology Co., Ltd. ("Xi'an Weike"). Xi'an Weike intended to purchase product from TNP, however, due to a lack of permit to acquire such product, Xi'an Weike transacted with TNP in the name of Xi'an Tianyi who has such a permit. The directors have confirmed the existence of the contractual arrangement but Xi'an Tianyi state they cannot provide further comfort on the trade, as required by the auditors, due to the arrangement with Xi'an Weike.

As a consequence of this process, the Board have decided to terminate all future business cooperation with either Xi'an Weike or Xi'an Tianyi from 30 June 2016. In addition, the Board can assure the shareholders that they will take all necessary steps to recover the trade receivables from Xi'an Tianyi and Xi'an Weike and shall update shareholders of the progress, in due course. The Board will ensure the relevant internal control procedures will be updated to avoid the occurrence of similar incident.

Notice of AGM and Dispatch of Accounts

The Company confirms that it has today dispatched a noticeto shareholder to convene an Annual General Meeting at Dentons UKMEA LLP, One Fleet Place, London EC4M 7WS on 12 August 2016 at 11 am.

The Annual Report and Accounts have been posted to shareholders today and will be available from the Company's website www.taihplc.com in the meantime.

Nicholas Lyth

Chairman

30 June 2016

The Directors present their Strategic Report for the year ended 31 December 2015.

Principal Activity and strategy

The principal activities of the Group are the development, production, distribution and sale of Traditional Chinese Medicine ("TCM") products. In addition, the Group also develops, manufactures and distributes active pharmaceutical ingredients, namely paclitaxel and homoharringtonine, predominately for the use in the treatment of cancer. However, due to the paclitaxel current market price being lower than its production costs, the Group decided to cease production of paclitaxel for the foreseeable future.

The principal activity of the Company is that of a holding company.

Review of the business and future prospects

Business Review

A review of the Group's trading for the year ended 31 December 2015, development and prospects are provided in the Chairman's Statement.

Risks

The principal risks to the Group are the risk of disease or an event (such as forest fire) that could be detrimental to the supply or quality of the raw material on which Taihua is dependent; the limitation in the supply of Homoharringtonine and the risk that Taihua may be unable to retain its Good Manufacturing Practice ("GMP"), Drug Production Permit ("DPP") and/or other licences; or, in the medium to long term, to develop new markets. The Group seeks to mitigate these and other risks where appropriate, including financial risks such as bad debts or any exposure to foreign currency risk.

Funding position

The Directors confirm that it is appropriate for the financial statements to have been drawn up on the going concern basis. In reaching this conclusion the Directors have taken into account all relevant matters of which they are aware and have considered a future period of at least one year from the date on which the financial statements were approved.

Financial Instruments

The Group does not actively use financial instruments as part of its financial risk management. It is exposed to the usual credit risk and cash flow risk associated with selling on credit and manages this through credit control procedures.

Hedging

The Group makes no use of forward currency contracts, other financial derivatives or hedging.

Interest rate risk

The Group finances its operations through a combination of equity and borrowings. The Group does not have an interest rate policy in isolation but regularly reviews the interest rates being charged on borrowings and assesses alternative sources of borrowings and other methods of finance.

Liquidity risk

The principal policy of the Group in managing liquidity risk is to align the anticipated sales revenue with the cash flows of its financial assets and liabilities.

Mr. Nicholas James Lyth, aged 48, Non-Executive Chairman

Nicholas is an experienced finance professional having spent many years as a financial director of UK companies and having lived and worked in China. Nicholas speaks and writes Mandarin. Nicholas is currently a director of NL Consulting Limited. In the past five years Nicholas has been a director of Avon Equipment Limited, Belle Engineering (Sheen) Limited, Belle Holdings Limited, Defiant Diamond Tools Limited, Errut Products Limited, Panther International Engineering Limited. Nicholas is a qualified accountant.

Mr Yunwu Liu, aged 56, Chief Executive Officer

Mr Liu is a director, the general manager and one of the founders of Taihua Natural Plant Pharmaceutical Co. Limited (the wholly owned subsidiary of Taihua) ("TNP"). He obtained a diploma in economics and management from Shaanxi Economic Management College in 1992 and completed an EMBA course in Northwest University, China. In 1987, Mr Liu founded Luonan Natural Resources Research Factory. In 1993, Mr Liu incorporated TNP. Mr Liu has nearly 20 years' experience in the natural medicine material industry. He was also granted the honour of ''National Youth Leader of Spark Program'' (sponsored by the Chinese Government) in the China Spark Program by the China Science and Technology Committee, which is the highest level of award granted in this area.

