PRELIMINARY RESULTS

RNS Number : 8938K

Cathay International Holdings Ld

27 April 2010

 

27 April 2010

 

CATHAY INTERNATIONAL HOLDINGS LIMITED

 

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2009

 

 

Chairman's Statement

 

On behalf of the Board of Directors, I would like to presentthe preliminary statement of the Group for the financial year ended 31 December 2009.

 

PERFORMANCE

 

Turnover and Gross Profit

	Health Care			Hotel Operations	Corporate Office	Total
(Stated in USD'000)	Research & development	Lansen Group	Haotian Group
For the year ended 31 December 2009
Segment revenue	-	47,932	17,888	8,379	-	74,199
Segment gross profit	-	32,439	2,522	485	-	35,446
Segment operating profit/(loss)	(595)	9,357	192	513	(3,182)	6,285
Segment finance costs	-	(454)	(750)	(1,460)	(1,724)	(4,388)
Segment profit/(loss) before income tax	(595)	8,903	(558)	(947)	(4,906)	1,897
Segment income tax expense	-	(1,251)	(90)	-	(272)	(1,613)
Segment profit/(loss) for the year before non-controlling interests	(595)	7,652	(648)	(947)	(5,178)	284
For the year ended 31 December 2008
Segment revenue	-	37,022	18,941	9,090	-	65,053
Segment gross profit	-	26,024	2,409	184	-	28,617
Segment operating profit/(loss)	(1,231)	7,290	390	1,002	(2,595)	4,856
Segment finance costs	-	(1,362)	(408)	(2,383)	(2,766)	(6,919)
Segment profit/(loss) before income tax	(1,231)	5,928	(18)	(1,381)	(5,361)	(2,063)
Segment income tax expense	-	(756)	(33)	-	(122)	(911)
Segment profit/(loss) for the year before non-controlling interests	(1,231)	5,172	(51)	(1,381)	(5,483)	(2,974)

 

 

Health Care Division

 

Lansen Group

 

Turnover of Lansen Pharmaceutical Holdings Limited and its subsidiaries (the "Lansen Group") increased by 29.5% (2008:53.3%) this year to USD47,932,000 (2008: USD37,022,000) and gross profit increased by 24.6% (2008: 58.2%) this year to USD32,439,000 (2008: USD26,024,000).

 

This significant improvement largely resulted from the strong performance of the pharmaceutical industry in China (despite the effects of the global financial crisis) and the Lansen Group's continued expansion of its distribution network. The gross profit margin for the Lansen Group was 67.7% in 2009 (2008: 70.3%).

 

In 2009, the Lansen Group maintained an operating profit margin of 19.5% (2008: 19.7%).

 

Haotian Group

 

With Xian Haotian Bio-Engineering Technology Co. Ltd. and its group companies (the "Haotian Group") concentrating on the development of its inositol project, turnover decreased by 5.6% this year to USD17,888,000 (2008: USD18,941,000) and gross profit increased by 4.7% this year to USD2,522,000 (2008: USD2,409,000). Due to an increase in foreign exchange loss, the operating profit decreased 50.8.% to USD192,000 (2008: USD390,000). The Haotian Group's operating profit margin was 1.1% (2008: 2.1%).

 

As at year end, the Company had increased its ownership of Xian Haotian to 100%. In March 2010, the Company brought its total investment in the Haotian Group to USD32,850,000.

 

Going forward, the Haotian Group's principal business will be in the manufacture, marketing and sale of inositol, a key ingredient for health care products. The facilities required for this project are expected to be completed in the second half of 2010. The Company expects the Haotian Group to become a significant contributor to its financial results within the next couple of years.

 

Hotel Division

 

Turnover of the hotel division decreased this year to USD8,379,000 (2008: USD9,090,000). Despite the difficult hotel operating environment in 2009, the Group's hotel, the Crowne Plaza Hotel & Suites Landmark Shenzhen (the "Hotel") has managed through stringent expense control to increase its gross profit to USD485,000 (2008: USD184,000).

 

The operating profit of the hotel division for the year was USD513,000 (2008: USD1,002,000).

