Final Results

Taihua plc

("Taihua" or the "Company" and with its subsidiaries the "Group)

Annual Results for the 12 months ended 31 December 2010

Chairman's Statement

The period under review saw some growth in both Profits and Sales and several agreements were made in 2010 that the Board believe will significantly enhance earnings in 2011 and beyond.

The results for the full year showed a profit of RMB 17.771m (2009: RMB (0.182)m), including a RMB 14.157m revaluation of the yew tree plantation (2009: RMB nil) . This was achieved on sales of RMB 27.993m (2009: RMB 21.442m)

Margins by product were stable but the increase in Paclitaxel and Homoharringtonine volumes relative to Traditional Chinese Medicines ("TCM"s) resulted in a slight deterioration overall from 41.6% to 40.6%

During the year a number of agreements were executed by the Group which the directors believe will further strengthen the Consolidated Statement of Financial Position and provide for earnings growth potential in the future:

1) Lease agreement over Forsythia plantation

As announced on 12 January 2011, the Group entered into an agreement pursuant to which it will benefit from the output of 893 Hectares of mature Forsythia plantation in consideration of RMB 26 million. Shaanxi Agricultural Research Institute states that the wholesale price of this TCM raw material has increased from RMB 12 to RMB 30 per kilogram over the last two years and the Board believe that the supply/demand dynamics will remain robust. In addition, the Board have identified a suitable TCM currently in development that would consume approximately half the plantation's output. Further announcements will be made in due course if this is progressed.

2) Bian Tong Pian distribution agreement

Bian Tong Pian is a TCM that the Group has developed. As announced on 16 November 2010 the Company entered into an agreement to grant distribution rights for China for this TCM. The forecasted 2011 sales are RMB 10.395m [awaiting confirmed forecast update from Company]

3) Return of unfinished offices to developer

As announced on 4 November 2010 the Group had entered into an agreement to purchase office space in Xi'an in 2005 and had made a deposit of RMB 14.647m. In reviewing its operations the Board decided that it no longer required this office space which was still under development and as such entered into an agreement with the developer to relinquish its rights upon return of its deposit. This has taken place and the cash will go further towards strengthening the Consolidated Statement of Financial Position.

The signing of the two TCM agreements is particularly encouraging. The Board have identified TCM manufacture as a key opportunity for the Group. Due to rising living standards and health scares such as SARS in China, there is an increasing demand and supply is, in the opinion of the Board, significantly restricted. Shaanxi province generally and Lounan County specifically (where the Group's operations are based) are important areas for growing the specialist plants and herbs used in TCM manufacture.

The Board will continue to search for opportunities to expand its TCM range for so long as the outlook remains positive in this market. The Group has a strong Consolidated Statement of Financial Position with cash reserves of RMB 99.277m at the end of 2010, prior to any Forsythia lease payments made in January 2011.

During the second half of the year, the Board decided, based on general and specific economic conditions, to extend the payment period for creditors from 3 to 6 months. This is a return to terms enjoyed by customers prior to 2009. The result of this was an increase in Trade Receivables of RMB 5.693m or 45%

Supply statistics for Paclitaxel (all kg) were as follows:

Supply statistics for Homoharringtonine (all kg) were as follows:

The Group continues to seek ways to fully exploit its approval for the sale of Paclitaxel in Europe. To this end, as an announced on 15 March 2011, the Group has recently appointed a consultant with extensive experience in the European API field to formulate and implement a European strategy. The Company is fully committed to supplying the European market with Paclitaxel and the directors believe that the combination of high levels of purity combined with a competitive cost base presents a very persuasive argument for European companies to source Paclitaxel from Taihua.

Our existing markets for Paclitaxel are Russia and South America. Homoharringtonine is sold within the Peoples Republic of China. Paclitaxel was sold at a price of RMB 769/gram and Homoharringtonine was sold at a price of RMB 1,709/gram. These were the same prices as 2009.

A summary of the 2010 Sales and Gross Margins by product is as follows (all figures RMB 000's):

2009 Comparable figures are as follows:

Operations

Paclitaxel's main raw material is the yew tree. In order to reduce both costs and reliance on third party suppliers the Group has spent several years developing its own plantation. The plantation will first be harvested in 2011.

Over time the plantation harvest will increase to the extent that it will ultimately have an output equivalent of 30kg of Paclitaxel

The Group also has a nursery that can either be harvested or used to generate further seedlings. Whilst there is a time lag between a decision to expand the plantation further and a harvestable output this means that the Group could expand its plantation further should the need arise.

Cephalotaxus sinensis, the Chinese Yew is the main raw material used in the production of Homoharringtonine. This is supplied under contract by Luonan Taichang, a company representing local farmers. Given the relative abundance and free availability of this plant, the Company does not consider it appropriate to develop its own supply.

In conclusion, having identified TCMs as a major opportunity I was particularly pleased that the Company has concluded both the Forsythia and Bian Tong Pian agreements. I believe these will increase earnings in 2011 but the Board will continue to search for more TCM opportunities to increase shareholder value further.

Nicholas Lyth

Chairman

18 May 2011

Annual General Meeting

The Company's Annual General Meeting will be held at 11am, on 22 June 2011, at 6th Floor. Fleet Place House, 2 Fleet Place, London, EC4M 7RF.

The Annual Report and Accounts will be dispatched to shareholders on, or before, 18th May 2011 and a copy will be available for the Companies website www.taihplc.com.

For more information please contact:

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2010

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2010

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2010

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2010

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2010

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 6th Floor, Fleet Place House, 2 Fleet Place, London EC4M 7RF, 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 Group operates (note 3(r)).

2. Basis of preparation

(a) Compliance with International Financial Reporting Standards

The consolidated financial statements of Taihua plc and its subsidiaries undertakings (the "Group") and the individual financial statements of Taihua plc (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 2010 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 comprehensive income 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.

(c) Initial application of new and revised IFRSs

In the current year, the Group initially applied the following IFRSs issued by the International Accounting Standards Board:-

The initial application of these International Financial Reporting Standards does not necessitate material changes in the Group's accounting policies or retrospective adjustments of the comparatives presented, except that IFRS 3 (Revised) and IAS 27 (Revised) made a number of clarifications and changes to the requirements on the preparation and presentation of consolidated financial statements regarding the accounting of consideration transferred, assets acquired and liabilities assumed, non-controlling interests, previously held interest in acquired subsidiaries, changes in ownership interest without loss of control and investment retained in former subsidiaries. These amendments are applied prospectively from 1 January 2010.

(d) IFRSs in issue but not yet effective

The Group has not early applied the following new and revised IFRSs that have been issued but are not yet effective.

The Group is required to initially apply these IFRSs in its annual consolidated financial statements beginning on 1 January 2011, except that the Group is required to initially apply Amendments to IAS 12 in its annual consolidated financial statements beginning on 1 January 2012, and IFRS 9 in its annual consolidated financial statements beginning on 1 January 2013.

The Group is in the process of making an assessment of the impact of these new and revised IFRSs upon initial application. So far, it has concluded that the adoption of them is unlikely to have a significant impact on the Group's results of operations and financial position.

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) Subsidiary companies

A subsidiary is an entity controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

Details of the subsidiaries of the Company at 31 December 2010 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.

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. Operating segments which are not individually material may be aggregated if they share a majority of these criteria.

(d) Property, plant and equipment

Property, plant and equipment, other than construction in progress, is 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:-

Construction in progress represents stores and storage facilities under construction, or renovation works in progress and is stated at cost less any impairment loss, and is not depreciated. Cost comprises development and construction expenditure incurred and other direct costs attributable to the development less any accumulated impairment losses. On completion, the relevant assets are transferred to property, plant and equipment at cost less accumulated impairment losses.

(e) Land use rights

Land use rights represent operating lease payments paid to the PRC government authorities for rights of 40 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 the 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 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 the profit or loss.

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

(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, which generally have credit term of 180 days, are recognised and carried at original invoice amounts less allowances for any uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off as incurred.

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.

(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 the 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 or impaired, 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 the profit or loss on the 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 the 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 TPN is Renminbi ("RMB"), and the audited financial statements of TPN 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 the 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 the 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 :-

(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 profit will be available against which the deductible temporary differences, carry-forward of unused tax assets and unused tax losses can be utilised.

(t) Share-based payments

The cost of granting share options and other share-based remuneration to employees and Directors is recognised in the 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 the 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 source of estimation uncertainty and the critical judgement that can significantly affect the amounts recognised in the financial statements are :-

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 balance sheet date 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.

The Group's business is subject to the usual biological hazards from fire, wind, insects and other natural disasters. Forces of nature such as temperature and rainfall may also affect harvest efficiency.

Management considers adequate preventive measures are in place. Nevertheless, unexpected factors affecting harvestable agricultural produce may result in re-measurement or harvest changes in future accounting periods.

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 the 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 performs ongoing credit evaluations of its customers and adjusts credit limits based on payment history and the customers' current credit-worthiness, as determined by the review of their current credit information. The Group continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses based upon its historical experience and any specific customer collection issues that it has identified. Credit losses have historically been within the Group's expectations and the Group will continue to monitor the collections from customers and maintain an appropriate level of estimated credit losses.

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