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RNS Number : 9737S

Taihua Plc

30 September 2014

Taihua plc

("Taihua" or the "Company")

Interim Results for the six months ended 30 June, 2014

Highlights

Loss after tax in 2014 H1 was RMB (326,000) (2013 H1: profit of RMB 164,000)

Operational Cashflow in 2014 H1 was RMB 2,152,000 (2013 H1: 59,000)

Chairman's Statement

The supply of Traditional Chinese Medicine (TCM) raw materials is seasonal. The first half of the year's financial performance is largely as a result of the supply and sale of the Company's Paclitaxel and Homoharringtonine products along with its range of prescription-only finished TCM products.

Forsythia

All costs associated with cultivation during the first half of the year are included in inventory for release when sales are made in the second half of the year. Therefore the forsythia plantation has no effect on the consolidated statement on comprehensive income. As at the end of the reporting period, Trade Debtors generated from forsythia sales were RMB 45,955,000. Approximately RMB 14.6m cash has been received in respect of these Trade Debtors since the end of the reporting period

The Company is aware that the growing conditions in 2014 were not optimal. The region suffered a drought during the Spring. We do not yet have sufficient visibility to determine what, if any, effect this has had on the 2014 harvest. We have engaged the services of a specialist in the cultivation of Forsythia to assess the likely harvest in 2014 and advise what we can do to improve the harvest in subsequent years.

Bian Tong Pian

The problems surrounding GlaxoSmithKline (GSK) in China and associated investigations into the distribution of pharmaceuticals by the Chinese government has left distributors reluctant to take on new products. For the time being, given the government focus on this industry, they prefer to adopt a very conservative approach and only distribute their existing products. As such we have not been able to extend our distribution in the reported period.

Paclitaxel

Paclitaxel sales were 3,600g at an average price of RMB 371 per gram, generating a total revenue of RMB 1,326,000 (2013 H1: RMB 1,907,000). Given the rapid fall in the price of Paclitaxel, this product is no longer profitable without the support of sales of associated by-products.

The two by-products, 10-DAB and 7-Xylosyltaxol, have had successful extraction trials from our raw material and suitable customers have been identified and have taken the by-products for testing.

Homoharringtonine

Sales in the reporting period was RMB 676,000 (RMB 703,000 in 2013 H1)

Whilst the volumes have fallen considerably in the past two years the Company intends to remain in the business of Homoharringtonine supply as there is still, in the opinion of the Board, the possibility that volumes may recover. Homoharringtonine has always been a relatively high Gross Margin % product (2014H1 45.6%) and any upturn in volumes would have a significant positive profit effect.

Consolidated Statement of Financial Position

Despite the poor trading conditions in the Reporting period, the cash position improved by RMB 1,841,000 to RMB 36,353,000. Of the RMB 52,380,000 Trade Debtors outstanding at the end of the Reporting period, RMB 45,955,000 related to the sale of Forsythia. All of this is due to be received in 2014 H2.

Strategic Direction

The Board has successfully realigned the business to TCMs, away from APIs over the past two years. The Board considers that the Company should develop further the following TCM subsectors:

(1) Raw Material cultivation

(2) Finished prescription-only medicines

However, the current market conditions for the marketing of Finished prescription-only medicines remains challenging as China continues to scrutinise the routes that these drugs take from manufacturer to market. This uncertainty leads potential customers unwilling to invest in distribution of new products.

Raw Material Supply

The Board believes that there are considerable difficulties in expanding capacity in the supply of Raw Materials for TCMs. This is primarily due to two factors; unwillingness on the part of Local Government to assign land use rights for plantation cultivation, and, the capital intensive, long lead times from plantation preparation to harvest. The Board has successfully managed its first two plantations and there are other fragmented co-operative plantations. Local Governments often encourage the consolidation of these into single ownership to aid decision making and this is, in the Board's opinion, Taihua's opportunity.

Finished Prescription-Only Medicines

High volume Over the Counter (OTC) TCM products are generally manufactured and distributed by large companies that have the resources to manage these products. Taihua does not want to compete in this field. The smaller market in Prescription-Only medicines, generally administered in specialist TCM hospitals requires much smaller marketing and development budgets and as such is suited to a company of Taihua's size. These products are administered in either injectable or capsule form.

