CTI.L Regulatory News (CTI)

Cathay International Holdings Limited

("Cathay" or the "Company")

Annual Results for the Year Ended 31 December 2015

Hong Kong, 30 March 2016 - Cathay International Holdings Limited (LSE: CTI.L), an investment holding company and a leading operator and investor in the growing healthcare sector in the People's Republic of China, today announces its Annual Results for the year ended 31 December 2015.

Group highlights

· The Company and its subsidiaries (collectively the "Group") were impacted by drug price and margin pressure in the Chinese pharmaceutical industry.

· Anticipated the market development, the Group has diversified to add products, such as Bio-Rad diagnostics and Fillderm collagen injectable fillers that are less sensitive to price and margin pressure.

· New product promotion was slower than anticipated during 2015 and meaningful revenue contributions are now expected in 2016.

o For Bio-Rad, Lansen completed installation in 12 top tier hospitals in China and for Fillderm, the market development gained industry attention and expert recognition in the Chinese micro-surgery market. These products are expected to start contributing in 2016.

o Botai commenced mass production of Fillderm in order to facilitate the market launch under the exclusive distribution agency agreement with Lansen.

· The inositol price was still under pressure and Haizi was not able to contribute positively to the Company's earnings in 2015.

· Yangling completed modification and expansion of its plant extract facilities in 2015 and is prepared to take on additional business volume.

· The ginkgo production review in China led to the strategic realignment of the product development and production capacity of the Group's plant extract business in Lansen and Yangling Dailyhealth (formerly known as Yangling Haotian).

· One-off items were recorded, related to the ginkgo review (USD4.0 million) and an inventory write-off due to flood (USD4.3 million), which remains the subject of an ongoing insurance claim.

Group financial highlights

· Revenue decreased by 19.4% to USD120.9 million (2014: USD150.0 million)

· Gross profit decreased by 29.6% to USD49.7 million (2014: USD 70.7 million)

· Gross profit margin decreased to 41.1% (2014: 47.1%)

· Operating profit decreased to USD4.1 million (2014: USD15.8 million)

· Share of profits from Zhejiang Starry Pharmaceutical Company Limited ("Starry") was USD2.2 million (2014: USD2.2 million)

· Loss attributable to owners of the parent increased to USD13.6 million (2014: USD1.3 million)

Post-period highlights

· In March 2016, Starry successfully listed on the Shanghai Stock Exchange. The Group's indirect interest in Starry is worth approximately USD 125.1 million, based on the closing price of Starry as at 23 March 2016, compared to USD 33.7 million under equity accounting as at 31 December 2015.

· In March 2016, a share subscription in Haotian Holdings Limited by Lansen was announced which is expected to enable business synergies in the Company's plant extract operations.

Commenting on the annual results, Mr. Lee Jin-Yi, CEO of Cathay International Holdings Limited, said: "2015 has been another challenging year for Cathay due to changes in government policies, drug pricing, currency volatility and economic slowdown. Despite this, and in response to these anticipated headwinds, Cathay has diversified its product base and continued its strategy to build a solid business foundations over its three core businesses, namely pharmaceutical, health and aesthetic medicine, to diversify and re-establish growth." 

-Ends-

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About Cathay

Cathay International Holdings Limited (LSE: CTI.L) is a main market listed investment holding company and a leading operator and investor in the growing healthcare sector in the People's Republic of China (the "PRC"). The Company and its subsidiaries (collectively the "Group") aim to leverage on growth opportunities in the strong and growing domestic demand for high quality healthcare products in the PRC and build its portfolio companies into market sector leaders with competitive edge. Cathay has already demonstrated a strong track record of identifying high-growth potential investment opportunities in this area including: Lansen, a leading specialty pharmaceutical company focused on rheumatology and dermatology in the PRC; Haizi, a company engaged in the manufacture, marketing and sale of inositol and its by-product, di-calcium phosphate; Yangling, a company engaged in production and sales of plant extracts for use as key active ingredients in health products; and Botai, a company engaged in production and sales of collagen injectable fillers.

The Group employs approximately 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 also has a hotel investment. For more information please visit the Company's website: www.cathay-intl.com.hk

Chairman's Statement

Review of 2015

The pharmaceutical industry in China continued to face downward pressure on drug pricing and margins due to newly introduced government policies such as the enforcement of market-based drug pricing and centralised hospital tenders. Anticipating these changes the Group has, in recent years, developed its healthcare products business as another core business area in addition to its pharmaceutical business. In order to achieve product diversification and improve profit margin, Lansen added new products, including Bio-Rad diagnostic kits ("Bio-Rad") and Fillderm collagen injectable fillers ("Fillderm"), whose product selling prices are not subject to price control or hospital tenders, to its pharmaceutical business portfolio.

Implementation of the Group's strategy was impacted by various factors such as industry reforms, drug price reduction, economic slowdown and volatility in RMB exchange rate in China. The Group also encountered various challenges in new product promotions and business operations summarised further below.

Both Bio-Rad and Fillderm were still in market development phase and yet to bring in meaningful revenue contributions during 2015. For Bio-Rad kits there was a slow market launch and subsequent lower than expected sales performance, coupled with the purchase of diagnostic equipment in hospitals being affected by regulatory changes governing the transportation of ancillary consumables and the limited budget available to hospitals towards year end. Despite these factors, Lansen completed installation of Bio-Rad diagnostic equipment and training in the clinical and rheumatology laboratories in 12 top tier hospitals in China by the end of 2015. Lansen expects to see a gradual increase in usage and sales of Bio-Rad diagnostic kits.

As a newly emerging collagen injectable product targeting the high-end micro-surgery consumer market in China, Fillderm needed time to develop its market positioning, including promotional activities and conferences to provide trial injections for customers. With active marketing efforts, Fillderm has gained industry attention and expert recognition in the micro-surgery market and has gradually established brand awareness. Lansen has also built an aesthetic medicine marketing team in order to explore the direct sales channel to private cosmetic institutions. Botai completed the expansion of its Fillderm production capacity during the year and mass production began in time to facilitate the market launch of Fillderm.

In 2015, the China Food and Drug Administration ("CFDA") conducted a nationwide inspection and regulatory review of ginkgo products to determine whether the sourcing, production and quality controls of manufacturers in the PRC met national standards. During the inspection, a number of batches of ginkgo tablets produced by Lansen's subsidiary, Ningbo Liwah, were found to fall short of national standards. As a result, Ningbo Liwah incurred one-off expenses including product recall costs, inventory write-off and an administrative penalty (referred to below as the 'ginkgo incident'). Ningbo Liwah also faced a potential litigation claim brought by one of its customers, which Lansen's PRC legal counsel on the litigation is of the opinion that the amount claimed is highly disputable. Lansen conducted a comprehensive and rigorous review of its business operations and reorganised its business to clearly separate the operation and management aspects of its plant extract business and pharmaceutical business. Lansen also implemented a series of measures to strengthen risk and compliance management, human resource management, internal control and internal audit functions to ensure regulatory compliance.

The ginkgo incident also led to the strategic realignment of the product development and production capacity of the Group's plant extract business in Lansen and Yangling Dailyhealth (formerly known as Yangling Haotian), through which the Group hopes to create significant business synergies in the areas of production, sales and R&D whilst improving profitability. Upon the completion of the modification and expansion of production capacity in the first half of 2015, Yangling Dailyhealth now owns three production lines, including (i) a production line for berry extracts; (ii) a production line for synthetic health products; and (iii) a multi-functional production line for a variety of plant extracts which would provide room for future business growth.

The market price of inositol was still at its historical low in 2015 at an average price of USD7 per kg and, as a result, Haizi was not yet able to contribute profits to the Group. Given the market price conditions, Haizi has been working on refining its manufacturing flow to reduce production costs. Haizi also expects to optimise its phytin production process in 2016 at which point its inositol cost should become very competitive in the market.

