INTERIM RESULTS 2010

RNS Number : 7192R

Cathay International Holdings Ld

26 August 2010

 

26 August 2010

 

CATHAY INTERNATIONAL HOLDINGS LIMITED

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2010

 

 

CHAIRMAN'S INTERIM STATEMENT

 

On behalf of the Board of Directors, I would like to present the unaudited interim results of Cathay International Holdings Limited and its subsidiaries (the "Group") for the six months ended 30 June 2010.

 

OVERVIEW

 

The Group has met several key milestones against a challenging global operating environment during the first half of 2010.

 

China, where the Group operates, remains the fastest growing economy in the world, with a 2010 GDP growth forecast at 10.5% according to the International Monetary Fund (IMF). The National Bureau of Statistics of China shows China's GDP growth rate reached 11.1% in the first half of the year. Notwithstanding the impressive growth, China, however, has been affected by the troubles in the Eurozone, the de-pegging of the Renminbi, and the tightening of property policies. The market expects China's economic growth will slow in the second half of this year.

 

The pharmaceutical industry in China is expected to grow faster in 2010 than last year as further health care reform generates more opportunities in the market. According to the Southern Medicine Economic Research Institute (SMERI), the production value of China's pharmaceutical industry will grow by 23% in 2010. Since the beginning of this year, we have started to see increasing implementation of reform policies; for instance, the implementation of the essential drug system and the beginning of consultation of "Drug Price Control Measures" to increase the transparency of pharmaceutical pricing and to reduce the final costs to end users. We continue to review potential challenges and adjust our operational and business structures to enhance our competitive advantage in this fast changing environment.

 

In May, we launched the initial public offering of Lansen Pharmaceutical Holdings Limited ("Lansen", Hong Kong stock code "503") and raised HK$611 million from investors. It was 850 times oversubscribed by the retail sector in Hong Kong, one of the top ten oversubscription records in Hong Kong Stock Exchange listing history. This transaction demonstrates the Group's ability to identify attractive investment opportunities and bring them to fruition through disciplined execution.

 

We approved Haotian Group's feasibility study for its inositol project. The expansion and new constructions should be completed prior to year end. Our total investment in the Haotian Group should reach USD45 million according to the latest estimates.

 

We, together with InterContinental Hotels Group, initiated a program to reposition the Crowne Plaza Hotel and Suites Landmark Shenzhen (the "Hotel") as a leading luxury business hotel in Shenzhen featuring unique butler services and large deluxe suites.

 

FINANCIAL PERFORMANCE

 

The Group has recorded an overall improvement in its results during the first half of 2010, compared to the same period in 2009.

 

Segmental Results

 

				Hotel	Corporate
	Health Care			Operations	Office	Total
	Lansen	Haotian	Research &
	Group	Group	Development
(Stated in USD’000)
For the six months ended 30 June 2010
Revenue	28,402	8,849	-	4,276	-	41,527
Segment gross profit	18,578	707	-	369	-	19,654
Segment operating profit/(loss)	6,693	(856)	(277)	216	47	5,823
Segment finance costs	(347)	(179)	-	(563)	(421)	(1,510)
Segment profit/(loss) before income tax	6,346	(1,035)	(277)	(347)	(374)	4,313
Segment income tax expense	(1,318)	(5)	-	-	-	(1,323)
Segment profit/(loss) after income tax but before non-controlling interests	5,028	(1,040)	(277)	(347)	(374)	2,990
Segment profit/(loss) after non-controlling interests	3,477	(1,037)	(244)	(347)	(374)	1,475
For the six months ended 30 June 2009
Revenue	20,872	8,638	-	4,329	-	33,839
Segment gross profit	14,184	1,454	-	219	-	15,857
Segment operating profit/(loss)	4,260	208	(350)	214	(1,686)	2,646
Segment finance costs	(194)	(245)	(25)	(772)	(858)	(2,094)
Segment profit/(loss) before income tax	4,066	(37)	(375)	(558)	(2,544)	552
Segment income tax expense	(551)	(27)	-	-	(145)	(723)
Segment profit/(loss) after income tax but before non-controlling interests	3,515	(64)	(375)	(558)	(2,689)	(171)
Segment profit/(loss) after non-controlling interests	3,078	86	(332)	(558)	(2,689)	(415)
For the year ended 31 December 2009
Revenue	47,932	17,888	-	8,379	-	74,199
Segment gross profit	32,439	2,522	-	485	-	35,446
Segment operating profit/(loss)	9,357	192	(595)	513	(3,182)	6,285
Segment finance costs	(454)	(750)	-	(1,460)	(1,724)	(4,388)
Segment profit/(loss) before income tax	8,903	(558)	(595)	(947)	(4,906)	1,897
Segment income tax expense	(1,251)	(90)	-	-	(272)	(1,613)
Segment profit/(loss) after income tax but before non-controlling interests	7,652	(648)	(595)	(947)	(5,178)	284
Segment profit/(loss) after non-controlling interests	6,608	(273)	(518)	(947)	(5,178)	(308)