 

The Hotel should steadily benefit from the global guest booking network of the InterContinental Hotels Group and its management expertise. The combination of a worldwide economic recovery and a greater market awareness of the hotel following two years of repositioning under a new brand name should lead to growth in the Hotel's contribution to the Group.

 

Corporate Office

 

The corporate office expenses were similar to those incurred in 2008. The apparent increase in corporate administrative expenses was primarily due to recognition of a foreign exchange gain of USD390,000 in 2008 compared to a gain of only USD30,000 in 2009.

 

The Group profit before income tax for 2009 was USD1,897,000 (2008: loss of USD2,063,000).

 

The Group profit before non-controlling interests for 2009 was USD284,000 (2008: loss of USD2,974,000), which was arrived at mainly after deducting finance costs totalling USD4,388,000 (2008: USD6,919,000). As set out in the table above the gross finance costs were as follows:

 

• USD1,204,000 (2008: USD1,770,000) in the health care division;

 

• USD1,460,000 (2008: USD2,383,000) in the hotel division; and

 

• USD1,724,000 (2008: USD2,766,000) in the corporate office.

 

The decrease in finance costs in the corporate office was mainly due to a decrease in interest rates in 2009.

 

Net Assets and Gearing

 

Net assets at the end of 2009 were USD114,771,000 (2008: USD72,208,000). The increase was primarily owing to the USD45,400,000 (£27,900,000), (USD43,600,000 net of expenses (£26,800,000)) proceeds of the placing and open offer of 101,632,670 New Common Shares at 27.5 pence per share (the "Placing and Open Offer"). As a result, net assets per share at the end of 2009 were USD0.30 (2008: USD0.26) and gearing decreased significantly to 64.5% (2008: 140.1%)

 

RECENT DEVELOPMENTS

 

Completion of Placing and Open Offer

 

As announced on 7 December 2009, the new common shares issued pursuant to the Placing and Open Offer were admitted to trading on the London Stock Exchange. The net proceeds of the Placing and Open Offer were used to reduce the Group's debt and associated financing costs, strengthen its financial position and improve the Group's ability to capitalise on suitable investment opportunities as they arise.

 

Appointment of Directors

 

On 21 January 2010 Cathay announced the appointment of Mr. Lee Jin-Yi ("Mr. Lee") and Mr. Siu Ka Chi Eric ("Mr. Siu") to the Board of Directors (the "Board") of the Company with effect from that date. Mr. Lee was appointed Chief Executive Officer, and Mr. Siu was appointed Finance Director. Brief biographical details of Mr. Lee and Mr. Siu are set out in the Annual Report.

 

The Company also announced that Mr. Wu Zhen Tao, former Chief Executive Officer of the Company remains as an executive director of the Company and was appointed Chairman of a newly-formed Executive Committee. The Executive Committee comprises of all the Company's executive directors and such other senior executives as the Board shall appoint. The Executive Committee shall assist the Board in monitoring and supervising the operations of the Company.

 

Investment in the Haotian Group

 

On 12 February 2010, the Company announced that it had settled the acquisition of the 49% interest in Xian Haotian for a total cash consideration of approximately RMB82.8 million (approximately USD12.1 million). The put and call option agreement entered into on 28 September 2007, and subsequently extended was lapsed. It was further announced that, in place of the existing arrangements for the transfer of shares in Dragon Diligent to the management of the Haotian Group, further incentives will apply as set out in the announcement.

 

Flotation and Partial Disposal of the Lansen Group

 

On 1 April 2010, the Company announced that it is working towards a flotation of Lansen Pharmaceutical Holdings Company Limited, the proposed new holding company of the Lansen Group, on the Hong Kong Stock Exchange. In preparation for the proposed flotation, a corporate reorganisation of the Lansen Group is to be completed, further details of which were set in the Class 1 Circular sent to shareholders on 1 April 2010 (the "Reorganisation").

 

The Board, in conjunction with the Lansen Group and in consultation with the sole bookrunner, will in due course make the final decision as to whether or not to proceed with the flotation (and, if so, on what terms) having regard to, amongst other things, prevailing market conditions.