Mr Chun Chai, aged 63, Executive Director and Vice General Manager

Mr Chai started his career in the pharmaceutical industry in 1968 as an assistant in the Shaanxi Province Traditional Chinese Medicine Research Institute. He worked at the Institute within the purchasing department until 1985 when he established Taiyou Development Company Limited and in 1994 he founded Jihao Company Limited which specialised in international trading. In 1993, he established TNP along with Mr Liu and since then he has worked on a full time basis on the development of TNP. Mr Chai is the vice general manager of TNP in charge of raw material medicine sales.

Mr Zhaoyang Ma, aged 48, Executive Director

Mr Ma has a bachelor's degree in engineering, a master's degree in management and a PhD degree. He worked at Xian Aeronautics Computing Technology Institute from 1990 to 1994. He became an associate professor at Northwest Polytechnic University in 1997. Professor Ma is the chairman of Shaanxi Dewei Investment Consulting Co., Ltd. and the independent director of Xi'an Jiefand Group Joint Stock Co., Ltd., a listed company in PRC.

Mr. Chong Cao, aged 45, Non-Executive Director

Chong is a counsel at Dentons, Shenyang Office. He is also the partner at Athena Solicitors LLP. From 2013 to 2015, he was the Head of China Practice at DWF LLP. From August 2010 to December 2014, Chong worked as a corporate partner at Gateley LLP. From October 2005 to July 2010 Chong worked as the Chinese legal consultant to Halliwells LLP advising on numerous cross border AIM transactions involving Chinese companies. Prior to joining Halliwells LLP, Chong worked at Wen & Partners, a law firm in Dalian, Liaoning Province, China, dealing with legal affairs relating to international trade and investment. Chong is a fluent Mandarin and English speaker.

Mr Mingjian Yin, aged 33, Executive Director

Mr Yin has been working in the textile industry in China since July 2007 when he worked as an assistant to the sales manager at Beijing JinsanhuanTextile Import & Export Co., Ltd. ("Beijing Jinsanhuan"). In March 2009, he was promoted to the vice general manager of Beijing Jinsanhuan. Mr Yin became a director of Beijing Jinsanhuan in February 2013 responsible for the development and maintenance of sales network and sourcing of investment opportunities. He is also the general manager of Beijing Jiasheng Xinrui Cashmere Products Co., Ltd. and he has been in this post since April 2012. Mr Yin obtained a bachelor's degree in business administration from Hebei Agricultural University in China.

DIRECTORS' REPORT

___________________________________________________________________________________

The Directors present their Directors' report together with the audited accounts of the Group ("Taihua plc and its subsidiary undertakings") and the Company ("Taihua plc") for the year ended 31 December 2015.

Results and dividends

The loss of the Group for the year ended 31 December 2015 was RMB30.65m (2014: profit RMB4.50m), of which the amount attributable to the equity holders of the Group, was RMB30.85m (2014: profit RMB4.98m).

The Directors do not recommend any distribution by way of a dividend for the year ended 31 December 2015.

The Board

The following Directors served during the year ended 31 December 2015.

Mr Nicholas James Lyth - Non-Executive Chairman

Mr Yunwu Liu - Chief Executive officer

Mr Zhaoyang Ma - Executive Director

Mr Chun Chai - Executive Director

Mr Chong Cao - Non-Executive Director

Mr Mingjian Yin - Executive Director

In accordance with the Company's Articles of Association, each of Mr Nicholas James Lyth and Mr Chong Cao will retire at the Group's AGM and will offer himself for re-election for this year.

Directors' interests in shares

The interests of the Directors (including those of their immediate families) in the 1p ordinary share capital of the Company as at 31 December 2015 were:

* Held through Chase Nominees Limited

Directors' interests in the Group's share option schemes as at 31 December 2015 were as follows:

No options were exercised in the year.

The Remuneration Committee makes share option awards and options are available to all employees of the Group. The exercise price of the options and the associated vesting criteria are also determined by the Remuneration Committee. The closing mid-market price of the Group's shares at 31 December 2015 was 1.625p.

Directors' remuneration and service contracts

Substantial share interests

At 31 May 2016 the Group had been notified of the following material interests, in addition to the Directors' holdings identified above, which represented 3% or more of the issued share capital of the Company:

Research and development

The Group's research and development efforts are focused on developing new products and enhancing existing products to support the requirements of current and prospective customers.