Operating Profit

 

The Group recorded operating profit for the six month period of USD5,823,000 (2009: USD2,646,000).

 

Lansen, our pharmaceutical subsidiary principally engaged in the development, production and sale of specialty prescription western pharmaceuticals for the treatment of autoimmune rheumatic diseases in the PRC, achieved an operating profit of USD6,693,000 (2009: USD4,260,000) for the six month period.

 

The corporate office expenses recorded a net gain of USD47,000 (2009: net loss of USD1,686,000). It was primarily due to the net effect of (i) a reversal of a provision of £2,000,000 (USD3,198,000) made in relation to a warranty provided under the terms of the sale of Stonehill Industrial Park in 2003 (the warranty limitation period expired in January 2010 as a result of which the provision was no longer required); and (ii) a foreign exchange loss of USD1,300,000 against Pounds Sterling as at 30 June 2010. The management of the Group intends to convert Pounds Sterling to US Dollar at closer to breakeven exchange rate. Setting aside the net effect of the two items above, the corporate office expenses were USD1,851,000 (2009: USD1,710,000).

 

Profit before Income Tax

 

The Group's profit before income tax for the six month period was USD4,313,000 (2009: USD552,000). There was a decrease in finance costs for the six month period to USD1,510,000 (2009: USD2,094,000), due to repayment of bank facilities and lower interest rates on remaining bank facilities.

 

Profit after Income Tax but before Non-Controlling Interests

 

The Group's after tax profit before non-controlling interests for the six month period was USD2,990,000 (2009: loss of USD171,000). The large tax expense was a result of the increase in taxable profit of Group's subsidiaries operating as different business entities.

 

Profit after Non-Controlling Interests

 

The Group's profit after non-controlling interests for the six month period was USD1,475,000 (2009: loss of USD415,000).

 

Upon completion of Lansen's listing on 7 May 2010, the Group's effective interest in Lansen was diluted from 87.84% to 50.56%. The full effect of this dilution will be reflected in the second half of 2010. In the short term, the impact of the dilution will be offset to a certain extent by applying the proceeds of the partial disposal of Lansen's shares to repay bank facilities and achieve interest savings. In the long term, such proceeds would be redrawn to reinvest and generate return for the Group. Cathay would expect to benefit furtherfrom the investment by Lansen of its listing proceeds on new product acquisitions and development and grows its earnings.

 

Partial Disposal of Lansen upon Lansen's listing

 

The Group's results have not accounted for the gain of USD10,310,000 on the partial disposal of Lansen upon Lansen's listing. Under International Accounting Standards IAS27 (2008 revised), which becomes effective for annual periods beginning on or after 1 July 2009, changes in a parent's ownership interest in a subsidiary that do not result in the loss of control are accounted for as an equity transaction. The change in Cathay's ownership interest in Lansen to 50.56% upon completion of the listing in Hong Kong has not resulted in a loss of control in Lansen and accordingly, the gain on partial disposal has been accounted for as an equity transaction.

 

HEALTH CARE BUSINESSES

 

Lansen Group

 

As noted, on 7 May 2010, our subsidiary, Lansen was listed on the main board of the Hong Kong Exchange. Lansen raised net proceeds of approximately USD52.5 million (HK$408.9 million) under the terms of the flotation. As stated, following completion of the listing, the Group owns approximately 50.56% of Lansen.

 

Lansen continues to be a major contributor to the Group's Health Care business. During the first half of 2010, Lansen's business grew by 36% when compared to the same period in 2009 (2009 over 2008: 25%), outperforming the China pharmaceutical industry average principally benefiting from Lansen's leading position in DMARDs in the rapid growing rheumatology market.

