Half Yearly Report

Taihua plc

("Taihua" or the "Company")

Interim Results for the six months ended 30 June, 2012

Highlights

·; RMB 14m positive cashflow in the period

·; Further distribution agreement for Bian Tong Pian and elaboration on the Chinese market

·; Initial discussions are underway with Traditional Chinese medicine plantation owners and TCM finished product manufacturers

·; Completion of maiden Yew tree harvest

Traditional Chinese Medicine (TCM) Raw Material supply is a seasonal business with all the Company's sales taking place in the second half of each financial year. The directors continue to remain optimistic as to the performance of this area in 2012 (in 2011, Forsythia Gross Profit was RMB 14.4m). The Board are pleased that, whilst the Active Pharmaceutial Ingredient (API) business has continued to adapt to difficult market conditions, the TCM business has successfully become the main focus of the Company.

Forsythia

The first half of the year is a period of plantation cultivation and as such, all costs associated with this are capitalised for release when sales are made later in the year. Therefore the forsythia plantation has no effect on the consolidate statement on comprehensive income other than half a year rental charge of RMB 650,000 The Company is very encouraged that it has succeeded in managing the plantation for the first year and has successfully sold all its output at what the Board understands to be the normal wholesale price. Furthermore, despite 60% of sales being made on 6 month credit terms, only 6% of total sales remain outstanding for collection.

The Company has a ratified agreement to take control of the second forsythia plantation which will approximately double its potential harvest. Discussions are ongoing regarding the cost structure of harvesting and maintenance.

Bian Tong Pian

After the product launch in 2011 the invoiced value of sales prior to adjustment for discount for deferred credit terms in 2012 H1 were comparatively slow at RMB 2.348m. The reason for this was that the Company's distributor (who has just one market, Beijing) overstocked in an attempt to meet the first year sales target. This stock is now being worked through the distributor's sales channels. However, product has now been approved in 6 further markets; Guangzhou Military Hospitals, , Shaanxi Province, Chongqing, Zhejiang Province, Yunnan Province and Xinjiang Military Hospitals. Guangdong Province New Medicine and Special Medicine Company Ltd has been appointed for the Guangzhou Military Hospitals market which is one of the smaller markets available for tender. The appointment is for two years commencing September 5 2012. The sales target is 3000 boxes per month which equates to RMB 720,000 per annum. Payment terms are cash on delivery. 

Negotiations in respect of further distribution agreements in the other approved markets are progressing well, and further updates will be provided in due course.

Bian Tong Pian is also at the tender-inviting stage in three further markets. Mainland China has more than thirty defined markets for products such as Bian Tong Pian and it is the Board's intention to tender for all these markets.

Paclitaxel

For some time margins have been eroded to the extent that Paclitaxel became a minor contributor to the Company's overall profitability. This process has continued in 2012 to the extent that margins became negative as the market price hit $70 per gram (they had been as high as $115 per gram only 18 months ago). This is due to increasing output from other Chinese suppliers and a developing semi synthetic supply. Semi synthetic paclitaxel can be produced significantly cheaper that natural paclitaxel and as health budgets come further under scrutiny the Board expect that this transition will continue.

However, the Company has completed its maiden harvest from its Yew tree plantation of 18,000 kg of leaves and twigs that contain the API. Furthermore, extraction pilot tests for two by-products, 10-DAB and 7-Xylosyltaxol have been successful and these products are being tested in the Company's laboratory . These by-products are used in the manufacture of semi synthetic paclitaxel so we anticipate that as demand for this product grows, we should be able to sell these products to manufacturers of these products.

As a result of the above, the Board feels confident that it can continue to supply profitable Paclitaxel and by-products in the future.

Homoharringtonine

Invoiced value of sales prior to adjustment for discount for deferred credit terms fell considerably in 2012 H1 to RMB 877,000 (2011 H1: RMB 5.043m) as Taihua's customers continue to be blocked by the reaccreditation process. The shelf life of injectable Homoharringtonine is 2-3 years . As such there is product still in the supply chain to meet patient demand. It remains the Board's opinion that there is very little Homoharringtonine API being manufactured in China and, therefore when the reaccreditation process is completed, sales should return to previously experienced levels.

Consolidated Statement of Financial Position

As a result of the receipts of cash from Forsythia credit sales the Company's cash position was RMB 77.293m. Cashflow in the period was RMB 14.287m.

Strategic Direction

The Board has successfully realigned the business to TCMs, away from APIs over the past two years. The Board considers that the Company should develop further the following TCM subsectors:

(1) Raw Material cultivation

(2) Finished prescription-only medicines

Raw Material Supply

The Board believes that there are considerable difficulties in expanding capacity in the supply of Raw Materials for TCMs. This is primarily due to two factors; unwillingness on the part of Local Government to assign land use rights for plantation cultivation, and, the capital intensive, long lead times from plantation preparation to harvest.

The Board has successfully managed its first plantation and there are other fragmented co-operative plantations. Local Governments often encourage the consolidation of these into single ownership to aid decision making and this is, in the Board's opinion, Taihua's opportunity.

Finished Prescription-Only Medicines

High volume Over the Counter (OTC) TCM products are generally manufactured and distributed by large companies that have the resources to manage these products. Taihua does not want to compete in this field. The smaller market in Prescription-Only medicines, generally administered in specialist TCM hospitals requires much smaller marketing and development budgets and as such is suited to a company of Taihua's size. These products are administered in either injectable or capsule form.

Next Steps

Taihua is in exploratory discussions with Plantation owners, GMP-accredited injectable manufacturers and research institutes developing new prescription TCM products. These discussions are not at an advanced stage yet but it is the Board's view that the Balance Sheet of the Company should be used to leverage these opportunities to add shareholder value.

For more information please contact:

Nicholas Lyth, Taihua plc 0776 990 6686

Katy Mitchell, WH Ireland Limited 0161 832 2174

INDEPENDENT REVIEW REPORT TO TAIHUA PLC

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2012 which comprises the unaudited consolidated statement of comprehensive income, unaudited consolidated statement of financial position, unaudited consolidated statement of changes in equity, unaudited consolidated statement of cash flows and the related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with the terms of our engagement. Our review has been undertaken so that we might state to the company those matters we are required to state to it in this 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 for our review work, for this report, or for the conclusions we have reached.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the AIM Rules of the London Stock Exchange.

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared using accounting policies consistent with those to be applied in the next annual financial statements.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2012 is not prepared, in all material respects, in accordance with the AIM Rules of the London Stock Exchange.

PKF (UK) LLP

Leeds, UK

25 September 2012

UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 JUNE, 2012

UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE, 2012

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 JUNE, 2012

UNAUDITED CONSOLIDATED STATEMENT OFCASH FLOWS

FOR THE SIX MONTHS ENDED 30 JUNE, 2012

1. ACCOUNTING POLICIES

Basis of preparation

The annual financial statements of Taihua plc for the year ending 31 December, 2012 will be prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted for use in the European Union. Accordingly the interim financial information has been prepared using accounting policies consistent with those which will be adopted by the group in the financial statements.

The interim financial information for the six months ended 30 June, 2012 is unaudited and that for the equivalent period in 2011 is unaudited. The comparatives for the full year ended 31 December, 2011 are not the Group's full statutory accounts for that year. The financial statements for the year ended 31 December, 2011 contained an unqualified auditor's report and did not contain a statement under sections 498(2) or 498(3) of the Companies Act 2006.

Foreign currency translation

The functional currency and the presentation currency of the company are GBP and RMB respectively. The functional currency of the subsidiary undertakings is Renminbi ("RMB"), and the financial statements of the subsidiary undertakings 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 balance sheet date. Transactions in currencies other than RMB are translated at rates ruling on the transaction dates.

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, 2012 GBP1=RMB9.86970 GBP1=RMB9.97687

HKD1=RMB0.8147 HKD1=RMB0.8151

2. REVENUE

Revenue is recorded at the fair value of consideration received or receivable. When goods are sold on credit they are discounted where the time value of money is material.

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

3. OPERATING SEGMENTS

For the purposes of resources allocation and performance assessment, the chief operating decision maker, who is the Executive Director, regularly reviews revenue and cost of sales for each product.  The financial information provided to the Executive Director 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 IFRS 8 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 not significantly impacted by seasonality, except sales of forsythia. Forsythia is mainly harvested during autumn every year and therefore sales of forsythia are recognised in the fourth quarter.

Segment revenues and costs of sales

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