Half-year Report

Taihua plc

("Taihua" or the "Company")

Interim Results for the six months ended 30 June 2016 

Highlights

· Sales in 2016 H1 were RMB 6,170,000 (2015 H1 : RMB 5,399,000).

· Some initial signs of recovery in non-Forsythia sales, primarily Homoharringtonine. However, commercial trading conditions were challenging and as such we saw a significant reduction in gross margin % from 29.1% in 2015 H1 to 22.6% in 2016 H1.

· Operating loss after tax in 2016 H1 was RMB (977,000) (2015 H1: RMB 848,000).

Chairman's Statement

The supply of Traditional Chinese Medicine (TCM) raw materials is seasonal. The first half of the year's financial performance is largely a result of the supply and sale of the Company's Homoharringtonine product along with its range of prescription-only finished TCM products. Following the Board's decision to cease production of Paclitaxel its contribution to the period's sales has been modest.

Forsythia

All costs associated with cultivation during the first half of the year are included in inventory for release when sales are made in the second half of the year. Therefore, the forsythia plantation has no effect on the consolidated statement on comprehensive income.

Homoharringtonine

Homoharringtonine has traditionally been one of Taihua's most successful products with a strong market position and high gross margins. During the period of reapplication for GMP, much of this market share was lost to competitors.

Now we have secured the GMP reaccreditation, efforts are being made to recover this lost market share.

Sales in 2016 H1 were RMB 3,213,000 (2015 H1: RMB 552,000).

To start to recover this market share we have had to accept lower pricing than was historically the norm and this has hit the gross margins.

Gross margin % in 2016 H1 was 32.7% (2015 H1: 45.1%)

However, our total gross margin generated from Homoharringtonine sales increased by 324% from RMB 249,000 in 2015 H1 to RMB 1,055,000 in 2016 H1.

Traditional Chinese Medicines

The competition for supply of Traditional Chinese Medicines has become increasingly fierce. The main driver of this is the Chinese Government's healthcare reforms which require each province to set up open tendering systems for supply contracts. This has increased competition which has led to reduced margins.

Gross margin % in 2016 H1 was 16.3% (2015 H1: 39.3%)

However, there are signs that volumes are starting to recover. Our cost of sales in 2016 H1 was RMB 2,310,000 which was 12.6% more than 2015 H1. In addition, 2016 H1 sales only commenced in March 2016 due to the GMP reaccreditation, so only four months were available to make sales in this period compared to six months in 2015.

Strategic Direction

Following the successful reapplication for GMP there is some evidence of improving sales in both TCMs and Homoharringtonine, however increased competition in the market environment has led to reduced gross margin %.

The Company is committed to increasing its market share in these products but at the same time recognises that the previously achievable profit margins on these products will probably not recur.

Following the successful open offer and the approval by shareholders of the share buyback, the Board is in discussions as to the mechanics of making the share buyback and we expect this will be announced shortly.

For more information please contact:

Nicholas Lyth, Taihua plc 0776 990 6686

Katy Mitchell, WH Ireland Limited +44 161 832 2174

TAIHUA PLC

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND

COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 JUNE 2016

TAIHUA PLC

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2016

TAIHUA PLC

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 JUNE 2016

TAIHUA PLC

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 30 JUNE 2016

Notes to the Condensed Consolidated Financial Statements

for the six months ended 30 June 2016

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. 

The Company is an investment holding company and its subsidiaries are principally engaged in the manufacturing, distribution and sales of Traditional Chinese Medicine ("TCM") products, 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").

2. BASIS OF PREPARATION

The consolidated condensed financial statements have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting.

The consolidated condensed financial statements have been prepared on the historical cost basis except for certain financial instruments, which are measured at fair values as explained in the accounting policies set out below. Historical cost is generally based on the fair value of the consideration given in exchange for assets.

The consolidated condensed financial statements are rounded to the nearest thousand ('000) and they are presented in Chinese Renminbi (RMB), the official currency of the People's Republic of China. RMB is the functional currency of the Company.

The consolidated condensed financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

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

The interim report was approved by the Board of Directors on 29 June 2016. The report is unaudited and does not constitute the company's statutory accounts for the six months ended 30 June 2016.

3. SIGNIFICANT ACCOUNTING POLICIES

These consolidated condensed financial statements have been prepared in accordance with International Financial Reporting Standards (''IFRS'') issued by the International Accounting Standard Board (IASB) and interpretations of the International Financial Reporting Interpretations Committee (IFRIC), as adopted by European Union.

From the beginning of the reporting period, the Company has adopted all relevant standards effective for accounting periods beginning on or after 1 January 2016.

The presentation currency of the Group is RMB and therefore the financial statements have been translated from GBP and HKD to RMB at the following exchange rates:

Period end rates Average rates

30 June 2016 GBP1=RMB8.90036 GBP1=RMB9.37049

HKD1=RMB0.8565 HKD1=RMB0.8416

4. REVENUE

Revenue on sale of goods represents the invoiced value of goods sold, net of value added tax ("VAT"), consumption tax ("CT") and other sales taxes, after allowances for goods returns and trade discounts.

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

5. OPERATING SEGMENTS

For the purposes of resources allocation and performance assessment, the chief operating decision makers, who are the Board of Directors, regularly review revenue and cost of sales for each product. The financial information provided to the Board of Directors contains profit or loss information of each product line.  Therefore, the operation of the Group constitutes four reportable segments.

The Group's reportable segments under IFRS8 Operating Segments are as follows:

· Paclitaxel - Paclitaxel is extracted from the bark of the yew tree (Taxus). This drug is one of the main-stream treatments for cancer of the ovaries, breast, certain types of lung cancer, and a cancer of the skin and mucous membranes more commonly found in patients with acquired immunodeficiency syndrome (AIDS).

· Homoharringtonine - Homoharringtonine is an alkaloid extracted from the branches and leaves of the Cephalotaxus tree. This drug has been prescribed for acute myeloid leukaemia and other cancers in China.

· TCM products - Traditional Chinese Medicine has recognition as a viable alternative health treatment and has been recognised by the World Health Organisation for its effectiveness in the treatment of certain forms of illnesses and diseases. The Company currently manufactures eight TCM products which are Gengnianan Tablet, Duzhong Pingya Tablet, Zaoren Anshen Keli, Bunao Anshen Tablet, Jiangzi Jianfei Tablet, Dabaidu Capsule, Runing Tablet and Bian Tong Pian.

· Forsythia - Known as lian qiao in PRC, is a flowering shrub. The seeds and seed cases of this are harvested and, when dried, form the basis of TCM preparations. Forsythia TCMs are primarily sold to alleviate flu and cold like symptons.

The Group's revenues are significantly impacted by the seasonality of the forsythia sales. Forsythia is mainly harvested during autumn every year and therefore sales of forsythia are recognised in the fourth quarter. Costs incurred to 30 June with regard to the forsythia plantations have been included in inventories for release when the forsythia is harvested later in the year.

The following is an analysis of the Group's revenue and cost of sales by reportable segments:-

The management of the Group take into account revenue and costs of sales as the key performance indicators when they make management decisions. Other costs are not allocated to operating segments as these are considered to be central operating costs of the business. Assets and liabilities are not considered to be specific to individual operating segments and therefore separate analysis is not undertaken.

The difference between the information presented to the Board of Directors and the information per the Consolidated Statement of Comprehensive Income relates to the discount applied to revenues to reflect the 180 day credit period granted to customers.

6. TAXATION

A unified income tax rate has been set at 25% for all enterprise within the Group.

7. (LOSS)/EARNINGS PER SHARE

Basic (loss)/earnings per share

Basic (loss)/earnings per share are calculated by dividing the (loss)/profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the period/year.