As a result of the decrease in drug prices at Lansen, the slower than expected market development phase of new products and the low inositol pricing at Haizi, the Group's performance in 2015 was much weaker than last year. Group's revenue decreased by 19.4% to USD120,886,000 and Group's gross profit dropped by 29.6% to USD49,739,000. Including one-off items of USD8,225,000 related to the ginkgo incident and an inventory write-off due to a flood (of which the insurance claim was still ongoing and no claim proceeds recognised at year-end), the Group recorded a loss of USD 13,598,000 (2014: USD 1,297,000).

Outlook in 2016

In addition to further developing its pharmaceutical business, the Group will continue to strengthen its health business and advance its entry into the aesthetic medicine business. The Group's strategy is to build a solid foundation over these three core businesses to diversify and achieve growth.

The aesthetic medicine platform is expected to become an important business driver for the Group and a new source of income. The existing product portfolio includes Kefumei collagen mask, Yuze skincare product series and Fillderm collagen injectable. Fillderm should begin to make a positive contribution in 2016. Through expansion of its product portfolio (via acquisition or R&D) and optimising its operations within the industry chain the Group should achieve positive business development and profitability of the aesthetic medicine business in the longer term.

In respect of the pharmaceutical business, new product Sicorten Plus and Bio-Rad are expected to achieve sales growth in 2016 and so contribute earnings in 2017. Lansen received the import drug licence of Sicorten Plus towards the end of 2015 and is now deploying marketing and sales teams for Sicorten Plus. For Bio-Rad, Lansen will leverage on its well established brand in rheumatology and establish a specialty team to promote the sales of Bio-Rad diagnostic kits along with the marketing and sales of specialty drugs for rheumatology and dermatology. It is anticipated that Lansen will complete placing the Bio-Rad diagnostic equipment in most of the major hospitals in China in 2016. The Bio-Rad business line should bring in steady contributions to Lansen as usage of the consumable diagnostic kits increases. Furthermore, Lansen is conducting research on new applications of Pafulin, its core drug. If successful, the new indication would develop to become a driver to increase sales of Pafulin.

The health business includes both plant extract products and health products. In March 2016 a capital subscription in Haotian Holdings Limited by Lansen was announced, to enable the development of the Group's plant extract and health business together under the unified platform of Yangling Dailyhealth, which is expected to provide further synergies within the Group. Yangling Dailyhealth is undertaking market research studies to enter into health supplement products as part of its health business development.

Haizi is now fully capable of producing inositol at the run rate of the annual design capacity. Haizi will continue to work on improving production efficiency in order to lower unit costs. The contribution from Haizi will, however, be highly dependent upon the prevailing market price for inositol.

On 9 March 2016, Lansen's associate Zhejiang Starry Pharmaceutical Company Limited ("Starry") listed on the Shanghai Stock Exchange. Lansen expects Starry to create further value for the Group through accelerating momentum in its business.

The Hotel will focus on growing corporate client occupancy and promoting the food and beverage business to increase income. The Group is considering a reconfiguration plan for the Hotel to maximise the revenue generation per room and this will be implemented at the appropriate time.

In light of the volatility in the RMB to USD exchange rate, the Group will review its onshore and offshore bank facilities and work to proactively manage its interest rate and exchange rate exposure.

