CTI.L Regulatory News (CTI)

Cathay International Holdings Limited

("Cathay" or the "Company")

Annual Results for the Year Ended 31 December 2013

Transformational period with commencement of inositol volume production and sales

Hong Kong, 28 March 2014 - Cathay International Holdings Ltd. (LSE: CTI.L), an investment holding company and a leading investor in the growing healthcare sector in the People's Republic of China, today announces its Annual Results for the year ended 31 December 2013.

Highlights:

Group

· Revenues increased by 5.1% to USD114.8 million (2012: USD109.3 million) primarily due to initial sales of inositol and DCP since commencement of volume production in November 2013

· Gross profit decreased by 1.2% to USD56.4 million (2012: USD57.1 million) mainly due to the 4% ecrease in Lansen's gross profits as a result of the withdrawal of orthopaedic specialty drugs and change in product mix and margins

· Operating profits increased by 86.6% to USD6.9 million (2012: USD3.7 million) due to the provision on stocks and receivables at Yangling (the non-inositol business) in 2012

· Net assets per share as at 31 December 2013 were USD0.50 (2012: USD0.52)

Subsidiaries: Financial and operational highlights

· Haotian reorganised into two profit centres: 1) Haizi for the inositol/ DCP business and 2) Yangling for non-inositol plant extracts and trading businesses

‐ Haizi commenced volume production of inositol in November 2013 and recorded USD4.0 million in inositol and DCP sales in November and December 2013

‐ Yangling revenue increased by 17.0% to USD3.0 million (2012: USD2.6 million)

· Lansen is seeking opportunities to broaden its specialty drug portfolio in rheumatology and dermatology indications

‐ Revenues up by 1.3% to USD95.1 million (2012: USD93.8 million)

‐ Received its GMP upgrade certificate in December 2013

‐ Acquired misoprostol project from Tianjin Longbai in October 2013

· Botai operating loss increased to USD1.1 million (2012: USD0.6 million) due to operating expenses and work is underway on modification and expansion of production facilities, targeted to be completed in 2014

· Hotel revenues grew by 8.7% to USD14.0 million (2012: USD12.9 million) and occupancy rate increased to 61.4% (2012: 54.4%) while Shenzhen market average declined by 5.0%

Commenting on the Annual Results, Mr. Lee Jin-Yi, CEO of Cathay International Holdings Limited, said:

"The Chinese market is changing rapidly and we continue to face both challenges and opportunities as a result. The Chinese Government has clearly indicated a path to develop and grow the economy on a more sustainable footing and we continue to benefit from China's rapidly developing healthcare sector. 

"Overall we expect 2014 to be a fruitful one for the Group. Lansen is expected to pick up sales momentum and specialty prescription drugs should resume a stronger growth trajectory. We are very excited to report that Haizi has reached an annualised production rate of 1,200 tonnes of inositol at year end and is expected to rapidly ramp up its inositol production this year. Yangling should complete a new bilberry production line this year and we are hopeful the volume will return to the previous year's level. We also anticipate a continued strong performance of our Hotel.

"We continue to see many opportunities to leverage synergies across the whole Group and utilise our strong position in the rapidly growing healthcare markets to further expand and diversify our healthcare offering."

For further enquiries, please contact:

Cathay International Holdings Limited

Eric Siu (Finance Director)

Patrick Sung (Director and Controller)

Tel: +852 2828 9289

Consilium Strategic Communications

Mary-Jane Elliott / Amber Bielecka / Lindsey Neville

Tel: +44 (0)203 709 5708

About Cathay

Cathay International Holdings Limited (LSE: CTI.L), focused on the People's Republic of China ("PRC"), is an investment holding company and a leading investor in the growing healthcare sector in the PRC. The Group employs more than 2,000 people across the PRC, including over 30 specialist corporate and business development staff based at the holding company's offices in Hong Kong and Shenzhen.