Share Capital

No changes to the Company's share capital during the year, details are given in Note 24.

Charitable and political donations

No charitable or political donations were paid or accrued during the year ended 31 December 2015.

Employees

The number of employees employed by the Group was 55 as at 31 December 2015. The Group continues to encourage employees to be involved in the operation of the business and to present their views and ideas on performance. There is daily contact between management and staff at every level of the business to facilitate the flow of information and positive ideas. The Group gives full consideration to applications for employment from disabled persons where a disabled person can adequately fulfil the requirements of the job. Where existing employees become disabled, it is the Group's policy, wherever practicable, to provide continuing employment with appropriate training or redeployment where necessary.

Payment to suppliers

It is the Group's policy to pay suppliers in accordance with the terms and conditions agreed in advance. The Company is an investment holding company and as such does not have significant trade creditors and therefore creditor days have not been calculated. For the Group the average time taken to pay suppliers was 91 days (2014: 73 days).

Statement of Directors' Responsibilities

The directors are responsible for preparing the Directors' report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the group and company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and company and of the profit or loss of the group and company for that period. The directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market.

In preparing these financial statements, the directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgements and accounting estimates that are reasonable and prudent;

· state whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements; and

· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's transactions and disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the financial statements comply with the requirements of the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Website publication

The directors are responsible for ensuring the annual report and the financial statements are made available on a website. Financial statements are published on the Group's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Group's website is the responsibility of the directors. The directors' responsibility also extends to the ongoing integrity of the financial statements contained therein.

Subsequent event

Events after the reporting period have been disclosed in Note 31.

Going concern

The financial statements have been prepared assuming the Group will continue as a going concern.

During the year ended 31 December 2015, the Group made a loss of RMB30.65milliom, which includes a provision on trade and other receivables and payments in advance of RMB25.96million. At the year-end date, the Group had net assets of RMB113.77million (2014: RMB144.62million), of which RMB8.35million (2014: RMB46.88million) was cash in bank with no restriction for use.

The Group has a cash balance of RMB14.9million as at 31 May 2016.

The Directors consider that the Group has adequate resources, especially to obtain bank borrowings (normally 50% of the market value of land and buildings) by giving bank security using Group's buildings (net book value of RMB19.44million), to continue in operational existence for the foreseeable future. However, there's no guarantee on bank borrowings, together with the uncertainty of the industry and economic slowdown in P.R. China, the operations of the Group currently are relying on cash in bank and collection from receivables, which gives uncertainty in the future going concern.

The financial statements do not include the adjustments that would result if the Group was unable to continue in operation.

Provision of information to auditor

Each of the persons who is a Director at the date of approval of this report confirms that:

· So far as the Director is aware, there is no relevant audit information of which the Company and the Group's auditor is unaware;

· The Director has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Company and the Group's auditor is aware of that information.

Auditors

In accordance with Section 489 of the Companies Act 2006, a resolution proposing that UHY Hacker Young be re-appointed as auditors of the Company and that the Directors be authorised to fix their remuneration will be put to the next Annual General Meeting.

This report was approved by the board on 30 June 2016 and signed on its behalf.

By order of the Board

Chong Cao

Director

30 June 2016

As a Company listed on AIM, the Company is not governed by the UK Code of Corporate Governance adopted by the London Stock Exchange ('the Code'), but is required to operate principles of good governance and best practice. Accordingly, the directors are committed to the Code and believe that an effective system of corporate governance supports the enhancement of shareholder value. These principles have been in place since the Company's listing on 14 December 2006.

The Board includes two non-executive Directors.

The Directors have established an Audit Committee (the "Audit Committee") and a Remuneration Committee (the "Remuneration Committee") with formally delegated duties and responsibilities to operate.

The Board

The Board is responsible to shareholders for the proper management of the Company. The Non-Executive Director has a particular responsibility to ensure that the strategies proposed by the Executive Directors are fully considered. The Board has a formal schedule of matters reserved to it and has discussions on a frequent basis since its listing on the AIM Market. The Board is responsible for overall strategy, reviewing management accounts, approval of major capital expenditure projects and consideration of significant financing matters.

Internal control

The Board meets formally on a regular basis to review issues requiring formal discussion. All significant business decisions are discussed and sanctioned by the Board.

The Board as a whole appoints new Directors.