Wu Zhen Tao

Chairman

FINANCIAL REVIEW

GROUP RESULTS

The Group's revenue decreased by 19.4% to USD120,886,000 (2014: USD150,023,000) which came mainly from Lansen, Haizi and Yangling. Despite benefiting from organic growth of Pafulin, Lansen's sales dropped 20.1% to USD93,349,000 (2014: USD116,817,000) as a result of:- slower than expected sales of Hepai leflunomide tablets as a replacement for Tuoshu; the launch of new products such as Bio-Rad and Fillderm which did not generate meaningful revenues during the period; and the realignment of product development and limited production capacities of its healthcare business. There were intersegment sales of inositol between Haizi and Yangling and sales of bilberries between Yangling and Lansen during the year. In 2015, Haizi recorded sales of inositol and di-calcium phosphate ("DCP") of USD10,983,000 (2014: USD13,828,000) which was lower than the previous year, despite an increase in sales volume of both, due to the price drop in inositol. Part of the inositol sales, amounting to USD561,000 (2014: USD1,360,000), were not included in Haizi's revenue but in Yangling's because it was sold through Yangling. Yangling's revenue decreased by 46.7% to USD2,551,000 (2014: USD4,782,000) mainly due to a decrease in sales of bilberry extracts. A portion of the plant extract sales, amounting to USD1,551,000 (2014: USD974,000), was not included in Yangling but was recognised in Lansen. Hotel revenue declined by 4.1% to USD14,003,000 (2014: USD14,596,000).

The Group's gross profits decreased by 29.6%, or USD20,932,000, to USD49,739,000 (2014: USD70,671,000). This was primarily due to the decrease in Lansen's gross profits by USD14,508,000 to USD47,963,000 (2014: USD62,471,000) and Haizi's gross profits by USD6,523,000 to a gross loss of USD1,934,000 (2014: gross profit of USD4,589,000). Yangling and the Hotel's gross profits were USD980,000 and USD2,570,000 which were similar to those of previous year. The Group's gross profit margin decreased to 41.1% (2014: 47.1%) which was primarily due to the decline in Haizi's gross margin resulting from the drop of inositol selling prices and in Lansen's gross margin caused by the decrease in sales of the high margin leflunomide tablets under Hepai and the continuous decline in the unit price of leflunomide tablets.

The Group's operating profit decreased by USD11,675,000 to USD4,076,000 (2014: USD15,751,000), of which USD5,106,000 was from Lansen and USD5,925,000 was from Haizi. Excluding the reversal of share option expenses of USD766,000 made in 2014, the corporate office expenses were at similar level to last year.

Group's finance costs increased by 7.7% to USD8,414,000 (2014: USD7,814,000) mainly due to an increase in the Group's total borrowings. The average borrowing costs during the year were 4.46% (2014: 4.47%). No interest expense was capitalised during the year.

The Group share of profits from Starry, a 21.5% owned associate company which is primary engaged in the production and sales of iohexal for X-CT scan, was USD2,162,000 (2014: USD2,156,000).

During the year, Lansen incurred one-off non-operating expenses of USD2,931,000 relating to an administrative penalty on production of sub-standard ginkgo tablets levied by the China Food and Drug Administration ("CFDA"), USD1,022,000 relating to ginkgo recall expenses and a flood loss of USD4,272,000, in respect of which the insurance claim was still ongoing at period end and no claim proceeds recognised during the year.

The Group's loss (after finance costs and tax) was USD12,628,000 (2014: profit of USD5,536,000). After deducting the minority interests, the Group's loss for the year attributable to owners of the parent was USD13,598,000 (2014: USD1,297,000).

Group's Net Assets and Gearing

The Group's net assets as at 31 December 2015 were USD177,196,000 (2014: USD187,848,000). Net assets per share as at 31 December 2015 were USD0.46 (2014: USD0.50).

Starry successfully listed on the Shanghai Stock Exchange on 9 March 2016. Based on Starry's closing price of RMB41.99 as of 23 March 2016, the market value of Lansen's 16.1% share in Starry was approximately USD125.1 million. Lansen's investment in Starry was recorded at USD33.7 million under equity accounting on the year-end balance sheet.

The Group increased its net borrowings to USD149,083,000 (2014: USD133,688,000), out of which there was a net increase of USD8.4 million relating to Lansen and a net increase of USD6.4 million at the corporate level for general working capital purposes. The net gearing ratio reached 79.3% at year end, up from 68.7%. Lansen's net gearing ratio was 46.5% (2014: 36.6%) which was still considered healthy. Apart from Lansen's net borrowings, the Group's net gearing ratio was 52.7% (2014: 46.4%). As at 31 December 2015, short-term borrowings were USD106,005,000 (2014: USD104,306,000).

OPERATION REVIEW

HEALTH CARE BUSINESSES

The Lansen Group

Lansen's revenue decreased by 20.1% to USD93,349,000 (2014: USD116,817,000).

Revenue from specialty pharmaceuticals decreased by 15.1% to USD60,083,000 (2014: USD70,730,000), mainly due to non-renewal of the exclusive distribution agreement of leflunomide tablets branded "Tuoshu" and the new replacement brand "Hepai" and other new products requiring time to develop sales. Revenue from plant extracts decreased by 28.8% to USD25,529,000 (2014: USD35,854,000) and from other pharmaceuticals lowered by 24.4% to USD7,737,000 (2014: USD10,233,000) because of realignment of product development and limited production capacities for its healthcare business.

Apart from the impact from Tuoshu, most of other specialty pharmaceuticals performed well during the year. Revenue growth in Pafulin grew slightly by 2.3% to USD43,391,000 (2014: USD42,421,000) while the number of capsules sold grew by 7.0%. MMF's sales were USD5,233,000 (2014: USD6,918,000) and this decrease was mainly due to a temporary short supply from the manufacturer in the first half of 2015. The new skincare product additions, Sicorten Plus cream and the Comfy Collagen Dressing mask (Kefumei), contributed sales of USD2,040,000 (2014: USD729,000) and USD4,436,000 (2014: USD1,525,000) respectively. The imported drug licence of Sicorten Plus cream was obtained in November 2015, and as a result, Lansen will cease recording Sicorten Plus cream income as other income in 2016. Revenue from Yuze brand skincare products increased to USD3,685,000 (2014: USD 2,793,000).

Lansen's gross profit decreased by 23.2% to USD47,963,000 (2014: USD62,471,000). Gross profit margin dropped 2.1% to 51.4% (2014: 53.5%) mainly due to the decrease in specialty drug products pricing. The gross profit margin of its specialty pharmaceuticals decreased to 64.4% (2014: 71.7%). Other pharmaceuticals' gross profit margin increased to 52.4% (2014: 39.7%) mainly due to higher proportionate sales in Baizhenkeli whose margin was 66.4%. Plant extracts' gross profit margin decreased to 20.4% (2014: 21.5%).

Lansen's operating profit decreased by 26.2% to USD14,393,000 (2014: USD19,499,000). Operating profit margin lowered to 15.4% (2014: 16.7%). Selling and distribution expenses increased to 29.1% of revenue (2014: 28.7%) and administrative expenses increased to 12.5% of revenue (2014: 11.2%) or USD11,659,000 (2014: USD13,084,000). Lansen exercised good control over its expenses in 2015; the overall percentage increases reflected the additional support required for new products such as Bio-rad and collagen injectable fillers.

During the year, the CFDA conducted a nationwide inspection in the ginkgo industry. A one-off non-operating administrative penalty of USD2,931,000 (RMB18,290,000) was imposed on Ningbo Liwah in relation to the breach of relevant rules and regulations in the production and sale of sub-standard ginkgo tablets in the PRC. The related ginkgo incident expenses, such as product recall, were USD1,022,000 (RMB6,378,000) for the year.

Lansen's inventories of USD4,272,000 were written off due to flood damage caused by a rainstorm in Ningbo in September 2015. Lansen's inventories were insured and the expected receipt of insurance claim proceeds relating to flood damage will offset the damaged inventories written off. Lansen has initiated legal proceedings to speed up the enforcement of the payment of the claim under the relevant insurance policies. Lansen will record the insurance claim proceeds as other income when the amount is finalised with the insurance company.

Lansen recorded a decrease in profits after income tax by 81.9% to USD2,640,000 (2014: USD14,557,000).