Cathay aims to identify investment opportunities with emphasis on high growth healthcare markets and build them into market sector leaders, with a clear exit strategy. Cathay has demonstrated a strong track record of identifying high-growth potential investment opportunities in this area including: Lansen, China's leading specialty pharmaceutical company focused on rheumatology and dermatology; Haizi, a company engaged in the manufacture, marketing and sale of inositol and DCP; and the Yangling, a company engaged in the extract and trading of key active ingredients for healthcare products, including inositol. To complement its healthcare portfolio, Cathay has a research and product development business focused on bringing new products to the growing Chinese market.

Cathay also has a private equity investment arm focused on minority investment opportunities and a hotel investment. For more information please visit the Company's website: www.cathay-intl.com.hk

Chairman's Statement

China's GDP growth in 2013 was 7.7%, steady from 2012 and just slightly above market expectations of 7.6%. The new government leadership in China has indicated clearly a new path to develop China's economy. Rather than pursuing pure GDP growth, it is now focusing more on the quality of growth. Instead of relying on exports, it is turning to the domestic market as the growth engine and in place of attracting investments; it prefers to generate more consumer spending to stimulate growth. Such changes, together with the continued increase in disposable income, an ageing population, and the wider prevalence of insurance coverage, are all expected to lead to a more robust healthcare market. China's healthcare sector continues to develop at an astonishing rate: spending is projected to grow from USD357 billion in 2011 to more than USD1 trillion in 2020, a compounded annual growth rate of over 15% for the next five years.

On the downside, in October 2013, the 3rd plenary session of the 18th CPC Central Committee resolved to deepen the medical reforms to provide low cost and prevalent healthcare to its people. The government is also increasing its scrutiny on deemed improper marketing practices of several multinational pharmaceutical companies ("MNC") to eliminate unnecessary selling expenses and is forcing the MNCs to further reduce their drug prices. These price cutting measures are expected to reduce margins of pharmaceutical companies and cause them to withdraw from unprofitable products or even, in extreme cases, from the Chinese market. A low margin and high operating cost environment resulting from the new GMP requirements is likely to drive the industry to consolidate further.

On the other hand, the Government has also shownits commitment to focus on stronger environmental protection. New economic policies are expected to align with social and environmental reforms in food, energy and water to fight ecosystem degradation. For example, Haotian saw closure of some competitors' phytin plants because of failure to meet new environmental regulations, which resulted in a near term shortage of market supply of inositol and soaring inositol price.

In early 2013, the Government declared a ban on official extravagance, including amongst other measures, a reduction on entertainment and travel expenses. The Shenzhen hotel market, particularly the food and beverage business, has been adversely affected by this new policy. Our Hotel, on the other hand, has limited exposure to the government sector. Through our quality service and constant marketing efforts, the Hotel has, against the market trend, gained market share in the Luohu area.

Against this fast changing backdrop, we encounter both challenges and opportunities. Lansen has received its GMP upgrade certificate in December 2013. This marks a new era of quality assurance and cost efficiency for the company. While the competition is expected to realign their product portfolios to remove relatively lower margin products, Lansen, starting from a lower base, has great possibilities to expand its drug offerings through acquisitions and marketing/agency arrangements which could improve margins through scale effect of its distribution channels. As a first step, it has acquired misoprostol from Tianjin Longbai last October. Lansen is also actively searching out potential opportunities in dermatology and autoimmune diseases. Although hospitals remain its main distribution channel, Lansen is also expanding its sales through pharmacies and the internet to increase its direct access to patients. Such new distribution venues, once developed, could also assist the Group in its future development of the health supplement business.

At Haotian, we have reorganised the business into two profits centers. These are Haizi based in Changchun to manage the inositol/ DCP business; and Yangling based in Xian, to manage the non-inositol plant extracts and trading business although for the time being, bilberry extraction is Yangling's main business. The most exciting development of the Group in 2013 has been the start of volume production of inositol at Haizi. We have been producing close to 100 tonnes per month last November and December and Haizi has shown profits for both months. Our production of phytin grows at a steady rate and should reach around 1,200 tonnes a month towards the end of the first quarter 2014, a level that would support more than 120 tonnes per month of inositol production. The inositol market was notably strong last year. Even though the price has dropped recently due to seasonality, we expect it to remain at a healthy level of USD16-20 per kilogram. Haizi has successfully negotiated some long term contracts with export clients.

To further generate synergies among Group companies, we have established cooperation between Lansen's plant extract business and Yangling. Both companies will now work together in their production, product development and marketing efforts. While Lansen continues to focus on medical quality products which have stringent product specifications, Yangling will concentrate on healthcare supplements which require greater manufacturing flexibility to meet a broader range of product specifications. In the next strategic move, the Group intends to leverage on Yangling's production experience of plant extracts and Lansen's pharmaceutical expertise to develop its own line of health supplements to sell through OEMs.

We have implemented senior management changes at both Lansen and Haotian last year. Both teams have now completed the transition process. The new management teams are professional and focused. We intend to continue to forge further synergies among Group companies through increased collaboration in common products or overlapping processes.

Our Group revenue grew USD5.5 million (5.1%) to USD114.8 million, primarily because Haizi started to book inositol and DCP sales amounted to USD4.0 million in November and December 2013. At Lansen, despite the strategic withdrawal of orthopaedic specialty drugs and the new CEO transition, Lansen's revenue still achieved a small growth of 1.3%. Our Hotel registered an 8.7% sales growth even though the environment remained highly competitive.

Group operating profit increased by USD3.2 million to USD6.9 million, mainly due to the large provision of stocks and receivables at Yangling in 2012. Excluding provisions, the temporary decline in Lansen's operating profit of USD1.0 million led to a small decrease in Group operating profit by USD0.5 million. Haizi and the Hotel both recorded increases in operating profits by USD0.7 million and USD0.3 million respectively.

The Group also incurred increased finance costs by USD2.3 million as a result of rising interest rates and a net increase in bank facilities. The Group's loss attributable to owners of the parent for the period decreased to USD6.2 million from a loss of USD6.8 million in 2012.

Outlook

With the turnaround of Haizi, and the successful transition of our new management, we expect 2014 to be a fruitful year for the Group.

Lansen is expected to pick up growth momentum. The specialty prescription drugs, should resume healthy growth in sales with margins around the industry level. The OTC drugs, as a result of an expanded distribution network of quality dealers and wholesalers, should make a break-through in 2014, particularly in the case of Bazhenkeli, one of our key products, as it is now included on the Chinese essential drug list. The plant extract business has built a strong sales pipeline. The challenge lies in how to maximise its production capacity to meet both internal demands, such as white peony for Pafulin, and outside customers' orders.

Haizi is expected to rapidly ramp up its inositol production, targeted to reach an annualised run rate of 2,000 tonnes by the end of 2014. This would make Haizi the second largest producer in China. Haizi plans to build another phytin plant this year that would support our design target inositol production capacity at 2,500 tonnes a year. Management will continue to work on reducing production costs through efficiency improvement and further refining the production process. While Haizi's feed grade DCP is easily absorbed by the vast China feedstock market, Haizi will have to redouble its efforts to upgrade the process to produce higher margin food grade DCP.

Yangling targets completion of a new bilberry extraction production line in 2014. With the planned uplift in bilberry production and the contract work for Lansen also for bilberry extraction, it should regain its prior years' volume in 2014.

Hotel will remain focused on quality service and building its corporate customer base. It has outperformed its peer group in Luohu area for the past six months. Management is working to make further improvements in both occupancy and the food and beverage business.

With the anticipated improvement in operating cash flow from all business segments, Cathay will focus on reducing borrowings and finance costs this year.

On behalf of the Board, I am grateful for your continued support of Cathay and would like to thank all of our employees for their contributions last year.

Sum Soon Lim

Chairman

FINANCIAL REVIEW

GROUP RESULTS

Group revenue increased by USD5,543,000 (5.1%) to USD114,836,000(2012: USD109,293,000). The increase mainly came from Haizi's initial 2 months of sales of inositol and DCP of USD3,995,000 since it commenced volume production in November 2013. Lansen's sales, representing 82.8% of Group revenue,increased by USD1,230,000 (1.3%) to USD95,074,000 (2012: USD93,844,000). Hotel's revenue grew by USD1,119,000 (8.7%) to USD13,984,000 (2012: USD12,865,000).

Group gross profits decreased by USD664,000 (1.2%) to USD56,428,000(2012: USD57,092,000). The decrease was mainly because of the decrease in Lansen's gross profits by USD2,186,000 (4.0%) to USD52,238,000(2012: USD54,424,000), partly due to the withdrawal of orthopaedic specialty drugs and partly due to the increase in the proportion of sales of lower margin products leading to a drop in overall gross margin to 54.9% (2012: 58.0%). Lansen contributed 92.6% of the Group's gross profits. Haizi contributed USD1,720,000 to the Group's gross profits from its initial 2 months sales in November and December 2013. Hotel's gross profits increased by USD365,000 (17.7%) to USD2,425,000 (2012: USD2,060,000).

Group operating profits increasedby USD3,186,000 (86.6%) to USD6,864,000 (2012: USD3,678,000), mainly due to the large provision on stocks and receivables at Yangling in 2012. Excluding provisions, there was a small decrease in Group operating profit by USD464,000 (5.5%) to USD7,983,000 (2012: USD8,447,000), which reflected the increase in operating expenses at Botai for the development of selling capability for its collagen products. There was a temporary decline in Lansen's operating profit of USD1,009,000 (6.0%) to USD15,723,000 (2012: USD16,732,000), but the decrease was compensated by increases in operating profits at Haizi and the Hotel of USD680,000 and USD329,000 respectively. The corporate office expenses were maintained at a similar level as in 2012.

Group finance costs increased by USD2,345,000 (80.9%) to USD5,243,000 (2012: USD2,898,000), due to an increase in the Group's borrowings and a rise in the average interest rate to 4.15% (2012: 3.38%). Interest capitalised was also lower at USD1,153,000 (2012: USD1,414,000) as Lansen and Haotian completed most of their expansion projects in 2013.

Group share of profits from Starry (Lansen's 21.5% owned associated company, which is primarily engaged in the production and sales of iohexol for X-CT scan) was USD1,590,000 (2012: USD1,498,000).

As a result, the Group's loss for the year attributable to owners of the parent reduced by USD575,000 (8.5%) to USD6,191,000 (2012: USD6,766,000).

Group's Net Assets and Gearing

As at year end, the Group's net assets were USD190,321,000 (2012: USD197,008,000); and net assets per share were USD0.50 (2012: USD0.52).

The Group's net borrowings as at year-end increased to USD120,966,000 (2012: USD110,227,000), mainly due to a net increase of USD10,764,000 borrowings at Lansen. During the year, the Group refinanced USD6,416,000 of borrowings at Yangling and USD1,862,000 at Haizi. As at year end, short term borrowings were USD94,811,000 (2012: USD76,704,000). Net gearing was 59.2% (2012: 49.6%).

OPERATION REVIEW

HEALTH CARE BUSINESSES

Lansen

In 2013, Lansen grew its revenue by 1.3% to USD95,074,000 (2012: USD93,844,000) mainly due to the strong growth from other pharmaceutical sales but offset by the temporary decrease in specialty pharmaceutical sales that resulted from product withdrawal and realignment of our management team.

Revenue from specialty pharmaceuticals dropped 6.2% to USD57,571,000 (2012: USD61,390,000) primarily due to the strategic withdrawal of orthopaedic specialty drugs. Within the specialty pharmaceuticals, revenue from the three core rheumatoid arthritis ("RA") drugs dropped slightly by 1.8% to USD54,988,000 (2012: USD55,982,000), mainly because of the new management team transition. Sales of Pafulin and Tuoshu dropped 1.8% and 8.8% respectively, but sales of MMF rose by 20.3%.

Revenue from other pharmaceuticals increased 15.6% to USD37,503,000 (2012: USD32,454,000), of which, modern Chinese medicine increased by 23.4% to USD28,720,000 (2012: USD23,280,000) and generic drugs decreased by 4.3% to USD8,783,000 (2012: USD9,174,000).

Lansen's gross profit decreased by 4.0% to USD52,238,000 (2012: USD54,424,000), mainly due to the withdrawal of orthopaedic specialty drugs and the relative increase in the proportion of sales of lower margin modern Chinese medicines, which led to a drop in the overall gross profit margin to 54.9% in 2013 (2012: 58.0%). The gross profit margin of its three core RA drugs improved slightly to 76.1% (2012: 75.1%). Generic drugs' gross profit margin decreased to 38.0% (2012: 40.5%) and modern Chinese medicines' gross profit margin dropped from 21.4% to 19.1% because of a change in product mix.

Lansen's operating profits decreased 6.0% to USD15,723,000 (2012: USD16,732,000). The operating profit margin was 16.5% (2012: 17.8%), a 1.3% reduction which narrowed from the 3.1% gross profit margin reduction. Lansen continued to manage down its selling and distribution expenses to 29.2% of revenue (2012: 33.3%), in line with a general industry trend to reduce marketing and selling activities. Administration expenses as percentage revenue increased to 12.0% (2012: 9.9%), primarily due to an increase in product development costs, staff costs and certain factory overheads charged during the GMP upgrade.

Lansen recorded a 15.7% decrease in profits after income tax to USD12,270,000 (2012: USD14,561,000).

During the year, Lansen completed the new quality control facility and the modification and expansion of its key production facilities which are targeted to meet the anticipated increase in demand for Pafulin and other healthcare products. Lansen obtained the new GMP standards certification on its facilities in Ningbo in late 2013.

Lansen completed the new management team transition. During the year, Lansen restructured and simplified its marketing and sales organization structure to improve efficiency. A new marketing and sales team focused on drugs for dermatology indications was set up. Lansen also implemented pharmaceutical business intelligence system to track specialty drug sales and marketing expenses, providing management information for better resource allocation. Lansen built its business development team to look for acquisition opportunities to broaden its specialty drug portfolio, particularly in its core RA specialty, as well as in autoimmune related dermatology indications.

For other pharmaceuticals, the growth potential of the health supplement business has convinced Lansen to transform its plant extract business from an outsourcing service relying on semi-finished ingredients for Chinese herbal medicine to a medical grade supplier of key ingredients for healthcare products. In this regard, Lansen has explored business synergies with Yangling and entered into a plant extract supply agreement, secured a reliable supply of high quality plant extract ingredients from Yangling at competitive pricing for its needs.

Lansen also acquired the misoprostol development project from Tianjin Longbai, which represents an opportunity to invest in the labor induction market in China, adding to Lansen's gynaecological product range.

Starry has filed an application for listing on the China A share market, aiming to enhance its corporate profile and to improve access to the capital markets for funding to grow its iohexol business.

We expect Lansen to gather growth momentum in 2014. We envisage the drivers will come from the growth in its core specialty drugs as well as OTC products; and the increase in its plant extract business volume. In addition to our established hospitals distribution channel, Lansen will explore sales through pharmacies and the internet to increase its direct access to patients. 

Haotian

During 2013, in anticipation of the commencement of our inositol and DCP business and the restart of its non-inositol business, Haotian established two separate profit centers, each with its own experienced professional managers, to better manage its inositol and DCP business under Haizi and plant extracts and trading under Yangling. The former CEO of Haotian stepped down in October 2013.

Haizi

Haizi worked on further improvement for the phytin production process and related equipment modification during the year. Haizi commenced volume production in November 2013 and reached an annualised production rate of 1,200 tonnes of inositol at year end.

In the last two months of 2013, Haizi produced 200 tonnes and sold 229 tonnes of inositol, and produced 1,192 tonnes and sold 892 tonnes of DCP. Current efforts are centered on optimising the continuous production of phytin, necessary to support the targeted increase in volume production of inositol.

Haizi's initial two months revenue in 2013 was USD3,995,000, giving gross profits of USD1,720,000 and operating profits of USD838,000. The operating loss for the full year 2013 was USD664,000 (2012: USD2,160,000) due to operating expenses in the first 10 months with no revenue to match prior to commencement of volume production in November.

At year end, the inositol market price remained at the high end of the range of USD16-20 per kilogram, due to a supply shortage of inositol in first half of 2013. This benefited Haizi's entry to the markets and its marketing and selling with targeted customers. For DCP, Haizi has set up a dedicated sales team to promote and secure long term customer contracts to supply our feed grade DCP in northeastern cities of China where Haizi has a geographical advantage in transport costs.

In 2014, Haizi will continue to improve the production stability and increase the tonnage of the phytin supply; streamline the production process of inositol and DCP; and work to produce the higher margin food grade DCP. Haizi is also exploring the possibility of building a warehouse in Southern China to boost its domestic sales.

Yangling

Yanling manages our non-inositol plant extract and trading businesses. Its strategy is to focus its production and sales primarily on bilberry. It also acted as a sales agent for a portion of Haizi's inositol. Yangling's revenue increased by 17.0% to USD3,024,000 (2012: USD2,584,000). The gross profit decreased by 92.6% to USD45,000 (2012: USD608,000), due to the drop in the market price for bilberry extracts. Because of this, Yangling suffered a temporary negative gross margin from clearing its old inventories at relatively higher costs. Yangling's operating loss decreased to USD3,989,000 (2012: USD6,708,000) as in 2012 there was a large provision of USD3,169,000 on its slow moving inventories and aged trade receivables.

Yangling will manage down the operating costs of its non-inositol plant extract business and should reach scale effect when production volume increases. Towards the end of 2013, Yangling entered into a plant extract supply agreement to supply high quality plant extract ingredients to Lansen.

Botai

The operating loss in Botai increased to USD1,096,000 (2012: USD631,000), due tooperating expenses incurred in the initial development of the marketing and selling capabilities for its collagen product.

Botai is working on the modification and expansion of its production facilities, targeted to be completed in 2014.

Hotel operations

Revenue of the Hotel increased by 8.7% to USD13,984,000 (2012: USD12,865,000), mainly due to improved occupancy from 54.4% to 61.4%. The average room rate decreased slightly to USD141 (2012: USD144).

In 2013, despite the challenge from competition, the Hotel has outperformed competing upscale hotels in the Luohu area, with a 12.9% growth in room occupancy compared to the Luohu Shenzhen Industry average of a 5.0% decrease. From June 2013, the Hotel successfully secured a few volume corporate customers and certain conference and events. It also broadened the corporate client base to further contribute to volume growth. Through intensive training, the Hotel lowered its staff turnover and maintained superior service quality. Revenue from the food and beverage segment only increased by 4.5% to USD4,155,000 (2012: USD3,975,000) mainly due to a decrease in banqueting business; this was partly due to the government's new austerity program (which has discouraged excessive spending on entertainment), a drop in pharmaceutical clients' business in the second half due to a general slowdown in marketing activities in the industry and less wedding business in the year.

The Hotel's gross profits increased by 17.7% to USD2,425,000 (2012: USD2,060,000), and operating profits increased 16.6% to USD2,312,000 (2012: USD1,983,000). The gross profit margin increased to 17.3% (2012: 16.0%) and the operating profit margin improved to 16.5% (2012: 15.4%). The increase in profitability and the improvement in margin were driven by increase in room sales.

Colliers International HK Limited, an independent firm of qualified professional valuers revalued the Hotel at USD135,000,000 (2012: USD131,000,000). The increase in revaluation was mainly due to the better performance of the hotel in 2013.

Our Hotel consistently achieved high customer satisfactions and was ranked 6th among 63 Crowne Plaza hotels in China in 2013. It was also frequently rated by Tripadvisor as one of the top 10 hotels in Shenzhen.

The Hotel will continue to improve service quality by conducting staff training and addressing individual customer needs. We will also focus on increasing the number of corporate clients to further position the Hotel as one of the leading high-end business hotels in Shenzhen.

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (CONTINUED)

CONSOLIDATED STATEMENT OF CASH FLOWS

NOTES:

1. Basis of preparation

The preliminary results statement and the consolidated financial statements of the Group have been prepared in accordance with all applicable International Financial Reporting Standards, International Accounting Standards and Interpretations (hereinafter collectively referred to as "IFRSs") issued by the International Accounting Standards Board ("IASB"). The consolidated financial statements also comply with IFRSs as issued by the IASB as adopted by the European Union. The differences between IFRSs as adopted by the European Union and IFRSs as issued by the IASB have not had a material impact on the consolidated financial statements for the years presented.

The consolidated financial statements have been prepared under historical cost convention as modified by the revaluation of hotel properties and financial instruments. The consolidated financial statements are presented in United States Dollars ("USD"), which is the same as the functional currency of the Company, and all values are rounded to the nearest thousand except when otherwise indicated.

During the year, the Group has incurred a loss of USD501,000 and at the end of reporting period, its current liabilities exceeded its current assets by USD18,830,000. The financial statements have been prepared based on the assumption that the Group can be operated as a going concern and will have sufficient working capital to finance its operation in the next twelve months from 31 December 2013.

As in the past, the Group will start negotiation with the banks on extension or renewal of the banks borrowings a few months prior to their maturities and will obtain the bank approvals before maturity. As at the end of reporting period, the Group has commenced discussions with a few banks and received indicative term sheets for the purpose of refinancing certain bank borrowings. The Group does not foresee that the bank borrowings will not be renewed or extended before maturity. The Group is also exploring options to secure long term funding, including debt and/or equity, to refinance part of the bank borrowings. Accordingly, the Group should be able to meet in full its financial obligations as and when they fall due for the next twelve months from 31 December 2013 without significant curtailment of operations and are satisfied that it is appropriate to prepare the financial statements on a going concern basis.

Should the Group be unable to continue in business as a going concern, adjustments would have to be made to the financial statements accordingly.

2. Segment information

Information reported to the executive directors, being the chief operating decision maker ("CODM"), for the purposes of resource allocation and assessment of segment performance based on the types of goods delivered.

With the inositol has scale production commenced in November 2013, the CODM considered the necessity of separate reporting of this division, which was grouped under "Haotian" in previous years. With the changes of the information reported internally to the CODM for the allocation of resources and performance of business, the existing reportable segments have therefore been converted into five reportable segments. The "Haotian" in previous years has been separated into two segments - "Haizi" and "Yangling".

With the changes in the structure and composition of the reportable segments, certain comparative figures in the segment information for the year ended 31 December 2012 have been reclassified and revised to present segment profit/(loss) on a consistent basis.

Management currently identifies the Group's five products and service lines as operating segments as follows:

1) the Lansen segment is focused on the manufacture, marketing and sale of speciality western pharmaceuticals, modern Chinese medicine extracts and generic pharmaceuticals in the PRC;

2) the Haizi segment is involved in the manufacture, marketing and sale of inositol and related business;

3) the Yangling segment is involved in the manufacture, marketing and sale of key active ingredients for healthcare products;

4) the Botai segment is engaged in the development of pharmaceutical products; and

5) the Hotel operations segment is a hotel located in the Lowu district of Shenzhen in the PRC.

These operating segments are monitored and strategic decisions are made on the basis of adjusted segment operating results. Segment information can be analysed as follows for the reporting periods under review.

Inter-segment transactions are priced with reference to prices charged to external parties for similar order. Central revenue and expenses are not allocated to the operating segments as they are not included in the measure of the segments' profit/(loss) that is used by CODM for assessment of segment performance.

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