TAIHUA PLC Consolidated financial statements
For the year ended 31 December 2014
TAIHUA PLC CONTENTS
PAGES
Directors, secretary and advisers 1
Chairman's statement 2
Strategic report 3
Directors 4
Directors' report 5-7
Corporate governance 8
Remuneration committee report 9
Audit committee report 10
Independent auditor's report 11
Consolidated statement of profit or loss and other comprehensive income 13
Consolidated statement of financial position 14
Consolidated statement of changes in equity 15
Consolidated statement of cash flows 16
Notes to the consolidated financial statements 17-50
Company statement of profit or loss and other comprehensive income 51
Company statement of financial position 52
Company statement of changes in equity 53
Company statement of cash flows 54
Notes to the company financial statements 55-59
Mr Chun Chai (Executive director)
Mr Chong Cao (Non-Executive Director)
DWF LLP London EC3M 3AG
Nominated Adviser W H Ireland And Broker 11 St James's Square
Manchester Road
M2 6WH
4 Thomas More Square
London
E1W 1YW
EC4M 3WS
Registrar Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
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Despite not increasing turnover we managed to double our 2013 Profit before Tax. The main reasons for this were the increased importance of relatively high margin Forsythia and a reduction in the level of inventory provisioning.
FY2014 | FY2013 | |
Sales | RMB 50.9m | RMB 52.3m |
Profit before Tax | RMB 6.6m | RMB 3.3m |
2014 | 2013 | 2012 | |
Forsythia | 41.8m | 41.8m | 27.2m |
TCMs | 4.9m | 5.7m | 6.5m |
APIs | 4.2m | 4.8m | 5.5m |
Total | 50.9m | 52.3m | 39.2m |
Despite the tonnage sold in 2014 falling to 1,146 tonnes (2013: 1,529 tonnes) the revenue generated from this product was the same as 2013. The reason was that the wholesale market reacted to the reduced harvest and the price correspondingly increased. The average selling price in 2014 was RMB 37.8/kg (2013: RMB 28.3/kg) excluding sales tax.
Recognising the issues that the forsythia plantations have in terms of the impact of adverse weather conditions we are working with various parties to introduce new cultivation practices and new strains of forsythia to mitigate the effect of poor weather in the future.
Sales of Finished Product TCMs fell for the third consecutive year. The distributors remain very cautious regarding taking on new products following the Chinese Government's tightening of GMP legislation and enforcement.
Bian Tong Pian sales were RMB 2.6m (2013: RMB 3.6m). Box sales were 191,600 in 2014 (2013:
243,900). The lower sales revenue was reflective of a reduction in selling price from RMB 14.8 per box in
2013 to RMB 13.3 per box in 2014. Bian Tong Pian is distributed in Beijing metropolitan district and Guangzhou military hospitals. It is also approved for sale in six further provinces. In provinces where Taihua has approval to sell but, as yet, no distribution agreements, prospective distributors continue to take small quantities to test the market.
Having temporarily ceased production of Paclitaxel some of our customers have asked us to recommence production. As such we have started production again in 2015, albeit at a lower level than in previous years.
Homoharringtonine sales continued at a similar level to the previous year. This product has historically been the most lucrative for Taihua so we are reluctant to exit the sale of this product despite significant inventory obsolescence issues. We remain of the opinion that after GMP reaccreditation we will be able to significantly recover lost Homoharringtonine sales.
Cash and cash equivalent increased to RMB 46.9m from RMB 34.5m. In addition to the improved profitability, the main reason was the reduced level of trade debtors, from RMB 58.0m to RMB 54.7m.
The Board of Directors would like to place on record their appreciation of investors' interest in Taihua. Whilst the forsythia business has not been as profitable as was hoped at the outset, the transition from dependence on APIs is largely complete.
Chairman
29 June 2015
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The Directors present their Strategic Report for the year ended 31 December 2014.
The principal activities of the Group are the development, production, distribution and sale of Traditional Chinese Medicine ('TCM') products. In addition, the Group also develops, manufactures and distributes active pharmaceutical ingredients, namely paclitaxel and homoharringtonine, predominately for the use in the treatment of cancer.
The principal activity of the Company is that of a holding company.
A review of the Group's trading for the year ended 31 December 2014, development and prospects are provided in the Chairman's Statement.
