CTI.L Regulatory News (CTI)

28 Apr 2006 13:26

Cathay International Holdings Ld28 April 2006 28th April, 2006 CATHAY INTERNATIONAL HOLDINGS LIMITED PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2005 CHAIRMAN'S STATEMENT INTRODUCTION Repositioning was the theme for Cathay International Holdings Limited in 2005. Weacquired a pharmaceutical business to complement our biotech investments in thefast growing and changing China market. We also made a major investment in theredesign and renovation of the Landmark Hotel in Shenzhen (the "Hotel") toposition the Hotel at the very top end of the market as an all suite luxurybusiness hotel. LANDMARK HOTEL (SHENZHEN) In December 2004, the Company closed the Hotel for a major renovation. The Hotelstarted operation on a "soft opening" basis in the last quarter of 2005; theHotel has been redesigned to reflect the market trend towards larger rooms forfive-star hotels in China and to meet the new "platinum five-star" hotel ratingof the China National Tourism Administration, the highest hotel standard inChina. The all suite Landmark (smallest suite size 48 sq.m.) is located in the centralbusiness district of Shenzhen. Shenzhen is one of the two main financial centresin China, is a major commercial centre and is close to Hong Kong. The renovationhas upgraded the standard to satisfy the most demanding of business travellers.There will be an official re-opening ceremony combined with an extensivemarketing programme in mid-2006. The web site of the Hotel (http://www.szlandmark.com/eng/index.htm) has also been redesigned. The Board believesthat the Hotel will continue to be an important and valuable asset and expectsit to make a major contribution from mid-year 2006 onwards. BIOTECHNOLOGY AND PHARMACEUTICAL BUSINESS The Company completed the acquisitions of Ningbo Liwah Pharmaceutical CompanyLimited ("Liwah") and Lansen Medicine (Shenzhen) Company Limited ("Lansen") inAugust 2005. Liwah is principally engaged in the manufacture and sale of Chineseherbal medicine and herbal extracts. Lansen is principally engaged in themarketing and distribution of pharmaceutical products in China.We continued with our strategy of developing a complete value chain for ourbiotechnology and pharmaceutical investments in China.Supported by China's dynamic economy, we believe these businesses will generatelong-term growth and improved shareholder returns in the future. PERFORMANCE Hotel Corporate Operations Pharmaceutical Office Production(Stated in USD'000) Research & marketing & development distribution TotalFor the year ended 31December 2005Contracted income - 4,950 6,282 - 11,232Less consolidationadjustment - (4,950) - - (4,950) _______ _______ _______ _______ _______Revenue - - 6,282 - 6,282 _______ _______ _______ _______ _______Segment profit/(loss)before (2,298) 4,554 708 (3,609) (645)taxationLess consolidationadjustment - (4,950) - - (4,950) _______ _______ _______ _______ _______ (2,298) (396) 708 (3,609) (5,595) _______ _______ _______ _______ _______ For the year ended 31December 2004Revenue 6,918 - - - 6,918Segment profit/(loss)before 819 (1,509) - (6,142) (6,832)taxation BACKGROUND ON CONSOLIDATION ADJUSTMENT FOR PHARMACEUTICAL'S RESEARCH &DEVELOPMENT OPERATION In 2003, the Company's subsidiary, Tianjin Longbai Biological Engineering andTechnology Company Limited ("Longbai") reached an advanced stage of developmentof the application of oral fast release technology on several drugs, ready forsale to the market. Amongst interested buyers in the market at that time wasLiwah, then an associated company of the Sanjiu Group, a listed pharmaceuticalgroup in China, who approached Longbai and expressed interest in buyingLongbai's technology. As it took time for Longbai to completely develop all the oral fast releasedrugs that Liwah targeted to acquire, on 20 December 2003, Liwah entered into aninitial agreement with Longbai whereby Longbai agreed to sell and transfer toLiwah the technology and related rights and interests to an oral fast releasedrug, Paracetamol, for an agreed price of RMB10 million (approximately USD1.2million). Liwah continued negotiations with Longbai on the acquisition ofanother five of the eight oral fast release drugs in advanced stages ofdevelopment. On 26 May 2005, a supplementary agreement ("Technology Transfer Agreement") wasentered into between Liwah and Longbai which included the sale and transfer ofsix oral fast release drugs (including Paracetamol) developed by Longbai for atotal consideration of RMB40 million (approximately USD5 million).As described in the open offer document to shareholders of the Company dated 28July 2005, on 14 March 2005 and 10 May 2005, the Group via wholly ownedsubsidiaries signed share transfer agreements with the then shareholders ofLiwah (including Sanjiu) relating to the acquisition of Liwah. The acquisitionof Liwah was subject to a number of conditions, including the obtaining of allnecessary government approvals and the Company's shareholders approval. On theother hand, the Technology Transfer Agreement was a legally binding agreementand both Longbai and Liwah had recorded the transaction in their own accountsbefore the completion of the acquisition of Liwah by the Group. The Companycompleted the acquisition of Liwah on 19 August 2005 and Liwah became asubsidiary of the Group. The Company considered that the Technology Transfer Agreement was entered intowhen Liwah was an independent third party and was not yet a subsidiary of theGroup and accordingly that the revenue and associated profit arising from theTechnology Transfer Agreement should also be accounted for in the consolidatedaccounts of the Group. However, on subsequent review of the pertinent accounting requirements andstandards, the treatment of this revenue and associated profit in theconsolidated accounts of the Group is open to debate. The directors have adoptedthe most prudent accounting approach of eliminating by consolidation adjustmentsthis revenue and associated profit in the consolidated accounts of the Group.As the Technology Transfer Agreement represented Longbai's first majorcommercial success and made a significant contribution to the Group after itsover three years' investment in Longbai, the directors and the auditors of theCompany feel it is proper to show in the table above this revenue and associatedprofit, which have been eliminated from the consolidated accounts. OPERATING RESULTS Turnover of USD6,282,000 (after the consolidation adjustment) for the year 2005was generated from the sale of pharmaceutical products by Liwah and Lansen inthe production, marketing and distribution division.The loss before taxation of the Hotel operation for the year 2005 mainly arosefrom interest on bank borrowing and pre-opening expenses. Since the Hotel was inits pre-opening phase, the operating profit of the Hotel during this period wasrecorded as a reduction of pre-operating expenses capitalized during therenovation period. The profit before taxation of the pharmaceutical business for the year 2005 wasowing to profit contributions from Liwah and Lansen. The gross profit of the biotechnology and pharmaceutical division wasUSD4,176,000 (2004: Nil). The profit before tax and minority interests wasUSD312,000 (2004: loss of USD1,509,000). The Company recorded a reduced overall loss for the year 2005 as a result of thepositive contribution from its pharmaceutical business:- the operating loss for 2005 was USD4,111,000 (2004: loss of USD5,573,000).- the pre-tax loss before minority interests was USD5,595,000 (2004: loss of USD6,832,000).- the loss after tax and minority interests for the year was USD6,345,000 (2004: loss of USD6,818,000). Net assets at the end of 2005 were USD86,023,000 (2004: USD72,341,000). Theincrease was primarily due to the Company's equity fund raising by way of anopen offer to shareholders which financed the acquisitions and investments inLiwah and Lansen. Net assets per share at the end of 2005 were USD0.33 (2004:USD0.40). This small reduction is partly due to the dilutive effect of the openoffer. On 28 July 2005, the Company conducted an open offer and issued 80,017,779 newcommon shares at 9 pence per new common share raising net proceeds ofUSD12,355,679 to finance its acquisitions of and investments in Liwah andLansen. On 19 August 2005, a loan facility for up to USD18 million, on normal commercialterms and on an unsecured basis, was entered into by the Company with CathayInternational EW No. 43 Limited, the immediate parent undertaking of CathayInternational Enterprises Limited, which is itself the immediate parentundertaking of the Company. Gearing increased to 57% (2004: 35%), primarily as a result of the consolidationin the Group's accounts of bank and other borrowings arising as a result of theacquisitions of Liwah and Lansen and borrowings related to the Hotel renovation.On 20 April 2006, the Company announced that it had raised £1,500,000(approximately USD2,673,000) by way of a private placement of 15,000,000 newcommon shares (the "New Common Shares") at an issue price of 10 pence per share(the "Placing"). The principal purposes of the Placing was to ensure that atleast 25% of the Company's listed securities are in public hands, as required bythe listing rules of the UK Listing Authority (the "UKLA") and to introduce newinvestors to the Company. The funds raised are to be used for general workingcapital. The Company had the authority to issue the New Common Shares under thePlacing pursuant to resolutions passed by shareholders at the special generalmeeting of the Company held on 16 August 2005. The New Common Shares represent5.44% of the issued share capital of the Company as enlarged as a result of thePlacing. Immediately following the completion of the Placing, approximately27.77% of the Company's listed securities will be in public hands as defined bythe listing rules of the UKLA. CONCLUSION AND APPRECIATION Despite the challenges of the past year, we have successfully implemented ourstrategy and laid the foundations for our future growth.Your Board continues to believe that there are attractive opportunities forinvestment in China, and we are actively seeking additional businessopportunities in China to provide new sources of steady earnings and capitalgrowth. New investments in China will only be made after conducting careful andprofessional evaluations of the risks. On 3 April 2006, Mr. Mao Yu Min resigned as a director of the Company. On behalfof the Board, I would like to thank Mr. Mao for his past services to theCompany. On behalf of the Board, I would also like to thank our staff for their continueddedication and commitment. James BuchananChairman Enquiries: Stephen Hunt (Deputy Chairman) (via Brunswick) 020 7404 5959Patrick Sung (Director - Finance) Jon Coles, Brunswick 020 7404 5959 OPERATIONAL REVIEW Landmark Hotel (Shenzhen) In 2004, the Company decided to renovate its 5-star hotel located in the Lowudistrict of Shenzhen. The Hotel has been redesigned to meet the new "platinumfive-star" hotel rating of the China National Tourism Administration which isthe highest standard for hotels in China. During the closure of the Hotel, the Company took the opportunity to undertakefurther staff training. The Hotel engaged a firm associated with SingaporeAirlines specializing in developing and enhancing service quality to providetraining to staff of all ranks in the Hotel. Personalized butler service wasintroduced into the Hotel and a UK firm specializing in butler training wasengaged to provide tuition in this unique service for the Hotel. Additionaltraining was provided to the sales and marketing team. The Hotel is beingpositioned firmly at the top end of the corporate and business market. The Hotel has 235 renovated and enlarged suites (compared to 351 smaller roomsbefore the renovation). In addition, the Hotel has a new and enlarged banquetingfacility, a new executive lounge, a new Italian restaurant, a new cigar and winebar, new conference room facilities and a new wellness centre including spafacilities. The Hotel commenced business again in the last quarter of 2005 and graduallyreleased new rooms and facilities to the market. The Hotel will be applying forthe "platinum five-star" hotel rating later in the year. The total cost of the major renovation is expected to be at the high end of thepreviously announced range of approximately USD10-12 million and has beenfinanced by existing cash resources and shareholder loans. In accordance with its usual practice, the Group conducted an annual revaluationof the Hotel. The Hotel was valued at USD118 million (2004: USD102 million) asat 31 December 2005 by Colliers International, an independent firm ofprofessional valuers. Although the Hotel was not able to generate a positive contribution to theCompany's results in year 2005, the Board believes that the Hotel will make amajor contribution from mid-year 2006 onwards. Biotechnology and pharmaceutical business Ningbo Liwah Pharmaceutical Company Limited ("Liwah") The principal business of Liwah is the manufacture and sale of Chinese herbalmedicine in ready-to-use form and herbal extracts, principally in the form ofcapsules, tablets, granules and liquid medication. Liwah has Good ManufacturingPractice ("GMP") production facilities for tablets, capsules, granules, syrup,oral solution, mixture, bulk and ointment. The business activities of Liwah include the manufacture of Chinese medicine(including ready-to-use medicine), invigorants and western medicine and also theimport and export of its own and third parties' products and technologies.Liwah, increased its production capacity during the year to meet increasingsales demand and in anticipation of a further increase in demand, is currentlyexpanding its production facilities for capsule and tablet forms. Two new GMPproduction lines are expected to commence production in 2006. Liwah is implementing further quality control measures throughout the wholeprocess including but not limited to raw material purchase, manufacturing anddelivery of products. Liwah has been streamlined during the period to achieve greater specializationand business synergy, including the merger of the sales teams of Liwah andLansen. All the Chinese herbal products produced by Liwah are now distributedand marketed through Lansen. Liwah has also spun off its extraction business andits newly developed oral fast release business into two separate subsidiaries toconcentrate its focus on its core business which is the manufacture of Chineseherbal medicine. As a result of the abovementioned spin-off, two new companies were formed inSeptember 2005, namely Ningbo Liwah Plant Extraction Technology Limited ("PlantExtraction Company") and Ningbo Lansen Pharmaceutical Technology Limited("Ningbo Lansen"). The main business of the Plant Extraction Company is the manufacture and saleand marketing of plant extract products such as Ginkgo Biloba extract, PaeoniaLactiflora extract and Chinese herbal extract granule. The Management iscommitted to improving the price competitiveness of the products as well asmaking the products more accessible to international markets such as Europe andJapan. The Plant Extraction Company is now constructing a new GMP productionplant equipped with advanced facilities. The construction is expected to becompleted in 2007. During the interim period, the production and salesactivities of the plant extraction business will continue to be carried out byLiwah in leased facilities. The main business of Ningbo Lansen is the manufacture, marketing and sale oforal fast release drugs. Ningbo Lansen is also constructing a new productionplant with GMP production lines that will enable the company to manufacture oralfast release products. The new plant is expected to be completed in 2007. Untilthen, the Liwah production facilities will be used. Ningbo Lansen has alreadyfiled the applications with the State Food and Drug Administration ("SFDA") forthe Production Licences for two oral fast release drugs. It is expected that atleast one oral fast release drug will be launched in 2006. Lansen Medicine (Shenzhen) Company Limited ("Lansen") The principal business of Lansen is the marketing and distribution ofpharmaceutical products in China. Lansen is responsible for the marketing and distribution of drugs owned andmanufactured by Liwah, including prescription drugs primarily used forrheumatic, orthopedic and stomatology related diseases, as well as someover-the-counter ("OTC") drugs. Lansen also acts as the agency for distributionof drugs manufactured by other pharmaceutical companies. In year 2005, Lansenwas engaged by a pharmaceutical company in Fujian Province to act as theexclusive PRC nationwide distribution agent for a prescription drug forrheumatic related diseases. Another pharmaceutical company in Zhejiang Provincehas also granted Lansen the right to distribute a prescription drug used fororthopedic related diseases. The company has built up a national marketing and sales network with more than250 sales representatives, covering national and major hospitals and clinics inmajor provinces in China. Changchun Botai Medicine and Biological Technology Company Limited ("Botai")Botai continued to concentrate on the research and development of biologicalmaterials, diagnostic kits and drug delivery systems. In December 2005, a New Drug Licence and Production Licence of a hydrogel drugfor the relief of pain associated with rheumatoid arthritis was granted by theSFDA. In January 2006, the GMP certificate for the hydrogel production line wasgranted to Botai and limited production has commenced to test the market forthis product. Tianjin Longbai Biological Engineering and Technology Company Limited("Longbai") Longbai has been involved in the research and development of drug deliveryformats and oral fast release drugs which are its core business. Applications for New Drug Licences and Production Licences for three oral fastrelease drugs have been submitted to the SFDA for approval. During the year, Longbai completed the sale of six oral fast release drugs toLiwah, an associated company, and received the consideration of USD4,950,000.In December 2005, the registered capital of Longbai increased from USD687,000 toUSD1,009,000, with capital contributed by existing shareholders of Longbai on apro-rata basis. In April 2006, the registered capital of Longbai was furtherincreased from USD1,009,000 to USD1,733,000. The capital increase was financedby the transfer of unappropriated profit of USD724,000 to registered capital. GROUP INCOME STATEMENT For the year ended 31 December 2005 Year Ended Year Ended 31 December 31 December 2005 2004 Notes USD'000 USD'000 CONTRACTEDINCOME 11,232 6,918CONSOLIDATIONADJUSTMENT (4,950) - _________ _________REVENUE 2 6,282 6,918COST OF SALES (2,106) (6,099) --------- --------- ---------- ----------GROSS PROFIT 4,176 819SELLING ANDDISTRIBUTIONEXPENSES (2,405) -ADMINISTRATIVE EXPENSES ----------- ---------- Administrative expenses (5,006) (5,769) Write off and impairment of - (623) intangible assets ----------- ---------- ----------------------- (5,006) (6,392)PRE-OPERATINGEXPENSES (876) - __________ __________LOSS FROMOPERATIONS 2 (4,111) (5,573)FINANCE COSTS- NET (1,484) (1,259) __________ __________LOSS BEFORETAXATION (5,595) (6,832)TAXATION 4 - - __________ __________LOSS ONORDINARYACTIVITIES (5,595) (6,832)AFTER TAXATION __________ __________ATTRIBUTABLETO: 750 (14)MINORITYINTEREST (6,345) (6,818)EQUITY SHAREHOLDERS __________ __________ (5,595) (6,832) __________ __________LOSS PER SHAREBASIC 5 (2.87 cents) (3.77 cents) ========= ========= GROUP BALANCE SHEETAs at 31 December 2005 As at As at 31 December 31 December 2005 2004 USD'000 USD'000ASSETS NON-CURRENT ASSETS Property, plant and equipment 129,452 107,288Investment property 1,319 -Intangible assets 575 192Goodwill 6,243 180Investments - 4,946Loans to minority shareholders 126 - __________ __________ 137,715 112,606 __________ __________CURRENT ASSETSInventory 2,520 235Trade and other receivables 11,538 2,653Cash and cash equivalents 10,020 3,835 __________ __________ 24,078 6,723 __________ __________TOTAL ASSETS 161,793 119,329 ========== ========== EQUITY AND LIABILITIES CAPITAL AND RESERVES Called up share capital 13,043 9,042Share premium 8,355 -Capital and special reserve 43,320 43,320Revaluation reserve 55,884 53,529Exchange equalisation reserve (11,551) (10,463)Statutory reserve 1,104 1,083Profit and loss account (30,515) (24,170) _________ _________SHAREHOLDERS' FUNDS 79,640 72,341 _________ _________ MINORITY INTERESTS 6,383 - TOTAL EQUITY 86,023 72,341 NON-CURRENT LIABILITIES Borrowings 23,241 21,331Deferred tax liabilities 15,164 15,264 _________ _________ 38,405 36,595 _________ _________CURRENT LIABILITIES Borrowings 8,332 4,391Trade and other payables 29,033 6,002 _________ _________ 37,365 10,393 _________ _________TOTAL LIABILITIES 75,770 46,988 TOTAL EQUITY AND LIABILITIES 161,793 119,329 ======== ======== GROUP CASH FLOW STATEMENT Year ended Year ended 31 December 31 December 2005 2004 USD'000 USD'000Operating activities Loss from operations (4,111) (5,573)Adjustments for:Impairment of intangible assets - 143Written off intangible assets - 480Depreciation 642 513Amortisation of goodwill - 23Amortisation of intangible assets 29 -Loss on investments 56 49Loss on disposal of property plant and equipment 37 -Gain on deemed acquisition of subsidiaries (188) - _________ _________Operating cash flows before movements in workingcapital (3,535) (4,365)(Increase)/decrease in inventories (228) 170 Increase in receivables (181) (1,242)(Decrease)/increase in payables (4,314) 252 _________ _________Cash absorbed by operations (8,258) (5,185)Interest paid (1,654) (1,478) _________ _________Net cash absorbed by operating activities (9,912) (6,663) _________ _________ Investing activities Purchase of property, plant and equipment (18,410) (1,744)Purchase of intangible assets (62) (153)Proceeds from disposal of investments 4,890 -Proceeds from disposal of associate 152 -Acquisition of subsidiaries (1,453) -Interest received 170 219 _________ _________Net cash used in investing activities (14,713) (1,678) _________ _________ GROUP CASH FLOW STATEMENT Year ended Year ended 31 December 31 December 2005 2004 USD'000 USD'000 Financing activities Capital element of finance lease payment (10) (5)Proceeds from borrowings 183 1,000Repayments of borrowings - (2,399)Proceeds from issued of shares, net of expenses 12,356 -Loans from an intermediate parent undertaking 17,831 -Loans to minority shareholders (126) - _________ _________Net cash from/(used in) financing activities 30,234 (1,404) _________ _________Effects of exchange rate changes 576 (387) _________ _________Net increase/(decrease) in cash and cashequivalent 6,185 (10,132)Cash and cash equivalents at beginning of year 3,835 13,967 _________ _________ Cash and cash equivalents at end of year 10,020 3,835 _________ _________ Reconciliation of cash and cash equivalentsCash and cash equivalents for balance sheet andcash flow statement purposes 10,020 3,835 _________ _________ NOTES 1. BASIS OF PREPARATION AND ACCOUNTING This preliminary results statement and the consolidated financial statements ofthe Group have been prepared in accordance with International FinancialReporting Standards (IFRS), including all new and revised standard effective forthe period commencing 1 January 2005.The preparation of financial statements in accordance with IFRS requires the useof estimates and assumptions that affect the reported amounts of assets andliabilities, and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period. Although these estimates are based on management'sbest knowledge of current events and actions, actual results may ultimatelydiffer from those estimates.These consolidated financial statements have been prepared under the historicalcost convention as modified by the revaluation of certain property, plant &equipment. 2. SEGMENTAL INFORMATION 2.1 Business Segments For management purposes the Group is currently organised into business segmentsas reported below: Hotel Pharmaceutical Corporate Total Operations Office Production Research & Marketing & Development Distribution USD'000 USD'000 USD'000 USD'000 USD'000For the yearended 31 December2005 Contracted - 4,950 6,282 - 11,232 income Less - (4,950) - - (4,950) consolidation adjustment ________ ________ ________ ________ _______ Revenue - - 6,282 - 6,282 ________ ________ ________ ________ _______ Segment (2,298) 4,554 708 (3,609) (645) result Included: 876 - - - 876 Pre-operating expenses Related 175 - - - 175 corporate expenses Less - (4,950) - - (4,950) consolidation adjustment ________ ________ ________ ________ ________ Segment result (2,298) (396) 708 (3,609) (5,595) after consolidation adjustment ________ ________ ________ ________ ________ Segment 124,381 8,734 28,184 494 161,793 assets Segment 40,819 158 12,457 22,336 75,770 liabilities Capital 15,318 2,092 1,061 1 18,472 expenditures Depreciation 357 138 134 13 642 Amortisation - - 29 - 29 ________ _______ ________ ________ ________ For the year ended 31December 2004 Revenue 6,918 - - - 6,918 Segment result 819 (1,509) - (6,142) (6,832) Segment assets 110,067 4,198 - 5,064 119,329 Segment liabilities 40,810 215 - 5,963 46,988 Capital expenditures 1,095 739 - 63 1,897 Depreciation 428 75 - 10 513 Amortisation - 23 - - 23 ======== ======== ======== ======== ======= 2.2 Geographical Segments PRC United Kingdom Hong Kong Total USD'000 USD'000 USD'000 USD'000 For the year ended 31December 2005 Contracted income 11,232 - - 11,232 Less consolidation (4,950) - - (4,950) adjustment ________ ________ ________ ________ Revenue 6,282 - - 6,282 ________ ________ ________ ________ Segment assets 161,299 97 397 161,793 Capital expenditures 18,471 - 1 18,472 ________ ________ ________ _________ For the year ended 31December 2004 Revenue 6,918 - - 6,918 Segment assets 114,265 144 4,920 119,329 Capital expenditures 1,834 - 63 1,897 ======== ======== ======== ======== Background on Consolidation Adjustment for Pharmaceutical's Research &Development Operation In 2003, the Company's subsidiary, Tianjin Longbai Biological Engineering andTechnology Company Limited ("Longbai") reached an advanced stage of developmentof the application of oral fast release technology on several drugs, ready forsale to the market. Amongst interested buyers in the market at that time wasLiwah, then an associated company of the Sanjiu Group, a listed pharmaceuticalgroup in China, who approached Longbai and expressed interest in buyingLongbai's technology. As it took time for Longbai to completely develop all the oral fast releasedrugs that Liwah targeted to acquire, on 20 December 2003, Liwah entered into aninitial agreement with Longbai whereby Longbai agreed to sell and transfer toLiwah the technology and related rights and interests to an oral fast releasedrug, Paracetamol, for an agreed price of RMB10 million (approximately USD1.2million). Liwah continued negotiations with Longbai on the acquisition ofanother five of the eight oral fast release drugs in advanced stages ofdevelopment. On 26 May 2005, a supplementary agreement ("Technology Transfer Agreement") wasentered into between Liwah and Longbai which included the sale and transfer ofsix oral fast release drugs (including Paracetamol) developed by Longbai for atotal consideration of RMB40 million (approximately USD5 million). As described in the open offer document to shareholders of the Company dated 28July 2005, on 14 March 2005 and 10 May 2005, the Group via wholly ownedsubsidiaries signed share transfer agreements with the then shareholders ofLiwah (including Sanjiu) relating to the acquisition of Liwah. The acquisitionof Liwah was subject to a number of conditions, including the obtaining of allnecessary government approvals and the Company's shareholders approval. On theother hand, the Technology Transfer Agreement was a legally binding agreementand both Longbai and Liwah had recorded the transaction in their own accountsbefore the completion of the acquisition of Liwah by the Group. The Companycompleted the acquisition of Liwah on 19 August 2005 and Liwah became asubsidiary of the Group. The Company considered that the Technology Transfer Agreement was entered intowhen Liwah was an independent third party and was not yet a subsidiary of theGroup and accordingly that the revenue and associated profit arising from theTechnology Transfer Agreement should also be accounted for in the consolidatedaccounts of the Group. However, on subsequent review of the pertinent accounting requirements andstandards, the treatment of this revenue and associated profit in theconsolidated accounts of the Group is open to debate. The directors have adoptedthe most prudent accounting approach of eliminating by consolidation adjustmentsthis revenue and associated profit in the consolidated accounts of the Group.As the Technology Transfer Agreement represented Longbai's first majorcommercial success and made a significant contribution to the Group after itsover three years' investment in Longbai, the directors and the auditors of theCompany feel it is proper to show in the table above this revenue and associatedprofit, which have been eliminated from the consolidated accounts. 3. DIRECTORS' EMOLUMENTS The Directors at 31 December 2005 were as follows: J.R.H. BuchananWu Zhen TaoS. B. HuntJ.H. CossonP. SungMao Yu Min (Resigned on 3 April 2006) Their aggregate emoluments for the year ended 31 December 2005 were USD1,118,000(2004: USD1,118,000). 4. TAXATION Year ended Year ended 31 December 31 December 2005 2004 USD'000 USD'000 Current tax - -Deferred tax - - __________ __________ - - __________ __________ 5. LOSS PER SHARE Basic earnings per share is based upon the loss after tax attributable toshareholders of USD6,345,000 (2004: loss of USD6,818,000) and the weightedaverage number of A shares and Common shares in issue during the year of11,998,896 and 208,852,319 respectively (2004: A shares, Common shares:12,172,028 and 168,670,297). 6. FINANCIAL INFORMATION This preliminary results statement was approved by the Board of Directors on 28April 2006. The above results for the year ended 31 December 2005 have beenabridged from the full Group accounts for that year, which received anunqualified auditors' report and which will be delivered to the Registrar ofCompanies shortly. The Annual Report and Financial Statements will be posted to shareholders assoon as practicable. Further copies will be available from the company'sregistered office at Cannon Court, 22 Victoria Street, Hamilton HM12, Bermuda. This information is provided by RNS The company news service from the London Stock Exchange