 

The Group has invested in aggregate USD20,117,000 in the Lansen Group. The Group has received dividends of USD5,556,000 and expects to receive a pre-flotation dividend of approximately USD4,300,000 from the Lansen Group. The net amount invested prior to completion of the flotation will be USD10,261,000. We believe that upon listing, the net proceeds from the partial disposal of the Lansen Group should enable the Group to recoup all its investments made in the Lansen Group and remain a majority shareholder of the Lansen Group.

 

The special general meeting held to approve the flotation also provided the opportunity to approve certain amendments to the Company's bye-laws to enable the Company to hold treasury shares. Treasury shares may be sold for cash, cancelled or transferred to an employee share plan (should the Company adopt such a plan in the future). The ability to hold treasury shares would provide the Company with greater flexibility in managing its share capital, and may reduce the cost of capital.

 

The resolutions to approve the flotation and partial disposal of the Group's interest in the Lansen Group and to amend the bye-laws of the Company were approved at a special general meeting held on 19 April 2010.

 

Share Option Plan

 

In order to provide long term incentive arrangements for the employees and executive directors of the Company, the Board proposes that the Company adopts a share option plan (the "Plan"). The primary purpose of the Plan is to align the interests of Company employees and executive directors more closely with those of the shareholders of the Company and to enable the development of the Group's businesses by attracting, retaining and motivating personnel with appropriate skills.

 

Under the Plan, selected eligible employees and executive directors of the Company (the "Eligible Participants") may be granted awards of options exercisable into common shares of the Company at not less than an amount equal to the average of the closing middle-market quotations of the Company's share, as derived from the Daily Official List of the London Stock Exchange over such number of days (not exceeding 30) immediately preceding the date of grant as the Committee may decide. It is expected that the exercise price will usually be an amount equal to the closing middle-market quotations of the Company's share over the preceding 30 days. The options so granted cannot be exercised during the first three years from the time of grant. At the expiry of the three year period from the date of grant, subject to satisfaction of performance conditions to the exercise of options under the Plan, Eligible Participants can exercise options granted in whole or in part at any time but in any event not later than the tenth anniversary from the time of grant (the "Cliff Vesting"). The market value of options at the time of grant to any Eligible Participant will be limited to not more than 200% of his/her annual base salary in the year of grant.

 

Whilst the Cliff Vesting of awards under the proposed Plan described above is a departure from the best practice guidelines issued by institutional investor bodies in the UK, it is in accordance with market practice in the Hong Kong and PRC markets. The Company will, whenever practicable, adhere to the best practice guidelines in the UK. However, as the principal business operations of the Group are in China, this departure is considered appropriate in order for the Company to put in place long term incentive arrangements, which will allow the Company to attract talents to the Group in this region.

 

In accordance with best practice and UK corporate governance guidelines, the total number of shares of the Company to be issued under the Plan will be limited to 5% of the Company's issued share capital from time to time, in any rolling ten year period. Following the approval of shareholders in the general meeting, it is proposed that the Plan will be administered and managed by the Company's Executive Committee and approved by the Remuneration Committee.

 

The resolution proposed to adopt the Plan is set out in the notice of Annual General Meeting to be sent to shareholders separately.

 

CONCLUSION

 

Supported by China's dynamic economy, it is expected that our healthcare and related businesses under the guidance of new management should generate long-term organic growth and improve shareholder returns in the future.

 

We will continue to explore potential business opportunities in the healthcare and pharmaceutical markets in China. The Board will consider opportunities which would strengthen our product pipeline and generate synergies with existing portfolio investments and will also consider, where appropriate, investing in new products and businesses which could lead the Company to other high growth segments within the fast growing China markets.

 

The Board continues to believe that there are other attractive investment opportunities in China which could provide new sources of earning potential and capital growth.

 

On behalf of the Board, I would also like to thank our staff for their continued dedication and commitment.

