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In today’s fast-paced, highly-competitive businessenvironment, customers across industries have come to expecttotal solutions in their drive towards

maximizing efficiency and quality.

China’s pharmaceutical industry is no different. The ability todevelop new drugs and formulations, manufacture accordingto stringent GMP standards and an extensive and

growing distribution networkbecomes all that more critical.

Coupled with rising demand for quality healthcare and the

demographical challenges of the future, C&O will continue to

enhance its integrated capabilities to provide

seamless solutions to ourcustomers in China and beyond.

Seamless Solutions

For a healthier life Pushing the Frontiers of Discovery and Distribution

C&O IFC & IBC.indd 1C&O IFC & IBC.indd 1 9/24/07 8:47:54 PM9/24/07 8:47:54 PM

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CONTENTSCorporate Profile 3

Business at a Glance 4

Chairman’s Statement 10

Operating and Financial Review 15

The Way Ahead 25

Board of Directors andSenior Management 28

Corporate Structure 32

Directors’ Report 33

Statement by Directors 36

Auditor’s Report 37

Financial Statements 38

Corporate Governance Report 99

Shareholdings Statistics 109

Notice of Annual General Meeting 111

Corporate Information 114

Vision“To be the market leader in the

pharmaceutical industry in Chinathrough developing our core

competencies in a fully integrated

pharmaceutical platform,experienced and professional management,

and efficient cost structure.”

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Listed on the Main Board of the Singapore Exchange in October 2005, C & OPharmaceutical Technology (Holdings) Limited (“C&O”) is an established andintegrated pharmaceutical group in China. Our business model spans the entire valuechain in the pharmaceutical industry, from research and development, tomanufacturing, as well as marketing and distribution of C&O branded and third partypharmaceutical products via an extensive distribution network covering all parts ofChina.

Our product portfolio comprises C&O branded products, imported products (to whichwe hold exclusive distribution rights) and third party products. Most of our ownproducts are included in the National Health Insurance Scheme, focusing primarily onanti-infection and gastrointestinal drugs, drugs for ageing adults, as well as otherspecialised drugs.

With a strong emphasis on research and development, we continually expand therange of our C&O branded products with a deep pipeline of generic and patenteddrugs. At the same time, we relentlessly source for new pharmaceutical and healthcareproducts to be carried under our extensive distribution network in China.

With an integrated business model, we offer one-stop solutions to otherpharmaceutical companies both in China and outside of China with our ContractResearch (“CRO”) and Contract Manufacturing (“CMO”) services, as well as productregistration and distribution services.

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Corporate Profile

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Business at a Glance

Our Integrated Business Model

Strong R&D pipeline withmore than 50 products atvarious stages ofdevelopment

One of the leadingpharmaceutical companiesin China with the expertiseto provide CRO services

Modern, GMP-certifiedfacilities to manufacture awide array of formulationsfor both C&O branded andCMO products

Coverage of more than3,000 distributors and300,000 hospitals, clinicsand pharmacies in all partsof China

Marketing & DistributionManufacturingResearch & Development

SPANS THE ENTIRE VALUE CHAIN IN THE PHARMACEUTICALINDUSTRY FROM R&D TO DISTRIBUTION

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Business at a Glance

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ThreeThree Pillarsof Growth

1) RESEARCH & DEVELOPMENT

Widely recognised in the industry for our R&D capabilities, C&O is one of the leadingpharmaceutical companies in China with the expertise to provide contract research (CRO)services – targeted at the growing number of international pharmaceutical companiesseeking to outsource their R&D activities to China.

Our R&D team comprising morethan 80 in-house researchers,they are specialists whohave been hand-picked fortheir expertise in differentresearch fields. Currently,we have two R&D centreswhich are located in Nanjingand Shanghai, being the hubof China’s pharmaceutical industry.We also collaborate with renowned universities, R&D institutions and companies to boostour R&D capabilities. Examples of our strategic partners include China PharmaceuticalUniversity (CPU), Shanghai Institute of Materia Medica, Chinese Academy of Sciences(SIMM), Sichuan Agricultural University, Optimer Pharmaceuticals, Inc., PharmcoInternational, Incorporated and other independent researchers in the US.

We have a strong pipeline of drugs covering acute medical areas such as anti-infectionand anti-inflammatory, anti-HBV, anti-cancer, anti-tuberculosis, anti-obesity, gastro-intestinal drugs and drugs for the ageing.

Currently, we have more than 50 new products in the pipeline, about a quarter of themare potential patented drugs. We are also in the midst of developing over 10 newcompounds with potential for international patent applications.

Chemical synthesis

Pharmaceuticalanalysis

Drug formulation &preparation methods

Manufacturingtechniques

Clinical research &product registration

Ourspecialized

R&Dareas include

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MANUFACTURINGBusiness at a Glance

2) MANUFACTURING CAPABILITIES

Located in Nanjing, Jiangsu Province, our manufacturing facilities occupy a site area ofapproximately 60,000 sq.m with a total gross floor area of over 20,000 sq.m. Our GMP-certified manufacturing facilities are equipped to handle 13 production processes tomanufacture a wide array of C&O branded and CMO (contract manufacture) formulations,including tablets, capsules, ointment, granules, gelatine, cream, freezed-dried powdersfor use in bottled injections and API (active pharmaceutical ingredients).

Supported by modernised systems, all stages of our manufacturing processes areoperated by qualified pharmaceutical and engineering professionals to ensure the highestpossible standards in production, inventory and quality controls as well as packaging.We make sure that our products are compliant with the stringent regulatory requirementsbefore delivery to our customers.

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DISTRIBUTIONBusiness at a Glance

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3) DISTRIBUTION PROWESS

Our nationwide distribution network, covering more than 3,000 distributors and 300,000hospitals, clinics and pharmacies, provides an extensive platform for us to market ourproducts. It also covers city outskirts and rural areas which are increasingly receivingmore healthcare funds from the PRC government.

Acknowledging that drugs are “specialised” products and not just any commodity, wehave specialised teams of sales and marketing staff for different types of drugs such asprescriptive drugs, OTC drugs and health supplements. These teams are furthersegmented to service hospitals, clinics, pharmacies in cities and rural areas in the PRC.

Our ability to secure long-term exclusive distribution rights on several imported drugs isa clear endorsement of our distribution prowess. Coupled with our import/export licence,we are well-positioned to provide distribution services for local and international drugcompanies.

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ChengduChengduChengduChengduChengdu成都

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GuiyangGuiyangGuiyangGuiyangGuiyang貴陽

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MacauMacauMacauMacauMacau澳門

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Hong KongHong KongHong KongHong KongHong Kong香港

ChangshaChangshaChangshaChangshaChangsha長沙

WuhanWuhanWuhanWuhanWuhan武漢

XiamenXiamenXiamenXiamenXiamen廈門

FuzhouFuzhouFuzhouFuzhouFuzhou福州

NanchangNanchangNanchangNanchangNanchang南昌

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ZhengzhouZhengzhouZhengzhouZhengzhouZhengzhou鄭州

JinanJinanJinanJinanJinan濟南

ShijiazhuangShijiazhuangShijiazhuangShijiazhuangShijiazhuang石家庄

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XuzhouXuzhouXuzhouXuzhouXuzhou徐州 LianyungangLianyungangLianyungangLianyungangLianyungang連運港

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SanyaSanyaSanyaSanyaSanya三亞

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Chairman’sTo be the market leader in the pharmaceutical industry in China

through developing our core competencies in a fully integratedpharmaceutical platform, experienced and professional management, and efficient cost structure.

Chairman’sStatement

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Chairman’s Statement

The strategic investment of CMIA in C&Osignals a vote of confidence in our growthfocus to become one of the leading innovativepharmaceutical groups with integratedcapabilities in China.

Mr Gao Bin – Executive Chairman of C&O”

“

We a re c o n f i d e n t o f C & O ’s s t ro n gmanagement team, business strategy andR&D direction and will be working closely withthe Company to grow the business and capitalizeon opportunities in this exciting segment of theChinese economy.

Mr Lee Chong Min – Founder and Managing Partner of CMIA”

“

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Dear fellow Shareholders

FY2007 has been a very busy year for us at C&O, andI am glad to report that we have made significantinroads to enhance our core competencies as well asto work on business collaborations with bothdomestic PRC and international players. In April 2007,our Group raised net proceeds of HK$77.8 millionthrough a strategic share placement of 43.4 millionnew shares to CMIA Capital Partners which enabledC&O to increase our research and developmentcapacity as well as improve our distribution andmarketing capabilities. We are also pleased to havesuch an established strategic investor with extensiveexperience investing in China’s healthcare sector asan integral part of our shareholder base.

Now, more than ever, we have established a strongerbeachhead with a more integrated pharmaceuticalplatform that would allow us to deliver seamlesssolutions for our customers.

R&D – GROWTH THROUGHDISCOVERY

The lifeblood of our Group, our R&D initiatives willcontinue to propel us into the frontiers of discoveryand growth. In FY2007, we launched a total of 8 C&O-branded drugs and we are looking at the launchingof more C&O branded products in the coming year.

On the frontier of proprietary new drug development,we have two proprietary new drugs which will begoing into clinical trials and four other new drugsundergoing pre-clinical trials.

In FY2007, the Group continued to receive researchgrants for our R&D init iat ives such as thedevelopment of a more efficacious type of Dopamineused for treating Parkinson’s disease and a new typeof anti-bacterial drug.

We also continued to strengthen our R&D capabilitiesand to introduce better drugs into the PRC market.

To further strengthen our R&D capabilities, we havecommenced the design and construction of our newR&D centre with state-of-the-art laboratory facilitiesin Nanjing’s New Town Science and Technology Park,which is expected to be completed by 2009.Concurrently, we are also expanding our ShanghaiR&D centre which is expected to be fully operationalin the second half of FY2008.

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MANUFACTURING – ENHANCINGCAPACITY

We will continue to look for opportunities to enhanceour manufacturing capabilities. Recently, the Grouptripled its freezed-dried production capacity from 6million units to 18 million units per year, which helpedto satisfy the increasing demand of our freezed-driedproducts. We are expecting the construction of ournew fully-automated, multi-storey warehouse to becompleted in the first half of FY2008, and this willenable the Group to centralise its warehousingfunctions and provide additional land space forexpansion.

We also plan to commence the design andconstruction of our new administrative building whichwill house, among others, our enlarged quality controland quality assurance centre in the second half ofFY2008.

DISTRIBUTION CHANNELS –EXTENDING MARKET PENETRATION

With the successful integration of ShenzhenLiancheng Medicine Company Limited into our Group,C&O’s distr ibut ion network has expandedsignificantly. It not only provides an efficientdistribution channel for C&O-branded and third-partypharmaceutical products, it is also particularlyattractive to foreign pharmaceutical companieslooking to enter the Chinese market.

In June 2007, we were appointed the exclusivedistributor of Pharmco International’s Century Seriesof multivitamin health supplements, one of theleading private label multivitamin supplements in theUnited States.

We are also pleased that 11 of our products weresuccessful in the Guangdong Online CentralisedTender held earlier this year.

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FY2007 FINANCIAL HIGHLIGHTS

For the year ended 30 June 2007, the Group reporteda 95.7% rise in revenue to HK$680 million. Full-yearnet profit attributable to shareholders declined by34.3% to HK$77.6 million as a result of a one-offinventory adjustment exercise which was completedin the first half of FY2007.

Our quarter-to-quarter growth in FY2007 shows thatwe are definitely on track in growing our businessperformance. To continue this momentum, we willcontinue expanding our product range – through ourproduct development efforts and third-party contracts– as well as broadening our distribution networkwhich currently spans across over 3,000 distributorsand 300,000 clinics, pharmacies and hospitals acrossChina.

As at 30 June 2007, the Group’s balance sheetcontinues to be strong, with a total cash and cashequivalents plus pledged deposits, fixed depositsheld at bank and other financial assets (held-to-maturity debt securities) of HK$173.9 million. Ourshareholder’s equity grew from HK$423.5 million inFY2006 to HK$566.0 million in FY2007.

OUTLOOK: BRIMMING WITHOPPORTUNITIES

Along with China’s rapid economic growth, risingaffluence and focus on healthy living, the demand forhealth-related and pharmaceutical productscontinues unabated. This is amplified by the ageingpopulation phenomenon which is not confined onlyto China, but to the rest of the world as well.

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proven track record – a testament of our growingmarket reputation.

C&O is definitely on a strong growth track. Barringunforeseen circumstances, we expect that the outlookfor FY2008 to be positive.

APPRECIATION

Our commendable performance in FY2007 would nothave been possible had it not been for the way ourfellow directors, management and staff workedtogether as a team to propel C&O to greater heights.Thank you all for your hard work and commitment. Iwould also like to take this opportunity to thank ourshareholders, as well as our customers, distributors,suppliers and business associates for their continuedsupport.

Gao BinExecutive Chairman

18 September 2007

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The restructuring of China’s healthcare sector by thelocal authorities had stabilised the pharmaceuticalindustry. The exercise not only weeded out theweaker and non-compliant pharmaceuticalmanufacturers, it also evened out the playing fieldfor well-managed, quality-focused companies suchas C&O. This industry shake-up had made usstronger and more confident about ourselves. Infact, I am pleased to report that all of our drugs hadpassed the Government’s review with flying colours.

Going ahead, the major engines of growth that willlaunch us to a higher ground are our fully integratedc a p a b i l i t i e s f ro m R & D o f n e w d r u g s t omanufacturing and the strong and extensivedistribution network. Overseas pharmaceuticalcompanies looking to ride on China’s growth willneed to find a reliable and technologically-advancedpartner with an extensive distribution network andR&D capabilities for product development andclinical research.

Subsequent to FY2007, a Memorandum ofUnderstanding was signed with Nasdaq-listedOptimer Pharmaceuticals, Inc. to initiate a mutualcooperation in research and development, establishnew distribution channels and share marketintelligence. This will strengthen C&O’s R&Dcapabilities significantly and reduce the lead timerequired to develop new products. In addition,there will be a platform for C&O to distribute ourown brands into the United States.

Most recently, our Group was appointed byEuropharm Laboratories Co., Ltd. (“Europharm”),one of the leading pharmaceutical manufacturersbased in Hong Kong, as sole distributor for itsPholcotussin brand of cough syrup in China. Thesole distributorship right is for a term of 10 yearscommencing from 1 September 2007.

We are pleased that Europharm had selected C&Obecause of our strong distribution network and

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Operating

Operating and Financial Review

TO GROW C & O TO BE ONE OF THE LEADING PHARMACEUTICAL ENTERPRISES INCHINA BY INCREASING PRODUCT MIX AND MARKET SHARE.

Operatingand Financial Review

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We at Pharmco are very excited to partnerwith C&O on our Century line of products. It hasbeen our experience that partnering withknowledgeable, experienced and trustworthycompanies is the key to success.

Mr Alexander Kuo – Business Development Director ofPharmco International,

Incorporated

”

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NUMBER OF C&O BRANDEDPRODUCTS

OPERATING REVIEW

As a leading pharmaceutical group in China thatresearches, manufactures and markets our own-branded products as well as distributes third-partypharmaceutical products, C&O has experiencedhealthy organic growth in FY2007 in spite of recentrestructuring of China’s pharmaceutical industry bythe PRC government.

We are pleased to report that the industry hasstabilised and is poised for further growth. In ourview, the reform was necessary and has in fact helpedto lay a stronger foundation for long term growth ofthe industry. As a strong player in China’spharmaceutical industry, C&O is constantly adaptableto changes in the marketplace and is well-supportedby an experienced and professional team.

With our continuous focus on R&D and expansion inour business overseas, we now have a betteroperating environment governed by strongerprotection on intellectual property rights and theimplementation of Good Manufacturing Practices(“GMP”).

As a well-established integrated player, we are in agood position to leverage on our resources to groworganical ly and to acquire complementarybusinesses.

We have made good progress in growing our businessin FY2007, in all aspects ranging from widening ourproduct range, enhancing our R&D capabilities,expanding our production capacity, strengthening ourpartnerships with overseas partners to extending ourdistribution network.

NEW PRODUCTS

In FY2007, we successfully launched eight new C&Obranded drugs.

C&O branded drugs launched in FY2007

1. Amoxicillin Granules2. Ketoconazole Cream3. Miconazole Nitrate Cream4. Amoxicillin and Clavulanate Potassium tablets5. Netilmicin Sulphate for Injection6. Nateglinide Capsules7. Irbesartan Tablets8. Thymopentin for Injection

FY 2007Corporate Development

1Q FY2007 (1 July 2006 – 30 Sep 2006)

• Completed the acquisition of Shenzhen Liancheng Medicine Company Limited

• Launched 6 new C&O branded drugs: (1) Amoxicillin Granules, (2) Ketoconazole Cream, (3) Miconazole Nitrate Cream,

(4) Amoxicillin and Clavulanate Potassium tablets; (5) Nateglinide Capsules and (6) Netimicin Sulphate for Injection

C&O branded pharmaceutical products

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RESEARCH & DEVELOPMENT

In FY2007, we applied to the State Food and DrugAdministration of PRC (“SFDA”) for approval tocommence clinical trial for Metacavir Enteric-coated Capsules (PNA) and Low MolecularG anoderma Lucidum Polysacchar ide(LMGLP).

PNA is a new pharmaceutical compound forthe treatment of Hepatitis B. It is apotential Category 1 drug – which refers topharmaceutical products that have notbeen previously approved for sale in Chinaand overseas.

We believe that PNA will be a superioralternative to drugs currently in the market totreat Hepatitis B. Among the most commonlyused drugs for the treatment of Hepatitis B,Interferon can have many side-effects such as

autoimmune disorder and undesirable effects on thegrowth of children. Lamivudine, on the other hand,is a long term treatment which may lead to theemergence of a resistant Hepatitis B virus mutant andthe disease may reoccur after terminating thetreatment. Pre-clinical studies have revealed thatMetacavir has insignificant incidences of side effects.Metacavir is also effective in suppressing HBV DNAin the cell and reproduction of viral DNA.

In June 2006, our R&D of PNA received recognitionfrom the Nanjing Science and Technology Bureau asan “Advanced Technological Research (Industry)”under the “Provincial Technological Development


1Q FY2007 (1 July 2006 – 30 Sep 2006)

• R&D of PNA recognised as an “Advanced Technological Research (Industry)” by Nanjing Science and Technology

Bureau and Nanjing Finance Bureau; also received state recognition from National Natural Science Foundation of Chinam,

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Project of 2006”. In September 2006, this researchagain received another prestigious state recognitionfrom the National Natural Science Foundation ofChina.

In 3QFY2007, we applied to SFDA for approval tocommence clinical trial for LMGLP. LMGLP, derivedfrom the popular Chinese traditional medicine Lingzhi,is an immuno-enhancer drug which simulates bloodcirculation, enhances body immunity and subdues thetoxicity and adverse side effects of radiotherapy andchemotherapy. LMGLP is an alternative drug for thetreatment of cancer.

When the clinical trials of PNA and LMGLP arecompleted, they will be C&O’s first two patenteddrugs.

C&O’s relentless commitment to R&Dh a s re c e i ve d o t h e r f o r m s o fe n c o u ra g e m e n t f ro m va r i o u sresearch institutions.

C&O is amongst the five companiesconducting pharmaceutical-relatedresearch projects to receive funding


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2Q FY2007 (1 Oct 2006 – 31 Dec 2006)

• Launched 2 new C&O branded drugs: (1) Irbesartan Tablets and (2) Thymopentin for Injection

• Both Nanjing Chang Ao Pharmaceutical Co., Limited and Nanjing Changao Pharmaceutical Science and

Technology Co., Limited received the award of “Advanced Technological Enterprise” from Department of Science and

Technology, Jiangsu Provincial Government

from Nanjing’s First Scientific & TechnologicalAdvancement Plan in 2007. A grant of RMB500,000was awarded to us to finance our research project inthe development of a new type of Dopamine drugcalled Methyl Levodopa Hydrochloride to be used fortreating Parkinson’s disease. The drug is currently inclinical trial stage, we target to complete the necessarytrials by end of 2008 and launch the drug in 2009.

We are optimistic about the uptake for this productbecause in China, Parkinson’s Disease and ParkinsonSyndrome are increasingly more common amongstthe elderly and are expected to become moreapparent amongst China’s ageing population.

We have also received RMB400,000 in researchfunding from the High-tech Research Plan of Jiangsu

Provincial Department of Science and Technology(Medicine) for the development of YC-12, a new

type of anti-bacterial drug with the potential tobe a Category 1 drug with independent

intellectual property, both PRC nationalpatents and international patents.

In recogni t ion of the technologica la d v a n c e m e n t o f o u r R & D a n d

manufacturing process, two of oursubsidiaries, namely, Nanjing Changao

P h a r m a c e u t i c a l S c i e n c e a n dTe c h n o l o g y C o . , L i m i t e d

a n d N a n j i n g C h a n g A oPharmaceutical Co., Limitedwere awarded the prestigious“A d va n c e d Te c h n o l o g i c a lEnterprise” by the Departmentof Science and Technology,Jiangsu Provincial Government inFY2007.

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To house our expanded R&D activit ies, wecommenced the design and construction of our newR&D centre with state-of-the-art laboratory facilitiesin Nanjing’s New Town Science and Technology Parkin April 2007, which is expected to be completed by2009. This centre will house a state-of-the-artlaboratory and other research facil it ies forpharmacokinetics and drug metabolism, synthesis ofnew chemical compounds, study on new formulationof drugs, quality control and quality assurance. Inaddition, we are also expanding our R&D facilities inShanghai.

EXPANDING PRODUCTION CAPACITY

To support growing demand for our freezed-driedproducts, we expanded our freezed-dried productioncapacity from 6 million to 18 million units per year.Construction of our new fully-automated, multi-storeywarehouse is expected to be completed in the firsthalf of FY2008, this will enable us to have acentralised warehousing facility and will provide uswith additional land space for expansion.

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INTEGRATING LIANCHENG

In the first half of FY2007, our focus was to ensure asmooth integration of the newly acquired distributionarm, Shenzhen Liancheng Medicine CompanyLimited, into C&O. An inventory adjustment exercisewas undertaken to reduce the amount of buffer stockheld at Liancheng and such one-off adjustmentexercise was successfully completed in 2QFY2007.The Group’s inventory level is currently kept at ahealthy level of about one to two months.

With an enlarged distribution network covering thewhole of China, we have better control over ourmarketing strategies, enabling us to manage ourresources and to market our products moreeffectively. Our effective sales and marketing teamof over 850 personnel, among them medicalprofessionals and experienced sales personnel, cannow distribute pharmaceutical products even morequickly and extensively to customers.

FY 2007d

Corporate Development

3Q FY2007 (1 Jan 2007 – 31 Mar 2007)

• Commenced the construction of our multi-storey fully automated warehousing facilities in Nanjing

• Applied to SFDA for approval to commence clinical trials for PNA and LMGLP

• 11 products were successful in the Guangdong Online Centralised Tender for the procurement of pharmaceutical

products for hospitals in the Guangdong Province

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DEEPER MARKET PENETRATION INGUANGDONG

Through Liancheng, C&O was able to participatedirectly in the Guangdong Online Centralised Tender(“Onl ine Tender”) for the procurement ofpharmaceutical products and we were successful for11 of our products.

Guangdong is one of China’s largest provinces interms of drugs consumption. All of its 930 majorhospitals participated in the program and onlypharmaceutical products that are successful in theOnline Tender will be included in their procurementcatalogue for the year. Besides product prices, otherfactors such as size, reputation and track record ofthe drug manufacturers were considered during theinitial selection process. With our success in theOnline Tender, we are optimistic that Guangdong willbecome one of our principal markets in the nearfuture.

Supported by marketing and advertising campaigns,C&O will work closely with the local distributors inGuangdong to increase the awareness of C&Obranded products among doctors and medicalprofessionals and hasten the pace of our productpenetration in the province.

Having accumulated the experience of a successfulonline tender in China, we believe that we are betterpositioned to secure similar bids in other provinces.

NEW DISTRIBUTORSHIPS & BUSINESSCOLLABORATIONS

The Group’s growth strategy also focuses oncollaborations and partnerships with overseas

partners to expand our range of foreign importedproducts by securing sole distributorship rights andexpand our R&D portfolio by technology transfer.

In June 2007, we were appointed by PharmcoInternational, Incorporated as its exclusive distributorin China for certain Century Series multivitamin healthsupplements.

Subsequent to F Y2007, C&O entered into aMemorandum of Understanding with Nasdaq-listedOptimer Pharmaceuticals, Inc. to collaborate in theareas of research and development, technologytransfer and sharing of market intelligence. Thestrategic alliance will strengthen our R&D capabilitiesand reduce the lead time required to develop newproducts. In addition, there will be a platform for theGroup to distribute our own branded drugs into theUnited States.

More recently in September 2007, we wereappointed by Europharm Laboratories Co., Ltd., oneof the leading pharmaceutical manufacturers basedin Hong Kong, to be their sole distributor of thePholcotussin brand of cough syrup in China. Thesole distributorship right is for a term of 10 yearscommencing from 1 September 2007.

FINANCIAL REVIEW

REVENUE

For FY2007, C&O’s revenue grew 95.7% to HK$680.0million. Revenue generated from C&O brandedproducts and imported products both recordedsubstantive growth of 39.6% and 25.6% respectively.It was driven by the organic growth in sales volume


4Q FY2007 (1 Apr 2007 – 30 Jun 2007)

• Raised HK$77.8 million via strategic share placement of new shares to CMIA

• Completed the expansion of freezed-dried capacity to 18 million units per annum

• Commenced the design and construction of our additional R&D centre in Nanjing

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and the capture of additional margin from theacquired distribution business. In addition, thedistribution of other third party products attributableto the acquired distribution business also contributedabout HK$231.6 million of additional turnover to theGroup.

GROSS PROFIT

Gross profit of F Y2007 increased 26.3% toapproximately HK$212.4 million as compared toHK$168.1 million in FY2006. The one-off inventoryadjustment which was completed in the first half ofFY2007 and the low margin distribution of third partyproducts attributed to the acquired distributionbusiness were the two main reasons for the loweringof C&O’s gross profit margin from 48.4% in FY2006to 31.2% in FY2007.

OPERATING EXPENSES

In FY2007, distribution expenses increased toHK$69.7 million, represented 10.2% of the Group’srevenue. The increase of distribution expenses was

REVENUE (HK$’000)

in line with the acquisition of the distribution businessand more promotion and advertising campaigns wereimplemented after the acquisition of the distributionbusiness.

Administrative expenses increased 115.9% toapproximately HK$64.9 million when compared toFY2006. Higher staffing and directors-related costs,traveling expenses, rental expenses for various PRCsales offices, higher depreciation as a result ofacquisition of fixed assets, professional fees and R&Dcosts contributed to the increase in administrativeexpenses. Higher R&D costs were incurred tostrengthen our R&D pipeline.

Other operating expenses comprised mainly theprovision on inventories of approximately HK$1.1million.

INTEREST INCOME

Interest income rose HK$0.4 million to HK$4.3 millionwhich mainly due to the increase in average bankinterest rate offset by cash used in various investingactivities.

NET PROFIT ATTRIBUTABLE TO EQUITYSHAREHOLDERS

Due to the one-off inventory adjustment which wascompleted in the first half of FY2007, net profitattributable to equity shareholders of C&O for1HFY2007 was HK$5.4 million. After the inventoryadjustment was completed, net profit attributable toequity shareholders in 2HFY2007 rebounded toHK$72.2 million.


4Q FY2007 (1 Apr 2007 – 30 Jun 2007)

• Appointed as exclusive distributor in China for certain US-based Pharmco’s Century line of multi-vitamin products

• Research of a new type of Dopamine drug received funding from Nanjing’s First Scientific and Technological Advancement

Plan in 2007

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offshore claim in respect of the trading income of thissubsidiary will be submitted with sufficient groundsupported. The success of the off-shore claim will besubject to the final adjudication of the Inland RevenueDepartment of the HKSAR. Should this income betreated as taxable, the estimated additional taxliability for FY2007 would be approximately HK$14.1million.

FINANCIAL POSITION AND CASH FLOWS

The inventory level, trade receivables balance andtrade payables balance rose in line with the increasein turnover in FY2007.

The acquisition of equity interest in ShenzhenLiancheng Medicine Company Limited, the purchaseof land use rights in PRC and the purchase of newoffice in Hong Kong were the three main reasons forthe increase in non-current assets.

C&O maintains a strong and liquid financial position.As at 30 June 2007, cash and cash equivalents pluspledged deposits, fixed deposits held at bank andother financial assets (held-to-maturity debtsecurities) amounted to approximately HK$173.9million, as compared to approximately HK$248.5million as at 30 June 2006.

The decrease in cash and cash equivalents wasattributable to a cash outflow of approximatelyHK$27.4 million from operating activities, a cashoutflow of approximately HK$136.2 million frominvest ing act iv i t ies , and a cash inf low ofapproximately HK$52.2 million from financingactivities.

TAXATION

Hong Kong Profits Tax was provided at the rate of17.5% on the estimated assessable profit of asubsidiary for FY2006. No provision for Hong KongProfits Tax has been made in FY2007 because an

NET PROFIT ATTRIBUTABLETO EQUITY SHAREHOLDERS OFTHE COMPANY (HK$’000)


1Q FY2008 (1 July 2007 )

• Research of YC-12, a new type of anti-bacterial drug, received funding from the High-tech Research Plan of Jiangsu Provincial

Department of Science and Technology (Medicine)

• Strategic alliance with Nasdaq-listed Optimer Pharmaceuticals, Inc.

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CASH BALANCE VS BORROWINGS(HK$’000)

Cash and cash equivalents plus pledged deposits, fixeddeposits held at bank and other financial assets

Bank loans and Shareholder’s loan

TREASURY AND HEDGING POLICIES

As at 30 June 2007, approximately 27.0%, 3.0%,69.8%, and 0.2% of the Group’s cash and cashequivalents, included pledged deposits and otherfinancial assets, were held in Renminbi, Hong Kongdollars, US dollars and Singapore dollars respectively.

We are continuously seeking for good investmentopportunities, in order to generate better return forinvestors with the excess cash. For idle cashtemporarily available, we utilise several fixed incomeinstruments to maximize interest income while ensurethat the risks are probably controlled.

USE OF PROCEEDS FROM PLACEMENT OF NEWSHARES TO CMIA

In April 2007, C&O issued 43,360,000 new ordinaryshares to CMIA Capital Partners (Cayman) Limited by

way of a private placement at an issue price of S$0.35per share.

After deducting expenses per taining to theplacement, the net proceeds from the placementamounted to approximately S$15 million (equivalentto about HK$ 77.8 million) are to be used to enhancethe Group’s R&D, distribution and marketingcapabilities as well as for working capital purposes.

Up to the end of FY2007, approximately S$3.2 million(equivalent to about HK$ 16.6 million) was spent onthe construction of the new R&D centre in theNanjing’s New Town Science and Technology Park.Furthermore, approximately S$1.8 million (equivalentto about HK$ 9.1 million) was spent on the expansionof our sales force and the strengthening of the marketrecognition of the Group and our products throughpromotional and marketing activities.

Subsequent to FY2007 and up to end of August 2007,approximately an additional S$2.8 million (equivalentto about HK$14.2 million) was spent on expandingour R&D facilities in Shanghai and approximately anadditional S$0.3 million (equivalent to about HK$1.4million) was spent on distribution and marketingactivities.

DIVIDEND

We had not paid any interim dividend for the financialyear ended 30 June 2007. In order to retain adequatefunds for business development and the variousinvesting activities contemplated by the Group, theBoard of Directors does not recommend the paymentof final dividend for FY2007.


1Q FY2008 (1 July 2007 )

• Appointed as exclusive distributor in China for HK-based Europharm’s Pholcotussin brand of cough syrup for children

• Setting up of representative office in San Francisco

• Commenced the expansion of our R&D centre in Shanghai

• Obtained patent for the manufacturing technique to increase the effectiveness of Pantoprazole Sodium Enteric-coated Pellets

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AheadThe Way

We are enthusiastic about the opportunity tocollaborate with C&O and the future access theycan provide Optimer to the China market.

Mr Michael Chang – President and CEO ofOptimer Pharmaceuticals, Inc.

”

“

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The recent restructuring of the healthcare industryby the Chinese government has paved the way for astronger and more resilient pharmaceutical industry.

Tighter regulations to weed out corruption, strongerintellectual property protection and the more forcefulimplementation of Good Manufacturing Practices(“GMP”), sieved out the smaller and weaker players,while those who played by the rules, who have beencompliant with government regulations and qualitystandards, such as C&O, emerged as stronger players.

CORPORATE STRATEGIES

Continued focus on developing new drugs

R&D will continually place C&O on the frontiers ofdiscovering new drugs and formulations. To increaseour R&D capabilities, we have commenced the designand construction of our new R&D centre in NanjingNew Town Science and Technology Park. The newR&D centre will house a state-of-the-art laboratoryand other research facilities for (i) pharmacokineticsand drug metabolism (ii) synthesis of new chemicalcompounds (iii) study on new formulations of drugsand (iv) quality control and quality assurance.

Concurrently, our R&D centre in Shanghai will alsobe expanded to meet the growing demand forpharmaceutical research services in the PRC.

With our corporate emphasis on R&D, C&O’s new drugdevelopment effor ts wil l continue to grow,particularly, when we partner other internationalpharmaceutical companies to bring in new and betterdrugs into China.

Expand portfolio of C&O branded products

While we continue with the development of genericdrugs, our focus will be placed on producing drugsof higher value that target the mid to high endmarkets as competition is less keen in thesesegments with prices remaining relatively stable,unlike the low end market that experiences constantdownward pricing pressures.

The Way Ahead

2525252525

We will continue our strategy to introduce more ofour own drugs into the market.

PNA anti-Hepatitis B drug(a potential Category 1 drug)

LMGLP new immuno-enhancer drug(a potential Category 1 drug)andalternative drug tocancer treatment

YC-12 Oxazolidinone Antibiotics(a potential Category 1 drug),a drug that is more effectiveagainst a broad spectrum ofbacterial pathogens,especially Gram-positivedrug-resistant bacteria

CO-8 A new drug for the treatmentof diabetes

CO-12 A more effective drug for thetreatment of drug-resistanttuberculosis

CO-18 An anti-obesity drug used toreduce the risk ofcardiovascular disease,metabolic syndrome, highcholesterol and diabetes.

MAJOR DRUGS IN DEVELOPMENT

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The Way Ahead

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Contract Research and Contract Manufacturing

C&O has been providing contract research andcontract manufacturing services to pharmaceuticalcompanies both in China and outside of China. Withour state-of-the-art R&D facilities and expertise,sophisticated manufacturing plant, and mostimportantly, our familiarity with the PRC market, webelieve we are a strong contender for partnershipswith the multinational pharmaceutical companies.

Distribution and Marketing

We will continue to expand our distribution network,particularly in the area of south western part of China.We will also launch more marketing campaigns toboost up the sales of C&O branded and third partyproducts and increase our market penetration.

THE ROAD AHEAD

We envisage our future growth to be driven by thefollowing trends:• increasing in consumer spending power induced

by strong economic growth;• greater awareness of the need for healthy living;• ageing population in China;• strong interests of overseas pharmaceutical

companies to enter the PRC market due to marketpotential;

• growing trend of overseas pharmaceuticalcompanies to outsource R&D and manufacturingactivities to third parties in China.

With our strong integrated capabilities and ourcommitment to realise our growth plans, the wayahead for C&O looks more robust than before.

Expand range of foreignimported products

To becomea leading

pharmaceuticalenterprise

in China

Expand CRO &CMO services

Expand marketing/distribution network

Expand range ofC&O branded products

R&D of proprietary drugs to increase intellectualproperty assets _ gateway to international markets

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Board of Directors and Senior Management

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BOARD OF DIRECTORS

GAO BIN

Executive Chairman

Mr Gao is the Executive Chairman of our Board appointed on 2 September 2003 and one of the founders ofour Group. He is responsible for the overall strategic planning and business development of our Group. MrGao graduated from Nanjing Technical Training Institute in 1979 and obtained the professional qualificationof senior economist in 1999.

Mr Gao has over 24 years’ experience in sales and marketing of pharmaceutical products in the PRC, fromwhich he has created a vast network in the pharmaceutical sector and has gained a good knowledge of thedevelopment in the industry.

Prior to the establishment of the Group, Mr Gao had worked in Nanjing Yangtze Development CorporationCo., Ltd. (“Yangtze”) as a manager in charge of the company’s pharmaceutical business. Before joining Yangtze,Mr Gao had been employed by Jinling Pharmaceutical Co., Ltd. for about 10 years, his last position was associatedirector in charge of sales and distribution.

MA LAI CHI

Executive Director

Mr Ma is an Executive Director appointed to our Board on 2 September 2003 and one of the founders of ourGroup. Mr Ma is responsible for overseeing the administration functions of our Group. He graduated fromXiamen Diyi High School in 1966 and has over 23 years’ experience in international trading of pharmaceuticalproducts. Prior to founding our Group, Mr Ma worked for Singee International Company Limited, AlphaChemicals Limited and Prosperous Star Pharmaceutical Ltd. He subsequently managed his own tradingcompanies under the company names of Golden Horse Chemicals Limited and MAS International (HK) CompanyLimited. Both companies had since ceased business.

SONG MING

Executive Director

Mr Song is an Executive Director appointed to our Board on 12 August 2005 and also the chairman of NanjingChang Ao Pharmaceutical Co., Limited. He is responsible for overseeing our PRC operations. Mr Song obtaineda bachelor’s degree in chemical engineering from Sichuan University in 1982 and a bachelor’s degree in lawfrom Nanjing University in 1989. Prior to joining our Group in 1997, Mr Song was a teaching staff at ChinaPharmaceutical University for more than 11 years and the general manager of CPU Pharmaceutical Co., Ltd.

Mr Song received the Star entrepreneur award from the Education Committee of Jiangsu Province, and anaward for Outstanding Factory Manager in Nanjing City from the Economic Committee of Nanjing City, EconomicReform Committee of Nanjing City, Labour Union of Nanjing City and Enterprise Management Committee ofNanjing City in 1996. He obtained the professional qualification of senior engineer in chemical engineering in1999.

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WU SU MIN

Executive Director

Mr Wu is an Executive Director appointed to our Board on 12 August 2005 and also the general manager ofNanjing Chang Ao Pharmaceutical Co., Limited. He is responsible for overseeing the manufacturing functionsof our Group. He obtained a bachelor’s degree and a master’s degree in pharmacology from ChinaPharmaceutical University in 1987 and 1997 respectively. Mr Wu has more than 18 years’ experience in theproduction of pharmaceutical products. Prior to joining our Group in 1999, Mr Wu was employed by CPUPharmaceutical Co., Ltd. Mr Wu obtained the professional qualification of senior engineer in chemicalengineering in 1999.

LI ZHAN

Executive Director

Mr Li is an Executive Director appointed to our Board on 12 August 2005 and also the general manager ofNanjing Changao Pharmaceutical Science & Technology Co. Ltd. He is responsible for overseeing the researchand development functions of our Group. Mr Li obtained his bachelor’s degree in pharmacology from ChinaPharmaceutical University in 1994 and a master’s degree in business administration from Asia InternationalOpen University in Macao in 2000. He was awarded second prize for scientific and technological advancementby the Nanjing Municipal People’s Government, Jiangsu Province, the PRC in 2001 and the title of “Young andMiddle-aged Forerunner in Industrial Technologies of Nanjing Municipality” in March 2006.

He has over 11 years’ experience in the research and development of pharmaceutical products to treat diseasesof the kidney and liver. Prior to joining our Group in August 2001, Mr Li was an instructor at ChinaPharmaceutical University and employed by Jiangsu Changao Pharmaceutical Company Limited as a technicalmanager where he was responsible for research on new pharmaceutical products and development ofpharmacology.

LEE CHING SZE SUSANA

Executive Director

Ms Lee is an Executive Director appointed to our Board on 1 April 2006. Ms Lee is responsible for overseeinglegal and compliance matters. She is also responsible for overseeing investor relations. Ms Lee obtained herbachelor of laws degree from the University of Hong Kong in 1989 and her master of social sciences incriminology degree from the University of Hong Kong in 1992. She was admitted as a solicitor in Hong Kong in1992 and she has been practising as a lawyer since then. Ms Lee has more than 13 years’ experience in thefield of commercial and corporate finance and prior to joining the Group, she was a partner with a law firm inHong Kong specialising in corporate commercial matters.


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SHIN YICK FABIAN

Independent Director

Mr Shin is one of our Independent Directors appointed to our Board on 12 August 2005. He is currently themanaging director of the Investment Banking Division of ICEA Capital Limited, a subsidiary of Industrial &Commercial Bank of China. Mr Shin has over 16 years of experience in auditing, accounting, corporate planningand corporate finance. Mr Shin graduated from the University of Birmingham in England with a bachelor’sdegree in commerce. After graduation, he worked in the audit department of Deloitte Touche Tohmatsu.Between 1999 and 2005, he worked in several corporate finance houses and joined ICEA Capital Limited inSeptember 2005. Between 1998 and 1999, he worked in Lee Kum Kee Company Limited as the financialcontroller responsible for financial management and accounting. Between 1996 to 1998, he worked in VictoryCity International Holdings Limited, a listed company in Hong Kong as financial controller and companysecretary responsible for accounting and financial management. He is a fellow member of Hong Kong Instituteof Certified Public Accountants, Association of Chartered Certified Accountants, Institute of CharteredSecretaries and Administrators and the Hong Kong Institute of Company Secretaries.

TAN TEW HAN


Mr Tan is one of our Independent Directors appointed to our Board on 12 August 2005. Mr Tan is currently adirector of SembCorp Marine Limited, ST Asset Management Limited, Full Apex (Holdings) Limited, Asia WaterTechnology Limited and Luxking Group Holdings Limited. Mr Tan started his banking career 27 years ago andhas since held a number of senior posts in various foreign banks. Before his career in the banking industry,he was with the Administrative Service of the Singapore Civil Service. He joined the Overseas Union Bank(“OUB”) in 1987 and was seconded to International Bank of Singapore Limited (a then wholly-owned subsidiaryof OUB) as Head of Corporate Banking and the Overseas Department. He was subsequently appointed asSenior Vice President of Investment Banking and Corporate Finance Division in 1992. In 1999, Mr Tan waspromoted to the position of Executive Vice President, in charge of Fund Management, Corporate Finance/Syndications and Trustee & Custodian Services. Mr Tan retired from OUB in 2001. Mr Tan obtained his Bachelorof Science (Honours) degree from University of Singapore in 1971 and his Master of Business Administrationdegree from University of British Columbia, Canada in 1979.

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CHAN KAM LOON


Mr Chan is one of our Independent Directors appointed to our Board on 12 August 2005. He currently runs hisown management and consulting firm, Philip Chan Consulting Pte Ltd, and also serves as an independentdirector of Hupsteel Ltd., Sarin Technologies Ltd and Jiutian Chemical Group Limited. From July 2001 to July2004, Mr Chan headed the Listings Function of Markets Group at the Singapore Exchange Ltd. He articled andpracticed with KPMG in London before returning to Singapore to practice with Pricewaterhouse in Singapore.From 1990 to 1996, Mr Chan worked at Morgan Grenfell Asia Ltd and HG Asia Securities Ltd in their corporatefinance teams where he worked on various regional financial advisory and equity fund raising exercises forlisted companies and also executed a number of private equity mandates within the Association of SouthEast Asian Nations (ASEAN) region. From 1996 to 2001, Mr Chan was the director of investments at a privateequity fund, Suez Asia Holdings Pte Ltd where he was responsible for originating, structuring and executinginvestments within ASEAN and in South Asia. Mr Chan was a former member of each of the AccountingStandards Committee of the Institute of Certified Public Accountants (Singapore), Singapore Zhejiang BusinessCouncil and also the Singapore Shandong Business Council. Mr Chan holds a Bachelor of Science (Economics)Degree in Accounting and Finance from the London School of Economics and is a Member of the Institute ofChartered Accountants in England and Wales (ICAEW).

SENIOR MANAGEMENT

JAMARSON KONG

Financial Controller

Mr Kong is the Financial Controller of the Group. He has over eight years of working experience in auditingand financial control. He has obtained a Bachelor’s Degree in Commerce from the University of Melbourne in1998, and a Master Degree of Business Administration from the Hong Kong University of Science and Technologyin 2005. He is currently a member of CPA Australia and the Hong Kong Institute of Certified Public Accountants.In addition, he is also a CFA chartered holder. Prior to joining our Group in 2003, Mr Kong worked in the auditdepartment of PriceWaterhouseCoopers.

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Corporate Structure

As at 18 September 20073232323232

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Directors’ Report

The directors are pleased to present their report to the members together with the audited financial statementsof C & O Pharmaceutical Technology (Holdings) Limited (the “Company”) and the consolidated financialstatements of the Company and its subsidiaries (the “Group”) for the financial year ended 30 June 2007.

DIRECTORS

The directors of the Company in office during the financial year ended 30 June 2007 and up to the date of thisreport are:

Executive directors:Executive directors:Executive directors:Executive directors:Executive directors:Gao Bin (Chairman)Ma Lai ChiSong MingWu Su MinLi ZhanLee Ching Sze, Susana

Non-executive director:Non-executive director:Non-executive director:Non-executive director:Non-executive director:Au-Yeung Kwong Wah (resigned on 1 February 2007)

Independent directors:Independent directors:Independent directors:Independent directors:Independent directors:Shin Yick, FabianChan Kam LoonTan Tew Han

Alternate director:Alternate director:Alternate director:Alternate director:Alternate director:Ma Yue Yam (appointed as alternate director to Ma Lai Chi on 30 April 2007)

In accordance with the Company’s Bye-Laws, Messrs Song Ming, Wu Su Min and Li Zhan shall retire at theforthcoming annual general meeting and, being eligible, offer themselves for re-election.

ARRANGEMENTS TO ENABLE DIRECTORS TO ACQUIRE SHARES AND DEBENTURES

Neither at the end of nor at any time during the financial year was the Company a party to any arrangementwhose object was to enable the directors of the Company to acquire benefits by means of the acquisition ofshares or debenture of the Company or any other body corporate.

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Directors’ Report

DIRECTORS’ INTERESTS IN SHARES AND DEBENTURES

According to the register of directors’ shareholdings, the following directors, who held office at the end of thefinancial year, had an interest in shares of the Company as stated below:

Ordinary shares of the CompanyOrdinary shares of the CompanyOrdinary shares of the CompanyOrdinary shares of the CompanyOrdinary shares of the Company

Direct interestDirect interestDirect interestDirect interestDirect interest Deemed interestDeemed interestDeemed interestDeemed interestDeemed interestAtAtAtAtAt AtAtAtAtAt

1 July 20061 July 20061 July 20061 July 20061 July 2006 1 July 20061 July 20061 July 20061 July 20061 July 2006or date ofor date ofor date ofor date ofor date of or date ofor date ofor date ofor date ofor date of

appointmentappointmentappointmentappointmentappointment At 30 JuneAt 30 JuneAt 30 JuneAt 30 JuneAt 30 June At 21 JulyAt 21 JulyAt 21 JulyAt 21 JulyAt 21 July appointmentappointmentappointmentappointmentappointment At 30 JuneAt 30 JuneAt 30 JuneAt 30 JuneAt 30 June At 21 JulyAt 21 JulyAt 21 JulyAt 21 JulyAt 21 July

if laterif laterif laterif laterif later 20072007200720072007 20072007200720072007 if laterif laterif laterif laterif later 20072007200720072007 20072007200720072007

Gao Bin (Note) ––––– 449,000449,000449,000449,000449,000 449,000449,000449,000449,000449,000 433,533,000 357,745,000 357,745,000Song Ming ––––– 11,865,00011,865,00011,865,00011,865,00011,865,000 11,865,00011,865,00011,865,00011,865,00011,865,000 – – –Wu Su Min ––––– 750,000750,000750,000750,000750,000 750,000750,000750,000750,000750,000 – – –Li Zhan ––––– 989,000989,000989,000989,000989,000 989,000989,000989,000989,000989,000 – – –Lee Ching Sze,

Susana ––––– 300,000300,000300,000300,000300,000 300,000300,000300,000300,000300,000 – – –

Saved as disclosed above, no director who held office at the end of the financial year had interests in shares,debentures, warrants or share options of the Company, or of related corporations, either at the beginning ofthe financial year or date of appointment if later, at the end of the financial year or at 21 July 2007.

Note:

Mr Gao Bin owned 100% of the shareholding interest in Screen Power Enterprises Limited, which in turn owned approximately 89% ofthe shareholding interest in Leo Star Development Limited. Mr Gao Bin was thus deemed to be interested in the shares of the Companyheld by Leo Star Development Limited.

DIRECTORS’ CONTRACTUAL BENEFITS

Each of the following directors of the Company has entered into a service agreement with the Company for aninitial fixed period of three years (the “Initial Period”) with effect from the respective commencement date asstated below:

Commencement dateCommencement dateCommencement dateCommencement dateCommencement date

Gao Bin 1 September 2005Ma Lai Chi 1 September 2005Song Ming 1 September 2005Li Zhan 1 September 2005Wu Su Min 1 September 2005Lee Ching Sze, Susana 1 April 2006

Each of the above-mentioned service agreements can be terminated by not less than three months’ notice inwriting by either party to the service agreement and the notice period shall not expire prior to the end of theInitial Period.

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Directors’ Report

Apart from the foregoing, since the end of the previous financial year, no director of the Company has receivedor become entitled to receive a benefit (other than a benefit or any fixed salary of a full-time employee of theCompany included in the aggregate amount of emoluments shown in the financial statements, or anyemoluments received from related corporations) by reason of a contract made by the Company or a relatedcorporation with the director, or with a firm of which the director is a member, or with a company in which thedirector has a substantial financial interest.

SHARE OPTIONS

On 17 August 2005, the shareholders of the Company adopted a share option scheme known as the C&OShare Option Scheme.

No share options were issued by the Company or its subsidiaries during the financial year. As at 30 June 2007,there were no options on the unissued shares of the Company or its subsidiaries which were outstanding.

AUDIT COMMITTEE

Details of the Audit Committee of the Company are set out in the Corporate Governance Report of this annualreport of the Company.

AUDITORS

KPMG have expressed their willingness to accept re-appointment as auditors of the Company.

On behalf of the Board

Gao BinGao BinGao BinGao BinGao Bin Song MingSong MingSong MingSong MingSong MingExecutive Chairman Executive Director

18 September 2007

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Statement by Directors

We, Gao Bin and Song Ming, being two of the directors of the Company, do hereby state that, in the opinion ofthe directors:

(i) the financial statements set out on pages 38 to 98 are drawn up so as to give a true and fair view of thestate of affairs of the Company and of the Group as at 30 June 2007 and of the results and changes inequity of the Company and the results, changes in equity and cashflows of the Group for the yearended on that date; and

(ii) at the date of this statement, there are reasonable grounds to believe that the Company will be able topay its debts as and when they fall due.

The board of directors authorised these financial statements for issue on 18 September 2007.

On behalf of the Board

Gao BinGao BinGao BinGao BinGao Bin Song MingSong MingSong MingSong MingSong MingExecutive Chairman Executive Director

18 September 2007

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Auditor’s Report

Independent auditor’s report to the shareholders ofC & O Pharmaceutical Technology (Holdings) Limited(Incorporated in Bermuda with limited liability)

We have audited the accompanying consolidated financial statements of C & O Pharmaceutical Technology(Holdings) Limited (the “Company”) and its subsidiaries (the “Group”), and the financial statements of theCompany set out on pages 38 to 98, which comprise the consolidated and company balance sheets as at 30June 2007, and the consolidated and company income statements, the consolidated and company statementsof changes in equity and the consolidated cash flow statement for the year then ended, and a summary ofsignificant accounting policies and other explanatory notes.

Directors’ responsibility for the financial statementsThe directors are responsible for the preparation and fair presentation of these financial statements inaccordance with International Financial Reporting Standards. This responsibility includes: designing,implementing and maintaining internal control relevant to the preparation and fair presentation of financialstatements that are free from material misstatements, whether due to fraud or error; selecting and applyingappropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditor’s responsibilityOur responsibility is to express an opinion on these financial statements based on our audit. This report ismade solely to you, as a body, in accordance with section 90 of the Bermudian Companies Act, and for noother purpose. We do not assume responsibility towards or accept liability to any other person for the contentsof this report.

We conducted our audit in accordance with International Standards on Auditing. Those standards requirethat we comply with relevant ethical requirements and plan and perform the audit to obtain reasonableassurance as to whether the financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in thefinancial statements. The procedures selected depend on our judgement, including the assessment of therisks of material misstatement of the financial statements, whether due to fraud or error. In making those riskassessments, we consider internal control relevant to the entity’s preparation and fair presentation of thefinancial statements in order to design audit procedures that are appropriate in the circumstances, but notfor the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit alsoincludes evaluating the appropriateness of accounting principles used and the reasonableness of accountingestimates made by the directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for ouropinion.

OpinionIn our opinion, the financial statements give a true and fair view of the financial position of the Company andof the Group as at 30 June 2007, and of the financial performance of the Company and of the Group and thecash flows of the Group for the year then ended in accordance with International Financial Reporting Standards.

KPMGCertified Public Accountants8th Floor, Prince’s Building10 Chater RoadCentral, Hong Kong

18 September 2007

04 E_C&O AR07_Auditors 22/9/2007, 19:4937

3838383838

Income StatementsFor the year ended 30 June 2007(Expressed in Hong Kong dollars)

The GroupThe GroupThe GroupThe GroupThe Group The CompanyThe CompanyThe CompanyThe CompanyThe Company2 0 0 72 0 0 72 0 0 72 0 0 72 0 0 7 2006 2 0 0 72 0 0 72 0 0 72 0 0 72 0 0 7 2006

Note $’000$’000$’000$’000$’000 $’000 $’000$’000$’000$’000$’000 $’000

RevenueRevenueRevenueRevenueRevenue 3 679,959679,959679,959679,959679,959 347,397 ––––– 55,000

Cost of goods soldCost of goods soldCost of goods soldCost of goods soldCost of goods sold (467,546)(467,546)(467,546)(467,546)(467,546) (179,272) ––––– –

Gross profitGross profitGross profitGross profitGross profit 212,413212,413212,413212,413212,413 168,125 ––––– 55,000

Other revenue 3 2,8502,8502,8502,8502,850 3,769 ––––– 3,043Distribution expenses (69,665)(69,665)(69,665)(69,665)(69,665) (3,564) ––––– –Administrative expenses (64,864)(64,864)(64,864)(64,864)(64,864) (30,043) (13,516)(13,516)(13,516)(13,516)(13,516) (8,630)Other operating expenses (1,508)(1,508)(1,508)(1,508)(1,508) (2,887) ––––– –

Operating profit/(loss)Operating profit/(loss)Operating profit/(loss)Operating profit/(loss)Operating profit/(loss) 4 79,22679,22679,22679,22679,226 135,400 (13,516)(13,516)(13,516)(13,516)(13,516) 49,413

Finance costs 5 (680)(680)(680)(680)(680) – ––––– –Interest income 4,3214,3214,3214,3214,321 3,851 503503503503503 1,447

Profit/(loss) before taxProfit/(loss) before taxProfit/(loss) before taxProfit/(loss) before taxProfit/(loss) before tax 82,86782,86782,86782,86782,867 139,251 (13,013)(13,013)(13,013)(13,013)(13,013) 50,860

Income tax expenses 6 (6,284)(6,284)(6,284)(6,284)(6,284) (21,434) ––––– –

Profit/(loss) for the yearProfit/(loss) for the yearProfit/(loss) for the yearProfit/(loss) for the yearProfit/(loss) for the year 76,58376,58376,58376,58376,583 117,817 (13,013)(13,013)(13,013)(13,013)(13,013) 50,860

Attributable to:Attributable to:Attributable to:Attributable to:Attributable to:

Equity shareholders of the 77,59877,59877,59877,59877,598 118,053Company

Minority interests 26 (1,015)(1,015)(1,015)(1,015)(1,015) (236)

Profit for the yearProfit for the yearProfit for the yearProfit for the yearProfit for the year 76,58376,58376,58376,58376,583 117,817

Earnings per share (HK$)Earnings per share (HK$)Earnings per share (HK$)Earnings per share (HK$)Earnings per share (HK$) 8

Basic and diluted 0.1240.1240.1240.1240.124 0.202

The notes on pages 45 to 98 form part of these financial statements.

04a E_C&O AR07_IS 22/9/2007, 19:4938

3939393939

Balance SheetsAs at 30 June 2007

(Expressed in Hong Kong dollars)


Note $’000$’000$’000$’000$’000 $’000 $’000$’000$’000$’000$’000 $’000

ASSETSASSETSASSETSASSETSASSETS

Non-current assetsNon-current assetsNon-current assetsNon-current assetsNon-current assets

Fixed assets 12– Investment property 4,2414,2414,2414,2414,241 – ––––– –– Other property, plant and

equipment 103,414103,414103,414103,414103,414 58,777 ––––– –

107,655107,655107,655107,655107,655 58,777 ––––– –

Land use rights and leaseholdland 13 91,70391,70391,70391,70391,703 14,504 ––––– –

Intangible assets 14 42,64242,64242,64242,64242,642 23,669 ––––– –Goodwill 15 16,32616,32616,32616,32616,326 745 ––––– –Interest in a subsidiary 16 ––––– – 331,832331,832331,832331,832331,832 243,583Prepayment for acquisition of

equity interest of an entity 17 ––––– 43,622 ––––– –Deferred tax assets 27(b) 8,4408,4408,4408,4408,440 3,590 ––––– –

266,766266,766266,766266,766266,766 144,907 331,832331,832331,832331,832331,832 243,583

Current assetsCurrent assetsCurrent assetsCurrent assetsCurrent assets

Inventories 18 48,28048,28048,28048,28048,280 9,350 ––––– –Trade and bills receivables 19 228,703228,703228,703228,703228,703 110,427 ––––– –Other receivables and

prepayments 20 9,0619,0619,0619,0619,061 3,748 ––––– –Current tax recoverable 27(a) 1,1921,1921,1921,1921,192 – ––––– –Other financial assets 21 76,87876,87876,87876,87876,878 – ––––– –Pledged deposits 22 5,5295,5295,5295,5295,529 – ––––– –Fixed deposits held at bank 22 ––––– 50,000 ––––– –Cash and cash equivalents 22 91,45791,45791,45791,45791,457 198,491 253253253253253 49,453

461,100461,100461,100461,100461,100 372,016 253253253253253 49,453

Total assetsTotal assetsTotal assetsTotal assetsTotal assets 727,866727,866727,866727,866727,866 516,923 332,085332,085332,085332,085332,085 293,036

04b E_C&O AR07_BS 22/9/2007, 19:4939

4040404040

Balance SheetsAs at 30 June 2007(Expressed in Hong Kong dollars)


Note $’000$’000$’000$’000$’000 $’000 $’000$’000$’000$’000$’000 $’000

EQUITYEQUITYEQUITYEQUITYEQUITY

Capital and reservesCapital and reservesCapital and reservesCapital and reservesCapital and reservesattributable to the Company’sattributable to the Company’sattributable to the Company’sattributable to the Company’sattributable to the Company’s

equity shareholdersequity shareholdersequity shareholdersequity shareholdersequity shareholders

Share capital 24 165,840165,840165,840165,840165,840 155,000 165,840165,840165,840165,840165,840 155,000Reserves 25 400,172400,172400,172400,172400,172 268,547 161,498161,498161,498161,498161,498 136,886

566,012566,012566,012566,012566,012 423,547 327,338327,338327,338327,338327,338 291,886

Minority interestsMinority interestsMinority interestsMinority interestsMinority interests 26 3,6513,6513,6513,6513,651 1,096 ––––– –

Total equityTotal equityTotal equityTotal equityTotal equity 569,663569,663569,663569,663569,663 424,643 327,338327,338327,338327,338327,338 291,886

LIABILITIESLIABILITIESLIABILITIESLIABILITIESLIABILITIES

Non-current liabilitiesNon-current liabilitiesNon-current liabilitiesNon-current liabilitiesNon-current liabilities

Deferred income ongovernment grants 876876876876876 537 ––––– –

Deferred tax liabilities 27(b) 4,7604,7604,7604,7604,760 95 ––––– –

5,6365,6365,6365,6365,636 632 ––––– –

Current liabilitiesCurrent liabilitiesCurrent liabilitiesCurrent liabilitiesCurrent liabilities

Short-term bank loan,unsecured 28 1,5451,5451,5451,5451,545 – ––––– –

Trade and bills payables 29 111,727111,727111,727111,727111,727 56,030 ––––– –Other payables and accrued

expenses 30 33,13833,13833,13833,13833,138 13,515 4,7474,7474,7474,7474,747 1,150Current tax payable 27(a) 6,1576,1576,1576,1576,157 22,103 ––––– –

152,567152,567152,567152,567152,567 91,648 4,7474,7474,7474,7474,747 1,150

Total liabilitiesTotal liabilitiesTotal liabilitiesTotal liabilitiesTotal liabilities 158,203158,203158,203158,203158,203 92,280 4,7474,7474,7474,7474,747 1,150

Total equity and liabilitiesTotal equity and liabilitiesTotal equity and liabilitiesTotal equity and liabilitiesTotal equity and liabilities 727,866727,866727,866727,866727,866 516,923 332,085332,085332,085332,085332,085 293,036


04b E_C&O AR07_BS 22/9/2007, 19:4940

4141414141

Consolidated Statement of Changes in EquityFor the year ended 30 June 2007


2 0 0 72 0 0 72 0 0 72 0 0 72 0 0 7 2006Note $’000$’000$’000$’000$’000 $’000

Total equity at beginningTotal equity at beginningTotal equity at beginningTotal equity at beginningTotal equity at beginningof the yearof the yearof the yearof the yearof the year 424,643424,643424,643424,643424,643 187,600

Net income recognisedNet income recognisedNet income recognisedNet income recognisedNet income recogniseddirectly in equitydirectly in equitydirectly in equitydirectly in equitydirectly in equity

Exchange difference ontranslation of financialstatements of subsidiaries 16,57116,57116,57116,57116,571 2,157

Profit for the yearProfit for the yearProfit for the yearProfit for the yearProfit for the year 76,58376,58376,58376,58376,583 117,817

Total recognised incomeTotal recognised incomeTotal recognised incomeTotal recognised incomeTotal recognised incomeand expense for the yearand expense for the yearand expense for the yearand expense for the yearand expense for the year 93,15493,15493,15493,15493,154 119,974

Attributable to:– Equity shareholders of

the Company 94,00094,00094,00094,00094,000 120,210– Minority interests (846)(846)(846)(846)(846) (236)

93,15493,15493,15493,15493,154 119,974

Dividends declared orDividends declared orDividends declared orDividends declared orDividends declared or

approved during the yearapproved during the yearapproved during the yearapproved during the yearapproved during the year 7 (30,820)(30,820)(30,820)(30,820)(30,820) (12,400)

Movements in equityMovements in equityMovements in equityMovements in equityMovements in equity

arising from capitalarising from capitalarising from capitalarising from capitalarising from capitaltransactions:transactions:transactions:transactions:transactions:

Issue of new shares 24 10,84010,84010,84010,84010,840 30,000Share premium from

issue of shares 25 67,16067,16067,16067,16067,160 107,176Share issue expenses 25 (165)(165)(165)(165)(165) (8,750)Share-based transactions 25 1,4501,4501,4501,4501,450 –Movement in minority

interests arising onacquisition of subsidiaries 26 3,4013,4013,4013,4013,401 1,043

82,68682,68682,68682,68682,686 129,469

Total equity at end of the yearTotal equity at end of the yearTotal equity at end of the yearTotal equity at end of the yearTotal equity at end of the year 569,663569,663569,663569,663569,663 424,643


04c E_C&O AR07_Equity 22/9/2007, 19:4941

4242424242

Statement of Changes in EquityFor the year ended 30 June 2007(Expressed in Hong Kong dollars)

2 0 0 72 0 0 72 0 0 72 0 0 72 0 0 7 2006Note $’000$’000$’000$’000$’000 $’000

Total equity at beginning of the yearTotal equity at beginning of the yearTotal equity at beginning of the yearTotal equity at beginning of the yearTotal equity at beginning of the year 291,886291,886291,886291,886291,886 –

(Loss)/profit for the year (13,013)(13,013)(13,013)(13,013)(13,013) 50,860

Total recognised income and expense for the yearTotal recognised income and expense for the yearTotal recognised income and expense for the yearTotal recognised income and expense for the yearTotal recognised income and expense for the year (13,013)(13,013)(13,013)(13,013)(13,013) 50,860

Dividends declared or approved during the yearDividends declared or approved during the yearDividends declared or approved during the yearDividends declared or approved during the yearDividends declared or approved during the year 7 (30,820)(30,820)(30,820)(30,820)(30,820) (12,400)

Movements in equity arising from capital transactions:Movements in equity arising from capital transactions:Movements in equity arising from capital transactions:Movements in equity arising from capital transactions:Movements in equity arising from capital transactions:

Issue of new shares 24 10,84010,84010,84010,84010,840 155,000Share premium from issue of shares 25 67,16067,16067,16067,16067,160 107,176Share issue expenses 25 (165)(165)(165)(165)(165) (8,750)Share-based transactions 25 1,4501,4501,4501,4501,450 –

79,28579,28579,28579,28579,285 253,426

Total equity at end of the yearTotal equity at end of the yearTotal equity at end of the yearTotal equity at end of the yearTotal equity at end of the year 327,338327,338327,338327,338327,338 291,886


04c E_C&O AR07_Equity 22/9/2007, 19:4942

4343434343

Consolidated Cash Flow StatementFor the year ended 30 June 2007


2 0 0 72 0 0 72 0 0 72 0 0 72 0 0 7 2006Note $’000$’000$’000$’000$’000 $’000

Cash flows from operating activitiesCash flows from operating activitiesCash flows from operating activitiesCash flows from operating activitiesCash flows from operating activities

Profit before tax 82,86782,86782,86782,86782,867 139,251Adjustments for:

– Depreciation of property, plant and equipment 4 9,3249,3249,3249,3249,324 7,772– Amortisation of

– intangible assets 4 5,1775,1775,1775,1775,177 1,715– land use rights and leasehold land 4 1,0671,0671,0671,0671,067 320

– Loss on disposal of property, plant and equipment 4 5757575757 –– Deferred income on government grant recognised 339339339339339 (102)– Valuation gain on investment property (363)(363)(363)(363)(363) –– Interest income (4,321)(4,321)(4,321)(4,321)(4,321) (3,851)– Interest expense 680680680680680 –– Share-based payments 1,4501,4501,4501,4501,450 –– Foreign exchange loss/(gain) 2,6742,6742,6742,6742,674 (574)

Operating profit before changes in working capitalOperating profit before changes in working capitalOperating profit before changes in working capitalOperating profit before changes in working capitalOperating profit before changes in working capital 98,95198,95198,95198,95198,951 144,531

Decrease/(increase) in inventories 110,809110,809110,809110,809110,809 (1,871)Increase in trade and bills receivables (28,180)(28,180)(28,180)(28,180)(28,180) (11,462)Decrease in other receivables and prepayments 4,7174,7174,7174,7174,717 1,471(Decrease)/increase in trade and bills payables (109,575)(109,575)(109,575)(109,575)(109,575) 9,514(Decrease)/increase in other payables and accrued expenses (76,147)(76,147)(76,147)(76,147)(76,147) 11

Cash generated from operationsCash generated from operationsCash generated from operationsCash generated from operationsCash generated from operations 575575575575575 142,194

Hong Kong Profits Tax paid (18,574)(18,574)(18,574)(18,574)(18,574) (15,571)PRC corporate income tax paid (9,371)(9,371)(9,371)(9,371)(9,371) (4,718)

Net cash (used in)/generated from operating activitiesNet cash (used in)/generated from operating activitiesNet cash (used in)/generated from operating activitiesNet cash (used in)/generated from operating activitiesNet cash (used in)/generated from operating activities (27,370)(27,370)(27,370)(27,370)(27,370) 121,905

04d E_C&O AR07_CF 22/9/2007, 19:4943

4444444444

Consolidated Cash Flow StatementFor the year ended 30 June 2007(Expressed in Hong Kong dollars)

2 0 0 72 0 0 72 0 0 72 0 0 72 0 0 7 2006Note $’000$’000$’000$’000$’000 $’000

Cash flows from investing activitiesCash flows from investing activitiesCash flows from investing activitiesCash flows from investing activitiesCash flows from investing activities

Payment for acquisition of investment property 12 (3,178)(3,178)(3,178)(3,178)(3,178) –Purchase of other property, plant and equipment 12 (37,299)(37,299)(37,299)(37,299)(37,299) (9,848)Payment for acquisition of land use rights and leasehold land 13 (63,702)(63,702)(63,702)(63,702)(63,702) –Purchase of intangible assets 14 (13,340)(13,340)(13,340)(13,340)(13,340) (5,337)Payment for acquisition of equity interest of an entity 17 ––––– (43,622)Acquisition of minority interests in a subsidiary ––––– (659)Acquisition of a subsidiary, net of cash acquired 23 13,71713,71713,71713,71713,717 500Increase in pledged deposits (5,529)(5,529)(5,529)(5,529)(5,529) –Decrease/(increase) in fixed deposits held at bank 50,00050,00050,00050,00050,000 (44,528)Payment for acquisition of debt securities (76,878)(76,878)(76,878)(76,878)(76,878) –

Net cash used in investing activitiesNet cash used in investing activitiesNet cash used in investing activitiesNet cash used in investing activitiesNet cash used in investing activities (136,209)(136,209)(136,209)(136,209)(136,209) (103,494)

Cash flows from financing activitiesCash flows from financing activitiesCash flows from financing activitiesCash flows from financing activitiesCash flows from financing activities

Proceeds from a bank loan 1,5451,5451,5451,5451,545 –Proceeds from shares issued, net of transaction costs 77,83577,83577,83577,83577,835 128,426Dividend paid 7 (30,820)(30,820)(30,820)(30,820)(30,820) (12,400)Interest paid (680)(680)(680)(680)(680) –Interest received 4,3214,3214,3214,3214,321 3,205

Net cash generated from financing activitiesNet cash generated from financing activitiesNet cash generated from financing activitiesNet cash generated from financing activitiesNet cash generated from financing activities 52,20152,20152,20152,20152,201 119,231

(Decrease)/increase in cash and cash equivalents(Decrease)/increase in cash and cash equivalents(Decrease)/increase in cash and cash equivalents(Decrease)/increase in cash and cash equivalents(Decrease)/increase in cash and cash equivalents (111,378)(111,378)(111,378)(111,378)(111,378) 137,642

Cash and cash equivalents at beginning of the yearCash and cash equivalents at beginning of the yearCash and cash equivalents at beginning of the yearCash and cash equivalents at beginning of the yearCash and cash equivalents at beginning of the year 198,491198,491198,491198,491198,491 59,593

Effect of foreign exchange rate changesEffect of foreign exchange rate changesEffect of foreign exchange rate changesEffect of foreign exchange rate changesEffect of foreign exchange rate changes 4,3444,3444,3444,3444,344 1,256

Cash and cash equivalents at end of the yearCash and cash equivalents at end of the yearCash and cash equivalents at end of the yearCash and cash equivalents at end of the yearCash and cash equivalents at end of the year 22 91,45791,45791,45791,45791,457 198,491


04d E_C&O AR07_CF 22/9/2007, 19:4944

4545454545

Notes to the Financial Statements(Expressed in Hong Kong dollars unless otherwise indicated)

1 REPORTING ENTITY

C & O Pharmaceutical Technology (Holdings) Limited (the “Company”) was incorporated on 28 July2003 in Bermuda as an exempted company with limited liability under the Companies Act 1981 ofBermuda. The Company was listed on the Main Board of Singapore Exchange Securities Trading Limitedon 17 October 2005.

The Company was incorporated as part of the reorganisation (the “Reorganisation”) of the Companyand its subsidiaries (collectively referred to as the “Group”). Pursuant to the Reorganisation, theCompany became the holding company of the Group on 12 August 2005. The Group is regarded as acontinuing entity resulting from the Reorganisation and has been accounted for on the basis of mergeraccounting. The consolidated financial statements have been prepared on the basis that the Companywas the holding company of the Group for both years presented, rather than from 12 August 2005.Accordingly, the consolidated results of the Group for the year ended 30 June 2006 include the resultsof the Company and its subsidiaries with effect from 1 July 2005 as if the current Group structure hasbeen in existence throughout the two years presented. All material intra-group transactions and balanceshave been eliminated on combination. In the opinion of the directors, the consolidated financialstatements prepared on this basis present fairly the results of operations and the state of affairs of theGroup as a whole.

Further details of the Reorganisation are set out in the prospectus dated 5 October 2005 issued by theCompany.

The Company’s registered address is Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda.

2 SIGNIFICANT ACCOUNTING POLICIES

(a) Statement of compliance

These financial statements have been prepared in accordance with International FinancialReporting Standards (“IFRSs”) promulgated by the International Accounting Standards Board(“IASB”). IFRSs include International Accounting Standards (“IASs”) and related interpretations.A summary of the significant accounting policies adopted by the Group is set out below.

The IASB has issued certain new and revised IFRSs that are first effective or available for earlyadoption for the current accounting period of the Group and the Company.

The adoption of these new and revised IFRSs has no effect on the Group’s and the Company’sprofit or loss and net assets for the current and prior accounting periods. The Group has notapplied any new standard or interpretation that is not yet effective for the current accountingperiod (see note 37).

(b) Basis of preparation of the financial statements

The financial statements have been prepared under the historical cost basis except thatinvestment property is stated at its fair value as explained in note 2(f ).

05a E_C&O AR07_Notes a 22/9/2007, 19:4945

4646464646


2 SIGNIFICANT ACCOUNTING POLICIES (Continued)

(b) Basis of preparation of the financial statements (Continued)

The preparation of financial statements in conformity with IFRSs requires management to makejudgements, estimates and assumptions that affect the application of policies and reportedamounts of assets, liabilities, income and expenses. The estimates and associated assumptionsare based on historical experience and various other factors that are believed to be reasonableunder the circumstances, the results of which form the basis of making the judgements aboutcarrying values of assets and liabilities that are not readily apparent from other sources. Actualresults may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions toaccounting estimates are recognised in the period in which the estimate is revised if the revisionaffects only that period, or in the period of the revision and future periods if the revision affectsboth current and future periods.

Judgements made by management in the application of IFRSs that have a significant effect onthe financial statements and estimates with a significant risk of material adjustments in thenext year are discussed in note 36.

(c) Subsidiaries and minority interests

Subsidiaries are all entities (including special purpose entities) over which the Group has thepower to govern the financial and operating policies generally accompanying a shareholding ofmore than one half of the voting rights. The existence and effect of potential voting rights thatare currently exercisable or convertible are considered when assessing whether the Groupcontrols another entity. Subsidiaries are fully consolidated from the date on which control istransferred to the Group. They are no longer consolidated from the date that control ceases.Intra-group balances and transactions and any unrealised profits arising from intra-grouptransactions are eliminated in full in preparing the consolidated financial statements. Unrealisedlosses resulting from intra-group transactions are eliminated in the same way as unrealisedgains but only to the extent that there is no evidence of impairment.

Minority interests represent the portion of the net assets of subsidiaries attributable to intereststhat are not owned by the Company, whether directly or indirectly through subsidiaries, and inrespect of which the Group has not agreed any additional terms with the holders of those interestswhich would result in the Group as a whole having a contractual obligation in respect of thoseinterests that meets the definition of a financial liability. Minority interests are presented in theconsolidated balance sheet within equity, separately from equity attributable to the equityshareholders of the Company. Minority interests in the results of the Group are presented onthe face of the consolidated income statement as an allocation of the total profit or loss for theyear between minority interests and the equity shareholders of the Company.

Where losses attributable to the minority exceed the minority’s interest in the equity of asubsidiary, the excess, and any further losses attributable to the minority, are charged againstthe Group’s interest except to the extent that the minority has a binding obligation to, and isable to, make additional investment to cover the losses. All subsequent profits of the subsidiaryare allocated to the Group until the minority’s share of losses previously absorbed by the Grouphas been recovered.

05a E_C&O AR07_Notes a 22/9/2007, 19:4946

4747474747



(c) Subsidiaries and minority interests (continued)

Loans from holders of minority interests and other contractual obligations towards these holdersare presented as financial liabilities in the consolidated balance sheet in accordance with notes2(p) or 2(q) depending on the nature of the liability.

In the Company’s balance sheet, investment in a subsidiary is stated at cost less any impairmentlosses (see note 2(k)).

(d) Goodwill

Goodwill represents the excess of the cost of a business combination over the fair value of theGroup’s share of the identifiable assets, liabilities and contingent liabilities of the acquiredsubsidiaries at the date of acquisition. Goodwill on acquisitions of subsidiaries is tested annuallyfor impairment and carried at cost less accumulated impairment losses (see note 2(k)). Gainsand losses on the disposal of an entity include the carrying amount of goodwill relating to theentity sold.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. Each ofthose cash-generating units represents the Group’s investment in each primary reportingsegment.

(e) Held-to-maturity securities

Investments in debt securities are initially stated at cost, which is their transaction price unlessfair value can be more reliably estimated using valuation techniques whose variables includeonly data from observable markets. Cost includes attributable transaction costs.

Dated debt securities that the Group or the Company have the positive ability and intention tohold to maturity are classified as held-to-maturity securities. Held-to-maturity securities arestated in the balance sheet at amortised cost less impairment losses (see note 2(k)).

Investments are recognised or derecognised on the date that the instruments are transferred toor from the Group (settlement date). Any change in fair value between the date that the Groupcommits to the transaction and the settlement date is not recognised.

(f ) Investment property

Investment properties are land and/or buildings which are owned to earn rental income and/orfor capital appreciation. These include land held for a currently undetermined future use.

Investment properties are stated in the balance sheet at fair value. Any gain or loss arising froma change in fair value or from the retirement or disposal of an investment property is recognisedin profit or loss. Rental income from investment properties is accounted for as described in note2(z).

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4848484848



(g) Other property, plant and equipment (excluding construction-in-progress)

Other property, plant and equipment (excluding construction-in-progress) is stated at cost lessaccumulated depreciation and impairment losses (see note 2(k)). Cost includes the purchaseprice of the asset and any directly attributable costs of bringing the asset to its working conditionfor its intended use.

Depreciation is calculated on a straight-line basis to write off the cost less impairment losses ofeach asset to their residual values, if any, over their estimated useful lives as follows:

Buildings 20 to 50 yearsLeasehold improvements Remaining terms of the leasePlant and machinery 10 yearsFurniture, fixtures and equipment 5 yearsMotor vehicles 5 years

Both the useful life of an asset and its residual value, if any, are reviewed annually.

Gains or losses arising from the retirement or disposal of an item of property, plant and equipmentare determined as the difference between the net disposal proceeds and the carrying amount ofthe item and are recognised in profit or loss on the date of retirement or disposal.

(h) Construction-in-progress

Construction-in-progress represents buildings, plant and machinery and equipment on whichconstruction work has not been completed and which, upon completion, management intend tohold for production purposes. Construction-in-progress is carried at cost which includesdevelopment and construction expenditure incurred and interest and other direct costsattributable to the development less any impairment losses (see note 2(k)). Construction-in-progress is transferred to property, plant and equipment when the asset is substantially readyfor its intended use and stated at cost less impairment losses and depreciated in accordancewith the policy as stated in note 2(g) above.

(i) Land use rights and leasehold land

Prepayments are made for the rights to use land in the People’s Republic of China, excludingHong Kong and Macau (the “PRC”) and Hong Kong on which various plants and buildings of theGroup are situated. Land use rights/leasehold land are carried at cost less accumulatedamortisation and impairment losses (see note 2(k)). Amortisation is charged to the incomestatement on a straight-line basis over the period of the land use rights/leases.

05a E_C&O AR07_Notes a 22/9/2007, 19:4948

4949494949



(j) Intangible assets (other than goodwill)

(i) Research and development

Research expenditure is recognised as an expense as incurred. Costs incurred ondevelopment projects relating to the design and testing of new or improvedpharmaceutical products are recognised as intangible assets when it is probable that theproject will be a success considering its commercial and technological feasibility, andonly if the costs can be measured reliably, which is normally when the products underdevelopment have obtained the Approval for Medicine Clinical Research from the relevantauthorities in the PRC. Other development expenditures are recognised as an expense asincurred. Development costs previously recognised as an expense are not recognised asan asset in a subsequent period.

Capitalised development expenditure is stated at cost less accumulated amortisationand impairment losses (see note 2(k)).

Development costs with a finite useful life that have been capitalised are amortised fromthe commencement of the commercial production of the product on a straight-line basisover the period of its expected benefit, not exceeding ten years.

The net carrying amount of development projects that are designated for trading purposesis transferred to inventories and recognised as cost of goods sold upon sales.

(ii) Technical know-how

Technical know-how that is acquired by the Group is stated at cost less accumulatedamortisation and impairment losses (see note 2(k)).

Expenditure on acquired technical know-how is capitalised and amortised on a straight-line basis over the period of its expected benefit, not exceeding ten years.

(iii) Club memberships

Club memberships are stated at cost less accumulated amortisation (where the estimateduseful life is finite) and impairment losses (see note 2(k)).

Amortisation of club memberships is charged to profit or loss on a straight-line basisover the asset’s estimated useful lives.

(iv) Customer lists

Customer lists that are acquired by the Group are stated at cost less accumulatedamortisation and impairment losses (see note 2(k)).

Amortisation of customer lists is charged to profit or loss on a straight-line basis over theperiod of its expected benefit of 5 years.

05a E_C&O AR07_Notes a 22/9/2007, 19:4949

5050505050



(j) Intangible assets (other than goodwill) (Continued)

(v) Good supply practice certificate

Good supply practice certificate is stated at cost less accumulated amortisation andimpairment losses (see note 2(k)).

Amortisation of good supply practice certificate is charged to profit or loss on a straight-line basis over its remaining period of grant.

Both the period and basis of amortisation of all intangible assets are reviewed annually.

Intangible assets are not amortised while their useful lives are assessed to be indefinite. Anyconclusion that the useful life of an intangible asset is indefinite is reviewed annually to determinewhether events and circumstances continue to support the indefinite useful life assessment forthat asset. If they do not, the change in the useful life assessment from indefinite to finite isaccounted for prospectively from the date of change and in accordance with the policy foramortisation of intangible assets with finite lives as set out above.

(k) Impairment of assets

(i) Impairment of investments in debt securities and trade and other receivables

Investments in debt securities and trade and other receivables that are stated at cost oramortised cost are reviewed at each balance sheet date to determine whether there isobjective evidence of impairment. If any such evidence exists, any impairment loss ismeasured as the difference between their carrying amounts and the present value ofestimated future cash flows, discounted at the current market rate of return for a similarfinancial asset where the effect of discounting is material. Impairment losses are reversedif in a subsequent period the amount of the impairment loss decreases.

(ii) Impairment of other assets

Internal and external sources of information are reviewed at each balance sheet date toidentify indications that the following assets may be impaired or, except in the case ofgoodwill, an impairment loss previously recognised no longer exists or may havedecreased:

– investment in a subsidiary;

– property, plant and equipment (other than properties carried at revalued amounts);

– land use rights and leasehold land;

– construction-in-progress;

– intangible assets; and

– goodwill.

05a E_C&O AR07_Notes a 22/9/2007, 19:4950

5151515151



(k) Impairment of assets (Continued)

(ii) Impairment of other assets (Continued)

If any such indication exists, the asset’s recoverable amount is estimated. In addition, forgoodwill and intangible assets that have indefinite useful lives, the recoverable amountis estimated annually whether or not there is any indication of impairment.

– Calculation of recoverable amount

The recoverable amount of an asset is the greater of its net selling price and valuein use. In assessing value in use, the estimated future cash flows are discountedto their present value using a pre-tax discount rate that reflects current marketassessments of time value of money and risks specific to the asset. Where an assetdoes not generate cash inflows largely independent of those from other assets,the recoverable amount is determined for the smallest group of assets thatgenerates cash inflows independently (i.e. a cash-generating unit).

– Recognition of impairment losses

An impairment loss is recognised in profit or loss whenever the carrying amount ofan asset, or the cash-generating unit to which it belongs, exceeds its recoverableamount. Impairment losses recognised in respect of cash-generating units areallocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit (or group of units) and then, to reduce the carrying amount of theother assets in the unit (or group of units) on a pro rata basis, except that thecarrying value of an asset will not be reduced below its individual fair value lesscosts to sell, or value in use, if determinable.

– Reversals of impairment losses

In respect of assets other than goodwill, an impairment loss is reversed if therehas been a favourable change in the estimates used to determine the recoverableamount. An impairment loss in respect of goodwill is not reversed.

A reversal of impairment losses is limited to the asset’s carrying amount that wouldhave been determined had no impairment loss been recognised in prior years.Reversals of impairment losses are credited to profit or loss in the year in whichthe reversals are recognised.

(l) Government grants

Government grants include subsidies given to the Group for the development of pharmaceuticalproducts. Government grants are recognised in the balance sheet initially when there isreasonable assurance that the Group will comply with the conditions attached to it and that thegrants will be received.

Grants relating to income are recognised in profit or loss on a systematic basis to match therelated costs which they are intended to compensate.

05a E_C&O AR07_Notes a 22/9/2007, 19:4951

5252525252



(l) Government grants (Continued)

Grants relating to development of technical know-how or property, plant and equipment arerecognised in profit or loss on a systematic basis to match with the useful life of the relevantasset.

(m) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined using theweighted average cost method and comprises all costs of purchase, costs of conversion andother costs incurred in bringing the inventories to their present location and condition. Netrealisable value is the estimated selling price in the ordinary course of business, less the costsof completion and selling expenses.

When inventories are sold, the carrying amount of those inventories is recognised as an expensein the period in which the related revenue is recognised. The amount of any write-down ofinventories to net realisable value and all losses of inventories are recognised as an expense inthe period the write-down or loss occurs. The amount of any reversal of any write-down ofinventories is recognised as a reduction in the amount of inventories recognised as an expensein the period in which the reversal occurs.

(n) Trade and other receivables

Trade and other receivables are initially recognised at fair value and thereafter stated at amortisedcost less impairment losses for bad and doubtful debts (see note 2(k)), except where the effectof discounting would be immaterial. In such cases, the receivables are stated at cost lessimpairment losses for bad and doubtful debts (see note 2(k)).

(o) Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banksand other financial institutions, and short-term, highly liquid investments that are readilyconvertible into known amounts of cash and which are subject to an insignificant risk of changesin value, having been within three months of maturity at acquisition.

(p) Trade and other payables

Trade and other payables are initially recognised at fair value and thereafter stated at amortisedcost unless the effect of discounting would be immaterial, in which case they are stated at cost.

(q) Interest-bearing borrowings

Interest-bearing borrowings are recognised initially at fair value less attributable transactioncosts. Subsequent to initial recognition, interest-bearing borrowings are stated at amortisedcost with any difference between the amount initially recognised and redemption value beingrecognised in profit or loss over the period of the borrowings, together with any interest andfees payable, using the effective interest method.

05a E_C&O AR07_Notes a 22/9/2007, 19:4952

5353535353



(r) Borrowing costs

Borrowing costs that are directly attributable to the acquisition, construction or production ofan asset that necessarily takes a substantial period of time to get ready for its intended use orsale are capitalised as part of the cost of that asset.

All other borrowing costs are charged to profit or loss in the period in which they are incurred.

(s) Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue ofnew shares or options are shown in equity as a deduction, net of tax, from the proceeds.

(t) Income tax

(i) Income tax for the year comprises current tax and movements in deferred tax assets andliabilities. Current tax and movements in deferred tax assets and liabilities are recognisedin profit or loss except to the extent that they relate to items recognised directly in equity,in which case they are recognised in equity.

(ii) Current tax is the expected tax payable on the taxable income for the year, using tax ratesenacted or substantively enacted at the balance sheet date, and any adjustment to taxpayable in respect of previous years.

(iii) Deferred tax assets and liabilities arise from deductible and taxable temporary differencesrespectively, being the differences between the carrying amounts of assets and liabilitiesfor financial reporting purposes and their tax bases. Deferred tax assets also arise fromunused tax losses and unused tax credits.

Apart from certain limited exceptions, all deferred tax liabilities, and all deferred tax assetsto the extent that it is probable that future taxable profits will be available against whichthe asset can be utilised, are recognised.

The amount of deferred tax recognised is measured based on the expected manner ofrealisation or settlement of the carrying amount of the assets and liabilities, using taxrates enacted or substantively enacted at the balance sheet date. Deferred tax assetsand liabilities are not discounted.

The carrying amount of a deferred tax asset is reviewed at each balance sheet date and isreduced to the extent that it is no longer probable that sufficient taxable profits will beavailable to allow the related tax benefit to be utilised. Any such reduction is reversed tothe extent that it becomes probable that sufficient taxable profits will be available.

Current tax balances and deferred tax balances, and movements therein, are presentedseparately from each other and are not offset.

05a E_C&O AR07_Notes a 22/9/2007, 19:4953

5454545454



(u) Employee benefits

(i) Employee leave entitlements

Employee entitlements to annual leave are recognised when they accrue to employees. Aprovision is made for the estimated liability for annual leave as a result of services renderedby employees up to the balance sheet date. Employee entitlements to sick leave andmaternity leave are not recognised until the time of leave.

(ii) Bonus plans

The expected cost of bonus payments is recognised as a liability when the Group has apresent legal or constructive obligation as a result of services rendered by employeesand a reliable estimate of the obligation can be made.

Liabilities for bonus plans are expected to be settled within the next twelve months andare measured at the amounts expected to be paid when they are settled.

(iii) Retirement benefits

The Group’s contributions to defined contribution retirement schemes are expensed asincurred and are charged to profit or loss. The assets of the schemes are held separatelyfrom those of the Group in independently administered funds.

(iv) Share-based payments

Certain employees of the Group participate in the employee stock purchase arrangement(“ESPA”) whereby the substantial shareholder offers shares of the Company to theemployees at a discount. The fair value of the equity compensation awards granted underthe ESPA, being the difference between the purchase cost paid by the employees and themarket price at grant date, is recognised as an employee cost with a correspondingincrease in capital reserve within equity. Where the employees have to meet vestingconditions before becoming unconditionally entitled to these shares, the total fair valueof the shares is spread over the vesting period, taking into account the probability thatthe conditions are met.

(v) Provisions

Provisions are recognised when the Group or the Company has a legal or constructive obligationas a result of past events, it is probable that an outflow of resources will be required to settlethe obligation, and a reliable estimate of the amount can be made. Where the Group or theCompany expects a provision to be reimbursed, the reimbursement is recognised as a separateasset but only when the reimbursement is virtually certain.

05a E_C&O AR07_Notes a 22/9/2007, 19:4954

5555555555



(w) Operating leases

Assets that are held by the Group under leases which transfer to the Group substantially all therisks and rewards of ownership are classified as being held under finance leases. Leases whichdo not transfer substantially all the risks and rewards of ownership to the Group are classifiedas operating leases. Payments made under operating leases (net of any incentives receivedfrom the lessor) are charged to profit or loss on a straight-line basis over the period of the lease.

(x) Translation of foreign currencies

(i) Functional currency

Items included in the financial statements of each entity in the Group are measured usingthe currency that best reflects the economic substance of the underlying events andcircumstances relevant to that entity (the “functional currency”). For the purpose ofpresenting the financial statements, the Group adopted Hong Kong dollars, which is thefunctional currency of the Company, as its presentation currency.

(ii) Transactions and balances

Foreign currency transactions are translated into functional currency using the exchangerates prevailing at the date of the transactions. Monetary assets and liabilitiesdenominated in other currencies are translated into the functional currency at theexchange rates prevailing at the balance sheet date. Foreign exchange gains and lossesresulting from the settlement of such transactions and from the translation of monetaryassets and liabilities denominated in foreign currencies are recognised in profit or loss.

(iii) Group companies

The results and financial position of all the Group’s entities that have a functional currencydifferent from the presentation currency are translated into the presentation currency asfollows:

(1) assets and liabilities for each balance sheet presented are translated at the closingrate at the date of that balance sheet; and

(2) income and expenses for each income statement are translated at exchange ratesapproximating the foreign exchange rates ruling at the dates of the transactions.

All resulting exchange differences are recognised as a separate component of equity.

On disposal of a group company, the cumulative amount of the exchange differencesrecognised in equity which relate to that group company is included in the calculation ofthe profit or loss on disposal.

05a E_C&O AR07_Notes a 22/9/2007, 19:4955

5656565656



(y) Contingent liabilities and contingent assets

A contingent liability is a possible obligation that arises from past events and whose existencewill only be confirmed by the occurrence or non-occurrence of one or more uncertain futureevents not wholly within the control of the Group or the Company. It can also be a presentobligation arising from past events that is not recognised because it is not probable that outflowof economic resources will be required or the amount of obligation cannot be measured reliably.

A contingent liability is not recognised but is disclosed in the notes to the financial statements.When a change in the probability of an outflow occurs so that the outflow is probable, it willthen be recognised as a provision.

A contingent asset is a possible asset that arises from past events and whose existence will beconfirmed only by the occurrence or non-occurrence of one or more uncertain events not whollywithin the control of the Group or the Company.

Contingent assets are not recognised but are disclosed in the notes to the financial statementswhen an inflow of economic benefits is probable. When inflow is virtually certain, an asset isrecognised.

(z) Revenue recognition

Revenue from the sales of goods or technical know-how is recognised on the transfer of risksand rewards of ownership, which generally coincides with the time when goods are delivered tocustomers and title has passed.

Rental income receivable under operating leases is recognised in profit or loss in equalinstalments over the periods covered by the lease term. Lease incentives granted are recognisedin profit or loss as an integral part of the aggregate net lease payments receivable.

Interest income is recognised as it accrues using the effective interest method.

Dividend income is recognised when the shareholder’s rights to receive payment is established.

(aa) Related parties

For the purposes of these financial statements, a party is considered to be related to the Groupif:

(i) the party has the ability, directly or indirectly through one or more intermediaries, tocontrol the Group or exercise significant influence over the Group in making financial andoperating policy decisions, or has joint control over the Group;

(ii) the Group and the party are subject to common control;

(iii) the party is an associate of the Group or a joint venture in which the Group is a venturer;

05a E_C&O AR07_Notes a 22/9/2007, 19:4956

5757575757



(aa) Related parties (Continued)

(iv) the party is a member of key management personnel of the Group or the Group’s parent,or a close family member of such an individual, or is an entity under the control, jointcontrol or significant influence of such individuals;

(v) the party is a close family member of a party referred to in (i) or is an entity under thecontrol, joint control or significant influence of such individuals; or

(vi) the party is a post-employment benefit plan which is for the benefit of employees of theGroup or of any entity that is a related party of the Group.

Close family members of an individual are those family members who may be expected toinfluence, or be influenced by, that individual in their dealings with the entity.

(bb) Dividends

Dividends are recorded in the Group’s or the Company’s financial statements in the period inwhich they are proposed and declared by the board of directors. Dividends proposed or declaredafter the balance sheet date are disclosed as a post balance sheet event and are not recognisedas a liability at the balance sheet date.

(cc) Segment reporting

Business segments provide products or services that are subject to risks and returns that aredifferent from those of other business segments. Geographical segments provide products orservices within a particular economic environment that is subject to risks and returns that aredifferent from those components operating in other economic environments.

In accordance with the Group’s internal financial reporting, the Group has determined thatbusiness segments are presented as the primary reporting format and geographical segmentsas the secondary reporting format.

Segment assets consist primarily of property, plant and equipment, land use rights/leaseholdland, intangible assets, inventories, operating receivables and cash and cash equivalents, andmainly exclude deferred tax assets. Segment liabilities comprise operating liabilities and excludeitems such as deferred tax liabilities. Capital expenditure mainly comprises additions to property,plant and equipment, land use rights/leasehold land and intangible assets.

In respect of geographical segment reporting, sales are based on the country in which the ultimatecustomer is located. Total assets and capital expenditure are where the assets are located.

05a E_C&O AR07_Notes a 22/9/2007, 19:4957

5858585858


3 REVENUE AND SEGMENT INFORMATION

The Group is principally engaged in the (i) sales, production, distribution and research and developmentof pharmaceutical products and (ii) sales of technical know-how. Revenue recognised during the yearcan be analysed as follows:

The GroupThe GroupThe GroupThe GroupThe Group The CompanyThe CompanyThe CompanyThe CompanyThe Company20072007200720072007 2006 20072007200720072007 2006

$’000$’000$’000$’000$’000 $’000 $’000$’000$’000$’000$’000 $’000

Revenue– Sales of self-manufactured

pharmaceutical products 105,831105,831105,831105,831105,831 75,802 ––––– –– Distribution of pharmaceutical

products 569,235569,235569,235569,235569,235 269,353 ––––– –– Sales of technical know-how 4,8934,8934,8934,8934,893 2,242 ––––– –– Dividend income ––––– – ––––– 55,000

679,959679,959679,959679,959679,959 347,397 ––––– 55,000

Other revenue– Government grants 1,5321,5321,5321,5321,532 643 ––––– –– Listing expenses recovered

from vendors ––––– 3,043 ––––– 3,043– Write-off of aged payables 457457457457457 – ––––– –– Change in fair value of

investment property 363363363363363 – ––––– –– Gross rentals from

investment properties 137137137137137 – ––––– –– Others 361361361361361 83 ––––– –

2,8502,8502,8502,8502,850 3,769 ––––– 3,043

Total revenue 682,809682,809682,809682,809682,809 351,166 ––––– 58,043

05a E_C&O AR07_Notes a 22/9/2007, 19:5058

5959595959


3 REVENUE AND SEGMENT INFORMATION (Continued)

Primary reporting segment – business segments

The Group’s segment revenue, expenses, results, assets and liabilities are primarily attributable tomanufacture and sales of pharmaceutical products, distribution of pharmaceutical products and salesof technical know-how.

The GroupThe GroupThe GroupThe GroupThe GroupYear ended 30 June 2007Year ended 30 June 2007Year ended 30 June 2007Year ended 30 June 2007Year ended 30 June 2007

ManufactureManufactureManufactureManufactureManufacture DistributionDistributionDistributionDistributionDistributionand sales ofand sales ofand sales ofand sales ofand sales of ofofofofof Sales ofSales ofSales ofSales ofSales of

pharmaceuticalpharmaceuticalpharmaceuticalpharmaceuticalpharmaceutical pharmaceuticalpharmaceuticalpharmaceuticalpharmaceuticalpharmaceutical technicaltechnicaltechnicaltechnicaltechnical

productsproductsproductsproductsproducts productsproductsproductsproductsproducts know-howknow-howknow-howknow-howknow-how EliminationEliminationEliminationEliminationElimination TotalTotalTotalTotalTotal$ ’ 0 0 0$ ’ 0 0 0$ ’ 0 0 0$ ’ 0 0 0$ ’ 0 0 0 $ ’ 0 0 0$ ’ 0 0 0$ ’ 0 0 0$ ’ 0 0 0$ ’ 0 0 0 $ ’ 0 0 0$ ’ 0 0 0$ ’ 0 0 0$ ’ 0 0 0$ ’ 0 0 0 $ ’ 0 0 0$ ’ 0 0 0$ ’ 0 0 0$ ’ 0 0 0$ ’ 0 0 0 $ ’ 0 0 0$ ’ 0 0 0$ ’ 0 0 0$ ’ 0 0 0$ ’ 0 0 0

Revenue– External sales 105,831105,831105,831105,831105,831 569,235569,235569,235569,235569,235 4,8934,8934,8934,8934,893 ––––– 679,959679,959679,959679,959679,959– Inter-segment sales ––––– ––––– 2,1002,1002,1002,1002,100 (2,100)(2,100)(2,100)(2,100)(2,100) –––––

105,831105,831105,831105,831105,831 569,235569,235569,235569,235569,235 6,9936,9936,9936,9936,993 (2,100)(2,100)(2,100)(2,100)(2,100) 679,959679,959679,959679,959679,959

Segment results 32,06832,06832,06832,06832,068 78,87478,87478,87478,87478,874 (7,096)(7,096)(7,096)(7,096)(7,096) (1,215)(1,215)(1,215)(1,215)(1,215) 102,631102,631102,631102,631102,631

Unallocated operatingincome and expenses (23,405)(23,405)(23,405)(23,405)(23,405)

Profit from operations 79,22679,22679,22679,22679,226Finance costs (680)(680)(680)(680)(680)Interest income 4,3214,3214,3214,3214,321

Profit before tax 82,86782,86782,86782,86782,867Income tax expenses (6,284)(6,284)(6,284)(6,284)(6,284)

Profit for the year 76,58376,58376,58376,58376,583

05a E_C&O AR07_Notes a 22/9/2007, 19:5059

6060606060



Primary reporting segment – business segments (Continued)

The GroupThe GroupThe GroupThe GroupThe Group

Year ended 30 June 2007Year ended 30 June 2007Year ended 30 June 2007Year ended 30 June 2007Year ended 30 June 2007

ManufactureManufactureManufactureManufactureManufacture DistributionDistributionDistributionDistributionDistribution

and sales ofand sales ofand sales ofand sales ofand sales of ofofofofof Sales ofSales ofSales ofSales ofSales ofpharmaceuticalpharmaceuticalpharmaceuticalpharmaceuticalpharmaceutical pharmaceuticalpharmaceuticalpharmaceuticalpharmaceuticalpharmaceutical technicaltechnicaltechnicaltechnicaltechnical

productsproductsproductsproductsproducts productsproductsproductsproductsproducts know-howknow-howknow-howknow-howknow-how EliminationEliminationEliminationEliminationElimination TotalTotalTotalTotalTotal

$ ’ 0 0 0$ ’ 0 0 0$ ’ 0 0 0$ ’ 0 0 0$ ’ 0 0 0 $ ’ 0 0 0$ ’ 0 0 0$ ’ 0 0 0$ ’ 0 0 0$ ’ 0 0 0 $ ’ 0 0 0$ ’ 0 0 0$ ’ 0 0 0$ ’ 0 0 0$ ’ 0 0 0 $ ’ 0 0 0$ ’ 0 0 0$ ’ 0 0 0$ ’ 0 0 0$ ’ 0 0 0 $ ’ 0 0 0$ ’ 0 0 0$ ’ 0 0 0$ ’ 0 0 0$ ’ 0 0 0

Additions of:– intangible assets 11,49411,49411,49411,49411,494 8,3528,3528,3528,3528,352 3,3983,3983,3983,3983,398 23,24423,24423,24423,24423,244– property, plant and equipment and

investment property 28,03728,03728,03728,03728,037 23,60623,60623,60623,60623,606 779779779779779 52,42252,42252,42252,42252,422– land use rights and leasehold land 19,78619,78619,78619,78619,786 40,04340,04340,04340,04340,043 16,78616,78616,78616,78616,786 76,61576,61576,61576,61576,615

Depreciation of property, plantand equipment 6,7066,7066,7066,7066,706 1,8411,8411,8411,8411,841 777777777777777 9,3249,3249,3249,3249,324

Amortisation of:– intangible assets 2,5252,5252,5252,5252,525 1,7791,7791,7791,7791,779 873873873873873 5,1775,1775,1775,1775,177– land use rights and leasehold land 413413413413413 651651651651651 33333 1,0671,0671,0671,0671,067

Segment assets 79,44879,44879,44879,44879,448 343,205343,205343,205343,205343,205 43,05143,05143,05143,05143,051 465,704465,704465,704465,704465,704Current tax recoverable 1,1921,1921,1921,1921,192Deferred tax assets 8,4408,4408,4408,4408,440Unallocated 252,530252,530252,530252,530252,530

Total assets 727,866727,866727,866727,866727,866

Segment liabilities 47,10047,10047,10047,10047,100 89,61389,61389,61389,61389,613 4,5134,5134,5134,5134,513 141,226141,226141,226141,226141,226Current tax payable 6,1576,1576,1576,1576,157Deferred tax liabilities 4,7604,7604,7604,7604,760Unallocated 6,0606,0606,0606,0606,060

Total liabilities 158,203158,203158,203158,203158,203

05a E_C&O AR07_Notes a 22/9/2007, 19:5060

6161616161




The GroupYear ended 30 June 2006

Manufacture Distributionand sales of of Sales of

pharmaceutical pharmaceutical technicalproducts products know-how Elimination Total

$’000 $’000 $’000 $’000 $’000

Revenue– External sales 75,802 269,353 2,242 – 347,397– Inter-segment sales – – 5,702 (5,702) –

75,802 269,353 7,944 (5,702) 347,397

Segment results 34,778 117,577 (1,856) (1,725) 148,774

Unallocated operatingincome and expenses (13,374)

Profit from operations 135,400Interest income 3,851

Profit before tax 139,251Income tax expenses (21,434)

Profit for the year 117,817

05a E_C&O AR07_Notes a 22/9/2007, 19:5061

6262626262




The GroupYear ended 30 June 2006

Manufacture Distributionand sales of of Sales of

pharmaceutical pharmaceutical technicalproducts products know-how Elimination Total

$’000 $’000 $’000 $’000 $’000

Additions of:– intangible assets 1,683 – 5,815 7,498– property, plant and equipment 9,352 139 1,213 10,704

Depreciation of property, plantand equipment 6,853 568 351 7,772

Amortisation of:– intangible assets 1,715 – – 1,715– land use rights and leasehold land 320 – – 320

Segment assets 195,449 127,485 29,473 352,407Deferred tax assets 3,590Unallocated 160,926

Total assets 516,923

Segment liabilities 9,766 53,256 5,360 68,382Current tax payable 22,103Deferred tax liabilities 95Unallocated 1,700

Total liabilities 92,280

05a E_C&O AR07_Notes a 22/9/2007, 19:5062

6363636363



Secondary reporting segment – geographical segments

The Group operates in Hong Kong, Macau and the PRC. All of the Group’s sales during the two yearsended 30 June 2007 were made to customers located in the PRC.

Segment assets and capital expenditure by geographical area are presented as follows:

The GroupThe GroupThe GroupThe GroupThe Group20072007200720072007 2006

$’000$’000$’000$’000$’000 $’000

Segment assets– Hong Kong 257,313257,313257,313257,313257,313 164,336– Macau 146,410146,410146,410146,410146,410 127,484– the PRC 324,143324,143324,143324,143324,143 225,103

727,866727,866727,866727,866727,866 516,923

Additions of intangible assets– Hong Kong 204204204204204 –– the PRC 23,04023,04023,04023,04023,040 7,498

23,24423,24423,24423,24423,244 7,498

Additions of property, plant and equipmentand investment property– Hong Kong 8,8598,8598,8598,8598,859 140– Macau 88888 –– the PRC 43,55543,55543,55543,55543,555 10,564

52,42252,42252,42252,42252,422 10,704

Additions of land use rights and leasehold land– Hong Kong 32,33732,33732,33732,33732,337 –– the PRC 44,27844,27844,27844,27844,278 –

76,61576,61576,61576,61576,615 –

05a E_C&O AR07_Notes a 22/9/2007, 19:5063

6464646464


4 OPERATING PROFIT/(LOSS)

Operating profit/(loss) is arrived at after charging/(crediting) the following:


$’000$’000$’000$’000$’000 $’000 $’000$’000$’000$’000$’000 $’000

Amortisation of– intangible assets 5,177 5,177 5,177 5,177 5,177 1,715 – – – – – –– land use rights and

leasehold land 1,0671,0671,0671,0671,067 320 ––––– –Auditors’ remuneration

– auditors of the Group 2,2002,2002,2002,2002,200 1,100 1,3201,3201,3201,3201,320 500– other auditors 4646464646 123 ––––– –

Non-audit fees– auditors of the Group 410410410410410 – ––––– –– other auditors ––––– 61 ––––– –

Depreciation of property,plant and equipment 9,3249,3249,3249,3249,324 7,772 ––––– –

Loss on disposal of property,plant and equipment 5757575757 – ––––– –

Operating lease charges: minimumlease payments– properties 1,4811,4811,4811,4811,481 302 ––––– –

Research and development costs 7,4597,4597,4597,4597,459 6,637 ––––– –Exchange (gain)/loss, net (805)(805)(805)(805)(805) 669 (405)(405)(405)(405)(405) 371Cost of inventories (note 18) 467,546 467,546 467,546 467,546 467,546 179,272 – –––––

5 FINANCE COSTS


$’000$’000$’000$’000$’000 $’000

Interest expense on bank loan whollyrepayable within one year 680 680 680 680 680 –

05a E_C&O AR07_Notes a 22/9/2007, 19:5064

6565656565


6 INCOME TAX EXPENSES

The income tax expenses charged to the income statement represent:


$’000$’000$’000$’000$’000 $’000

Current tax– Hong Kong Profits Tax – – – – – 20,528– PRC corporate income tax 8,5178,5178,5178,5178,517 4,815– Under/(over)-provision in prior years 2,0372,0372,0372,0372,037 (3,137)

Deferred taxation (note 27(b)) (4,270)(4,270)(4,270)(4,270)(4,270) (772)

6,284 6,284 6,284 6,284 6,284 21,434

(a) Hong Kong Profits Tax was provided at the rate of 17.5% on the estimated assessable profit of asubsidiary for the year ended 30 June 2006. The Group is going to submit an offshore claim inrespect of the trading income earned by this subsidiary for the year ended 30 June 2007. Theclaim is subject to the agreement of the Hong Kong Inland Revenue Department (“IRD”).

Notwithstanding the foregoing, in determining the Hong Kong Profits Tax liability for inclusionin these financial statements, the directors consider the Group has sufficient grounds to makethe claim that this subsidiary does not carry on business in Hong Kong and/or did not deriveany Hong Kong sourced profits during the year ended 30 June 2007. On this basis, no provisionfor Hong Kong Profits Tax has been made as the Group does not have any assessable profit forthe current year.

However, should this income be treated as taxable, the estimated additional tax liability for theyear ended 30 June 2007 would be approximately $14.1 million.

(b) Pursuant to an approval from the relevant tax authority in the PRC obtained on 30 April 2005,Nanjing Chang Ao Pharmaceutical Co., Limited (“Nanjing Changao”) was granted a preferentialtax treatment and is subject to a reduced corporate income tax rate of 12% for three years ending31 December 2007.

(c) Pursuant to the relevant documents issued by the state tax bureau, as Nanjing ChangaoPharmaceutical Science and Technology Co., Limited (“Nanjing Changao R&D”) is establishedin a special economic and technological development zone, it is subject to a reduced corporateincome tax rate of 15% for its operating period of 16 years.

(d) Pursuant to the relevant documents issued by the state tax bureau, as Shenzhen LianchengMedicine Company Limited (“Lian Cheng”) is established in Shenzhen Special Economic Zone,it is subject to a reduced corporate income tax rate of 15%.

05a E_C&O AR07_Notes a 22/9/2007, 19:5065

6666666666


6 INCOME TAX EXPENSES (Continued)

(e) On 16 March 2007, the Fifth Plenary Session of the Tenth National People’s Congress passed theCorporate Income Tax Law of the PRC (“New Tax Law”) which will take effect on 1 January 2008.From 1 January 2008, the corporate income tax rate for the three subsidiaries mentioned aboveis expected to gradually increase to the standard rate of 25% over a five-year transition periodfrom 1 January 2008. However, the New Tax Law has not set out the details as to how the existingpreferential tax rate will gradually increase to the standard rate of 25%. As the detailedimplementation rules regarding the preferential tax policies have yet to be made public, standardrate of 25% has been used in the calculation of these subsidiaries’ deferred tax assets andliabilities as at 30 June 2007, which are expected to be utilised subsequent to 1 January 2008.The enactment of the New Tax Law is not expected to have any financial effect on the amountsaccrued in the consolidated balance sheet in respect of current tax recoverable or payable.

(f ) The rest of the Group’s subsidiaries in the PRC are currently subject to the PRC corporate incometax at a rate of 33%. As a result of the New Tax Law, it is expected that the income tax rateapplicable to these subsidiaries will be reduced from 33% to 25% from 1 January 2008. The newtax rate of 25% has been applied in the measurement of these subsidiaries’ deferred tax assetsand liabilities as at 30 June 2007, which are expected to be utilised subsequent to 1 January2008.

(g) No provision has been made for Bermuda and the British Virgin Islands income taxes as theCompany and those subsidiaries incorporated in the British Virgin Islands have not generatedincome assessable under the respective tax legislations during the year.

(h) A reconciliation between tax expenses and accounting profit at applicable tax rates is as follows:


20072007200720072007 2006$’000$’000$’000$’000$’000 $’000

Profit before tax 82,86782,86782,86782,86782,867 139,251

Notional tax on profit before tax, calculatedat the rates applicable 2,6442,6442,6442,6442,644 23,390

Effect of non-taxable income (55)(55)(55)(55)(55) (271)Effect of non-deductible expenses 3,6513,6513,6513,6513,651 1,469Effect on deferred tax balances resulting from

a change in tax rate (1,984)(1,984)(1,984)(1,984)(1,984) –Under/(over)-provision in prior years 2,0372,0372,0372,0372,037 (3,137)Others (9)(9)(9)(9)(9) (17)

Actual tax expenses 6,2846,2846,2846,2846,284 21,434

05a E_C&O AR07_Notes a 22/9/2007, 19:5066

6767676767


7 DIVIDENDS

(a) Dividends payable to equity shareholders of the Company attributable to the year

The CompanyThe CompanyThe CompanyThe CompanyThe Company20072007200720072007 2006

$’000$’000$’000$’000$’000 $’000

Interim dividend declared and paid$Nil (2006: $0.02) per share – – – – – 12,400

Final dividend proposed after the balance sheet dateS$Nil (2006: S$0.01 (equivalent to $0.0497)) per share ––––– 30,820

– – – – – 43,220

(b) Dividends payable to equity shareholders of the Company attributable to theprevious financial year, approved and paid during the year


$’000$’000$’000$’000$’000 $’000

Final dividend in respect of previous financial year,approved and paid during the yearS$0.01 (equivalent to $0.0497) per share (2006: $Nil) 30,820 30,820 30,820 30,820 30,820 –

8 EARNINGS PER SHARE

Basic earnings per share

The calculation of basic earnings per share is based on the consolidated profit attributable to ordinaryequity shareholders of the Company of $77,598,000 (2006: $118,053,000) and the weighted averageof 627,227,000 ordinary shares (2006: 585,000,000) in issue during the year, calculated as follows:

Weighted average number of ordinary shares


$’000$’000$’000$’000$’000 $’000

At beginning of the year 620,000620,000620,000620,000620,000 –Issue of new shares (note 24) 7,2277,2277,2277,2277,227 –Ordinary shares issued pursuant to the Reorganisation (note 24) ––––– 500,000Effect of public offer and placing ––––– 85,000

Weighted average number of ordinary shares at end of the year 627,227627,227627,227627,227627,227 585,000

No diluted earnings per share is presented as there were no potential dilutive shares outstanding as at30 June 2007 (2006: $Nil).

05a E_C&O AR07_Notes a 22/9/2007, 19:5067

6868686868


9 STAFF COSTS (INCLUDING DIRECTORS’ EMOLUMENTS)


20072007200720072007 2006$’000$’000$’000$’000$’000 $’000

Wages and salaries 32,135 32,135 32,135 32,135 32,135 11,696Bonuses 12,58812,58812,58812,58812,588 488Other staff-related costs 2,5952,5952,5952,5952,595 912Pension cost – defined contribution retirement plans 3,0243,0243,0243,0243,024 1,266Share-based payment expenses 1,4501,4501,4501,4501,450 –

51,792 51,792 51,792 51,792 51,792 14,362

10 DIRECTORS’ EMOLUMENTS

The analysis of directors’ emoluments is as follows:


$’000$’000$’000$’000$’000 $’000

Fees 874 874 874 874 874 573Salaries and allowances 4,4164,4164,4164,4164,416 2,524Retirement benefit scheme contributions 7979797979 33

5,369 5,369 5,369 5,369 5,369 3,130

The number of directors whose remuneration falls within the following band is as follows:


Below $1,278,000 (2006: $1,227,000)(equivalent to S$250,000) 99999 10

$1,278,000 (equivalent to S$250,000)to below $2,556,000 (equivalent to S$500,000) 11111 –

1010101010 10

05a E_C&O AR07_Notes a 22/9/2007, 19:5068

6969696969


11 EMPLOYEE BENEFITS

(i) Retirement benefit schemes

The Group has arranged for the Hong Kong employees to join a Mandatory Provident Fund (the“MPF scheme”), a defined contribution retirement scheme managed by an independent trustee.Under the rules of the MPF scheme, each of the Group and the employee make monthlycontributions to the scheme at 5% of the employees’ gross earnings, subject to a maximum of$1,000 per month per employee. The only obligation of the Group with respect to the MPF schemeis to make the required contributions under the scheme. No forfeited contribution is availableto reduce the contribution payable in future years as at 30 June 2006 and 2007.

As stipulated by rules and regulations in the PRC, the Group contributes to state-sponsoredretirement plans for its employees in the PRC. The Group contributes to the retirement plans atrates of approximately 14.5% to 30% (2006: 17% to 21%) of the basic salaries of its employees,and has no further obligations for the actual payment of pensions or post-retirement benefits.The state-sponsored retirement plans are responsible for the entire pension obligations payableto the retired employees.

(ii) Employee stock purchase arrangement made by Company’s substantial shareholder

In July 2006, the Company’s substantial shareholder, Leo Star Development Limited (“Leo Star”),made arrangement with certain employees of the Group to allow those employees to purchasea fixed amount of shares of the Company from Leo Star at 5% discount on the market price atthe date of grant of the right (“Grant Date”). Such arrangement is for the purpose of providingincentives and rewards to eligible employees who contribute to the success of the Group’soperations. Under the terms of the arrangement, the employees were entitled to dispose of notmore than one-third of the shares offered to them on the Grant Date and not more than two-thirds of the shares on 31 December 2007. During the year, the financial impact of the arrangementon profit or loss is $1,450,000 (2006: $Nil).

05a E_C&O AR07_Notes a 22/9/2007, 19:5069

7070707070


12 FIXED ASSETS

The Group

Furniture,Furniture,Furniture,Furniture,Furniture,

fixturesfixturesfixturesfixturesfixturesConstruction-Construction-Construction-Construction-Construction- LeaseholdLeaseholdLeaseholdLeaseholdLeasehold Plant andPlant andPlant andPlant andPlant and andandandandand MotorMotorMotorMotorMotor InvestmentInvestmentInvestmentInvestmentInvestment

in-progressin-progressin-progressin-progressin-progress BuildingsBuildingsBuildingsBuildingsBuildings improvementsimprovementsimprovementsimprovementsimprovements machinerymachinerymachinerymachinerymachinery equipmentequipmentequipmentequipmentequipment vehiclesvehiclesvehiclesvehiclesvehicles Sub-totalSub-totalSub-totalSub-totalSub-total propertypropertypropertypropertyproperty TotalTotalTotalTotalTotal$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

C o s t :C o s t :C o s t :C o s t :C o s t :

At 1 July 2005 – 37,744 1,270 33,294 530 5,243 78,081 – 78,081Acquisitions through

business combinations – – 228 513 – 115 856 – 856Additions 2,927 970 9 2,574 181 3,187 9,848 – 9,848Disposals – – – (21) – – (21) – (21)Exchange adjustments – 688 13 606 3 70 1,380 – 1,380

At 30 June 2006 2,927 39,402 1,520 36,966 714 8,615 90,144 – 90,144

Accumulated depreciat ion:Accumulated depreciat ion:Accumulated depreciat ion:Accumulated depreciat ion:Accumulated depreciat ion:

At 1 July 2005 – 7,478 384 12,223 163 2,972 23,220 – 23,220Charge for the year – 2,496 297 3,860 113 1,006 7,772 – 7,772Written back on disposal – – – (21) – – (21) – (21)Exchange adjustments – 142 7 201 1 45 396 – 396

At 30 June 2006 – 10,116 688 16,263 277 4,023 31,367 – 31,367

Net book value:Net book value:Net book value:Net book value:Net book value:

At 30 June 2006 2,927 29,286 832 20,703 437 4,592 58,777 – 58,777

05a E_C&O AR07_Notes a 22/9/2007, 19:5070

7171717171


12 FIXED ASSETS (Continued)

The Group (Continued)

Furniture,Furniture,Furniture,Furniture,Furniture,

fixturesfixturesfixturesfixturesfixturesConstruction-Construction-Construction-Construction-Construction- LeaseholdLeaseholdLeaseholdLeaseholdLeasehold Plant andPlant andPlant andPlant andPlant and andandandandand MotorMotorMotorMotorMotor InvestmentInvestmentInvestmentInvestmentInvestment

in-progressin-progressin-progressin-progressin-progress BuildingsBuildingsBuildingsBuildingsBuildings improvementsimprovementsimprovementsimprovementsimprovements machinerymachinerymachinerymachinerymachinery equipmentequipmentequipmentequipmentequipment vehiclesvehiclesvehiclesvehiclesvehicles Sub-totalSub-totalSub-totalSub-totalSub-total propertypropertypropertypropertyproperty TotalTotalTotalTotalTotal$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Cost or valuat ion:Cost or valuat ion:Cost or valuat ion:Cost or valuat ion:Cost or valuat ion:

At 1 July 2006 2,927 39,402 1,520 36,966 714 8,615 90,144 – 90,144Acquisitions through business

combinations (note 23) 43 8,082 – – 1,148 2,095 11,368 577 11,945Additions 23,324 10,560 96 1,762 671 886 37,299 3,178 40,477Transfer (293) 271 – – 22 – – – –Disposals – – – (271) (111) (154) (536) – (536)Fair value adjustment – – – – – – – 363 363Exchange adjustments 902 3,301 69 2,676 115 667 7,730 123 7,853

At 30 June 2007 26,903 61,616 1,685 41,133 2,559 12,109 146,005 4,241 150,246

Represent ing:Represent ing:Represent ing:Represent ing:Represent ing:

Cost 26,903 61,616 1,685 41,133 2,559 12,109 146,005 – 146,005Valuation – – – – – – – 4,241 4,241

26,903 61,616 1,685 41,133 2,559 12,109 146,005 4,241 150,246

Accumulated depreciat ion:Accumulated depreciat ion:Accumulated depreciat ion:Accumulated depreciat ion:Accumulated depreciat ion:

At 1 July 2006 – 10,116 688 16,263 277 4,023 31,367 – 31,367Charge for the year – 2,256 352 3,961 581 2,174 9,324 – 9,324Written back on disposal – – – (217) (90) (147) (454) – (454)Exchange adjustments – 835 (20) 1,271 19 249 2,354 – 2,354

At 30 June 2007 – 13,207 1,020 21,278 787 6,299 42,591 – 42,591


At 30 June 2007 26,903 48,409 665 19,855 1,772 5,810 103,414 4,241 107,655

05a E_C&O AR07_Notes a 22/9/2007, 19:5071

7272727272


12 FIXED ASSETS (Continued)


Buildings are located in the PRC and Hong Kong and were built on land held under land use rights orleasehold land with lease terms from 20 to 50 years and over 50 years, respectively (note 13).

Construction-in-progress represents the expenditure incurred in respect of property, plant andequipment being constructed. Upon completion of the construction, the cost of the assets concernedis transferred to buildings or plant and machinery.

All investment properties of the Group were revalued as at 30 June 2007 on an open market valuebasis calculated by reference to net rental income allowing for reversionary income potential. Thevaluations were carried out by an independent firm of surveyors, American Appraisal, who have amongtheir staff Fellows of the Hong Kong Institute of Surveyors with recent experience in the location andcategory of property being valued.

The Group leases out a number of investment properties under operating leases. The leases typicallyrun for an initial period of one year with an option to renew the lease after that date. None of the leasesincludes contingent rentals.

The Group’s total future minimum lease payments under non-cancellable operating leases are receivableas follows:

20072007200720072007 2006$’000$’000$’000$’000$’000 $’000

Not later than one year 16 16 16 16 16 –

05a E_C&O AR07_Notes a 22/9/2007, 19:5072

7373737373


13 LAND USE RIGHTS AND LEASEHOLD LAND

The analysis of the lease prepayment related to land use rights and leasehold land is as follows:


$’000$’000$’000$’000$’000 $’000

Cost :Cost :Cost :Cost :Cost :

At beginning of the year 16,14816,14816,14816,14816,148 16,060Acquisitions through business combinations 12,91312,91312,91312,91312,913 –Additions 63,70263,70263,70263,70263,702 –Exchange adjustment 1,6981,6981,6981,6981,698 88

At end of the year 94,46194,46194,46194,46194,461 16,148

Accumulated amortisation:Accumulated amortisation:Accumulated amortisation:Accumulated amortisation:Accumulated amortisation:

At beginning of the year 1,6441,6441,6441,6441,644 1,309Charge for the year 1,0671,0671,0671,0671,067 320Exchange adjustment 4747474747 15

At end of the year 2,7582,7582,7582,7582,758 1,644

Net book value:Net book value:Net book value:Net book value:Net book value: 91,70391,70391,70391,70391,703 14,504

Representing:– In Hong Kong, held on leases of over 50 years 42,57042,57042,57042,57042,570 10,677– In the PRC, held on leases between 20 to 50 years 49,13349,13349,13349,13349,133 3,827

91,70391,70391,70391,70391,703 14,504

On 8 November 2006, one of the Group’s subsidiaries entered into a sales and purchase agreementwith an independent third party to acquire a land use right in the PRC for a cash consideration ofRMB16,000,000 (equivalent to approximately $16,554,000). At 30 June 2007, the Group was still in theprocess of obtaining the formal title of the land use right in the PRC from the relevant governmentauthorities. The Group has already paid the full amount of the purchase consideration. In the opinionof the directors, the formal title to the land use right will be obtained from the relevant governmentauthorities in due course.

05a E_C&O AR07_Notes a 22/9/2007, 19:5073

7474747474


14 INTANGIBLE ASSETS

The Group

GoodGoodGoodGoodGood

DeferredDeferredDeferredDeferredDeferred PharmaceuticalPharmaceuticalPharmaceuticalPharmaceuticalPharmaceutical supplysupplysupplysupplysupplydevelopmentdevelopmentdevelopmentdevelopmentdevelopment technicaltechnicaltechnicaltechnicaltechnical ClubClubClubClubClub CustomerCustomerCustomerCustomerCustomer practicepracticepracticepracticepractice

costscostscostscostscosts know-howknow-howknow-howknow-howknow-how membershipsmembershipsmembershipsmembershipsmemberships listslistslistslistslists certificatecertificatecertificatecertificatecertificate TotalTotalTotalTotalTotal$’000 $’000 $’000 $’000 $’000 $’000


At 1 July 2005 5,582 16,825 – – – 22,407Acquisition through

business combinations 2,161 – – – – 2,161Additions 3,472 885 980 – – 5,337Disposals (386) – – – – (386)Exchange adjustments 139 374 – – – 513

At 30 June 2006 10,968 18,084 980 – – 30,032

AccumulatedAccumulatedAccumulatedAccumulatedAccumulatedamort isat ion:amort isat ion:amort isat ion:amort isat ion:amort isat ion:

At 1 July 2005 248 4,312 – – – 4,560Charge for the year 243 1,472 – – – 1,715Exchange adjustments 5 83 – – – 88

At 30 June 2006 496 5,867 – – – 6,363


At 30 June 2006 10,472 12,217 980 – – 23,669

05a E_C&O AR07_Notes a 22/9/2007, 19:5074

7575757575


14 INTANGIBLE ASSETS (Continued)


GoodGoodGoodGoodGoodDeferredDeferredDeferredDeferredDeferred PharmaceuticalPharmaceuticalPharmaceuticalPharmaceuticalPharmaceutical supplysupplysupplysupplysupply

developmentdevelopmentdevelopmentdevelopmentdevelopment technicaltechnicaltechnicaltechnicaltechnical ClubClubClubClubClub CustomerCustomerCustomerCustomerCustomer practicepracticepracticepracticepractice

costscostscostscostscosts know-howknow-howknow-howknow-howknow-how membershipsmembershipsmembershipsmembershipsmemberships listslistslistslistslists certificatecertificatecertificatecertificatecertificate TotalTotalTotalTotalTotal$’000 $’000 $’000 $’000 $’000 $’000


At 1 July 2006 10,968 18,084 980 – – 30,032Acquisitions through

business combinations(note 23) 47 – – 9,327 530 9,904

Additions 3,930 9,206 204 – – 13,340Disposals (1,635) – – – – (1,635)Exchange adjustments 864 1,564 – 684 38 3,150

At 30 June 2007 14,174 28,854 1,184 10,011 568 54,791

AccumulatedAccumulatedAccumulatedAccumulatedAccumulatedamort isat ion:amort isat ion:amort isat ion:amort isat ion:amort isat ion:

At 1 July 2006 496 5,867 – – – 6,363Charge for the year 1,079 1,988 – 1,940 170 5,177Exchange adjustments 68 478 – 58 5 609

At 30 June 2007 1,643 8,333 – 1,998 175 12,149


At 30 June 2007 12,531 20,521 1,184 8,013 393 42,642

Club memberships represent the rights granted to use the club facilities over an indefinite period oftime, and therefore the useful lives of the club memberships are indefinite. Accordingly, no amortisationis charged to profit or loss during the year.

The amortisation charge for the year is included in “cost of goods sold” in the consolidated incomestatement.

05a E_C&O AR07_Notes a 22/9/2007, 19:5075

7676767676


15 GOODWILL

The Group

$’000


At 1 July 2005 –Addition through acquisition of additional equity interest

in a subsidiary 338Addition through acquisition of a new subsidiary 407

At 30 June 2006 745

At 1 July 2006 745Addition through acquisition of a new subsidiary (note 23) 15,581

At 30 June 2007 16,326

Impairment tests for cash-generating units containing goodwill

Goodwill is allocated to the Group’s cash-generating units (CGU) identified as follows:


$’000$’000$’000$’000$’000 $’000

Distribution of pharmaceutical products - the PRC 15,581 15,581 15,581 15,581 15,581 –Technical know-how of Shanghai Sun-Sail

Pharmaceutical Science and Technology Co., Limited 407407407407407 407Technical know-how of Nanjing Changao R&D 338338338338338 338

16,326 16,326 16,326 16,326 16,326 745

The recoverable amount of the CGU is determined based on value-in-use calculations. Cash flows areextrapolated using the estimated rates stated below. These calculations use cash flow projectionsbased on financial budgets approved by management covering a one-year period. Cash flow projectionsare extrapolated up to a period of 10 years by using the estimated rates stated below. The growth ratedoes not exceed the long term average growth rate for the business in which the CGU operates.

05a E_C&O AR07_Notes a 22/9/2007, 19:5076

7777777777


15 GOODWILL (Continued)

Impairment tests for cash-generating units containing goodwill (Continued)

Key assumptions used for value-in-use calculations of distribution of pharmaceutical products:

20072007200720072007 2006

Gross margin 16%16%16%16%16% – %Growth rate – %– %– %– %– % – %Discount rate 15%15%15%15%15% – %

Key assumptions used for value-in-use calculations of technical know-how:

20072007200720072007 2006

Gross margin 54%54%54%54%54% 51%Growth rate 12%12%12%12%12% 12.1%Discount rate 10%10%10%10%10% 5.76%

The weighted average growth rates used are based on management experience and consistent withthe forecasts included in industry reports. The discount rates used are pre-tax and reflect specific risksrelating to the industry.

16 INTEREST IN A SUBSIDIARY


$’000$’000$’000$’000$’000 $’000

Unlisted investment, at cost 125,000 125,000 125,000 125,000 125,000 125,000Amounts due from subsidiaries 206,832 206,832 206,832 206,832 206,832 118,583

331,832 331,832 331,832 331,832 331,832 243,583

Amounts due from subsidiaries are unsecured, non-interest bearing and have no fixed terms ofrepayment.

05a E_C&O AR07_Notes a 22/9/2007, 19:5077

7878787878


17 PREPAYMENT FOR ACQUISITION OF EQUITY INTEREST OF AN ENTITY


20072007200720072007 2006$’000$’000$’000$’000$’000 $’000

Prepayment made ––––– 43,622

On 27 February 2006, Angel Zone Development Group Limited (“Angel Zone”), a wholly-owned subsidiaryof the Group entered into a conditional sales and purchase agreement (the “Agreement”) with Mr Li JieYi and Ms Zhang Ning Jun to acquire the entire equity interest in Lian Cheng for a cash consideration ofRMB45,000,000. The consideration was fully satisfied on 2 June 2006 in accordance with the terms ofthe Agreement. On 12 July 2006, Angel Zone completed the acquisition of Lian Cheng (note 23).

18 INVENTORIES


$’000$’000$’000$’000$’000 $’000

Raw materials 6,3596,3596,3596,3596,359 6,641Work-in-progress 5,4255,4255,4255,4255,425 1,067Finished goods 36,49636,49636,49636,49636,496 1,642

48,28048,28048,28048,28048,280 9,350

The analysis of the amount of inventories recognised as an expense is as follows:


20072007200720072007 2006$’000$’000$’000$’000$’000 $’000

Carrying amount of inventories sold 466,462466,462466,462466,462466,462 178,904Write down of inventories 1,0841,0841,0841,0841,084 368

467,546467,546467,546467,546467,546 179,272

05b E_C&O AR07_Notes b 22/9/2007, 19:5078

7979797979


19 TRADE AND BILLS RECEIVABLES

The Group’s sales to corporate customers are entered into on credit terms ranging from 30 to 90 days.


$’000$’000$’000$’000$’000 $’000

Gross trade and bills receivables 232,952232,952232,952232,952232,952 110,496Less: impairment losses (4,249)(4,249)(4,249)(4,249)(4,249) (69)

228,703228,703228,703228,703228,703 110,427

Included in trade and bills receivables are amounts due from minority equity owners of a subsidiary of$10,830,000 (2006: $Nil), which are unsecured, non-interest bearing and repayable on demand.

Customers are normally granted credit terms of 30 to 90 days. Ageing analysis of trade and billsreceivables at 30 June 2007 is as follows:


20072007200720072007 2006$’000$’000$’000$’000$’000 $’000

Within 30 days of invoice date 140,072140,072140,072140,072140,072 42,33131 to 60 days after invoice date 41,52241,52241,52241,52241,522 39,24761 to 90 days after invoice date 26,20126,20126,20126,20126,201 28,19191 to 120 days after invoice date 12,93512,93512,93512,93512,935 –121 to 365 days after invoice date 7,3307,3307,3307,3307,330 225More than 365 days of invoice date 643643643643643 433

228,703228,703228,703228,703228,703 110,427

20 OTHER RECEIVABLES AND PREPAYMENTS


20072007200720072007 2006$’000$’000$’000$’000$’000 $’000

Prepaid research expenses 1,1461,1461,1461,1461,146 1,578Advance deposits paid for inventories 2,0952,0952,0952,0952,095 646Others 5,8205,8205,8205,8205,820 1,524

9,0619,0619,0619,0619,061 3,748

05b E_C&O AR07_Notes b 22/9/2007, 19:5079

8080808080


21 OTHER FINANCIAL ASSETS


20072007200720072007 2006$’000$’000$’000$’000$’000 $’000

Held-to-maturity debt securities 76,87876,87876,87876,87876,878 –

22 CASH AND CASH EQUIVALENTS AND BANK DEPOSITS

An analysis of cash and cash equivalents and bank deposits is as follows:


$’000$’000$’000$’000$’000 $’000 $’000$’000$’000$’000$’000 $’000

Deposits with banks and otherfinancial institutions –denominated in– United States Dollars (“US$”) 9,9769,9769,9769,9769,976 – ––––– –– Renminbi (“RMB”) 14,42014,42014,42014,42014,420 – ––––– –

Cash at bank and in hand –denominated in– RMB 26,99626,99626,99626,99626,996 63,445 ––––– –– Hong Kong Dollars (“HK$”) 5,2285,2285,2285,2285,228 52,698 253253253253253 49,221– US$ 34,52234,52234,52234,52234,522 82,108 ––––– –– Other currencies 315315315315315 240 ––––– 232

Cash and cash equivalentsin the balance sheets andconsolidated cashflow statement 91,45791,45791,45791,45791,457 198,491 253253253253253 49,453

Fixed deposits held at bank ––––– 50,000 ––––– –Pledged deposits with banks –

denominated in RMB 5,5295,5295,5295,5295,529 – ––––– –

96,98696,98696,98696,98696,986 248,491 253253253253253 49,453

At 30 June 2007, the Group’s bank deposits of $5,529,000 (2006: $Nil) were pledged to banks to securebills payable of $11,107,555 (2006: $Nil).

05b E_C&O AR07_Notes b 22/9/2007, 19:5080

8181818181


23 ACQUISITION OF SUBSIDIARIES

On 27 February 2006, Angel Zone entered into a conditional sales and purchase agreement with Mr LiJie Yi and Ms Zhang Ning Jun to acquire the entire equity interest in Lian Cheng for a cash considerationof RMB45,000,000 (note 17). The transaction was completed on 12 July 2006 and gave rise to a goodwillof $15,581,000. Upon the completion of the transaction, Lian Cheng became a wholly-owned subsidiaryof the Group. For the period from 12 July 2006 to 30 June 2007, Lian Cheng and its subsidiariescontributed revenue of $412,850,696 and a net profit of $5,403,173 to the consolidated net profit forthe year. If the acquisition had occurred on 1 July 2006, the directors estimate that Group revenuewould have been $698,005,000 and profit for the year would have been $76,819,000.

The acquisition had the following effect on the Group’s assets and liabilities on the acquisition date:

RecognisedRecognisedRecognisedRecognisedRecognisedPre-acquisitionPre-acquisitionPre-acquisitionPre-acquisitionPre-acquisition Fair valueFair valueFair valueFair valueFair value values onvalues onvalues onvalues onvalues on

carrying amountscarrying amountscarrying amountscarrying amountscarrying amounts adjustmentsadjustmentsadjustmentsadjustmentsadjustments acquisitionacquisitionacquisitionacquisitionacquisition$’000 $’000 $’000

Intangible assets 47 9,857 9,904Investment property 671 (94) 577Property, plant and equipment 11,146 222 11,368Land use rights and leasehold land 3,953 8,960 12,913Inventories 146,397 1,707 148,104Trade and bills receivables 90,096 – 90,096Other receivables and prepayments 10,030 – 10,030Cash and cash equivalents 13,717 – 13,717Deferred tax liabilities – (4,225) (4,225)Trade and bills payables (165,272) – (165,272)Other payables and accrued expenses (95,770) – (95,770)Minority interests (2,496) (905) (3,401)

Total net assets of the subsidiaries acquired 12,519 15,522 28,041Goodwill on acquisition 15,581

Consideration (paid and recorded as prepaymentas at 30 June 2006) 43,622

Cash acquired 13,717

Net cash inflow 13,717

05b E_C&O AR07_Notes b 22/9/2007, 19:5081

8282828282


24 SHARE CAPITAL

20072007200720072007 2006

No. ofNo. ofNo. ofNo. ofNo. of No. ofsharessharessharessharesshares AmountAmountAmountAmountAmount shares Amount

Note ’ 0 0 0’ 0 0 0’ 0 0 0’ 0 0 0’ 0 0 0 $’000$’000$’000$’000$’000 ’000 $’000

Authorised:Authorised:Authorised:Authorised:Authorised:

Ordinary shares of $0.25 each 1,000,0001,000,0001,000,0001,000,0001,000,000 250,000250,000250,000250,000250,000 1,000,000 250,000

Issued and ful ly paid:Issued and ful ly paid:Issued and ful ly paid:Issued and ful ly paid:Issued and ful ly paid:


At beginning of the year (a) 620,000620,000620,000620,000620,000 155,000155,000155,000155,000155,000 20 156Capital elimination on

consolidation ––––– ––––– (20) (156)Issue of shares pursuant

to the Reorganisation (d) ––––– ––––– 500,000 125,000Shares issued under

public offer and placing (e) ––––– ––––– 120,000 30,000Issue of new shares (f ) 43,36043,36043,36043,36043,360 10,84010,84010,84010,84010,840 – –

At end of the year 663,360663,360663,360663,360663,360 165,840165,840165,840165,840165,840 620,000 155,000

The CompanyThe CompanyThe CompanyThe CompanyThe Company

Ordinary shares of $0.01 each:

At beginning of the year (b) ––––– ––––– 10,000 –Consolidation and sub-division

of par value from$0.01 to $0.25 each (c) ––––– ––––– (10,000) –

At end of the year ––––– ––––– – –

Ordinary shares of $0.25 each:

At beginning of the year 620,000620,000620,000620,000620,000 155,000155,000155,000155,000155,000 – –Issue of shares pursuant to the

Reorganisation (d) ––––– ––––– 500,000 125,000Shares issued under public

offer and placing (e) ––––– ––––– 120,000 30,000Issue of new shares (f ) 43,36043,36043,36043,36043,360 10,84010,84010,84010,84010,840 – –

At end of the year 663,360663,360663,360663,360663,360 165,840165,840165,840165,840165,840 620,000 155,000

05b E_C&O AR07_Notes b 22/9/2007, 19:5082

8383838383


24 SHARE CAPITAL (Continued)

Notes:

(a) As at 1 July 2005, the Reorganisation had not yet completed and the Company had no paid up capital. For the purposeof the financial statements of the Group, the share capital and share premium as at 1 July 2005 represents the sharecapital and share premium of Merryland Development Group Limited (“Merryland”), the then holding company of allother companies comprising the Group.

(b) The Company was incorporated in Bermuda on 28 July 2003 with authorised share capital of $100,000 divided into10,000,000 ordinary shares of $0.01 each. On 2 September 2003, an aggregate of 10,000,000 shares of $0.01 eachhave been allotted and issued at nil consideration.

(c) On 12 August 2005, the authorised number of shares of the Company was increased from 10,000,000 to 25,000,000,000by the creation of additional 24,990,000,000 new shares of $0.01 each. On the same date, every 25 ordinary shares of$0.01 each of the authorised share capital were converted into one ordinary share of $0.25 each.

(d) On 12 August 2005, an aggregate of 499,600,000 shares of $0.25 each were allotted and issued by the Company atpar, together with 400,000 existing nil paid shares of $0.25 each (being 10,000,000 nil paid shares of $0.01 eachbefore consolidation of shares), credited as fully paid to the then shareholders of Merryland in exchange for the entireequity interest of Merryland.

(e) On 17 October 2005, the Company completed its public offer and placing of 120,000,000 shares of $0.25 at S$0.25 pershare.

(f ) On 30 April 2007, 43,360,000 new ordinary shares of $0.25 each were allotted and issued by the Company at S$0.35per share. $10,840,000 and $66,995,000 have been accounted for as share capital and share premium respectively.

(g) The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to onevote per share at meetings of the Company. All ordinary shares rank equally with regard to the Company’s residualassets.

05b E_C&O AR07_Notes b 22/9/2007, 19:5083

8484848484


25 RESERVES

The GroupEnterpriseEnterpriseEnterpriseEnterpriseEnterprise

ShareShareShareShareShare CapitalCapitalCapitalCapitalCapital MergerMergerMergerMergerMerger TranslationTranslationTranslationTranslationTranslation ReserveReserveReserveReserveReserve expansionexpansionexpansionexpansionexpansion RetainedRetainedRetainedRetainedRetainedpremiumpremiumpremiumpremiumpremium reservereservereservereservereserve reservereservereservereservereserve reservereservereservereservereserve fundfundfundfundfund fundfundfundfundfund profitsprofitsprofitsprofitsprofits TotalTotalTotalTotalTotal

(note (a)) (note (b)) (note (c)) (note (d)) (note (e)) (note (f ))$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

At 1 July 2005 23,824 1,345 – – 4,721 4,867 152,398 187,155Arising on

Reorganisation (23,824) (24) (100,996) – – – – (124,844)Share premium from

issue of sharesunder public offerand placing 107,176 – – – – – – 107,176

Share issue expenses(note (g)) (8,750) – – – – – – (8,750)

Exchange difference – – – 1,932 132 93 – 2,157Appropriation to

reserve fund – – – – 458 – (458) –Profit for the year – – – – – – 118,053 118,053Dividends (note 7) – – – – – – (12,400) (12,400)

At 30 June 2006 98,426 1,321 (100,996) 1,932 5,311 4,960 257,593 268,547

At 1 July 2006 98,426 1,321 (100,996) 1,932 5,311 4,960 257,593 268,547Share premium from

issue of shares 67,160 – – – – – – 67,160Share issue expenses

(note (g)) (165) – – – – – – (165)Share-based

transactions – 1,450 – – – – – 1,450Exchange difference – – – 15,569 479 354 – 16,402Appropriation to

reserve fund – – – – 1,079 – (1,079) –Profit for the year – – – – – – 77,598 77,598Dividends (note 7) – – – – – – (30,820) (30,820)

At 30 June 2007 165,421 2,771 (100,996) 17,501 6,869 5,314 303,292 400,172

05b E_C&O AR07_Notes b 22/9/2007, 19:5084

8585858585


25 RESERVES (Continued)

The CompanyShareShareShareShareShare CapitalCapitalCapitalCapitalCapital RetainedRetainedRetainedRetainedRetained

premiumpremiumpremiumpremiumpremium reservereservereservereservereserve profitsprofitsprofitsprofitsprofits TotalTotalTotalTotalTotal(note (a)) (note (b))

$’000 $’000 $’000 $’000

At 1 July 2005 – – – –Share premium from issue of shares

under public offer and placing 107,176 – – 107,176Share issue expenses (note (g)) (8,750) – – (8,750)Profit for the year – – 50,860 50,860Dividends (note 7) – – (12,400) (12,400)

At 30 June 2006 98,426 – 38,460 136,886

At 1 July 2006 98,426 – 38,460 136,886Share premium from issue of shares 67,160 – – 67,160Share issue expenses (note (g)) (165) – – (165)Share-based transactions – 1,450 – 1,450Loss for the year – – (13,013) (13,013)Dividends (note 7) – – (30,820) (30,820)

At 30 June 2007 165,421 1,450 (5,373) 161,498

Notes:

(a) The application of the share premium is governed by Section 40 of the Bermuda Companies Act 1981.

(b) Capital reserve of the Group represented contributions by the then shareholders of certain subsidiaries prior to 1 July2001 and the difference between purchase cost paid by the employees and market price of the shares of the Companyoffered to the employees by the ultimate holding company recognised in accordance with the accounting policy adoptedfor share-based payments in note 2(u)(iv).

(c) Merger reserve represents the difference between the nominal value of the share capital of the subsidiary acquired asa result of the restructuring exercise and the nominal value of the share capital of the Company issued in exchangethereof.

(d) Translation reserve comprises all foreign exchange differences arising from the translation of the financial statementsof all the Group’s entities that have a functional currency different from the presentation currency. The reserve is dealtwith in accordance with the accounting policy set out in note 2(x)(iii).

(e) Reserve fund represents statutory reserve fund set up by the subsidiaries in the PRC. According to the relevant PRCregulations, the subsidiaries in the PRC are required to appropriate 10% of net profit as reported in the statutoryfinancial statements to the statutory reserve fund, and the statutory reserve fund may be used for making up losses,if any, and increasing capital.

(f ) Enterprise expansion fund represents a fund set up by the subsidiaries in the PRC at the discretion of the subsidiaries’directors. According to relevant PRC regulations, the subsidiaries in the PRC have discretion to transfer a portion oftheir net profit as reported in the statutory financial statements to the enterprise expansion fund which may be usedto increase capital.

(g) The share issue expenses of the Group included professional service fees of $Nil (2006: approximately $1,537,000)paid to reporting accountants in connection with the issue of the Company’s shares to the public.

05b E_C&O AR07_Notes b 22/9/2007, 19:5085

8686868686


26 MINORITY INTERESTS


20072007200720072007 2006$’000$’000$’000$’000$’000 $’000

At beginning of the year 1,0961,0961,0961,0961,096 289Acquisition of the remaining 5% equity interest in

a subsidiary ––––– (321)Net asset value of subsidiaries shared by minority

interest at the date of acquisition (note 23) 3,4013,4013,4013,4013,401 1,364Share of net loss of subsidiaries (1,015)(1,015)(1,015)(1,015)(1,015) (236)Exchange difference 169169169169169 –

At end of the year 3,6513,6513,6513,6513,651 1,096

27 INCOME TAX IN THE BALANCE SHEET

(a)(a)(a)(a)(a) Current taxation in the balance sheet represents:


20072007200720072007 2006$’000$’000$’000$’000$’000 $’000

Hong Kong Profits TaxHong Kong Profits TaxHong Kong Profits TaxHong Kong Profits TaxHong Kong Profits Tax

Provision for Hong Kong Profits Tax for the year ––––– 20,528Balance of Profits Tax provision relating to prior years 4,1714,1714,1714,1714,171 –

Current tax payable 4,1714,1714,1714,1714,171 20,528

The PRC TaxThe PRC TaxThe PRC TaxThe PRC TaxThe PRC Tax

Provision for the PRC corporate income tax for the year 8,5178,5178,5178,5178,517 4,815Provisional income tax paid (7,723)(7,723)(7,723)(7,723)(7,723) (3,240)

Current tax payable 794794794794794 1,575

4,9654,9654,9654,9654,965 22,103

Current tax recoverable recognised on the balance sheet (1,192)(1,192)(1,192)(1,192)(1,192) –Current tax payable recognised on the balance sheet 6,1576,1576,1576,1576,157 22,103

4,9654,9654,9654,9654,965 22,103

05b E_C&O AR07_Notes b 22/9/2007, 19:5086

8787878787


27 INCOME TAX IN THE BALANCE SHEET (Continued)

(b)(b)(b)(b)(b) The movements in deferred tax assets/(liabilities) (prior to offsetting of balances within thesame taxation jurisdiction) during the year are as follows:

The Group

RevaluationRevaluationRevaluationRevaluationRevaluation

DepreciationDepreciationDepreciationDepreciationDepreciation UnrealisedUnrealisedUnrealisedUnrealisedUnrealised of assetsof assetsof assetsof assetsof assetsin excess ofin excess ofin excess ofin excess ofin excess of gain resultinggain resultinggain resultinggain resultinggain resulting DeferredDeferredDeferredDeferredDeferred arising fromarising fromarising fromarising fromarising from CustomerCustomerCustomerCustomerCustomer

relatedrelatedrelatedrelatedrelated from intrafrom intrafrom intrafrom intrafrom intra research andresearch andresearch andresearch andresearch and acquisitionacquisitionacquisitionacquisitionacquisition lists andlists andlists andlists andlists and

depreciationdepreciationdepreciationdepreciationdepreciation groupgroupgroupgroupgroup developmentdevelopmentdevelopmentdevelopmentdevelopment ofofofofof good supplygood supplygood supplygood supplygood supplyallowancesallowancesallowancesallowancesallowances transactionstransactionstransactionstransactionstransactions costcostcostcostcost subsidiariessubsidiariessubsidiariessubsidiariessubsidiaries certificatecertificatecertificatecertificatecertificate OthersOthersOthersOthersOthers TotalTotalTotalTotalTotal

$’000 $’000 $’000 $’000 $’000 $’000 $’000

Deferred tax arising from:

At 1 July 2005 722 1,049 889 – – 24 2,684(Charged)/credited to

profit or loss 213 58 620 – – (119) 772Exchange adjustments 14 4 21 – – – 39

At 30 June 2006 949 1,111 1,530 – – (95) 3,495

At 1 July 2006 949 1,111 1,530 – – (95) 3,495Acquisition of subsidiaries

(note 23) – – – (1,937) (2,288) – (4,225)(Charged)/credited to

profit or loss 270 646 876 (16) 316 194 2,286Effect resulting from

a change in tax rate 216 80 1,530 (7) 28 137 1,984Exchange adjustments 84 169 175 (140) (154) 6 140

At 30 June 2007 1,519 2,006 4,111 (2,100) (2,098) 242 3,680

05b E_C&O AR07_Notes b 22/9/2007, 19:5187

8888888888



(b)(b)(b)(b)(b) (Continued)The Group (Continued)

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set offcurrent tax assets against current tax liabilities and when the deferred income taxes related tothe same fiscal authority. The following amounts, determined after appropriate offsetting, areshown in the balance sheet:

20072007200720072007 2006

$’000$’000$’000$’000$’000 $’000

Deferred tax assets 8,4408,4408,4408,4408,440 3,590Deferred tax liabilities (4,760)(4,760)(4,760)(4,760)(4,760) (95)

3,6803,6803,6803,6803,680 3,495

The amounts shown in the balance sheet include the following:

20072007200720072007 2006$’000$’000$’000$’000$’000 $’000

Deferred tax assets expected to be recovered– within 12 months 724724724724724 314– after more than 12 months 7,7167,7167,7167,7167,716 3,276

8,4408,4408,4408,4408,440 3,590

Deferred tax liabilities expected to be settled– within 12 months 6161616161 –– after more than 12 months 4,6994,6994,6994,6994,699 95

4,7604,7604,7604,7604,760 95

Deferred tax liabilities not recognised:

At 30 June 2007, temporary differences relating to the undistributed profits of a subsidiaryincorporated in Macau amounted to $224,914,412 (2006: $148,172,000). Deferred tax liabilitiesof $26,989,729 (2006: $17,781,000) have not been recognised in respect of the tax that wouldbe payable on the distribution of these retained profits as the Company controls the dividendpolicy of the subsidiary and it has been determined that it is probable that profits will not bedistributed in the foreseeable future.

05b E_C&O AR07_Notes b 22/9/2007, 19:5188

8989898989



(b)(b)(b)(b)(b) (Continued)The Group (Continued)

Deferred tax liabilities not recognised: (Continued)

According to the New Tax Law, withholding tax at the rate of 20% would apply on the grossamount of dividends received from the PRC subsidiaries by the subsidiaries incorporated inHong Kong and the British Virgin Islands. The New Tax Law contains a specific provision allowingfor an exemption or reduction in withholding tax. However, the detailed implementation rulesregarding the preferential withholding tax policies have yet to be made public. Consequently,the Group is not able to assess whether tax exemption or reductions will be granted under theNew Tax Law and therefore is not able to make an estimate of the expected financial effect of theNew Tax Law on their deferred tax liabilities in respect of temporary differences relating to theundistributed profits of the PRC subsidiaries. At 30 June 2007, temporary differences relating tothe undistributed profits of the PRC subsidiaries amounted to approximately $91,553,000.

28 SHORT-TERM BANK LOAN, UNSECURED


$’000$’000$’000$’000$’000 $’000

Within 1 year or on demand 1,5451,5451,5451,5451,545 –

As at 30 June 2007, the bank loan is guaranteed by an independent third party.

29 TRADE AND BILLS PAYABLES

The normal credit periods for trade payables generally range from 30 to 60 days. Ageing analysis oftrade and bills payables at 30 June 2007 is as follows:


20072007200720072007 2006$’000$’000$’000$’000$’000 $’000

Within 30 days of invoice date 51,87351,87351,87351,87351,873 20,89131 to 60 days after invoice date 32,89932,89932,89932,89932,899 18,07561 to 90 days after invoice date 14,59314,59314,59314,59314,593 16,73791 to 365 days after invoice date 8,0378,0378,0378,0378,037 244More than 365 days of invoice date 4,3254,3254,3254,3254,325 83

111,727111,727111,727111,727111,727 56,030

05b E_C&O AR07_Notes b 22/9/2007, 19:5189

9090909090


30 OTHER PAYABLES AND ACCRUED EXPENSES

The GroupThe GroupThe GroupThe GroupThe Group The CompanyThe CompanyThe CompanyThe CompanyThe Company

20072007200720072007 2006 20072007200720072007 2006$’000$’000$’000$’000$’000 $’000 $’000$’000$’000$’000$’000 ’000

Amount payable for landuse rights 4,1204,1204,1204,1204,120 – ––––– –

Deposits received fromcustomers 2,6812,6812,6812,6812,681 4,538 ––––– –

Accruals for staff costs 10,29710,29710,29710,29710,297 1,097 407407407407407 –Government subsidies

received in advance 1,9051,9051,9051,9051,905 3,245 ––––– –Value-added tax payable 2,5592,5592,5592,5592,559 926 ––––– –Others 11,57611,57611,57611,57611,576 3,709 4,3404,3404,3404,3404,340 1,150

33,13833,13833,13833,13833,138 13,515 4,7474,7474,7474,7474,747 1,150

31 COMMITMENTS

(a) Capital commitments

The Group had capital commitments in respect of the following:


$’000$’000$’000$’000$’000 $’000

Authorised but not contracted for– property, plant and equipment ––––– 27,985

Contracted but not provided for– intangible assets 13,64213,64213,64213,64213,642 15,985– property, plant and equipment 12,11012,11012,11012,11012,110 7,616

25,75225,75225,75225,75225,752 51,586

In addition to the above, the Group has committed to make an investment of RMB200 million forthe construction of a research and development centre (the “project”) on a land situated inNanjing leased by the Group. The completion of the project is scheduled in 2009 according tothe agreement signed with an independent third party. As at 30 June 2007, the amount of capitalcommitment contracted but not provided for in respect of this project is RMB184 million, ofwhich RMB44 million and RMB140 million should be invested within 6 months and 18 monthsrespectively after obtaining the formal title of the land use right (note 13).

05b E_C&O AR07_Notes b 22/9/2007, 19:5190

9191919191


31 COMMITMENTS (Continued)

(b) Commitments under operating leases

The Group had future aggregate minimum lease payments under non-cancellable operatingleases in respect of office premises, factories and warehouses as follows:


20072007200720072007 2006$’000$’000$’000$’000$’000 $’000

Not later than one year 792792792792792 119Later than one year but less than five years 1,3691,3691,3691,3691,369 –

2,1612,1612,1612,1612,161 119

The Group leases a number of office premises, factories and warehouses under operating lease.The leases typically run for an initial period of one to two years, with an option to renew thelease after that date. None of the leases includes contingent rentals.

32 GROUP STRUCTURE

Particulars of the principal subsidiaries at 30 June 2007 are as follows:

Issued/Issued/Issued/Issued/Issued/Place and datePlace and datePlace and datePlace and datePlace and date registeredregisteredregisteredregisteredregistered AttributableAttributableAttributableAttributableAttributable

of incorporation/of incorporation/of incorporation/of incorporation/of incorporation/ and fully paidand fully paidand fully paidand fully paidand fully paid equityequityequityequityequity PrincipalPrincipalPrincipalPrincipalPrincipalSubsidiariesSubsidiariesSubsidiariesSubsidiariesSubsidiaries establishmentestablishmentestablishmentestablishmentestablishment share capitalshare capitalshare capitalshare capitalshare capital interestsinterestsinterestsinterestsinterests activitiesactivitiesactivitiesactivitiesactivities

Interests held direct lyInterests held direct lyInterests held direct lyInterests held direct lyInterests held direct lyby the Company:by the Company:by the Company:by the Company:by the Company:

Merryland Development British Virgin Islands 20,000 ordinary 100% Investment holdingGroup Limited 9 October 2002 shares of US$1 each

Interests held indirect lyInterests held indirect lyInterests held indirect lyInterests held indirect lyInterests held indirect lyby the Company:by the Company:by the Company:by the Company:by the Company:

Angel Zone Development British Virgin Islands 200 ordinary shares 100% Investment holdingGroup Limited 2 January 2003 of US$1 each

Billion Moral Investments Hong Kong 1 ordinary share 100% Investment holdingLimited 14 December 2006 of HK$1

Changao (BVI) Ltd. British Virgin Islands 100 ordinary shares 100% Investment holding24 July 2002 of US$1 each

05b E_C&O AR07_Notes b 22/9/2007, 19:5191

9292929292


32 GROUP STRUCTURE (Continued)

Issued/Issued/Issued/Issued/Issued/

Place and datePlace and datePlace and datePlace and datePlace and date registeredregisteredregisteredregisteredregistered AttributableAttributableAttributableAttributableAttributableof incorporation/of incorporation/of incorporation/of incorporation/of incorporation/ and fully paidand fully paidand fully paidand fully paidand fully paid equityequityequityequityequity PrincipalPrincipalPrincipalPrincipalPrincipal

SubsidiariesSubsidiariesSubsidiariesSubsidiariesSubsidiaries establishmentestablishmentestablishmentestablishmentestablishment share capitalshare capitalshare capitalshare capitalshare capital interestsinterestsinterestsinterestsinterests activitiesactivitiesactivitiesactivitiesactivities

Interests held indirect lyInterests held indirect lyInterests held indirect lyInterests held indirect lyInterests held indirect lyby the Company:by the Company:by the Company:by the Company:by the Company: (Continued)

OME (H.K.) Laboratories Hong Kong 100,000 ordinary 100% Investment holdingLimited 14 March 1995 shares of HK$1 each

Ruby Spinel Development British Virgin Islands 200 ordinary shares 100% Investment holdingLimited 9 January 2003 of US$1 each

Surrey International British Virgin Islands 1 ordinary share 100% Investment holdingLimited 13 February 2007 of US$1

Cang Nan Province Hong The PRC Fully paid registered 70% Marketing andTai Pharmaceutical 24 May 2001 capital of distribution ofCompany Limited RMB5,000,000 pharmaceutical

products

Changao Bio-tech The PRC Fully paid registered 100% Research,Development 15 May 2007 capital of developmentCompany Limited US$2,600,000 and sales of

technicalknow-how

Changao International Macau Issued capital of 100% Trading of(Macao Commercial 28 November 2002 MOP100,000 pharmaceuticalOffshore) Limited products

Nanjing Chang Ao The PRC Fully paid registered 100% Manufacturing andPharmaceutical Co., 13 August 1997 capital of distribution ofLimited US$11,500,000 pharmaceutical

products

Nanjing Changao The PRC Fully paid registered 100% Research,Pharmaceutical Science 2 August 1999 capital of developmentand Technology Co., RMB31,500,000 and sales ofLimited technical

know-how

05b E_C&O AR07_Notes b 22/9/2007, 19:5192

9393939393


32 GROUP STRUCTURE (Continued)

Issued/Issued/Issued/Issued/Issued/

Place and datePlace and datePlace and datePlace and datePlace and date registeredregisteredregisteredregisteredregistered AttributableAttributableAttributableAttributableAttributableof incorporation/of incorporation/of incorporation/of incorporation/of incorporation/ and fully paidand fully paidand fully paidand fully paidand fully paid equityequityequityequityequity PrincipalPrincipalPrincipalPrincipalPrincipal

SubsidiariesSubsidiariesSubsidiariesSubsidiariesSubsidiaries establishmentestablishmentestablishmentestablishmentestablishment share capitalshare capitalshare capitalshare capitalshare capital interestsinterestsinterestsinterestsinterests activitiesactivitiesactivitiesactivitiesactivities

Interests held indirect lyInterests held indirect lyInterests held indirect lyInterests held indirect lyInterests held indirect lyby the Company:by the Company:by the Company:by the Company:by the Company: (Continued)

Shao Xing Pharmaceutical The PRC Fully paid registered 71.88% Marketing andSupply and Distribution 28 June 1999 capital of distribution ofCompany Limited RMB6,400,000 pharmaceutical(“SXPSD”) products

Shanghai Sun-Sail The PRC Fully paid registered 69.98% Research,Pharmaceutical Science 10 August 2004 capital of developmentand Technology Co., RMB5,330,000 and sales ofLimited technical

know-how

Shenzhen Liancheng The PRC Fully paid registered 100% Marketing andMedicine Company 29 March 2004 capital of distribution ofLimited RMB72,000,000 pharmaceutical

products

Sichuan Changao The PRC Fully paid registered 90% Marketing andMedicine Company 20 December 2004 capital of distribution ofLimited (formerly RMB1,000,000 pharmaceuticalknown as Sichuan productsXin Gai NianPharmaceuticalCompany Limited)

Notes:

(a) All subsidiaries established in the PRC have financial accounting year end dated on 31 December, in accordance withthe local statutory requirements, which is not coterminous with the Group. Consolidated financial statements of theGroup have been prepared based on the accounts of these subsidiaries for the twelve months ended 30 June.

(b) All of the above subsidiaries are audited by KPMG Hong Kong.

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9494949494


33 FINANCIAL RISKS MANAGEMENT

(a) Financial risk factors

The Group’s activities expose it to a variety of financial risks, including the effects of changes inforeign currency exchange rates, interest rates and credit risk.

(i) Foreign exchange risk

The Group mainly operates in Macau and the PRC with most of the transactions settled inUS$ or RMB. Deposits invested into various bank deposits and investment in debtsecurities are denominated in RMB, HK$, US$, Macau Pataca and Singapore Dollars. Anyforeign currency exchange rate fluctuations in connection with its deposits may have afinancial impact to the Group.

At present, Renminbi is not a freely convertible currency in the international market. Theconversion of Renminbi balances into foreign currencies and remittance of Renminbi outof the PRC is subject to the rules and regulations of foreign exchange control promulgatedby the PRC government. Also, the exchange rate is fixed by the government of the PRC.

In respect of receivables and payables held in currencies other than the functional currencyof the operations to which they relate, the Group ensures that the net exposure is kept atan acceptable level.

(ii) Interest rate risk

The Group’s income and operating cash flows are substantially independent of changesin market interest rates. The Group’s exposure to changes in interest rates is mainlyattributable to its fixed deposits and bank loan. The Group has not used any interest rateswaps to hedge its exposure to interest rate risk.

In respect of interest-earning financial assets and interest-bearing financial liabilities,the following table indicates their effective interest rates at the balance sheet date andthe periods in which they reprice or the maturity dates, if earlier:

05b E_C&O AR07_Notes b 22/9/2007, 19:5194

9595959595


33 FINANCIAL RISKS MANAGEMENT (Continued)

(a) Financial risk factors (Continued)

(ii) Interest rate risk (Continued)


20072007200720072007 2006

EffectiveEffectiveEffectiveEffectiveEffective Effectiveinterestinterestinterestinterestinterest One yearOne yearOne yearOne yearOne year interest One year

rateraterateraterate or lessor lessor lessor lessor less rate or less

$’000$’000$’000$’000$’000 $’000

Repricing dates for assets/Repricing dates for assets/Repricing dates for assets/Repricing dates for assets/Repricing dates for assets/( l iabil i t ies) which reprice(l iabil i t ies) which reprice(l iabil i t ies) which reprice(l iabil i t ies) which reprice(l iabil i t ies) which repricebefore maturitybefore maturitybefore maturitybefore maturitybefore maturity

Cash and bank deposits 1.48%1.48%1.48%1.48%1.48% 91,45791,45791,45791,45791,457 1.72% 198,491Pledged deposits 2.34%2.34%2.34%2.34%2.34% 5,5295,5295,5295,5295,529 – –Fixed deposits ––––– ––––– 2.25% 50,000Short-term bank loan 7.04%7.04%7.04%7.04%7.04% (1,545)(1,545)(1,545)(1,545)(1,545) – –

Maturity date for assetsMaturity date for assetsMaturity date for assetsMaturity date for assetsMaturity date for assetswhich do not repricewhich do not repricewhich do not repricewhich do not repricewhich do not repricebefore maturitybefore maturitybefore maturitybefore maturitybefore maturity

Held-to-maturity debtsecurities 5.21%5.21%5.21%5.21%5.21% 76,87876,87876,87876,87876,878 – –

(iii) Credit risk

The Group’s sales to its single largest customer accounted for approximately 6% (2006:69%) of the Group’s total sales during the year ended 30 June 2007. The carrying amountof trade receivables included in the balance sheet represents the Group’s maximumexposure to credit risk in relation to its financial assets. The Group has put in place policiesto ensure that sales of products are made to customers with an appropriate credit historyand the Group performs periodic credit evaluations of its customers. The Group’s historicalexperience in collection of trade and other receivables falls within the recorded allowancesand the directors are of the opinion that adequate provision for uncollectible tradereceivables has been made in the financial statements.

(b) Fair value estimation

The Group

The carrying amounts of the Group’s financial assets and financial liabilities with a maturity ofless than one year are assumed to approximate their fair values due to their short maturities.

The Company

The amounts due from subsidiaries of $206,832,000 (2006: $118,583,000) are interest-free andhave no fixed terms of repayment. Given these terms it is not meaningful to disclose the fairvalue.

05b E_C&O AR07_Notes b 22/9/2007, 19:5195

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34 MATERIAL RELATED PARTY TRANSACTIONS

In addition to the transactions and balances disclosed elsewhere in these financial statements, theGroup entered into the following material related party transactions.

(a) Sales transactions with a minority equity owner

During the year, the Group sold pharmaceutical products of $61,020,198 (2006: $Nil) to theminority equity owners of a subsidiary in the normal course of business at the prices negotiatedand mutually agreed between both parties.

(b) Key management personnel remuneration

The remuneration of the directors of the Company and other members of key management ofthe Group during the year was:

20072007200720072007 2006$’000$’000$’000$’000$’000 $’000

Salaries and other short-term employee benefits 6,0846,0846,0846,0846,084 4,264Retirement benefit scheme contributions 9191919191 63

6,1756,1756,1756,1756,175 4,327

Total remuneration is included in “staff costs” (see note 9).

35 NON-ADJUSTING POST BALANCE SHEET EVENT

(a) On 31 July 2007, the Group entered into two agreements with an independent third party topurchase two office premises in Shanghai at a total cash consideration of approximatelyRMB28,309,000.

(b) On 7 August 2007, the Group entered into two conditional agreements for the sale of its entire71.88% interest in a subsidiary, SXPSD, at a total cash consideration of approximatelyRMB5,360,000 to the minority equity owners of the subsidiary. On 7 September 2007, thetransaction was completed after obtaining the approval from and registering the changes ofownership with the PRC government authorities. A loss of approximately $1 million will berecorded by the Group as a result of this disposal. For the year ended 30 June 2007, the resultsof operations and assets and liabilities of SXPSD are included in the segment of distribution ofpharmaceutical products in the PRC in “segment information” (see note 3).

(c) On 12 September 2007, the Group entered into a provisional agreement with an independentthird party to dispose of office premises for administration purpose in Hong Kong with totalcarrying amount of approximately HK$12,256,000 for a cash consideration of approximatelyHK$19,430,000. Subject to the terms and conditions of the provisional agreement, the transactionis expected to be completed in March 2008 and a gain of approximately HK$7,174,000 will berecorded by the Group as a result of this disposal.

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36 SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and judgements are continually evaluated and are based on historical experience and otherfactors, including expectations of future events that are believed to be reasonable under thecircumstances.

The selection of critical accounting policies, the judgements and other uncertainties affecting applicationof those policies and the sensitivity of reported results to changes in conditions and assumptions arefactors to be considered when reviewing the financial statements. The principal accounting policiesare set forth in note 2. The Group believes the following critical accounting policies involve the mostsignificant judgements and estimates used in the preparation of the financial statements.

(a) Depreciation and amortisation

Property, plant and equipment are depreciated on a straight-line basis over the estimated usefullives, after taking into account the estimated residual value. The Group reviews annually theestimated useful life of an asset and its residual value, if any. Land use rights, interests inleasehold land and intangible assets (other than club memberships) are amortised on a straight-line basis over the lease term and the estimated useful life respectively. Both the period andmethods of amortisation are reviewed annually. The depreciation and amortisation expense forfuture periods is adjusted if there are significant changes from previous estimates.

(b) Impairment

If circumstances indicate that the carrying value of investment in a subsidiary, property, plantand equipment, land use rights and leasehold land, construction-in-progress, intangible assetsand goodwill may not be recoverable, these assets may be considered impaired, and animpairment loss may be recognised in accordance with IAS 36 “Impairment of Assets”. Thecarrying amounts of these assets are reviewed periodically in order to assess whether therecoverable amounts have declined below the carrying amounts. These assets are tested forimpairment whenever events or changes in circumstances indicate that their recorded carryingamounts may not be recoverable. When such a decline has occurred, the carrying amount isreduced to recoverable amount. The recoverable amount is the greater of the net selling pricesand the value in use. It is difficult to estimate precisely selling prices because quoted marketprices for the Group’s assets are not readily available. In determining the value in use, expectedcash flows generated by the asset are discounted to their present value, which requires significantjudgement relating to revenue and amount of operating costs. The Group uses all readily availableinformation in determining an amount that is a reasonable approximation of recoverable amount,including estimates based on reasonable and supportable assumptions and projections ofrevenue and amount of operating costs.

(c) Income taxes

Determining income tax provisions involves judgement on the future tax treatment of certaintransactions. The Group carefully evaluates tax implications of transactions and tax provisionsare set up accordingly. The tax treatment of such transactions is reconsidered periodically totake into account changes in tax legislation. Deferred tax assets are recognised for tax lossesnot yet used and temporary deductible differences. As those deferred tax assets can only berecognised to the extent that it is probable that future taxable profit will be available againstwhich the unused tax credits can be utilised, management’s judgement is required to assessthe probability of future taxable profits. Management’s assessment is constantly reviewed andadditional deferred tax assets are recognised if it becomes probable that future taxable profitswill allow the deferred tax asset to be recovered.

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36 SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS (Continued)

(d) Capitalisation of development costs

Costs incurred on development projects relating to the design and testing of new or improvedpharmaceutical products are recognised as intangible assets when it is probable that the projectwill be a success considering its commercial and technological feasibility, and only if the costscan be measured reliably, which is normally when the products under development have obtainedthe Approval for Medicine Clinical Research from the relevant authorities in the PRC. Thedetermination of the commercial and technological feasibility of the project and the ability tosell or use the product involves management’s judgement and estimation. If there are significantchanges from previous estimates, any write-off of capitalised development costs would affectprofit or loss in future periods.

37 POSSIBLE IMPACT OF AMENDMENTS, NEW STANDARDS AND INTERPRETATIONSISSUED BUT NOT YET EFFECTIVE FOR THE YEAR ENDED 30 JUNE 2007

Up to the date of issue of these financial statements, the IASB has issued a number of amendments,new standards and interpretations which are not yet effective for the year ended 30 June 2007 andwhich have not been adopted in these financial statements.

The Group is in the process of making an assessment of what the impact of these amendments, newstandards and new interpretations is expected to be in the period of initial application. So far it hasconcluded that the adoption of them is unlikely to have a significant impact on the Group’s results ofoperations and financial position.

In addition, the following developments may result in new or amended disclosures in the financialstatements:

Effective forEffective forEffective forEffective forEffective for

accounting periodsaccounting periodsaccounting periodsaccounting periodsaccounting periodsbeginning on or afterbeginning on or afterbeginning on or afterbeginning on or afterbeginning on or after

IFRS 7 Financial instruments: disclosures 1 January 2007

Amendment to IAS 1 Presentation of financial statements: 1 January 2007capital disclosures

38 IMMEDIATE AND ULTIMATE HOLDING COMPANY

The directors consider that the immediate and ultimate holding company at 30 June 2007 to be LeoStar Development Limited and Screen Power Enterprises Limited respectively, both of which areincorporated in the British Virgin Islands. Neither of them produces financial statements available forpublic use.

05b E_C&O AR07_Notes b 22/9/2007, 19:5198

9999999999

Corporate Governance Report

C & O Pharmaceutical Technology (Holdings) Limited (the “Company” or “C&O”) is committed to setting ahigh standard of corporate governance and adheres to the principles and guidelines of the Code of CorporateGovernance (the “Code”). In areas where the Company deviates from the Code, the rationale is provided.

BOARD MATTERS

Principle 1: The Board’s Conduct of its AffairsPrinciple 2: Board Composition and Guidance

The Board of Directors (the “Board”), besides discharging its fiduciary duties under the laws of Bermuda andrequirements pursuant to the Listing Manual of Singapore Exchange Securities Trading Limited (“SGX-ST”), isresponsible for the overall strategic development of the Group. It also monitors the financial performanceand the internal controls of the business operations of the Group. Executive Directors are responsible forrunning the Group and executing the strategies adopted by the Board. The day-to-day running of the Companyis delegated to the management with department heads responsible for different aspects of the business/functions.

The Board has internal guidelines on the duties and authorities of the Executive Directors. The followingmatters are specifically reserved for decision by the Board:

• approval of the financial statements of the Company and payment of dividend to the shareholders;

• approval of all merger and acquisition transactions;

• extension of the activities of the Group into new business and any decision to cease to operate all orany material part of the business of the Group;

• approval of the annual operating and capital expenditure budgets and any material changes to them;

• approval of changes in the capital structure of the Company and any significant change in the Groupaccounting policies or practices; and

• appointment of Directors and auditors.

The Board comprises 6 Executive Directors and 3 Independent Directors, namely:

Executive Directors:Gao Bin (Chairman)Ma Lai ChiSong MingWu Su MinLi ZhanLee Ching Sze, Susana

Independent Directors:Shin Yick, FabianChan Kam LoonTan Tew Han

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100100100100100


The Board comprises members who, as a group, provide core competencies necessary to meet the Company’stargets.

Details of the backgrounds and qualifications of each Director are set out in the section “Board of Directorsand Senior Management” of this annual report.

The Board conducts regular meetings on a quarterly basis and ad hoc meetings are convened as and whennecessary to address any specific significant matters that may arise. The Bye-laws of the Company providefor Board meetings to be held via telephone and video conferencing.

The attendance of each Director at every Board and Board Committee meeting held in the financial year ended30 June 2007 is set out below:

AuditAuditAuditAuditAudit NominatingNominatingNominatingNominatingNominating RemunerationRemunerationRemunerationRemunerationRemunerationBoardBoardBoardBoardBoard CommitteeCommitteeCommitteeCommitteeCommittee CommitteeCommitteeCommitteeCommitteeCommittee CommitteeCommitteeCommitteeCommitteeCommittee

Name of DirectorName of DirectorName of DirectorName of DirectorName of Director HeldHeldHeldHeldHeld AttendedAttendedAttendedAttendedAttended HeldHeldHeldHeldHeld AttendedAttendedAttendedAttendedAttended HeldHeldHeldHeldHeld AttendedAttendedAttendedAttendedAttended HeldHeldHeldHeldHeld AttendedAttendedAttendedAttendedAttended

Gao Bin 4 4 N/A N/A 2 2 N/A N/AMa Lai Chi 4 3 N/A N/A N/A N/A N/A N/ASong Ming 4 3 N/A N/A N/A N/A N/A N/AWu Su Min 4 3 N/A N/A N/A N/A N/A N/ALi Zhan 4 3 N/A N/A N/A N/A N/A N/ALee Ching Sze, Susana 4 4 N/A N/A N/A N/A N/A N/AAu-Yeung Kwong Wah* 4 2 N/A N/A N/A N/A N/A N/AShin Yick, Fabian 4 4 4 4 2 2 2 2Chan Kam Loon 4 4 4 4 2 2 2 2Tan Tew Han 4 4 4 4 N/A N/A 2 2

* Resigned on 1 February 2007

To assist the Board in the execution of its duties, the Board has delegated specific functions to the AuditCommittee, Nominating Committee and Remuneration Committee. Each of these committees is governed byits respective terms of reference and is provided with sufficient resources to discharge duties.

Should Directors, whether as a group or individually, need independent professional advice, the Board willappoint professional advisors to render the advice. The costs associated with such professional services willbe borne by the Company.

Principle 3: Chairman and Chief Executive Officer

Presently, the Executive Chairman is Mr Gao Bin. Mr Gao is one of the founders of the Group and plays a keyrole in developing the business of the Group and provides the Group with strong leadership and vision.

All major decisions made by the Executive Chairman are reviewed by the Board and his remuneration packageis reviewed periodically by the Remuneration Committee. As such, the Board believes that there are adequatesafeguards in place against an uneven concentration of power and authority in a single individual.


101101101101101


Principle 4: Board MembershipPrinciple 5: Board Performance

The Nominating Committee (“NC”) comprises 2 Independent Directors and one Executive Director. The membersof the NC are:

Chan Kam Loon (Chairman)Shin Yick, FabianGao Bin

The key responsibilities of the NC include the following:

• make recommendation to the Board on all appointment and re-nomination of Directors;

• review and determine on an annual basis the independence of the Independent Directors;

• review whether a Director is able to and has been adequately carrying out his duties; and

• decide how the Board’s performance may be evaluated and propose the objective performance criteriafor the Board’s approval.

In the process of nominating and assessing the new candidates for Directors of the Company, the Chairman ofthe Board may assist in and make recommendations in respect of such appointment. NC assesses thecandidates based on their educational backgrounds, professional qualifications, work experience and integrity.In the case of candidates for Independent Directors, NC will also consider the independence and the numberof directorships of the candidates. The NC reports the results of such assessment and makes recommendationto the Board.

When evaluating the performance of Directors who are subject to retirement by rotation and offer themselvesfor re-election at the forthcoming annual general meeting, the NC will take into account factors such as theattendance rate, level of involvement and commitments of the Directors in previous meetings of the Boardand the committees, and the general meetings of the Company. Thereafter, the NC will make recommendationsregarding the re-election of such Directors.

In accordance with the Bye-laws of the Company, Directors who are appointed by the Board must retire at thefirst annual general meeting after their appointment. Each Director, including the Chairman, is required toretire at least once in every 3 years by rotation and the retiring Directors are eligible to offer themselves for re-election.

Pursuant to the Bye-laws of the Company, all the Directors retired and were re-elected by the shareholders atthe last annual general meeting of the Company held on 25 October 2006. Messrs Song Ming, Wu Su Min andLi Zhan shall retire by rotation at the forthcoming annual general meeting and, being eligible, offer themselvesfor re-election.


102102102102102


During the financial year, the Directors were requested to complete appraisal forms as part of the processadopted by the Board to assess the functions and overall effectiveness of the Board. The results of the appraisalexercise were considered by the NC which was tasked to make recommendations to the Board. Therecommendations of the NC would assist the Board in discharging its duties more effectively.

The appraisal process undertaken during the financial year focused on the evaluation of factors such as thesize and composition of the Board, the Board’s access to information, Board processes and accountability,performance of Board committees, risk management, communication with senior management and Directors’standards of conduct.

Following the evaluation of the performance of the Board as a whole, the NC will, in consultation with theBoard, decide on how the performance of individual Director should be evaluated.

The NC has also conducted annual review on the independence of the Independent Directors based on thecriteria as set out in the Code and a written confirmation of independence has also been received from eachIndependent Director. The NC considered that there is a strong and independent element on the Board.

In the opinion of the NC, members of the Board possess the background, business experience, knowledge intechnology, and the finance and management skills that are critical to the Group’s business.

Principle 6: Access to Information

The Board and the sub-committees are furnished with relevant information and reports prior to their respectivemeetings. In addition, management also provides the Board with further information or ad hoc reports whenrequired. To ensure all Directors are given opportunities to make suggestions on agenda items to be discussedat the board meetings and the committee meetings, all draft agendas of the board and committee meetingsare provided to all Directors for their comments well in advance of the meetings.

All the Directors have unrestricted access to the Company’s records and information. All Board members haveindependent access to the services of the Company Secretary who attends all Board meetings, ensures goodinformation flows within the Board and its committees, and between senior management and non-executiveDirectors. Directors are given appropriate briefing when they are first appointed to the Board.

REMUNERATION MATTERS

Principle 7: Procedures for Developing Remuneration PoliciesPrinciple 8: Level and Mix of Remuneration

The Remuneration Committee (“RC”) comprises 3 members, all of whom are Independent Directors. Themembers of the RC are:

Tan Tew Han (Chairman)Shin Yick, FabianChan Kam Loon


103103103103103


The key responsibilities of the RC include the following:

• recommend to the Board a framework of remuneration and specific remuneration packages for eachmember of the Board;

• review the remuneration of Executive Directors;

• review whether a Director should be eligible for benefits under long-term incentive schemes;

• review and recommend to the Board the terms of renewal of the service contracts of the Directors;

• administer the C&O Share Option Scheme.

The RC conducted an annual review of the remuneration package of all the members of the Board and maderecommendation to the Board on the Directors’ fees to be approved by the shareholders at the forthcomingannual general meeting.

The remunerations of the Executive Directors are determined by reference to their respective experience andduties within the Group. The fees paid to the Non-Executive Directors are determined by reference to theestimated time to be spent by them on the affairs of the Company and they are paid monthly on a standardfee basis. No individual Director is involved in fixing his own remuneration.

Each of the Executive Directors has entered into a service agreement with the Company. Details of theseservice agreements are disclosed in the section “Directors’ Report” of this annual report.

Principle 9: Disclosure on Remuneration

A breakdown showing the percentage mix of each individual Director’s remuneration for the financial yearended 30 June 2007 is as follows:

Name of directorName of directorName of directorName of directorName of director SalarySalarySalarySalarySalary BonusBonusBonusBonusBonus Director’s feeDirector’s feeDirector’s feeDirector’s feeDirector’s fee Other benefitsOther benefitsOther benefitsOther benefitsOther benefits TotalTotalTotalTotalTotal%%%%% %%%%% %%%%% %%%%% %%%%%

Below S$250,000Below S$250,000Below S$250,000Below S$250,000Below S$250,000Gao Bin 90.91 7.57 – 1.52 100Ma Lai Chi 91.04 7.23 – 1.73 100Song Ming 95.97 – – 4.03 100Wu Su Min 94.07 – – 5.93 100Li Zhan 96.95 – – 3.05 100Au-Yeung Kwong Wah** – – 95.24 4.76 100Shin Yick, Fabian – – 100.00 – 100Chan Kam Loon – – 84.76 15.24* 100Tan Tew Han – – 84.76 15.24* 100

S$250,000 to below S$500,000S$250,000 to below S$500,000S$250,000 to below S$500,000S$250,000 to below S$500,000S$250,000 to below S$500,000Lee Ching Sze, Susana 93.89 5.52 – 0.59 100

* The other benefits received by the Independent Directors during the financial year ended 30 June 2007 were travelling allowancefor attending Board or committee meetings in places other than Singapore.

** Resigned on 1 February 2007


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For the year ended 30 June 2007, the remuneration of the top 5 key executives who are not Directors of theCompany was less than S$250,000. The Company believes that given the highly competitive industry conditionscoupled with the sensitivity and confidentiality of staff remuneration matters, disclosure of the remunerationof individual executive on a named basis is disadvantageous to its business interests.

There was no employee of the Group who was an immediate family member of a director of the Company andwhose remuneration exceeded S$150,000 during the financial year ended 30 June 2007.

ACCOUNTABILITY AND AUDIT

Principle 10: Accountability

The Board provides the shareholders with a detailed and balanced explanation and analysis of the Company’sperformance and prospects on a quarterly basis.

The Management provides the Board with appropriately detailed management accounts of the Group’sperformance and prospects on a quarterly basis.

Principle 11: Audit Committee (“AC”)

The AC comprises 3 members, all of whom are Independent Directors. The members of the AC are:

Shin Yick, Fabian (Chairman)Chan Kam LoonTan Tew Han

The key responsibilities of the AC include the following:

• make recommendations to the Board on the appointment, re-appointment and removal of the externalauditors, and approving the remuneration and terms of engagement of the external auditors;

• review and monitor the external auditors’ independence and objectivity at least annually;

• review the scope and results of the audit and its cost effectiveness. To review with the external auditors,the audit plan and their evaluation of the system of principal financial and accounting controls;

• review the quarterly and annual financial statements of the Company before submission to the Boardfor approval;

• review the significant financial reporting issues and judgements so as to ensure the integrity of thefinancial statements of the Company;

• review the adequacy and effectiveness of the Company’s internal control system and proceduresestablished by the management at least annually;

• ensure the adequacy and effectiveness of the Company’s internal audit function at least annually andthat the internal audit function is adequately resourced and has appropriate standing within theCompany;


105105105105105


• ensure co-ordination between the external auditors and the management, and review the assistancegiven by the management to the external auditors, and discuss problems and any matters which theexternal auditors may wish to discuss (in the absence of management, where necessary);

• review and discuss with the external auditors any suspected fraud or irregularity, or suspectedinfringement of any relevant laws, rules or regulations, which has or is likely to have a material impacton the Group’s operating results or financial position;

• review interested person transactions and potential conflicts of interest, if any; and

• review arrangements by which staff of the Company may, in confidence, raise concerns about possibleimproprieties in matters of financial reporting or other matters.

The AC meets at least four times a year and may meet with the external auditors any time without the presenceof the management.

The Group Financial Controller and an Executive Director were present at the AC meetings to report and answerquestions about their work.

The Group paid to KPMG Tax Limited HK$260,300 for tax consultation services provided to the Group duringthe financial year ended 30 June 2007. The AC has reviewed such non-audit services provided by an entityrelated to the external auditors, KPMG, and is of the opinion that the provision of such services does notaffect the independence of KPMG.

The AC recommended the re-appointment of KPMG as external auditors at the forthcoming annual generalmeeting.

Principle 12: Internal ControlsPrinciple 13: Internal Audit

The Board understands the importance of maintaining a sound system of internal controls to safeguard theinterests of the shareholders and the Company’s assets. The Group’s internal systems have been designed toprovide reasonable assurance that assets are safeguarded, policies and procedures to govern daily operationsare in place and proper accounting records are maintained. The Group has established an internal controlsystem to monitor its operation. There are clearly defined lines of responsibility and delegation of authority,budgetary control has been established to monitor group’s performance.

All merger and acquisition (“M&A”) transactions of the Group are subject to review and approval by the Board;and there is an M&A Manual on the procedures that must be followed by the management and the necessaryauthorisations that must be obtained from the Board during the preliminary negotiation, due diligence andthe final completion stage of each M&A transaction of the Group.

The Company has engaged Horwath Risk Advisory Services Limited, an independent risk consulting firm(“Internal Control Consultant”) to perform a risk assessment exercise and based upon the assessment results,to develop an internal audit plan to carry out internal control reviews.


106106106106106


For the year ended 30 June 2007, the Internal Control Consultant has prepared a risk assessment for theGroup with key risk factors identified. The risk assessment is a high-level review of compliance, operational,financial and risk management risks that the Group is facing. Major recommendations for improvement andareas for separate internal audit reviews are highlighted for management action.

COMMUNICATION WITH SHAREHOLDERS

Principle 14: Communication with ShareholdersPrinciple 15: Greater Shareholder Participation

In line with continuous disclosure obligations of the Company pursuant to the SGX-ST’s Listing Rules, it is theBoard’s policy that the shareholders be informed of all major developments that impact the Group.

Information is communicated to the shareholders on a timely basis through:

(a) quarterly and final results announcements, announcements of corporate information in accordancewith the requirements of SGX-ST, and press releases released through SGXNet;

(b) annual reports that are sent to all shareholders;

(c) notices of and explanatory notes for annual general meetings and special general meetings;

(d) the website of the Company (www.changao.com) at which shareholders and the public may accessinformation on the Group; and

(e) web-based corporate and financial information posted on popular finance sites, namelyshareinvestors.com and listedcompany.com.

The notice of annual general meeting is dispatched to shareholders at least 14 working days before the meeting.The Board welcomes questions from shareholders who have an opportunity to raise issues either formally ator informally after the annual general meeting. The Chairman of the Audit, Remuneration and NominatingCommittees are normally available at the annual general meetings to answer questions relating to the workof these committees.

DEALINGS IN SECURITIES

The Company has an internal compliance manual to provide guidance to its Directors in relation to the dealingin its securities. The Company issues notifications to the Directors and relevant employees of the Group onprohibition to deal in the securities of the Company during the period commencing two weeks before theannouncement of the company’s financial results for each of the first three quarters and one month beforethe announcement of the company’s full year results, and ending on the date of announcement.

All directors are required to inform the Company Secretary on their dealings in the securities of the Company.


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RISK MANAGEMENT

The Company does not have a Risk Management Committee. However, the management regularly reviews theCompany’s business and operational activities to identify areas of significant business risks as well asappropriate measures to control and mitigate these risks. The management reviews all significant controlpolicies and procedures and highlights all significant matters to the Directors and the AC.

The following summarised the risks identified by the management and the various measures to control therisks:

Regulatory Risks

Risks identified by the management

• In the People’s Republic of China (“PRC”), the prices of certain pharmaceutical products are subjectedto control by the relevant state and provincial price administration authorities, which may adverselyaffect C&O’s business and profitability. In addition, the continuously medicare reforms in PRC couldalso adversely affect the performance of C&O.

Measures to control risks

• Staffs attend relevant seminars to be updated and kept informed of new regulations and/or implicationsof political developments.

Legal Risks


• Despite the general effect of legislation for the past two decades has significantly enhanced theprotection of foreign investment enterprises in the PRC, these laws, regulations and requirements arerelatively recent and their interpretation and enforcement are subject to considerable uncertainty. Inaddition, as the legal system in the PRC is subject to further development, businesses are faced withuncertainties as a result of any introduction of new laws and changes in existing legislation.


• One of the executive directors of C&O is a practising solicitor in Hong Kong with more than 14 years ofexperience prior to joining the Group. In addition, the Group has also set up a legal division in one ofits subsidiaries in Shenzhen, to deal with all the various legal matters in PRC.


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Financial Risks


• The Group’s activities expose it to a variety of financial risks, including the effects of changes in foreigncurrency exchange rates, interest rates and credit risk.


• The Group’s financial risk management is disclosed in Note 33 to the Financial Statements.

Product Risks


• More than 40% of C&O’s turnover was derived from the distribution of the product Amoxycillin whichwas not manufactured by C&O itself.


• C&O has signed a 20 years exclusive distribution agreement with the supplier for the distribution ofAmoxycillin.

• C&O is investing into researching and development, and also actively seeking co-operating opportunitieswith other pharmaceutical companies in order to diversify its products portfolio.

Product Development Risks


• It is a norm that the development cycle of pharmaceutical products is relatively long. This createsuncertainty in the assessment of our return on investment in the short to medium term and reducesour overall financial liquidity.


• The management had set up a product R&D committee, which consists of key staffs from the sales,manufacturing, and R&D departments.

• Our R&D team activity seeking co-operating opportunity with major universities, research houses, andother pharmaceutical companies in developing new drugs, which would mitigate the risk taken byC&O.

MATERIAL CONTRACTS

Save for the service agreements entered into between the Executive Directors and the Company, there wereno other material contracts of the Company or its subsidiaries involving the interest of any Director or controllingshareholders subsisting at the end of the financial year ended 30 June 2007.


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Shareholdings StatisticsAs at 10 September 2007

SHARE CAPITAL

Issued and fully paid-up capital – HK$165,840,000Number of issued shares – 663,360,000 sharesClass of shares – ordinary share of HK$0.25 eachVoting rights – 1 vote per ordinary share

SHAREHOLDINGS HELD IN HANDS OF PUBLIC

Based on information available to the Company as at 10 September 2007, approximately 31.83% of the issuedordinary shares of the Company are held by the public and therefore Rule 723 of the Listing Manual of SGX-STis complied with.

ANALYSIS OF SHAREHOLDINGS

Size of shareholdings No. of Shareholders % No. of Shares %

1-999 – – – –1,000-10,000 750 49.08 5,344,000 0.8110,001-1,000,000 760 49.74 51,441,000 7.751,000,001 and above 18 1.18 606,575,000 91.44

1,528 100.00 663,360,000 100.00

TOP 20 SHAREHOLDERS

No. Name No. of Shares %

1 Citibank Nominees Singapore Pte Ltd 379,814,000 57.262 UOB Kay Hian Pte Ltd 74,212,000 11.193 Raffles Nominees Pte Ltd 27,769,000 4.194 Mayban Nominees (Singapore) Pte Ltd 22,913,000 3.455 Kim Eng Securities Pte. Ltd. 20,219,000 3.056 DBS Nominees Pte Ltd 16,456,000 2.487 Tao Yi-Hou Mildred 13,224,000 1.998 DBSN Services Pte Ltd 10,500,000 1.589 Phillip Securities Pte Ltd 10,227,000 1.5410 Vision Capital Private Limited 9,394,000 1.4211 HSBC (Singapore) Nominees Pte Ltd 7,332,000 1.1112 HL Bank Nominees (Singapore) Pte Ltd 3,240,000 0.4913 DBS Vickers Securities (Singapore) Pte Ltd 2,729,000 0.4114 CIMB Bank Nominees (Singapore) Sdn Bhd 2,250,000 0.3415 Hong Leong Finance Nominees Pte Ltd 2,175,000 0.3316 OCBC Securities Private Ltd 1,616,000 0.2417 Wong Ah Wah @ Wong Fong Fui 1,500,000 0.2318 United Overseas Bank Nominees Pte Ltd 1,005,000 0.1519 Ma Ong Kee 1,000,000 0.1520 Nomura Singapore Limited 1,000,000 0.15

Total 608,575,000 91.75

07 E_C&O AR07_Share Statistics 22/9/2007, 19:51109

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Shareholdings StatisticsAs at 10 September 2007

SUBSTANTIAL SHAREHOLDERS

(As recorded in the Register of Substantial Shareholders as at 10 September 2007)

Name Direct Interest % Deemed Interest %

Leo Star Development Limited 357,745,000 53.93 – –Screen Power Enterprises Limited (Note 1) – – 357,745,000 53.93Gao Bin (Note 2) 449,000 0.07 357,745,000 53.93Lee Chong Min (Note 3) – – 80,132,000 12.08CMIA Capital Partners Pte Ltd (Note 4) – – 69,532,000 10.48CMIA Capital Partners (Cayman) Limited (Note 5) – – 52,032,000 7.84

Notes:

(1) Screen Power Enterprises Limited owned approximately 89% of Leo Star Development Limited and was deemed to be interestedin the 357,745,000 shares in the Company held by Leo Star Development Limited.

(2) Mr Gao Bin, who owned 100% of Screen Power Enterprises Limited, was deemed to be interested in the 357,745,000 shares inthe Company held by Leo Star Development Limited through Screen Power Enterprises Limited.

(3) By virtue of section 7 of the Companies Act (Chapter 50) of Singapore, Lee Chong Min was deemed to be interested in anaggregate of 80,132,000 shares in the Company held by ASB CMIA China Growth I LP, CMIA China Fund III LP, Broad CosmosInvestments Limited, WLCM Mezzanine Ventures I (Cayman) Limited, WL Asia IPO Ventures II Limited, Eighty-Eight Times Ltdand CMIA Partners Equity Limited.

(4) By virtue of section 7 of the Companies Act (Chapter 50) of Singapore, CMIA Capital Partners Pte Ltd was deemed to be interestedin an aggregate of 69,532,000 shares in the Company held by ASB CMIA China Growth I LP, CMIA China Fund III LP, BroadCosmos Investments Limited, WLCM Mezzanine Ventures I (Cayman) Limited and WL Asia IPO Ventures II Limited.

(5) By virtue of section 7 of the Companies Act, CMIA Capital Partners (Cayman) Limited was deemed to be interested in an aggregateof 52,032,000 shares in the Company held by ASB CMIA China Growth I LP and CMIA China Fund III LP.

07 E_C&O AR07_Share Statistics 22/9/2007, 19:51110

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Notice of Annual General Meeting

NOTICE IS HEREBY GIVEN that the Annual General Meeting of C & O Pharmaceutical Technology (Holdings)Limited (the “Company”) will be held at Canary, Level 4, Grand Copthorne Waterfront Hotel, 392 HavelockRoad, Singapore 169663 on 22 October 2007 at 2.30 p.m. to transact the following businesses:

AS ORDINARY BUSINESS

1. To receive and adopt the Audited Financial Statements of the Company for thefinancial year ended 30 June 2007 and the Reports of the Directors and the Auditorsthereon.

2. To re-elect the following Directors retiring pursuant to the Bye-Laws of theCompany:

(i) Mr Song Ming(ii) Mr Wu Su Min(iii) Mr Li Zhan

3. To approve the payment of additional Directors’ fees of HKD53,806 by the Companyfor the financial year ended 30 June 2007.

4. To approve the payment of Directors’ fees of HKD762,400 for the financial yearending 30 June 2008 to be paid in twelve equal monthly instalments in arrears.(2007: HKD873,806, including HKD53,806 additional Directors’ fees)

5. To re-appoint Messrs KPMG as auditors of the Company and to authorise theDirectors to fix their remuneration.

(Resolution 1)

(Resolution 2)(Resolution 3)(Resolution 4)

(Resolution 5)

(Resolution 6)

(Resolution 7)

AS SPECIAL BUSINESS

To consider and, if thought fit, pass the following ordinary resolutions with or without modifications:

6. SHARE ISSUE MANDATE

“THAT pursuant to the Bye-Laws of the Company and Rule 806 of the Listing Manual (the “ListingManual”) of the Singapore Exchange Securities Trading Limited (“SGX-ST”), authority be and is herebygiven to the Directors of the Company to:

(i) allot and/or issue further shares whether by way of rights, bonus or otherwise (including sharesas may be issued pursuant to any Instrument (as defined below) made or granted by the Directorswhile this Resolution is in force notwithstanding that the authority conferred by this Resolutionmay have ceased to be in force at the time of issue of such shares), and/or

(ii) make or grant offers, agreements or options (collectively, “Instruments”) that might or wouldrequire shares to be issued, including but not limited to the creation and issue of warrants,debentures or other instruments convertible into shares,

08 E_C&O AR07_AGM 22/9/2007, 19:51111

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at any time and upon such terms and conditions and for such purposes and to such persons as theDirectors may in their absolute discretion deem fit,

(a) provided that the aggregate number of shares to be issued pursuant to such authority (includingshares to be issued pursuant to any Instrument but excluding shares which may be issuedpursuant to any adjustments (“Adjustments”) effected under any relevant Instrument, whichAdjustment shall be made in compliance with the provisions of the Listing Manual of the SGX-STfor the time being in force (unless such compliance has been waived by the SGX-ST) and theBye-Laws for the time being of the Company) shall not exceed 50% of the issued share capital ofthe Company at the time of the passing of this resolution, and

(b) provided that the aggregate number of such shares to be issued other than on a pro rata basisin pursuance to such authority (including shares issued pursuant to any Instrument but excludingshares which may be issued pursuant to any Adjustment effected under any relevant Instrument)to the existing shareholders shall not exceed 20% of the issued share capital of the Company atthe time of the passing of this resolution,

and, unless revoked or varied by the Company in general meeting, such authority shall continue inforce until the conclusion of the next annual general meeting of the Company or the date by which thenext annual general meeting of the Company is required by law or by the Bye-Laws of the Company tobe held, whichever is the earlier.” (Resolution 8)

[See Explanatory Note (i)]

7. AUTHORITY TO OFFER AND GRANT OPTIONS AND TO ALLOT AND ISSUE SHARES UNDER THE C&OSHARE OPTION SCHEME

“THAT pursuant to Rule 845 of the Listing Manual of the Singapore Exchange Securities Trading Limited,authority be and is hereby given to the Directors to:

(a) offer and grant options in accordance with the provisions of the C&O Share Option Scheme(“ESOS”); and

(b) allot and issue from time to time such number of shares in the Company as may be required tobe issued pursuant to the exercise of the options under the ESOS,

provided that the aggregate number of shares to be issued pursuant to the ESOS does not exceed 15%of the issued share capital of the Company from time to time.” (Resolution 9)

[See Explanatory Note (ii)]

08 E_C&O AR07_AGM 22/9/2007, 19:51112

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8. To transact any other business which may be properly transacted at an Annual General Meeting.

BY ORDER OF THE BOARDJoanna Lim Lan SimCompany Secretary

Singapore, 3 October 2007

Notes:

1. With the exception of The Central Depository (Pte) Ltd. (the “Depository”) who may appoint more than two proxies, a shareholderof the Company entitled to attend and vote at the above meeting who hold two or more shares is entitled to appoint no morethan two proxies to attend and vote on his behalf. A proxy need not be a shareholder of the Company.

2. Where a form of proxy appoints more than one proxy (including the case where such appointment results from a nomination bythe Depository), the proportion of the shareholding concerned to be represented by each proxy shall be specified in the formof proxy.

3. A corporation which is a shareholder of the Company may authorise by resolution of its directors or other governing body suchperson as it thinks fit to act as its corporate representative at the meeting.

4. To be valid, the instrument appointing a proxy or proxies, or nominating a proxy or proxies on behalf of the Depository togetherwith the power of attorney or other authority, if any, under which it is signed, or a notarially certified copy of such power orauthority, must be deposited at the office of Tricor Barbinder Share Registration Services, the Company’s Singapore ShareTransfer Agent, at 8 Cross Street, #11-00 PWC Building, Singapore 048424 not less than 48 hours before the time appointed forholding the meeting or at any adjournment thereof. Detailed instructions can be found on the Proxy Form(s).

Explanatory Notes:

(i) The proposed Resolution 8, if passed, will empower the Directors from the date of this Meeting untilthe conclusion of the next Annual General Meeting, or the date by which the next annual general meetingof the Company is required by law or by the Bye-Laws of the Company to be held, or when revoked orvaried by the Company in general meeting, whichever is earlier, to allot and issue further shares in theCompany. The maximum number of shares which the Directors may issue under this resolution shallnot exceed the quantum as set out in the resolution.

(ii) The proposed Resolution 9, if passed, will empower the Directors of the Company to offer and grantoptions under the ESOS, and to allot and issue shares in the Company pursuant to the exercise ofoptions, provided that the aggregate number of shares to be issued shall not exceed 15% of the issuedshare capital of the Company from time to time. The ESOS was approved by the shareholders of theCompany on 17 August 2005.

08 E_C&O AR07_AGM 22/9/2007, 19:51113

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Corporate Information

BOARD OF DIRECTORS

Executive Directors

Gao Bin (Chairman)Ma Lai Chi (Deputy Chairman)Song MingWu Su MinLi ZhanLee Ching Sze, Susana

Independent Directors

Shin Yick, FabianChan Kam LoonTan Tew Han

AUDIT COMMITTEE

Shin Yick, Fabian (Chairman)Chan Kam LoonTan Tew Han

REMUNERATION COMMITTEE

Tan Tew Han (Chairman)Shin Yick, FabianChan Kam Loon

NOMINATING COMMITTEE

Chan Kam Loon (Chairman)Shin Yick, FabianGao Bin

COMPANY SECRETARIES

Lim Lan Sim, JoannaChua Suk Yan, Joey

AUDITORS

KPMGCertified Public Accountants8th Floor, Prince’s Building10 Chater RoadCentral, Hong KongAudit Partner-in-charge: Jack Chow(appointed in May 2006)

REGISTERED OFFICE

Clarendon House2 Church StreetHamilton HM 11BermudaTel: (1 441) 295 1422Fax: (1 441) 292 4720

PRINCIPAL OFFICES

Hong Kong

Rooms 1601-160316th Floor, West TowerShun Tak Centre168-200 Connaught Road CentralHong Kong

Tel: (852) 2806 0109Fax: (852) 2887 8445Corporate website: www.changao.com

Nanjing

No. 2 Ba Bai RoadLuhe DistrictNanjingPRC

Shenzhen

5th Floor, Honorlux TowerNo. 1080 Shennan Road EastLuo Hu DistrictShenzhenPRC

BERMUDA SHARE REGISTRAR

Butterfield Fund Services (Bermuda) LimitedRosebank Centre11 Bermudiana RoadPembroke HM08Bermuda

SINGAPORE SHARE TRANSFER AGENT

Tricor Barbinder Share Registration Services(A division of Tricor Singapore Pte. Ltd.)8 Cross Street#11-00 PWC BuildingSingapore 048424

09 E_C&O AR07_Corporate 22/9/2007, 19:51114

In today’s fast-paced, highly-competitive businessenvironment, customers across industries have come to expecttotal solutions in their drive towards

maximizing efficiency and quality.

China’s pharmaceutical industry is no different. The ability todevelop new drugs and formulations, manufacture accordingto stringent GMP standards and an extensive and

growing distribution networkbecomes all that more critical.

Coupled with rising demand for quality healthcare and the

demographical challenges of the future, C&O will continue to

enhance its integrated capabilities to provide

seamless solutions to ourcustomers in China and beyond.

Seamless Solutions

For a healthier life Pushing the Frontiers of Discovery and Distribution

C&O IFC & IBC.indd 1C&O IFC & IBC.indd 1 9/24/07 8:47:54 PM9/24/07 8:47:54 PM

C&O AR07 Cover 24/09/2007 20:31 ›¶ 1

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