The Board of Directors is responsible for the maintenance of the Group's internal financial control and for reviewing its effectiveness. There are inherent limitations in all systems of internal financial control and, therefore, the systems adopted can only provide reasonable, not absolute, assurance with respect to the preparation of financial information and the safeguarding of assets.

The Group operates a comprehensive budgeting, forecasting and financial reporting system. Management accounts are promptly prepared on a monthly basis and presented at Board meetings. Any variances are examined in detail.

The Board has established control procedures for all key financial areas of the business, which enable the Board to maintain full and effective control. These controls include procedures for seeking and obtaining approval for major transactions and controls relating to the safeguarding of assets.

Relations with shareholders

The Board attaches great importance to maintain a good relationship with shareholders. The Board regards the annual general meeting as a good opportunity to communicate directly with investors who are encouraged to make inquiries to officers of the Company.

The Group encourages dialogue with all shareholders whether private or institutional and responds quickly to all queries.

The Directors have applied the principles of Good Corporate Governance relating to the Directors' remuneration as described below.

Remuneration Committee

The Remuneration Committee comprises Chong Cao and Nicholas Lyth, both of whom are independent Non-Executive Directors of the Company.

Pursuant to the terms of reference of the Remuneration Committee, the Remuneration Committee shall, inter alia:

- ensure that the Executive Directors are fairly rewarded for their individual contributions to the overall performance of the Company;

- consider the remuneration packages of the Executive Directors and any recommendations made by the Chief Executive Officer for changes to their remuneration packages including in respect of bonuses (including associated performance criteria), other benefits, pension arrangements and other terms of their service contracts and any other matters relating to the remuneration of or terms of employment applicable to the Executive Directors that may be referred to the Remuneration Committee by the Board;

- oversee and review all aspects of any share option schemes adopted by the Company including the selection of eligible Directors and other employees and the terms of any options granted;

- demonstrate to the Company's shareholders that the remuneration of the Executive Directors is set by an independent committee of the Board; and

- consider and make recommendations to the Board about the public disclosure of information about the Executive Directors' remuneration packages and structures in addition to those required by law or by the London Stock Exchange.

The Chairman of the Remuneration Committee formally reports to the Board on its proceedings after each meeting on all matters within its duties and responsibilities.

The Remuneration Committee is authorised to:

- investigate any activity within its terms of reference;

- seek any information it requires from any employee of the Company;

- assess the remuneration paid by other UK listed companies of a similar size in any comparable industry sector and to assess whether changes to the Executive Directors remuneration is appropriate for the purpose of making their remuneration competitive; and

- obtain, at the Company's expense, outside legal or other independent professional advice and to secure the attendance of such persons to meetings as it considers necessary and appropriate.

Share Options

The Directors have established the Taihua Unapproved Option Scheme.

The details of the unapproved share option awards during the period under review are reflected within the Directors' Report.

Vesting of the share options awarded to Directors under the Taihua Unapproved Share Option Scheme is not subject to performance conditions.

Chong Cao

Chairman, Remuneration Committee

30 June 2016

The Directors have applied the principles of good corporate governance relating to external audit as described below.

Audit Committee

Audit Committee meetings are held as required. The Audit Committee comprises Nicholas Lyth and Chong Cao, both of whom are independent Non-Executive Directors of the Company. The Audit Committee has unrestricted access to the Group's external auditors. The Audit Committee meets twice in every year and any other time as required by either the Chairman of the Audit Committee, or the external auditors of the Company. In addition, the Audit Committee meets with the external auditors of the Company (without any of the executives attending) at least once a year.

Pursuant to the terms of reference of the Audit Committee, the Audit Committee shall, inter alia:

- monitor the financial reporting and internal control principles of the Company;

- maintain appropriate relationships with the external auditor including considering the appointment and remuneration of the external auditors;

- review all financial results of the Company, including all announcements in respect thereof before submission of the relevant documents to the Board;

- review and discuss (where necessary) any issues and recommendations of the external auditor including reviewing the external auditor's management letter and management's response;

- consider all major findings of internal operational audit reviews and management's response to ensure co-ordination between the internal auditor and the external auditors; and

- review the Board's statement on internal reporting systems and keep the effectiveness of such systems under review.

The Audit Committee is authorised to:

- investigate any activity within its terms of reference;

- seek any information it requires from any employee of the Company; and

- obtain, at the Company's expense, outside legal or other independent professional advice and to secure the attendance of such persons at meetings as it considers necessary and appropriate.

Nicholas Lyth

Chairman, Audit Committee

30 June 2016

We have audited the financial statements of Taihua plc for the year ended 31 December 2015 which comprise the Consolidated and parent company statement of comprehensive income, the Consolidated and parent company statements of financial position, the Consolidated and parent company statements of changes in equity, the Consolidated and parent company statements of cash flows and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of Directors and Auditors

As explained more fully in the Statement of responsibilities of those charged with governance in the Directors' Report, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.

Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is provided on the APB's website at www.frc.org.uk/auditscopeukprivate

Basis for Qualified Opinion

With respect trade receivables of RMB41.71million, the audit evidence available to us was limited because we have not been able to confirm a significant balance of RMB9.69million (net of a provision of RMB6.06million) directly with the customer, nor have we been able to carry out alternative procedures within our audit time schedule. Therefore, we were unable to obtain sufficient appropriate audit evidence regarding the existence and valuation of these trade receivables.

Qualified Opinion

In our opinion, except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph, the financial statements:

· give a true and fair view of the state of the Group's and of the parent company affairs as at 31 December 2015 and of the Group's and the parent company's loss for the year then ended;

· have been properly prepared in accordance with IFRSs as adopted by the European Union; and

· have been prepared in accordance with the requirements of the Companies Act 2006.

Opinion on other matters prescribed by the Companies Act 2006

In our opinion the information given in the Directors' Report and the Strategic Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exception

In respect solely of the limitation of our work relating to trade receivables, described above:

· we have not received all the information and explanations we require for our audit; and

· we were unable to determine whether adequate accounting records had been kept.

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

· returns adequate for our audit have not been received from branches not visited by us; or

· the Group financial statements are not in agreement with the accounting records and returns; or

· certain disclosures of directors' remuneration specified by law are not made.

Emphasis of matter - Going concern

In forming our opinion on the financial statements, which is qualified as described above, we have considered the adequacy of the disclosure made in Directors' report and Note 2(c) to the financial statements concerning the company's ability to continue as a going concern. The Group incurred a net loss of RMB30.65million during the year ended 31 December 2015. The Group's operation is currently relying on cash in bank, collection from receivables, and potential bank borrowings. These conditions, together with the other matters explained in Note 2(c) to the financial statements, indicate the existence of a material uncertainty which may cast significant doubt about the group's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Group was unable to continue in operation.

Julie Wilson (Senior Statutory Auditor)

For and on behalf of UHY Hacker Young

Chartered Accountants

Statutory Auditor

Quadrant House

4 Thomas More Square

London E1W 1YW

30 June 2016

TAIHUA PLC

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

TAIHUA PLC

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

The consolidated financial statements were approved and authorised for issue by the Board of Directors on 30 June 2016.

................................. ..................................

Mr Yunwu Liu Mr Mingjian Yin

Director Director

TAIHUA PLC

CONSOLIDATED STATEMENT OF CHANGES in EQUITY

CONSOLIDATED STATEMENT OF CASH FLOWS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. GENERAL INFORMATION

Taihua Plc (the "Company") was incorporated and registered in England and Wales on 29 August 2006 under the Companies Act 1985 as a public company limited by shares with the name "China Natural plc" with registered number 05918155. On 8 September 2006, the Company changed its name to "Taihua plc". The address of the registered office is 4 Harefield Place, St Albans, Hertfordshire AL4 9JQ, U.K., and the principal place of business is Room 201, Unit 3, No. 16 Zhong Hua, ShiJiCheng, FuZeYuan, 239 KeJi Road, Hi-tech Zone, Xi An, 710077, People's Republic of China (the "PRC").

The Company is an investment holding company and its subsidiaries are principally engaged in the manufacturing and sales of pharmaceutical products. The consolidated financial statements are presented in Renminbi ("RMB"), the currency of the primary economic environment in which the trading company operates (note 3(r)).

2. Basis of preparation

(a) Compliance with International Financial Reporting Standards

The consolidated financial statements of the Company and its subsidiaries undertakings (the "Group") and the individual financial statements of the Company have been prepared in accordance with those International Financial Reporting Standards and Interpretations in force ("IFRSs"), as adopted by the European Union, and those parts of the Companies Act 2006 applicable to companies preparing financial statements under IFRSs.

The preparation of these financial statements in conformity with IFRSs also requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement and complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 4 "Critical accounting estimates and judgements".