 

Lansen has started to see more progressive implementation of reform policies in the pharmaceutical industry in China since the beginning of this year. In June, the National Development and Reform Commission issued draft "Drug Price Control Measures" (the "Measures") for consultation with the pharmaceutical industry. The Measures imposed strict guidelines on the domestic sales of pharmaceuticals in the PRC, ranging from the percentage of expenses charged, sales profit margin and the pricing differential throughout the distribution channel. The implementation of the Measures could significantly affect the profitability of pharmaceutical companies. Although the timing and extent of these proposed changes is unclear, we expect that the direction of this reform should remain unchanged. Lansen intends to mitigate the potential impact of the implementation of the Measures by taking remedial actions, including expanding the product range by speeding up the development and acquisition of new pharmaceuticals; lowering Lansen's production and marketing costs by improving its internal cost management and control; and boosting efficiency and capacity of the sales team.

 

The Measures, if implemented, are likely to have a substantial impact on all pharmaceutical companies in the near term. However, this would also present opportunities for Lansen to cooperate with or acquire suitable companies or their pharmaceutical products. This may allow Lansen to expand sales, generate more profit and add value for its shareholders. Lansen will emphasize the widening of its product range by way of acquisition and product development. In the near term, Lansen will monitor the market closely and carefully examine any opportunity to speed up and strengthen its acquisition efforts to enable it to expand and enhance its product range.

 

Haotian Group

 

The Haotian Group's existing revenues, represented by manufacture, marketing and sale of plant extracts used as active ingredients in food, beverages, cosmetics, dietary supplements and healthcare products, grew by 2% compared to the same period in 2009. The Haotian Group recorded an operating loss of USD856,000 (2009: profit of USD208,000). There has been significant price fluctuation in the markets for raw materials for the Haotian Group's products in the first half 2010, resulting in an increase in production cost and a decrease in profit margins.

 

The Haotian Group is expanding its inositol production facilities and has embarked on the construction of additional raw material manufacturing facilities. Some costs, relating to the inositol project, which amounted to USD277,000 for the six months ended 30 June 2010 were capitalised. The inositol project is targeted to complete in the fourth quarter of this year. The Group expects the Haotian Group to become a significant contributor to its financial results within the next couple of years.

 

HOTEL BUSINESS

 

The Shenzhen hotel industry remains highly competitive. The worldwide business slow down continued to reduce business travel to China in the first half of 2010. However, with the Guangzhou Asian Games in November 2010, we expect more international travelers to visit China, leading to an improvement in occupancy levels at our hotel.

 

The Hotel achieved an average occupancy rate of 43% (2009: 49%) and an average room rate of USD127 (2009: USD109) for the first six months of 2010. The Hotel achieved a higher room rate while the market as a whole experienced a decline, reflecting our strategy to position the Hotel as a high end business hotel. The Hotel's profit from operations before finance costs for the first six months of 2010 was USD216,000 (2009: USD214,000).

 

In accordance with our usual practice, the Group will conduct an annual valuation of the Hotel at the year end.

 

GRANT OF SHARE OPTIONS

 

On 19 July 2010, the Group granted 2,751,177 options under a share option plan (the "Share Option Plan") approved by shareholders of the Group on 4 June 2010. The number of options granted to date to the Group's management and employees represents approximately 20% of the options currently available under the Share Option Plan. Of the options granted, the share options granted to directors and senior executives of the Group are as follows:

 

Name	Position	Number of share options granted
Mr. Lee Jin-Yi	Chief Executive Officer	921,177
Mr. Eric Siu Ka Chi	Finance Director	380,000
Mr. Patrick Sung	Director and Controller	300,000
Ms. Rebecca Yip Pui Ling	Company Secretary	200,000

 

The exercise price of the option of 39.81 pence per share was determined at the average mid-market price of the Company shares for the 30 trading days immediately prior to the date of grant. The options have a three year vesting period and are exercisable on or before the fifth anniversary of the date of the grant, subject to certain exercise conditions aligned to the Group's results and performance.

 

MANAGEMENT AND BOARD CHANGES

 

On 21 January 2010, Mr. Lee Jin-Yi was appointed Chief Executive Officer and Mr. Siu Ka Chi was appointed Finance Director of the Company. Mr. Wu Zhen Tao, former Chief Executive Officer of the Company, remains as an executive director of the Company and was appointed Chairman of the Executive Committee of the Company with effect from that date.

