Half Yearly Report

Taihua plc

("Taihua" or the "Company")

Interim Results for the six months ended 30 June, 2013

Highlights

Loss in 2013 H1 was RMB (79,000) (2012 H1: loss of RMB (71,000))

Continued strengthening of RMB against GBP resulted in Comprehensive Income of RMB 548,000 (2012 H1: Comprehensive Loss of RMB (101,000))

Paclitaxel return to profitability

Cashflow stable

Commencement of management of second forsythia plantation

Summary

The supply of Traditional Chinese Medicine (TCM) raw materials is a seasonal business. All the harvesting and sales take place in the second half of the year. As such, the first half of the year's financial performance is largely as a result of the supply and sale of the Company's Paclitaxel and Homoharringtonine products along with its range of prescription-only finished TCM products.

Forsythia

The first half of the year is a period of plantation cultivation and as such, all costs associated with this are included in inventory for release when sales are made later in the year. Therefore the forsythia plantation has no effect on the consolidated statement on comprehensive income. As at the end of the reporting period, Trade Debtors generated from forsythia sales were RMB 27,982,000. Of these, RMB 6,480,000 was sold on 6 months credit and this has been received since the end of 2013 H1. The remainder was sold on 10 month credit terms and as such is not yet due.

With the second plantation under our control we now have a strong position in the supply of this raw material. The wholesale price remains stable.

The Company is aware that the growing conditions in 2013 were not optimal. The region suffered a drought during the Spring and there were two frosts during the flowering season. We do not yet have sufficient visibility to determine what, if any, effect this has had on the 2013 harvest. The Company intends to provide further updates on this matter as and when information becomes available.

Bian Tong Pian

Having previously reported our success in obtaining government approval to distribute this product in additional markets the Company has been in discussions with several interested parties regarding securing distribution agreements.

To date, these have not resulted in a distribution agreement. The interested parties all cite the problems surrounding GlaxoSmithKline (GSK) in China and are apprehensive to take on new products in their range. For the time being, given the government focus on this industry, they prefer to adopt a very conservative approach and only distribute their existing products.

Paclitaxel

As previously reported, 2012 saw the maiden harvest of raw material from the Company's yew tree plantation.

2010 and 2011 saw a significant increase in the competition for supply of this Active Pharmaceutical Ingredient (API) which resulted in the selling price falling from US$115/g to US$70/g. However paclitaxel sales in the period under review generated a small Gross Profit of RMB 67,000 (2012 H1: RMB (1,214,000) Gross Loss)

The two by-products, 10-DAB and 7-Xylosyltaxol, have had successful extraction trials from our raw material. We are looking for suitable customers for these. In the event that these by-products are sold this will further enhance the profitability of the Paclitaxel sector.

Homoharringtonine

Invoiced value of sales prior to adjustment for discount for deferred credit terms was RMB 703,000 in 2013 H1 (2012 H1:RMB 877,000).

Whilst the volumes have fallen considerably in the past two years the Company intends to remain in the business of Homoharringtonine supply as there is still, in the opinion of the Board, the possibility that volumes may recover. Homoharringtonine has always been a relatively high Gross Margin % product and any upturn in volumes would have a significant positive profit effect.

Consolidated Statement of Financial Position

At RMB 40.011m the cash position was almost unchanged in the 6 months under review. RMB 27.982m of the RMB 36.767m Trade Debtors outstanding at 30th June 2013 relate to Forsythia. As such the Company expects the cash position to improve through 2013 H2.

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.

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 2013 which comprises the unaudited consolidated statement of comprehensive income, unaudited consolidated statement of financial position, unaudited consolidated statement of changes in equity, unaudited 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 2013 is not prepared, in all material respects, in accordance with the AIM Rules of the London Stock Exchange.

BDO LLP

Chartered Accountants and Registered Auditors

Leeds

United Kingdom

30 September 2013

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

TAIHUA PLC

UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 JUNE, 2013

TAIHUA PLC

UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE, 2013

TAIHUA PLC

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 JUNE, 2013

TAIHUA PLC

UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 30 JUNE, 2013

Notes to the Unaudited Consolidated Financial Statements for the six months ended 30 June, 2013

1. ACCOUNTING POLICIES

Basis of preparation

The annual financial statements of Taihua plc for the year ending 31 December, 2013 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, 2013 is unaudited and that for the equivalent period in 2012 is unaudited. The comparatives for the full year ended 31 December, 2012 are not the Group's full statutory accounts for that year. The financial statements for the year ended 31 December, 2012 contained an unqualified auditor's report and did not contain a statement under sections 498(2) or 498(3) of the Companies Act 2006.

Prior period adjustments

Up until the point of harvest the direct costs of the forsythia plantation are included in inventory. At 30 June 2013 these costs amounted to RMB 3,155,000. The comparative figures for the six month period ended 30 June 2012 have been restated to include the direct costs of the forsythia plantation of RMB 650,000, which had previously been included in general and administrative expenses, in inventory. The effect is to increase the profit for the period ended 30 June 2012 and increase the net assets at 30 June 2012 by RMB 650,000 respectively.

Without affecting the gross profit for the year ended 31 December 2012 the accounts have been restated to reflect the measurement gain arising at the point of harvest of the forsythia plantation as required by International Accounting Standard 41 (IAS 41). The effect is to increase the measurement gain arising at the point of harvest and the cost of sales by RMB 6,822,000.

Foreign currency translation

The functional currency and presentational currency of the company are GBP and Renminbi ("RMB") respectively. The functional currency of the subsidiary undertakings is 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, 2013 GBP1=RMB9.3884 GBP1=RMB9.6368

HKD1=RMB0.7979 HKD1=RMB0.8053

2. REVENUE

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, after allowances for goods returns and trade discounts. Where a period of extended credit is given such that the time value of money is material the amounts receivable are discounted at the prevailing market interest rate. The unwinding of the discount is recognised as interest on the trade receivables and presented in other revenue.

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 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 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 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.

Segment revenues and costs of sales

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