 

Sum Soon Lim

Chairman

 

 

Operation Review

 

HEALTH CARE BUSINESSES

 

The Lansen Group

 

The Lansen Group is a specialty pharmaceutical group principally engaged in the development, production and sale of rheumatic specialty prescription western pharmaceuticals in the PRC. The Lansen Group currently owns and operates modern manufacturing facilities occupying approximately 64,000 square meters of land with total gross floor area of approximately 19,400 square meters located in Ningbo, PRC. Their operating facilities are Good Manufacturing Practice certified by the State Food and Drug Administration and adhere to stringent and closely monitored quality assurance and safety control process. They have three production lines of bulk pharmaceuticals, one modern Chinese medicine extraction line, one solid formulation workshop, one liquid formulation workshop and one cream workshop.

 

The Lansen Group focuses on the therapeutic treatment of rheumatic diseases involving joints, soft tissues and connective tissues, including rheumatic arthritis, osteoarthritis, back pain and soft tissue pain. In 2008, the Lansen Group had a leading market share with approximately 22.8% of sales of disease modifying anti-rheumatic drugs ("DMARDs") in the PRC.

 

Lansen operates in the large and fast growing rheumatology market in the PRC. Economy growth in the PRC has been outpacing that of the global economy in recent years. In particular the rate of development of the PRC pharmaceutical industry is faster than the average level in the world. The prescription pharmaceutical market in turn is growing faster than the China's pharmaceutical market as a whole. Within the prescription pharmaceutical market, the rheumatic specialty prescription western pharmaceuticals are among the fastest growing prescription western pharmaceuticals. In recent years, growth of therapeutic treatment by DMARDs has outpaced that of the therapeutic treatment by anti-inflammatory and analgesic drugs in treating rheumatic diseases. This growth is being fueled by a growing population relying on pharmaceutical treatment, increasing patient access to healthcare insurance and greater spending power.

 

The Lansen Group has continued to perform well in 2009 and is expected to generate high growth for the Group in the coming years due to a number of factors described below:

 

• The Lansen Group has expanded and strengthened its distribution network, which is now operated by a team of 260 sales professionals. The network covers approximately 1000 hospitals in 29 provinces and cities and is a highly efficient and effective distribution channel;

 

• China has been and is expected to continue to be one of the fastest growing major economies.

 

• The pharmaceutical industry has performed better than all industries average in China, even when the global financial crisis started to impact the Chinese economy;

 

• Demand for drugs applied in specialised diseases has experienced faster growth than demand for common drugs; and

 

• The Lansen Group is a leader in DMARDs in the rapid growing rheumatology market

 

As a result of these factors, the Lansen Group has already formed an entry barrier which can not be easily overcome by competitors. The Lansen Group intends to build on its strengths and quality reputation in rheumatology and aims to achieve consistent high growth in the coming years. The Lansen Group also has a pipeline of new drugs to be developed in the next few years.

 

The Haotian Group

 

As at year end, the Company had increased its ownership of Xian Haotian to 100%. The Haotian Group is involved in the manufacture, marketing and sale of plant extracts used as active ingredients in food, beverages, cosmetics, dietary supplements and healthcare products.

 

Since the initial investment by the Company, the Haotian Group has been engaged mainly in the construction of its inositol project. Inositol is a vitamin-like substance commonly extracted from plants and used as an ingredient in dietary healthcare products. It has been reported to prevent hardening of the arteries, is important in fat and cholesterol metabolism and helps remove fats from the liver. The project is in the final stage of the construction and has begun trial production, including fine tuning of the production process. In parallel with construction of the project, the Haotian Group has continued to refine its extraction technology and process, and reduce production costs. The Company anticipates that the inositol business will become the principal business of the Haotian Group and a major contributor to the growth in the Group's profits in 2011 and beyond.

 

Botai

 

Botai is currently in the process of applying for a licence for manufacture of collagen products in the PRC for use in aesthetic medicine.

 

Longbai

 

Since 2005, Longbai has been applying for product licences for oral fast release drug applications. To date production licences have been granted for two of the six drugs.

 

HOTEL OPERATIONS

 

The Hotel is now one of the leading luxury hotels in Shenzhen and in Southern China, having been converted from a configuration of over 550 rooms to a configuration of 304 enlarged superior rooms and suites. The average room size is now 68 sq. m. The Hotel now has enhanced banquet and meeting facilities and a unique butler service for all guests. The Hotel is highly recommended by Tripadvisor, a US website which features advice from travelers covering over 300,000 hotels and attractions. In 2009, the Hotel was also recognised by the Shenzhen Special Zone Daily as Best Business Hotel.

 

The worldwide business slow down continued to reduce business travel to China in 2009. While average occupancy increased to 45.4% (2008: 43.8%), average room rate decreased to USD113 (2008: USD125), resulting in less improvement than expected.

 

OUTLOOK

 

Our healthcare business should generate long-term organic growth and improved shareholder returns.

 

Rheumatology is still in an early stage of development in China and should offer higher growth potential than the pharmaceutical industry in general. The Lansen Group intends to build on its strengths, particularly its reputation and market position in rheumatology, to achieve consistent high profit growth. The Lansen Group's development of new drugs and drug applications are in progress and it is expected that a pipeline of new drugs will be developed over the next few years.

 

Our inositol business should become a major contributor to the growth in the Company's profits in 2011 and beyond.

 

The Hotel should continue to benefit from the experienced management team and we expect it to continue contributing positively to Group profits.

 

The Company will seek further investment opportunities in the exciting China health care and pharmaceutical markets to create synergies with existing portfolio companies such as the Lansen Group and the Haotian Group, and to identify other fast growing segments for investment to generate further long-term growth for shareholders.

 

 

GROUP STATEMENT OF COMPREHENSIVE INCOME

 

	Note		Year ended		Year ended
			31 December		31 December
			2009		2008
			USD'000		USD'000
REVENUE	2		74,199		65,053
COST OF SALES			(38,753)		(36,436)
GROSS PROFIT			35,446		28,617
OTHER INCOME			854		2,287
SELLING AND DISTRIBUTION EXPENSES			(18,652)		(15,353)
ADMINISTRATIVE EXPENSES			(11,363)		(10,695)
PROFIT FROM OPERATIONS			6,285		4,856
FINANCE COSTS			(4,388)		(6,919)
PROFIT/(LOSS) BEFORE INCOME TAX			1,897		(2,063)
INCOME TAX EXPENSE	4		(1,613)		(911)
PROFIT/(LOSS) FOR THE YEAR			284		(2,974)
OTHER COMPREHENSIVE (LOSS)/INCOME
EXCHANGE DIFFERENCES ON TRANSLATING FOREIGN OPERATIONS			(726)		1,620
DEFICIT ON REVALUTION OF HOTEL PROPERTIES			(5,109)		(186)
DEFERRED TAX RELATING TO DEFICIT ON REVALUATION OF HOTEL PROPERTIES			713		(3,285)
OTHER COMPREHENSIVE LOSS, NET OF TAX			(5,122)		(1,851)
TOTAL COMPREHENSIVE LOSS FOR THE YEAR			(4,838)		(4,825)
(LOSS)/PROFIT FOR THE YEAR ATTRIBUTABLE TO: OWNERS OF THE PARENT NON-CONTROLLING INTERESTS			(308) 592		(3,369) 395
			284		(2,974)
TOTAL COMPREHENSIVE (LOSS)/ INCOME ATTRIBUTABLE TO: OWNERS OF THE PARENT NON-CONTROLLING INTERESTS			(5,430) 592		(5,136) 311
			(4,838)		(4,825)
LOSS PER SHARE ATTRIBUTABLE TO OWNERS OF THE PARENT	5
BASIC and DILUTED			(0.11 cents)		(1.22 cents)

 

 

GROUP STATEMENT OF FINANCIAL POSITION

 

	As at		As at		As at
	31 December		31 December		31 December
	2009		2008		2007
	USD'000		USD'000		USD'000
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment, comprise:	158,128		156,137		147,843
Hotel properties, at valuation (of which, equity investment
cost was USD97,730,000 (2008: USD101,534,000))	120,835		125,850		124,982
Other property, plant and equipment	37,293		30,287		22,861
Land use rights	3,438		3,090		2,953
Investment property	1,561		1,560		1,464
Intangible assets	3,861		2,550		1,299
Goodwill	25,622		10,012		8,702
Interest in an associate	-		-		804
Loans to non-controlling interests	15		380		645
	192,625		173,729		163,710
CURRENT ASSETS
Inventories	11,405		8,997		8,559
Trade and other receivables	39,731		35,600		24,421
Investments	385		385		-
Land use rights	76		68		63
Pledged bank deposits	800		878		5,466
Cash and cash equivalents	31,800		15,763		11,247
	84,197		61,691		49,756
TOTAL ASSETS	276,822		235,420		213,466
EQUITY AND LIABILITIES
CAPITAL AND RESERVES
Called up share capital	18,875		13,793		13,793
Share premium	49,187		10,216		10,216
Capital and special reserve	97,502		97,502		42,923
Revaluation reserve	6,660		11,056		63,429
Exchange equalisation reserve	(25,773)		(25,047)		(21,692)
Statutory reserve	2,011		1,883		1,849
Profit and loss account	(48,261)		(47,825)		(44,456)
EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT	100,201		61,578		66,062
NON-CONTROLLING INTERESTS	14,570		10,630		9,784
TOTAL EQUITY	114,771		72,208		75,846
NON-CURRENT LIABILITIES
Borrowings	59,192		69,030		41,410
Deferred tax liabilities	19,958		20,399		16,992
	79,150		89,429		58,402
CURRENT LIABILITIES
Borrowings	46,411		31,667		36,823
Current tax liabilities	624		528		671
Trade and other payables	35,866		41,588		41,724
	82,901		73,783		79,218
TOTAL LIABILITIES	162,051		163,212		137,620
TOTAL EQUITY AND LIABILITIES	276,822		235,420		213,466

 

 

GROUP STATEMENT OF CASH FLOWS

 

			Year ended		Year ended
			31 December		31 December
			2009		2008
			USD'000		USD'000
Cash flows from operating activities
Profit/(loss) before income tax			1,897		(2,063)
Adjustments for:
Finance costs recognised in profit or loss			4,388		6,919
Interest income			(53)		(746)
Provision for/(reversal of) trade receivables impairment			47		(665)
Provision for other receivables impairment			2		6
Depreciation			2,283		1,937
Amortisation of land use rights			73		63
Write off of intangible assets			15		16
Loss on disposal of property plant and equipment			111		129
Gain on acquisition of non-controlling interests			(167)		-
Operating cash flows before movements in working capital			8,596		5,596
(Increase)/decrease in inventories			(2,408)		521
Increase in trade and other receivables			(3,687)		(8,794)
Decrease in trade and other payables			(17,429)		(1,446)
Cash used in operations			(14,928)		(4,123)
Interest paid			(4,388)		(6,919)
Income tax paid			(1,282)		(808)
Net cash used in operating activities			(20,598)		(11,850)
Cash flows from investing activities
Purchase of property, plant and equipment			(9,469)		(7,417)
Purchase of land use rights			(427)		-
Purchase of intangible assets			(1,324)		(421)
Acquisition of subsidiaries			-		(1,355)
Payments for investments			-		(385)
Interest received			53		746
Decrease in pledged bank deposits			78		4,876
Net cash used in investing activities			(11,089)		(3,956)
Cash flows from financing activities
Capital element of finance lease payment			(6)		(12)
Proceeds from borrowings			38,000		40,545
Repayment of borrowings			(33,015)		(21,290)
Proceeds from issue of shares, net of expenses			44,053		-
Proceeds from loans to non-controlling interests			-		286
Loans to non-controlling interests			-		(23)
Dividends paid to non-controlling interests			(401)		(288)
Capital injection from non-controlling interests			-		96
Acquisition of non-controlling interests			(114)		(147)
Net cash generated from financing activities			48,517		19,167
Net increase in cash and cash equivalents			16,830		3,361
Cash and cash equivalents at beginning of year			15,668		11,125
Effects of exchange rate changes			(698)		1,182
Cash and cash equivalents at end of year			31,800		15,668
Analysis of cash and cash equivalents
Cash and bank balances			31,800		15,763
Bank overdrafts			-		(95)
			31,800		15,668

 

 

NOTES

 

1. BASIS OF PREPARATION AND ACCOUNTING

 

This preliminary results statement and the consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS) including all new and revised standard effective for the period commencing 1 January 2009.

These consolidated financial statements have been prepared under the historical cost convention as modified by the revaluation of hotel properties and investment property.

 

The preparation of financial statements in accordance with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of current events and actions, actual results may ultimately differ from those estimates.

 

The financial statements have been prepared on a going concern basis which assumes the realisation of assets and satisfaction of liabilities in the ordinary course of business. The Directors are of the opinion that the Group will have sufficient cash resources to satisfy its future working capital and other financial requirements.

 

The Directors do not foresee that the banks will not continue to make available the loan facilities for the Group. Accordingly, the Directors are satisfied that the Group will be able to meet in full its financial obligations as and when they fall due for the next twelve months from 31 December 2009 without significant curtailment of operations and are satisfied that it is appropriate to prepare the financial statements on a going concern basis.

 

Should the Group be unable to continue in business as a going concern, adjustments would have to be made to restate the value of assets to their recoverable amounts, to provide for any further liabilities which might arise and to reclassify non-current assets and non-current liabilities as current assets and current liabilities respectively.

 

 

 2. SEGMENTAL INFORMATION

Operating Segments

Management currently identifies the Group’s four product and service lines as operating segments as follows:

1) The hotel operations segment is a hotel located in the Lowu district of Shenzhen in the PRC;2) The research and development segment is engaged in the development of pharmaceutical projects;3) The Lansen Group segment is focused on the manufacture, marketing and sale of speciality western pharmaceuticals, modern Chinese medicine extracts and generic pharmaceuticals in the PRC; and4) The Haotian Group segment is involved in the manufacture, marketing and sale of plant extracts used as various active ingredients in food, beverages, cosmetics, dietary supplements and healthcare products.

These operating segments are monitored and strategic decisions are made on the basis of adjusted

segment operating results. Segment information can be analysed as follows for the reporting periods

under review.

 

		Health Care			Hotel Operations	Total
		Research &	Lansen	Haotian
		Development	Group	Group
		2009	2009	2009	2009	2009
		USD'000	USD'000	USD'000	USD'000	USD'000
	Segment revenue	-	47,932	17,888	8,379	74,199
	Segment operating profit/(loss)	(595)	9,357	192	513	9,467
	Segment finance costs	-	(454)	(750)	(1,460)	(2,664)
	Segment profit/(loss) before income tax	(595)	8,903	(558)	(947)	6,803
	Depreciation and amortisation of non-financial assets	(279)	(912)	(918)	(188)	(2,297)
	(Provision for)/reversal of trade and other receivables impairment	-	(52)	3	-	(49)
	Loss on disposal of property, plant and equipment	-	(18)	(93)	-	(111)
	Segment assets	4,387	57,694	49,703	140,530	252,314
	Segment liabilities	137	30,177	22,029	34,624	86,967
	Additions to non-current segment assets during the year	356	5,583	5,085	144	11,168

 

		Health Care			Hotel Operations	Total
		Research &	Lansen	Haotian
		Development	Group	Group
		2008	2008	2008	2008	2008
		USD'000	USD'000	USD'000	USD'000	USD'000
	Segment revenue	-	37,022	18,941	9,090	65,053
	Segment operating profit/(loss)	(1.231)	7,290	390	1,002	7,451
	Segment finance costs	-	(1,362)	(408)	(2,383)	(4,153)
	Segment profit/(loss) before income tax	(1,231)	5,928	(18)	(1,381)	3,298
	Depreciation and amortisation of non-financial assets	(303)	(811)	(662)	(201)	(1,977)
	(Provision fort)/reversal of trade and other receivables impairment	-	666	(7)	-	659
	Loss on disposal of property, plant and equipment	-	(128)	(1)	-	(129)
	Segment assets	3,588	50,981	33,071	145,778	233,418
	Segment liabilities	157	30,856	8,621	40,268	79,902
	Additions to non-current segment assets during the year	17	1,075	6,087	1,284	8,463

 

The totals presented for the Group's operating segments reconcile to the entity's key financial figures as presented in its financial statements as follows:

 

			Year ended		Year ended
			31 December		31 December
			2009		2008
			USD'000		USD'000
Reportable segment finance costs			(2,664)		(4,153)
Unallocated corporate finance costs			(1,724)		(2,766)
Finance costs			(4,388)		(6,919)
Reportable segment profit			6,803		3,298
Unallocated corporate income			4		754
Unallocated corporate expenses			(4,910)		(6,115)
Profit/(loss) before income tax			1,897		(2,063)
Reportable segment assets			252,314		233,418
Other corporate assets			24,508		2,002
Group assets			276,822		235,420
Reportable segment liabilities			86,967		79,902
Unallocated corporate borrowings			69,552		57,655
Other corporate liabilities			5,532		25,655
Group liabilities			162,051		163,212
Reportable depreciation and amortisation of non-financial assets			2,297		1,977
Unallocated corporate depreciation			59		23
Group depreciation and amortisation of non-financial assets			2,356		2,000

 

The Group's revenues and its non-current assets (other than financial instruments) are divided into the following geographical areas:

 

		Revenue			Non-current assets
		2009	2008		2009	2008
		USD'000	USD'000		USD'000	USD'000
	PRC (domicile)	59,132	48,990		192,610	173,349
	Overseas	15,067	16,063		-	-
	Total	74,199	65,053		192,610	173,349

 

The geographical location of customers is based on the location at which the services were provided or the goods delivered. The geographical location of the non-current assets is based on the physical location of the asset.

 

No single customer's revenue amounted to 10 per cent or more of the Group's revenue.

 

3. DIRECTORS' EMOLUMENTS

 

The Directors at 31 December 2009 were as follows:

 

James R.H.Buchanan (resigned on 30 April 2009)

Sum Soon Lim (appointed on 30 April 2009)

Wu Zhen Tao

Stephen B. Hunt

Patrick Sung

John H. Cosson (resigned on 30 April 2009)

Kenneth K. Toong (appointed on 30 April 2009)

 

Their aggregate emoluments for the year ended 31 December 2009 were USD489,000 (2008: USD385,000).

 

4. INCOME TAX EXPENSE

 

		Year ended	Year ended
		31 December	31 December
		2009	2008
		USD’000	USD’000
Current tax  – PRC Enterprise Income Tax		1,288	789
Deferred tax  – PRC withholding tax		325	122
		1,613	911

5. LOSS PER SHARE ATTRIBUTABLE TO OWNERS OF THE PARENT

 

Basic and diluted loss per share is based upon the loss after tax attributable to owners of the parent of USD308,000 (2008: loss of USD3,369,000) and the weighted average number of A Shares and Common Shares in issue during the year of 11,384,659 and 272,944,834 respectively (2008: A Shares, Common Shares: 11,797,446 and 264,062,658).

 

The Company did not have any potential common shares outstanding.

 

6. FINANCIAL INFORMATION

 

This preliminary results statement was approved by the Board of Directors on 27 April 2010. The above results for the year ended 31 December 2009 have been abridged from the full Group accounts for that year, which received an unqualified auditors' report and which will be delivered to the Registrar of Companies shortly.

 

The Annual Report and Financial Statements will be posted to shareholders as soon as practicable. Further copies will be available from the company's registered office at Canon's Court, 22 Victoria Street, Hamilton HM12, Bermuda.

 

The Annual General Meeting will be held at the Company's offices at Suites 1203-4, 12/F, Li Po Chun Chambers, 189 Des Voeux Road Central, Hong Kong on 3 June 2010 at 6:00 p.m. (11:00 a.m. London time). In addition, a shareholder information session is to be held on 18 May 2010 at the offices of Piper Jaffray Ltd. at One South Place, London E2M 2RB at 11:00 a.m. Notice of the Annual General Meeting will be sent to shareholders by way of a separate circular.

 

 

This information is provided by RNS

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