 

With effect from 4 June 2010, Mr. Stephen B. Hunt stepped down as an executive director of the Company but remains on the Board as the non-executive deputy chairman of the Company. Mr. Hunt also resigned as a member of the Audit Committee and Remuneration Committee of the Company with effect from 4 June 2010. Mr. Wu Zhen Tao was appointed as a member of the Audit Committee and as Chairman and member of the Remuneration Committee of the Company with effect from 4 June 2010.

 

On behalf of Cathay's Board, I would like to thank Stephen for his valuable contribution to the Group over many years during his time as an executive director. We are very pleased that the Group will continue to benefit from Stephen's judgment and experience through his new role as non-executive deputy chairman.

 

BUSINESS OUTLOOK

 

The Group is on track to improve its operations and build its earnings. As Lansen begins to invest its listing proceeds on new product acquisition and development, it should improve its competitiveness in the new regulatory environment and continue to grow its earnings. With the completion of Haotian's inositol project expected by the end of the year and with the repositioning of the Hotel, we expect both operations to contribute to Group earnings over the next 18 months.

 

To build on the success of our Lansen investment, we intend to launch Cathay International Capital to focus on minority investments and possibly raise third party funds for future projects.

 

We expect the Group to become a leading investment group which aims to achieve outstanding returns for shareholders in the fast growing PRC markets. Our strategies are to (i) specialize in the fast growing pharmaceutical, healthcare and environment protection markets; (ii) invest with clear exit strategies; and (iii) create value through improving the operations of investee companies. Previously, our investment scope was mainly on investments which would give us a majority control. We intend to widen our investment scope to include potential investments which would give us a minority position of at least 20% when possible.

 

Finally, I would also like to thank our management and staff for their continued dedication and contribution.

 

Sum Soon Lim

Chairman

 

Enquiries:

Eric Siu (Finance Director)	(via Brunswick)	020 7404 5959
Patrick Sung (Director and Controller)

 

GROUP CONDENSED STATEMENT OF COMPREHENSIVE INCOME

 

		Six months	Six months	Year
		ended 30 June	ended 30 June	ended 31 December
		2010	2009	2009
		(Unaudited)	(Unaudited)	(Audited)
	Note	USD'000	USD'000	USD'000
Revenue	2	41,527	33,839	74,199
Cost of sales		(21,873)	(17,982)	(38,753)
Gross profit		19,654	15,857	35,446
Other income		4,358	521	854
Selling and distribution expenses		(9,061)	(8,104)	(18,652)
Administrative expenses		(9,128)	(5,628)	(11,363)
Profit from operations		5,823	2,646	6,285
Finance costs		(1,510)	(2,094)	(4,388)
Profit before income tax	2	4,313	552	1,897
Income tax expense	3	(1,323)	(723)	(1,613)
Profit/(loss) for the period		2,990	(171)	284
Other comprehensive income/(loss)
Exchange differences on translating foreign operations		913	(700)	(726)
Deficit on revaluation of hotel properties		-	-	(5,109)
Deferred tax relating to deficit on revaluation of hotel properties		-	-	713
Other comprehensive income/(loss), net of tax		913	(700)	(5,122)
Total comprehensive income/(loss) for the period		3,903	(871)	(4,838)
Profit/(loss) for the period attributable to:
Owners of the parent		1,475	(415)	(308)
Non-controlling interests		1,515	244	592
		2,990	(171)	284
Total comprehensive income/(loss) attributable to:
Owners of the parent		2,388	(1,115)	(5,430)
Non-controlling interests		1,515	244	592
		3,903	(871)	(4,838)
Earnings per share	4
Basic and Diluted		0.41 cents	(0.15) cents	(0.11) cents

 

All operations arise from continuing activities.

 

GROUP CONDENSED STATEMENT OF FINANCIAL POSITION

 

