Taihua plc

June 30, 2009 02:00 ET

Final Results for Taihua plc

                                              Taihua plc
                ('Taihua', the 'Company' or, together with its subsidiary, the 'Group')
                   Preliminary Results for the Twelve Months Ended 31 December 2008

As  announced in our trading update of 18 February 2009, the combined effects of the global economic downturn and the
Chinese  Government's  temporary ban on the production of traditional Chinese medicines  (TCMs)  had  an  unavoidable
impact on the trading performance of Taihua during the financial year ended 31 December 2008.

In  common  with  a large number of other suppliers worldwide, our sales and profit before tax for the  year  show  a
decline  on  the previous year of 41% to RMB42.3 million (£3.27 million) and 59% to RMB16.4 million (£1.26  million),
respectively. While this is a  disappointment, I believe it is important to note that the Company remained profitable
for  its second consecutive full year on AIM,  and ended the year with cash reserves of RMB82.4 million (£8.3 million
as of 31 December).

Sales  of  our  two  main  product lines - the anti-cancer active pharmaceutical ingredients  (APIs)  Paclitaxel  and
Homoharringtonine - fell as a result of pricing pressures and the Company's decision to demand upfront  payment  from
customers  with  a  poor credit rating.  Prices of  our APIs decreased by around 26.5% during 2008,  with  Paclitaxel
dropping  from  RMB1,250  per  gram  in May 2008 to RMB900 per gram at the end of  the  year,  and  Homoharringtonine
decreasing   from  RMB2,950 per gram to RMB2,200 per gram over the same period. These figures  represent  significant
price falls of 28% and 25% respectively, and in part also reflect additional pressures exerted by the introduction of
semi-synthetic  Paclitaxel  by  some of our competitors. At the same time, drops in volume  sales  by  16%  and  28%,
respectively,  for  Paclitaxel and Homoharringtonine, added to the revenue losses that led inevitably  to  the  sharp
profits fall we are reporting with these results. Volume sales fell as a result of our decision to tighten our credit
controls and reduce the risk of losses through unfulfilled payments.

Matters  were  not  helped, either, by the unexpected decision of China's State Food and Drug  Administration  (SFDA)
during  the  course  of the year to implement a nationwide suspension over the production of TCMs  following  product
quality problems among some other manufacturers. Although Taihua was subsequently able to resume production following
receipt of approval from the SFDA at the end of August, sales for the year as a whole also remained depressed, and as
a result for the period as a whole represented only 9% of total group sales, down from 21% during 2007.

Looking  forward, I am happy to report that we are steadily recovering from these setbacks, underpinned in  no  small
measure by our strong cash reserves. Sales of our product lines are rising again, and - among other measures - we saw
the  potential for new growth realised during the year in South America, where sales of Paclitaxel outstripped  those
from  Russia for the first time. These two areas remain our key markets for Paclitaxel, which we are not licensed  to
sell in the domestic Chinese market, and we continue to investigate the potential for development in other markets as
well as working to identify potential new international distributors for our products.

Our main focus for Paclitaxel, however, remains entry into the European anti-cancer market and in this regard we were
able  to  report last month that our appointed regulatory agent, Beijing Canny, has now completed the  submission  to
support  our  application for a Certificate of Suitability, and we are currently awaiting the necessary confirmations
from the European Directorate for the Quality of Medicines (EDQM).

At  the  same  time, Taihua continues working to rebuild the damaged sales of TCMs, which we intend to retain  as  an
important  component of future revenue streams. We are confident we can improve TCM sales volumes and  revenues  over
the course of the current year.

We have meanwhile continued with our steady investment programme at our two production lines at Luonan, near Xi'an in
Shaanxi  Province,  aware that our Paclitaxel and Homoharringtonine purity levels of more  than  99%  are  a  crucial
element to our plans for entry into Europe and wider international sales growth. Our yew tree seedlings and nurseries
in the Qinling Mountains near Luonan also remain an important component of our business model, supplying raw material
from  which  we plan to manufacture Paclitaxel, and thus steadily decreasing our dependence on outside suppliers  and
increasing our profit margin. The Company's requirements remain underpinned by long-term supply agreements with other
Chinese yew tree growers. There are now more than 65,000 trees in our seedlings and nurseries, reflecting a continued
increase in our seeding programme.

With  these positive aspects in place, the Board will continue to maintain the tight credit controls that  helped  us
weather the economic trials of 2008. During the course of the year we extended our general credit terms to 180  days,
but  we  managed  through  the  implementation  of  tighter risk controls  to  bring  down  our  accounts  receivable
significantly.  While  this has involved turning some business away, we remain confident this stringent  approach  to
financial management will stand us in good stead through our recovery.

Finally,  I  should  like to extend the thanks of the Board to Dr Mike Wyllie, who resigned from  his  post  of  Non-
executive  Director  last  November. His valuable skills in the bio-pharmaceutical  industry  provided  an  important
contribution  to  the  Company's  early development on the AIM market. Following his departure  as  Chief  Scientific
Officer, we aim to continue with R&D programmes to identify and develop new active pharmaceutical ingredients that we
believe are a crucial element to Taihua's future growth.

In  summary,  although 2008 proved to be a year of setbacks, I believe that the Board and management of  the  Company
implemented policies that provide a strengthened platform for recovery. At the year end, Taihua had a net asset value
of  over  RMB123 million (£12.4 million as at 31 December) and cash of over RMB82 million (£8.3 million) but  our  31
December closing share price of 7.6p valued the Company at £6.2 million. It is unfortunate that in view of the  harsh
realities  of  2008, the Company is not recommending a dividend, but with solid cash reserves and  recovering  sales,
backed  by  the  continued  potential  for our long-awaited entry into the  European  market,  I  am  confident  that
shareholders can now look forward to better returns.

Richard Tanner
Non- executive Chairman
29 June 2009

Exchange rate:
£1 = RMB 12.92 (2008 average)
£1 = RMB  9.92 (31 December 2008)

For further information contact:

Katy Mitchell, W H Ireland Ltd:                                +44 (0) 161 832 2174
Allan Piper/ Jiang Lei, First City Public Relations:           +44 (0) 20 7242 2666/ +852 2854 2666


Financial results

Sales  and profits during 2008 were impacted by the twin effects of a temporary nationwide Chinese Government ban  on
the  manufacture of all traditional Chinese medicines (TCMs) and the effects of the global financial  crisis.  During
the  first half of the year, adverse exchange rate fluctuations between the Renminbi (RMB) and US Dollar impacted the
sales  value  of Paclitaxel and Homoharringtonine, the two anti-cancer active pharmaceutical ingredients (APIs)  that
during  the year accounted for 91% of our revenues. The exchange-rate effects continued into the second half, when  a
sharp  decline  in volume sales was also accompanied by heavy downward price pressures. Overall, the average  selling
prices  of Paclitaxel and Homoharringtonine fell by 28% and 25%, respectively. As a result of these combined effects,
Group  revenues  fell 41% to RMB42.3 million (£3.27 million), pulling pre-tax profits down from last  year's  RMB39.8
million  to  RMB16.4 million (£1.26 million). While the Group continued to introduce cost-cutting efficiencies  where
possible, raw material costs remained stable, and the sales and price reductions led to an inevitable decrease in our
previously high operating margins. Earnings per share fell to RMB0.14 (1.08 pence).

Against  this  backdrop,  the Board took a deliberate decision during the second half to  tighten  the  credit  terms
available  to higher risk customers, adopting the view that it would be more prudent to reduce or cease  supplies  to
some  customers  rather than run the risk of unpaid invoices. These measures helped us further improve  our  year-end
cash  position to RMB82.4 million (£8.3 million as of 31 December).  The Group operates in a high growth sector,  and
it  remains our policy to sustain flexibility in our capital structure by maintaining a high availability  of  liquid
funds.   The primary objective of our capital management is to ensure we maintain a strong credit rating and  healthy
capital ratios in order to support future growth.

Market overview

Paclitaxel and Homoharringtonine

International and domestic demand for the anti-cancer treatments provided by Paclitaxel and Homoharringtonine remains
strong, but sales declined both in revenue and volume terms during the year. Together, the two products accounted for
91%  of  Group revenues, amounting to RMB38.3 million (£3.0 million). Paclitaxel revenues fell 29% to RMB16.4 million
(£1.3  million),  while  income from sales of Homoharringtonine dropped 36% to RMB21.9 million  (£1.7  million).  The
reductions  arose  partly as a consequence of the Board's decision to tighten credit terms to  higher-risk  customers
threatened by the global financial crisis, but the Group also had to contend with falling unit prices resulting  from
domestic and international competitive pressures, and adverse exchange rate fluctuations.

Sales of Paclitaxel, used outside China in the treatment of ovarian, breast and lung cancer, slipped to 16.9 kg, down
from  20kg during 2007, representing an average RMB900 per gram (2007: RMB1,250 per gram). In Russia, previously  our
largest Paclitaxel market, volumes fell to 7.1kg, but this setback was partially offset by an encouraging increase in
sales  to  South  America, which for the first time outstripped Russia, rising to 9.7 kg. The introduction  of  semi-
synthetic  Paclitaxel  by  some of our competitors added to the competitive pressures. However  our  application  for
approval  to enter the key European market is now under consideration by the European Directorate for the Quality  of
Medicines  (EDQM),  and we remain confident that our Paclitaxel purity levels of more than 99%, higher  than  Western
standards,  leaves us strongly positioned to achieve future growth internationally.

All of our current sales of Homoharringtonine continue to be into the domestic Chinese market, where the drug is used
in  the  treatment  of  myeloid  leukaemia. During the year we faced continued  pricing  pressures  from  competitors
attacking  our dominant market position, pulling average prices back to RMB2,402 per gram, down from RMB2,694.  Sales
volumes fell to 9.1kg, down from 12kg a year earlier.

In  the face of these unavoidable pressures, the Board is keeping its management operating procedures under review as
we  aim  to exploit the opportunities for steady recovery. We are constantly assessing our overseas expansion  plans,
taking into particular account the potential for growth afforded by national and regional economies. During the year,
we did not establish new international sales networks, in line with our stringent budgetary controls, and recognising
the need to wait for competitive pressures to stabilise.

Traditional Chinese medicines

Demand  for  traditional  Chinese medicines in China is both large and growing, presenting  clear  opportunities  for
Taihua,  which only holds a small market share. Sales revenues during 2008 slipped to RMB4.0 million (£0.31  million)
as  a direct consequence of the Chinese Government's decision to ban the manufacture of all TCMs following a product-
quality scandal involving other producers.
Although  China's State Food and Drug Administration (SFDA) granted approval for Taihua to commence production  again
at  the  end of August, sales for the year as a whole also inevitably remained depressed, and as a result represented
only 9% of total Group sales (2007: 21%).

Product                         Amount (kg)          RMB million      %age     Group total
GengNian An                     56.5                 0.44             1%       (2007: 2%)
Du Zhong Pin Ya Pian            63.0                 0.69             2%       (2007: 4%)
Zao Ren An Sheng Ke Li          57.6                 0.58             1%       (2007: 3%)
Bu Nao An Sheng                 63.8                 0.57             1%       (2007: 3%)
Jiang Zhi Jian Fei Pian         54.1                 0.52             1%       (2007: 3%)
Da Bai Du Jiao Nang             60.0                 0.64             2%       (2007: 3%)
Ru Ning Pian                    63.4                 0.57             1%       (2007: 3%)
TCM Total                                            4.01             9%       (2007: 21%)

One  of  Taihua's  strengths in this market continues to be its location in the Shangluo Region of Shaanxi  Province,
which  enjoys a natural diversity of plants used to provide the raw materials for TCMs. In addition, Taihua maintains
its own sales team.

In line with our continuous analysis of commercial potential the Board intends to take an aggressive approach towards
further development of the TCM market and the pursuit of new sales.

Credit controls

The  tight  banking  credit  controls that accompanied the global financial crisis had an inevitable  effect  on  the
ability  of  some  long-standing  Taihua customers to meet invoice payments. Many of the  Group's  clients  requested
extended credit during the final quarter of the year, and while we responded with the introduction of 180-day average
payment terms, we also cut back or ended sales to higher-risk customers. While this had a predictable negative impact
on sales volumes, we were also able to reduce our accounts receivable by 29% to RMB14.9 million (£1.2 million) at the
year  end. We have established strong relationships with our long-term customers, and believe that our current credit
policy will underpin our future growth plans.

Operating overview

Nursery and plantations

Taihua has been growing Taxus (yew) trees at its nurseries in the Qinling Mountains of Shaanxi Province since 2005 in
line with Group policy of reducing dependence on third-party suppliers of the raw material needed for the manufacture
of  Paclitaxel.  During  2008,  an additional 65,000 trees were planted in our 10,000 square  metre  nursery,  a  30%
increase  over new seedings during 2007. The Board continues to believe that Taihua's policy of maintaining  its  own
raw  material production base is prudent in view of Chinese legislation preventing the use of wild Taxus as a  source
of pharmaceutical ingredients.

The  plantations  have  the capacity to contain 400,000 trees, around 60% above the number needed  to  meet  Taihua's
current  annual requirement, and we continue to assess the commercial benefits of purchasing new land to  expand  the
acreage.  Among other considerations, we are anticipating the need for additional raw materials to meet  our  planned
entry into the European Paclitaxel market.

As  previously, our requirement for the leaves and branches of Cephalotaxus sinensis, the Chinese yew  tree  used  to
provide  raw  material for Homoharringtonine manufacture, continues to be met by purchases from  Luonan  Taiching,  a
supply  company  representing local farmers that also provides some of the additional Taxus raw  material  needed  by
Taihua for Paclitaxel production.

Luonan manufacturing facility

Both  of  the  Group's  production  lines  at Lounan, near our headquarters  in  Xi'an,  Shaanxi  Province,  operated
successfully during the year, with capacity levels of 50kg each for both Paclitaxel and Homoharringtonine.

Licence applications

In  line  with  our  plans to develop sales in the important European market, Taihua announced it  had  submitted  an
application to the EDQM for a Certificate of Suitability (COS) for Paclitaxel, through its regulatory agents, Beijing
Canny. In October, we received a request from the EDQM for supplementary data on certain aspects of the manufacturing
process.  Beijing  Canny  provided the additional information to the EDQM last month, and we  are  now  awaiting  the
necessary  confirmations. We have not received any guidance on how long this process may take. We have also  invested
in  our two production lines at Luonan and continued to document our standard operating procedures in order to comply
with European Good Manufacturing Practice (GMP) requirements.

The  Company's Russian certificate for sales of Paclitaxel remains valid until December 2011, while all of our  sales
in South America continue through local agencies.

Research and development

By  the end of December 2008, research projects were underway on possible new TCMs as well as into the development of
our  planned  injectible  Paclitaxel. The Group's R&D efforts are focused on developing new  products  and  enhancing
existing products to support anticipated demand from current and prospective customers. Many of our R&D projects  are
planned  to  exploit  the  potential advantages of the plant-life raw materials available  abundantly  in  the  local
Shangluo  region,  aiming to use our established technical expertise and well-developed extraction  and  purification
techniques. We believe this approach positions us well to increase our market competitiveness.


In  summary, although 2008 was a disappointing year for reasons almost entirely beyond the Board's control, I believe
the  Board acted effectively to mitigate the financial effects to the extent possible and to keep the Group on  track
for  its  anticipated recovery. We have further consolidated our relationships with long-term customers under  credit
terms  that  have  minimised the risks of undue financial exposure, and continued with our investment  plans  at  our
nursery  and plantations in the Qinling Mountains and our Luonan manufacturing facilities, where capacity levels  for
the  production  of  Paclitaxel leave room for our anticipated sales into the key European  market.  We  continue  to
maintain a close eye on our operating and marketing costs, and with increased cash reserves at the year end,  we  are
also aware of promising opportunities for new investment to help fuel future growth. Despite the setbacks of 2008,  I
am confident the Group will offer improved returns to shareholders on the path ahead.

Yunwu Liu
Chief Executive Officer
29 June 2009

Exchange rate:
£1 = RMB 12.92 (2008 average)
£1 = RMB  9.92 (31 December 2008)


                                         12 months to 31          12 months to           Period from 1 
                                           December 2008           31 December      January 2006 to 31
                                                                          2007           December 2007
                                                 RMB'000               RMB'000                 RMB'000 
Revenue                                           42,301                71,793                 124,417 
Cost of sales                                    (17,177)              (21,855)                (38,162)
                                         ----------------         -------------     -------------------
Gross profit                                      25,124                49,938                  86,255 
Other income                                         523                   407                     701 
Selling expenses                                  (5,463)               (5,009)                 (8,022)
General and administrative expenses               (3,810)               (5,544)                 (8,908)
                                         ----------------         -------------     -------------------
Operating profit                                  16,374                39,792                  70,026 
Finance costs                                          -                     -                     (88)
                                         ----------------         -------------     -------------------
Profit before income tax                          16,374                39,792                  69,938 
Income tax expense                                (5,261)               (5,908)                (10,020)
                                         ----------------         -------------     -------------------
Profit for the year / period                      11,113                33,884                  59,918 
                                         ----------------         -------------     -------------------
Attributable to :                                                                                     
     Equity holders of the parent
     company                                      11,113                33,884                  59,918 
                                         ----------------         -------------     -------------------
Earnings per share :                                                                                  
     Basic (RMB per share)                          0.14                  0.42                    0.77 
                                         ----------------         -------------     -------------------
     Diluted (RMB per share)                        0.14                  0.41                    0.77 
                                         ----------------         -------------     -------------------


                                            12 months to          12 months to
                                        31 December 2008           31 December
                                                 RMB'000               RMB'000 
NON-CURRENT ASSETS                                                             
    Property, plant and equipment                  2,830                 3,511 
    Land use rights                                1,562                 1,601 
    Biological assets                                830                   830
                                        -----------------         -------------
                                                   5,222                 5,942
                                        -----------------         -------------

CURRENT ASSETS                                                             
    Inventories                                    8,953                 8,104 
    Trade receivables                             14,872                20,903 
    Other receivables                                593                   689 
    Deposits and prepayments                      17,193                18,549 
    Amounts due from related companies                27                    29 
    Land use rights                                   39                    39 
    Cash and cash equivalents                     82,435                64,446 
                                        -----------------         -------------
                                                 124,112               112,759
                                        -----------------         -------------
TOTAL ASSETS                                     129,334               118,701
                                        -----------------         -------------
CURRENT LIABILITIES                                                        
    Trade payables                                   180                   302 
    Receipts in advance                              169                   156 
    Accrued expenses and other payables            4,413                 4,216 
    Amounts due to directors                         342                    86 
    Income tax payable                               632                 1,388
                                        -----------------         -------------
                                                   5,736                 6,148 
                                        -----------------         -------------
NET CURRENT ASSETS                               118,376               106,611 
                                        -----------------         -------------
TOTAL LIABILITIES                                  5,736                 6,148 
                                        -----------------         -------------
NET ASSETS                                       123,598               112,553 
                                        -----------------         -------------
CAPITAL AND RESERVES ATTRIBUTABLE TO                                       
  EQUITY HOLDERS OF THE COMPANY                                            
        Share capital                             12,347                12,347 
        Other reserves                            18,678                18,746 
        Retained profits                          92,573                81,460
                                        -----------------         -------------
TOTAL EQUITY                                     123,598               112,553
                                        -----------------         -------------

The financial statements were approved and authorised for issue by the board of directors on 29th June 2009.

                                                    Merger                 Reverse    General   Enterprise     currency                    Share                          
                                          Share     relief      Share  acquisition    reserve    expansion  translation     Warrants     options    Retained              
                                        capital    reserve    premium      reserve       fund         fund      reserve      reserve     reserve     profits        Total  
                                        RMB'000    RMB'000    RMB'000      RMB'000    RMB'000      RMB'000      RMB'000      RMB'000     RMB'000     RMB'000      RMB'000  
At 1 January, 2006                        3,180          -          -            -      3,336        1,668            -            -           -      30,483       38,667 
                                       ---------  ---------  --------- ------------  ---------  ----------- ------------   ----------   ---------  ----------    ---------
Profit for the year                           -          -          -            -          -            -            -            -           -      26,034       26,034
                                       ---------  ---------  --------- ------------  ---------  ----------- ------------   ----------   ---------  ----------    ---------
Total recognised income and expense
 for the period                               -          -          -            -          -            -            -            -           -      26,034       26,034
                                       ---------  ---------  --------- ------------  ---------  ----------- ------------   ----------   ---------  ----------    ---------
Issue of shares by subsidiary             7,615          -          -            -          -            -            -            -           -           -        7,615 
Reverse acquisition adjustment              278     64,364          -      (63,408)         -            -       (1,103)           -           -           -          131 
Issue of ordinary shares by way of        1,207          -     10,860            -          -            -            -            -           -           -       12,067 
  share placement
Issue costs                                   -          -     (6,762)           -          -            -            -            -           -                   (6,762)
Grant of share options                        -          -          -            -          -            -            -            -          18           -           18 
Grant of warrants                             -          -       (935)           -          -            -            7          928           -           -            - 
Transferred to statutory reserves             -          -          -            -      2,590        1,295            -            -           -      (3,885)           - 
                                       ---------  ---------  --------- ------------  ---------  ----------- ------------   ----------   ---------  ----------    ---------
At 31 December, 2006 and 1 January,
 2007                                    12,280     64,364      3,163      (63,408)     5,926        2,963       (1,096)         928          18      52,632       77,770
                                       ---------  ---------  --------- ------------  ---------  ----------- ------------   ----------   ---------  ----------    ---------
Foreign currency translation                  -          -          -            -          -            -         (130)           -           -           -         (130)
                                       ---------  ---------  --------- ------------  ---------  ----------- ------------   ----------   ---------  ----------    ---------
Net income arising directly in equity         -          -          -            -          -            -         (130)           -           -           -         (130)
Profit for the year                           -          -          -            -          -            -            -            -           -      33,884       33,884
                                       ---------  ---------  --------- ------------  ---------  ----------- ------------   ----------   ---------  ----------    ---------
Total recognised income and expenses
 for the year                                 -          -          -            -          -            -         (130)           -           -      33,884       33,754
                                       ---------  ---------  --------- ------------  ---------  ----------- ------------   ----------   ---------  ----------    ---------
Issue of ordinary shares by exercise
  of warrants                                67          -        772            -          -            -            -         (166)          -           -          673 
Share-based payments                          -          -          -            -          -            -            -            -         356           -          356 
Transferred to statutory reserves             -          -          -            -      3,371        1,685            -            -           -      (5,056)          - 
                                       ---------  ---------  --------- ------------  ---------  ----------- ------------   ----------   ---------  ----------    ---------
At 31 December, 2007 and 1 January 
 2008                                    12,347     64,364      3,935      (63,408)     9,297        4,648       (1,226)         762         374      81,460      112,553
                                       ---------  ---------  --------- ------------  ---------  ----------- ------------   ----------   ---------  ----------    ---------
Foreign currency translation                  -          -          -            -          -            -          (32)           -           -           -          (32)
                                       ---------  ---------  --------- ------------  ---------  ----------- ------------   ----------   ---------  ----------    ---------
Net income arising directly in equity         -          -          -            -          -            -          (32)           -           -           -          (32)
Profit for the year                           -          -          -            -          -            -            -            -           -      11,113       11,113 
                                       ---------  ---------  --------- ------------  ---------  ----------- ------------   ----------   ---------  ----------    ---------
Total recognised income and expenses
 for the year                                 -          -          -            -          -            -          (32)           -           -      11,113       11,081 
Share based payments                          -          -          -            -          -            -            -            -         (36)          -          (36)
                                       ---------  ---------  --------- ------------  ---------  ----------- ------------   ----------   ---------  ----------    ---------
At 31 December 2008                      12,347     64,364      3,935      (63,408)     9,297        4,648       (1,258)         762         338      92,573      123,598 
                                       ---------  ---------  --------- ------------  ---------  ----------- ------------   ----------   ---------  ----------    ---------


                                                                12 months      12 months to       Period from 1
                                                                    to 31       31 December  January 2006 to 31
                                                                 December              2007       December 2007
                                                                  RMB'000           RMB'000             RMB'000 
CASH FLOWS FROM OPERATING ACTIVITIES                                                                            
        Operating profit                                           16,374            39,792              70,026
        Adjustments for :-                                                                                     
                (Reversal of)/allowance for bad debts                (323)              824                 967
                Amortisation on land use rights                        39                38                  77
                Depreciation                                          681               744               1,564
                Share-based payments                                  (36)              356                 374
                Interest income                                      (523)             (407)               (582)
                Allowance for impairment of inventories               517                 -                   -
                                                               -----------     --------------  -----------------
        Operating cash flows before working capital changes        16,729            41,347              72,426
        Increase in inventories                                    (1,366)           (1,954)             (3,761)
        Decrease/(increase) in accounts receivable                  6,352           (15,802)            (19,024)
        Decrease/(increase) in other receivables                       98              (650)               (542)
        Decrease in deposits and prepayments                        1,356            (1,207)              1,398
        Decrease in amounts due from directors                          -                 -                   5
        Decrease/(increase) in amounts due from related                 2               (29)                (29)
        Decrease in trade payables                                   (122)              (74)                (80)
        Increase in receipts in advance                                13               (77)                 40
        Increase in accrued expenses and other payables               197            (6,452)              1,998
        Increase in amounts due to directors                          256              (313)                 60
                                                               -----------     --------------  -----------------
        Cash generated from operations                             23,515            14,789              52,491
        Interest received                                             523               407                 582
        Profits tax paid                                           (6,017)           (5,566)            (10,164)
                                                               -----------     --------------  -----------------
NET CASH GENERATED FROM OPERATING ACTIVITIES                       18,021             9,630              42,909
                                                               -----------     --------------  -----------------
CASH FLOWS FROM INVESTING ACTIVITIES                                                                           
        Purchase of fixed assets                                        -               (91)               (133)
                                                               -----------     --------------  -----------------
NET CASH USED IN INVESTING ACTIVITIES                                   -               (91)               (133)
                                                               -----------     --------------  -----------------
CASH FLOWS FROM FINANCING ACTIVITIES                                                                            
    Issue of shares (net of direct issue costs)                         -               673               5,978 
    Issue of shares by subsidiary prior to acquisition                  -                 -               7,615 
    Repayment of short-term borrowings                                  -                 -              (1,300)
    Interest paid                                                       -                 -                 (88)
                                                               -----------     --------------  -----------------
NET CASH GENERATED FROM FINANCING ACTIVITIES                            -               673              12,205 
                                                               -----------     --------------  -----------------
                                                               -----------     --------------  -----------------
NET INCREASE IN CASH AND CASH EQUIVALENTS                          18,021            10,212              54,981 
                                                               -----------     --------------  -----------------
CASH AND CASH EQUIVALENTS AS AT 1 JANUARY                          64,446            54,364               9,595 
EFFECT OF FOREIGN EXCHANGE CHANGE                                     (32)             (130)               (130)
                                                               -----------     --------------  -----------------
CASH AND CASH EQUIVALENTS AS AT 31 DECEMBER                        82,435            64,446              64,446 
                                                               -----------     --------------  -----------------
ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS                                                           
        Cash and bank balances                                     82,435            64,446              64,446 
                                                               -----------     --------------  -----------------



        Taihua Plc (the "Company") was incorporated and registered in England and Wales on 29 August, 2006 under  the
        Companies  Act  1985 as a public company limited by shares with the name "China Natural Plc" with  registered
        number  5918155.   On  8 September, 2006, the Company changed its name to "Taihua Plc". The  address  of  the
        registered  office  is  3  Hardman Square, Spinningfields, Manchester, M3 3EB, and  the  principal  place  of
        business  is  Room  201,  Unit 3, No.16 ZhongHua ShiJiCheng, FuZeYuan, 239 KeJi  Road,  Hi-tech  Zone,  Xian,
        Shaanxi Province, 710077, the People's Republic of China (the "PRC").
        The  Company  is  an  investment  holding  company  and its  subsidiaries  are  principally  engaged  in  the
        manufacturing and sales of pharmaceutical products.  The consolidated financial statements are  presented  in
        Renminbi ("RMB"), the currency of the primary economic environment in which the Group operates.

        (a)     Compliance with International Financial Reporting Standards
                 The  consolidated financial statements of Taihua Plc and its subsidiary undertakings  (the  "Group")
                 and  the  individual  financial  statements of Taihua Plc (the  "Company")  have  been  prepared  in
                 accordance  with  those  International Financial Reporting Standards and  Interpretations  in  force
                 ("IFRSs"), as adopted by the European Union, and those parts of the Companies Act 1985 applicable to
                 companies preparing financial statements under IFRSs.
                 The  preparation  of these financial statements in conformity with IFRSs also requires  the  use  of
                 certain critical accounting estimates.  It also requires management to exercise its judgement in the
                 process  of  applying  the  Group's accounting policies.  The areas involving  a  higher  degree  of
                 judgement  and complexity, or areas where assumptions and estimates are significant to the financial
                 statements, are disclosed in Note 4 "Critical accounting estimates and judgements".
        (b)     Basis of consolidation
                 The consolidated financial statements include the financial statements of the Company and all of its
                 subsidiary  undertakings as at 31 December, 2008 using the acquisition method  of  accounting.   The
                 results  of  subsidiary undertakings acquired or disposed of during the year  are  included  in  the
                 consolidated income statement from the effective date of acquisition or up to the effective date  of
                 disposal, as appropriate.
                 All intra-group transactions, balances, income and expenses are eliminated on consolidation.

                 The acquisition of China Natural Pharmaceutical Limited ("CNP") by the Company on 26 September, 2006
                 has been accounted for as a reverse acquisition in accordance with IFRS 3 'Business Combination'.

                 The  Company became the legal parent of CNP by way of a share exchange agreement. According  to  the
                 share exchange agreement, the shareholders of CNP transferred the entire issued share capital of CNP
                 to  the  Company  in  consideration for 73,390,800 ordinary shares of GBP0.01 each.   This  business
                 combination is regarded as a reverse acquisition whereby CNP, the legal subsidiary, is the  acquirer
                 and has the power to govern the financial and operating policies of the legal parent so as to obtain
                 benefits from its activities.
                 Under  reverse  acquisition accounting the consolidated financial statements  of  the  legal  parent
                 (Taihua  plc) are a continuation of the financial statements of the pre-existing group (CNP and  its
                 subsidiary undertakings), except that the share capital from the date of the reverse acquisition  is
                 that  of  the  legal  parent.  Following this the results for the period  ended  31  December,  2007
                 comprise  the full two years results of CNP and its subsidiary undertakings for the period ended  31
                 December,  2007  plus  those  of  the Company from 26 September,  2006,  the  date  of  the  reverse
                 acquisition, to 31 December, 2007.
        (c)     Initial application of new and revised IFRSs
                 In the current year, the Group initially applied the following IFRSs issued by the IASB :-
                  IAS 39 and IFRS 7                        Reclassification of Financial Assets
                  IFRIC 11                                 IFRS 2 - Group and Treasury Share Transactions
                  IFRIC 12                                 Service Concession Arrangements
                  IFRIC 14                                 IAS 19 - The Limit on a Defined Benefit Asset,
                                                             Minimum Funding Requirements and their Interaction

                 The  initial application of these new and revised IFRSs does not necessitate material changes in the
                 Group's accounting policies or retrospective adjustments of the comparatives presented.
        (d)     IFRSs in issue but not yet effective

                 The  Group has not early applied the following new and revised IFRSs that have been issued  but  are
                 not yet effective.

                 IAS 1 (Revised)                           Presentation of Financial Statements 1
                 IAS 23 (Revised)                          Borrowing Costs 1
                 IAS 27 (Revised)                          Consolidated and Separate Financial Statements 2
                 IAS 32 and 1 (Amendments)                 Puttable Financial Instruments and Obligations
                                                             Arising on Liquidation 1
                 IAS 39 (Amendment)                        Eligible Hedged Items 2
                 IFRS 1 and IAS 27                         Cost of an Investment in a Subsidiary, Jointly Controlled
                 (Amendments)                              Entity or Associate 1
                 IFRS 2 (Amendments)                       Vesting Conditions and Cancellations 1
                 IFRS 3 (Revised)                          Business Combinations 2
                 IFRS 8                                    Operating Segments 1
                 IFRIC 13                                  Customer Loyalty Programmes 3
                 IFRIC 15                                  Agreements for the Construction of Real Estate 1
                 IFRIC 16                                  Hedges of a Net Investment in a Foreign Operation 4
                 IFRIC 17                                  Distributions of Non-cash Assets to Owners 2
                 IFRIC 18                                  

                 Apart  from  the  above, the IASB has issued Improvements to IFRSs* which sets out amendments  to  a
                 number of IFRSs primarily with a view to removing inconsistencies and clarifying wording, except for
                 the  amendments  to IFRS 5 which is effective for annual periods on or after 1st July,  2009,  other
                 amendments  are effective for annual periods beginning on or after 1st January, 2009 although  there
                 are separate transitional provisions for each standard.
                 1   Effective for annual periods beginning on or after 1st January, 2009
                 2   Effective for annual periods beginning on or after 1st July, 2009
                 3   Effective for annual periods beginning on or after 1st July, 2008
                 4   Effective for annual periods beginning on or after 1st October, 2008
                 *  Improvements to IFRSs contains amendments to IFRS 5, IFRS 7, IAS 1, IAS 8, IAS 10,  IAS  16,  IAS
                    18,  IAS 19, IAS 20, IAS 23, IAS 27, IAS 28, IAS 29, IAS 31, IAS 34, IAS 36, IAS 38, IAS 39,  IAS
                    40 and IAS 41.
                 The  Group  is  in the process of making an assessment of the impact of these new and revised  IFRSs
                 upon  initial  application. So far, it has concluded that while the adoption of IFRS  8  and  IAS  1
                 (Revised) may result in new or amended disclosures and the adoption of IFRS 3 (Revised) and  IAS  27
                 (Revised) may result in changes in accounting policies, these new and revised IFRSs are unlikely  to
                 have a significant impact on the Group's results of operations and financial position.


        The  significant  accounting policies adopted in the preparation of these financial statements  are  set  out
        below. These policies have been consistently applied to all the years presented, unless otherwise stated.

        (a)     Subsidiary companies
                 A subsidiary is an entity controlled by the Company.  Control exists when the Company has the power,
                 directly or indirectly, to govern the financial and operating policies of an entity so as to  obtain
                 benefits from its activities.
                 Details of the subsidiaries of the Company at 31 December, 2008 are as follows :-
                                                               Percentage of equity   
                                                               holding held by the    Proportion
                                                               Company                of voting
          Name of              Place of        Registered      Directly    Indirectly power held     Principal
          subsidiary           establishment   capital             %           %            %        activity

          CNP                  BVI             US$1,000          100                      100        Intermediate

          Taihua Natural       PRC             HK$10,500,000                 100          100        Production
           Plant                                                                                      and sales of
           Pharmaceutical                                                                             pharmaceutical
           Company Limited                                                                            drugs

        (b)     Revenue recognition

                 Revenue  from  sales of goods is recognised when the significant risks and rewards of  ownership  of
                 goods have been transferred to the buyer.

                 Interest income is recognised on an effective interest basis.

        (c)     Segment reporting

                 A  business  segment is a group of assets and operations engaged in providing products  or  services
                 that  are subject to risks and returns that are different from those of other business segments.   A
                 geographical  segment  is  engaged in providing products or services within  a  particular  economic
                 environment  that  are  subject  to  risks and returns that are different  from  those  of  segments
                 operating in other economic environments. In accordance with the Group's internal financial  system,
                 the  Group  has chosen business segment information as the primary reporting format and geographical
                 segment  information  as  the  secondary  reporting format  for  the  purposes  of  these  financial

        (d)     Property, plant and equipment

                 Property,  plant  and  equipment,  other than construction in  progress,  is  stated  at  cost  less
                 accumulated depreciation and impairment losses.
                 Depreciation of property, plant and equipment is calculated on the straight-line basis to write  off
                 the  cost  of  each  asset  to  its estimated residual value over its estimated  useful  life.   The
                 estimated useful lives of property, plant and equipment are as follows:-
                         Buildings                          20 - 40 years
                         Motor vehicles                     5 years
                         Furniture, fixtures and equipment  5 - 10 years
                         Plant and machinery                5 - 8 years
                 Construction in progress represents stores and storage facilities under construction, or  renovation
                 works  in  progress  and is stated at cost less any impairment loss, and is not  depreciated.   Cost
                 comprises  development and construction expenditure incurred and other direct costs attributable  to
                 the  development  less any accumulated impairment losses.  On completion, the  relevant  assets  are
                 transferred to property, plant and equipment at cost less accumulated impairment losses.

        (e)     Land use rights

                 Land use rights represent operating lease payments paid to the PRC government authorities for rights
                 of 40 to 60 years.
                 Land  use  rights are stated at cost less accumulated amortisation and impairment losses.  Land  use
                 rights are amortised using the straight-line basis over the unexpired period of the rights.
        (f)     Impairment of assets
                 Where  an  indication  of  impairment exists, or when annual impairment  testing  for  an  asset  is
                 required,  recoverable amount is estimated.  The recoverable amount is calculated as the  higher  of
                 the  asset's  or cash-generating unit's value in use and its fair value less costs to sell,  and  is
                 determined for an individual asset, unless the asset does not generate cash inflows that are largely
                 independent  of  those from other assets or groups of assets, in which case, recoverable  amount  is
                 determined for the cash-generating unit to which the asset belongs.
                 An  impairment loss is recognised if the carrying amount of an asset exceeds its recoverable amount.
                 In  assessing  value in use, the estimated future cash flows are discounted to their  present  value
                 using  a  pre-tax discount rate that reflects current market assessments of the time value of  money
                 and  the risks specific to the asset.  An impairment loss is charged to the income statement in  the
                 period in which it arises.

        (g)     Biological assets
                 Biological  assets  are measured on initial recognition and at subsequent reporting  dates  at  fair
                 value  less  estimated point-of-sale costs, unless fair value cannot be reliably measured.   In  the
                 case of the Group's biological assets, no meaningful or reliable determination or estimation of fair
                 value  is  possible.  Consequently, the biological assets are measured at cost, less any  impairment

        (h)     Inventories

                 Inventories  are  stated at the lower of cost and net realisable value.  Cost is determined  on  the
                 weighted  average  basis  and, in the case of work in progress and finished  goods,  cost  comprises
                 direct materials, direct labour, and an appropriate proportion of overheads.

                 Net  realisable  value  is based on estimated selling price less all further costs  expected  to  be
                 incurred to completion and disposal.

        (i)     Trade and other receivables
                 Trade  receivables,  which  generally have credit term of 180 days, are recognised  and  carried  at
                 original  invoice amounts less allowances for any uncollectible amounts.  An estimate  for  doubtful
                 debts  is made when collection of the full amount is no longer probable.  Bad debts are written  off
                 as incurred.
                 Other  receivables, deposits and prepayments, amounts due from related companies are recognised  and
                 carried at cost less allowance for any uncollectible amounts.
        (j)     Trade and other payables
                 Liabilities for trade and other payables which are normally settled on credit term of 180  days  are
                 carried at cost which is the fair value of the consideration to be paid in the future for goods  and
                 services received, whether or not billed to the Group.
        (k)     Provisions

                 A  provision is recognised when a present obligation (legal or constructive) has arisen as a  result
                 of  a past event and it is probable that an outflow of resources embodying economic benefits will be
                 required  to settle the obligation, provided that a reliable estimate can be made of the  amount  of
                 the obligation.

                 When  the  effect of discounting is material, the amount recognised for a provision is  the  present
                 value  at  the  balance sheet date of the future expenditure expected to be required to  settle  the
                 obligation.  The increase in the discounted present value amount arising from the passage of time is
                 included in finance costs in the income statement.

        (l)     Loans and borrowings

                 All  loans  and borrowings, which are interest-bearing, are initially recognised at cost, being  the
                 fair  value  of  the  consideration received net of issue costs associated with borrowing,  and  are
                 subsequently measured at amortised cost using the effective interest rate method.  Amortised cost is
                 calculated by taking into account any issue costs, and any discount or premium on settlement.

                 Gains and losses are recognised in net profit or loss when liabilities are derecognised or impaired,
                 as well as through the amortisation process.

        (m)     Borrowing costs
                 Borrowing  costs directly attributable to the acquisition, construction or production of  qualifying
                 assets  (that is, assets that necessarily take a substantial period of time to get ready  for  their
                 intended  use),  are  capitalised  as  part of the cost of those  assets.   Capitalisation  of  such
                 borrowing costs ceases when the assets are substantially ready for their intended use.
                 Other borrowing costs are recognised as expenses in the period in which they are incurred.

        (n)     Operating leases
                 Leases  where substantially all the rewards and risks of ownership of asset remain with  the  lessor
                 are  accounted for as operating leases.  Rentals applicable to such operating leases are charged  or
                 credited to the income statement on the straight-line basis over the lease terms.

        (o)     Research and development costs
                 Research and development costs are expensed as incurred.
                 An intangible asset would be recognised for certain development expenditure if applicable conditions
                 were met, but to date all such expenditure has been expensed as incurred.
        (p)     Retirement benefits
                 Obligatory  retirement benefits in the form of contribution under a defined contribution  retirement
                 schedule administered by local government agencies are charged to the income statement as incurred.
        (q)     Foreign currency translation
                 The  functional  currency  of  the  subsidiary undertakings is Renminbi  ("RMB"),  and  the  audited
                 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  financial  statements of the Company and its BVI subsidiary are translated into  the  Company's
                 presentation currency using the year-end / period end rates of exchange for the balance sheet  items
                 and the average rates of exchange for the year / period for the income statement items.
                 The  presentation  currency of the Group is RMB and therefore items denominated in foreign  currency
                 have been translated from GBP and HKD to RMB at the following exchange rates :-
                                     Year-end rates     Average rates
                 31 December, 2008   £1 = RMB9.9243     £1 = RMB12.9291
                                     HKD1 = RMB0.8845   HKD1 = RMB0.89418
        (r)     Income tax
                 Income  tax  comprises  current and deferred tax.  Current income tax is  calculated  based  on  the
                 results for the year, adjusted for items which are not assessable or are disallowed.
                 Deferred  tax is provided, using the liability method, on all temporary differences at  the  balance
                 sheet  date between the tax bases of assets and liabilities and their carrying amounts for financial
                 reporting  purposes.  Deferred tax assets and liabilities are measured at the  tax  rates  that  are
                 expected to apply to the period when the asset is realised or the liability is settled, based on tax
                 rates that have been enacted or substantively enacted at the balance sheet date.
                 Deferred tax liabilities are recognised for all taxable temporary differences.  Deferred tax  assets
                 are  recognised  for all deductible temporary differences, carry-forward of unused  tax  assets  and
                 unused  tax losses, to the extent that it is probable that taxable profit will be available  against
                 which the deductible temporary differences, carry-forward of unused tax assets and unused tax losses
                 can be utilised.
        (s)     Share-based payments
                 The cost of granting share options and other share-based remuneration to employees and directors  is
                 recognised through the income statement on a straight-line basis over the vesting period,  based  on
                 the  Group's estimate of shares that will eventually vest.  These share-based payments are  measured
                 at  fair  value at the date of grant by use of the option pricing model known as the Black - Scholes
                 formula using assumptions deemed to be consistent with the price which the incentive might have been
                 worth if it was traded in the open market.
                 For  equity-settled  transactions with non-employees, the costs are recognised  through  the  income
                 statement  (or  where  they  relate  to issue costs, taken against  the  share  premium  account  if
                 appropriate) with measurement normally based on the fair value of goods or services received.
        (t)     Cash and cash equivalents
                 Cash  and cash equivalents comprise cash at bank and in hand, demand deposits with banks, and short-
                 term,  highly liquid investments that are readily convertible into known amounts of cash  and  which
                 are subject to insignificant risk of changes in value.
         (u)    Related parties
                 For the purposes of these financial statements, parties are considered to be related to the Group if
                 the  Group  has  the  ability, directly or indirectly, to control the party or exercise  significant
                 influence  over the party in making financial and operating decisions, or vice versa, or  where  the
                 Group  and the party are subject to common control or common significant influence.  Related parties
                 may be individuals (being members of key management personnel, significant shareholders and/or their
                 close  family  members)  or  other entities and include entities which  are  under  the  significant
                 influence  of  related parties of the Group where those parties are individuals, and post-employment
                 benefit plans which are for the benefit of employees of the Group or of any entity that is a related
                 party of the Group.


        In  the  process  of applying Group's accounting policies, management make various estimates  and  judgements
        (other  than  those  involving estimates) based on past experience, expectations  of  the  future  and  other
        information.   The  key  source of estimation uncertainty and the critical judgement that  can  significantly
        affect the amounts recognised in the financial statements are :-
        Depreciation of property, plant and equipment
        Property,  plant  and equipment are depreciated on a straight-line basis over their estimated  useful  lives,
        after  taking  into account of their estimated residual values.  The determination of the  useful  lives  and
        residual  values involve management's estimation.  The Group assesses annually the residual  values  and  the
        useful  lives of the property, plant and equipment and if the expectation differs from the original estimate,
        such a difference may impact the depreciation in the year the estimate is changed and the future period.
        Allowance for bad and doubtful debts
        The  Group  performs ongoing credit evaluations of its customers and adjust credit limits  based  on  payment
        history  and  the customers' current credit-worthiness, as determined by the review of their  current  credit
        information.   The Group continuously monitors collections and payments from its customers  and  maintains  a
        provision  for  estimated  credit  losses based upon its historical  experience  and  any  specific  customer
        collection  issues  that  it  has  identified.   Credit losses have  historically  been  within  the  Group's
        expectations  and  the  Group  will  continue  to monitor the collections  from  customers  and  maintain  an
        appropriate level of estimated credit losses.
        Allowance for inventories
        The  management  of the Group reviews an aging analysis at each balance sheet date, and makes  allowance  for
        obsolete  and slow-moving inventory items identified that are no longer suitable for use in production.   The
        management  estimates the net realisable value for such finished goods based primarily on the latest  invoice
        prices  and  current  market conditions.  The Group carries out an inventory review on  a  product-by-product
        basis at each balance sheet date and makes allowances for obsolete items.
        Income tax expense
        The  Group  is subject to income tax in the PRC.  There are certain transactions and calculations  for  which
        the  ultimate  tax determination is uncertain during the ordinary course of business.  Where  the  final  tax
        outcome  of  these matters is different from the amounts that were initially recorded, such differences  will
        impact the current income tax and deferred tax provisions in the period in which such determination is made.

        Basic earnings per share
        Basic  earnings per share is calculated by dividing the profit attributable to equity holders of the  Company
        by the weighted average number of ordinary shares in issue during the year.
                                                       12 months to       12 months to       Period from 1    
                                                       31 December        31 December        January 2006 to
                                                       2008               2007               31 December 2007
        Profit attributable to equity holders of the  
        Company (RMB'000)                              11,113             33,884             59,918         
                                                       -------------      -------------      ----------------
        Weighted average number of ordinary shares in 
        issue (thousands)                              81,647             81,296             77,536
                                                       -------------      -------------      ----------------
        Earnings per share (RMB per share)             0.14               0.42               0.77
                                                       -------------      -------------      ----------------
        Diluted earnings per share
        The  Company has two categories of dilutive potential shares - share options and warrants.  A calculation  is
        done  to  determine the number of shares that could have been acquired at fair value based  on  the  monetary
        value  of  the  subscription rights attached to outstanding share options and warrants.  It is compared  with
        the number of shares that would have been issued assuming the exercise of the share options and warrants.
                                                                12 months to      12  months to     Period from 
                                                                31 December       31 December       1 January
                                                                2008              2007              2006 to 31
                                                                                                    December 2007
       Profit attributable to equity holders of the Company     
       (RMB'000)                                                11,113            33,884            59,918        
                                                                ------------      -------------     -------------
       Weighted average number of ordinary shares in issue
        (thousands)                                             81,647            81,296            77,536        
                                                                ------------      -------------     -------------
       Adjustment for share options and warrants (thousands)    298               1,396             733           
                                                                ------------      -------------     -------------
       Weighted average number of ordinary shares for diluted                                                     
         earnings (thousands)                                   81,945            82,692            78,269        
       Diluted earnings per share (RMB per share)               0.14              0.41              0.77          
                                                                ------------      -------------     -------------

Copies of the Annual Report and Accounts for the year ended 31 December 2008 will be posted to shareholders by 30
June 2009 and will be available, free of charge, at any time from the date of posting, from the Company's website -


        The  Company's  Annual  General  Meeting will be held at the offices of Halliwells  LLP,  3  Hardman  Square,
        Spinningfields, Manchester, M3 3EB on 24 July 2009 at 10. 

Contact Information

  • Taihua plc