RisksThe principal risks to the Group are the risk of disease or an event (such as forest fire) that could be detrimental to the supply or quality of the raw material on which Taihua is dependent; the limitation in the supply of Homoharringtonine and the risk that Taihua may be unable to retain its export licences into Russia and obtain licences for other areas; or, in the medium to long term, to develop new markets. The Group seeks to mitigate these and other risks where appropriate, including financial risks such as bad debts or any exposure to foreign currency risk.
Funding positionThe Directors confirm that it is appropriate for the financial statements to have been drawn up on the going concern basis. In reaching this conclusion the Directors have taken into account all relevant matters of which they are aware and have considered a future period of at least one year from the date on which the financial statements were approved.
Financial InstrumentsThe Group does not actively use financial instruments as part of its financial risk management. It is exposed to the usual credit risk and cash flow risk associated with selling on credit and manages this through credit control procedures. The nature of its financial instruments means that they are not subject to price risk.
HedgingThe Group makes no use of forward currency contracts, other financial derivatives or hedging.
Interest rate riskThe Group finances its operations through a combination of equity and borrowings. The Group does not have an interest rate policy in isolation but regularly reviews the interest rates being charged on borrowings and assesses alternative sources of borrowings and other methods of finance.
Liquidity risk
The principal policy of the Group in managing liquidity risk is to align the anticipated sales revenue with the cash flows of its financial assets and liabilities.
The Group's financial risks are disclosed in more detail in Note 29 to the Consolidated Financial
Statements.
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Nicholas is an experienced finance professional having spent many years as a financial director of UK companies and having lived and worked in China. Nicholas speaks and writes Mandarin. Nicholas is currently a director of NL Consulting Limited, and non-executive director of Univision Engineering Limited, China Rerun Chemical Compant Limited, Altona Energy Limited, DKG Capital Limited and DKG Holding Limited. Nicholas is a qualified accountant.
Mr Yunwu Liu, aged 58, Chief Executive Officer
Mr Liu is a director, the general manager and one of the founders of Taihua Natural Plant Pharmaceutical Co. Limited (the wholly owned subsidiary of Taihua) ('TNP'). He obtained a diploma in economics and management from Shaanxi Economic Management College in 1992 and completed an EMBA course in Northwest University, China. In 1987, Mr Liu founded Luonan Natural Resources Research Factory. In
1993, Mr Liu incorporated TNP. Mr Liu has nearly 20 years experience in the natural medicine material
industry. He was also granted the honour of ''National Youth Leader of Spark Program'' (sponsored by the Chinese Government) in the China Spark Program by the China Science and Technology Committee, which is the highest level of award granted in this area.
Mr Chai started his career in the pharmaceutical industry in 1968 as an assistant in the Shaanxi Province Traditional Chinese Medicine Research Institute. He worked at the Institute within the purchasing department until 1985 when he established Taiyou Development Company Limited and in 1994 he founded Jihao Company Limited which specialised in international trading. In 1993, he established TNP along with Mr Liu and since then he has worked on a full time basis on the development of TNP. Mr Chai is the vice general manager of TNP in charge of raw material medicine sales.
Professor Zhaoyang Ma, aged 47, Executive DirectorProfessor Ma has a bachelor's degree in engineering, a master's degree in management and a PhD degree. He worked at Xian Aeronautics Computing Technology Institute from 1990 to 1994. He became an associate professor at Northwest Polytechnic University in 1997. Professor Ma is the chairman of Shaanxi Dewei Investment Consulting Co., Ltd. and the independent director of Xi'an Jiefand Group Joint Stock Co., Ltd., a listed company in PRC.
Mr. Chong Cao, aged 44, Non-Executive DirectorChong is a qualified Chinese lawyer practising at Dacheng Law Offices. From March 2013 to March 2015, he was the Head of China Practice at DWF LLP. From August 2010 to December 2012, Chong worked as a corporate partner at Gateley LLP. From October 2005 to July 2010 Chong worked as the Chinese legal consultant to Halliwells LLP advising on numerous cross border AIM transactions involving Chinese companies. Prior to joining Halliwells LLP, Chong worked at Wen & Partners, a law firm in Dalian, Liaoning Province, China, dealing with legal affairs relating to international trade and investment. Chong is a fluent Mandarin and English speaker.
Mr Mingjian Yin, aged 32, Executive Director
Mr Yin has been working in the textile industry in China since July 2007 when he worked as an assistant to the sales manager at Beijing Jinsanhuan Textile Import & Export Co., Ltd. ('Beijing Jinsanhuan'). In March 2009, he was promoted to the vice general manager of Beijing Jinsanhuan. Mr Yin became a director of Beijing Jinsanhuan in February 2013 responsible for the development and maintenance of sales network and sourcing of investment opportunities. He is also the general manager of Beiing Jiasheng Xinrui Cashmere Products Co., Ltd. and he has been in this post since April 2012. Mr Yin obtained a bachelor's degree in business administration from Hebei Agricultural University in China.