			As at	As at	As at
			30 June	30 June	31 December
			2010	2009	2009
			(Unaudited)	(Unaudited)	(Audited)
			USD'000	USD'000	USD'000
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment			159,742	158,362	158,128
Land use rights			3,425	3,053	3,438
Investment property			1,574	1,559	1,561
Intangible assets			4,766	3,051	3,861
Goodwill			25,622	10,065	25,622
Loans to non-controlling interests			894	15	15
			196,023	176,105	192,625
CURRENT ASSETS
Inventories			12,530	12,644	11,405
Trade and other receivables			44,172	38,798	39,731
Investments			385	385	385
Land use rights			77	68	76
Pledged bank deposits			32,438	152	800
Cash and cash equivalents			45,444	8,831	31,800
			135,046	60,878	84,197
TOTAL ASSETS			331,069	236,983	276,822
EQUITY AND LIABILITIES
EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT			135,405	60,629	100,201
NON-CONTROLLING INTERESTS			50,027	10,322	14,570
TOTAL EQUITY			185,432	70,951	114,771
NON-CURRENT LIABILTIES
Borrowings			47,965	67,122	59,192
Deferred tax liabilities			19,958	20,544	19,958
			67,923	87,666	79,150
CURRENT LIABILITIES
Borrowings			54,412	31,629	46,411
Current tax liabilities			1,266	729	624
Trade and other payables			22,036	46,008	35,866
			77,714	78,366	82,901
TOTAL LIABILITIES			145,637	166,032	162,051
TOTAL EQUITY AND LIABILITIES			331,069	236,983	276,822

 

 

GROUP CONDENSED STATEMENT OF CHANGES IN EQUITY

	Attributable to owners of the parent									Non- controlling Interests	Total Equity
	Share Capital	Share Premium	Treasury Shares	Capital and Special Reserve	Revaluation Reserve	Exchange Equalisation Reserve	Statutory Reserve	Profit And Loss Account	Total
	USD'000	USD'000	USD'000	USD'000	USD'000	USD'000	USD'000	USD'000	USD'000	USD'000	USD'000
Balance at 1 January 2010	18,875	49,187	-	97,502	6,660	(25,773)	2,011	(48,261)	100,201	14,570	114,771
Dividend to non-controlling interests	-	-	-	-	-	-	-	-	-	(882)	(882)
Issue of share capital	27	271	-	-	-	-	-	-	298	-	298
Issue of treasury shares	160	1,577	(1,737)	-	-	-	-	-	-	-	-
Transfer of reserve	-	-	-	-	-	-	594	(594)	-	-	-
Written off of contingent consideration	-	-	-	-	-	-	-	770	770	(770)	-
Capital injection from non-controlling interests	-	-	-	-	-	-	-	-	-	53,061	53,061
Gain on deemed partial disposal of a subsidiary	-	-	-	-	-	-	-	21,438	21,438	(21,438)	-
Gain on partial disposal of a subsidiary	-	-	-	-	-	-	-	10,310	10,310	3,971	14,281
Transaction with owners	187	1,848	(1,737)	-	-	-	594	31,924	32,816	33,942	66,758
Profit for the period	-	-	-	-	-	-	-	1,475	1,475	1,515	2,990
Other comprehensive income:
Exchange differences arising on translation of foreign currency operations	-	-	-	-	-	913	-	-	913	-	913
Total comprehensive income for the period	-	-	-	-	-	913	-	1,475	2,388	1,515	3,903
Balance at 30 June 2010	19,062	51,035	(1,737)	97,502	6,660	(24,860)	2,605	(14,862)	135,405	50,027	185,432
Balance at 1 January 2009	13,793	10,216	-	97,502	11,056	(25,047)	1,883	(47,825)	61,578	10,630	72,208
Acquisition of non-controlling interests	-	-	-	-	-	-	-	-	-	(34)	(34)
Dividend payable to non-controlling interests	-	-	-	-	-	-	-	-	-	(327)	(327)
Capital injection from non-controlling interests	-	-	-	-	-	-	-	-	-	11	11
Redeem shares from non-controlling interests	-	-	-	166	-	-	-	-	166	(202)	(36)
Transaction with owners	-	-	-	166	-	-	-	-	166	(552)	(386)
(Loss)/profit for the period	-	-	-	-	-	-	-	(415)	(415)	244	(171)
Other comprehensive income:
Exchange differences arising on translation of foreign currency operations	-	-	-	-	(24)	(676)	-	-	(700)	-	(700)
Total comprehensive income for the period	-	-	-	-	(24)	(676)	-	(415)	(1,115)	244	(871)
Balance at 30 June 2009	13,793	10,216	-	97,668	11,032	(25,723)	1,883	(48,240)	60,629	10,322	70,951
Balance at 1 January 2009	13,793	10,216	-	97,502	11,056	(25,047)	1,883	(47,825)	61,578	10,630	72,208
Acquisition of non-controlling interests	-	-	-	-	-	-	-	-	-	(2,936)	(2,936)
Earn-out shares to be issued	-	-	-	-	-	-	-	-	-	7,000	7,000
Shares redeemed as repayment of part of loans to non-controlling interests	-	-	-	-	-	-	-	-	-	(29)	(29)
Issue shares for dividend	-	-	-	-	-	-	-	-	-	40	40
Dividend to non-controlling interests	-	-	-	-	-	-	-	-	-	(727)	(727)
Issue of share capital	5,082	38,971	-	-	-	-	-	-	44,053	-	44,053
Transfer of reserve	-	-	-	-	-	-	128	(128)	-	-	-
Transaction with owners	5,082	38,971	-	-	-	-	128	(128)	44,053	3,348	47,401
(Loss)/profit for the year	-	-	-	-	-	-	-	(308)	(308)	592	284
Other comprehensive income:
Exchange differences arising on translation of foreign currency operations	-	-	-	-	-	(726)	-	-	(726)	-	(726)
Deficit on revaluation of hotel properties	-	-	-	-	(5,109)	-	-	-	(5,109)	-	(5,109)
Income tax relating to components of other comprehensive income	-	-	-	-	713	-	-	-	713	-	713
Total comprehensive income for the year	-	-	-	-	(4,396)	(726)	-	(308)	(5,430)	592	(4,838)
Balance at 31 December 2009	18,875	49,187	-	97,502	6,660	(25,773)	2,011	(48,261)	100,201	14,570	114,771

