Canon’s Court, 22 Victoria Street Hamilton HM12, Bermuda ... · Ningbo Liwah Pharmaceutical...

Registered OfficeCanon’s Court, 22 Victoria StreetHamilton HM12, Bermuda

Head Office25/F Standard Chartered Bank Building4-4A Des Voeux Road, Central, Hong Kong

Chairman’s Interim Statement

CATHAY INTERNATIONAL HOLDINGS LIMITEDInterim Report 2008

1

RESULTS

Pharmaceutical

Production,

Hotel Research & marketing & Corporate

(Stated in USD’000) Operations development distribution Offi ce Total

For the six months ended 30 June 2008

Revenue 4,520 – 25,001 – 29,521

Segment gross profi t 575 – 12,385 – 12,960

Segment operating profi t/(loss) 627 (521) 2,245 (1,087) 1,264

Segment fi nance costs – net (1,060) 2 (1,043) (1,393) (3,494)

Segment profi t/(loss) before income tax (433) (519) 1,202 (2,480) (2,230)

For the six months ended 30 June 2007

Revenue 3,387 – 10,031 – 13,418

Segment gross profi t/(loss) (366) – 6,903 – 6,537

Segment operating profi t/(loss) (230) (541) 844 (1,356) (1,283)

Segment fi nance costs – net (837) – (247) (972) (2,056)

Segment profi t/(loss) before income tax (1,067) (541) 597 (2,328) (3,339)

For the year ended 31 December 2007

Revenue 7,495 – 26,684 – 34,179

Segment gross profi t/(loss) (769) – 16,833 – 16,064

Segment operating profi t/(loss) (674) (1,213) 784 (1,844) (2,947)

Share of loss of an associate – – (21) – (21)

Segment fi nance costs – net (1,630) 2 (830) (2,469) (4,927)

Segment loss before income tax (2,304) (1,211) (67) (4,313) (7,895)

Gross turnover for the six months ended 30 June 2008 was USD29,521,000 compared with USD13,418,000 for the six months

ended 30 June 2007. The increase in turnover was the result of:

i) 66% growth in sales of the existing pharmaceutical production, marketing and distribution businesses of Liwah and

Lansen;

ii) growth in sales of the Crowne Plaza Hotel & Suites Landmark Shenzhen.

The Group’s gross profi t for the six month period was USD12,960,000 (2007: USD6,537,000). The increase was due to growth

in sales of pharmaceutical products and to an increased contribution from the hotel sector.



2

The Group recorded an operating profit of USD1,264,000 (2007: loss of USD1,283,000). The pharmaceutical production,

marketing and distribution businesses increased operating profit to USD2,245,000 (2007: USD844,000). Corporate office

expenses and salaries have been stable when compared to the same period last year.

The Group’s loss before income tax for the six month period was USD2,230,000 (2007: loss of USD3,339,000). The reduction

of the gross loss was mainly due to increased contributions from the hotel and pharmaceutical production, marketing and

distribution sectors.

The fi nance costs for the six month period were USD3,494,000 (2007: USD2,056,000). The increase was due to the higher

utilisation of bank facilities.

BIOTECHNOLOGY AND PHARMACEUTICAL BUSINESS

Ningbo Liwah Pharmaceutical Company Limited (“Liwah”) and Lansen Medicine (Shenzhen) Company Limited (“Lansen”)

continue to be the major contributors to the Group’s pharmaceutical business. Their business grew by 66% when compared to

the same period in 2007.

The gross profi t margin of the Liwah and Lansen pharmaceutical business was 70% (2007: 69%).

CROWNE PLAZA HOTEL & SUITES LANDMARK SHENZHEN

The Shenzhen hotel industry remains highly competitive. In addition, the hotel industry in China was adversely affected by the

Sichuan earthquake in May which reduced travel and entertainment throughout China. The travel industry expected the number

of foreign visitors to increase in the run up to and during the Olympic Games. However, the Chinese government, in the interests

of security for the Games, imposed stringent restrictions on the issuance of foreign visas in the second quarter of 2008. This

resulted in the cancellation of numerous business conferences and seminars across China and sharply reduced the expected

number of business travellers. This in turn led to reduced occupancy levels at our hotel.

Despite the diffi cult operating environment, we are pleased to report that the InterContinental Hotels Group (“IHG”), which has

been managing the hotel since 18 December 2007, has achieved an average occupancy rate of 43% (2007: 34%) and an average

room rate of USD130 (2007: USD118) for the fi rst six months of 2008. The hotel’s profi t from operations for the fi rst six months

of 2008 was USD627,000 (2007: loss of USD230,000).

In accordance with our usual practice, the Group will conduct an annual valuation of the hotel at the year end.



3

BANK FACILITIES

In June 2008, the Group obtained a 3-5 year banking facility in the amount of USD22 million. The facility will be used to re-fi nance

existing loans and for corporate funding requirements.

CONCLUSION

The Board believes that it is well positioned for continued expansion in the pharmaceutical industry in China. With regard to the

hotel business, the Board is of the view that IHG is already having a positive impact on performance in a very diffi cult market. As

conditions return to normal in China, we expect enhanced hotel results.

On behalf of the Board, I would like to thank our management and staff for their continued dedication and commitment.

James Buchanan

Chairman

29 August 2008

Group Condensed Income Statement


4

Six months Six months Year ended

ended 30 June ended 30 June 31 December

2008 2007 2007

(Unaudited) (Unaudited) (Audited)

Note USD’000 USD’000 USD’000

REVENUE 2 29,521 13,418 34,179

COST OF SALES (16,561) (6,881) (18,115)

GROSS PROFIT 12,960 6,537 16,064

SELLING AND DISTRIBUTION EXPENSES (6,835) (4,368) (10,323)

ADMINISTRATIVE EXPENSES (4,633) (3,287) (6,025)

PROVISION FOR DOUBTFUL DEBTS (228) (165) (2,663)

PROFIT/(LOSS) FROM OPERATIONS 1,264 (1,283) (2,947)

SHARE OF LOSS OF AN ASSOCIATE – – (21)

FINANCE COSTS – NET (3,494) (2,056) (4,927)

LOSS BEFORE INCOME TAX 2 (2,230) (3,339) (7,895)

INCOME TAX EXPENSE 3 (385) (178) (370)

LOSS FOR THE PERIOD (2,615) (3,517) (8,265)

ATTRIBUTABLE TO:

EQUITY SHAREHOLDERS OF THE PARENT (2,411) (3,504) (8,026)

MINORITY INTERESTS (204) (13) (239)

(2,615) (3,517) (8,265)

LOSS PER SHARE ATTRIBUTABLE TO

EQUITY SHAREHOLDERS OF THE PARENT 4

BASIC (0.87) cents (1.27) cents (2.91) cents

DILUTED N/A N/A N/A

Group Condensed Balance Sheet


5

As at As at As at

30 June 30 June 31 December

2008 2007 2007


USD’000 USD’000 USD’000

ASSETS

NON-CURRENT ASSETS

Property, plant and equipment 153,299 147,336 147,843

Land use rights 3,099 1,801 2,953

Investment property 1,553 1,405 1,464

Intangible assets 1,386 499 1,299

Goodwill 9,156 7,781 8,702

Interest in an associate – – 804

Loans to minority shareholders 645 674 645

169,138 159,496 163,710

CURRENT ASSETS

Inventories 8,336 2,149 8,559

Trade and other receivables 18,996 11,617 24,421

Land use rights 67 39 63

Pledged bank deposits 6,556 – 5,466

Cash and cash equivalents 11,483 1,412 11,247

45,438 15,217 49,756

TOTAL ASSETS 214,576 174,713 213,466

EQUITY AND LIABILITIES

EQUITY ATTRIBUTABLE TO EQUITY

HOLDERS OF THE PARENT 64,298 78,358 66,062

MINORITY INTERESTS 9,496 7,319 9,784

TOTAL EQUITY 73,794 85,677 75,846

NON-CURRENT LIABILITIES

Borrowings 50,536 2,121 41,410

Deferred tax liabilities 16,992 16,820 16,992

67,528 18,941 58,402

CURRENT LIABILITIES

Borrowings 29,998 29,506 36,823

Current tax liabilities 608 457 671

Trade and other payables 42,648 40,132 41,724

73,254 70,095 79,218

TOTAL LIABILITIES 140,782 89,036 137,620

TOTAL EQUITY AND LIABILITIES 214,576 174,713 213,466

Group Condensed Statement of Changes in Equity


6

Minority Total

Attributable to equity holders of the parent Interests Equity

Capital and Exchange Profi t

Share Share Special Revaluation Equalisation Statutory and Loss

Capital Premium Reserve Reserve Reserve Reserve Account Total

USD’000 USD’000 USD’000 USD’000 USD’000 USD’000 USD’000 USD’000 USD’000 USD’000

Balance at 1 January 2007 13,793 10,216 42,923 64,176 (14,529) 1,143 (35,830) 81,892 7,789 89,681

Exchange differences arising

on translation of foreign

currency operations – – – 2,308 (2,371) 33 – (30) 6 (24)

Net income recognised

directly in equity – – – 2,308 (2,371) 33 – (30) 6 (24)

Loss for the period – – – – – – (3,504) (3,504) (13) (3,517)

Total recognised income and

expenses for the period – – – 2,308 (2,371) 33 (3,504) (3,534) (7) (3,541)

Deemed disposal of interest

in subsidiaries – – – – – – – – 325 325

Buy back shares from

minority interests – – – – – – – – (788) (788)

Transfer to statutory reserve – – – – – 223 (223) – – –

Balance at 30 June 2007 13,793 10,216 42,923 66,484 (16,900) 1,399 (39,557) 78,358 7,319 85,677

Balance at 1 January 2008 13,793 10,216 42,923 63,429 (21,692) 1,849 (44,456) 66,062 9,784 75,846

Exchange differences arising

on translation of foreign

currency operations – – 1 4,689 (4,154) 111 – 647 (64) 583

Net income recognised

directly in equity – – 1 4,689 (4,154) 111 – 647 (64) 583

Loss for the period – – – – – – (2,411) (2,411) (204) (2,615)

Total recognised income and

expenses for the period – – 1 4,689 (4,154) 111 (2,411) (1,764) (268) (2,032)

Acquisition of a subsidiary – – – – – – – – 104 104

Adjustments on goodwill – – – – – – – – (124) (124)

Balance at 30 June 2008 13,793 10,216 42,924 68,118 (25,846) 1,960 (46,867) 64,298 9,496 73,794

Group Condensed Cash Flow Statement


7

Six months Six months Year ended

ended 30 June ended 30 June 31 December

2008 2007 2007


USD’000 USD’000 USD’000

Net cash generated from/(used in) operating activities 4,185 3,981 (13,926)

Net cash used in investing activities (4,446) (3,000) (9,393)

Net cash (used in)/generated from fi nancing activities (756) (2,054) 32,977

Net (decrease)/increase in cash and cash equivalents (1,017) (1,073) 9,658

Effects of exchange rate changes 1,248 527 (256)

Cash and cash equivalents at beginning of the period 11,125 1,723 1,723

Cash and cash equivalents at end of the period 11,356 1,177 11,125

Analysis of cash and cash equivalents

Cash and bank balances 11,483 1,412 11,247

Bank overdrafts (127) (235) (122)

11,356 1,177 11,125

Notes to the Accounts


8

1. BASIS OF PREPARATION

The interim condensed fi nancial statements have been prepared in accordance with International Accounting Standard (IAS) 34, Interim Financial Reporting and under the historical cost convention, modifi ed where appropriate to incorporate a professional valuation of certain fi xed assets.

The accounting policies adopted are consistent with those followed in the preparation of the Group’s annual fi nancial statements for the year ended 31 December 2007. Certain comparative fi gures for the period ended 30 June 2007 in condensed fi nancial statements have been reclassifi ed to conform to the current period’s presentation.

2. SEGMENTAL INFORMATION

Six months Six months Year ended ended 30 June ended 30 June 31 December 2008 2007 2007 (Unaudited) (Unaudited) (Audited) USD’000 USD’000 USD’000

RevenuePharmaceutical: Research & Development – – – Production, Marketing & Distribution 25,001 10,031 26,684Hotel Operations 4,520 3,387 7,495

29,521 13,418 34,179

(Loss)/Profi t before income taxPharmaceutical: Research & Development (519) (541) (1,211) Production, Marketing & Distribution 1,202 597 (67)Hotel Operations (433) (1,067) (2,304)Corporate Offi ce (2,480) (2,328) (4,313)

(2,230) (3,339) (7,895)

3. INCOME TAX EXPENSE

The provision for current tax has been made in respect of the assessable profi ts arising in the PRC during the period.

4. LOSS PER SHARE ATTRIBUTABLE TO EQUITY SHAREHOLDERS OF THE PARENT

Loss per share is based upon the loss after tax attributable to shareholders of USD2,411,000 for the six months ended 30 June 2008 (six months ended 30 June 2007: loss of USD3,504,000) and the weighted average number of A shares and common shares in issue during the period of 11,800,049 and 264,060,055 respectively (30 June 2007: A shares, common shares: 11,825,550 and 264,034,554).

No diluted earnings per share is presented, as the Company did not have any potential ordinary shares outstanding.

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

The Directors confi rm that this condensed set of fi nancial statements has been prepared in accordance with International Financial Reporting Standards and IAS 34 Interim Financial Reporting, and that the interim condensed fi nancial statements herein give a true and fair view of the assets, liabilities, fi nancial position and profi t and loss of the Group.

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 Services Authority. The fi gures for the year ended 31 December 2007 have been based on the full accounts of the Company which were prepared under IFRS and which included an unqualifi ed audit report. The interim fi nancial information in this report has been neither audited nor reviewed by the Company’s auditors.

Copies of this report have been sent to shareholders and are available to the public from the Company’s UK Transfer Agents, Capita Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU.

Registered OfficeCanon’s Court, 22 Victoria StreetHamilton HM12, Bermuda

Head Office25/F Standard Chartered Bank Building4-4A Des Voeux Road, Central, Hong Kong

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