In March 2016, Lansen entered into a subscription agreement to subscribe for an equity interest of approximately 19.1% in Haotian Holdings Limited ("Haotian"), a wholly owned subsidiary of the Company, at a consideration of RMB33,000,000 (approximately USD4,950,000) of which RMB28,000,000 (approximately USD4,200,000) is in cash and RMB5,000,000 (approximately USD750,000) by way of consideration shares comprising the entire issued share capital of Natural Dailyhealth Tech Limited. At any time within the 15 month period following its subscription in Haotian, Lansen shall have the option at its sole discretion, but not the obligation, to subscribe for additional new shares in Haotian at the same price, for up to 30% in aggregate of Haotian. Haotian is an investment holding company and indirectly wholly owns Yangling Dailyhealth (previously known as Yangling Haotian) and Xian Haotian, which are primarily engaged in the production and sale of plant extracts as ingredients for health products.

Haotian agrees to grant a put option to Lansen for a consideration of USD1. At any time during the period of three months commencing immediately after the second anniversary of signing of the subscription agreement, Lansen is entitled to exercise the put option to require Haotian to purchase all (but not part) of the subscription shares then held by Lansen at the subscription price paid by Lansen and interest calculated at one-year Hong Kong fixed deposit interest rate.

In relation to the legal proceedings initiated by Shenzhen Neptunus Pharmaceutical Company Limited ("Shenzhen Neptunus") against Ningbo Liwah, a wholly owned subsidiary of Lansen, Ningbo Liwah received a writ in relation to the litigation on 24 August 2015. On 15 October 2015, Ningbo Liwah and Shenzhen Neptunus exchanged evidences in the preliminary stage. In the litigation, Shenzhen Neptunus alleged that it had suffered certain losses due to the use of ginkgo extract supplied by Ningbo Liwah in its products. Shenzhen Neptunus is seeking damages of approximately RMB70 million (approximately USD11.2 million as at 31 December 2015) from Ningbo Liwah, as well as relevant legal fees. Lansen sought preliminary opinion on the litigation from its legal counsel in the PRC, who, based on the information available as of the date of issue of the consolidated financial statements, is of the opinion that the amount claimed by Shenzhen Neptunus is highly disputable. As Lansen is not able to reliably assess the amount of any provision, Lansen has not made any provision against this litigation. Lansen will in accordance with the applicable laws, make every effort to protect its interests and its shareholders' interests, actively respond to the case and defend its position vigorously.

Haizi

Haizi manages the Group's inositol and DCP businesses. During the year, Haizi produced 933 tonnes (2014: 1,447 tonnes) and sold 1,366 tonnes (2014: 996 tonnes) of inositol, and produced 6,999 tonnes (2014: 7,906 tonnes) and sold 10,025 tonnes (2014: 8,338 tonnes) of DCP. It was able to produce 195 tonnes of inositol in March 2015, achieving an annualised run rate of 2,340 tonnes. The average selling price of inositol was around USD7 per kg during the year (2014: USD13 per kg).

Haizi's revenue decreased by 24.0% to USD11,544,000 (2014: USD15,188,000), of which USD561,000 (2014: USD1,360,000) was sold through Yangling. Given the adverse market conditions, many corn starch companies scaled down their production volume so Haizi was not able to produce as much inositol as expected, as its suppliers also reduced production of corn starch given current low market prices. Haizi's gross loss and the gross margin were USD1,934,000 (2014: profit of USD4,589,000) and -16.8% (2014: 30.2%) respectively. Subject to selling prices recovering sufficiently, Haizi should have positive gross margin when it produces at near design production capacity. The operating loss was USD4,945,000 (2014: profit of USD980,000) and its net loss was USD5,730,000 (2014: profit of USD70,000).

Haizi continues to work on ways to improve its phytin absorption method to increase phytin supply. Haizi is also working on the refining of its inositol production flow. Once such improvements are completed, Haizi should enjoy a competitive cost position compared to other market participants.