 

GROUP CONDENSED STATEMENT OF CASH FLOWS

 

		Six months	Six months	Year ended
		ended 30 June	ended 30 June	31 December
		2010	2009	2009
		(Unaudited)	(Unaudited)	(Audited)
		USD'000	USD'000	USD'000
Net cash used in operating activities		(3,499)	(920)	(20,598)
Net cash used in investing activities		(35,059)	(3,361)	(11,089)
Net cash generated from/(used in) financing activities		51,875	(1,918)	48,517
Net increase/(decrease) in cash and cash equivalents		13,317	(6,199)	16,830
Effects of exchange rate changes		327	(638)	(698)
Cash and cash equivalents at beginning of the period		31,800	15,668	15,668
Cash and cash equivalents at end of the period		45,444	8,831	31,800

 

 

NOTES TO THE ACCOUNTS

 

1. BASIS OF PREPARATION

 

The interim condensed financial statements have been prepared in accordance with International Accounting Standard (IAS) 34, Interim Financial Reporting and under the historical cost convention, modified where appropriate to incorporate a professional valuation of certain fixed assets.

 

The accounting policies adopted are consistent with those followed in the preparation of the Group's last annual financial statements for the year ended 31 December 2009, except for the adoption of the following standards as of 1 January 2010:

 

l IFRS 3 Business Combinations (Revised 2008)

l IAS 27 Consolidated and Separate Financial Statements (Revised 2008)

l Improvements to IFRSs 2009

 

Significant effects on the current period or prior periods arising from the first-time adoption of these new requirements are described below.

 

The accounting policies have been applied consistently throughout the Group for the purposes of preparation of these interim condensed financial statements.

 

Adoption of IFRS 3 Business Combination (Revised 2008)

The revised standard (IFRS 3R) introduced major changes to the accounting requirements for business combinations. It retains the major features of the purchase method of accounting, now referred to as the acquisition method. The most significant changes in IFRS 3R that had an impact on the Group's acquisitions in 2010 are as follows:

 

l Acquisition-related costs of the combination are recorded as an expense in the income statement. Previously, these costs would have been accounted for as part of the cost of the acquisition.

l The assets acquired and liabilities assumed are generally measured at their acquisition-date fair values unless IFRS 3R provides an exception and provides specific measurement rules.

l Any contingent consideration is measured at fair value at the acquisition date. If the contingent consideration arrangement gives rise to a financial liability, any subsequent changes are generally recognised in profit or loss. Previously, contingent consideration was recognised at the acquisition date only if its payment was probable.

 

IFRS 3R has been applied prospectively to business combinations for which the acquisition date is on or after 1 January 2010. The Group did not make any acquisitions in the current period. Business combinations for which the acquisition date was before 1 January 2010 have not been restated.

 

Adoption of IAS 27 Consolidated and Separate Financial Statements (Revised 2008)

The adoption of IFRS 3R required that the revised IAS 27 (IAS 27R) is adopted at the same time. IAS 27R introduced changes to the accounting requirements for transactions with non-controlling (formerly called 'minority') interests and the loss of control of a subsidiary. Similar to IFRS 3R, the adoption of IAS 27R is applied prospectively.