For more information please contact:

Nicholas Lyth, Taihua plc 0776 990 6686

Katy Mitchell, WH Ireland Limited +44 161 832 2174

TAIHUA PLC

UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 JUNE, 2014

	Six months ended		Six months ended		Year ended
	30 June, 2014		30 June, 2013		31 December, 2013
	(unaudited)		(unaudited)		(audited)
	RMB'000		RMB'000		RMB'000
			(restated	)

Revenue	4,266		5,390		52,302

Cost of sales	(3,492	)	(3,523	)	(41,615	)

Gross profit	774		1,867		10,687

Gain arising on revaluation of biological assets	(240	)	226		1,077

Other revenue	1,154		843		2,105

Selling expenses	(862	)	(1,025	)	(6,338	)

General and administrative expenses	(1,247	)	(1,575	)	(4,229	)

Operating (loss)/profit	(421	)	336		3,302

Finance cost	(2	)	-		-

(Loss)/Profit before tax	(423	)	336		3,302

Income tax expense	97		(172	)	(1,212	)

(Loss)/Profit for the period/year	(326	)	164		2,090

Other comprehensive (loss)/income

Exchange differences arising on translation of financial statements of foreign of operations	(308	)	627		98

Other comprehensive (income)/income for the period/year, net of tax	(308	)	627		98


Total comprehensive (loss)/income for the period/year	(634	)	791		2,188

Total (loss)/profit for the period/year attributable to equity holders of the Company	(326	)	164		2,090

Total comprehensive (loss)/income for the period/year attributable to equity holders of the Company	(634	)	791		2,188

(Loss)/Earnings per share :

Basic (RMB per share)	(0.004	)	0.002		0.026

Diluted (RMB per share)	(0.004	)	0.002		0.026

TAIHUA PLC

UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE, 2014

	As at	As at		As at
	30 June, 2014	30 June, 2013		31 December, 2013
	(unaudited)	(unaudited)		(audited)
	RMB'000	RMB'000		RMB'000
		(restated	)
ASSETS

NON-CURRENT ASSETS
Property, plant and equipment	1,910	2,121		2,046
Prepaid lease payments	51,975	54,925		53,450
Land use rights	1,389	1,427		1,408
Biological assets	4,323	4,302		4,563

	59,597	62,775		61,467
CURRENT ASSETS
Inventories	13,300	17,151		9,920
Trade receivables	52,380	36,767		58,039
Other receivables	256	273		714
Deposits and prepayments	2,330	5,215		2,791
Amount due from a director	331	410		-
Cash and cash equivalents	36,353	40,011		34,512

	104,950	99,827		105,976

TOTAL ASSETS	164,547	162,602		167,443

LIABILITIES

CURRENT LIABILITIES
Trade payables	2,112	1,781		2,236
Receipts in advance	167	109		182
Accrued expenses and other payables	14,202	13,207		14,722
Amounts due to related companies	1,147	1,147		1,148
Amounts due to directors	6,983	6,265		6,721
Amount due to a shareholder	649	575		605
Income tax payable	261	258		1,961

	25,521	23,342		27,575

NET CURRENT ASSETS	79,429	76,485		82,280

DEDUCT:

NON-CURRENT LIABILITY
Deferred tax liability	13	1,010		221

TOTAL LIABILITIES	25,534	24,352		27,796

NET ASSETS	139,013	138,250		139,647

EQUITY

CAPITAL AND RESERVES ATTRIBUTABLE TO
EQUITY HOLDERS OF THE COMPANY
Share capital	12,357	12,357		12,357
Other reserves	18,840	19,677		19,148
Retained profits	107,816	106,216		108,142

TOTAL EQUITY	139,013	138,250		139,647

TAIHUA PLC

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 JUNE, 2014

									Foreign
			Merger		Reverse		General	Enterprise	currency		Share
		Share	relief	Share	acquisition		reserve	expansion	translation		options	Retained
		capital	reserve	premium	reserve		fund	fund	reserve		reserve	profits		Total
		RMB'000	RMB'000	RMB'000	RMB'000		RMB'000	RMB'000	RMB'000		RMB'000	RMB'000		RMB'000

At 1 January, 2013, as restated		12,357	64,364	4,783	(63,408	)	9,297	4,648	(1,128	)	494	106,052		137,459

Loss for the period, as restated		-	-	-	-		-	-	-		-	164		164

Other comprehensive income		-	-	-	-		-	-	627		-	-		627

Total comprehensive income/(loss) for
the period		-	-	-	-		-	-	627		-	164		791

	At 30 June, 2013	12,357	64,364	4,783	(63,408	)	9,297	4,648	(501	)	494	106,216		138,250