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The Directors present their Directors' report together with the audited accounts of the Group ('Taihua plc and its subsidiary undertakings') and the Company ('Taihua plc') for the year ended 31 December 2014.
The profit of the Group for the year ended 31 December 2014 was RMB 4.50mil (2013: RMB 2.09mil), of which the amount attributable to the equity holders of the Company, was RMB 4.98mil (2013: RMB2.19mil).
The Directors do not recommend any distribution by way of a dividend for the year ended 31 December
2014.
The following Directors served during the year ended 31 December 2014.
Mr Nicholas James Lyth Non - Executive Chairman
Mr Yunwu Liu - Chief Executive Officer Professor Zhaoyang Ma - Executive Director Mr Chun Chai - Executive Director
Mr Chong Cao - Non-Executive Director
Mr Mingjian Yin - Executive Director (Appointed on 8 December 2014) Professor Liyi Chen - Executive Director (Resigned on 8 December 2014)
In accordance with the Company's Articles of Association, each of Mr Nicholas James Lyth and Mr Chong
Cao will retire at the Company's AGM and will offer himself for re-election for this year.
The interests of the Directors (including those of their immediate families) in the 1p ordinary share capital of the Company as at 31 December 2014 were:
Number of
ordinary shares
Percentage of
ordinary shares
Nicholas Lyth* | 340,000 | 0.42% |
Yunwu Liu | 11,008,650 | 13.47% |
Zhaoyang Ma | - | - |
Chun Chai | 5,504,325 | 6.73% |
Chong Cao | - | - |
Mingjian Yin | 23,703,826 | 29.00% |
* Held through Chase Nominees Limited
Directors' interests in the Group's share option schemes as at 31 December 2014 were as follows:
Number of share option as at 31
December Granted Lapsed
Number of share option as at 31
December
Exercise price per
share Exercisable
Director 2013 in year in year 2014 (GBP) From to
Nicholas Lyth | 816,473 | 2009 | - 816,473 | 0.07 | 31 August | 30 August |
2009 | 2019 | |||||
Yunwu Liu | - | - | - - | - | - | - |
Mingjian Yin | - | - | - - | - | - | - |
Zhaoyang Ma | - | - | - - | - | - | - |
Chun Chai | - | - | - - | - | - | - |
Chong Cao | 816,473 | 2009 | - 816,473 | 0.07 | 31 August | 30 August |
2009 2019
No options were exercised in the year.
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The Remuneration Committee makes share option awards and options are available to all employees of the Group. The exercise price of the options and the associated vesting criteria are also determined by the Remuneration Committee. The closing mid-market price of the Company's shares at 31 December
2014 was 4.38p.
At 31 December 2014 the Company had been notified of the following material interests, in addition to the Directors' holdings identified above, which represented 3% or more of the issued share capital of the Company:
Number of
Ordinary shares
Percentage
Holdings
The Botting Family Investment Fund 5,625,151 6.89% The Neubauer Family Fund 3,342,099 4.09% Liyi Chen 5,652,574 6.92% L R Nominees Limited (linked with any director?) 2,569,896 3.14% Barclays Nominees Limited (linked with any director?) 11,412,117 13.98% Brewin 1762 Nominee Limited (linked with director?) 5,724,218 7.00%
The Group's research and development efforts are focused on developing new products and enhancing existing products to support the requirements of current and prospective customers.
Share CapitalChanges to the Company's share capital during the year are given in Note 24 to the financial statements.
Charitable and political donationsNo charitable or political donations were paid or accrued during the year ended 31 December 2014.
EmployeesThe number of employees employed by the Group was 77 as at 31 December 2014. The Group continues to encourage employees to be involved in the operation of the business and to present their views and ideas on performance. There is daily contact between management and staff at every level of the business to facilitate the flow of information and positive ideas. The Group gives full consideration to applications for employment from disabled persons where a disabled person can adequately fulfil the requirements of the job. Where existing employees become disabled, it is the Company's policy, wherever practicable, to provide continuing employment with appropriate training or redeployment where necessary.
Payment of suppliers
It is the Group's policy to pay suppliers in accordance with the terms and conditions agreed in advance. The Company is an investment holding company and as such does not have significant trade creditors and therefore creditor days have not been calculated. For the Group the average time taken to pay suppliers was 13 days (2013: 19 days).
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The directors are responsible for preparing the director's report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the group and company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and company and of the profit or loss of the group and company for that period. The directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market.
In preparing these financial statements, the directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and prudent;
• state whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the requirements of the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The directors are responsible for ensuring the annual report and the financial statements are made available on a website. Financial statements are published on the company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the company's website is the responsibility of the directors. The directors' responsibility also extends to the ongoing integrity of the financial statements contained therein.
Provision of information to auditor
Each of the persons who is a Director at the date of approval of this report confirms that:
• So far as the Director is aware, there is no relevant audit information of which the Company and the Group's auditor is unaware;
• The Director has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Company and the Group's auditor is aware of that information.
In accordance with Section 489 of the Companies Act 2006, a resolution proposing that UHY Hacker Young be re-appointed as auditors of the Company and that the Directors be authorised to fix their remuneration will be put to the next Annual General Meeting.
This report was approved by the board on 29 June 2015 and signed on its behalf. By order of the Board
Director
29 June 2015
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The Directors recognise the value of the UK Corporate Governance Code and, although AIM listed companies are not required to give corporate governance disclosure, have chosen to provide the following information. The Directors believe the information below will be of assistance to shareholders taking account of the scale and nature of the Group's activities.
The Board includes two non-executive Directors.
The Board meets formally on a regular basis to review issues requiring formal discussion. All significant business decisions are discussed and sanctioned by the Board.
The Board as a whole appoints new Directors.
The Group encourages dialogue with all shareholders whether private or institutional and responds quickly to all queries.
The Board of Directors is responsible for the maintenance of the Group's internal financial control and for reviewing its effectiveness. There are inherent limitations in all systems of internal financial control and, therefore, the systems adopted can only provide reasonable, not absolute, assurance with respect to the preparation of financial information and the safeguarding of assets.
The Group operates a comprehensive budgeting, forecasting and financial reporting system. Management accounts are promptly prepared on a monthly basis and presented at Board meetings. Any variances are examined in detail.
The Board has established control procedures for all key financial areas of the business, which enable the Board to maintain full and effective control. These controls include procedures for seeking and obtaining approval for major transactions and controls relating to the safeguarding of assets.
On behalf of the Board
Director
29 June 2015
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The Directors have applied the principles of Good Corporate Governance relating to the Directors'
remuneration as described below.
Remuneration Committee
The Remuneration Committee comprises Chong Cao and Nicholas Lyth, both of whom are independent
Non-Executive Directors of the Company.
Pursuant to the terms of reference of the Remuneration Committee, the Remuneration Committee shall, inter alia:
- ensure that the Executive Directors are fairly rewarded for their individual contributions to the overall
performance of the Company;
- consider the remuneration packages of the Executive Directors and any recommendations made by the Chief Executive Officer for changes to their remuneration packages including in respect of bonuses (including associated performance criteria), other benefits, pension arrangements and other terms of their service contracts and any other matters relating to the remuneration of or terms of employment applicable to the Executive Directors that may be referred to the Remuneration Committee by the Board;
- oversee and review all aspects of any share option schemes adopted by the Company including the selection of eligible Directors and other employees and the terms of any options granted;
- demonstrate to the Company's shareholders that the remuneration of the Executive Directors is set by an independent committee of the Board; and
- consider and make recommendations to the Board about the public disclosure of information about the Executive Directors' remuneration packages and structures in addition to those required by law or by the London Stock Exchange.
The Chairman of the Remuneration Committee formally reports to the Board on its proceedings after each meeting on all matters within its duties and responsibilities.
The Remuneration Committee is authorised to:
- investigate any activity within its terms of reference;
- seek any information it requires from any employee of the Company;
- assess the remuneration paid by other UK listed companies of a similar size in any comparable industry sector and to assess whether changes to the Executive Directors remuneration is appropriate for the purpose of making their remuneration competitive; and
- obtain, at the Company's expense, outside legal or other independent professional advice and to secure the attendance of such persons to meetings as it considers necessary and appropriate.
Share Options
The Directors have established the Taihua Unapproved Option Scheme.
The details of the unapproved share option awards during the period under review are reflected within the
Directors' Report.
Vesting of the share options awarded to Directors under the Taihua Unapproved Share Option Scheme is not subject to performance conditions.
Chairman, Remuneration Committee
29 June 2015
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