 

For the six months ended 30 June 2010, the Group disposed of part of its equity interest in Lansen Pharmaceutical Holdings Limited ("Lansen") upon Lansen's listing. The change in policy has resulted in the gain of USD10,310,000 being recognised directly in equity, instead of in profit or loss.

 

2. SEGMENTAL INFORMATION

 

	Six months	Six months	Year ended
	ended 30 June	ended 30 June	31 December
	2010	2009	2009
	(Unaudited)	(Unaudited)	(Audited)
	USD'000	USD'000	USD'000
Revenue
Health Care:
Lansen Group	28,402	20,872	47,932
Haotian Group	8,849	8,638	17,888
Research & Development	-	-	-
Hotel Operations	4,276	4,329	8,379
	41,527	33,839	74,199
Profit/(loss) before income tax
Health Care:
Lansen Group	6,346	4,066	8,903
Haotian Group	(1,035)	(37)	(558)
Research & Development	(277)	(375)	(595)
Hotel Operations	(347)	(558)	(947)
	4,687	3,096	6,803

 

The Group's operating segments reconcile to the entity's profit before income tax as presented in its condensed financial statements as follows:

 

	Six months	Six months	Year ended
	ended 30 June	ended 30 June	31 December
	2010	2009	2009
	(Unaudited)	(Unaudited)	(Audited)
	USD'000	USD'000	USD'000
Reportable segment profit	4,687	3,096	6,803
Unallocated corporate income	3,225	2	4
Unallocated corporate expenses	(3,599)	(2,546)	(4,910)
Profit before income tax	4,313	552	1,897

 

3. INCOME TAX EXPENSE

 

The provision for current tax has been made in respect of the assessable profits arising in the PRC during the period.

 

4. EARNINGS PER SHARE

 

Both the basic and diluted earnings per share have been calculated using the profit attributable to shareholders of the parent company as the numerator, i.e. no adjustments to profits were necessary during the six month period to 30 June 2010 and 2009 and the year ended 31 December 2009.

 

The weighted average number of shares for the purposes of the calculation of diluted earnings per share can be reconciled to the weighted average number of shares used in the calculation of basic earnings per share as follows:

 

	Six months ended		Six months ended		Year ended
	30 June 2010		30 June 2009		31 December 2009
	(Unaudited)		(Unaudited)		(Audited)
	Common Shares	A Shares	Common Shares	A Shares	Common Shares	A Shares
Amounts in thousand:
Weighted average number of shares used in basic earnings per share	348,022	10,637	264,133	11,727	272,945	11,385
Shares deemed to be issued to Mr. Lee Jin-Yi	1,292	-	-	-	-	-
Weighted average number of shares used in diluted earnings per share	349,314	10,637	264,133	11,727	272,945	11,385

 

Mr. Lee Jin-Yi paid a cash consideration of USD1,000,000 for 1,842,353 new Common Shares in February 2010. 550,000 new Common Shares were issued to Mr. Lee. The remaining 1,292,353 Common Shares will be issued to Mr. Lee when the Company is able to do so in circumstances which would not cause the percentage of the Company's Common Shares held in public hands to fall below twenty five per cent.

 

For the period ended 30 June 2010, the computation of diluted earnings per share does not assume the exercise of the Company's outstanding share options as the exercise price of those options is higher than the average market price for shares.

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

 

Each of the directors confirms that, to the best of his knowledge:

i the condensed set of financial statements, which has been prepared in accordance with the International Financial Reporting Standards and IAS 34 Interim Financial Reporting, gives a true and fair view of the assets, liabilities, financial position and profit or loss of the issuer, or the undertakings included in the consolidation as a whole;

ii the interim management report includes a fair review of the information required by the Disclosure and Transparency Rules 4.2.7R; and

iii the interim management report includes a fair review of the information required by the Disclosure and Transparency Rules 4.2.8R.

 

PUBLICATION OF NON-STATUTORY ACCOUNTS

 

The unaudited interim results do not constitute full accounts prepared in accordance with the listing rules of the UK Financial Services Authority. The figures for the year ended 31 December 2009 have been based on the full accounts of the Group which were prepared under IFRS and which included an unqualified audit report. The interim financial information in this report has been neither audited nor reviewed by the Group's auditors.

 

Copies of this report have been sent to shareholders and are available to the public from the Company's UK Transfer Agents, Capita Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU.

 

This information is provided by RNS

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