At 1 January, 2013, as restated		12,357	64,364	4,783	(63,408	)	9,297	4,648	(1,128	)	494	106,052		137,459

Profit for the period		-	-	-	-		-	-	-		-	2,090		2,090

Other comprehensive loss		-	-	-	-		-	-	98		-			98

Total comprehensive loss for
the period		-	-	-	-		-	-	98		-	2,090		2,188

At 31 December, 2013		12,357	64,364	4,783	(63,408	)	9,297	4,648	(1,030	)	494	108,142		139,647

Loss for the period		-	-	-	-		-	-			-	(326	)	(326	)

Other comprehensive loss		-	-	-	-		-	-	(308	)	-	-		(308	)

Total comprehensive loss for the
period		-	-	-	-		-	-	(308	)	-	(326	)	(634	)

At 30 June, 2014		12,357	64,364	4,783	(63,408	)	9,297	4,648	(1,338	)	494	107,816		139,013

TAIHUA PLC

UNAUDITED CONSOLIDATED STATEMENT OFCASH FLOWS

FOR THE SIX MONTHS ENDED 30 JUNE, 2014

	Six months		Six months
	ended		ended		Year ended
	30 June, 2014		30 June, 2013		31 December, 2013
	(unaudited)		(unaudited)		(audited)
	RMB'000		RMB'000		RMB'000
			(restated	)
CASH FLOWS FROM OPERATING ACTIVITIES
(Loss)/profit before income tax	(423	)	336		3,302
Adjustments for :-
Increase in allowance for bad debts	-		15		1,051
Amortisation on prepaid lease premium	-		-		2,950
Amortisation on land use rights	19		19		38
Depreciation	138		133		261
Loss/(gain)/loss arising on revaluation of biological assets	240		(226	)	(487	)
Change in fair value of harvested products	-		-		(590	)
Interest income	(58	)	(843	)	(2,105	)
Increase in allowance for write-down of Inventories	-		-		1,939

Operating (loss)/profit before working capital Changes	(84	)	(566	)	6,359
(Increase)/decrease in inventories	(1,905	)	(1,415	)	2,992
Decrease/(increase) in trade receivables	5,659		4,503		(18,544	)
Decrease/(increase) in other receivables	458		76		(389	)
Decrease/(increase) in deposits and prepayments	461		(1,550	)	874
(Increase)/decrease in amount due from a director	(331	)	(410	)	-
(Decrease)/increase in trade payables	(124	)	1,210		1,665
Decrease in receipts in advance	(15	)	(389	)	(316	)
(Decrease)/increase in accrued expenses
and other payables	(520	)	573		2,088
Decrease in amounts due to related companies	(1	)	(1	)	-
Increase/(decrease) in amounts due to directors	262		(543	)	(87	)
Increase/(decrease) in amount due to a shareholder	44		(37	)	(7	)

Cash generated from/(used in) operations	3,904		1,451		(5,365	)
Interest received	58		80		2,105
Profits tax paid	(1,810	)	(1,472	)	(1,598	)

NET CASH FROM/(USED IN) OPERATING ACTIVITIES	2,152		59		(4,858	)

CASH FLOWS FROM INVESTING ACTIVITY
Purchase of property, plant and equipment	(2	)	(13	)	(66	)

NET CASH USED IN INVESTING ACTIVITY	(2	)	(13	)	(66	)


NET INCREASE/(DECREASE) IN CASH
AND CASH EQUIVALENTS	2,150		46		(4,924	)

CASH AND CASH EQUIVALENTS AS AT 1 JANUARY	34,512		39,338		39,338

Effect of foreign exchange change	(309	)	627		98

CASH AND CASH EQUIVALENTS AS AT 30 JUNE/ 31 DECEMBER	36,353		40,011		34,512

ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS
Cash and bank balances	36,353		40,011		34,512

Notes to the Unaudited Consolidated Financial Statements for the six months ended 30 June, 2014

1. ACCOUNTING POLICIES

Basis of preparation

The annual financial statements of Taihua plc for the year ending 31 December, 2014 will be prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted for use in the European Union. Accordingly the interim financial information has been prepared using accounting policies consistent with those which will be adopted by the group in the financial statements.

The interim financial information for the six months ended 30 June, 2014 is unaudited and that for the equivalent period in 2013 is unaudited. The comparatives for the full year ended 31 December, 2013 are not the Group's full statutory accounts for that year. The financial statements for the year ended 31 December, 2013 contained an unqualified auditor's report and did not contain a statement under sections 498(2) or 498(3) of the Companies Act 2006.

Significant accounting policies

The condensed financial statements have been prepared under the historical cost convention.

The same accounting policies, presentation and methods of computation have been followed in these condensed financial statements were applied in the preparation of the group's financial statements for the year ended 31 December 2013.

Foreign currency translation

The functional currency of the subsidiary undertakings is Renminbi ("RMB"), and the financial statements of the subsidiary undertakings have been drawn up in RMB. As sales and purchases are denominated primarily in RMB and receipts from operations are usually retained in RMB, the directors are of the opinion that RMB reflects the economic substance of the underlying events and circumstances relevant to the Group. Monetary assets and liabilities maintained in currencies other than RMB are translated into RMB at the approximate rates of exchange ruling at the balance sheet date. Transactions in currencies other than RMB are translated at rates ruling on the transaction dates.

The presentation currency of the Group is RMB and therefore the financial statements have been translated from GBP and HKD to RMB at the following exchange rates:

Period end rates Average rates

30 June, 2014 GBP1=RMB10.4808 GBP1=RMB10.2455

HKD1=RMB0.7941 HKD1=RMB0.7916

2. REVENUE

Revenue on sale of goods represents the invoiced value of goods sold, net of value added tax ("VAT"), consumption tax ("CT") and other sales taxes, after allowances for goods returns and trade discounts.

An analysis of the Group's turnover and other revenue is set out below :-

	Six months ended	Six months ended	Year ended
	30 June, 2014	30 June, 2013	31 December, 2013
	(unaudited)	(unaudited)	(audited)
	RMB'000	RMB'000	RMB'000

Revenue	4,266	5,390	52,302
Other revenue
Interest on trade receivable	1,096	763	1,954
Interest income	58	80	151
	1,154	843	2,105

Total revenue	5,420	6,233	54,407

3. OPERATING SEGMENTS

For the purposes of resources allocation and performance assessment, the chief operating decision makers, who are the Board of Directors, regularly review revenue and cost of sales for each product. The financial information provided to the Board of Directors contains profit or loss information of each product line. Therefore, the operation of the Group constitutes four reportable segments.

The Group's reportable segments under IFRS 8 Operating Segments are as follows:

· Paclitaxel - Paclitaxel is extracted from the bark of the yew tree (Taxus). This drug is one of the main-stream treatments for cancer of the ovaries, breast, certain types of lung cancer, and a cancer of the skin and mucous membranes more commonly found in patients with acquired immunodeficiency syndrome (AIDS).

· Homoharringtonine - Homoharringtonine is an alkaloid extracted from the branches and leaves of the Cephalotaxus tree. This drug has been prescribed for acute myeloid leukaemia and other cancers in China.

· TCM products - Traditional Chinese Medicine has recognition as a viable alternative health treatment and has been recognised by the World Health Organisation for its effectiveness in the treatment of certain forms of illnesses and diseases. The Company currently manufactures eight TCM products which are Gengnianan Tablet, Duzhong Pingya Tablet, Zaoren Anshen Keli, Bunao Anshen Tablet, Jiangzi Jianfei Tablet, Dabaidu Capsule, Runing Tablet and Bian Tong Pian.

· Forsythia - Known as lian qiao in PRC, is a flowering shrub. The seeds and seed cases of this are harvested and, when dried, form the basis of TCM preparations. Forsythia TCMs are primarily sold to alleviate flu and cold like symptons.

The Group's revenues are significantly impacted by the seasonality of the forsythia sales. Forsythia is mainly harvested during autumn every year and therefore sales of forsythia are recognised in the fourth quarter. Costs incurred to 30 June with regard to the forsythia plantations have been included in inventories for release when the forsythia is harvested later in the year.

Segment revenues and costs of sales

The following is an analysis of the Group's revenue and cost of sales by reportable segments :

^{Six months ended 30 June, 2014}						^TCM
^(unaudited)	^Paclitaxel		^{Homoharringtonine}		^Forsythia	^products		^Consolidated
	^RMB'000		^RMB'000		^RMB'000	^RMB'000		^RMB'000

^Revenue	^1,326		⁶⁷⁶		^-	^2,382		^4,384
^{Discounting of revenue on deferred}
^{credit terms}								⁽¹¹⁸	⁾
^{Revenue per Consolidated}
^{Statement of} ^{Comprehensive}								^4,266
^Income
^{Cost of sales}	^(1,866	⁾	⁽³⁶⁸	⁾	^-	^(1,258	⁾	^(3,492	⁾

^{Gross (loss)/ profit}	⁽⁵⁴⁰	⁾	³⁰⁸		^-	^1,124		⁷⁷⁴

^{Six months ended 30 June, 2013}						^TCM
^{(unaudited), restated}	^Paclitaxel		^{Homoharringtonine}		^Forsythia	^products		^Consolidated
	^RMB'000		^RMB'000		^RMB'000	^RMB'000		^RMB'000

^Revenue	^1,907		⁷⁰³		^-	^2,930		^5,540
^{Discounting of revenue on deferred}
^{credit terms}								⁽¹⁵⁰	⁾
^{Revenue per Consolidated}
^{Statement of Comprehensive}
^Income								^5,390
^{Cost of sales}	⁽^1,840	⁾	⁽³⁷⁴	⁾	^-	^(1,309	⁾	^(3,523	⁾

^{Gross profit}	⁶⁷		³²⁹		^-	^1,621		^1,867

							^TCM
^{Year ended 31 December, 2013}	^Paclitaxel		^{Homoharringtonine}		^Forsythia		^products		^Consolidated
	^RMB'000		^RMB'000		^RMB'000		^RMB'000		^RMB'000

^Revenue	^3,483		^1,314		^41,838		^5,667		^52,302
^{Cost of sales}	^(3,706	⁾	^(4,092	⁾	^(30,373	⁾	^(3,444	⁾	^(41,615	⁾

^{Gross (loss)/profit}	⁽²²³	⁾	^(2,778	⁾	^11,465		^2,223		^10,687

The management of the Company take into account revenue and costs of sales as the key performance indicators when they make management decisions. Other costs are not allocated to operating segments as these are considered to be central operating costs of the business. Assets and liabilities are not considered to be specific to individual operating segments and therefore separate analysis is not undertaken.

The difference between the information presented to the Board of Directors and the information per the Consolidated Statement of Comprehensive Income relates to the discount applied to revenues to reflect the 180 day credit period granted to customers.

4. INCOME TAX EXPENSE

The tax charge represents the charge to PRC Income Tax on the assessable profits for the period at the rate of 25%.

5. (LOSS)/EARNINGS PER SHARE

Basic (loss)/earnings per share

Basic (loss)/earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the period.

	Six months ended		Six months ended		Year ended
	30 June, 2014		30 June, 2013		31 December, 2013
	(unaudited)		(unaudited)		(audited)
	RMB'000		RMB'000		RMB'000
			(restated	)

(Loss)/profit attributable to equity holders of the Company (RMB'000)	(326	)	164		2,090
Weighted average number of ordinary shares in issue (thousands)	81,737		81,737		81,737
(Loss)/Earnings per share （RMB per share）	(0.004	)	0.002		0.026

Diluted (loss)/earnings per share

The company has one category of dilutive potential shares - share options. A calculation is done to determine the number of shares that could have been issued at fair value based on the monetary value of the subscription rights attached to outstanding share options and warrants. It is compared with the number of shares that would have been issued assuming the exercise of the share options.

	Six months ended		Six months ended		Year ended
	30 June, 2014		30 June, 2013		31 December, 2013
	(unaudited)		(unaudited)		(audited)
	RMB'000		RMB'000		RMB'000
			(restated	)

(Loss)/profit attributable to equity holders of the Company (RMB'000)	(326	)	164		2,090
Weighted average number of ordinary shares in issue (thousands)	81,737		81,737		81,737
Adjustment for share options (thousands) - Note	-		-		-
Weighted average number of ordinary shares for diluted earnings (thousands)	81,737		81,737		81,737
Diluted (loss)/earnings per share (RMB per share)	(0.004	)	0.002		0.026

Note : The share options have no dilutive effect for the six months ended 30 June, 2014 as the exercise price of the share options was higher than the average market price of the shares during the period.

6. biological assets

Biological assets represent Chinese Yew trees (infant trees and seedlings). The role of Chinese Yew trees is to provide the raw material for the extraction of Paclitaxel compound. For many years the Group has purchased this raw material from third party suppliers. In 2006, 2007 and 2008, it planted Chinese Yew trees in its own plantation.

	Chinese		Eucommia
	Yew trees		bush	Total
	RMB'000		RMB'000	RMB'000

At 1 January, 2013, as restated	4,022		54	4,076
Net change in fair value	226		-	226

At 30 June, 2013	4,248		54	4,302

At 1 January, 2013, as restated	4,022		54	4,076
Transfer of harvested products	(590	)	-	(590	)
Net change in fair value	1,077		-	1,077

At 31 December, 2013	4,509		54	4,563
Net change in fair value	(240	)	-	(240	)

Valuation at 30 June, 2014	4,269		54	4,323

Eucommia bush is the key raw materials to make one of the traditional Chinese medicine ("TCM") products. The Group does not harvest them as demand for TCM products are low. The quantity of these plants are a fraction of the whole plantation, the directors considered they are immaterial for fair value measurement, accordingly they are recognised at costs.

The number of Infant Trees can be summarised in follows :-

	As at 30 June, 2014		As at 30 June, 2013
	Infant Trees	Mature Trees	Infant Trees	Mature Trees

Infant Trees planted in 2006	-	60,000	-	60,000
Infant Trees planted in 2007	-	50,000	-	50,000
Infant Trees planted in 2008	-	65,000	65,000	-

Total trees planted	-	175,000	65,000	110,000

The initial harvest from infant trees is 5 years after planting. The trees continue to mature and are estimated to have a harvestable life of 15 years. The harvest from any one Chinese Yew tree is 2kg per harvest. The trees can be harvested on a 3-4 year cycle.

In previous years it has not been possible to measure the fair value of infant trees reliably and they have therefore been valued at cost. However, as the trees approached maturity and the directors expected to commence harvesting during 2011, the trees were valued at their fair value less harvesting and initial processing costs in compliance with IAS 41 in the financial statements for the year ended 31 December, 2010. However, as the permit to harvest in 2011 was not obtained from the relevant government body the first harvest now has take place in 2012. The effect of applying IAS 41 on the basis of valuation in the current period has been to decrease the value of the biological assets by RMB 240,000 (2013 : increased by RMB226,000).

The infant Chinese Yew trees are still undergoing biological transformation leading to them being able to produce material from which Paclitaxel compound can be extracted. Once these infant trees become mature and productive they are transferred into the mature trees category.

In arriving at the fair value less estimated harvesting and initial processing costs of the infant trees, the following major assumptions were made :-

(a) The market price variable represents the current price paid by the Group to its third party suppliers plus an allowance for inflation. No consideration has been given to any potential impact on the market price of the Chinese Yew resulting from the commencement of harvesting at the Group's own plantation.

(b) The harvest yield per tree is dependent on the age and health of the trees. This is affected in turn by climate, location and soil condition. Generally, harvesting can commence once the tree is 5 years old and will cease when it is 20 years old.

(c) The estimation of the costs of harvesting and initial processing have been determined by reference to actual costs incurred by the Group in the current year.

(d) A discount rate of 13% has been applied in determining the valuation.

(e) The harvest quantity is limited by reference to the local Government "Forestry Stocking Amounts" regulations. No consideration has been given to the potential impact of a change in these regulations.

(f) Other key assumptions include :-

(i) The demand for Chinese Yew will remain at current levels throughout the life of the plantation. The plantation does have a potential output approximately double the current demand.

(ii) Projected cashflows do not take into account taxation.

(iii) Cashflows are based on the current plantings and take no account of the impact of any additional or replacement plantings in the future.

The Group is exposed to number of risks in relation to its Chinese Yew plantation :-

(a) Regulatory and environmental risk

The Group is subject to laws and regulations in the jurisdiction in which it operates. The Group has established environmental policies and procedures aimed at compliance with local environmental and other laws. Management performs regular reviews to identify environmental risks and to ensure that the systems in place are adequate to manage those risks.

(b) Demand risk

The Group is exposed to risk from fluctuations in the demand for Paclitaxel and thus Chinese Yew. The Group undertakes regular reviews of its forecast of future demand for Paclitaxel and will modify its harvesting strategy as appropriate. The effect of a 10% decrease in market price of agricultural produces from the harvested trees on the fair value of the plantation would be RMB660,000.

The Group's plantation is exposed to the risk of damage from climatic changes, diseases, forest fires and other natural forces. The Group has extensive processes in place aimed at monitoring and mitigating those risks, including regular forest health inspections.

(d) Discount rate risk

The Board of Directors have assessed the model for assessing the fair value of the plantation and, bearing in mind the Group's capital costs and the risks associated with the project, the Board have decided that a discount rate of 13% is appropriate. Were circumstances to change that would warrant an increase in that rate by 1.0% to 14%, the fair value of the assets would fall by RMB244,000.

7. FORSYTHIA PLANTATION

On 11 January, 2011, TNP signed an agreement with Qin Bang Forsythia Cooperative in respect of leasing 893 hectares of Forsythia plantation for the period from 11 January, 2011 to 11 January, 2031, which are located in the Luonan region of Shanxi Province, the PRC.

Pursuant to the terms of the lease, TNP will manage the cultivation and benefit from the harvest from the plantation. The annual lease cost is RMB1,300,000 per annum, but it is a term of the lease that all 20 years were paid in advance. This payment has been capitalised and treated as a prepaid lease payment within non-current assets and will be amortised over the lease term of 20 years.

On 17 December, 2012, TNP signed an agreement with Qin Yuan Forsythia Cooperative in respect of leasing 1,013 hectares of Forsythia plantation for the period from 1 January, 2013 to 31 December, 2032, which are located in the Luonan region of Shanxi Province, the PRC.

Pursuant to the terms of the lease, TNP will manage the cultivation and benefit from the harvest from the plantation. The annual lease cost is RMB1,650,000 per annum, but it is a term of the lease that all 20 years were paid in advance. This payment has been capitalised and treated as a prepaid lease payment within non-current assets and will be amortised over the lease term of 20 years.

8. AMOUNTS DUE FROM/(TO) DIRECTORS

	As at		As at		As at
	30 June, 2014		30 June, 2013		31 December, 2013
	(unaudited)		(unaudited)		(audited)
	RMB'000		RMB'000		RMB'000

Yunwu Liu	331		410		-

Chun Chai	(26	)	(26	)	(26	)
Liyi Chen	(6,957	)	(6,239	)	(6,695	)

	(6,983	)	(6,265	)	(6,721	)

The amounts are interest-free, unsecured and repayable on demand.

9. PRIOR PERIOD ADJUSTMENT

During the year ended 31 December, 2013,the Group has revisited its policies and methodologies for valuing and accounting for its biological assets. As results, the directors have concluded that in accordance with the requirement of IAS 8 - Accounting policies, Changes in Accounting Estimates and Errors, prior year adjustments are required to restate the figures previously reported.

Former policy and methodology

The biological assets comprise of Yew trees cultivated on the land owned by the group (note 6). In previous years, an overall valuation was determined based upon the future economic benefits of the agricultural produce harvested from the Yew trees (that including the two By-Products extracted from the processed of agricultural produces). The initial measurement of the biological assets was charged or credited to the income statement at its first year of recogition. Subsequent period, the movement in valuation of the biological assets was charged to the Statement of Comprehensive Income and the inventory in the Statement of Financial Position.

Revised policy and methodology

For the current year, the overall valuation was determined based upon the future economic benefits of the agricultural produce harvested from the Yew trees only. This will exclude the future economic benefits of the two by-products, which does not fall within the scope of agricultural produce in accordance to IAS 41.

These changes have been applied retrospectively by restating the balance as at 1 January, 2013 with consequential adjustments to comparative for the period ended 30 June, 2013 as follows:

	As previously reported		Effect of change in policy		As restated
	RMB'000		RMB'000		RMB'000

Consolidated statement of comprehensive income for the period ended 30 June, 2013
Loss arising on revaluation of biological assets	(74	)	300		226
Taxation	(115	)	(57	)	(172	)
Loss for the period	(79	)	243		164

Consolidated statement of financial position as at 30 June, 2013
Biological assets	13,107		(8,805	)	4,302
Inventory	17,574		(423	)	17,151
Deferred tax liability	(3,336	)	2,326		(1,010	)
Net assets	145,152		(6,902	)	138,250
Retained profits	113,118		(6,902	)	106,216

Consolidated statement of financial position as at 1 January, 2013
Biological assets	13,181		(9,105	)	4,076
Inventory	14,684		(423	)	14,261
Deferred tax liability	(3,336	)	2,383		(953	)
Net assets	144,604		(7,145	)	137,459
Retained profits	113,197		(7,145	)	106,052

This information is provided by RNS

The company news service from the London Stock Exchange

END

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