(b) Basis of consolidation

The consolidated financial statements include the financial statements of the Company and all of its subsidiaries undertakings as at 31 December 2015 using the acquisition method of accounting. The results of subsidiary undertakings acquired or disposed of during the year are included in the consolidated statement of profit or loss from the effective date of acquisition or up to the effective date of disposal, as appropriate.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

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) Going concern

The financial statements have been prepared assuming the Group will continue as a going concern.

During the year ended 31 December 2015, the Group made a loss of RMB30.65milliom, which includes a provision on trade and other receivables and payments in advance of RMB25.96million. At the year-end date, the Group had net assets of RMB113.77million (2014: RMB144.62million), of which RMB8.35million (2014: RMB46.88million) was cash in bank with no restriction for use.

The Group has a cash balance of RMB14.9million at 31 May 2016.

The Directors consider that the Group has adequate resources, including the potential to obtain bank borrowings (normally available to the extent of 50% of the market value of land and buildings) by giving a bank security over the Group's buildings (net book value of RMB19.44million), to continue in operational existence for the foreseeable future. However, no arrangements have been made to obtain bank borrowings, and taken together with the uncertainty of the industry and economic slowdown in P.R. China, this means that the operations of the Group currently are relying on cash in bank and collection from receivables, which gives uncertainty regarding the Group's ability to continue as a going concern.

The financial statements do not include the adjustments that would result if the Group was unable to continue in operation.

(d) International Financial Reporting Standards in issue but not yet effective

The Group has adopted all relevant standards effective for accounting periods beginning on or after 1 January 2015. As at end of the reporting year, the Group has not adopted the following standard as it is either not effective or not applicable to the Group's business.

Standards, amendments and interpretations (not yet endorsed by EU at 8 June 2016)

- IFRS 9 Financial Instruments (July 2014)

- IFRS 14 Regulatory Deferral Accounts (January 2014)

- IFRS 15 Revenue from Contracts with Customers (May 2014) including amendments to IFRS 15: Effective date of IFRS 15 (September 2015)

- IFRS 16 Lease (January 2016)

- Amendments to IFRS 10, IFRS 12 and IAS 28: Investment Entities - Applying the Consolidation Exception (December 2014)

- Amendments to IFRS10 and IAS 28: Sales or Contribution of Assets between an Investor and its Associate or Joint Venture (September 2014)

- Amendments to IAS 12: Recognition of Deferred Tax Assets for Unrealised Losses (January 2016)

- Amendments to IAS 7: Disclosure Initiative (January 2016)

- Clarifications to IFRS 15 Revenue from Contracts with Customers (April 2016)

- Amendments to IAS 27: Equity Method in Separate Financial Statements (August 2014) - EU effective date 1 January 2016

- Amendments to IAS 1: Disclosure Initiative (December 2014) - EU effective date 1 January 2016

- Annual Improvements to IFRSs 2012-2014 Cycle (September 2014) - EU effective date 1 January 2016

- Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation (May 2014) - EU effective date 1 January 2016

- Amendments to IFRS 11: Accounting for Acquisitions of Interests in Joint Operations (May 2014) - EU effective date 1 January 2016

- Amendments to IAS 16 and IAS 41: Bearer Plants (Jun 2014) - EU effective date 1 January 2016

 (d) International Financial Reporting Standards in issue but not yet effective (cont'd)

There are no other standards, amendments and interpretations in issue but not yet adopted that the directors anticipate will have material effect on the reported income or net assets of the Group.

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 2015 are as follows:

(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 buyer and 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

Construction in progress represents property, plant and equipment under construction or pending installation, and is stated at cost less impairment losses. The cost of self-constructed items of property, plant and equipment includes the cost of materials, direct labour, the initial estimate, where relevant, of the costs of dismantling and removing the items and restoring the site on which they are located, and an appropriate proportion of production overheads and borrowing costs.

Capitalisation of these costs ceases and the construction in progress is transferred to property, plant and equipment when the asset is substantially completed and ready for its intended use.

No depreciation is provided in respect of construction in progress until it is substantially completed and ready for its intended use.

(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 managed 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 cash flows 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 plant 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 2015 £1 = RMB9.6076 £1 = RMB9.5020

HKD1 = RMB0.8372 HKD1 = RMB0.8020

(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.

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 profits 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 reverse 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 and prepaid lease agreements

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.

Biological assets

Management has 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 Group, 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 has 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 consolidated statement of financial position.

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.

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.

Amortisation of intangible assets

Amortisation is charged to profit or loss on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite.

Intangible assets represent non-patented technical know-how, which is amortised over its definite useful lives.

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 on 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 levy, after allowances for goods returns and trade discounts.

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