Yangling

With completion of its multi-function workshop and synthesis workshop in mid-2015 Yangling's revenue, comprising primarily bilberry extracts and inositol sales, decreased by 28.7% to USD4,102,000 (2014: USD5,756,000) and the gross profit increased by USD52,000 to USD980,000 (2014: USD928,000) mainly due to a recovery of sales of certain obsolete stock previously written off. Yangling's operating loss decreased to USD1,152,000 (2014: USD1,770,000) mainly due to a decrease in general administrative expenses and stock provision made in the previous year.

Yangling continues to search for suitable plant extract products and works closely with Lansen on business synergy in health supplement and plant extract products.

Botai

In June 2015, Botai entered into an Exclusive Distribution Agreement with Ningbo Lansen whereby Botai agreed to appoint Ningbo Lansen as the exclusive distributor of its Fillderm collagen injectable fillers ("Fillderm") in the PRC.

Botai commenced market launch of Fillderm in the second half of 2015. To leverage Lansen's infrastructure to market Fillderm, the products are sold to cosmetic medical organisations and clinics.

During the period, Botai's revenue was USD378,000 (2014: Nil). Its gross profit was USD260,000 (2014: Nil) and its operating loss increased to USD1,086,000 (2014: USD842,000) due to an increase in selling and distribution expenses and administrative expenses.

Hotel operations

The Hotel's revenue decreased by 4.1% to USD14,003,000 (2014: USD14,596,000). A lower average room rate of USD126 (2014: USD132) and lower revenue per available room (REVPAR) of USD87 (2014: USD90) resulted from an increase in room sales to large multinational corporate clients at preferential corporate rates and a decrease in food and beverage revenue.

As a result of continued strong trends in corporate travelling during 2015, the Group's Hotel maintained its strong position in the Luohu district. Overall room occupancy increased slightly to 69.5% (2014: 68.7%), consistent with the Shenzhen Industry occupancy growth average which remained flat during the year. Revenue from the food and beverage segment decreased by 4.7% to USD4,141,000 (2014: USD4,347,000) mainly due to lower revenue from Brew House, the western coffee shop.

The Hotel's gross profits decreased by 4.2% to USD2,570,000 (2014: USD2,683,000), and operating profits lowered by 5.0% to USD2,430,000 (2014: USD2,559,000). The gross profit margin was maintained at 18.4% (2014: 18.4%) and the operating profit margin was consistent at 17.4% (2014: 17.5%). 

Colliers International (Hong Kong) Limited, an independent firm of qualified professional valuers, revalued the Hotel at USD158,000,000 (2014: USD135,000,000) as at 31 December 2015. The Company has considered that the current room configuration may not be the best mix and so has reviewed other available options. The existing revaluation is based on a best use scenario.

The Hotel consistently achieved high customer satisfaction and was also frequently rated by Tripadvisor as one of the top 10 hotels in Shenzhen.

The Hotel will continue to focus on improving service quality by conducting staff training and addressing individual customer needs. It will also focus on increasing the number of corporate clients and growing the food and beverage business to further position Landmark as one of the 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 IFRS as issued by the IASB as adopted by the European Union. The differences between IFRS as adopted by the European Union and IFRS 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 basis except for the hotel properties and certain financial liabilities that are measured at fair values at the end of each reporting period. 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.

At the end of reporting period, the Group had current liabilities exceeded its current assets by USD30,463,000. 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 2015.

As in the past, the Group will start negotiation with the relevant banks on extension or renewal of the bank borrowings a few months prior to their respective maturities and obtain the approvals from the relevant banks before their respective maturities. Notwithstanding the operating cash flow from certain of its subsidiaries, 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 working capital. 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 re-finance 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 2015 without significant curtailment of operations and the directors of the Company are satisfied that it is appropriate to prepare the consolidated 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 consolidated 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.

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 specialty pharmaceuticals, plant extracts and healthcare products and other pharmaceuticals in the PRC;

2) the Haizi segment is engaged in the manufacture, marketing and sale of inositol and its by-product, di-calcium phosphate;

3) the Yangling segment is engaged in the production and sales of plant extracts for use as key active ingredients in health products;

4) the Botai segment is engaged in the production and sales of collagen injectable fillers; 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: