CTI.L Regulatory News (CTI)

Cathay International Holdings Limited

("Cathay" or the "Company")

Interim results for the six months ended 30 June 2013

Hong Kong, 30 August 2013 - Cathay International Holdings Ltd. (LSE: CTI.L), a main market listed investment holding company and leading investor in the growing healthcare sector in the People's Republic of China, today announces its Interim Results for the six months ended 30 June 2013.

Highlights

Group

· Revenues increased by 10.9% to USD53.7 million (2012: USD48.4 million)

· Gross profit increased by 12.1% to USD27.4 million (2012: USD24.4 million)

· Operating profit decreased by 7.4% to USD3.5 million (2012: USD3.8 million)

· Net profit decreased to USD0.03 million (2012: USD2.2 million)

Lansen

· Revenues increased by 12.1% to USD46.4 million (2012: USD41.4 million)

· 22.7% growth in sales of core rheumatic products (Pafulin, Tuoshu, and MMF)

· 12.6% increase in gross profit to USD26.4 million (2012: USD23.4 million)

· Gross margin increased to 56.9% (2012: 56.6%)

· Operating profit increased by 16.7% to USD8.6 million (2012: USD7.4 million)

· Net profit increased by 2.8% to USD6.7 million (2012: USD6.5 million)

· New management completed transition, focused on product realignment and business development team to explore acquisition opportunities

Haotian

· Revenues of USD0.7 million (2012: USD0.9 million)

· Gross margin decreased from 10.8% to negative gross margin 3.2%

· Operating loss increased to USD2.2 million (2012: USD1.8 million)

· Phytin production technical issues resolved, inositol scale production progressing and market remains robust

· Non-inositol business - separate profit center formed, restructured management team exploring synergies with Lansen's plant extract business

Botai

· Operating loss increased to USD0.6 million (2012: USD0.3 million)

· Expansion and modification of collagen production facilities to complete by the end of Q3 2013

Hotel

· Revenues grew by 8.3% to USD6.6 million (2012: USD6.1 million)

· Operating profit increased by 6% to USD1.0 million (2012: USD0.9 million)

· Average room rate remained the same at USD148

· Occupancy rate increased to 53.7% (2012: 51.1%)

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

"The Chinese pharmaceutical market continues to show growth, albeit slower than in previous periods, and the Government continues to demonstrate support in reforming the local sector. During the period, the Group achieved revenue growth of 10.9% largely driven by Lansen's core rheumatic drug sales and the realignment of Lansen, Haotian and other parts of the business. We look forward to the next six months with excitement as we deliver positive results from our inositol business and reap the rewards of creating more synergies across our group of companies. We also look forward to using our management talents to deliver further potential acquisition opportunities."

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About Cathay

Cathay International Holdings Limited (LSE: CTI.L) is a main market listed investment holding company and a leading investor in the growing healthcare sector in the People's Republic of China ("PRC"). Taking advantage of the strong and growing domestic demand for high quality healthcare products in China, 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 already demonstrated a strong track record of identifying high-growth potential investment opportunities in this area including: Lansen Group, China's leading specialty pharmaceutical company focused on rheumatology, Haotian Group, a company engaged in the manufacture, marketing and sale of key active ingredients for healthcare products, including dietary supplement inositol and Botai, a company engaged in the development of pharmaceutical products and bringing these to the growing Chinese market.

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 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

The Chinese pharmaceutical market has continued to grow over the past six months and whilst slower than in previous periods, growth is still approximately 20%. During the period, the Chinese Government has taken further steps in reforming the pharmaceutical industry. The National Development and Reform Commission has launched an extensive review of the ex-factory (import) prices and cost structure with 60 major multinational and domestic pharmaceutical companies to evaluate their pricing practices in light of current pricing laws. This is the largest review undertaken to date and is meant to provide guidance for future price cutting. Recently, the Government initiated investigations into potential bribery and fraud cases among multinational pharmaceutical companies on their selling practices, signaling the first step to reform the industry distribution process. Such initiatives are aimed at offering affordable drugs to patients in China. Although these measures would create short term pressure to the pharmaceutical industry, overtime, a reformed and highly transparent pharmaceutical market would provide healthier growth to all market participants. We also expect more consolidation of the Chinese pharmaceutical market to come out of the compressed margin.

The new management team at Lansen has completed its transition and is now fully focused on realigning its products. With a broader product portfolio, Lansen will be able to achieve better scale and lower the marketing expense ratio to counter any potential price cuts. We have formed a business development team to proactively look for new autoimmune disease related products. We see increasing acquisition opportunities as companies facing lower margin and high capital expenses to meet the new GMP standards in China. The team is also exploring possibilities to outsource the marketing and sales of non core products to third parties.

We have made good progress in our health supplement businesses. Haotian Haizi has completed its final round of improvement in three key phytin plants and seen steady increase in its phytin production. Management has addressed most technical issues and is working with corn fluid suppliers to ensure smooth raw material supply. We still aim to achieve inositol production at 1,500 tonnes per annum run rate before end of the year. The inositol market continues to be robust. We expect the price to maintain at around USD20-25 per kg in 2013. The dicalcium phosphate ("DCP") market has seen a decline in price due to a slower Chinese economy and the bird flu happened early this year. Our marketing team continues to focus on developing the northeastern part of China, close to our production facility, as our target market for DCP.

Haotian has formed a separate profit center for its non-inositol products, Yangling Haotian. We see huge potential in the health supplement business in China and globally, and therefore focus on building the business on our technical advantage and ability to tailor products to meet clients' needs. We also believe that synergies exist between Yangling Haotian and Lansen's plant extract business in manufacturing, R&D and marketing. We have formed a team between Lansen and Haotian to explore the business synergies. Yangling Haotian would resume volume production of bilberry in the second half and gradually build its sales in curcumin.

Botai has been working on the expansion of its collagen production facilities with completion expected in the third quarter. After careful evaluation of its distribution strategy, Botai would identify suitable distribution agents to sell its collagen product. The Hotel continued to deliver improved performance, built upon its high quality service. Its occupancy rate has increased 2.6% to 53.7% while competitors in the Lowu area saw a 10.9% decline in room occupancy.

Benefiting from good performances at both Lansen and the Hotel, our Group revenues grew 10.9% to USD53.7 million. Lansen achieved a 12.1% growth in revenues while its three core rheumatic drugs, Pafulin, Tuoshu and MMF recorded a 22.7% growth during the first half of 2013. Our Hotel registered a 8.3% sales growth despite a highly competitive environment. Haotian continued to make a loss in its non-inositol business and the Group also incurred increased finance costs and bank charges as a result of rising interests and net increase in bank facilities. The Group's loss attributable to owners of the parent for the period increased to USD3.1 million from a loss of USD0.8 million in the same period last year. Other than improving Haotian's financial performance, we will also focus on bringing down finance costs by achieving an optimal capital structure for the Group.

The slower Chinese economy and a more stringent regulatory environment will make the second half of 2013 challenging. However, we look forward to the next six months with excitement as we expect a turnaround of our inositol business. With the new management teams in Lansen, Haizi, and Yangling all in place and performing, we expect to create more synergies among our group companies. More importantly, our management talents would enable us to capture potential acquisition opportunities when they arise.

Sum Soon Lim

Chairman

OPERATION REVIEW

Financial Performance

Group revenue grew by 10.9% to USD53,668,000 (2012: USD48,394,000), outperforming China's GDP growth of 7.6% during the first half of 2013. This was mainly driven by a 12.1% revenue growth in Lansen, of which, Lansen's core rheumatic drugs sales achieved a strong 22.7% growth. The non-inositol business sales at Haotian, mainly bilberry extracts sales, shrank to USD685,000 (2012: USD928,000) due to a delay in bilberry extracts production and a drop in the market price of bilberry extracts. The Hotel's revenue increased by 8.3% to USD6,576,000 (2012: USD6,072,000), on the back of increased room occupancy and banqueting revenue.

Group gross profit for the period rose by 12.1% to USD27,400,000 (2012: USD24,446,000), primarily attributable to the 12.6% increase in Lansen's gross profit with its overall gross margin increased slightly to 56.9%.

Group operating profit for the period dropped 7.4% to USD3,502,000 (2012: USD3,782,000). Although Lansen recorded a 16.7% increase in operating profit to USD8,620,000 (2012: USD7,385,000) and the Hotel marginally improved its operating profit to USD953,000 (2012: USD899,000), they were more than offset by the increase in operating loss at Haotian and a bank charge on new bank facilities arranged at the corporate office level. The operating loss of Haotian increased to USD2,229,000 (2012: USD1,815,000), as a result of the decrease in its non-inositol business and the absence of receiving any Government grants (2012: USD168,000) during the period. Excluding the bank charge of USD720,000 on new bank facilities, the corporate office operating expenses were managed at a similar level at USD2,488,000 (2012: USD2,387,000).

Group finance costs increased 91.9% to USD2,169,000 (2012: USD1,130,000), resulting from the increase in the Group's bank borrowings and the increase in average interest rate at 4.1% p.a., compared to 2.9% p.a. in the last period. The interest expenses capitalised during the period were USD773,000 (2012: USD622,000).

Group's after tax profit before non-controlling interests for the period was USD31,000 (2012: USD2,194,000). The increase in tax expense was due to the increase in taxable profits of the Group's subsidiaries, which could not be offset by losses in other entities of the Group.

The Group's loss attributable to owners of the parent for the period was USD3,073,000 (2012: USD835,000). This increase was primarily due to the rise in the Group's finance costs, the bank charge on new bank facilities and the increase in tax expenses.

Group's Gearing

The Group's net bank borrowings increased to USD131,188,000, compared to USD110,227,000 as at 31 December 2012. The Group extended or renewed all borrowings matured on or before the date of this report. Net gearing increased to 55.5% (31 December 2012: 49.6%).

Lansen Group

During the first half of 2013, the Chinese pharmaceutical industry was affected by tightened regulations setting higher standards to improve drug safety and renewed price cutting measures which disregard higher costs and increased inflation. To date, Lansen's product portfolio has not been affected by the price cuts.

The new management team has gone through the transition period and delivered growth for Lansen in this challenging industry environment. Lansen's revenue increased by 12.1% to USD46,407,000 (2012: USD41,394,000), of which the rheumatic drugs sales registered a 14.6% growth; and the other pharmaceutical products, a 8.1% growth. Within the rheumatic drugs, Lansen made a strategic decision to withdraw sales of three non-core rheumatic products in orthopaedic indications which no longer fit in its product portfolio. These three products accounted for 8.2% of total rheumatic drugs sales during the same period last year. However, Lansen was able to generate a strong 22.7% growth in the core rheumatic drugs sales, of which Pafulin sales grew by 24.3%; Tuoshu, 10.9%; and immunosuppressant mycophenolate mofetil ("MMF"), 50.3%, which more than compensated the product withdrawal. The slower growth in other pharmaceutical products was due to a key modern Chinese medicine customer's decision to take raw material production in house and cease outsourcing. Lansen has transformed its plant extract business from an outsourcing service relying on semi-finished ingredients for Chinese herbal medicine to a medical grade supplier for the fast growing health supplement markets.

Lansen's gross profit increased by 12.6% to USD26,414,000 (2012: USD23,449,000) and its overall gross margin also increased slightly to 56.9% (2012: 56.6%). This was due to the improved gross margin of its rheumatic drugs to 76.1% (2012: 75.2%) from effective raw material cost management.

Lansen's operating profit rose by 16.7% to USD8,620,000 (2012: USD7,385,000). The operating profit margin increased to 18.6% (2012: 17.8%), due to Lansen's ability to manage down its selling and distribution expenses to 30.1% of its revenue (2012: 31.1%).

Lansen's associate, Zhejiang Starry Pharmaceutical Co. Limited ("Starry"), had a slow start during first half of 2013 after completion of its expanded GMP approved production facilities for iohexol last year. Starry's sales have picked up since June 2013.

Lansen's profit before non-controlling interests only increased by 2.8% to USD6,660,000 (2012: USD6,480,000), due to increases in finance costs and in tax expenses on taxable profits of its subsidiaries.

Lansen is conducting trial production at its expanded herbal extraction facilities and production lines for Pafulin. The GSP compliant warehouse and the quality control centre are already in use. Commercial production of the expanded facilities should commence in the fourth quarter this year.

In meeting China's new GMP standards, Lansen commenced the modification of its key production facilities in Ningbo in June 2013 with the target to complete in the third quarter of this year. It is expected that Lansen will obtain the new GMP standards certification in the first quarter of 2014.

Lansen is committed to broaden its product portfolio and has strengthened its business development team during the period. Lansen will continue to review M&A and business collaboration opportunities for inorganic growth.

Haotian Group

Haotian's non-inositol business revenue, mainly bilberry extracts sales, decreased by 26.2% to USD685,000 (2012: USD928,000) due to a delay in bilberry extracts production, and incurred a gross loss of USD22,000 (2012: gross profit of USD100,000). Haotian suffered from a negative gross margin of 3.2% (2012: gross profit margin of 10.8%), due to the drop in the market price of bilberry extracts.

The operating loss of Haotian was USD2,229,000 (2012: USD1,815,000), as a result of the underperformance of its non-inositol business. The inositol sales and results during the period were not reflected prior to project commercialisation. The inositol sales performance should be reflected in the results in the second half of 2013 upon commercialisation.

During the period, Haotian resolved the technical issue that caused blocking of equipment in phytin production, which, in turn, had affected the continuous generation of phytin for inositol production. With the gradual increase in the phytin supply, the inositol production should climb and is expected to reach the production run rate of 1,500 tonnes per annum by the end of this year.

With regard to marketing and sales, Haotian is focused on securing term contracts directly with overseas and domestic end producers of healthcare products rather than intermediates or short term, price sensitive purchasers. Haotian was able to meet the quality standards demanded by customers for inositol and secure term contracts close to the market price, which currently stood at the higher range of USD20-25 per kg. For DCP sales, Haotian is also building a client base focused strategically in the northeastern region of China, close to where our production base is located, where Haotian has a competitive edge in transportation cost.

Haotian has also restructured the management team at its non-inositol business and searched for suitable products, including curcumin, to add to its health supplement product portfolio. The bilberry extracts volume production should resume in the second half after the delay in the first half of this year. Haotian will also gradually build its curcumin sales.

There exists huge potential for the health supplement businesses globally and in China, with the global market reportedly forecasted to reach USD107 billion by 2017. At Group level, we will need to build our competitive advantage in the ability to tailor products for our customers, maintain high quality standards and operate under a cost efficient structure. Lansen has delegated a team to work with Haotian and explore synergies in the manufacturing, product development and marketing of health supplement and plant extract products.

Botai

Botai's operating loss increased to USD634,000 (2012: USD300,000) during the period, due to operating expenses incurred in the initial development of the marketing and selling capabilities for its collagen product.

The expansion and modification of the collagen production facilities should complete towards the end of the third quarter this year. Botai is currently exploring the engagement of distribution agents for its collagen product.

Hotel Operations

Our Hotel has created an edge over the competition in Lowu district in Shenzhen by providing and maintaining high quality service to its guests.

During the period, the Hotel's revenue increased by 8.3% to USD6,576,000 (2012: USD6,072,000), mainly due to increased room occupancy of 53.7% (2012: 51.1%) while maintaining the average room rate at USD148. Our Hotel outperformed its peers in the Lowu district in Shenzhen, which saw an average 10.9% drop in room occupancy in the same period. Currently the Hotel ranked number 11 amongst 1,608 hotels in Shenzhen by Tripadvisor.

The Hotel's food and beverage sales also grew to USD2,108,000 (2012: USD1,813,000), due to improvement in its catering and banqueting businesses.

The Hotel continued to manage its operating costs against inflation and a 5% rise in staff costs which were in line with the Shenzhen market. As a result, the Hotel improved its gross margin to 15.3% (2012: 14.8%) and increased its operating profit by 6% to USD953,000 (2012: USD899,000).

The Hotel will continue its strategy of maintaining high quality service through extensive staff training and will grow in both the business and transient segments in the domestic market through proactive marketing.

GRANT OF SHARE OPTIONS

On 27 March 2013, the Company granted 3,490,000 options under a Share Option Plan approved by shareholders of the Company on 3 June 2010. The number of options granted to date to the Group's management and employees represents approximately 82% of the options currently available under the Share Option Plan.

PRINCIPAL RISKS AND UNCERTAINTIES

The directors do not consider that the principal risks and uncertainties, as set out on pages 13 to 17 of annual report for the year ended 31 December 2012, have changed since its publication.

Statement of Directors' Responsibilities

Each of the directors confirms that, to the best of his knowledge:

i the condensed set of financial statements, which has been prepared in accordance with the International Accounting Standard 34 "Interim Financial Reporting", gives a true and fair view of the assets, liabilities, financial position and profit or loss of the Group, or the undertakings included in the consolidation as a whole;

ii the interim management report includes a fair review of the information required by the Disclosure and Transparency Rules 4.2.7R; and

iii the interim management report includes a fair review of the information required by the Disclosure and Transparency Rules 4.2.8R.

Condensed Consolidated Statement of Profit or Loss

Condensed Consolidated Statement of Comprehensive Income

Condensed Consolidated Statement of Financial Position

Condensed Consolidated Statement of Changes in Equity

Condensed Consolidated Statement of Cash Flows

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PREPARATION AND GOING CONCERN ASSUMPTION

The unaudited condensed consolidated interim financial statements (the "Interim Financial Statements") have been prepared in accordance with International Accounting Standard ("IAS") 34 "Interim Financial Reporting" issued by the International Accounting Standards Board (the "IASB").

The accounting policies adopted in the Interim Financial Statements are consistent with those used in the preparation of the Group's annual financial statements for the year ended 31 December 2012, which have been prepared in accordance with International Financial Reporting Standards ("IFRSs") (which collective term includes all applicable individual International Financial Reporting Standards and Interpretations as approved by the IASB, and all applicable individual International Accounting Standards and Interpretations as originated by the Board of the International Accounting Standards Committee and adopted by the IASB).

The Interim Financial Statements have been prepared under the historical cost convention as modified by the revaluation of hotel properties and financial instruments.

The Interim Financial Statements have been prepared on a going concern basis which assumes the realisation of assets and satisfaction of liabilities in the ordinary course of business notwithstanding that the Group had net current liabilities of approximately USD8,381,000 as at 30 June 2013.

As in the past, the Group will start negotiation with the banks on extension, renewal or refinance of the banks borrowings a few months prior to their maturities and will obtain the bank approvals before maturity. The Group does not foresee that the bank borrowings will not be renewed, extended or refinanced before maturity. 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 30 June 2013 without significant curtailment of operations and are satisfied that it is appropriate to prepare the financial statements on a going concern basis on the assumption that the Group will have sufficient working capital to finance its operation in the next twelve months from 30 June 2013.

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

In the current interim period, the Group has applied, for the first time number of new or revised standards and interpretations ("new or revised IFRSs") issued by the IASB. Except as described below, the application of the new or revised IFRSs in the current interim period has no material effect on the amounts reported in these Interim Financial Statements and/or disclosures set out in these Interim Financial Statements.

Amendments to IAS 1 Presentation of Items of Other Comprehensive Income

The Group has applied the amendments to IAS 1 Presentation of Items of Other Comprehensive Income for the first time in the current period. The amendments introduce new terminology, whose use is not mandatory, for statement of comprehensive income and income statement. Under the amendments to IAS 1, the "statement of comprehensive income" is renamed as the "statement of profit or loss and other comprehensive income". The amendments to IAS 1 retain the option to present profit or loss and other comprehensive income in either a single statement or in two separate but consecutive statements. However, the amendments to IAS 1 require items of other comprehensive income to be grouped into two categories in the other comprehensive income section: (a) items that will not be reclassified subsequently to profit or loss; and (b) items that may be reclassified subsequently to profit or loss when specific conditions are met. Income tax on items of other comprehensive income is required to be allocated on the same basis - the amendments do not change the option to present items of other comprehensive income either before tax or net of tax. The amendments have been applied retrospectively, and hence the presentation of items of other comprehensive income has been modified to reflect the changes. Other than the above mentioned presentation changes, the application of the amendments to IAS 1 does not result in any impact on profit or loss, other comprehensive income and total comprehensive income.

2. SEGMENT INFORMATION

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

3. INCOME TAX EXPENSE

The provision for current tax has been made in respect of the assessable profits arising in the People's Republic of Chinaduring the period.

4. LOSSES PER SHARE attributable to owners of the parent

The calculation of the basic and diluted losses per share attributable to owners of the Company is based on the following data:

For the period ended 30 June 2013and 2012, the computation of diluted losses per share does not include the 1,292,353 Common Sharescontingently issuable to Mr. Lee Jin-Yi, as the conditions for their issue were not met throughout the period.

For the period ended 30 June 2012, the computation of diluted losses per share does not assume the exercise of the Company's outstanding share options as the exercise price of those options is higher than the average market price for shares.

5. PUBLICATION OF NON-STATUTORY ACCOUNTS

The unaudited interim results do not constitute full accounts prepared in accordance with the listing rules of the UK Financial Conduct Authority. The figures for the year ended 31 December 2012 have been based on the full accounts of the Group which were prepared under IFRS and which included an unqualified audit report. The interim financial information in this report has been neither audited nor reviewed by the Group's auditor.

Copies of this report have been sent to shareholders and are available to the public from the Company's registrars and transfer office at Capita Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU.