3SBio Inc.

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your licensed securities dealer, or registered institutions in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in 3SBio Inc. , you should at once hand this circular together with the accompanying form of proxy to the purchaser or the transferee or to the bank, licensed securities dealer, or registered institutions in securities, stockbroker or other agent through whom the sale was affected for transmission to the purchaser or transferee.

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representations as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

This circular appears for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for the securities of the Company.

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1530)

MAJOR AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF FURTHER EQUITY INTERESTS IN SUNSHINE GUOJIAN PHARMACEUTICAL (SHANGHAI) CO., LTD. (FORMERLY KNOWN AS SHANGHAI CP GUOJIAN PHARMACEUTICAL CO., LTD.) AND PROPOSED GRANT OF OPTIONS

Independent Financial Adviser to the Independent Board Committee and the Shareholders

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A letter from the Board is set out on pages 8 to 36 of this circular. A letter from the Independent Board Committee is set out on page 37 of this circular. A letter from Alliance Capital, the Independent Financial Adviser to the Independent Board Committee and the Shareholders, is set out on pages 38 to 46 of this circular.

April 25, 2016

	Page
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	37
Letter from the Independent Financial Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	38
Appendix I — Financial Information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-1
Appendix II — Accountants’ Report of the Target Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-1
Appendix III — Accountants’ Report of Lansheng Guojian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	III-1
Appendix IV — Accountants’ Report of Gains Prestige . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	IV-1
Appendix V — Unaudited Pro Forma Financial Information of the Enlarged Group . . . . . . . . . . . . .	V-1
Appendix VI — General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	VI-1

DEFINITIONS

In this circular, the following expressions shall have the respective meanings ascribed adjacently below, unless the context requires otherwise:-

“Acquisition I”
the acquisition of a 70% equity interest in Shanghai Hongshang by Shenyang Sunshine from Xizang Hongshang pursuant to the terms and conditions of Agreement I
“Acquisition II”
the acquisition of an approximately 1.29% equity interest in the Target by Shenyang Sunshine from Jianyikang pursuant to the terms and conditions of Agreement II
“Acquisition III” the acquisition of an approximately 1.81% equity interest in the Target by Shenyang Sunshine from Jianweida pursuant to the terms and conditions of Agreement III
“Acquisition IV” the acquisition of an approximately 1.89% equity interest in the Target by Shenyang Sunshine from Mianyang Fund pursuant to the terms and conditions of Agreement IV
“Acquisition V”
the acquisitions of approximately 34.65% and 3.85% equity interests in Lansheng Guojian by Shanghai Hongshang from Lansheng Corporation and Lansheng Group, respectively, pursuant to the terms and conditions of Agreement V
“Acquisition VI”
the acquisition of an approximately 0.73% equity interest in the Target by Shanghai Hongshang from Lansheng Corporation pursuant to the terms and conditions of Agreement VI
“Acquisition VII”
the acquisition of the entire issued share capital of Gains Prestige by the Company from CITIC Holdings and the assignment of CITIC Holdings’ interest in the CITIC Loan from CITIC Holdings to the Company pursuant to the terms and conditions of Agreement VII and the Assignment Agreement
“Acquisition VIII” the acquisition of a 30% equity interest in Shanghai Hongshang by Shenyang Sunshine from Xizang Hongshang pursuant to the terms and conditions of Agreement VIII
“Agreement I”
the equity transfer agreement dated November 20, 2015 entered into between Shenyang Sunshine and Xizang Hongshang in relation to Acquisition I
“Agreement II”
“Agreement III”
the share purchase agreement dated November 20, 2015 entered into between Shenyang Sunshine and Jianyikang in relation to Acquisition II the share purchase agreement dated November 20, 2015 entered into between Shenyang Sunshine and Jianweida in relation to Acquisition III
“Agreement IV” the share purchase agreement dated November 20, 2015 entered into between Shenyang Sunshine and Mianyang Fund in relation to Acquisition IV
“Agreement V”
the equity transfer agreement dated January 26, 2016 entered into among Shanghai Hongshang, Lansheng Corporation and Lansheng Group in relation to Acquisition V
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DEFINITIONS

“Agreement VI” the equity transfer agreement dated January 26, 2016 entered into between Shanghai Hongshang and Lansheng Corporation in relation to Acquisition VI

“Agreement VII” the property transaction agreement ( ) dated March 3, 2016 entered into between the Company and CITIC Holdings in relation to Acquisition VII

“Agreement VIII” the equity transfer agreement dated March 3, 2016 entered into between Shenyang Sunshine and Xizang Hongshang in relation to Acquisition VIII
“Alliance Capital” or “Independent Alliance Capital Partners Limited ( ), a corporation Financial Adviser” licensed to carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the SFO and the independent financial adviser to the Independent Board Committee and the Shareholders in relation to Acquisition VII
“Assignment Agreement” the assignment agreement dated March 18, 2016 entered into among the Company, CITIC Holdings and Gains Prestige in relation to the assignment of CITIC Holdings’ interest in the CITIC Loan to the Company from CITIC Holdings
“Board” the board of Directors
“BVI” British Virgin Islands “Century Sunshine” Century Sunshine Limited, a company incorporated in the Cayman Islands and one of the Controlling Shareholders
“CFDA” the China Food and Drug Administration ( ), formerly known as the State Drug
Administration ( ) and the State Food and Drug Administration ( )
“CITIC Holdings” CITIC HONG KONG (HOLDINGS) LIMITED , a company incorporated in Hong Kong
which held the entire equity interest in Gains Prestige before Acquisition VII and a wholly-owned subsidiary of CITIC Pacific
“CITIC Limited” CITIC Limited (formerly known as CITIC PACIFIC LIMITED ), a company incorporated in Hong Kong and the shares of which are listed on the Main Board of the Stock Exchange under stock code 0267
“CITIC Loan” the shareholders’ loan owed by Gains Prestige to CITIC Holdings for an outstanding amount of HK$1,085,230,039 before Acquisition VII
“CITIC Pacific” CITIC Pacific Limited ( ), a company incorporated in the BVI
“Collected Mind” Collected Mind Limited ( ) a company incorporated in the BVI and a direct wholly-owned subsidiary of the Company
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DEFINITIONS

“Company” 3SBio Inc. , a company incorporated in the Cayman Islands with limited liability, the shares of which are listed on the Main Board of the Stock Exchange “Completion I” completion of Acquisition I “Completion II” completion of Acquisition II “Completion III” completion of Acquisition III “Completion IV” completion of Acquisition IV “Completion V” completion of Acquisition V “Completion VI” completion of Acquisition VI “Completion VII” completion of Acquisition VII “Completion VIII” completion of Acquisition VIII “Controlling Shareholders” refers to Dr. Lou, Mr. Lou, Mr. Tan, Ms. Su, Mr. Huang, Lambda International Limited, Century Sunshine, Decade Sunshine, Hero Grand Management Limited, Triple Talent Enterprises Limited, Joint Palace Group Limited, Known Virtue International Limited and Medical Recovery Limited who form a group of controlling shareholders of the Company (as defined in the Listing Rules) “CP Guojian Warrant” the warrant issued by the Company to Shanghai Junling Investment Partnership (Limited Partnership) ( ) on January 1, 2015 in respect of the Shares and defined in the Prospectus. For further information, please refer to the section headed “History, Reorganization and Corporate Structure — CP Guojian Warrant” in the Prospectus “CS Sunshine” CS Sunshine Investment Limited, a company incorporated in the BVI and a substantial shareholder of the Company (as defined in the Listing Rules)

“Decade Sunshine” Decade Sunshine Limited, a company incorporated in the Cayman Islands and one of the Controlling Shareholders

“Director(s)” the director(s) of the Company “Dr. Lou” Mr. Lou Jing ( ), an executive Director and one of the Controlling Shareholders

“Enlarged Group” the Group, the Target Group, Lansheng Guojian, Shanghai Hongshang, Gains Prestige and Full Gain “First-round Acquisitions” Acquisition I, Acquisition II, Acquisition III and Acquisition IV “Full Gain” Full Gain Pharmaceutical Limited , a company incorporated in Hong Kong which is a wholly-owned subsidiary of Gains Prestige and holds an approximately 43.42% equity interest in the Target

DEFINITIONS

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|||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|“Gains Prestige”|Gains Prestige Limited (|), a company incorporated in the|
|BVI which holds the entire issued share capital of Full Gain|
|“General Mandate”|the|general|mandate|given|to|the|Directors|by|way|of|written|
|resolutions|of|the|then|sole|Shareholder|dated|May|23,|2015,|details|
|of|which|are|set|out|in|the|paragraph|headed|“A. Further|Information|
|about our Company — 4. Written resolutions|of our sole Shareholder|
|passed on May 23, 2015” in Appendix IV to the Prospectus|
|“Global Offering”|has the same meaning as defined in the Prospectus|
|“Grand Path”|Grand|Path|Holdings|Limited|(formerly|known|as|CICC|Bio|
|Investments|Limited),|a|company|incorporated|in|Hong|Kong|and|a|
|wholly-owned subsidiary of the Company|
|“Group”|the Company and its subsidiaries|
|“HK$”|Hong Kong dollars, the lawful currency of Hong Kong|
|“Hong Kong”|the Hong Kong Special Administrative Region of the PRC|
|“Hongkong Sansheng”|Hongkong|Sansheng|Medical|Limited|,|a|
|company|incorporated|in|Hong|Kong|and|an|indirect|wholly-owned|
|subsidiary of the Company|
|“IFRS”|the|International|Financial|Reporting|Standards,|amendments|and|
|interpretation|issued,|from|time|to|time|by|the|International|
|Accounting Standards Board|
|“IMS”|IMS|Health|Incorporated,|a|global|provider|of|market|intelligence|to|
|the pharmaceutical and healthcare industries|
|“Independent Board Committee”|the|independent|board|committee|comprising|all|of|the|independent|
|non-executive Directors|
|“Independent Third Party”|a|person|or|entity|who|is|not|considered|a|connected|person|or|an|
|associate|of|a|connected|person|of|the|Company|under|the|Listing|
|Rules|
|“Jianweida”|Shanghai|Jianweida|Investment|Enterprise|(Limited|Partnership)|
|(|), a limited partnership established in|
|the|PRC|which|held|an|approximately|1.81%|equity|interest|in|the|
|Target before Acquisition III, and an Independent Third Party|
|“Jianyikang”|Shanghai|Jianyikang|Investment|Enterprise|(Limited|Partnership)|
|(|), a limited partnership established in|
|the|PRC|which|held|an|approximately|1.29%|equity|interest|in|the|
|Target before Acquisition II, and an Independent Third Party|
|“Joint Global Coordinators”|Morgan|Stanley|Asia|Limited,|Goldman|Sachs|(Asia)|L.L.C.,|CLSA|
|Limited|and|China|International|Capital|Cooperation|Hong|Kong|
|Securities|Limited,|the|joint|global|coordinators|of|the|Global|
|Offering|

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DEFINITIONS

“Joint Sponsors”

CITIC Securities Corporate Finance (HK) Limited, Goldman Sachs (Asia) L.L.C. and Morgan Stanley Asia Limited, the joint sponsors of the Global Offering

“Lambda International”
Lambda International Limited ( ), a company incorporated in the BVI and one of the Controlling Shareholders
“Lansheng Corporation”
Shanghai Lansheng Corporation ( ), a company incorporated in the PRC which held an approximately 34.65% equity interest in Lansheng Guojian before Acquisition V and an approximately 0.73% equity interest in the Target before Acquisition VI, and the shares of which are listed on the Shanghai Stock Exchange under stock code 600826
“Lansheng Group”
Shanghai Lansheng (Group) Corporation ( ), a company incorporated in the PRC which held an approximately 3.85% equity interest in Lansheng Guojian before Acquisition V
“Lansheng Guojian” Shanghai Lansheng Guojian Pharmaceutical Company Limited ( ), a company incorporated in the PRC which holds an approximately 41.96% equity interest in the Target and an indirect non-wholly owned subsidiary of the Company following Acquisition I
“Last Trading Day” March 4, 2016, being the last trading day for the shares prior to the publication of the announcement of the Company dated March 4, 2016 in connection with the entering into of the Option Deed
“Latest Practicable Date”
April 15, 2016, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained herein
“Liaoning Sunshine”
Liaoning Sunshine Bio-Pharmaceutical Company Limited ( ), a limited liability company incorporated in the PRC and a wholly-owned subsidiary of the Company
“Listing”
the listing of the Shares on the Stock Exchange following the completion of the Global Offering
“Listing Rules”
the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited
“mAb”
a monospecific antibody against a specific epitope on an antigen made by identical immune cells that are all clones of a unique parent cell, in contrast to polyclonal antibodies which are made from hundreds of different immune cells
“Mianyang Fund”
Mianyang Science & Technology Industrial Investment Fund (LLP) ( ), a limited partnership established in the PRC which held an approximately 1.89% equity interest in the Target before Acquisition IV, and an Independent Third Party
“Mr. Huang”
Mr. Huang Bin ( ), an executive Director and one of the Controlling Shareholders
“Mr. Lou”
Mr. Lou Dan ( ), one of the Controlling Shareholders
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DEFINITIONS

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|||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|“Mr. Tan”|Mr.|Tan|Bo|(|),|an|executive|Director|and|one|of|the|Controlling|
|Shareholders|
|“Ms. Su”|Ms.|Su|Dongmei|(|),|an|executive|Director|and|one|of|the|
|Controlling Shareholders|
|“Option Deed”|the|deed|dated|March|4,|2016|entered|into|among|the|Company,|
|CITIC|Holdings|and|CITIC|Pacific|in|relation|to|the|issue|of|the|
|Options by the Company to CITIC Pacific|
|“Option Shares”|an aggregate of up to 125,765,500 new Shares (subject to adjustment)|
|to|be|allotted|and|issued|by|the|Company|following|the|exercise|of|
|the Options|
|“Options”|options|carrying|rights|to|subscribe|for|up|to|a|total|of|
|125,765,500|Shares|(subject|to|adjustment)|pursuant|to|the|terms|of|
|the Option Deed|
|“PRC”|the|People’s|Republic|of|China|and|for|the|purposes|of|this|circular,|
|excluding|Hong|Kong,|the|Macau|Special|Administrative|Region|of|
|the People’s Republic of China and Taiwan|
|“PRC GAAP”|generally|accepted|accounting|principles|of|the|PRC|in|effect|as|
|modified from time to time|
|“Previous Acquisition”|the|Group’s|previous|acquisition|of|approximately|6.96%|of|the|
|equity|interest|in|the|Target|in|December|2014|as|disclosed|in|the|
|section|headed|“History,|Reorganization|and|Corporate|Structure|—|
|Acquisition,|Investments|and|Disposal|—|Acquisition|of|interest|in|
|CP Guojian” in the Prospectus|
|“Price Determination Agreement”|has the same meaning as defined in the Prospectus|
|“Prospectus”|the|prospectus|of|the|Company|dated|June|1,|2015|in|relation|to|the|
|Global Offering|
|“RMB”|Renminbi, the lawful currency of the PRC|
|“Second-round Acquisitions”|Acquisition V and Acquisition VI|
|“SFO”|the|Securities|and|Futures|Ordinance|(Chapter|571|of|the|Laws|of|
|Hong|Kong),|as|amended,|supplemented|or|otherwise|modified|from|
|time to time|
|“Shanghai Hongshang”|Shanghai|Hongshang|Investment|Company|Limited|
|(|),|a|company|incorporated|in|the|PRC|which|
|holds|an|approximately|96.25%|equity|interest|in|Lansheng|Guojian|
|following|Acquisition|V|and|an|indirect|wholly-owned|subsidiary|of|
|the Company following Acquisition VIII|
|“Shanghai Pudong Tianyu”|Shanghai|Pudong|Tianyu|Investment|Development|Centre|(Limited|
|Partnership)|(|),|a|limited|
|liability|partnership|established|in|the|PRC|and|a|wholly-owned|
|subsidiary|of|the Company which is controlled|by its general|partner,|
|Liaoning Sunshine|

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DEFINITIONS

“Shareholder(s)” the holder(s) of the shares of the Company “Shares” ordinary share(s) in the share capital of the Company with a par value of US$0.00001 each “Shenyang Sunshine” Shenyang Sunshine Pharmaceutical Company Limited ( ), a limited liability company incorporated in the PRC and an indirect wholly-owned subsidiary of the Company “Stock Exchange” The Stock Exchange of Hong Kong Limited “SUAEE” the Shanghai United Assets and Equity Exchange ( ) “Target” or “Sunshine Guojian” Sunshine Guojian Pharmaceutical (Shanghai) Co., Ltd. ( ) (formerly known as Shanghai CP Guojian Pharmaceutical Co., Ltd ( )), a company incorporated in the PRC in which the Group held an approximately 6.96% equity interest before the Transactions “Target Group” the Target and its subsidiaries “Third-round Acquisitions” Acquisition VII and Acquisition VIII “Transactions” the transactions contemplated in Agreement I, Agreement II, Agreement III, Agreement IV, Agreement V, Agreement VI, Agreement VII, the Assignment Agreement, the Option Deed and Acquisition VIII “US$” United States dollars, the lawful currency of the United States of America “Xizang Hongshang” Xizang Hongshang Capital Investment Company Limited ( ), a company incorporated in the PRC “%” percent

LETTER FROM THE BOARD

3SBIO INC.

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1530)

Executive Directors: Registered office: Mr. Lou Jing The offices of Codan Trust Company (Cayman) Limited Mr. Tan Bo Cricket Square, Hutchins Drive Ms. Su Dongmei PO Box 2681 Mr. Huang Bin Grand Cayman, KY1-1111 Cayman Islands

Non-executive Directors: Principal Place of Business in Hong Kong: Mr. Liu Dong 36/F, Tower Two, Times Square Mr. Lv Dong 1 Matheson Street Causeway Bay Independent Non-executive Directors: Hong Kong

Mr. Pu Tianruo Mr. David Ross Parkinson Mr. Ma Jun

April 25, 2016

To the Shareholders

Dear Sir/Madam,

MAJOR AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF FURTHER EQUITY INTERESTS IN SUNSHINE GUOJIAN PHARMACEUTICAL (SHANGHAI) CO., LTD. (FORMERLY KNOWN AS SHANGHAI CP GUOJIAN PHARMACEUTICAL CO., LTD.) AND PROPOSED GRANT OF OPTIONS

INTRODUCTION

Reference is made to the announcements of the Company dated November 20, 2015, January 26, 2016 and March 4, 2016 in which the Board announced that:

(a) Shenyang Sunshine, a wholly-owned subsidiary of the Company, entered into:
(1) Agreement I with Xizang Hongshang pursuant to which Shenyang Sunshine acquired from Xizang Hongshang a 70% equity interest in Shanghai Hongshang, which held an approximately 57.75% equity interest in Lansheng Guojian before Acquisition I for a consideration of RMB1,053,323,906.25;
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LETTER FROM THE BOARD

(2) Agreement II with Jianyikang pursuant to which Shenyang Sunshine acquired from Jianyikang an approximately 1.29% equity interest in the Target for a consideration of RMB79,980,000;
(3) Agreement III with Jianweida pursuant to which Shenyang Sunshine acquired from Jianweida an approximately 1.81% equity interest in the Target for a consideration of RMB112,220,000;
(4) Agreement IV with Mianyang Fund pursuant to which Shenyang Sunshine acquired from Mianyang Fund an approximately 1.89% equity interest in the Target for a consideration of RMB118,125,000; and
(b) Shanghai Hongshang, which became an indirect non-wholly owned subsidiary of the Company following Completion I, entered into:
(1) Agreement V with Lansheng Corporation and Lansheng Group pursuant to which Shanghai Hongshang acquired from Lansheng Corporation an approximately 34.65% equity interest in Lansheng Guojian for a consideration of RMB890,093,900 and from Lansheng Group an approximately 3.85% equity interest in Lansheng Guojian for a consideration of RMB98,899,300;
(2) Agreement VI with Lansheng Corporation pursuant to which Shanghai Hongshang acquired from Lansheng Corporation an approximately 0.73% equity interest in the Target for a consideration of RMB44,325,600; and
(c) the Company entered into:
(1) Agreement VII with CITIC Holdings pursuant to which the Company acquired from CITIC Holdings the entire share capital of Gains Prestige and CITIC Holdings’ interest in the CITIC Loan, respectively, for a consideration of RMB2,713,750,000;
(2) the Option Deed among CITIC Holdings and CITIC Pacific pursuant to which the Company will issue options carrying rights to subscribe for up to a total of 125,765,500 Shares (subject to adjustment); and
(d) Shenyang Sunshine entered into Agreement VIII with Xizang Hongshang pursuant to which Shenyang Sunshine acquired a 30% equity interest in Shanghai Hongshang for a consideration of RMB1,217,994,489.98.

The aggregate consideration for the Transactions comprises cash consideration of approximately RMB6,328,712,000 and the Options. In determining the fairness and reasonableness of consideration for each of the Transactions, the Board mainly took into account the following factors: (i) the net asset value of the Target Group, (ii) the profitability of the business of the Target Group, (iii) the prospective growth of the Target Group, (iv) the Target Group’s existing manufacturing platform, and (v) the Target Group’s sizable sales and marketing and research and development teams. The Board is of the view that the combination of the grant of Options and cash payment instead of other forms of consideration for Acquisition VII would provide incentives for CITIC Pacific in achieving the exercise conditions of the Options which would be beneficial to the Target Group’s future growth prospects and therefore considers it fair and reasonable and in the best interests of the Company and the Shareholders as a whole.

As at the Latest Practicable Date, the Controlling Shareholders and CS Sunshine, whom together held 1,550,841,430 Shares, representing approximately 61.66% of the issued share capital of

LETTER FROM THE BOARD

the Company, had given their written approval in lieu of holding a general meeting to approve the Transactions in accordance with Rule 14.44 of the Listing Rules. Accordingly, written Shareholders’ approvals of the Controlling Shareholders and CS Sunshine have therefore been relied on in lieu of holding a general meeting for approving the Transactions.

The purpose of this circular is to provide you with, among other things, (i) further information regarding the Transactions, (ii) a letter from the Independent Board Committee to the Shareholders on Acquisition VII, (iii) a letter from Alliance Capital to the Independent Board Committee and the Shareholders on Acquisition VII, (iv) certain relevant financial information of the Group, (v) the accountants’ report of the Target Group, (vi) the accountants’ report of Lansheng Guojian, (vii) the accountants’ report of Gains Prestige; and (viii) the unaudited pro forma financial information of the Enlarged Group.

THE TRANSACTIONS

Agreement I

The principal terms of Agreement I are summarized below:

Date: November 20, 2015 Parties: (i) Shenyang Sunshine (ii) Xizang Hongshang Assets to be acquired: Shenyang Sunshine agreed to acquire and Xizang Hongshang agreed to sell a 70% equity interest in Shanghai Hongshang, which held an approximately 57.75% equity interest in Lansheng Guojian before Acquisition I, the principal asset of which is an approximately 41.69% equity interest in the Target. Consideration: The total consideration payable by Shenyang Sunshine to Xizang Hongshang in respect of Agreement I is RMB1,053,323,906.25. The consideration was paid in cash to Xizang Hongshang in two installments, and was fully settled within three business days (which according to Agreement I, include Monday to Friday but exclude PRC statutory holidays) from the date on which the registrations with the relevant PRC government authorities in relation to Agreement I are completed.

The consideration was determined between Shenyang Sunshine and Xizang Hongshang after arm’s length negotiations.

Time for Completion I: Completion I shall take place within five business days of signing of Agreement I when (i) all the relevant constitutional documents and register of members have been updated to reflect Completion I; and (ii) all the necessary resolutions have been passed for the purpose of Completion I.

Completion I took place on November 26, 2015.

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LETTER FROM THE BOARD

Following Completion I, Shanghai Hongshang and Lansheng Guojian became indirect nonwholly owned subsidiaries of the Company and the financial information of Shanghai Hongshang and Lansheng Guojian have been consolidated into the accounts of the Company.

Agreement II

The principal terms of Agreement II are summarized below:

Date: November 20, 2015 Parties: (i) Shenyang Sunshine (ii) Jianyikang Assets to be acquired: Shenyang Sunshine conditionally agreed to acquire and Jianyikang conditionally agreed to sell an approximately 1.29% equity interest in the Target. Consideration: The total consideration payable by Shenyang Sunshine to Jianyikang in respect of Agreement II is RMB79,980,000. The consideration was paid in cash to Jianyikang in two installments, and was fully settled within three business days from the date of Completion II. The consideration was determined between Shenyang Sunshine and Jianyikang after arm’s length negotiations. Time for Completion II: Completion II shall take place when the registrations relating to Acquisition II are completed in accordance with the procedures prescribed under the relevant PRC laws and the register of members of the Target is updated to reflect Completion II.

If the procedures relating to Completion II remain uncompleted due to reasons unrelated to the parties to Agreement II, Jianyikang shall refund the consideration of Agreement II to Shenyang Sunshine without interest within ten business days of receipt of written notice from Shenyang Sunshine.

Completion II took place on November 26, 2015.

Agreement III

The principal terms of Agreement III are summarized below:

Date: November 20, 2015 Parties: (i) Shenyang Sunshine (ii) Jianweida

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LETTER FROM THE BOARD

Assets to be acquired: Shenyang Sunshine conditionally agreed to acquire and Jianweida conditionally agreed to sell an approximately 1.81% equity interest in the Target.

Consideration: The total consideration payable by Shenyang Sunshine to Jianweida in respect of Agreement III is RMB112,220,000.

The consideration was paid in cash to Jianweida in two installments, and was fully settled within three business days from the date of Completion III.

The consideration was determined between Shenyang Sunshine and Jianweida after arm’s length negotiations.

Time for Completion III: Completion III shall take place when the registrations relating to Acquisition III are completed in accordance with the procedures prescribed under the relevant PRC laws and the register of members of the Target is updated to reflect Completion III.

If the procedures relating to Completion III remain uncompleted due to reasons unrelated to the parties to Agreement III, Jianweida shall refund the consideration of Agreement III to Shenyang Sunshine without interest within ten business days of receipt of written notice from Shenyang Sunshine.

Completion III took place on November 26, 2015.

Agreement IV

The principal terms of Agreement IV are summarized below:

Date: November 20, 2015 Parties: (i) Shenyang Sunshine (ii) Mianyang Fund Assets to be acquired: Shenyang Sunshine conditionally agreed to acquire and Mianyang Fund conditionally agreed to sell an approximately 1.89% equity interest in the Target. Consideration: The total consideration payable by Shenyang Sunshine to Mianyang Fund in respect of Agreement IV is RMB118,125,000.

The consideration was paid in cash to Mianyang Fund in two installments, and was fully settled within three business days from the date of Completion IV.

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LETTER FROM THE BOARD

The consideration was determined between Shenyang Sunshine and Mianyang Fund after arm’s length negotiations.

Time for Completion IV: Completion IV shall take place when the registrations relating to Acquisition IV are completed in accordance with the procedures prescribed under the relevant PRC laws and in any event shall take place within 14 days of the effective date of Agreement IV.

If the procedures relating to Completion IV remain uncompleted within 60 days of signing Agreement IV due to reasons unrelated to the parties to Agreement IV, Mianyang Fund shall refund the consideration of Agreement IV to Shenyang Sunshine without interest within ten business days of receipt of written notice from Shenyang Sunshine.

Completion IV took place on November 26, 2015.

The date on which each of Agreement II, Agreement III and Agreement IV is deemed to become effective is the date on which the respective agreement is approved by the Shanghai Municipal Commission of Commerce ( ). Agreement II, Agreement III and Agreement IV were approved by the Shanghai Municipal Commission of Commerce on November 26, 2015.

Agreement V

The principal terms of Agreement V are summarized below:

Date: January 26, 2016 Parties: (i) Shanghai Hongshang (ii) Lansheng Corporation (iii) Lansheng Group Assets to be acquired: (i) Shanghai Hongshang agreed to acquire and Lansheng Corporation agreed to sell an approximately 34.65% equity interest in Lansheng Guojian; and (ii) Shanghai Hongshang agreed to acquire and Lansheng Group agreed to sell an approximately 3.85% equity interest in Lansheng Guojian. Consideration: The consideration payable by Shanghai Hongshang to Lansheng Corporation is RMB890,093,900 while the consideration payable to Lansheng Group is RMB98,899,300.

The consideration was paid in cash to each of Lansheng Corporation and Lansheng Group in two installments. The first installment was settled with the deposit paid to the SUAEE. The second installment was settled within five business days of signing of Agreement V.

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The consideration was determined among the parties to Agreement V after arm’s length negotiations. Time for Completion V: Completion V shall take place on the date on which the SUAEE issues the property transaction certificate ( ). Completion V took place on January 26, 2016.

Agreement VI

The principal terms of Agreement VI are summarized below:

Date: January 26, 2016 Parties: (i) Shanghai Hongshang (ii) Lansheng Corporation Assets to be acquired: Shanghai Hongshang agreed to acquire and Lansheng Corporation agreed to sell an approximately 0.73% equity interest in the Target. Consideration: The total consideration payable by Shanghai Hongshang to Lansheng Corporation in respect of Agreement VI is RMB44,325,600. The consideration was paid in cash to Lansheng Corporation in two installments. The first installment was settled with the deposit paid to the SUAEE. The second installment was settled within five business days of signing of Agreement VI. The consideration was determined between Shanghai Hongshang and Lansheng Corporation after arm’s length negotiations. Time for Completion VI: Completion VI shall take place on the date on which the SUAEE issues the property transaction certificate ( ). Completion VI took place on January 26, 2016.

Agreement VII

The principal terms of Agreement VII are summarized below:

Date: March 3, 2016 Parties: (i) The Company (ii) CITIC Holdings Assets to be acquired: The Company conditionally agreed to acquire and CITIC Holdings conditionally agreed to sell the entire issued share capital of Gains Prestige and CITIC Holdings’ interest in the CITIC Loan.

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Consideration:

The total consideration payable by the Company to CITIC Holdings is RMB2,713,750,000, payable in Hong Kong dollars.

The consideration was paid to CITIC Holdings in two installments. The first installment was partly settled with the deposit paid to SUAEE and the remaining amount of the first installment was settled within three business days of signing Agreement VII. The second installment was settled within five business days of signing Agreement VII.

The consideration was determined between the Company and CITIC Holdings after arm’s length negotiations.

Time for Completion VII: Completion VII shall take place on the date on which the transfer of the entire issued share capital of Gains Prestige from CITIC Holdings to the Company is duly completed. The Assignment Agreement will be signed on the date of Completion VII.

Completion VII took place on March 18, 2016.

Assignment Agreement

The principal terms of the Assignment Agreement are summarized below:

Date: March 18, 2016 Parties: (i) The Company (ii) CITIC Holdings (iii) Gains Prestige Assets to be acquired: CITIC Holdings agreed to assign to the Company its interests in the CITIC Loan. Consideration: The consideration for the assignment of the interests in the CITIC Loan held by CITIC Holdings was settled with the second installment of the consideration payable by the Company to CITIC Holdings under Agreement VII. Time for completion of The assignment of the CITIC Loan from CITIC Holdings to the Company the Assignment shall take effect on the date of the Assignment Agreement. Agreement:

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Option Deed

On March 4, 2016, the Company, CITIC Holdings and CITIC Pacific entered into the Option Deed pursuant to which the Company agreed to issue to CITIC Pacific the Options subject to certain exercise conditions which will form part of the consideration of Acquisition VII. The principal terms of the Option Deed are summarized below:

Date:

March 4, 2016

Parties:

(i) The Company
(ii) CITIC Holdings (iii) CITIC Pacific

Exercise Price:

The higher of the following:

(i) HK$9.10 per Option Share; or
(ii) 80.01% of the higher of (x) the closing price of the Shares on the date of the Option Deed and (y) the average of the closing prices of the Shares for the five trading days immediately prior to the date of the Option Deed (to be rounded up to the nearest cent in Hong Kong dollars).

The Exercise Price is therefore HK$9.10 per Option Share, which represents:

(a) a discount of approximately 3.91% to the closing price of HK$9.47 per Share as quoted on the Stock Exchange on the Last Trading Day;
(b) a discount of approximately 2.88% to the average closing price of approximately HK$9.37 per Share as quoted on the Stock Exchange for the five consecutive trading days immediately prior to and including the Last Trading Day;
(c) a discount of approximately 2.78% to the average closing price of approximately HK$9.36 per Share as quoted on the Stock Exchange for the ten consecutive trading days immediately prior to and including the Last Trading Day; and
(d) a premium of approximately 239.88% to the audited net asset value of the Group of approximately RMB2.24 (equivalent to approximately HK$2.68*) per Share as at December 31, 2015.

The Exercise Price was arrived at after arm’s length negotiations among the Company, CITIC Holdings and CITIC Pacific with reference to the market condition and the prevailing market price of the Shares.

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The Exercise Price shall be subject to adjustment events including issue of bonus Shares, issue of new Shares pursuant to a public offering, share consolidation or subdivision or issue of Shares by way of capitalization of profits or reserves by the Company (excluding (i) any issue of Shares pursuant to exercise of warrants issued by the Company prior to the Listing; (ii) issue of Shares by the Company pursuant to the exercise of options issued by the Company under share option schemes compliant with Chapter 17 of the Listing Rules; and (iii) any issue of Shares or options in connection with acquisitions by the Company) provided that: (a) CITIC Pacific’s shareholding in the Company (on a fully converted basis) will remain the same as that before the relevant adjustment event(s); (b) the Exercise Price will not fall below the nominal value of the Shares; and (c) the total Exercise Price payable by CITIC Pacific to the Company will not exceed the original Exercise Price prescribed in the Option Deed.

After making any adjustments to the Exercise Price, the Company shall, within a reasonable period (not exceeding 30 business days), issue a written notification signed by a Director to CITIC Pacific containing the details of the adjustments, including the calculation of the adjusted Exercise Price, the adjusted Exercise Price and the adjusted number of the Option Shares. CITIC Pacific shall, within 30 business days after receiving such notification, issue to the Company a written confirmation signed by a director of CITIC Pacific confirming the adjusted Exercise Price and the adjusted number of the Option Shares.

The Directors consider the Exercise Price fair and reasonable.

Options granted: Options representing 125,765,500 Option Shares.

The Options shall be granted and issued by the Company to CITIC Pacific on the date of Completion VII (or a later date agreed by CITIC Pacific in writing) in accordance with the relevant requirements or the regulations of the Stock Exchange (including but not limited to obtaining the Shareholders’ approval for the issue of the Option Shares and the Stock Exchange’s listing approval for the listing of the Option Shares).

Exercise conditions:

The Options shall become exercisable if the relevant requirements or the regulations of the Stock Exchange have been fulfilled (including but not limited to obtaining the Shareholders’ approval for the issue of the Option Shares and the Stock Exchange’s listing approval for the listing of the Option Shares) and in the following manner:

(a) 60% of the Options (i.e. 75,459,300 Shares subject to adjustment) shall be exercisable by CITIC Pacific if the Target obtains the Drug Registration Approval ( ) and the New Drug Certificate ( ) issued by the CFDA or its authorized institution for its recombinant humanized anti-HER2 monoclonal antibody for injection ( ) (also
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generally known as Ipterbin ( )) before September 30, 2016 and CITIC Pacific has issued an exercise notice to the Company within 36 months of the signing of the Option Deed (i.e. on or before March 4, 2019); and

(b) 40% of the Options (i.e. 50,306,200 Shares subject to adjustment) shall be exercisable by CITIC Pacific if the Target obtains the Drug Registration Approval ( ) and the New Drug Certificate ( ) issued by the CFDA or its authorized institution for its recombinant anti-CD20 chimeric monoclonal antibody injection ( CD20 ) (also generally known as Jiantuoxi ( )) before December 31, 2017 and CITIC Pacific has issued an exercise notice to the Company within 36 months of the signing of the Option Deed (i.e. on or before March 4, 2019).

For each of the exercise conditions (a) and (b) above, the Options may be exercised by CITIC Pacific in not more than three batches, respectively.

Transferability:

The rights and obligations under the Option Deed may not be transferred to any third party by any party to the Option Deed without the other parties’ written consent.

calculated in accordance with the Renminbi’s central parity rate against Hong Kong dollars published by the People’s Bank of China on the Latest Practicable Date (i.e. RMB0.8368: HK$1)

The Option Shares represent approximately 5.00% of the issued share capital of the Company as at the date of this circular or approximately 4.76% of the issued share capital of the Company as enlarged by the Option Shares upon exercise of the Options in full. The Option Shares will be allotted and issued by the Company under the General Mandate. An application will be made to the Stock Exchange for the approval of the listing of, and the permission to deal in, the Option Shares. The Option Shares, when issued and fully paid, will rank pari passu in all respects with all the Shares then in issue. CITIC Pacific, as the holder of the Options, does not have any right to participate in any distribution and/or offer of further securities by the Company under the Option Deed. The Company will make further announcement(s) when any of the exercise conditions of the Options is fulfilled.

The Options comply with the requirements in Rules 15.02(1) and (2) of the Listing Rules as:

(a) the Option Shares, when aggregated with all Shares to be issued upon full exercise of the CP Guojian Warrant, are not expected to exceed 20% of the issued share capital of the Company at the time when the Options are issued; and
(b) the Options will expire within 36 months of the date of the signing of the Option Deed.

As at the date of this circular, the Company does not have any securities with subscription rights outstanding and not yet exercised except for the CP Guojian Warrant (the exercise of which is subject to its terms and vesting conditions) and which are required to be aggregated with the Option Shares in accordance with Rule 15.02(1) of the Listing Rules.

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Pursuant to the General Mandate, the Directors are authorized to exercise all powers of the Company to issue and allot Shares not exceeding 20% of the aggregate nominal value of the Shares in issue immediately following the completion of the Global Offering, excluding any Shares which may fall to be issued pursuant to the exercise of the Over-allotment Option (as defined in the Prospectus) or any options granted under the Post-IPO Share Option Scheme (as defined in the Prospectus), which is equivalent to 484,879,714 Shares. Assuming all Options are exercised in full, the unutilized General Mandate shall allow the Directors to exercise all powers of the Company and to issue and allot up to 359,114,214 Shares.

The Exercise Price is subject to the adjustment provisions in the Option Deed, the triggering of which is within the Company’s control. The Company will not take any corporate action that would result in the number of the Option Shares exceeding the limit of the General Mandate and will keep track of the number of the Option Shares issued or issuable under the Option Deed and will take this into account before it takes any actions that may trigger the adjustment provisions in the Option Deed.

Agreement VIII

The principal terms of the Agreement VIII are summarized below:

Date: March 3, 2016 Parties: (i) Shenyang Sunshine (ii) Xizang Hongshang Assets to be transferred: Shenyang Sunshine agreed to acquire and Xizang Hongshang agreed to sell a 30% equity interest in Shanghai Hongshang, which holds an approximately 96.25% equity interest in Lansheng Guojian following Acquisition V, the principal asset of which is an approximately 41.69% equity interest in the Target.

Consideration: The total consideration payable by Shenyang Sunshine to Xizang Hongshang in respect of Agreement VIII is RMB1,217,994,489.98.

The consideration was paid in cash to Xizhang Hongshang in two installments, and was fully settled within three business days (which according to Agreement VIII, include Monday to Friday but exclude PRC statutory holidays) from date on which the registrations with the relevant PRC government authorities in relation to Agreement VIII are completed.

The consideration was determined between Shenyang Sunshine and Xizang Hongshang after arm’s length negotiations.

Time for Completion VIII: Completion VIII shall take place within five business days of signing of Agreement VIII when (i) all the relevant constitutional documents and register of members have been updated to reflect Completion VIII; and (ii) all the necessary resolutions have been passed for the purpose of Completion VIII.

Completion VIII took place on March 4, 2016.

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Following the completion of the Transactions, the Group collectively controls an approximately 97.78% equity interest in the Target, an approximately 96.25% of the equity interest in Lansheng Guojian and the entire equity interests in Shanghai Hongshang and Gains Prestige. The Target Group and Lansheng Guojian became indirect non-wholly owned subsidiaries of the Company. Gains Prestige became a direct wholly-owned subsidiary of the Company. Full Gain and Shanghai Hongshang became indirect wholly-owned subsidiaries of the Company. The financial information of the Target Group, Lansheng Guojian, Shanghai Hongshang, Gains Prestige and Full Gain have been consolidated into the accounts of the Company. The Company may acquire the remaining equity interests in Lansheng Guojian and the Target after completion of the Transactions. The Company will continue to work with the Target’s other shareholder, customers and employees in strengthening the Target Group’s position as a leading biopharmaceutical company in the PRC’s antibody product sector and is committed to working with the Target Group in expanding its business within the PRC and internationally.

INFORMATION OF THE TARGET GROUP, SHANGHAI HONGSHANG, LANSHENG GUOJIAN, GAINS PRESTIGE AND FULL GAIN

Information of the Target Group

The Target was incorporated in the PRC on January 25, 2002. It is a biopharmaceutical company with expertise in developing, manufacturing and marketing monoclonal antibody therapeutics.

Based on the information provided by the Target, the following is a summary of the consolidated financial information of the Target Group for the three financial years ended December 31, 2013, 2014 and 2015. The financial information of the Target Group was prepared in accordance with the IFRS.

Revenue Gross margin Net profit before taxation and extraordinary items Net profit after taxation and extraordinary items Normalised net profit after taxation*	For the year ended December 31, 2013 (audited) RMB’000 727,837 687,670 347,959 298,329 298,329	For the year ended December 31, 2014 (audited) RMB’000 775,851 721,474 245,796 213,421 213,421	For the year ended December 31, 2015
			(audited) RMB’000 877,346 821,199 283,534 207,007 253,588

The adjustment made in 2015 represents the deduction of the expense of RMB46,581,000 in relation to the CP Guojian Warrant.

As of December 31, 2013, 2014 and 2015, the audited consolidated net asset value of the Target Group amounted to approximately RMB1,837,114,000, RMB2,050,527,000, and RMB2,304,352,000, respectively.

Information of Shanghai Hongshang and Lansheng Guojian

Shanghai Hongshang was incorporated in the PRC on November 5, 2015. It is an investment holding company and as of December 31, 2015, did not have any material assets other than its holding of an approximately 57.75% equity interest in Lansheng Guojian.

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Lansheng Guojian was incorporated in the PRC on December 23, 1998. It is an investment holding company and as of December 31, 2015, did not have any material assets other than bank deposits of approximately RMB34,769,000 and its holding of an approximately 41.69% equity interest in the Target.

Based on the information provided by Lansheng Guojian, the following is a summary of the financial information of Lansheng Guojian for the three financial years ended December 31, 2013, 2014 and 2015. The financial information of Lansheng Guojian was prepared in accordance with the IFRS.

Net profit before taxation and extraordinary items . . . . . . . . . . . . . . . . . Net profit after taxation and extraordinary items . . . . . . . . . . . . . . . . . .	For the year ended December 31, 2013 (audited) RMB’000 108,747 108,747	For the year ended December 31, 2014 (audited) RMB’000 76,026 76,026	For the year ended December 31, 2015
			(audited) RMB’000 80,883 80,883

Xizang Hongshang has not provided the Company with any information relating to the original cost of acquisition of the 30% equity interest in Shanghai Hongshang to Xizang Hongshang.

Information of Gains Prestige and Full Gain

Gains Prestige was incorporated in the BVI on September 2, 2014. It is an investment holding company and as of December 31, 2015, did not have any material assets other than its holding of an approximately 43.42% equity interest in the Target through Full Gain.

Based on the information provided by Gains Prestige, the following is a summary of the consolidated financial information of Gains Prestige for the period from September 2, 2014 (i.e. the date of incorporation of Gains Prestige) to December 31, 2014 and the year ended December 31, 2015. The financial information of Gains Prestige was prepared in accordance with the Hong Kong Financial Reporting Standards.

Net profit before taxation and extraordinary items . . . . . . . . . . . . . . . . . . Net profit after taxation and extraordinary items . . . . . . . . . . . . . . . . . . .	Between September 2, 2014 and December 31, 2014 (audited) HK$’000 23,252 23,252	For the year ended December 31, 2015
		(audited) HK$’000 113,729 113,729

Full Gain was incorporated in Hong Kong on October 6, 2014. It is an investment holding company and as of December 31, 2015, did not have any material assets other than its holding of an approximately 43.42% equity interest in the Target.

The approximately 43.42% equity interest in the Target held by Full Gain originated from CITIC Limited’s initial capital contribution of RMB350 million to the Target in 2002 and was subsequently transferred to Full Gain pursuant to an internal reorganization of CITIC Limited in 2014.

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The following diagram illustrates a simplified corporate structure of the Company’s interest in the Target before the Transactions:

==> picture [453 x 252] intentionally omitted <==

----- Start of picture text -----

The Company
(Cayman)
100%
Grand Path (HK)
Offshore
Onshore
100% Shenyang 100% Liaoning Sunshine
Sunshine (PRC) [(1)] (PRC)
23.5% 76.5%
Shanghai Pudong Tianyu (PRC) [(2)]
2.04% 2.76% 2.15%
The Target Group (PRC) [(3)]
----- End of picture text -----

Notes:

(1) Shenyang Sunshine is a direct wholly-owned subsidiary of Hongkong Sansheng, which is a direct wholly-owned subsidiary of Collected Mind, a direct wholly-owned subsidiary the Company. As such, Shenyang Sunshine is an indirect wholly-owned subsidiary of the Company.
(2) Shanghai Pudong Tianyu is a limited partnership established in the PRC which is controlled by its general partner, Liaoning Sunshine.
(3) Before the Transactions, the remaining equity interests in the Target were held by Lansheng Guojian as to 41.69%, Jianyikang as to 1.29%, Jianweida as to 1.81%, Mianyang Fund as to 1.89%, Lansheng Corporation as to 0.73%, Shanghai Pudong Lingyu Investment Development Centre (Limited Partnership) ( ) as to 2.22% and Full Gain as to 43.42%.
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The following diagram illustrates a simplified corporate structure of the Company’s interest in the Target following the completion of the Transactions:

==> picture [455 x 240] intentionally omitted <==

----- Start of picture text -----

100% The Company 100% Gains 100% Full
Grand Path (HK)
(Cayman) Prestige (BVI) Gain (HK)
Offshore
100% Onshore
Shenyang Sunshine (PRC) [(1)]
100%
Shanghai
Hongshang 100% 23.5%
(PRC)
Liaoning Shanghai
Sunshine 76.5% Pudong Tianyu
96.25% (PRC) (PRC) [(3)]
Lansheng
Guojian
(PRC) [(2)]
2.04% 0.73% 41.69% 7.75% 2.15% 43.42%
The Target Group (PRC) [(4)]
----- End of picture text -----

Notes:

(1) Shenyang Sunshine is a direct wholly-owned subsidiary of Hongkong Sansheng, which is a direct wholly-owned subsidiary of Collected Mind, a direct wholly-owned subsidiary the Company. As such, Shenyang Sunshine is an indirect wholly-owned subsidiary of the Company.
(2) The remaining interests of Lansheng Guojian are owned by Shanghai Zhangjiang Collective Assets Investment Management Company Limited ( ) as to 3.75%. Shanghai Zhangjiang Collective Assets Investment Management Company Limited is independent of the Company and its connected persons and is primarily engaged in the management of collective assets (non-financial businesses).
(3) Shanghai Pudong Tianyu is a limited partnership established in the PRC which is controlled by its general partner, Liaoning Sunshine.
(4) The remaining equity interests in the Target are held by Shanghai Pudong Lingyu Investment Development Centre (Limited Partnership) ( ) as to 2.22%. Shanghai Pudong Lingyu Investment Development Centre (Limited Partnership) is independent of the Company and its connected persons and is primarily engaged in investment management.

MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP

The following discussion and analysis should be read in conjunction with the financial information of the Target Group for the years ended December 31, 2013, 2014 and 2015, as set out in Appendix II to this circular.

Liquidity, financial position and capital structure

During the year ended December 31, 2013, the Target Group funded its operations mainly by cash generated from the sale of pharmaceutical products. As at December 31, 2013, the cash and cash equivalents were approximately RMB877,045,000, and there was a corporate debenture in the amount of approximately RMB194,407,000 due within one year. The cash and cash equivalents were primarily held in RMB.

During the year ended December 31, 2014, the Target Group funded its operations mainly by cash generated from the sale of pharmaceutical products. As at December 31, 2014, the cash and cash

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equivalents were approximately RMB526,526,000 and there were no outstanding bank borrowings or corporate debentures. The cash and cash equivalents were primarily held in RMB.

During the year ended December 31, 2015, the Target Group funded its operations mainly by cash generated from the sale of pharmaceutical products. As at December 31, 2015, the cash and cash equivalents were approximately RMB575,582,000, and there were no outstanding bank borrowings or corporate debentures. The cash and cash equivalents were primarily held in RMB.

As at December 31, 2013, the current assets and current liabilities of the Target Group were approximately RMB1,190,878,000 and RMB289,983,000, respectively. The current assets of the Target Group as at December 31, 2013 mainly comprised cash and cash equivalents and accounts receivables. The current liabilities of the Target Group as at December 31, 2013 mainly comprised the corporate debenture due within one year. The current ratio, represented by the current assets as a percentage of the current liabilities, was approximately 410.7% as at December 31, 2013. The gearing ratio, represented by the total interest bearing loans as a percentage of the total equity, was approximately 10.6% as at December 31, 2013.

As at December 31, 2014, the current assets and current liabilities of the Target Group were approximately RMB849,227,000 and RMB85,561,000 respectively. The decrease in the current assets in 2014 was primarily due to the decrease in the cash and cash equivalents. The Target Group invested RMB419,000,000 in capital expenditure in 2014 compared to RMB293,512,000 in 2013 and repaid the corporate debenture due within one year of RMB195,000,000 in 2014. The decrease in the current liabilities in 2014 was primarily due to the repayment of the corporate debenture due within one year of RMB195,000,000 in 2014. The current assets of the Target Group as at December 31, 2014 mainly comprised cash and cash equivalents and the accounts receivables. The current liabilities of the Target Group as at December 31, 2014 mainly comprised accrued salaries, bonuses and welfare expense. The current ratio, represented by the current assets as a percentage of the current liabilities, was 992.5% as at December 31, 2014. The gearing ratio, represented by the total interest bearing loans as a percentage of the total equity, was nil as at December 31, 2014, given that there were no interest bearing loans as at December 31, 2014.

As at December 31, 2015, the current assets and current liabilities of the Target Group were approximately RMB959,639,000 and RMB98,425,000, respectively. The increase in the current assets in 2015 was primarily due to the increase in cash and cash equivalents and available for sale investments, which represented the short term financial products issued by certain major banks in mainland China. The increase in the current liabilities was primarily due to the increase in payable to vendors of property, plant and equipment. The current assets of the Target Group as at December 31, 2015 mainly comprised cash and cash equivalents and accounts receivables, and the current liabilities of the Target Group as at December 31, 2015 mainly comprised accrued salaries, bonuses and welfare expense. The current ratio, represented by the current assets as a percentage of the current liabilities, was approximately 975.0% as at December 31, 2015. The gearing ratio, represented by the total interest bearing loans as a percentage of the total equity, was nil as at December 31, 2015 given that there were no interest bearing loans as at December 31, 2015.

Treasury policies

The Target Group has been adopting prudent financial and treasury policies over the years with an objective of providing sufficient control on the treasury and funding activities and to improve the

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overall funding efficiency. As at December 31, 2014 and 2015, the Target Group had no outstanding loans and had no financial instruments for hedging foreign exchange exposure as its assets were primarily held in RMB.

Revenue

The Target Group recorded revenue of approximately RMB727,837,000, RMB775,851,000 and RMB877,346,000 for the years ended December 31, 2013, 2014 and 2015, respectively. The increase in revenue throughout the period from 2013 to 2015 was mainly due to the sales growth of the Target Group’s key product, namely Yisaipu ( ).

Costs of sales

The costs of sales represented costs of raw materials, staff costs, depreciation, packaging costs, and other miscellaneous costs. The Target Group incurred cost of sales of approximately RMB40,167,000, RMB54,377,000 and RMB56,147,000 for the years ended December 31, 2013, 2014 and 2015, respectively. The increase in the costs of sales in 2014 and 2015 was primarily due to the increased sales volume in 2014 and 2015.

Gross profit

The Target Group recorded gross profit of approximately RMB687,670,000, RMB721,474,000 and RMB821,199,000 for the years ended December 31, 2013, 2014 and 2015, respectively. The gross profit margin throughout the period from 2013 to 2015 was stable.

Other income and gains

The Target Group recorded other income of approximately RMB95,544,000, RMB107,599,000 and RMB96,809,000, for the years ended December 31, 2013, 2014 and 2015, respectively. The fluctuation in the other income throughout the period from 2013 to 2015 was mainly due to the change in government grants received throughout the period.

Selling and distribution expenses

The Target Group incurred selling and distribution expenses of approximately RMB264,394,000, RMB356,971,000 and RMB344,406,000, for the years ended December 31, 2013, 2014 and 2015, respectively. The increase in the selling and distribution expenses in 2014 was primarily due to the increased promotional activities for the Target Group’s products and the increased number of the Target Group’s sales and marketing staff. The decrease in the selling and distribution expenses in 2015 was primarily due to the Target Group’s effective control of the selling and distribution expenses.

Administrative expenses

The Target Group incurred administrative expenses of approximately RMB77,836,000, RMB98,130,000 and RMB158,646,000, for the years ended December 31, 2013, 2014 and 2015, respectively. The increase in the administrative expenses in 2014 was mainly due to the increase in staff expenses. The increase in 2015 was mainly due to the one-off warrant expense of RMB46,581,000.

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Other expenses and losses

The Target Group recorded other expenses and losses of approximately RMB77,797,000, RMB125,637,000 and RMB178,003,000, for the years ended December 31, 2013, 2014 and 2015, respectively. The Target Group’s other expenses and losses primarily comprised research and development costs. The increase in the other expenses and losses throughout the period from 2013 to 2015 was mainly due to the increase in the research and development costs throughout the period, which increased from approximately RMB74,840,000 in 2013 to RMB124,443,000 in 2014 and RMB177,770,000 in 2015.

Net profit

The Target Group achieved a net profit before taxation and extraordinary items of approximately RMB347,959,000, RMB245,796,000 and RMB283,534,000 for the years ended December 31, 2013, 2014 and 2015, respectively.

The Target Group achieved a net profit after taxation and extraordinary items of approximately RMB298,329,000, RMB213,421,000 and RMB207,007,000 for the years ended December 31, 2013, 2014 and 2015, respectively. The Target Group achieved a normalized net profit of approximately RMB298,329,000, RMB213,421,000 and RMB253,588,000 for the years ended December 31, 2013, 2014 and 2015, respectively. The adjustment made in 2015 represents the deduction of the expense of RMB46,581,000 in relation to the CP Guojian Warrant.

Employment and remuneration policies

The Target Group had 1,123, 1,315 and 1,277 employees as at December 31, 2013, 2014 and 2015, respectively. It incurred employee benefit expenses of approximately RMB172,615,000, RMB237,834,000 and RMB303,447,000 for the years ended December 31, 2013, 2014 and 2015, respectively. The Target Group remunerated its employees by reference to their qualifications, experiences, responsibilities and profitability of the Target Group as well as the market conditions.

Significant investments held and future plans for material investments

As at December 31, 2013, 2014 and 2015, the Target Group did not have any significant investments. There is no immediate plan for material investments by the Target Group.

Capital commitment and contingent liabilities

As at December 31, 2013, 2014 and 2015, the Target Group had capital commitments for the acquisition of fixed assets and intangible assets of RMB221,355,000, RMB77,382,000 and RMB61,747,000, respectively. The Target Group had no significant contingent liabilities as at December 31, 2013, 2014 and 2015.

Foreign exchange exposure

During the years ended December 31, 2013, 2014 and 2015, the operation of the Target Group was principally in the PRC and the principal assets and liabilities of the Target Group were denominated in RMB. As such, the Target Group considered that it did not have any material exposure to fluctuations in exchange rate and hence no hedging measures were taken.

Acquisitions and disposals

There were no material acquisitions and disposals of subsidiaries, jointly controlled entities and associated companies by the Target Group during the period from 2013 to 2015.

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Charges on assets

At December 31, 2013, certain of the Target Group’s buildings with a net carrying amount of approximately RMB77,464,000 and prepaid land lease payments of approximately RMB21,234,000 were pledged to secure bonds of the Target Group.

Outlook

The CFDA announced a basket of papers since the second half of 2015, which is expected to bring fundamental changes to the pharmaceutical industry. The recent regulatory changes on the new drug approvals will play a positive role for innovative pharmaceutical companies like the Company and the Target. These changes will clearly set a higher barrier for entry and will speed up the approval process for qualifying new drugs. In addition, they may lead to industry consolidation and favor companies with scale.

With the integration of the Company and the Target Group, the Company will be provided with a monoclonal antibody manufacturing platform for the Company’s five monoclonal antibody candidates in the Company’s pipeline. This platform is complementary to the Company’s other manufacturing platforms for mammalian and bacterial recombinant proteins in Shenyang and Shenzhen, and chemically synthesized small molecules in Hangzhou. Such platform will also enable the Company to develop, manufacture and market a wide range of medicines within its therapeutic areas. Further, the Company will be able to (i) integrate its existing oncology sales team with the Target Group’s rheumatology sales team in marketing the Company’s and the Target Group’s oncology and rheumatology product candidates in the pipeline; and (ii) strengthen its research and development capabilities for monoclonal antibody products through integration of the Target Group’s research and development team into the Company’s existing research and development platform.

In view of the above, the Company and the Target Group are both well positioned to enter into a new phase of growth.

MANAGEMENT DISCUSSION AND ANALYSIS ON LANSHENG GUOJIAN

The following discussion and analysis should be read in conjunction with the financial information of Lansheng Guojian for the three years ended December 31, 2013, 2014 and 2015, as set out in Appendix III to this circular.

Liquidity, financial position and capital structure

For the three years ended December 31, 2013, 2014 and 2015, Lansheng Guojian did not have any material business operations other than serving as an investment holding company. As of December 31, 2013, 2014 and 2015, Lansheng Guojian did not have material assets other than bank deposits and its holding of an approximately 41.69% equity interest in the Target.

As at December 31, 2013, the current assets and current liabilities of Lansheng Guojian were approximately RMB51,330,000 and RMB1,093,000, respectively. The current assets of Lansheng Guojian as at December 31, 2013 mainly comprised bank deposits. The current liabilities of Lansheng Guojian as at December 31, 2013 mainly comprised remuneration payable to employees. The current ratio, represented by the current assets as a percentage of the current liabilities, was approximately 4,696.2% as at December 31, 2013. The gearing ratio, represented by the total interest bearing loans as a percentage of the total equity, was nil as at December 31, 2013.

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LETTER FROM THE BOARD

As at December 31, 2014, the current assets and current liabilities of Lansheng Guojian were approximately RMB40,686,000 and RMB925,000, respectively. The decrease in the current assets in 2014 was primarily due to the decrease in cash and cash equivalents. The decrease in the current liabilities in 2014 was primarily due to the decrease in staff payroll and welfare payables. The current assets of Lansheng Guojian as at December 31, 2014 mainly comprised bank deposits. The current liabilities of Lansheng Guojian as at December 31, 2014 mainly comprised remuneration payable to employees. The current ratio, represented by the current assets as a percentage of the current liabilities, was 4,398.5% as at December 31, 2014. The gearing ratio, represented by the total interest bearing loans as a percentage of the total equity, was nil as at December 31, 2014.

As at December 31, 2015, the current assets and current liabilities of Lansheng Guojian were approximately RMB34,922,000 and RMB77,000, respectively. The current assets of Lansheng Guojian as at December 31, 2015 mainly comprised bank deposits. The current liabilities of Lansheng Guojian as at December 31, 2015 mainly comprised remuneration payable to employees. The current ratio, represented by the current assets as a percentage of the current liabilities, was approximately 45,353.2% as at December 31, 2015. The gearing ratio, represented by the total interest bearing loans as a percentage of the total equity, was nil as at December 31, 2015.

Other income and gains

Other income and gains primarily represented investment gains for Lansheng Guojian’s holding of the approximately 41.69% equity interest in the Target. Lansheng Guojian recorded investment gains of approximately RMB123,094,000, RMB88,555,000 and RMB87,843,000 for the years ended December 31, 2013, 2014 and 2015, respectively.

Administrative expenses

Lansheng Guojian incurred administrative expenses of approximately RMB15,696,000, RMB13,554,000 and RMB6,533,000, for the years ended December 31, 2013, 2014 and 2015, respectively. The decrease in the administrative expenses throughout the period from 2013 to 2015 was mainly due to the decreased number of staff.

Net profit

Lansheng Guojian achieved a net profit before taxation and extraordinary items of approximately RMB108,747,000, RMB76,026,000 and RMB80,883,000 for the years ended December 31, 2013, 2014 and 2015, respectively.

Lansheng Guojian achieved a net profit after taxation and extraordinary items of approximately RMB108,747,000, RMB76,026,000 and RMB80,883,000 for the years ended December 31, 2013, 2014 and 2015, respectively, as Lansheng Guojian did not incur any taxation or extraordinary items throughout this period.

Employment and remuneration policies

Lansheng Guojian had 45, 33 and 2 employees as at December 31, 2013, 2014 and 2015, respectively. It incurred employee benefit expenses of approximately RMB9,045,000, RMB9,453,000 and RMB3,728,000 for the years ended December 31, 2013, 2014 and 2015, respectively. Lansheng Guojian remunerated its employees by reference to their qualifications, experiences, responsibilities and profitability of Lansheng Guojian as well as the market conditions.

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LETTER FROM THE BOARD

Significant investments held and future plans for material investments

As at December 31, 2013, 2014 and 2015, Lansheng Guojian did not have any significant investments other than the approximately 41.69% equity interest in the Target. There is no immediate plan for material investments by Lansheng Guojian.

Capital commitment and contingent liabilities

As at December 31, 2013, 2014 and 2015, Lansheng Guojian had no material capital commitments for the acquisition of fixed assets or intangible assets and had no contingent liabilities.

Foreign exchange exposure

During the years ended December 31, 2013, 2014 and 2015, the principal assets and liabilities of Lansheng Guojian were denominated in RMB. As such, Lansheng Guojian considered that it did not have any material exposure to fluctuations in exchange rate and hence no hedging measures were taken.

Acquisitions and disposals

There were no material acquisitions and disposals of subsidiaries, jointly controlled entities and associated companies by Lansheng Guojian during the period from 2013 to 2015.

Charges on assets

There were no charges on assets as at December 31, 2013, 2014 and 2015.

MANAGEMENT DISCUSSION AND ANALYSIS ON GAINS PRESTIGE

The following discussion and analysis should be read in conjunction with the consolidated financial information of Gains Prestige for the period from September 2, 2014 (i.e. the date of incorporation of Gains Prestige) to December 31, 2014 and the year ended December 31, 2015, as set out in Appendix IV to this circular.

Liquidity, financial position and capital structure

For the period from September 2, 2014 to December 31, 2014 and the year ended December 31, 2015, Gains Prestige did not have any material business operation other than serving as an investment holding company. As at December 31, 2014 and 2015, Gains Prestige did not have material assets other than its holding of an approximately 43.42% equity interest in the Target through Full Gain. As at December 31, 2014 and 2015, Gains Prestige did not have any material liabilities other than a shareholders’ loan of approximately HK$1,085,230,000 (i.e. the CITIC Loan).

As at December 31, 2014, the current assets and current liabilities of Gains Prestige were approximately HK$4,000 and HK$1,085,250,000, respectively. The current assets of Gains Prestige as at December 31, 2014 mainly comprised cash and cash equivalents. The current liabilities of Gains Prestige as at December 31, 2014 mainly comprised a shareholders’ loan of approximately HK$1,085,230,000 (i.e. the CITIC Loan). The current ratio, represented by the current assets as a percentage of the current liabilities, was approximately 0.00% as at December 31, 2014. The gearing ratio, represented by the total interest bearing loans as a percentage of the total equity, was nil as at December 31, 2014.

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LETTER FROM THE BOARD

As at December 31, 2015, the current assets and current liabilities of Gains Prestige were approximately HK$3,000 and HK$1,085,230,000, respectively. The current assets of Gains Prestige as at December 31, 2015 mainly comprised cash and cash equivalents. The current liabilities of Gains Prestige as at December 31, 2015 mainly comprised a shareholders’ loan of approximately HK$1,085,230,000 (i.e. the CITIC Loan). The current ratio, represented by the current assets as a percentage of the current liabilities, was approximately 0.00% as at December 31, 2015. The gearing ratio, represented by the total interest bearing loans as a percentage of the total equity was nil as at December 31, 2015.

Investment gains

Investment gains represent increases in the value of Gains Prestige’s holding of the 43.42% equity interest in the Target through Full Gain. Gains Prestige recorded investment gains of approximately HK$23,297,000 and HK$113,710,000 for the period from September 2, 2014 to December 31, 2014 and the year ended December 31, 2015, respectively.

Net profit

Gains Prestige achieved a net profit before taxation and extraordinary items of approximately HK$23,252,000 and HK$113,729,000 for the period from September 2, 2014 to December 31, 2014 and the year ended December 31, 2015, respectively.

Gains Prestige achieved a net profit after taxation and extraordinary items of approximately HK$23,252,000 and HK$113,729,000 for the period from September 2, 2014 to December 31, 2014 and the year ended December 31, 2015, respectively, as Gains Prestige did not incur any taxation or extraordinary items throughout this period.

Employment and remuneration policies

Gains Prestige did not have any employees during the period from September 2, 2014 to December 31, 2014 and the year ended December 31, 2015.

Significant investments held and future plans for material investments

As at December 31, 2014 and 2015, Gains Prestige did not have any significant investments other than the approximately 43.42% equity interest in the Target through Full Gain. There is no immediate plan for material investments by Gains Prestige.

Capital commitment and contingent liabilities

As at December 31, 2014 and 2015, Gains Prestige had no material capital commitments for the acquisition of fixed assets or intangible assets and had no contingent liabilities.

Foreign exchange exposure

For the period from September 2, 2014 to December 31, 2014 and the year ended December 31, 2015, the principal assets and liabilities of Gains Prestige were denominated in HK$. As such, Gains Prestige considered that it did not have any material exposure to fluctuations in exchange rate and hence no hedging measures were taken.

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LETTER FROM THE BOARD

Acquisitions and disposals

There were no material acquisitions and disposals of subsidiary, jointly controlled entities and associated companies by Gains Prestige during the period from September 2, 2014 to December 31, 2014 and the year ended December 31, 2015.

Charges on assets

There were no charges on assets as at December 31, 2014 and 2015.

REASONS FOR AND BENEFITS OF THE TRANSACTIONS

Given the Target Group’s expertise in the development, manufacture and marketing of monoclonal antibody therapeutics, the Company is of the view that acquiring a majority stake in the Target Group will enable the Company to significantly expand its product portfolio, thereby offering a greater potential for profit and long-term business sustainability.

Additional approved products and product candidates

Through these Transactions, the Company has added two approved products to its product portfolio, namely Yisaipu ( ) (also generally known as etanercept ( )) and Xenopax ( ) (also generally known as daclizumab ( )). The Company has also acquired a pipeline of monoclonal antibody product candidates for which new drug applications have been filed.

Yisaipu is indicted for the treatment of rheumatoid arthritis, plague psoriasis and ankylosing spondylitis and according to IMS data, had a dominant market share of 64.9% by sales in 2015. Xenopax targets the treatment of acute cellular rejection after solid organ transplantation.

Besides the additional approved products and product candidates highlighted above, the Company also believes that these Transactions will bring the following benefits to the Company:

Integration with the Company’s existing manufacturing platforms

The Target Group provided a manufacturing platform for the Company’s five monoclonal antibody candidates in the Company’s pipeline. The Target Group’s monoclonal antibody manufacturing platform is complementary to the Company’s other manufacturing platforms for mammalian and bacterial recombinant proteins in Shenyang and Shenzhen, and chemically synthesized small molecules in Hangzhou. Such platform will also enable the Company to develop, manufacture and market a wide range of medicines within its therapeutic areas. The Target Group currently operates five antibody production lines with a total annual capacity of over 8,000 liters. Six new antibody production lines with a total annual capacity of 30,000 liters are currently under trial run.

Integration with the Company’s sales and research and development teams

The Company will be able to: (i) integrate its existing oncology sales team with the Target Group’s rheumatology sales team in marketing the Company’s and the Target Group’s oncology and rheumatology product candidates in the pipeline; and (ii) strengthen its research and development capabilities for monoclonal antibody products through integration of the Target Group’s research and development team into the Company’s existing research and development platform.

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LETTER FROM THE BOARD

For further details on the Company’s pre-existing cooperation with Sunshine Guojian before the Transactions, please refer to the section headed “Business — Our Strategic Cooperation with CP Guojian” in the Prospectus.

The Board considers that the terms and conditions of the Transactions are on normal commercial terms and are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

EFFECT ON SHAREHOLDING STRUCTURE

The existing shareholding structure of the Company and the effect on the shareholding structure of the Company upon exercise of the Options in full are set out below:

Shareholders CS Sunshine Controlling Shareholders Sub-total CITIC Pacific Other Shareholders Total	Immediately before exercise of the Options Number of Shares Approximate % of the issued share capital of the Company 712,258,360 28.32 838,583,070 33.34 1,550,841,430 61.66 — — 964,472,140 38.34 2,515,313,570 100.00	Immediately before exercise of the Options Number of Shares Approximate % of the issued share capital of the Company 712,258,360 28.32 838,583,070 33.34 1,550,841,430 61.66 — — 964,472,140 38.34 2,515,313,570 100.00	Immediately after exercise of the Options in full	Immediately after exercise of the Options in full	Immediately after exercise of the Options in full
	Number of Shares 712,258,360 838,583,070 1,550,841,430 — 964,472,140 2,515,313,570		Number of Shares 712,258,360 838,583,070 1,550,841,430 125,765,500 964,472,140 2,641,079,070	Approximate % of the issued share capital of the Company as enlarged by the Share Options upon exercise of the Options in full
					26.97 31.75 58.72 4.76 36.52 100.00

Note: The percentages are subject to rounding difference, if any. The 112,882,033 Shares that may be issued pursuant to a full exercise of the CP Guojian Warrant have been excluded for the purpose of calculation of the percentages.

USE OF PROCEEDS

Assuming (i) all of the exercise conditions under the Option Deed are satisfied; and (ii) the Options are exercised in full, the net proceeds from the exercise of the Options are estimated to be approximately HK$1,144.5 million, which the Company intends to use for general corporate purposes and undertaking other acquisitions.

FUNDS RAISED BY ISSUING EQUITY IN THE LAST 12 MONTHS

Shares were issued during the Global Offering. The net proceeds from the Listing (after deducting underwriting fees and all Listing-related expenses) amounted to approximately HK$5,067.6 million. For further details of the latest use of proceeds from the Listing, please refer to the announcement of the Company dated January 26, 2016. As of the date of this circular, the net proceeds from the Listing have been fully utilized for the acquisition of direct and indirect equity interests in the Target.

Reasons for the change in use of proceeds

The Company originally allocated HK$2,280.4 million net proceeds from the Global Offering towards acquisitions. At the date of the Prospectus, the opportunity to acquire further equity interests in the Target through PRC tender procedures instigated by Lansheng Group, Lansheng Corporation and CITIC Holdings did not arise. Taking into account (i) the growth of the Target since the date of the Global Offering, (ii) the success of the Company’s strategic cooperation with the Target to date, and

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LETTER FROM THE BOARD

(iii) the benefits of the Transactions, the Board considers it in the best interests of the Company and the Shareholders as a whole to prioritize the strengthening of the Company’s strategic alliance with the Target. Accordingly, in order to better allocate the unutilized net proceeds from the Global Offering and to take advantage of the opportunity to acquire further equity interests in the Target, the Board has resolved to change the original uses of the net proceeds and reallocate approximately HK$2,787.2 million of the net proceeds to the Transactions.

After carefully considering the merits of acquiring further equity interests in the Target and the financial resources of the Group, the Board is of the view that strengthening the Company’s business cooperation with the Target Group will facilitate the growth of the Group’s presence in the biotechnology industry globally and help consolidate the Company’s position as a leading biotechnology company in the PRC. The Board considers that, in view of the Group’s operation and business updates, the reallocation of the unutilized proceeds will facilitate efficient allocation of financial resources and strengthen the future development of the Group and that the reallocation is fair and reasonable and in the best interests of the Company and the Shareholders as a whole.

The Board confirms that, to the best of the knowledge of the Directors and at the date of the Prospectus, the statements made in the Prospectus in the section headed “Future Plans and Use of Proceeds” were accurate and complete in all material respects.

FINANCIAL EFFECTS OF THE TRANSACTIONS ON THE GROUP

Earnings

Following the completion of the Transactions, the Group now collectively control an approximately 97.78% equity interest in the Target, an approximately 96.25% of the equity interest in Lansheng Guojian and the entire equity interests in Shanghai Hongshang and Gains Prestige. The Target Group and Lansheng Guojian have become indirect non-wholly owned subsidiaries of the Company. Gains Prestige has become a direct wholly-owned subsidiary of the Company. Full Gain and Shanghai Hongshang have become indirect wholly-owned subsidiaries of the Company. The financial information of the Target Group, Lansheng Guojian, Shanghai Hongshang, Gains Prestige and Full Gain have been consolidated into the accounts of the Company. The Transactions will lead to an increase in the Group’s earnings.

Assets and liabilities

Following the Transactions, the assets and liabilities of the Target Group, Lansheng Guojian, Shanghai Hongshang, Gains Prestige and Full Gain have been consolidated into the consolidated financial statements of the Company.

Further details of the financial effect of the Transactions on the earnings and the assets and liabilities of the Enlarged Group together with the bases in preparing the unaudited pro forma financial information are set out in Appendix V to this circular.

GENERAL

The Company is a leading biotechnology company in the PRC. The Group has extensive expertise in developing, manufacturing and marketing biopharmaceuticals.

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LETTER FROM THE BOARD

Xizang Hongshang is an investment holding company principally engaged in investment management, investment consultancy, import and export trading and sale of mineral products and machinery.

Jianyikang is an investment holding company principally engaged in investment and investment management (except equity investment and equity investment management).

Jianweida is an investment holding company principally engaged in investment and investment management (except equity investment and equity investment management).

Mianyang Fund is an equity investment fund principally engaged in equity investment, investment management and investment consultancy. The main investment areas of Mianyang Fund include financial and commercial services, consumer and retail businesses, health, manufacturing, technology, energy and raw materials production.

Lansheng Corporation is a company primarily engaged in the import and export of goods and technologies.

Lansheng Group is a company primarily engaged in the operation and management of stateowned assets and international trades.

CITIC Pacific and CITIC Holdings are investment holding companies principally engaged in investment and investment management.

To the best of the Directors’ knowledge, information and belief and having made all reasonable enquiries, Jianyikang, Jianweida, Mianyang Fund and Lansheng Group and their ultimate beneficial owners are Independent Third Parties and were independent of the connected persons of the Company (as defined under the Listing Rules). Following First-round Acquisitions, each of Lansheng Corporation, Gains Prestige, CITIC Pacific, CITIC Holdings and Xizang Hongshang is considered a connected person of the Company at the subsidiary level under the Listing Rules.

None of the Transactions are conditional upon the completion of other Transactions. Shareholders and potential investors should exercise caution when dealing in the shares of the Company.

LISTING RULES IMPLICATION

Reference is made to the section headed “History, Reorganization and Corporate Structure — Acquisitions, Investments and Disposal — Acquisition of interest in CP Guojian” in the Prospectus, which contains particulars of the Previous Acquisition completed in December 2014. As the Previous Acquisition relates to direct and indirect acquisition of equity interests in the Target and was completed within 12 months of First-round Acquisitions, the Previous Acquisition and First-round Acquisitions have been aggregated as a series of transactions pursuant to Rule 14.22 of the Listing Rules.

As one or more of the applicable percentage ratios (as defined in the Listing Rules) in respect of the Previous Acquisition and First-round Acquisitions (on an aggregated basis) is more than 25% but all percentage ratios are less than 100%, First-round Acquisitions constitute a major transaction of the Company under Chapter 14 of the Listing Rules and are therefore subject to the notification, announcement and Shareholders’ approval requirements under the Listing Rules.

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LETTER FROM THE BOARD

As First-round Acquisitions, Second-round Acquisitions and Third-round Acquisitions are all related, they have been aggregated as a series of transactions pursuant to Rule 14.22 of the Listing Rules.

As one or more of the applicable percentage ratios (as defined in the Listing Rules) in respect of First-round Acquisitions, Second-round Acquisitions and Third-round Acquisitions (on an aggregated basis) is more than 25% but all percentage ratios are less than 100%, they collectively constitute a major transaction of the Company under Chapter 14 of the Listing Rules and are therefore subject to the notification, announcement and Shareholders’ approval requirements under the Listing Rules.

Pursuant to the Listing Rules, Shareholders’ approval is required for a major transaction. As no Shareholders have a material interest in the Transactions, no Shareholders would be required to abstain from voting if the Company was to convene a general meeting for approving the Transactions. The Company was not required to convene a general meeting for approving the Transactions for being a major transaction because the Company has obtained the written Shareholders’ approval from the Controlling Shareholders and CS Sunshine in lieu of convening a general meeting as permitted by Rule 14.44 of the Listing Rules. As at the Latest Practicable Date, the Controlling Shareholders and CS Sunshine, being a closely allied group of Shareholders, together held 1,550,841,430 shares in the Company, representing approximately 61.66% of the issued share capital of the Company.

Following First-round Acquisitions, Lansheng Corporation was interested in more than 10% equity interest in Lansheng Guojian, an indirect non-wholly owned subsidiary of the Company, and was therefore considered a connected person of the Company at the subsidiary level. As such, Secondround Acquisitions constitute connected transactions with a connected person at the subsidiary level under Chapter 14A of the Listing Rules. However, since (i) Second-round Acquisitions were entered into on normal commercial terms or better; and (ii) the independent non-executive Directors had confirmed that the terms of Second-round Acquisitions were fair and reasonable, Second-round Acquisitions were on normal commercial terms or better and in the best interests of the Company and the Shareholders as a whole, Second-round Acquisitions are exempt from the circular, independent financial advice and Shareholders’ approval requirements to Rule 14A.101 of the Listing Rules.

Prior to Acquisition VII, Gains Prestige was interested in more than 10% equity interest in the Target, which became an indirect non-wholly owned subsidiary of the Company following First-round Acquisitions. CITIC Pacific and CITIC Holdings were holding companies of Gains Prestige. As such, each of CITIC Pacific, CITIC Holdings and Gains Prestige is considered a connected person of the Company at the subsidiary level under the Listing Rules and Acquisition VII therefore constitutes a connected transaction. To the best of the knowledge of the Directors, each of CITIC Holdings and CITIC Pacific, except for being a substantial shareholder of the Target, is a third party independent of, and has no other relationship with, the Company and its connected persons under the Listing Rules.

Pursuant to Chapter 14A of the Listing Rules, Acquisition VII is subject to the circular, independent financial advice and Shareholders’ approval requirements, since Acquisition VII involves the issue of new securities to a connected person of the Company.

On March 3, 2016, the Company obtained the written Shareholders’ approval from the Controlling Shareholders and CS Sunshine for approving Acquisition VII. As at March 3, 2016, the

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LETTER FROM THE BOARD

Controlling Shareholders and CS Sunshine, being a closely allied group of Shareholders, together held 1,550,841,430 Shares, representing approximately 61.66% of the issued share capital of the Company as at March 3, 2016. To the best of the knowledge of the Directors, the Controlling Shareholders and CS Sunshine are independent Shareholders and none of them have any material interest in Acquisition VII which would require them to abstain from voting if a general meeting was to be convened.

Reference is made to the announcement of the Company dated March 17, 2016. Pursuant to Rule 14A.37 of the Listing Rules, the Stock Exchange may waive the general meeting requirement and accept a written shareholders’ approval, subject to the conditions that: (1) no shareholder of the listed issuer is required to abstain from voting if a general meeting is held to approve the transaction; and (2) the approval is given by a shareholder or a closely allied group of shareholders who (together) hold more than 50% of the voting rights in the general meeting. The Company confirms that the above requirements were satisfied and has sought for, and received, the Stock Exchange’s approval for relying on the written Shareholders’ approval to approve Acquisition VII in lieu of holding a general meeting and waive the general meeting requirement pursuant to Rule 14A.37 of the Listing Rules. An extraordinary general meeting will therefore not be convened pursuant to Rule 14A.37 of the Listing Rules.

None of the Directors has any material interest in the Transactions or is required to abstain from voting on the Board resolutions in relation to the Transactions.

The Independent Board Committee was established to advise the Shareholders on Acquisition VII. The Independent Financial Adviser was appointed to advise the Independent Board Committee and the Shareholders on Acquisition VII.

RECOMMENDATION

The Independent Board Committee, having taken into account the advice of Alliance Capital, considers that Acquisition VII and the transactions contemplated therein are in the ordinary and usual course of business of the Group and on normal commercial terms, and the terms are fair and reasonable and no less favorable to the Group than those of independent third parties and in the interests of the Company and the Shareholders as a whole. Accordingly, the Board (including the Independent Board Committee having taken into account the advice of Alliance Capital) recommends that the Shareholders should approve Acquisition VII.

ADDITIONAL INFORMATION

Your attention is drawn to the information set out in the appendices to this circular.

By order of the Board 3SBio Inc. Mr. LOU Jing Chairman

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

3SBIO INC.

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1530)

April 25, 2016

To the Shareholders

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF FURTHER EQUITY INTERESTS IN SUNSHINE GUOJIAN PHARMACEUTICAL (SHANGHAI) CO., LTD. (FORMERLY KNOWN AS SHANGHAI CP GUOJIAN PHARMACEUTICAL CO., LTD.) AND PROPOSED GRANT OF OPTIONS

We refer to the circular of the Company dated April 25, 2016 (the “ Circular ”) to the Shareholders, of which this letter forms part. Terms defined in the Circular shall have the same meanings herein unless the context requires otherwise.

We have been appointed by the Board as the members of the Independent Board Committee to consider and to advise the Shareholders as to whether Acquisition VII is fair and reasonable and in the interests of the Company and the Shareholders as a whole, and to advise whether or not the Shareholders should approve Acquisition VII.

Alliance Capital has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Shareholders in relation to Acquisition VII. The text of the letter of advice from Alliance Capital to the Independent Board Committee and the Shareholders is set out on pages 38 to 46 of the Circular.

We wish to draw your attention to the letter from the Board, as set out on pages 8 to 36 of the Circular.

After taking into consideration the terms and conditions of Acquisition VII and the advice of Alliance Capital, we consider that Acquisition VII is in the ordinary and usual course of business of the Group and on normal commercial terms, and the terms are fair and reasonable and no less favourable to the Group than those of independent third parties and in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend that the Shareholders should approve Acquisition VII.

Yours faithfully,

For and on behalf of the Independent Board Committee

Pu Tianruo David Ross Parkinson Ma Jun Independent Independent Independent Non-executive Director Non-executive Director Non-executive Director

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the text of the letter of advice received from Alliance Capital Partners Limited, the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, in respect of the connected transaction relating to Acquisition VII which has been prepared for the purpose of inclusion in this circular.

==> picture [210 x 44] intentionally omitted <==

Alliance Capital Partners Limited Unit 318, 3/F, Shui On Centre 6-8 Harbour Road Wanchai Hong Kong

25 Apr 2016

To the Independent Board Committee and the Independent Shareholders of 3SBio Inc.

Dear Sirs,

Connected transaction relating to Acquisition VII

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of above captioned connected transaction, details of which are set out in the letter from the Board contained in the circular dated 25 Apr 2016 (the “Circular”) of which this letter forms part. Capitalized terms used in this letter shall have the same meanings as those defined in the Circular unless the context requires otherwise.

As stated in the Circular, the Company conditionally agreed to purchase from CITIC Holdings its entire issued share capital of Gains Prestige and CITIC Holdings’ interest in the CITIC Loan for RMB2,713.75 million. In connection with Agreement VII, the Company has also entered into the Option Deed with CITIC Holdings and CITIC Pacific pursuant to which the Company has granted CITIC Pacific Options representing a total of 125,765,500 Option Shares with an exercise price of HK$9.10 per Option Share, exercisable if certain conditions are met.

As Gains Prestige is interested in more than 10% equity interest in the Target, which is an indirect non-wholly owned subsidiary of the Company, and that CITIC Pacific and CITIC Holdings are holding companies of Gains Prestige, each of CITIC Pacific, CITIC Holdings and Gains Prestige is considered a connected person of the Company at the subsidiary level under the Listing Rules and Acquisition VII therefore constitutes a connected transaction under Chapter 14A of the Listing Rules. In addition, as Acquisition VII involves the issue of new securities to a connected person of the Company, the above acquisition will need to comply with requirements relating to the issue of shareholders’ circular and independent financial advice under the Listing Rules.

In this connection, the Independent Board Committee, comprising all independent nonexecutive Directors, has been established to advise the Independent Shareholders on whether Acquisition VII is in the interest of the Company and whether the terms thereof are fair and reasonable so far as the Independent Shareholders are concerned.

We do not have a past or present relationship or an interest with the Company or any other related parties that might affect our independence in our advice to the Independent Board Committee and the Independent Shareholders.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In formulating our opinion to the Independent Board Committee and the Independent Shareholders, we have relied on statements, information and representations referred to in the Circular as well as information and representations provided to us by the Directors. We have assumed that all such information and representations provided by the Directors, for which they are solely responsible, are true and accurate at the time when they were made. We have also assumed that all statements of belief, opinion, expectation and intention made by the Directors in the Circular were reasonably made after due enquiry and careful consideration. We have no reason to doubt the truth and accuracy of the information and representations provided to us and have been advised by the Directors that no material facts have been withheld or omitted from the information provided and/or referred to in the Circular.

We consider that we have reviewed sufficient information to reach an informed view and to justify reliance on the accuracy of the information contained in the Circular and to provide a reasonable basis for our advice. We have not, however, for the purpose of this exercise conducted any independent verification of the information included in the Circular and/or those provided to us by the management of the Company nor have we conducted any form of investigation into the businesses, affairs of the Company or the Target.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our opinion in respect of the Agreement VII, we have taken into consideration the following principal factors and reasons:

1. Background of and reasons for entering into Agreement VII

The Group is a leading biotechnology company in China. According to Frost and Sullivan (an independent market industry expert), it ranked first among PRC companies in terms of sales from mammalian cell-based biopharmaceuticals and ranked second among PRC companies in terms of sales from all biopharmaceuticals in 2013. As a leader in the PRC biotechnology industry, the Group has extensive expertise in developing, manufacturing and marketing biopharmaceuticals. It primarily focus on two large and fast growing therapeutic areas: nephrology and oncology. The Group’s two main products are TPIAO and EPIAO. TPIAO is used for the treatment of certain types of thrombocytopenia, a deficiency of platelets. EPIAO is primarily used for the treatment of anemia associated with chronic kidney disease, the reduction of allogeneic blood transfusion in surgery patients and the treatment of chemotherapy-induced anemia. For 6 months ended 30 Jun 2015, revenue derived from TPIAO and EPIAO accounted for 83.9% of its total revenue of RMB790.32 million.

Given the Target’s expertise in the development, manufacture and marketing of monoclonal antibody therapeutics, the Company is of the view that acquiring a further stake in the Target will enable it to significantly expand its product portfolio, thereby offering a greater potential for profit and long-term business sustainability.

Through the Transactions, the Company will add two approved products to its product portfolio, namely Yisaipu ( ) (also generally known as etanercept ( )) and Xenopax ( ) (also generally known as daclizumab ( )). The Company will also acquire a pipeline of monoclonal antibody product candidates for which new drug applications have been filed. Yisaipu is indicated for the treatment of rheumatoid arthritis, plague psoriasis and ankylosing spondylitis and had a dominant market share of 61.0% by sales in 2013. Xenopax targets the treatment of acute cellular rejection after organ transplantation.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Apart from the above approved products, the Target will also provide a manufacturing platform for the Company’s five monoclonal antibody candidates in the Company’s pipeline. This platform is complementary to the Company’s other manufacturing platforms for mammalian and bacterial recombinant proteins in Shenyang and Shenzhen, and for chemically synthesized small molecules in Hangzhou. Such platform will also enable the Company to develop, manufacture and market a wide range of medicines within its therapeutic areas.

Upon completion of the Transactions, the Company will also be in a position to integrate its existing oncology sales team with the Target’s rheumatology sales team in marketing the Company’s and the Target’s oncology and rheumatology products. In addition, it would strengthen the Group’s research and development capabilities for monoclonal antibody products through integration of the Target’s research and development team into the Company’s existing research and development platform.

2. Terms of and valuation relating to the consideration payable under Agreement VII

Under Agreement VII, the Company agreed to acquire and CITIC Holdings agreed to sell the entire issued share capital of Gains Prestige and CITIC Holdings’ interest in the CITIC Loan for a total consideration of RMB2,713.75 million, payable in Hong Kong dollars.

Gains Prestige is an investment holding company and as of 31 Dec 2015 did not have any material assets other than its holding of an approximately 43.42% indirect equity interest in the Target.

For the year ended 31 Dec 2015, based on accounts of Target prepared under IFRS, revenue and normalized after-tax profits were RMB877.35 million (2014: RMB775.85 million) and RMB253.59 million (2014: RMB213.42 million) respectively. As of 31 Dec 2015, net assets of the Target amounted to approximately RMB2,304.35 million.

In connection with Agreement VII, the Company has also entered into the Option Deed with CITIC Holdings and CITIC Pacific whereby Options representing 125,765,500 Option Shares at an exercise price of HK$9.10 per Option Share is granted. These Option Shares represent approximately 5% of existing issued share capital of the Company or approximately 4.76% of the issued share capital of the Company as enlarged by the Option Shares upon exercise of the Options in full.

The above Options are exercisable as to: (a) 60% (i.e. 75,459,300 Shares subject to adjustment) by CITIC Pacific if the Target obtains the Drug Registration Approval ( ) and the New Drug Certificate ( ) issued by the CFDA for the Target’s recombinant humanized anti-HER2 monoclonal antibody for injection ( ) (also generally known as Ipterbin ( )) before 30 Sep 2016 and CITIC Pacific has issued an exercise notice to the Company within 3 years from 4 Mar 2016 (date of the signing of the Option Deed); and (b) 40% of the Options (i.e. 50,306,200 Shares subject to adjustment) shall be exercisable by CITIC Pacific if the Target obtains the Drug Registration Approval ( ) and the New Drug Certificate ( ) issued by the CFDA or the Target’s recombinant anti-CD20 chimeric monoclonal antibody injection ( ) (also generally known as Jiantuoxi ( )) before 31 Dec 2017 and CITIC Pacific has issued an exercise notice to the Company within 3 years from 4 Mar 2016 (date of the signing of the Option Deed).

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Exercise Price of HK$9.10 per Option Share represents:

(a) a discount of approximately 3.91% to the closing price of HK$9.47 per Share as quoted on the Stock Exchange on 4 Mar 2016 (being the last trading day for the Shares prior to the entering into the Option Deed, the “Last Trading Day”);
(b) a discount of approximately 2.88% to the average closing price of approximately HK$9.37 per Share as quoted on the Stock Exchange for the five consecutive trading days immediately prior to and including the Last Trading Day;
(c) a discount of approximately 2.78% to the average closing price of approximately HK$9.36 per Share as quoted on the Stock Exchange for the ten consecutive trading days immediately prior to and including the Last Trading Day; and
(d) a premium of approximately 271.20% to the unaudited net asset value of the Group of approximately RMB2.06 (equivalent to approximately HK$2.46) per Share as at 30 Jun 2015 (being the date of latest available unaudited accounts of the Group).

With a view to assess the valuation of the Option granted to CITIC Pacific under Agreement VII, we have used Black-Scholes model, a commonly used option valuation tool to calculate the theoretical price of the 3-year Options which are European style options exercisable on specific dates, as compared to American-style options which can be exercised at any time during the life of the Option for which binomial option pricing model, another commonly used option valuation tool, would be more appropriate.

Key parameters used in the Black-Scholes model for valuation of the Options are below:

Closing stock price of the Company as at 3 Mar 2016 (date of Agreement VII): HK$9.46 Exercise price: HK$9.10

Risk-free rate: 1.3% p.a. (by reference to 1-year Hong Kong Inter-bank Offered Rate) Implied share price volatility per year: 39.6%

Using the above valuation methodology, result shows that the Options have a value of approximately HK$288.87 million (equivalent to approximately RMB242.65 million) (“Option Value”).

We understand from the Company that the purpose of granting the above Options is to provide incentives for CITIC Pacific in achieving the exercise conditions of the Options, most important of which is to secure the necessary approval from the authorities in respect of the two new drugs as mentioned above before the stipulated dates under the Option Deed prior to their market launch. We were given the understanding from the Company that the two new monoclonal antibody drugs being developed by the Target has good potential and is expected to become one of the key biopharmaceutical drugs to be offered by the Group in the future. With a view to understand the benefits expected to be bought about by the above new drugs, we have looked at historical sales of TPIAO, one of the Group’s key drugs for the treatment of chemotherapy-induced thrombocytopenia in oncology patients. Following obtaining new drug certification from CFDA, sales of TPIAO started in 2007. From 2007 to 2015, total sales of TPIAO amounted to RMB2,068.3 million, or approximately RMB230 million per year on average. In 2015, sales of TPIAO in China were RMB605.1 million, as compared to RMB444.7 million in 2014. Using the Group’s after-tax profit margin of 31.4% for the year ended 31 Dec 2015, average after-tax earnings brought about by TPIAO to the Group for the past 9 years averaged RMB72.2 million per year.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We note the Options, indicating the value pertaining to securing CFDA’s approval of the new drugs, was RMB242.65 million, equivalent to approximately 3.36 times the average yearly after-tax profits of TPIAO over a 9-year period to 2015. When we compare this with the average P/E Ratio of 23.5 for comparable listed companies engaged in the pharmaceutical sector (see table of comparable companies below in this letter), we are of the view that the consideration payable for the Options is fair and reasonable so far as the Company and its shareholders are concerned.

The issue of Options, while serves to preserve cash when compared to outright cash payments when the triggering events as mentioned above happen, also has the advantage of not having an immediate shareholding dilution to Shareholders’ equity interest, when compared to an issue of new Shares. Consequently, we are of the view that the grant of the above Options, as part of the consideration for this acquisition, is fair and reasonable and is in the best interests of the Company and Shareholders as a whole.

Together with the Option Value of RMB242.65 million, the total implied consideration associated with Agreement VII would be RMB2,956.40 million (being cash consideration of RMB2,713.75 million and the above Option Value). Consequently, the implied valuation with respect to 100% of the Target (“Implied Valuation”) amounts to approximately RMB6,808.85 million (calculated based on total cash consideration and Option Value of RMB2,956.40 million payable for 43.42% interest).

The above Implied Valuation represents a price earnings (P/E) multiple of approximately 26.85 times Target’s 2015 after-tax earnings of RMB253.59 million and a price to book (P/B) ratio of 2.96 times Target’s net assets of RMB2,304.35 million as at 31 Dec 2015.

For the past 18 months, we note the Group had completed two similar acquisitions:

(1) In Jul 2015, it acquired the entire issued share capital of Zhejiang Wansheng Pharmaceutical Co., Ltd. ( ) for RMB528 million. Zhejiang Wansheng Pharmaceutical Co., Ltd. is engaged in the research and development, production and sales of dermatological drugs, anti-cancer drugs and pharmaceuticals for the treatment of diabetes complication. For the year ended 31 Dec 2014, after-tax profit of this company was RMB28.1 million and its net assets as at 31 Dec 2014 were RMB112.4 million. Consequently, the consideration of RMB528 million paid for this company represented historic P/E of approximately 18.8x and price to net assets or book (P/B) of approximately 4.7x.
(2) In Dec 2014, the Group acquired the entire issued share capital of Shenzhen Sciprogen Bio-pharmaceutical Co., Ltd. ( ), a biopharmaceutical company, for a total consideration of approximately RMB565.5 million. Shenzhen Sciprogen Bio-pharmaceutical Co., Ltd. ( ) is a Shenzhen based biopharmaceutical company. At the time of the Group’s acquisition, one of their recombinant human erythropoietin (rhEPO) products, SEPO, ranked 10th in China’s rhEPO market in terms of total sales with 3.0% market share in 2013. For the year ended 31 Dec 2014, after-tax profit of this company was RMB21.4 million and net assets as at 31 Dec 2014 was RMB89.1 million. The total consideration of RMB565.5 million paid for this company represented a P/E of approximately 26.4x and P/B of approximately 6.3x.
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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In order to assess the fairness and reasonableness of the Consideration, we have also attempted to identify comparable companies (the “Comparable Companies”) that are (i) listed on the Stock Exchange engaged in the manufacture and sales of pharmaceutical products and (ii) having a market capitalization of not less than HK$5 billion as 3 Mar 2016 (date of Agreement VII).

To the best of our knowledge, the following Comparable Companies represents an exhaustive list of companies with similar business nature and were selected based on the above mentioned criteria. In our assessment, we have considered P/E ratio and P/B Ratio analysis, which are commonly used to assess the valuation of companies principally engaged in similar businesses. In assessing P/E and P/B Ratios, we have made reference to published earnings and net assets of Comparable Companies which we believe are the most objective benchmarks that can be used for comparison purpose.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Based on the abovementioned criteria, we have identified twelve Comparable Companies. We consider this sample fair and representative as the Comparable Companies (i) are engaged in biotechnology and/or pharmaceutical sector as the Company is in and (ii) have a range of market capitalization of between approximately HK$6 billion and HK$84 billion, as compared to Company’s market capitalization of approximately HK$24 million as at the date of Agreement VII. We are of the opinion that the list of Comparable Companies below, which are all engaged in biotechnology and pharmaceutical sector with market capitalization of more than HK$5 billion, gives a good indication of current market view of valuation of such companies with similar business size and scale as those of the Company.

Company The Company . . . . . . . . . . . . . . . . . . . . Sihuan Pharmaceutical Holdings Group Ltd (0460.HK) . . . . . . . . . . . . . . . . . . Guangzhou Baiyunshan Phrmcl Hldgs Co Ltd (0874.HK) . . . . . . . . . . . . . . . CSPC Pharmaceutical Group Ltd (1093.HK) . . . . . . . . . . . . . . . . . . . . . Sinopharm Holding Co. Ltd. (1099.HK) . . . . . . . . . . . . . . . . . . . . . Sino Biopharmaceutical Limited (1177.HK) . . . . . . . . . . . . . . . . . . . . . Shanghai Fudan-Zhangjiang Bio-Pharm. Co (1349.HK) . . . . . . . . . Livzon Pharmaceutical Group Inc. (1513.HK) . . . . . . . . . . . . . . . . . . . . . YiChang HEC ChangJiang Pharmaceutical Co., Ltd. (1558.HK) . . . . . . . . . . . . . . . . . . . . . Luye Pharma Group Ltd (2186.HK) . . . Shanghai Fosun Pharmaceutical Group (2196.HK) . . . . . . . . . . . . . . . . . . . . . Shanghai Pharmaceuticals Holding Co Ltd (2607.HK) . . . . . . . . . . . . . . . . . . Maximum . . . . . . . . . . . . . . . . . . . . . . . Minimum . . . . . . . . . . . . . . . . . . . . . . . . Average . . . . . . . . . . . . . . . . . . . . . . . . . Median . . . . . . . . . . . . . . . . . . . . . . . . . .	Closing price as at 3 March 2016 HK$ 9.46 1.87 17.00 6.37 30.2 5.79 6.27 32.60 13.2 6.28 18.56 14.74	Market Capitalization as at 3 March 2016 *(Note 1)* HK$ billion 23.79 19.38 21.95 37.65 83.57 42.92 5.79 12.94 5.95 20.86 42.90 39.63	Audited profit attributable to shareholders *(Note 2)* HK$ billion 0.62 2.00 1.44 1.28 5.46 2.36 0.13 0.65 0.16 0.74 2.82 3.59	Historical P/E ratio (x) 38.37 9.69 15.24 29.32 15.31 18.18 44.54 19.76 37.02 28.29 15.21 11.04 44.54 9.69 23.50 18.97	Net assets *(Note 2)* HK$ billion 6.71 12.89 9.94 8.39 45.52 9.31 0.79 5.52 1.13 6.51 23.58 38.36	Historical P/B ratio
						(x) 3.54 1.50 2.21 4.49 1.84 4.61 7.33 2.34 5.28 3.20 1.82 1.03 7.33 1.03 3.27 2.77

Source: Bloomberg

Notes:

1. With the exception of the Company whose profits and net assets referred to those as per 2015 published annual results, all other companies’ audited profits and unaudited net assets referred to their respective 2014 audited figures and 2015 interim reports as available to the public on 3 Mar 2016 (date of Agreement VII)

2. Market capitalization is calculated based on stock price multiplied by the total number of outstanding shares.

3. HKD1 = RMB0.84

(i) P/E Ratio

As shown in the table above, the P/E Ratios of the Comparable Companies ranged from approximately 9.69 to 44.54 with an average of 23.50 and a median of 18.97.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We note that, following a trading suspension for 11 months, share price of Sihuan Pharmaceutical Holdings Group Ltd (0460.HK) (“Sihuan”) sank nearly 68% after resumption of trading of its shares on 29 Feb 2016. Sihuan’s auditor PricewaterhouseCoopers issued a disclaimer of opinion as it was unable to obtain sufficient evidence to form an audit opinion.

If we exclude Sihuan from the list of Comparable Companies above, the P/E Ratios of the Comparable Companies ranged from approximately 11.04 to 44.54 with an average of 24.75 and a median of 19.76.

We note from all the selected Comparable Companies, only three (Shanghai Fudan-Zhangjiang Bio-pharma. Co. Ltd., Luye Pharma Group Limited and the Company) are engaged in research, development and sales of bio-pharmaceutical drugs and of drugs for oncology patients; whereas the other companies are principally engaged in development and sales of general chemical drugs for treatment of various diseases and of antibiotics. If we only consider the above three mentioned Comparable Companies, range of P/E Ratio would be between 28.29 and 44.54 with an average P/E Ratio of 37.07 and a median P/E of 38.37.

P/E Ratio of the Target, as represented by the Implied Valuation, of 26.85 falls within the P/E range of the 11 Comparable Companies (excluding Sihuan) but is higher compared to the median of 19.76 as mentioned above. However, if we only consider the three above mentioned listed companies, which in our opinion are most closely related to the Target’s business, P/E Ratio of the Target of 26.85 would be lower than the average P/E and the median P/E of 37.07 and 38.37 respectively as represented by the three companies mentioned above.

When compared to the two acquisitions made by the Group in Dec 2014 and in Jul 2015 as mentioned under section 2 of this letter titled “Terms of and valuation relating to the consideration payable under Agreement VII”, we note the P/E Ratio of the Target of 26.85 is higher than 18.8 to 26.4 times P/E as represented by the two previous acquisitions made by the Group. We are of the opinion that this is justifiable given the size of both companies (in terms of revenue and profits) in the earlier acquisitions were a lot smaller compared to the Target. For instance, after-tax profits of Zhejiang Wansheng Pharmaceutical Co., Ltd. and that of Shenzhen Sciprogen Bio-pharmaceutical Co., Ltd. were RMB28.1 million and RMB21.4 million for the year ended 31 Dec 2014 at the time of their acquisitions; whereas the normalized after-tax profit of the Target were RMB213.42 million and RMB253.59 million for the years ended 31 Dec 2014 and 2015 respectively. Consequently, we are of the view that valuations represented by the two previous acquisitions may not be directly comparable to that for the Target.

(ii) P/B Ratio

Again, if we exclude Sihuan, the P/B Ratios of the Comparable Companies ranged from approximately 1.03 to 7.33 with an average of 3.43 and a median of 3.20.

The P/B Ratio for the Target is 2.96 falls within the comparable P/B range and is below the average and median P/Bs for Comparable Companies. As the P/B Ratio falls within the comparable P/B range, it would indicate the Consideration payable under Acquisition VII is within market valuation for Comparable Companies in similar businesses.

Having taken into consideration both P/E Ratio and P/B Ratio of the Target which are either lower or within the comparable P/E range and comparable P/B range as mentioned above respectively, we are of the opinion that the Consideration is fair and reasonable so far as the Company and the Independent Shareholders are concerned. In addition, as the Target is engaged in the same business as

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

that of the Group and the acquisition is expected to provide the Group with a manufacturing platform to produce its own monoclonal antibody candidates currently in the Company’s pipeline, we are of the opinion that the entering of Acquisition VII is in the ordinary and usual course of business of the Company.

3. Financial effects of Acquisition VII

(a) Earnings

On 31 Mar 2016, the Company announced its 2015 results with after-tax earnings of RMB526.2 million, or RMB0.21 per Share (calculated based on 2,515,313,570 Shares in issue as at 31 December 2015). Had Acquisition VII been completed on 1 Jan 2015, an additional after-tax earnings of RMB110.11 million (calculated based on Target’s after-tax profit of RMB253.59 million and on the effective 43.42% additional interest in Target to be acquired) would have been added to the Group’s 2015 earnings, making it RMB636.3 million in total. The above earnings when calculated based on a fully diluted 2,641,079,070 Shares, being 2,515,313,570 Shares in issue as at 31 Dec 2015 and assuming full exercise of 125,765,500 Option Shares associated with Agreement VII, would be RMB0.24 per Share. The above demonstrates that Acquisition VII is earnings accretive to the Company. Consequently, the transaction is beneficial to the Group.

(b) Net assets

As at 31 Dec 2015, the Group’s net assets were RMB5,635.5 million, or RMB2.24 per Share (calculated based on 2,515,313,570 Shares in issue as at 31 December 2015). Under the International Financial Reporting Standards, the above acquisition is not expected to cause a change in the Group’s net assets.

OPINION

Having considered the above principal factors and reasons, we consider that the entering of the Agreement VII including the grant of the Option Shares is in the ordinary and usual course of business of the Company, on normal commercial terms, and in the interest of the Company and the Shareholders as a whole and that the terms thereof are fair and reasonable so far as the Independent Shareholders are concerned.

Yours faithfully, For and on behalf of Alliance Capital Partners Limited David Tsang Responsible Officer SFC CE No. ACH258

Mr. David Tsang is a licensed person registered with the Securities and Futures Commission and a responsible officer of Alliance Capital Partners Limited to carry out Type 1 (Dealing in securities) and Type 6 (advising on corporate finance) activities and has 30 years’ experience in advising listed companies on various corporate finance transactions.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL INFORMATION OF THE GROUP

Financial information of the Group for each of the two years ended 31 December 2013 and 2014 are disclosed in the Prospectus (pages I-1 to I-116) which was published on the websites of the Stock Exchange (www.hkexnews.hk) and of the Company (www.3sbio.com/en/investors/notices) on 1 June 2015.

Financial information of the Group for the six months ended 30 June 2015 is disclosed in the interim report of the Company for the six months ended 30 June 2015 which was published on the websites of the Stock Exchange (www.hkexnews.hk) and of the Company (www.3sbio.com/en/investors/notices) on 24 September 2015.

Financial information of the Group for the year ended 31 December 2015 is disclosed in the annual results announcement of the Company for the year ended 31 December 2015, which was published on the websites of the Stock Exchange (www.hkexnews.hk) and of the Company (www.3sbio.com/en/investors/notices) on 31 March 2016.

2. STATEMENT OF INDEBTEDNESS OF THE ENLARGED GROUP

As at the close of business on 29 February 2016, being the latest practicable date for the purpose of this indebtedness statement, the Enlarged Group had a total of secured bank borrowings of RMB2,313,435,000, which were secured by time deposits, land and buildings, notes receivables, the equity interests in the Target and guarantees by the Company.

For the purpose of the above indebtedness statement, foreign currency amounts denominated in US$ and HK$ have been translated into RMB at the exchange rates of US$1.00 to RMB6.5452 and HK$1.00 to RMB0.8419 prevailing at the close of business on 29 February 2016.

Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities, the Enlarged Group did not have outstanding at the close of business on 29 February 2016 any loans or other similar indebtedness, liabilities under acceptances or acceptance credits, debentures, mortgages, charges, hire purchase commitments, guarantees or other material liabilities.

3. WORKING CAPITAL OF THE ENLARGED GROUP

The Directors are of the opinion that after taking into account of the Enlarged Group’s financial resources including the available cash reserves, internally generated cash flows as well as cash flow impact of the Transactions, in the absence of unforeseen circumstances, the Enlarged Group has sufficient working capital for its requirements, that is for at least 12 months from the date of this circular.

4. FINANCIAL TRADING PROSPECTS OF THE ENLARGED GROUP

The Group continues to be optimistic about the growth prospects of its core products as the relevant markets show significant demand due to the aging population and increasing government support for major diseases treated by the Group’s products.

As at 31 December 2015, the Group had a rich pipeline of 30 new products. Upon completion of the Transactions, the Group will increase its pipeline by acquiring the Target Group’s pipeline of

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

monoclonal antibody product candidates. This will enable the Enlarged Group to further extend the depth and breadth of its product portfolio and to increase its potential for profit and long-term business sustainability. The Group believes that by integrating the Target Group’s manufacturing platform to the Company’s existing manufacturing platform and by integrating the Target Group’s sales and marketing and research and development teams with these of the Company, as detailed in the section headed “Reasons for and Benefits of the Transactions” in this circular, the Enlarged Group will strengthen its position as a leading biotechnology company in the PRC.

Looking forward in 2016, given the aging population in the PRC and increasing government support in the biopharmaceutical sector, the Directors believe that the demand for the Group’s core products, such as TPIAO ( ), Yisaipu ( ) and EPIAO ( ) will remain strong. The management is confident that, with the Enlarged Group’s competitive positioning of its innovative products, its expanded pipeline of product candidates, its integrated research and development capabilities and its enlarged sales and marketing networks, the Enlarged Group is well positioned to enter a new phase of rapid growth.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

22/F, CITIC Tower, 1 Tim Mei Avenue, Central, Hong Kong

25 April 2016

The Directors 3SBio Inc.

Dear Sirs,

We set out below our report on the financial information of Sunshine Guojian Pharmaceutical (Shanghai) Co., Ltd. (formerly known as Shanghai CP Guojian Pharmaceutical Co., Ltd., the “Target”) and its subsidiaries (together, the “Target Group”) comprising the consolidated statements of profit or loss and other comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows of the Target Group for each of the years ended 31 December 2013, 2014 and 2015 (the “Relevant Periods”), and the consolidated statements of financial position of the Target Group as at 31 December 2013, 2014 and 2015, together with the notes thereto (the “Financial Information”), for inclusion in the circular of 3SBio Inc. dated 25 April 2016 (the “Circular”) in connection with the proposed acquisition of a 97.78% equity interest of Target (the “Acquisition”) by 3SBio Inc. and its subsidiaries.

The Target was incorporated in Shanghai, the People’s Republic of China (the “PRC”) on 25 January 2002 as a company with limited liability.

As at the end of the Relevant Periods, the Target has direct and indirect interests in the subsidiaries as set out in note 1 of Section II below. All companies now comprising the Target Group have adopted 31 December as their financial year end date. The statutory financial statements of the companies now comprising the Target Group were prepared in accordance with the relevant accounting principles applicable to these companies in the countries in which they were incorporated and/or established. Details of their statutory auditors during the Relevant Periods are set out in note 1 of Section II below.

For the purpose of this report, the directors of the Target Group (the “Directors”) have prepared the consolidated financial statements of the Target Group (the “Underlying Financial Statements”) in accordance with International Financial Reporting Standards (“IFRSs”) issued by the International Accounting Standards Board (the “IASB”). The Underlying Financial Statements for each of the years ended 31 December 2013, 2014 and 2015 were audited by us in accordance with International Standards on Auditing issued by the International Auditing and Assurance Standards Board (the “IAASB”).

The Financial Information set out in this report has been prepared from the Underlying Financial Statements with no adjustments made thereon.

Directors’ responsibility

The directors are responsible for the preparation of the Underlying Financial Statements and Financial Information that give a true and fair view in accordance with IFRSs, and for such internal control as the Directors determine is necessary to enable the preparation of the Underlying Financial Statements and Financial Information that are free from material misstatement, whether due to fraud or error.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Reporting accountants’ responsibility

It is our responsibility to form an independent opinion on the Financial Information, and to report our opinion thereon to you.

For the purpose of this report, we have carried out procedures on the Financial Information in accordance with Auditing Guideline 3.340 Prospectuses and the Reporting Accountant issued by the HKICPA.

Opinion in respect of the Financial Information

In our opinion, for the purpose of this report , the Financial Information gives a true and fair view of the financial position of the Target Group as at 31 December 2013, 2014 and 2015, and of the consolidated financial performance and cash flows of the Target Group for each of the Relevant Periods.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

I. FINANCIAL INFORMATION

(A) CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

REVENUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other income and gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling and distribution expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PROFIT BEFORE TAX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PROFIT FOR THE YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Attributable to: Owners of the parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OTHER COMPREHENSIVE INCOME/(LOSS) Other comprehensive income/(loss) to be reclassified to profit or loss in subsequent periods: Exchange differences on translation of foreign operations . . . . . . . . . . . Net other comprehensive income/(loss) to be reclassified to profit or loss in subsequent periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OTHER COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR, NET OF TAX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL COMPREHENSIVE INCOME FOR THE YEAR . . . . . . . . . . . Attributable to: Owners of the parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Notes 6 6 8 7 9	2013 RMB’000 727,837 (40,167) 687,670 95,544 (264,394) (77,836) (77,797) (15,228) 347,959 (49,630) 298,329 295,261 3,068 298,329 (31) (31) (31) 298,298 295,230 3,068 298,298	2014 RMB’000 775,851 (54,377) 721,474 107,599 (356,971) (98,130) (125,637) (2,539) 245,796 (32,375) 213,421 212,413 1,008 213,421 (8) (8) (8) 213,413 212,405 1,008 213,413	2015 RMB’000 877,346 (56,147) 821,199 96,809 (344,406) (158,646) (178,003) — 236,953 (29,946) 207,007 210,704 (3,697) 207,007 237 237 237 207,244 210,941 (3,697) 207,244

II-3 -

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

(B) CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

NON-CURRENT ASSETS Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepaid land lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CURRENT ASSETS Available-for-sale investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trade and notes receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepayments, deposits and other receivables . . . . . . . . . . . . . . . . . . . Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CURRENT LIABILITIES Trade payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other payables and accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bonds payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NET CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL ASSETS LESS CURRENT LIABILITIES . . . . . . . . . . . . . . NON-CURRENT LIABILITIES Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EQUITY Equity attributable to owners of the parent . . . . . . . . . . . . . . . . . . . . . Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Notes 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25	2013 RMB’000 801,930 33,529 187,259 32,005 640 29,850 1,085,213 30,000 87,538 168,014 28,281 877,045 1,190,878 5,909 75,845 194,407 13,822 289,983 900,895 1,986,108 148,994 148,994 1,837,114 510,223 1,222,847 1,733,070 104,044 1,837,114	2014 RMB’000 1,079,417 108,305 181,885 33,003 640 38,467 1,441,717 20,000 97,667 181,486 23,548 526,526 849,227 14,395 67,142 — 4,024 85,561 763,666 2,205,383 154,856 154,856 2,050,527 510,223 1,435,252 1,945,475 105,052 2,050,527	2015
				RMB’000 1,212,324 124,954 186,190 46,588 640 42,068
				1,612,764
				68,727 102,567 178,178 34,585 575,582
				959,639
				10,194 82,320 — 5,911
				98,425
				861,214
				2,473,978
				169,626
				169,626
				2,304,352
				510,223 1,692,774
				2,202,997
				101,355
				2,304,352

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APPENDIX II

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

Attributable to owners of the parent	Share Contributed Statutory surplus Retained Exchange fluctuation Non-controlling Total	capital surplus reserve earnings reserve Total* interests equity*	RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000	At 1 January 2013 . . . . . . . . . . . . . . . . . . . . . . 510,223 317,973 65,786 543,858 — 1,437,840 100,976 1,538,816	Profit for the year . . . . . . . . . . . . . . . . . . . . . . — — — 295,261 — 295,261 3,068 298,329	Other comprehensive income for the year:	Exchange differences on translation of	foreign operations . . . . . . . . . . . . . . . . . . — — — — (31) (31) — (31)	Total comprehensive income for the year . . . . — — — 295,261 (31) 295,230 3,068 298,298	Transfer to statutory surplus reserve . . . . . . . . — — 28,832 (28,832) — — — —	At 31 December 2013 . . . . . . . . . . . . . . . . . . . 510,223 317,973 94,618 810,287 (31) 1,733,070 104,044 1,837,114		At 1 January 2014 . . . . . . . . . . . . . . . . . . . . . . 510,223 317,973 94,618 810,287 (31) 1,733,070 104,044 1,837,114	Profit for the year . . . . . . . . . . . . . . . . . . . . . . — — — 212,413 — 212,413 1,008 213,421	Other comprehensive income for the year:	Exchange differences on translation of	foreign operations . . . . . . . . . . . . . . . . . . — — — — (8) (8) — (8)	Total comprehensive income for the year . . . . — — — 212,413 (8) 212,405 1,008 213,413	Transfer to statutory surplus reserve . . . . . . . . — — 22,006 (22,006) — — — —	At 31 December 2014 . . . . . . . . . . . . . . . . . . . 510,223 317,973 116,624 1,000,694 (39) 1,945,475 105,052 2,050,527		At 1 January 2015 . . . . . . . . . . . . . . . . . . . . . . 510,223 317,973 116,624 1,000,694 (39) 1,945,475 105,052 2,050,527	Profit for the year . . . . . . . . . . . . . . . . . . . . . . — — — 210,704 — 210,704 (3,697) 207,007	Other comprehensive income for the year:	Exchange differences on translation of	foreign operations . . . . . . . . . . . . . . . . . . — — — — 237 237 — 237	Total comprehensive income for the year . . . . — — — 210,704 237 210,941 (3,697) 207,244	Equity-settled warrant (note 26) . . . . . . . . . . . — 46,581 — — — 46,581 — 46,581	Transfer to statutory surplus reserve . . . . . . . . — — 22,331 (22,331) — — — —	At 31 December 2015 . . . . . . . . . . . . . . . . . . . 510,223 364,554 138,955 1,189,067 198 2,202,997 101,355 2,304,352			* These reserve accounts comprise the consolidated reserves of RMB1,692,774,000 (2014:RMB1,435,252,000, 2013:RMB1,222,847,000) in the consolidated statement of financial position.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

(D) CONSOLIDATED STATEMENTS OF CASH FLOWS

CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments for: Finance costs . . . . . . . . . . . . . . . . . . . . . . . . Bank interest income . . . . . . . . . . . . . . . . . Exchange gain or loss . . . . . . . . . . . . . . . . . Impairment/(reversal of impairment) of trade receivables . . . . . . . . . . . . . . . . . . . Impairment/(reversal of impairment) of other receivables . . . . . . . . . . . . . . . . . . . Loss on disposal of items of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . Depreciation of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . Amortisation of intangible assets . . . . . . . . Recognition of prepaid land lease payments . . . . . . . . . . . . . . . . . . . . . . . . . Gains for holding available-for-sale investment . . . . . . . . . . . . . . . . . . . . . . . . Equity-settled warrant expenses . . . . . . . . . Increase in inventories . . . . . . . . . . . . . . . . . . . . (Increase)/decrease in prepayments, deposits and other receivables . . . . . . . . . . . . . . . . . . . (Increase)/decrease in trade and notes receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase in deferred tax assets . . . . . . . . . . . . . . (Decrease)/increase in trade payables . . . . . . . . . Increase in other payables and accruals . . . . . . . Increase in deferred income . . . . . . . . . . . . . . . . Cash generated from operations . . . . . . . . . . . . . Interest received . . . . . . . . . . . . . . . . . . . . . . . . . Income tax paid . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash flows from operating activities . . . . . .	Notes 8 6 7 7 7 7,10 7,12 7,11 6 7	2013 RMB’000 347,959 15,228 (24,214) 740 1,797 412 7 38,364 13,294 889 — — 394,476 (22,838) (7,727) (16,438) (1,347) (10,858) (40,697) 15,421 309,992 24,006 (57,587) 276,411	2014 RMB’000 245,796 2,539 (20,076) 54 499 567 60 43,872 13,764 1,783 (1,094) — 287,764 (10,129) (3,968) (13,971) (998) 8,486 14,047 5,862 287,093 19,878 (42,965) 264,006	2015 RMB’000 236,953 — (20,266) (1,334) (271) (497) 234 53,961 14,153 2,420 (1,946) 46,581 329,988 (4,900) 3,906 3,579 (13,585) (4,201) 29,471 14,770 359,028 18,300 (41,642) 335,686

continued/...

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APPENDIX II

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

CASH FLOWS USED IN INVESTING ACTIVITIES Purchases of available-for-sale investments . . . . Purchases of intangible assets . . . . . . . . . . . . . . . Purchases of items of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchases of items of prepaid land lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from disposal of available-for-sale investments . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from holding available-for-sale investments . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from disposal of items of property, plant and equipment . . . . . . . . . . . . . . . . . . . . Net cash flows used in investing activities . . . . . CASH FLOWS USED IN FINANCING ACTIVITIES Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Repayment of bond . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash flows used in financing activities . . . . . NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effect of foreign exchange rate changes, net . . . CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances . . . . . . . . . . . . . . . . . . . Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents as stated in the statement of cash flows . . . . . . . . . . . . . . . . . .	Notes 19 19	2013 RMB’000 (30,000) (11,429) (282,083) — — — 32 (323,480) (11,681) — (2,925) (14,606) (61,675) 939,238 (518) 877,045 405,816 471,229 877,045	2014 RMB’000 (20,000) (8,389) (334,052) (76,559) 30,000 1,094 159 (407,747) (11,681) (195,000) — (206,681) (350,422) 877,045 (97) 526,526 510,544 15,982 526,526	2015 RMB’000 (67,500) (20,495) (201,127) (19,069) 20,000 720 — (287,471) — — — — 48,215 526,526 841 575,582 573,518 2,064 575,582

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

II. NOTES TO FINANCIAL INFORMATION

1. INFORMATION ABOUT THE TARGET GROUP

The Target was incorporated in Shanghai, People’s Republic of China (“PRC”) with limited liability on 25 January 2002. The registered office of the Target is located at No. 399, Libing Road, Zhangjiang High-Tech Park, Pudong New Area, Shanghai, the PRC.

The principal activities of the Target Group are the development, production, marketing and sale of biopharmaceutical products.

As at the date of this report, the Target had direct interests in its subsidiaries, comprising a limited liability partnership entity and private limited liability companies (or, if incorporated outside Hong Kong, have substantially similar characteristics to a private company incorporated in Hong Kong), the particulars of which are set out below:

National Engineering Research Center of Antibody Medicine (“NERC”) Cn-Gen Mab Co., Limited (“Cn-Gen Mab”) Shanghai CP Guojian (Suzhou) Co., Ltd. (“Guojian Suzhou”) Shanghai CP Guojian Pharmaceutical Development Co., Ltd.	Place and date of incorporation PRC 15 January 2009 PRC 19 September 2012 PRC 25 November 2013 PRC 9 January 2014	Issued and paid-up capital/registered capital RMB260 million HK1 million RMB150 million RMB100 million	Interest owned by the Target 61.54% 100% 100% 100%	Principal activities
				Development and production of biopharmaceutical products Sale of biopharmaceutical products Development, production, marketing and sale of biopharmaceutical products Service

The statutory financial statements of the Target and its subsidiaries for each of the years ended 31 December 2013, 2014 and 2015 prepared in accordance with Accounting Standards for Business Enterprises issued by the Ministry of Finance (the “MOF”) of the PRC in 2006 and other related regulations issued by the MOF, were audited by Ernst & Young Hua Ming LLP.

2. BASIS OF PREPARATION

The Financial Information has been prepared in accordance with IFRSs, which comprise all standards and interpretations approved by the IASB. All IFRSs effective for the accounting period commencing from 1 January 2015, together with the relevant transition provisions, have been early adopted by the Target Group in the preparation of the Financial Information throughout the Relevant Periods. The Financial Information has been prepared under the historical cost convention. The Financial Information is presented in Renminbi (“RMB”) and all values are rounded to the nearest thousand except when otherwise indicated.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Basis of consolidation

The consolidated financial statements includes the financial statements of the Target and its subsidiaries for the Relevant Periods. A subsidiary is an entity (including a structured entity), directly or indirectly, controlled by the Target. Control is achieved when the Target Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee (i.e., existing rights that give the Target Group the current ability to direct the relevant activities of the investee).

When the Target has, directly or indirectly, less than a majority of the voting or similar rights of an investee, the Target Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

(a) the contractual arrangement with the other vote holders of the investee;
(b) rights arising from other contractual arrangements; and
(c) the Target Group’s voting rights and potential voting rights.

The financial information of the subsidiaries is prepared for the same reporting period as the Target, using consistent accounting policies. The results of subsidiaries are consolidated from the date on which the Target Group obtains control, and continue to be consolidated until the date that such control ceases.

Profit or loss and each component of other comprehensive income are attributed to the owners of the parent of the Target Group and to the non-controlling interests, even if this results in the noncontrolling interests having a deficit balance. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Target Group are eliminated in full on consolidation.

The Target Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control described above. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

If the Target Group loses control over a subsidiary, it derecognises (i) the assets (including goodwill) and liabilities of the subsidiary, (ii) the carrying amount of any non-controlling interest and (iii) the cumulative translation differences recorded in equity; and recognises (i) the fair value of the consideration received, (ii) the fair value of any investment retained and (iii) any resulting surplus or deficit in profit or loss. The Target Group’s share of components previously recognised in other comprehensive income is reclassified to profit or loss or retained profits, as appropriate, on the same basis as would be required if the Target Group had directly disposed of the related assets or liabilities.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

2.1 ISSUED BUT NOT YET EFFECTIVE IFRSs

The Target Group has not applied the following new and revised IFRSs that have been issued but are not yet effective, in the Financial Information.

IFRS 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial Instruments[3] Amendments to IFRS 10 and IAS 28 . . . . . . Sale or Contribution of Assets between an Investor and its Associate or Joint Venture[6] Amendments to IFRS 10 and IFRS 12 and IAS 28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment Entities: Applying the Consolidation Exception[1] Amendments to IFRS 11 . . . . . . . . . . . . . . . . Accounting for Acquisitions of Interests in Joint Operations[1] IFRS 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Regulatory Deferral Accounts[5] IFRS 15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Revenue from Contracts with Customers[3] Amendments to IAS 1 . . . . . . . . . . . . . . . . . . Disclosure Initiative[1] Amendments to IAS 16 and IAS 38 . . . . . . . Clarification of Acceptable Methods of Depreciation and Amortisation[1] Amendments to IAS 7 . . . . . . . . . . . . . . . . . . Disclosure of Initiative[2] Amendments to IAS 12 . . . . . . . . . . . . . . . . . Recognition of Deferred Tax Assets for Unrealised Losses[2] IFRS 16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leases[4] Amendments to IAS 16 and IAS 41 . . . . . . . Agriculture: Bearer Plants[1] Amendments to IAS 27 . . . . . . . . . . . . . . . . . Equity Method in Separate Financial Statements[1] Annual Improvements 2012-2014 Cycle . . . . Amendments to a number of IFRSs [1]

1 Effective for annual periods beginning on or after 1 January 2016
2 Effective for annual periods beginning on or after 1 January 2017
3 Effective for annual periods beginning on or after 1 January 2018
4 Effective for annual periods beginning on or after 1 January 2019
5 Effective for an entity that first adopts IFRSs for its annual financial information beginning on or after 1 January 2016 and therefore is not applicable to the Target Group
6 No mandatory effective date yet determined but available for adoption

Further information about those IFRSs that are expected to be applicable to the Target Group is as follows:

In July 2014, the IASB issued the final version of IFRS 9, bringing together all phases of the financial instruments project to replace IAS 39 and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment and hedge accounting. The Target Group expects to adopt IFRS 9 from 1 January 2018. During the Relevant Periods, the Target Group performed a high-level assessment of the impact of the adoption of IFRS 9. This preliminary assessment is based on currently available information and may be subject to changes arising from further detailed analyses or additional reasonable and supportable information being made available to the Target Group in the future. The expected impacts arising from the adoption of IFRS 9 are summarised as follows:

(a) Classification and measurement

The Target Group does not expect that the adoption of IFRS 9 will have a significant impact on the classification and measurement of its financial assets. It expects to continue measuring at fair value all financial assets currently held at fair value. Equity investments currently held as available for sale will be measured at fair value through other comprehensive income as the investments are intended to be held for the foreseeable future and the Target Group expects to apply the option to present fair value changes in other comprehensive income. Gains and losses recorded in other comprehensive income for the equity investments cannot be recycled to profit or loss when the investments are derecognised.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

(b) Impairment

IFRS 9 requires an impairment on debt instruments recorded at amortised cost or at fair value through other comprehensive income, lease receivables, loan commitments and financial guarantee contracts that are not accounted for at fair value through profit or loss under IFRS 9, to be recorded based on an expected credit loss model either on a twelve-month basis or a lifetime basis. The Target Group expects to apply the simplified approach and record lifetime expected losses that are estimated based on the present value of all cash shortfalls over the remaining life of all of its trade and other receivables. The Target Group will perform a more detailed analysis which considers all reasonable and supportable information, including forward-looking elements, for estimation of expected credit losses on its trade and other receivables upon the adoption of IFRS 9.

The amendments to IFRS 10 and IAS 28 address an inconsistency between the requirements in IFRS 10 and in IAS 28 in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The amendments require a full recognition of a gain or loss when the sale or contribution of assets between an investor and its associate or joint venture constitutes a business. For a transaction involving assets that do not constitute a business, a gain or loss resulting from the transaction is recognised in the investor’s profit or loss only to the extent of the unrelated investor’s interest in that associate or joint venture. The amendments are to be applied prospectively. The Target Group is currently assessing the impact of IFRS 10 and IAS 28 upon adoption.

The amendments to IFRS 11 require that an acquirer of an interest in a joint operation in which the activity of the joint operation constitutes a business must apply the relevant principles for business combinations in IFRS 3. The amendments also clarify that a previously held interest in a joint operation is not remeasured on the acquisition of an additional interest in the same joint operation while joint control is retained. In addition, a scope exclusion has been added to IFRS 11 to specify that the amendments do not apply when the parties sharing joint control, including the reporting entity, are under common control of the same ultimate controlling party. The amendments apply to both the acquisition of the initial interest in a joint operation and the acquisition of any additional interests in the same joint operation. The amendments are not expected to have any impact on the financial position or performance of the Target Group upon adoption on 1 January 2016.

IFRS 15 establishes a new five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured approach for measuring and recognising revenue. The standard also introduces extensive qualitative and quantitative disclosure requirements, including disaggregation of total revenue, information about performance obligations, changes in contract asset and liability account balances between periods and key judgements and estimates. The standard will supersede all current revenue recognition requirements under IFRSs. In July 2015, the IASB issued an amendment to IFRS 15 regarding a one-year deferral of the mandatory effective date of IFRS 15 to 1 January 2018. The Target Group expects to adopt IFRS 15 on 1 January 2018 and is currently assessing the impact of IFRS 15 upon adoption.

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Amendments to IAS 1 include narrow-focus improvements in respect of the presentation and disclosure in financial statements. The amendments clarify:

(i) the materiality requirements in IAS 1;
(ii) that specific line items in the statement of profit or loss and other comprehensive income and the statement of financial position may be disaggregated;
(iii) that entities have flexibility as to the order in which they present the notes to financial statements; and
(iv) that the share of other comprehensive income of associates and joint ventures accounted for using the equity method must be presented in aggregate as a single line item, and classified between those items that will or will not be subsequently reclassified to profit or loss.

Furthermore, the amendments clarify the requirements that apply when additional subtotals are presented in the statement of financial position and the statement of profit or loss and other comprehensive income. The Target Group expects to adopt the amendments from 1 January 2016. The amendments are not expected to have any significant impact on the Target Group’s financial information.

Amendments to IAS 16 and IAS 38 clarify the principle in IAS 16 and IAS 38 that revenue reflects a pattern of economic benefits that are generated from operating a business (of which the asset is part) rather than the economic benefits that are consumed through the use of the asset. As a result, a revenue-based method cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortise intangible assets. The amendments are to be applied prospectively. The amendments are not expected to have any impact on the financial position or performance of the Target Group upon adoption on 1 January 2016 as the Target Group has not used a revenue-based method for the calculation of depreciation of its non-current assets.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business combinations and goodwill

Business combinations are accounted for using the acquisition method. The consideration transferred is measured at the acquisition date fair value which is the sum of the acquisition date fair values of assets transferred by the Target Group, liabilities assumed by the Target Group to the former owners of the acquiree and the equity interests issued by the Target Group in exchange for control of the acquiree. For each business combination, the Target Group elects whether to measure the noncontrolling interests in the acquiree that are present ownership interests and entitle their holders to a proportionate share of net assets in the event of liquidation at fair value or at the proportionate share of the acquiree’s identifiable net assets. All other components of non-controlling interests are measured at fair value. Acquisition-related costs are expensed as incurred.

When the Target Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts of the acquiree.

If the business combination is achieved in stages, the previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss is recognised in profit or loss.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability is measured at fair value with changes in fair value recognised in profit or loss. Contingent consideration that is classified as equity is not remeasured and subsequent settlement is accounted for within equity.

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred, the amount recognised for non-controlling interests and any fair value of the Target Group’s previously held equity interests in the acquiree over the identifiable net assets acquired and liabilities assumed. If the sum of this consideration and other items is lower than the fair value of the net assets acquired, the difference is, after reassessment, recognised in profit or loss as a gain on bargain purchase.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. The Target Group performs its annual impairment test of goodwill as at 31 December. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Target Group’s cashgenerating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Target Group are assigned to those units or groups of units.

Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units) to which the goodwill relates. Where the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognised. An impairment loss recognised for goodwill is not reversed in a subsequent period.

Where goodwill has been allocated to a cash-generating unit (or group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on the disposal. Goodwill disposed of in these circumstances is measured based on the relative value of the operation disposed of and the portion of the cash-generating unit retained.

Fair value measurement

The Target Group measures its financial assets at fair value through profit or loss and derivative financial instruments at fair value at the end of each reporting period. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Target Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

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The Target Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

Level 1 — based on quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2 — based on valuation techniques for which the lowest level input that is significant to the fair value measurement is observable, either directly or indirectly
Level 3 — based on valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Target Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

Impairment of non-financial assets

Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories and financial assets), the asset’s recoverable amount is estimated. An asset’s recoverable amount is the higher of the asset’s or cash-generating unit’s value in use and its fair value less costs of disposal, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs.

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to the statement of profit or loss and other comprehensive income in the period in which it arises in those expense categories consistent with the function of the impaired asset.

An assessment is made at the end of each reporting period as to whether there is an indication that previously recognised impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation) had no impairment loss been recognised for the asset in prior years. A reversal of such an impairment loss is credited to the statement of profit or loss and other comprehensive income in the period in which it arises.

Related parties

A party is considered to be related to the Target Group if:

(a) the party is a person or a close member of that person’s family and that person:
(i) has control or joint control over the Target Group;
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(ii) has significant influence over the Target Group; or
(iii) is a member of the key management personnel of the Target Group or of the holding companies of the Target Group;

(b) the party is an entity where any of the following conditions applies:
(i) the entity and the Target Group are members of the same group;
(ii) one entity is an associate or joint venture of the other entity (or of a parent, subsidiary or fellow subsidiary of the other entity);
(iii) the entity and the Target Group are joint ventures of the same third party;
(iv) one entity is a joint venture of a third entity and the other entity is an associate of the third entity;
(v) the entity is a post-employment benefit plan for the benefit of employees of either the Target Group or an entity related to the Target Group;
(vi) the entity is controlled or jointly controlled by a person identified in (a);
(vii) a person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity); and
(viii) the entity, or any member of a group of which it is a part, provides key management personnel services to the Target Group to the parent of the Target Group.

Property, plant and equipment and depreciation

Property, plant and equipment, other than construction in progress, are stated at cost less accumulated depreciation and any impairment losses. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use.

Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to the statement of profit or loss and other comprehensive income in the period in which it is incurred. In situations where the recognition criteria are satisfied, the expenditure for a major inspection is capitalised in the carrying amount of the asset as a replacement. Where significant parts of property, plant and equipment are required to be replaced at intervals, the Target Group recognises such parts as individual assets with specific useful lives and depreciates them accordingly.

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Depreciation is calculated on the straight-line basis to write off the cost of each item of property, plant and equipment to its residual value over its estimated useful life. The principal annual rates used for this purpose are as follows:

rates used for this purpose are as follows:
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Machinery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Motor vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Office equipments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Work condition equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Instrument equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Principal annual rates 3.6% 9% 18% 18% 18% 18%	Residual values
		10% 10% 10% 10% 10% 10%

Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately. Residual values, useful lives and the depreciation method are reviewed, and adjusted if appropriate, at least at each financial year end.

An item of property, plant and equipment including any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognised in the statement of profit or loss and other comprehensive income in the year the asset is derecognised is the difference between the net sales proceeds and the carrying amount of the relevant asset.

Construction in progress represents a building under construction, which is stated at cost less any impairment losses, and is not depreciated. Cost comprises the direct costs of construction and capitalised borrowing costs on related borrowed funds during the period of construction. Construction in progress is reclassified to the appropriate category of property, plant and equipment when completed and ready for use.

Intangible assets (other than goodwill)

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is the fair value at the date of acquisition. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are subsequently amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year end.

Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash generating unit level. Such intangible assets are not amortised. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether the indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is accounted for on a prospective basis.

Intangible assets are amortised on the straight-line basis over the following useful economic lives:

Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 years Patent and special techniques . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 years In progress research and development (“IPR&D”) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Indefinite useful life

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Research and development costs

All research costs are charged to the statement of profit or loss and other comprehensive income as incurred.

Expenditure incurred on projects to develop new products is capitalised and deferred only when the Target Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the project and the ability to measure reliably the expenditure during the development. Product development expenditure which does not meet these criteria is expensed when incurred.

Deferred development costs are stated at cost less any impairment losses and are amortised using the straight line basis over the commercial lives of the underlying products not exceeding five to seven years, commencing form the date when the products are put into commercial production.

Leases

Leases that transfer substantially all the rewards and risks of ownership of assets to the Target Group, other than legal title, are accounted for as finance leases. At the inception of a finance lease, the cost of the leased asset is capitalised at the present value of the minimum lease payments and recorded together with the obligation, excluding the interest element, to reflect the purchase and financing. Assets held under capitalised finance leases, including prepaid land lease payments under finance leases, are included in property, plant and equipment, and depreciated over the shorter of the lease terms and the estimated useful lives of the assets. The finance costs of such leases are charged to the statement of profit or loss and other comprehensive income so as to provide a constant periodic rate of charge over the lease terms.

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Target Group is the lessee, rentals payable under operating leases net of any incentives received from the lessor are charged to the statement of profit or loss and other comprehensive income on the straight-line basis over the lease terms.

Prepaid land lease payments under operating leases are initially stated at cost and subsequently recognised on the straight-line basis over the lease terms of 50 years.

Investments and other financial assets

Initial recognition and measurement

Financial assets are classified, at initial recognition, as financial assets at fair value through profit or loss, loans and receivables and available-for-sale financial investments, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. When financial assets are recognised initially, they are measured at fair value plus transaction costs that are attributable to the acquisition of the financial assets, except in the case of financial assets recorded at fair value through profit or loss.

All regular way purchases and sales of financial assets are recognised on the trade date, that is, the date that the Target Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.

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Subsequent measurement

The subsequent measurement of financial assets depends on their classification as follows:

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition as at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of sale in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments as defined by IAS 39.

Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with positive net changes in fair value presented as other income and gains and negative net changes in fair value presented as finance costs in the statement of profit or loss and other comprehensive income. These net fair value changes do not include any dividends or interest earned on these financial assets, which are recognised in accordance with the policies set out for “Revenue recognition” below.

Financial assets designated upon initial recognition as at fair value through profit or loss are designated at the date of initial recognition and only if the criteria in IAS 39 are satisfied.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such assets are subsequently measured at amortised cost using the effective interest rate method less any allowance for impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and includes fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in other income and gains in the statement of profit or loss and other comprehensive income. The loss arising from impairment is recognised in the statement of profit or loss and other comprehensive income in finance costs for loans and in other expenses for receivables.

Available-for-sale financial investments

Available-for-sale financial investments are non-derivative financial assets in listed and unlisted equity investments and debt securities. Equity investments classified as available for sale are those which are neither classified as held for trading nor designated as at fair value through profit or loss. Debt securities in this category are those which are intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity or in response to changes in market conditions.

After initial recognition, available-for-sale financial investments are subsequently measured at fair value, with unrealised gains or losses recognised as other comprehensive income in the availablefor-sale investment revaluation reserve until the investment is derecognised, at which time the cumulative gain or loss is recognised in the statement of profit or loss and other comprehensive income in other income, or until the investment is determined to be impaired, when the cumulative gain or loss is reclassified from the available-for-sale investment revaluation reserve to the statement of profit or loss and other comprehensive income in other gains or losses. Interest and dividends earned whilst

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holding the available-for-sale financial investments are reported as interest income and dividend income, respectively and are recognised in the statement of profit or loss and other comprehensive income as other income in accordance with the policies set out for “Revenue recognition” below.

When the fair value of unlisted equity investments cannot be reliably measured because (a) the variability in the range of reasonable fair value estimates is significant for that investment or (b) the probabilities of the various estimates within the range cannot be reasonably assessed and used in estimating fair value, such investments are stated at cost less any impairment losses.

The Target Group evaluates whether the ability and intention to sell its available-for-sale financial assets in the near term are still appropriate. When, in rare circumstances, the Target Group is unable to trade these financial assets due to inactive markets, the Target Group may elect to reclassify these financial assets if management has the ability and intention to hold the assets for the foreseeable future or until maturity.

For a financial asset reclassified from the available-for-sale category, the fair value carrying amount at the date of reclassification becomes its new amortised cost and any previous gain or loss on that asset that has been recognised in equity is amortised to profit or loss over the remaining life of the investment using the effective interest rate. Any difference between the new amortised cost and the maturity amount is also amortised over the remaining life of the asset using the effective interest rate. If the asset is subsequently determined to be impaired, then the amount recorded in equity is reclassified to the statement of profit or loss and other comprehensive income.

Derecognition of financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e., removed from the Target Group’s statement of financial position) when:

Š the rights to receive cash flows from the asset have expired; or
Š the Target Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a “pass-through” arrangement; and either (a) the Target Group has transferred substantially all the risks and rewards of the asset, or (b) the Target Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Target Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risk and rewards of ownership of the asset. When it has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the Target Group continues to recognise the transferred asset to the extent of the Target Group’s continuing involvement. In that case, the Target Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Target Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Target Group could be required to repay.

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Impairment of financial assets

The Target Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. An impairment exists if one or more events that occurred after the initial recognition of the asset have an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that a debtor or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

Financial assets carried at amortised cost

For financial assets carried at amortised cost, the Target Group first assesses whether impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Target Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.

The amount of any impairment loss identified is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition).

The carrying amount of the asset is reduced through the use of an allowance account and the loss is recognised in the statement of profit or loss and other comprehensive income. Interest income continues to be accrued on the reduced carrying amount and using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Loans and receivables together with any associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Target Group.

If, in a subsequent period, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a write-off is later recovered, the recovery is credited to other expenses in the statement of profit or loss and other comprehensive income.

Assets carried at cost

If there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Impairment losses on these assets are not reversed.

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Available-for-sale financial investments

For available-for-sale financial investments, the Target Group assesses at the end of each reporting period whether there is objective evidence that an investment or a group of investments is impaired.

If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in the statement of profit or loss and other comprehensive income, is removed from other comprehensive income and recognised in the statement of profit or loss and other comprehensive income.

In the case of equity investments classified as available for sale, objective evidence would include a significant or prolonged decline in the fair value of an investment below its cost. “Significant” is evaluated against the original cost of the investment and “prolonged” against the period in which the fair value has been below its original cost. Where there is evidence of impairment, the cumulative loss — measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the statement of profit or loss and other comprehensive income — is removed from other comprehensive income and recognised in the statement of profit or loss and other comprehensive income. Impairment losses on equity instruments classified as available for sale are not reversed through the statement of profit or loss and other comprehensive income. Increases in their fair value after impairment are recognised directly in other comprehensive income.

The determination of what is “significant” or “prolonged” requires judgement. In making this judgement, the Target Group evaluates, among other factors, the duration or extent to which the fair value of an investment is less than its cost.

In the case of debt instruments classified as available for sale, impairment is assessed based on the same criteria as financial assets carried at amortised cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortised cost and the current fair value, less any impairment loss on that investment previously recognised in the statement of profit or loss and other comprehensive income. Future interest income continues to be accrued based on the reduced carrying amount of the asset and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income. Impairment losses on debt instruments are reversed through the statement of profit or loss and other comprehensive income if the subsequent increase in fair value of the instruments can be objectively related to an event occurring after the impairment loss was recognised in the statement of profit or loss and other comprehensive income.

Financial liabilities

Initial recognition and measurement

Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.

All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings, net of directly attributable transaction costs.

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The Target Group’s financial liabilities include trade payables and other payables and accruals and bonds payable.

Subsequent measurement — Loans and borrowings

After initial recognition, interest-bearing borrowings are subsequently measured at amortised cost, using the effective interest rate method unless the effect of discounting would be immaterial, in which case they are stated at cost. Gains and losses are recognised in the statement of profit or loss and other comprehensive income when the liabilities are derecognised as well as through the effective interest rate amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in finance costs in the statement of profit or loss and other comprehensive income.

Derecognition of financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and a recognition of a new liability, and the difference between the respective carrying amounts is recognised in the statement of profit or loss and other comprehensive income.

Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined on the weighted average cost basis and, in the case of work in progress and finished goods, comprises direct materials, direct labour and an appropriate proportion of overheads. Net realisable value is based on estimated selling prices less any estimated costs to be incurred to completion and disposal.

Cash and cash equivalents

For the purpose of the statement of cash flows, cash and cash equivalents comprise cash on hand and demand deposits, and short term highly liquid investments that are readily convertible into known amounts of cash, are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Target Group’s cash management.

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For the purpose of the consolidated statement of financial position, cash and cash equivalents comprise cash on hand and at banks, including term deposits, and assets similar in nature to cash, which are not restricted as to use.

Provisions

A provision is recognised when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation.

When the effect of discounting is material, the amount recognised for a provision is the present value at the end of the reporting period of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in finance costs in the statement of profit or loss and other comprehensive income.

Income tax

Income tax comprises current and deferred tax. Income tax relating to items recognised outside profit or loss is recognised outside profit or loss, either in other comprehensive income or directly in equity.

Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period, taking into consideration interpretations and practices prevailing in the country in which the Target Group operates.

Deferred tax is provided, using the liability method, on all temporary differences at the end of the reporting period between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

Š when the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
Š in respect of taxable temporary differences associated with investments in subsidiaries, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, the carryforward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, the carryforward of unused tax credits and unused tax losses can be utilised, except:

Š when the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
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Š in respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at the end of each reporting period and are recognised to the extent that it has become probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Government grants

Government grants are recognised at their fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised as income on a systematic basis over the periods that the costs, which it is intended to compensate, are expensed.

Where the grant relates to an asset, the fair value is credited to a deferred income account and is released to the statement of profit or loss and other comprehensive income over the expected useful life of the relevant asset by equal annual instalments or deducted from the carrying amount of the asset and released to the statement of profit or loss and other comprehensive income by way of a reduced depreciation charge.

Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to the Target Group and when the revenue can be measured reliably, on the following bases:

(a) from the sale of goods, when the significant risks and rewards of ownership have been transferred to the buyer, provided that the Target Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold;
(b) from the rendering of services, on the percentage of completion basis, as further explained in the accounting policy for “Contracts for services” below; and
(c) interest income, on an accrual basis using the effective interest method by applying the rate that discounts the estimated future cash receipts over the expected life of the financial instrument to the net carrying amount of the financial asset.
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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Contracts for services

Contract revenue on the rendering of services comprises the agreed contract amount. Costs of rendering services comprise labour and other costs of personnel directly engaged in providing the services and attributable overheads.

Revenue from the rendering of services is recognised based on the percentage of completion of the transaction, provided that the revenue, the costs incurred and the estimated costs to completion can be measured reliably. The percentage of completion is established by reference to the costs incurred to date as compared to the total costs to be incurred under the transaction. Where the outcome of a contract cannot be measured reliably, revenue is recognised only to the extent that the expenses incurred are eligible to be recovered.

Provision is made for foreseeable losses as soon as they are anticipated by management.

Where contract costs incurred to date plus recognised profits less recognised losses exceed progress billings, the surplus is treated as an amount due from contract customers. Where progress billings exceed contract costs incurred to date plus recognised profits less recognised losses, the surplus is treated as an amount due to contract customers.

Share-based payments

The Target’s shareholder operates a warrant scheme for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Target Group’s operations. Employees (including directors) of the Target Group receive remuneration in the form of share-based payments, whereby employees render services as consideration for equity instruments (“equity-settled transactions”).

The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value is determined by an external valuer using a binomial model, further details of which are given in note 26 to the Financial Information.

The cost of equity-settled transactions is recognised in employee benefit expense, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled. The cumulative expense recognised for equity-settled transactions at the end of each reporting period until the vesting date reflects the extent to which the vesting period has expired and the Target Group’s best estimate of the number of equity instruments that will ultimately vest. The charge or credit to the statement of profit or loss and other comprehensive income for a period represents the movement in the cumulative expense recognised as at the beginning and end of that period.

Service and non-market performance conditions are not taken into account when determining the grant date fair value of awards, but the likelihood of the conditions being met is assessed as part of the Target Group’s best estimate of the number of equity instruments that will ultimately vest. Market performance conditions are reflected within the grant date fair value. Any other conditions attached to an award, but without an associated service requirement, are considered to be non-vesting conditions. Non-vesting conditions are reflected in the fair value of an award and lead to an immediate expensing of an award unless there are also service and/or performance conditions.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

For awards that do not ultimately vest because non-market performance and/or service conditions have not been met, no expense is recognised. Where awards include a market or non-vesting condition, the transactions are treated as vesting irrespective of whether the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied.

Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified, if the original terms of the award are met. In addition, an expense is recognised for any modification that increases the total fair value of the share-based payments, or is otherwise beneficial to the employee as measured at the date of modification.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. This includes any award where nonvesting conditions within the control of either the Target Group or the employee are not met. However, if a new award is substituted for the cancelled award, and is designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph.

Employee benefits

Pension scheme

The employees of the Target Group are required to participate in a central pension scheme operated by the local municipal government. The contributions are charged to the statement of profit or loss and other comprehensive income as they become payable in accordance with the rules of the central pension scheme.

Termination benefits

Termination benefits are recognised at the earlier of when the Target Group can no longer withdraw the offer of those benefits and when the Target Group recognises restructuring costs involving the payment of termination benefits.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, i.e., assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised as part of the cost of those assets. The capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs capitalised. All other borrowing costs are expensed in the period in which they are incurred. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

Where funds have been borrowed generally, and used for the purpose of obtaining qualifying assets, an appropriate capitalisation rate shall be applied to the expenditure on the individual assets.

Foreign currencies

These financial statements are presented in RMB. Each entity in the Target Group determines its own functional currency and items included in the financial statements of each entity are measured

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APPENDIX II

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

using that functional currency. Foreign currency transactions are initially recorded using the functional currency rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency rates of exchange ruling at the end of the reporting period. Differences arising on settlement or translation of monetary items are recognised in the statement of profit or loss and other comprehensive income.

Differences arising on settlement or translation of monetary items are recognised in the statement of profit or loss and other comprehensive income with the exception of monetary items that are designated as part of the hedge of the Target Group’s net investment of a foreign operation. These are recognised in other comprehensive income until the net investment is disposed of, at which time the cumulative amount is reclassified to the statement of profit or loss and other comprehensive income. Tax charges and credits attributable to exchange differences on those monetary items are also recorded in other comprehensive income.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was measured. The gain or loss arising on translation of a non-monetary item measured at fair value is treated in line with the recognition of the gain or loss on change in fair value of the item (i.e., translation difference on the item whose fair value gain or loss is recognised in other comprehensive income or profit or loss is also recognised in other comprehensive income or profit or loss, respectively).

The functional currencies of the Target Group and certain overseas subsidiaries are currencies other than the RMB. As at the end of the reporting period, the assets and liabilities of these entities are translated into the presentation currency of the Target Group at the exchange rates prevailing at the end of the reporting period, and their statements of profit or loss and other comprehensive income are translated into RMB at the weighted average exchange rates for the year.

The resulting exchange differences are recognised in other comprehensive income and accumulated in the exchange fluctuation reserve. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognised in the statement of profit or loss and other comprehensive income.

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on acquisition are treated as assets and liabilities of the foreign operation and translated at the closing rate. For the purpose of the consolidated statement of cash flows, the cash flows of overseas subsidiaries are translated into Renminbi at the exchange rates ruling at the dates of the cash flows. Frequently recurring cash flows of overseas subsidiaries which arise throughout the year are translated into Renminbi at the weighted average exchange rates for the year.

For the purpose of the consolidated statement of cash flows, the cash flows of overseas subsidiaries are translated into RMB at the exchange rates ruling at the dates of the cash flows. Frequently recurring cash flows of overseas subsidiaries which arise throughout the year are translated into RMB at the weighted average exchange rates for the year.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

4. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES

The preparation of the Target Group’s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and their accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amounts of the assets or liabilities affected in the future.

Judgements

In the process of applying the Target Group’s accounting policies, management has not made any significant judgement, apart from those involving estimations, which have significant effect on the amounts recognised in the Financial Information.

IPR&D cost capitalisation

With respect to the criteria as set out in IAS 38, the management of the Target Group made judgement for the criteria of IPR&D cost capitalisation. An intangible asset arising from the development phase of an internal project should be recognised only when the following criteria are met:

1) the technical feasibility of completing the intangible asset so that it will be available for use or sale;
2) the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible assets;
3) the existence of a market for the output of the intangible asset;
4) the ability to measure reliably the expenditure attributable to the intangible asset during the development phrase.

Estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below.

Impairment of non-financial assets

The Target Group assesses whether there are any indicators of impairment for all non-financial assets at the end of each reporting period. Non-financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable. An impairment exists when the carrying value of an asset or a cash-generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The calculation of the fair value less costs of disposal is based on available data from binding sales transactions in an arm’s length transaction of similar assets or observable market prices less incremental costs for disposing of the asset. When value in use calculations are undertaken, management must estimate the expected future cash flows from the asset or cash-generating unit and choose a suitable discount rate in order to calculate the present value of those cash flows.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Development cost

Development costs are capitalised in accordance with the accounting policy for research and development costs in note 12 to the Financial Information. Determining the amounts to be capitalised requires management to make assumptions regarding the expected future cash generation of the assets, discount rates to be applied and the expected period of benefits.

Deferred tax assets

Deferred tax assets are recognised for all deductible temporary differences and all unused tax losses to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the unused tax losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits, which affects the probability of utilisation and the tax rate to be used in the calculations. Details of deferred tax assets are contained in note 13 to the Financial Information.

Useful lives of intangible assets

The Target Group’s management determines the estimated useful lives and related depreciation charges for its intangible assets. This estimate is based on the historical experience of the actual useful lives of intangible assets of similar nature and functions. It could change significantly as a result of technical innovations and competitor actions in response to severe industry cycles. Management will increase the depreciation charge where useful lives are less than previously estimated lives, or management will write off or write down technically obsolete or non-strategic assets that have been abandoned.

Impairment of receivables

Impairment of receivables is made based on assessment of their recoverability. The identification of impairment of receivables requires management’s judgement and estimates. Where the actual outcome or expectation in future is different from the original estimate, such differences will impact the carrying value of the receivables and impairment loss/reversal of impairment in the period in which such an estimate has been changed.

Net realisable value of inventories

Net realisable value of inventories is the estimated selling price in the ordinary course of business less estimated selling expenses. These estimates are based on the current market condition and the historical experience of selling products of a similar nature. It could change significantly as a result of changes in customer taste or competitor actions. Management reassesses these estimates at each reporting date.

Useful lives of property, plant and equipment

The Target Group’s management determines the estimated useful lives and related depreciation charges for its property, plant and equipment. This estimate is based on the historical experience of the actual useful lives of property, plant and equipment of similar nature and functions. It could change significantly as a result of technical innovations and competitor actions in response to severe industry

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

cycles. Management will increase the depreciation charge where useful lives are less than previously estimated lives, or management will write off or write down technically obsolete or non-strategic assets that have been abandoned.

5. OPERATING SEGMENT INFORMATION

For management purposes, the Target Group has only one reportable operating segment, which is the development, production, marketing and sale of biopharmaceutical products. Since this is the only reportable operating segment of the Target Group, no further operating segment analysis thereof is presented.

Geographical information

The Target Group’s operations are substantially based in Mainland China and over 95% of the revenue and non-current assets, excluding deferred tax assets, of the Target Group are located in Mainland China. Therefore, no further analysis of geographical information is presented.

6. REVENUE AND OTHER INCOME AND GAINS

Revenue, which is also the Target Group’s turnover, represents the net invoiced value of goods sold, after allowances for trade discounts.

An analysis of the Target Group’s revenue and other income and gains is as follows:

Revenue Sale of goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other income Bank interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sale of materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Service fee income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Government grants related to — Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gains Gains for holding available-for-sale investments . . . . . . . . . . . . . . . . . . . . . . . . . . Exchange gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reversal of impairment of trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reversal of impairment of other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2013 RMB’000 727,837 24,214 1,169 3,882 2,437 63,842 95,544 — — — — — 95,544	2014 RMB’000 775,851 20,076 856 — 7,767 77,806 106,505 1,094 — — — 1,094 107,599	2015
			RMB’000 877,346
			20,266 — 149 16,307 56,039
			92,761
			1,946 1,334 271 497
			4,048
			96,809

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

7. PROFIT BEFORE TAX

The Target Group’s profit before tax is arrived at after charging/(crediting):

Cost of sales of goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation of items of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . Recognition of prepaid land lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortisation of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Auditors’ remuneration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Employee benefit expense: Wages and salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Social welfare and other costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity-settled warrant expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Research and development (“R&D”) costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign exchange difference, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment/(reversal of impairment) of trade receivables . . . . . . . . . . . . . . . . . . . Impairment/(reversal of impairment) of prepayments, deposits and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2013 RMB’000 40,167 38,364 889 13,294 610 138,771 33,844 — 172,615 74,840 740 1,797 412	2014 RMB’000 54,377 43,872 1,783 13,764 610 196,191 41,643 — 237,834 124,443 54 499 567	2015
			RMB’000 56,147 53,961 2,420 14,153 860 207,453 49,413 46,581
			303,447 177,770 (1,334) (271) (497)

8. FINANCE COSTS Interest expense on bonds payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2013 RMB’000 15,228	2014 RMB’000 2,539	2015
			RMB’000 —

9. INCOME TAX

The Target Group is subject to income tax on an entity basis on profit arising in or derived from the jurisdictions in which members of the Target Group are domiciled and operate.

According to the PRC Enterprise Income Tax Law effective from 1 January 2008, the Mainland China companies are all subject to income tax at the rate of 25% on their respective taxable income.

The Target is qualified as a High and New Technology Enterprise and is subject to tax at a preferential income tax rate of 15% for the Relevant Periods.

NERC is exempted from corporate income tax of the PRC for the two years starting from the first profitable year of operation, after setting off losses carried forward, and are entitled to a 50% relief from corporate income tax of the PRC for the following three years. As NERC is in its fourth and fifth profitable years of operation, it is subject to corporate income tax of the PRC at a rate of 12.5% in 2013 and 2014. NERC is also qualified as High and New Technology Enterprise and is subject to a preferential income tax rate of 15% in 2015.

All other subsidiaries in Mainland China are subject to tax at the corporate income tax rate of 25% for the Relevant Periods.

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APPENDIX II

The Hong Kong subsidiaries are subject to tax at a statutory corporate income tax rate of 16.5% for the Relevant Periods under the income tax rules and regulations of Hong Kong. No provision for Hong Kong profits tax has been made as the Target Group had no assessable profits arising in its respective Hong Kong subsidiary during the Relevant Periods.

Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred (note 13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total tax charge for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2013 RMB’000 50,977 (1,347) 49,630	2014 RMB’000 33,373 (998) 32,375	2015
			RMB’000 43,531 (13,585) 29,946

A reconciliation of the tax expense applicable to profit before tax using the statutory rate to the tax expense at the effective tax rate is as follows:

Profit before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax at the statutory tax rate of 25% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments in respect of current income tax of previous years . . . . . . . . . . . . . . Tax effect of non-deductible expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income not subject to tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax deduction for R&D expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax effect of the difference between the applicable tax rate and the expected return rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax effect of the preferential tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax charge at the Target Group’s effective rate . . . . . . . . . . . . . . . . . . . . . . . . . . . Effective tax rate for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2013 RMB’000 347,959 86,990 — 6,879 (5,113) (6,096) 200 (33,230) 49,630 14%	2014 RMB’000 245,796 61,449 375 14,089 (5,975) (15,632) (802) (21,129) 32,375 13%	2015
			RMB’000 236,953 59,238 (207) 15,971 (7,315) (17,784) — (19,957) 29,946 13%

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APPENDIX II

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

Work condition Instrument Motor Office Construction	Buildings Machinery equipment equipment vehicles equipments in progress Total	RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000	2013	At 1 January 2013:	Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 298,770 158,529 75,843 16,944 4,252 12,220 147,373 713,931	Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (30,070) (58,907) (33,409) (8,800) (1,989) (4,754) — (137,929)	Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268,700 99,622 42,434 8,144 2,263 7,466 147,373 576,002		At 1 January 2013, net of accumulated depreciation . . . . . . . . . . . . . 268,700 99,622 42,434 8,144 2,263 7,466 147,373 576,002	Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,548 5,948 — 3,221 847 3,008 212,759 264,331	Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — (6) (32) (1) — (39)	Depreciation provided during the year . . . . . . . . . . . . . . . . . . . . . . . . (12,150) (14,441) (6,803) (2,483) (555) (1,932) — (38,364)	Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,554 9,517 — 1,347 — 821 (30,239) —	At 31 December 2013, net of accumulated depreciation 313,652 100,646 35,631 10,223 2,523 9,362 329,893 801,930		At 31 December 2013:	Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355,872 173,994 75,843 21,444 5,030 16,044 329,893 978,120	Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (42,220) (73,348) (40,212) (11,221) (2,507) (6,682) — (176,190)	Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313,652 100,646 35,631 10,223 2,523 9,362 329,893 801,930		At 31 December 2013, certain of the Target Group’s buildings with a net carrying amount of approximately RMB77,464,000 were pledged	to secure bonds of the Target Group (note 22).

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APPENDIX II

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

		Total	RMB’000			978,120	(176,190)	801,930	801,930	321,578	(219)	(43,872)	—	1,079,417		1,298,639	(219,222)	1,079,417
	Construction	in progress	RMB’000			329,893	—	329,893	329,893	260,994	—	—	(51,908)	538,979		538,979	—	538,979
	Office	equipments	RMB’000			16,044	(6,682)	9,362	9,362	4,708	—	(2,607)	—	11,463		20,752	(9,289)	11,463
	Motor	vehicles	RMB’000			5,030	(2,507)	2,523	2,523	1,092	(204)	(751)	—	2,660		5,215	(2,555)	2,660
	Instrument	equipment	RMB’000			21,444	(11,221)	10,223	10,223	13,593	(15)	(3,627)	—	20,174		34,885	(14,711)	20,174
Work	condition	equipment	RMB’000			75,843	(40,212)	35,631	35,631	444	—	(6,452)	—	29,623		76,287	(46,664)	29,623
		Machinery	RMB’000			173,994	(73,348)	100,646	100,646	27,489	—	(17,433)	51,908	162,610		253,391	(90,781)	162,610
		Buildings	RMB’000			355,872	(42,220)	313,652	313,652	13,258	—	(13,002)	—	313,908		369,130	(55,222)	313,908
				2014	At 1 January 2014:	Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	At 1 January 2014, net of accumulated depreciation . . . . . . . . . . . . . . . .	Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Depreciation provided during the year . . . . . . . . . . . . . . . . . . . . . . . . . .	Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	At 31 December 2014, net of accumulated depreciation . . . . . . . . . . . . .	At 31 December 2014:	Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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APPENDIX II

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

	Total	RMB’000			1,298,639	(219,222)	1,079,417	1,079,417	187,102	(234)	(53,961)	—	1,212,324		1,483,405	(271,081)	1,212,324
Construction	in progress	RMB’000			538,979	—	538,979	538,979	132,078	—	—	(44,884)	626,173		626,173	—	626,173
Office	equipments	RMB’000			20,752	(9,289)	11,463	11,463	4,084	(59)	(3,353)	—	12,135		24,246	(12,111)	12,135
Motor	vehicles	RMB’000			5,215	(2,555)	2,660	2,660	—	—	(679)	237	2,218		5,452	(3,234)	2,218
Instrument	equipment	RMB’000			34,885	(14,711)	20,174	20,174	4,843	(4)	(6,242)	17,249	36,020		56,940	(20,920)	36,020
Work condition	equipment	RMB’000			76,287	(46,664)	29,623	29,623	400	(23)	(5,688)	—	24,312		76,462	(52,150)	24,312
	Buildings Machinery	RMB’000 RMB’000			369,130 253,391	(55,222) (90,781)	313,908 162,610	313,908 162,610	22,515 23,182	— (148)	(13,430) (24,569)	— 27,398	322,993 188,473		391,645 302,487	(68,652) (114,014)	322,993 188,473
			2015	At 1 January 2015:	Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . .	Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	At 1 January 2015, net of accumulated depreciation . . . . . . . . .	Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Depreciation provided during the year . . . . . . . . . . . . . . . . . . . .	Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	At 31 December 2015, net of accumulated depreciation . . . . . .	At 31 December 2015:	Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . .	Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

11. PREPAID LAND LEASE PAYMENTS

Carrying amount at 1 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recognised during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Carrying amount at 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2013 RMB’000 34,418 — (889) 33,529	2014 RMB’000 33,529 76,559 (1,783) 108,305	2015 RMB’000 108,305 19,069 (2,420) 124,954

At 31 December 2013, the Target Group’s prepaid land lease payments with a net carrying amount of RMB21,234,000 were pledged to secure bonds of the Target Group (note 22).

12. INTANGIBLE ASSETS

2013

Cost at 1 January 2013, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net of accumulated amortisation . . . . . . . . . . . . . . . . . . . . . . . Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortisation provided during the year . . . . . . . . . . . . . . . . . . At 31 December 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At 31 December 2013 Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated amortisation . . . . . . . . . . . . . . . . . . . . . . . . Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Software RMB’000 838 (506) 332 332 2,485 (346) 2,471 3,323 (852) 2,471	Patents and special techniques RMB’000 349,840 (199,369) 150,471 150,471 — (12,948) 137,523 349,840 (212,317) 137,523	IPR&D RMB’000 38,480 — 38,480 38,480 8,785 — 47,265 47,265 — 47,265	Total RMB’000 389,158 (199,875) 189,283 189,283 11,270 (13,294) 187,259 400,428 (213,169) 187,259

2014

2014
Cost at 1 January 2014, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net of accumulated amortisation . . . . . . . . . . . . . . . . . . . . . . . Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortisation provided during the year . . . . . . . . . . . . . . . . . . At 31 December 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At 31 December 2014 Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated amortisation . . . . . . . . . . . . . . . . . . . . . . . . Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Software RMB’000 3,323 (852) 2,471 2,471 2,742 (816) 4,397 6,065 (1,668) 4,397	Patents and special techniques RMB’000 349,840 (212,317) 137,523 137,523 — (12,948) 124,575 349,840 (225,265) 124,575	IPR&D RMB’000 47,265 — 47,265 47,265 5,648 — 52,913 52,913 — 52,913	Total RMB’000 400,428 (213,169) 187,259 187,259 8,390 (13,764) 181,885 408,818 (226,933) 181,885

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

2015

2015
Cost at 1 January 2015, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net of accumulated amortisation . . . . . . . . . . . . . . . . . . . . . . . Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortisation provided during the year . . . . . . . . . . . . . . . . . . At 31 December 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At 31 December 2015 Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated amortisation . . . . . . . . . . . . . . . . . . . . . . . . Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Software RMB’000 6,065 (1,668) 4,397 4,397 2,255 (1,205) 5,447 8,320 (2,873) 5,447	Patents and special techniques RMB’000 349,840 (225,265) 124,575 124,575 — (12,948) 111,627 349,840 (238,213) 111,627	IPR&D RMB’000 52,913 — 52,913 52,913 16,203 — 69,116 69,116 — 69,116	Total RMB’000 408,818 (226,933) 181,885 181,885 18,458 (14,153) 186,190 427,276 (241,086) 186,190

Impairment testing of IPR&D

The useful life of IPR&D is considered indefinite until the completion or abandonment of the related research and development efforts. IPR&D is not amortised but tested individually for impairment annually. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether the indefinite life assessment continues to be supportable.

The recoverable amount of IPR&D has been determined based on a value in use calculation using cash flow projections which is based on financial forecast approved by the Target Group’s management. The discount rates applied to the cash flow projections are 18.0%, 18.0% and 18.0% for the years ended 31 December 2013, 2014 and 2015, respectively, which is determined by reference to the average rates for in progress research and development projects with similar business risk and after taking into account for the risk premium in connection with the related research and development efforts.

In the opinion of the management of Target Group, any reasonably possible change in the key assumptions on which the recoverable amount is based would not cause the carrying amount of IPR&D to exceed its recoverable amount.

Assumptions were used in the value in use calculation of IPR&D as at 31 December 2013, 2014 and 2015. The following describes each key assumption on which management has based its cash flow projections to undertake impairment testing of IPR&D:

Discount rate — The discount rate used is before tax and reflects specific risks in respect of the related research and development efforts.

Royalty rate — The royalty rate is based on similar royalty rates charged by third parties in the pharmaceutical and biotech industry.

The values assigned to the key assumptions are consistent with external information sources.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

						Total	RMB’000	30,658			1,347	32,005			998	33,003			13,585	46,588
				Equity-	settled	warrants	RMB’000	—			—	—			—	—			6,987	6,987
			Other	payables	and	accruals	RMB’000	6,335			819	7,154			307	7,461			(1,353)	6,108
	Unrealised	gains	arising	from	intra-group	sales	RMB’000	613			(93)	520			71	591			1,241	1,832
			Losses available	for offsetting	against future	taxable profits	RMB’000	284			(284)	—			1,470	1,470			2,366	3,836
					Assets	impairment	RMB’000	439			301	740			481	1,221			(406)	815
		Fair value	adjustments	arising from	acquisition	of subsidiaries	RMB’000	8,238			(171)	8,067			(171)	7,896			(205)	7,691
		Government	grants	received not	yet recognised	as income	RMB’000	14,749			775	15,524			(1,160)	14,364			4,955	19,319
Deferred tax assets								At 1 January 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Deferred tax charged/(credited) to the consolidated statement	of profit or loss and other comprehensive income during	the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	At 31 December 2013 and 1 January 2014 . . . . . . . . . . . . . . . . . . .	Deferred tax charged/(credited) to the consolidated statement	of profit or loss and other comprehensive income during	the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	At 31 December 2014 and 1 January 2015 . . . . . . . . . . . . . . . . . . .	Deferred tax charged/(credited) to the consolidated statement	of profit or loss and other comprehensive income during	the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	At 31 December 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

14. OTHER NON-CURRENT ASSETS

Prepayments for purchases of machinery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2013 RMB’000 29,850	2014 RMB’000 38,467	2015
			RMB’000 42,068

15. AVAILABLE-FOR-SALE INVESTMENTS

An analysis of the balances of available-for-sale investments is as follows:

Investments in bank financial products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments in trust financial products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2013 RMB’000 — 30,000 30,000	2014 RMB’000 20,000 — 20,000	2015
			RMB’000 68,727 — 68,727

The investments in bank financial products relate to shout-term financial products issued by certain banks in Mainland China. Such investment products were unsecured with no guaranteed return on investment and with original maturity of less than one year. The fair values of the bank financial products approximate their carrying amounts.

16. INVENTORIES

Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Packing materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Work in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Semi-finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2013 RMB’000 6,304 735 3,270 71,609 5,620 87,538	2014 RMB’000 9,008 855 1,583 79,113 7,108 97,667	2015
			RMB’000 21,008 1,318 2,262 70,965 7,014
			102,567

17. TRADE AND NOTES RECEIVABLES

Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2013 RMB’000 135,101 (4,053) 131,048 36,966 168,014	2014 RMB’000 156,937 (4,552) 152,385 29,101 181,486	2015
			RMB’000 159,532 (4,281)
			155,251 22,927
			178,178

In respect of trade receivables, the credit periods of the Target Group range from 45 to 60 days. All the credits offered are unsecured. The Target Group regularly reviews the aged analysis of the trade receivables to monitor the credit exposure. Trade receivables are non-interest-bearing.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

An aged analysis of trade receivables based on the invoice date is as follows:

Within 1 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2013 RMB’000 131,048	2014 RMB’000 152,385	2015
			RMB’000 155,251

An aged analysis of notes receivable based on the invoice date is as follows:

Within 1 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 year to 2 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2013 RMB’000 36,966 — 36,966	2014 RMB’000 29,101 — 29,101	2015
			RMB’000 22,091 836 22,927

The movements in provision for impairment of trade receivables are as follows:

At 1 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment losses recognised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment losses reversed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2013 RMB’000 2,256 1,797 — 4,053	2014 RMB’000 4,053 701 (202) 4,552	2015
			RMB’000 4,552 — (271) 4,281

Receivables that were neither past due nor impaired relate to a large number of diversified customers for whom there was no recent history of default.

Receivables that were past due but not impaired relate to a number of independent customers that have a good track record with the Target Group. Based on past experience, the directors are of the opinion that no provision for impairment is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable.

18. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

Tax recoverable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2013 RMB’000 8,702 2,112 5,281 13,271 (1,085) 28,281	2014 RMB’000 10,047 1,914 8,910 4,329 (1,652) 23,548	2015
			RMB’000 18,199 3,880 10,280 3,381 (1,155) 34,585

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

The movements in provision for impairment of prepayments, deposits and receivables are as follows:

At 1 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment losses recognised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment losses reversed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2013 RMB’000 673 412 — 1,085	2014 RMB’000 1,085 567 — 1,652	2015
			RMB’000 1,652 — (497) 1,155

19. CASH AND CASH EQUIVALENTS

Cash and bank balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2013 RMB’000 405,816 471,229 877,045	2014 RMB’000 510,544 15,982 526,526	2015
			RMB’000 573,518 2,064
			575,582

The RMB is not freely convertible into other currencies. However, under Mainland China’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Target Group is permitted to exchange RMB for other currencies through banks authorised to conduct foreign exchange business. The remittance of funds out of Mainland China is subject to exchange restrictions imposed by the PRC government.

Cash at banks earn interest at floating rates based on daily bank deposit rates. Short term time deposits are made for varying periods between seven days and three months depending on the immediate cash requirements of the Target Group , and earn interest at the respective short term time deposit rates. The bank balances and time deposits are deposited with creditworthy banks with no recent history of default.

20. TRADE PAYABLES

An aged analysis of the trade payables, based on the invoice date, is as follows:

Within 1 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2013 RMB’000 5,909	2014 RMB’000 14,395	2015
			RMB’000 10,194

Trade payables are non-interest-bearing and are normally settled on payment terms of 30 to 90 days.

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21. OTHER PAYABLES AND ACCRUALS

Advances from customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued salaries, bonuses and welfare expense . . . . . . . . . . . . . . . . . . . . . . . . . . . Taxes payable (other than income tax) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payable to vendors of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2013 RMB’000 1,888 9,734 38,915 6,924 14,158 4,226 75,845	2014 RMB’000 3,930 — 43,219 2,982 10,291 6,720 67,142	2015
			RMB’000 2,218 — 44,235 3,475 4,535 27,857 82,320

Other payables are non-interest-bearing and have an average term of three months.

22. BONDS PAYABLE

In February 2011, the Target and other nine science and technology enterprises in Zhangjiang, Shanghai jointly issued “Zhangjiang technology small and medium-sized enterprises” collection notes with a nominal value of RMB195,000,000. The duration is 3 years and the annual interest rate is 5.99%. The Target repaid all principal and settled the interest in February 2014.

The bonds are secured by the assets of the Target Group as detailed in note 10 and note 11 to the Financial Information.

23. DEFERRED INCOME

At 1 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Received during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Released to the statement of profit or loss and other comprehensive income during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2013 RMB’000 133,574 49,759 (34,339) 148,994	2014 RMB’000 148,994 44,330 (38,468) 154,856	2015
			RMB’000 154,856 61,320 (46,550)
			169,626

24. SHARE CAPITAL

Issued and fully paid: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2013 RMB’000 510,223	2014 RMB’000 510,223	2015
			RMB’000 510,223

25. RESERVES

The amounts of the Target Group’s reserves and the movements therein for the Relevant Periods are presented in the consolidated statements of changes in equity of the Financial Information.

Statutory surplus reserve (the “SSR”)

In accordance with the Company Law of the PRC and the articles of association of the Target, the Target is required to allocate 10% of its profit after tax, as determined in accordance with the PRC

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generally accepted accounting principles, to the SSR until this reserve reaches 50% of the registered capital of the Target. Part of the SSR may be converted to increase the paid-up capital, provided that the remaining balance after the capitalisation is not less than 25% of the registered capital.

26. WARRANTS

On 1 January 2015, 3SBio Inc. issued warrants to Shanghai Junling Investment Partnership (Limited Partnership) which is beneficially owned by certain management members of the Target. The warrants entitle the holders to purchase 1,128.82033 ordinary shares of the 3SBio Inc. at an exercise price of USD1.00 for each warrant. Pursuant to the subdivision of the par value of the 3SBio Inc.’s authorized shares from USD1.00 per share to USD0.00001 per share on 4 February 2015, the number of shares exercisable by the warrants was changed to 112,882,033 ordinary shares of the 3SBio Inc. and the exercise price was changed from USD1.00 per share to USD0.00001 per share.

The warrants will vest and become exercisable upon meeting certain vesting and non-vesting conditions. If the vesting conditions are not met, the warrants will lapse.

The fair value of the warrants at the grant date is estimated using the Black-Scholes option pricing model, taking into account the terms and conditions upon which the warrants were granted. The contractual life of each warrant granted is three and a half years. There is no cash settlement of the warrants. The fair value of the warrants was estimated on the date of grant using the following assumptions:

Dividend yield (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	—
Expected volatility (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	37.50
Risk-free interest rate (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1.1
Contractual life of share options (years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3.50
Underlying share price (RMB) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	70.50
Exercise price of each warrant (RMB) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	0.00006

On the date of grant, the fair values of each warrant were RMB19.37 and RMB32.26, respectively, based on the different probability of meeting the non-vesting conditions estimated for two different batches of warrants.

An expense and an increase of contributed surplus amounting to RMB46,581,000 were recognised during the year ended 31 December 2015.

27. OPERATING LEASE ARRANGEMENTS

The Target Group leases its offices, motor vehicles and office equipments under operating lease arrangements. Leases are negotiated for terms ranging from one to three years.

The Target Group had total future minimum lease payments under non-cancellable operating leases falling due as follows:

Within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . One to two years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . In the third to fifth years, inclusive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2013 RMB’000 909 151 107 1,167	2014 RMB’000 2,643 3,046 36 5,725	2015
			RMB’000 3,046 1,388 — 4,434

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28. COMMITMENTS

In addition to the operating lease commitments detailed in note 27 above, the Target Group had the following capital commitments:

Contracted, but not provided for: Machinery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2013 RMB’000 221,355	2014 RMB’000 77,382	2015
			RMB’000 61,747

29. RELATED PARTY TRANSACTIONS

The ultimate parent company of the largest shareholder is CITIC Group Corporation.

Other related parties:

Name Full Gain Pharmaceutical Limited Shanghai Lansheng Guojian Pharmaceutical Co., Ltd. (“Lansheng Guojian”) Shanghai CPGJ Biotechnology Research Institute (“CPGJ Biotechnology”) Shanghai Guojian Biotechnology Research Institute (“Guojian Biotechnology”)	Relationship with the Target Group
	A shareholder holding a 43.42% interest in the Target A shareholder holding a 41.69% interest in the Target Private non-profit organisation held by the Target Held by the Target held by Lansheng Guojian*

Guojian Biotechnology was no longer a related party of the Target after November 2015.

In addition to the transactions detailed elsewhere in this Financial Information, the Target Group had the following transactions with related parties during the Relevant Periods:

Note Non-trade related: CPGJ Biotechnology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (i) Notes:	2013 RMB’000 1,980	2014 RMB’000 2,475	2015
			RMB’000 5,000

(i) The Target Group received R&D service from CPGJ Biotechnology at a price according to mutual agreement.

(ii) On 2 December 2011, the Shanghai Science and Technology Committee and the Target signed a “Scientific Research Project Contract”. Shanghai Zhangjiang Biotechnology Limited Company (“Zhangjiang Biotechnology”) was the sponsor of this project. The period of the project was from 1 December 2011 to 30 September 2013. According to the contract, the Target Company is mainly responsible for subproject one and could obtain 40% of project funds. CPGJ Biotechnology and Zhangjiang Biotechnology could obtain 30% of project funds each. As at 31 December 2015, the Taget Company received project funds amounting to RMB1,000,000 while CPGJ Biotechnology and Zhangjiang Biotechnology received RMB750,000 each.

On 13 November 2011, Shanghai Science and Technology Committee and NERC signed “Scientific Research Project Contract”. Guojian Biotechnology, Zhangjiang Biotechnology and Shanghai Biomab Pharmaceuticals Limited (“Biomab”) were the sponsors of this project. The period of the project was from 1 November 2012 to 30 March 2015. According to the contract, NERC is mainly responsible for subproject one and could obtain 40% of project funds; Guojian Biotechnology, Zhangjiang Biotechnology and Biomab could obtain 20% of project funds each. As at 31 December 2015, NERC received project funds amounting to RMB600,000 while Guojian Biotechnology, Zhangjiang Biotechnology and Biomab received RMB300,000 each.

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Outstanding balances with related parties:

	2013	2014	2015
	RMB’000	RMB’000	RMB’000
Other receivables:
CPGJ Biotechnology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1,773	1,773	1,223
Less: impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	(887)	(1,418)	(978)
	886	355	245

These balances are unsecured, interest-free and have no fixed terms of repayment.

30. FINANCIAL INSTRUMENTS BY CATEGORY

The carrying amounts of each of the categories of financial instruments as at the end of each of the Relevant Periods are as follows:

31 December 2013

Financial assets

Trade and notes receivables . . . . . . . . . . . . . . . . . . . . . . . . Financial assets included in prepayments, deposits and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Available-for-sale investments . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . .		Loans and receivables RMB’000 168,014 14,298 — 877,045 1,059,357	Available-for- sale financial assets RMB’000 — — 30,000 — 30,000		Total
					RMB’000 168,014 14,298 30,000 877,045 1,089,357

Financial liabilities

Trade payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial liabilities included in other payables and accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . Bonds payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Financial liabilities at amortised cost RMB’000 5,909 28,118 194,407 228,434	Financial liabilities at amortised cost RMB’000 5,909 28,118 194,407 228,434
		RMB’000 5,909 28,118 194,407 228,434

31 December 2014

Financial assets

Trade and notes receivables . . . . . . . . . . . . . . . . . . . . . . . . Financial assets included in prepayments, deposits and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Available-for-sale investments . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . .	Loans and receivables RMB’000 181,486 4,591 — 526,526 712,603	Available-for- sale financial assets RMB’000 — — 20,000 — 20,000		Total
				RMB’000 181,486 4,591 20,000 526,526 732,603

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31 December 2014

Financial liabilities

Trade payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial liabilities included in other payables and accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Financial liabilities at amortised cost
	RMB’000 14,395 17,011 31,406

31 December 2015

Financial assets

Trade and notes receivables . . . . . . . . . . . . . . . . . . . . . . . . . . Financial assets included in prepayments, deposits and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Available-for-sale investments . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . .	Loans and receivables RMB’000 178,178 6,106 — 575,582 759,866	Available-for- sale financial assets RMB’000 — — 68,727 — 68,727		Total
				RMB’000 178,178 6,106 68,727 575,582 828,593

Financial liabilities

Trade payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial liabilities included in other payables and accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Financial liabilities at amortised cost
	RMB’000 10,194 32,392 42,586

31. FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS

The management of the Target Group has determined that the fair values of cash and cash equivalents, trade and notes receivables, trade payables, financial assets included in prepayments, deposits and other receivables, financial liabilities included in other payables and accruals, approximate to their carrying amounts largely due to the short-term maturities of these instruments.

The fair values of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.

The following methods and assumptions were used to estimate the fair values:

The fair values of the investments in bank and trust financial products approximate to their acquisition costs due to the short-term maturities and the floating rates of return on the these investments.

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Fair value hierarchy:

The following tables illustrate the fair value measurement hierarchy of the Target Group’s financial instruments:

Assets measured at fair value:

As at 31 December 2015

Available-for-sale investments: Investments in bank financial products . . . . . . . . . . . . . . . . . . . . . .	Fair value measurement using Quoted prices in active markets (Level 1) Significant observable inputs (Level 2) Significant unobservable inputs (Level 3) RMB’000 RMB’000 RMB’000 — 68,727 —	Fair value measurement using Quoted prices in active markets (Level 1) Significant observable inputs (Level 2) Significant unobservable inputs (Level 3) RMB’000 RMB’000 RMB’000 — 68,727 —	Total
	Quoted prices in active markets (Level 1) RMB’000 —	Significant observable inputs (Level 2) RMB’000 68,727
			RMB’000 68,727

As at 31 December 2014

Available-for-sale investments: Investments in bank financial products . . . . . . . . . . . . . . . . . . . . . .	Fair value measurement using Quoted prices in active markets (Level 1) Significant observable inputs (Level 2) Significant unobservable inputs (Level 3) RMB’000 RMB’000 RMB’000 — 20,000 —	Fair value measurement using Quoted prices in active markets (Level 1) Significant observable inputs (Level 2) Significant unobservable inputs (Level 3) RMB’000 RMB’000 RMB’000 — 20,000 —	Total
	Quoted prices in active markets (Level 1) RMB’000 —	Significant observable inputs (Level 2) RMB’000 20,000
			RMB’000 20,000

As at 31 December 2013

Available-for-sale investments: Investments in trust financial products . . . . . . . . . . . . . . . . . . . . . .	Fair value measurement using Quoted prices in active markets (Level 1) Significant observable inputs (Level 2) Significant unobservable inputs (Level 3) RMB’000 RMB’000 RMB’000 — 30,000 —	Fair value measurement using Quoted prices in active markets (Level 1) Significant observable inputs (Level 2) Significant unobservable inputs (Level 3) RMB’000 RMB’000 RMB’000 — 30,000 —	Total
	Quoted prices in active markets (Level 1) RMB’000 —	Significant observable inputs (Level 2) RMB’000 30,000
			RMB’000 30,000

32. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Target Group’s principal financial instruments, comprise cash and cash equivalents, loans to and borrowings from related parties. The main purposes of these financial instruments are to provide finance for the Target Group’s operations and to earn interest income. The Target Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations.

The main risks arising from the Target Group’s financial instruments are foreign currency risk, credit risk and liquidity risk. The board of directors reviews and agrees policies for managing each of these risks and they are summarised below.

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Foreign currency risk

The Target Group has no significant foreign currency risk because its business is principally conducted in Mainland China and most of the transactions are denominated in the Target Group’s functional currency. The Target Group’s exposure to foreign currency risk in respect of the bank balances denominated in United States dollars is considered to be minimal.

Credit risk

The carrying amounts of cash and cash equivalents, trade and notes receivables and other current assets except for prepayments, represent the Target Group’s maximum exposure to credit risk in relation to financial assets. All the Target Group’s cash and cash equivalents are held in major financial institutions located in Mainland China, which management believes are of high credit quality. The Target Group has policies in place to evaluate credit risk when accepting new business and to limit its credit exposure to individual customers. The directors consider that the Target Group does not have a significant concentration of credit risk. No sales to a single customer accounted for more than 5% of the Target Group’s total revenues for the year.

Liquidity risk

The Target Group aims to maintain sufficient cash and credit lines to meet its liquidity requirements. The Target Group finances its working capital requirements through a combination of funds generated from operations and bank and other borrowings.

The table below summarises the maturity profile of the Target Group’s non-derivative financial liabilities (including issued financial guarantee contracts) at 31 December based on contractual undiscounted payments including interest payments computed using contractual rates or, if floating, based on rates current at the end of the reporting period.

31 December 2013 Trade payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial liabilities included in other payables and accruals . . . . . . . Bonds payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 December 2014 Trade payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial liabilities included in other payables and accruals . . . . . . . 31 December 2015 Trade payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial liabilities included in other payables and accruals . . . . . . .	Less than 3 months RMB’000 5,614 26,825 194,407 226,846 Less than 3 months RMB’000 13,675 16,126 29,801 Less than 3 months RMB’000 9,684 30,766 40,450	3 to less than 12 months RMB’000 295 1,293 — 1,588 3 to less than 12 months RMB’000 720 885 1,605 3 to less than 12 months RMB’000 510 1,626 2,136	Total
			RMB’000 5,909 28,118 194,407
			228,434
			Total
			RMB’000 14,395 17,011 31,406 Total
			RMB’000 10,194 32,392 42,586

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Capital management

The Target Group’s objectives when managing capital are to safeguard the Target Group’s ability to continue as a going concern in order to provide returns for shareholders and to maintain an optimal capital structure to reduce the cost of capital.

The Target Group manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust the capital structure, the Target Group may adjust the dividend payment to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. No changes in the objectives, policies or processes for managing capital were made during the Relevant Periods.

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33. STATEMENTS OF FINANCIAL POSITION OF THE TARGET

Information about the statement of financial position of the Target at the end of each of the Relevant Periods is as follows:

NON-CURRENT ASSETS Investment in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepaid land lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CURRENT ASSETS Due from the related companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trade and notes receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepayments, deposits and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . Available-for-sale investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CURRENT LIABILITIES Trade payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other payables and accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bonds payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NET CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL ASSETS LESS CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . NON-CURRENT LIABILITIES Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EQUITY Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2013 RMB’000 310,811 541,405 21,234 146,111 23,144 27,887 1,070,592 886 88,101 170,676 96,207 30,000 698,038 1,083,908 5,490 63,400 194,408 13,689 276,987 806,921 1,877,513 103,489 103,489 1,774,024 510,223 1,263,801 1,774,024	2014 RMB’000 410,811 771,766 20,671 143,257 22,463 19,427 1,388,395 354 97,773 180,987 119,267 20,000 361,699 780,080 17,622 58,451 — 2,559 78,632 701,448 2,089,843 95,755 95,755 1,994,088 510,223 1,483,865 1,994,088	2015
			RMB’000 410,811 892,112 20,108 148,864 33,012 20,415
			1,525,322
			244 98,877 178,386 123,115 68,727 463,357
			932,706
			9,259 50,089 — 5,911
			65,259
			867,447
			2,392,769
			128,791
			128,791
			2,263,978
			510,223 1,753,755
			2,263,978

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Note:

A summary of the Target’s reserves is as follows:

At 1 January 2013 . . . . . . . . . . . . . . . . Profit for the year and total comprehensive income for the year . . . . . . . . . . . . . . . . . . . . . . . . . Transfer to statutory surplus reserve . . . . . . . . . . . . . . . . . . . . . . . At 31 December 2013 . . . . . . . . . . . . . Profit for the year and total comprehensive income for the year . . . . . . . . . . . . . . . . . . . . . . . . . Transfer to statutory surplus reserve . . . . . . . . . . . . . . . . . . . . . . . At 31 December 2014 . . . . . . . . . . . . . Profit for the year and total comprehensive income for the year . . . . . . . . . . . . . . . . . . . . . . . . . Equity-settled warrant . . . . . . . . . . . . . Transfer to statutory surplus reserve . . . . . . . . . . . . . . . . . . . . . . . At 31 December 2015 . . . . . . . . . . . . .	Share capital RMB’000 510,223 — — 510,223 — — 510,223 — — — 510,223	Contributed surplus RMB’000 317,624 — — 317,624 — — 317,624 — 46,581 — 364,205	Statutory surplus reserve RMB’000 65,786 — 28,832 94,618 — 22,006 116,624 — — 22,331 138,955	Retained earnings RMB’000 592,070 288,321 (28,832) 851,559 220,064 (22,006) 1,049,617 223,309 — (22,331) 1,250,595	Total
					RMB’000 1,485,703 288,321 —
					1,774,024
					220,064 —
					1,994,088
					223,309 46,581 —
					2,263,978

34. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Target Group in respect of any period subsequent to 31 December 2015.

Yours faithfully,

Ernst & Young

Certified Public Accountants

Hong Kong

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ACCOUNTANTS’ REPORT OF LANSHENG GUOJIAN

APPENDIX III

22/F, CITIC Tower, 1 Tim Mei Avenue, Central, Hong Kong 25 April 2016

The Directors 3SBio Inc.

Dear Sirs,

We set out below our report on the financial information of Shanghai Lansheng Guojian Pharmaceutical Co., Ltd. (the “Target Company”) comprising the statements of profit or loss and other comprehensive income, statements of changes in equity and statements of cash flows of the Target Company for each of the years ended 31 December 2013, 2014 and 2015 (the “Relevant Periods”), and the statements of financial position of the Target Company as at 31 December 2013, 2014 and 2015, together with the notes thereto (the “Financial Information”), for inclusion in the circular of 3SBio Inc. dated 25 April 2016 (the “Circular”) in connection with the proposed acquisition of a 96.25% equity interest of Shanghai Lansheng Guojian Pharmaceutical Co., Ltd. (the “Acquisition”) by 3SBio Inc. and its subsidiaries.

The Target Company was incorporated in Shanghai, the People’s Republic of China (the “PRC”) on 23 December 1998 as a company with limited liability.

For the purpose of this report, the directors of the Target Company (the “Directors”) have prepared the financial statements of the Target Company (the “Underlying Financial Statements”) in accordance with International Financial Reporting Standards (“IFRSs”) issued by the International Accounting Standards Board (the “IASB”). The Underlying Financial Statements for each of the years ended 31 December 2013, 2014 and 2015 were audited by us in accordance with International Standards on Auditing issued by the International Auditing and Assurance Standards Board (the “IAASB”).

The Financial Information set out in this report has been prepared from the Underlying Financial Statements with no adjustments made thereon.

Directors’ responsibility

The Directors are responsible for the preparation of the Underlying Financial Statements and Financial Information that gives a true and fair view in accordance with IFRSs, and for such internal control as the Directors determine is necessary to enable the preparation of the Underlying Financial Statements and Financial Information that are free from material misstatement, whether due to fraud or error.

Reporting accountants’ responsibility

It is our responsibility to form an independent opinion on the Financial Information, and to report our opinion thereon to you.

Opinion in respect of the Financial Information

In our opinion, for the purpose of this report, the Financial Information gives a true and fair view of the financial position of the Target Company as at 31 December 2013, 2014 and 2015, and of the financial performance and cash flows of the Target Company for each of the Relevant Periods.

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ACCOUNTANTS’ REPORT OF LANSHENG GUOJIAN

APPENDIX III

I. FINANCIAL INFORMATION

(A) STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Other income and gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PROFIT BEFORE TAX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PROFIT FOR THE YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OTHER COMPREHENSIVE INCOME/(LOSS) Other comprehensive income/(loss) to be reclassified to profit or loss in subsequent periods: Exchange differences on translation of foreign operations . . . . . . . . . . . . . Net other comprehensive income/(loss) to be reclassified to profit or loss in subsequent periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OTHER COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR, NET OF TAX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL COMPREHENSIVE INCOME FOR THE YEAR . . . . . . . . . . . .	Notes 6 6 7 8	2013 RMB’000 124,443 (15,696) — 108,747 — 108,747 (13) (13) (13) 108,734	2014 RMB’000 89,580 (13,554) — 76,026 — 76,026 (3) (3) (3) 76,023	2015
				RMB’000 88,435 (6,533) (1,019) 80,883 — 80,883 99 99 99 80,982

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ACCOUNTANTS’ REPORT OF LANSHENG GUOJIAN

APPENDIX III

(B) STATEMENTS OF FINANCIAL POSITION

NON-CURRENT ASSETS Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment in a joint venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CURRENT ASSETS Prepayments, deposits and other receivables . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CURRENT LIABILITIES Other payables and accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NET CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL ASSETS LESS CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EQUITY Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Notes 9 10 11 12 13 14 15 16	2013 RMB’000 94 4,075 722,517 726,686 379 50,951 51,330 1,093 1,093 50,237 776,923 776,923 410,000 366,923 776,923	2014 RMB’000 78 2,038 811,069 813,185 377 40,309 40,686 925 925 39,761 852,946 852,946 410,000 442,946 852,946	2015
				RMB’000 72 — 918,431
				918,503
				153 34,769
				34,922
				77
				77
				34,845
				953,348
				953,348
				410,000 543,348
				953,348

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APPENDIX III

ACCOUNTANTS’ REPORT OF LANSHENG GUOJIAN

			Total	RMB’000	668,585	(396)	668,189	108,747		(13)	108,734	776,923		776,923	76,026		(3)	76,023	852,946		852,946	80,883		99	80,982	19,420	953,348
Reserve of	share of other	comprehensive Retained	income earnings**	RMB’000 RMB’000	— 229,051	— (396)	— 228,655	— 108,747		(13) —	(13) 108,747	(13) 337,402		(13) 337,402	— 76,026		(3) —	(3) 76,026	(16) 413,428		(16) 413,428	— 80,883		99 —	99 80,883	— —	83 494,311
		Share Contributed Other	capital surplus reserve**	RMB’000 RMB’000 RMB’000	At 1 January 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410,000 29,534 —	Corrections of prior errors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — —	Beginning balance of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410,000 29,534 —	Profit for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — —	Other comprehensive income for the year:	Exchange differences on translation of foreign operations . . . . . . . . . . . . . . . . . . . . . . . . — — —	Total comprehensive income for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — —	At 31 December 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410,000 29,534 —		At 1 January 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410,000 29,534 —	Profit for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — —	Other comprehensive income for the year:	Exchange differences on translation of foreign operations . . . . . . . . . . . . . . . . . . . . . . . . — — —	Total comprehensive income for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — —	At 31 December 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410,000 29,534 —		At 1 January 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410,000 29,534 —	Profit for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — —	Other comprehensive income for the year:	Exchange differences on translation of foreign operations . . . . . . . . . . . . . . . . . . . . . . . . — — —	Total comprehensive income for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — —	Share of other reserve of a joint venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 19,420	At 31 December 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410,000 29,534 19,420

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ACCOUNTANTS’ REPORT OF LANSHENG GUOJIAN

APPENDIX III

(D) STATEMENTS OF CASH FLOWS

CASH FLOWS USED IN OPERATING ACTIVITIES Profit before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments for: Share of profits of a joint venture . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation of property, plant and equipment . . . . . . . . . . . . . . . . . Amortisation of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Increase)/decrease in prepayments, deposits and other receivables . . . . . Increase/(decrease) in other payables and accruals . . . . . . . . . . . . . . . . . . Cash used in operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash flows used in operating activities . . . . . . . . . . . . . . . . . . . . . . . . CASH FLOWS USED IN INVESTING ACTIVITIES Purchases of items of property, plant and equipment . . . . . . . . . . . . . . . . Net cash flows used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . NET DECREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents as stated in the statement of financial position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Notes 6 7, 9 7, 10 7, 10 13	2013 RMB’000 108,747 (123,094) 15 2,056 — (379) 759 (11,896) (11,896) — — (11,896) 62,847 50,951 50,951 50,951	2014 RMB’000 76,026 (88,555) 16 2,037 — 2 (168) (10,642) (10,642) — — (10,642) 50,951 40,309 40,309 40,309	2015
				RMB’000 80,883 (87,843) 16 1,019 1,019 224 (848) (5,530) (5,530) (10) (10) (5,540) 40,309 34,769 34,769 34,769

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ACCOUNTANTS’ REPORT OF LANSHENG GUOJIAN

APPENDIX III

II. NOTES TO FINANCIAL INFORMATION

1. INFORMATION ABOUT THE TARGET COMPANY

The Target Company was incorporated in Shanghai, People’s Republic of China (“PRC”) with limited liability on 23 December 1998. The registered office address of the Target Company is located at No. 6, Cailun Rd., Zhangjiang High-Tech Park, Pudong New Area, Shanghai, the PRC.

The principal activities of the Target Company are investing in high-technology industry and development of biopharmaceutical products.

The largest shareholder of the Target Company is Shanghai Hongshang Investment Company Limited.

The statutory financial statements of the Target company for each of the years ended 31 December 2013, 2014 and 2015 prepared in accordance with Accounting Standards for Business Enterprises issued by the Ministry of Finance (the “MOF”) of the PRC in 2006 and other related regulations issued by the MOF, were audited by Shanghai Jinrui CPAs & Co..

2. BASIS OF PREPARATION

The Financial Information has been prepared in accordance with IFRSs which comprise all standards and interpretations approved by IASB. All IFRS effective for the accounting period commencing from 1 January 2015, together with the relevant transition provision, have been early adopted by the Target Company in the preparation of the Financial Information throughout the Relevant Periods. It has been prepared under the historical cost convention, except for derivative financial instruments and financial assets which have been measured at fair value. The Financial Information is presented in Renminbi (“RMB”) and all values are rounded to the nearest thousand except when otherwise indicated.

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ACCOUNTANTS’ REPORT OF LANSHENG GUOJIAN

APPENDIX III

2.1 ISSUED BUT NOT YET EFFECTIVE IFRSs

The Target Company has not applied the following new and revised IFRSs, that have been issued but are not yet effective, in this Financial Information.

IFRS 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial Instruments[3] Amendments to IFRS 10 and IAS 28 . . . . . . . . . . . . . . . . Sale or Contribution of Assets between an Investor and its Associate or Joint Venture[6] Amendments to IFRS 10, IFRS 12 and IAS 28 . . . . . . . . Investment Entities: Applying the Consolidation Exception[1] Amendments to IFRS 11 . . . . . . . . . . . . . . . . . . . . . . . . . Accounting for Acquisitions of Interests in Joint Operations[1] IFRS 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Regulatory Deferral Accounts[5] IFRS 15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Revenue from Contracts with Customer[3] IFRS 16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leases[4] Amendments to IAS 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . Disclosure Initiative[1] Amendments to IAS 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . Disclosure Initiative[2] Amendments to IAS 12 . . . . . . . . . . . . . . . . . . . . . . . . . . Recognition of Deferred Tax Assets for Unrealised Losses[2] Amendments to IAS 16 and IAS 38 . . . . . . . . . . . . . . . . . Clarification of Acceptable Methods of Depreciation and Amortisation[1] Amendments to IAS 16 and IAS 41 . . . . . . . . . . . . . . . . . Agriculture: Bearer Plants[1] Amendments to IAS 27 . . . . . . . . . . . . . . . . . . . . . . . . . . Equity Method in Separate Financial Statements[1] Annual Improvements 2012-2014 Cycle . . . . . . . . . . . . . Amendments to a number of IFRSs[1]

1 Effective for annual periods beginning on or after 1 January 2016
2 Effective for annual periods beginning on or after 1 January 2017
3 Effective for annual periods beginning on or after 1 January 2018
4 Effective for annual periods beginning on or after 1 January 2019
5 Effective for an entity that first adopts IFRSs for its annual financial statements beginning on or after 1 January 2016 and therefore is not applicable to the Target Company
6 No mandatory effective date yet determined but is available for adoption

Further information about those IFRSs that are expected to be applicable to the Target Company is as follows:

In July 2014, the IASB issued the final version of IFRS 9, bringing together all phases of the financial instruments project to replace IAS 39 and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment and hedge accounting. The Target Company expects to adopt IFRS 9 from 1 January 2018. During the Relevant Periods, the Target Company performed a high-level assessment of the impact of the adoption of IFRS 9. This preliminary assessment is based on currently available information and may be subject to changes arising from further detailed analyses or additional reasonable and supportable information being made available to the Target Company in the future. The expected impacts arising from the adoption of IFRS 9 are summarised as follows:

(a) Classification and measurement

The Target Company does not expect that the adoption of IFRS 9 will have a significant impact on the classification and measurement of its financial assets. It expects to continue measuring at fair value all financial assets currently held at fair value. Equity investments currently held as available for sale will be measured at fair value through other comprehensive income as the investments are intended to be held for the foreseeable future and the Target Company expects to apply the option to present fair

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APPENDIX III

value changes in other comprehensive income. Gains and losses recorded in other comprehensive income for the equity investments cannot be recycled to profit or loss when the investments are derecognised.

(b) Impairment
IFRS 9 requires an impairment on debt instruments recorded at amortised cost or at fair value through other comprehensive income, lease receivables, loan commitments and financial guarantee contracts that are not accounted for at fair value through profit or loss under IFRS 9, to be recorded based on an expected credit loss model either on a twelve-month basis or a lifetime basis. The Target Company expects to apply the simplified approach and record lifetime expected losses that are estimated based on the present value of all cash shortfalls over the remaining life of all of its trade and other receivables. The Target Company will perform a more detailed analysis which considers all reasonable and supportable information, including forward-looking elements, for estimation of expected credit losses on its trade and other receivables upon the adoption of IFRS 9.

The amendments to IFRS 10 and IAS 28 address an inconsistency between the requirements in IFRS 10 and in IAS 28 in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The amendments require a full recognition of a gain or loss when the sale or contribution of assets between an investor and its associate or joint venture constitutes a business. For a transaction involving assets that do not constitute a business, a gain or loss resulting from the transaction is recognised in the investor’s profit or loss only to the extent of the unrelated investor’s interest in that associate or joint venture. The amendments are to be applied prospectively. The Target Company is currently assessing the impact of IFRS 10 and IAS 28 upon adoption.

IFRS 15 establishes a new five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured approach for measuring and recognising revenue. The standard also introduces extensive qualitative and quantitative disclosure requirements, including disaggregation of total revenue, information about performance obligations, changes in contract asset and liability account balances between periods and key judgements and estimates. The standard will supersede all current revenue recognition requirements under IFRSs. In July 2015, the IASB issued an amendment to IFRS 15 regarding a one-year deferral of the mandatory effective date of IFRS 15 to 1 January 2018. The Target Company expects to adopt IFRS 15 on 1 January 2018 and is currently assessing the impact of IFRS 15 upon adoption.

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Amendments to IAS 1 include narrow-focus improvements in respect of the presentation and disclosure in financial statements. The amendments clarify:

(i) the materiality requirements in IAS 1;
(ii) that specific line items in the statement of profit or loss and other comprehensive income and the statement of financial position may be disaggregated;
(iii) that entities have flexibility as to the order in which they present the notes to financial statements; and
(iv) that the share of other comprehensive income of associates and joint ventures accounted for using the equity method must be presented in aggregate as a single line item, and classified between those items that will or will not be subsequently reclassified to profit or loss.

Furthermore, the amendments clarify the requirements that apply when additional subtotals are presented in the statement of financial position and the statement of profit or loss and other comprehensive income. The Target Company expects to adopt the amendments from 1 January 2016. The amendments are not expected to have any significant impact on the Target Company’s financial information.

Amendments to IAS 16 and IAS 38 clarify the principle in IAS 16 and IAS 38 that revenue reflects a pattern of economic benefits that are generated from operating a business (of which the asset is part) rather than the economic benefits that are consumed through the use of the asset. As a result, a revenue-based method cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortise intangible assets. The amendments are to be applied prospectively. The amendments are not expected to have any impact on the financial position or performance of the Target Company upon adoption on 1 January 2016 as the Target Company has not used a revenue-based method for the calculation of depreciation of its non-current assets.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Investment in a joint venture

A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

The Target Company’s investment in a joint venture is stated in the statement of financial position at the Target Company’s share of net assets under the equity method of accounting, less any impairment losses.

The Target Company’s share of the post-acquisition results and other comprehensive income of a joint venture is included in the statement of profit or loss and other comprehensive income, respectively. In addition, when there has been a change recognised directly in the equity of the a joint venture, the Target Company recognises its share of any changes, when applicable, in the statement of changes in equity. Unrealised gains and losses resulting from transactions between the Target Company and its joint venture are eliminated to the extent of the Target Company’s investment in the joint venture, except where unrealised losses provide evidence of an impairment of the assets transferred.

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When an investment in a joint venture is classified as held for sale, it is accounted for in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations .

Fair value measurement

The Target Company measures its financial assets at fair value through profit or loss. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Target Company. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

The Target Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

Level 1 — based on quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2 — based on valuation techniques for which the lowest level input that is significant to the fair value measurement is observable, either directly or indirectly

Level 3 — based on valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Target Company determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

Impairment of non-financial assets

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their

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ACCOUNTANTS’ REPORT OF LANSHENG GUOJIAN

present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to the statement of profit or loss and other comprehensive income in the period in which it arises in those expense categories consistent with the function of the impaired asset.

Property, plant and equipment and depreciation

Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to the statement of profit or loss and other comprehensive income in the period in which it is incurred. In situations where the recognition criteria are satisfied, the expenditure for a major inspection is capitalised in the carrying amount of the asset as a replacement. Where significant parts of property, plant and equipment are required to be replaced at intervals, the Target Company recognises such parts as individual assets with specific useful lives and depreciates them accordingly.

Machinery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Motor vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Principal annual rates 19.0%-19.2% 13.7% 19.2%	Residual values
		4%-5% 4% 4%

Construction in progress represents a building under construction, which is stated at cost less any impairment losses, and is not depreciated. Cost comprises the direct costs of construction and

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capitalised borrowing costs on related borrowed funds during the period of construction. Construction in progress is reclassified to the appropriate category of property, plant and equipment when completed and ready for use.

Intangible assets (other than goodwill)

Intangible assets are stated at cost less any impairment losses and are amortised on the straightline basis over the following their estimated useful lives:

Patents and special techniques

Purchased patents and special techniques are stated at cost less any impairment losses and are amortised on the straight-line basis over their estimated useful lives of 10 years.

Leases

Leases that transfer substantially all the rewards and risks of ownership of assets to the Target Company, other than legal title, are accounted for as finance leases. At the inception of a finance lease, the cost of the leased asset is capitalised at the present value of the minimum lease payments and recorded together with the obligation, excluding the interest element, to reflect the purchase and financing. Assets held under capitalised finance leases, including prepaid land lease payments under finance leases, are included in property, plant and equipment, and depreciated over the shorter of the lease terms and the estimated useful lives of the assets. The finance costs of such leases are charged to the statement of profit or loss and other comprehensive income so as to provide a constant periodic rate of charge over the lease terms.

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Target Company is the lessee, rentals payable under operating leases net of any incentives received from the lessor are charged to the statement of profit or loss and other comprehensive income on the straight-line basis over the lease terms.

Investments and other financial assets

Initial recognition and measurement

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All regular way purchases and sales of financial assets are recognised on the trade date, that is, the date that the Target Company commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.

S ubsequent measurement

The subsequent measurement of financial assets depends on their classification as follows:

Financial assets at fair value through profit or loss

Financial assets designated upon initial recognition as at fair value through profit or loss are designated at the date of initial recognition and only if the criteria in IAS 39 are satisfied.

Loans and receivables

Derecognition of financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a Target Company of similar financial assets) is primarily derecognised (i.e., removed from the Target Company’s statement of financial position) when:

Š the rights to receive cash flows from the asset have expired; or
Š the Target Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a “pass-through” arrangement; and either (a) the Target Company has transferred substantially all the risks and rewards of the asset, or (b) the Target Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
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When the Target Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risk and rewards of ownership of the asset. When it has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the Target Company continues to recognise the transferred asset to the extent of the Target Company’s continuing involvement. In that case, the Target Company also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Target Company has retained.

Impairment of financial assets

The Target Company assesses at the end of each reporting period whether there is objective evidence that a financial asset or a Target Company of financial assets is impaired. An impairment exists if one or more events that occurred after the initial recognition of the asset have an impact on the estimated future cash flows of the financial asset or the Target Company of financial assets that can be reliably estimated. Evidence of impairment may include indications that a debtor or a Target Company of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

Financial assets carried at amortised cost

For financial assets carried at amortised cost, the Target Company first assesses whether impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Target Company determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a Target Company of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.

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ACCOUNTANTS’ REPORT OF LANSHENG GUOJIAN

Financial liabilities

Initial recognition and measurement

All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings, net of directly attributable transaction costs.

The Target Company’s financial liabilities are included in trade and other payables and accruals.

Subsequent measurement — Loans and borrowings

Derecognition of financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires.

Offsetting of financial instruments

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Cash and cash equivalents

For the purpose of the statement of financial position, cash and cash equivalents comprise cash on hand and at banks, including term deposits, and assets similar in nature to cash, which are not restricted as to use.

Provisions

When the effect of discounting is material, the amount recognised for a provision is the present value at the end of the reporting period of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in the statement of profit or loss and other comprehensive income.

Income tax

Deferred tax liabilities are recognised for all taxable temporary differences, except:

Š when the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
Š in respect of taxable temporary differences associated with investments in a joint venture, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
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Š when the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
Š in respect of deductible temporary differences associated with investments in a joint venture, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

Employee benefits

Pension scheme

The employees of the Target Company are required to participate in a central pension scheme operated by the local municipal government. The contributions are charged to the statement of profit or loss and other comprehensive income as they become payable in accordance with the rules of the central pension scheme.

Termination benefits

Termination benefits are recognised at the earlier of when the Target Company can no longer withdraw the offer of those benefits and when the Target Company recognises restructuring costs involving the payment of termination benefits.

4. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES

The preparation of the Target Company’s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and their accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amounts of the assets or liabilities affected in the future.

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Judgements

In the process of applying the Target Company’s accounting policies, management has not made any significant judgement, apart from those involving estimations, which have significant effect on the amounts recognised in the Financial Information.

Estimation uncertainty

Impairment of non-financial assets

The Target Company assesses whether there are any indicators of impairment for all nonfinancial assets at the end of each reporting period. Non-financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable. An impairment exists when the carrying value of an asset or a cash-generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The calculation of the fair value less costs of disposal is based on available data from binding sales transactions in an arm’s length transaction of similar assets or observable market prices less incremental costs for disposing of the asset. When value in use calculations are undertaken, management must estimate the expected future cash flows from the asset or cash-generating unit and choose a suitable discount rate in order to calculate the present value of those cash flows.

Useful lives of property, plant and equipment

The Target Company’s management determines the estimated useful lives and related depreciation charges for the Target Company’s property, plant and equipment. This estimate is based on the historical experience of the actual useful lives of property, plant and equipment of similar nature and functions. It could change significantly as a result of technical innovations and competitor actions in response to severe industry cycles. Management will increase the depreciation charge where useful lives are less than previously estimated lives, or management will write off or write down technically obsolete or non-strategic assets that have been abandoned.

5. OPERATING SEGMENT INFORMATION

For management purposes, the Target Company has only one reportable operating segment, which is the development, production, marketing and sale of biopharmaceutical products. Since this is the only reportable operating segment of the Target Company, no further operating segment analysis thereof is presented.

Geographical information

The Target Company’s operations are substantially based in Mainland China and 100% of the revenue and non-current assets of the Target Company are located in Mainland China. Therefore, no further analysis of geographical information is presented.

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6. OTHER INCOME AND GAINS

An analysis of the Target Company’s other income and gains is as follows:

Other income Bank interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gains Gain for holding an investment in a joint venture . . . . . . . . . . Other expenses Impairment of intangible assets . . . . . . . . . . . . . . . . . . . . . . .		2013 RMB’000 1,349 123,094 124,443 —	2014 RMB’000 1,025 88,555 89,580 —	2015
				RMB’000 592 87,843 88,435 (1,019)

7. PROFIT BEFORE TAX

The Target Company’s profit before tax is arrived at after charging:

Depreciation of items of property, plant and equipment . . . . . Amortisation of patents and special techniques . . . . . . . . . . . Impairment of patents and special techniques . . . . . . . . . . . . Auditors’ remuneration Employee benefit expense: Wages and salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Employee benefit expense . . . . . . . . . . . . . . . . . . . . . . . .	2013 RMB’000 15 2,056 — — 7,905 1,140 11,116	2014 RMB’000 16 2,037 — — 7,381 2,072 11,506	2015
			RMB’000 16 1,019 1,019 — 3,122 606 5,782

8. INCOME TAX

The Target Company is subject to income tax on an entity basis on profit arising in or derived from the jurisdictions in which members of the Target Company are domiciled and operate.

Current Mainland China corporate income tax . . . . . . . . . . . . . . . . Total tax charge for the year . . . . . . . . . . . . . . . . . . . . . . . . . .	2013 RMB’000 — —	2014 RMB’000 — —	2015	2015
			RMB’000 — —
				—

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APPENDIX III

A reconciliation of the tax expense applicable to profit before tax using the statutory rate to the tax expense at the effective tax rate is as follows:

Profit before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax at the statutory tax rate of 25% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax losses not recognised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income not subject to income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax effect of non-deductible expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax charge at the Target Company’s effective rate . . . . . . . . . . . . . . . . . . . . . . . .	2013 RMB’000 108,747 27,187 3,362 (30,774) 225 —	2014 RMB’000 76,026 19,007 3,126 (22,139) 6 —	2015
			RMB’000 80,883 20,221 1,732 (21,961) 8 —

9. PROPERTY, PLANT AND EQUIPMENT

2013 At 1 January 2013: Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At 1 January 2013: Net of accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . Depreciation provided during the year . . . . . . . . . . . . . . . . . . . At 31 December 2013, net of accumulated depreciation . . . . . . . . . At 31 December 2013: Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014 At 1 January 2014: Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At 1 January 2014: Net of accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . Depreciation provided during the year . . . . . . . . . . . . . . . . . . . At 31 December 2014, net of accumulated depreciation . . . . . . . . . At 31 December 2014: Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Machinery RMB’000 134 (127) 7 7 — 7 134 (127) 7 Machinery RMB’000 134 (127) 7 7 — 7 134 (127) 7	Motor vehicles RMB’000 1,318 (1,216) 102 102 (15) 87 1,318 (1,231) 87 Motor vehicles RMB’000 1,318 (1,231) 87 87 (16) 71 1,318 (1,247) 71	Furniture and fixtures RMB’000 8 (8) — — — — 8 (8) — Furniture and fixtures RMB’000 8 (8) — — — — 8 (8) —	Total
				RMB’000 1,460 (1,351) 109 109 (15) 94 1,460 (1,366) 94 Total
				RMB’000 1,460 (1,366) 94 94 (16) 78 1,460 (1,382) 78

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2015 At 1 January 2015: Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At 1 January 2015: Net of accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation provided during the year . . . . . . . . . . . . . . . . . . . . . At 31 December 2015, net of accumulated depreciation . . . . . . . . . . . At 31 December 2015: Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Machinery RMB’000 134 (127) 7 7 — — 7 134 (127) 7	Motor vehicles RMB’000 1,318 (1,247) 71 71 10 (16) 65 1,328 (1,263) 65	Furniture and fixtures RMB’000 8 (8) — — — — — 8 (8) —	Total
				RMB’000 1,460 (1,382) 78 78 10 (16) 72 1,470 (1,398) 72

10. INTANGIBLE ASSETS

2013

Cost at 1 January 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net of accumulated amortisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortisation provided during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At 31 December 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At 31 December 2013 Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated amortisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Patents and special techniques	Patents and special techniques
		RMB’000 18,334 (12,203) 6,131 6,131 (2,056) 4,075 18,334 (14,259) 4,075

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APPENDIX III

2014

2014
Cost at 1 January 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net of accumulated amortisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortisation provided during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At 31 December 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At 31 December 2014 Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated amortisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015 Cost at 1 January 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net of accumulated amortisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortisation provided during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At 31 December 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At 31 December 2015 Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated amortisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Patents and special techniques
	RMB’000 18,334 (14,259) 4,075 4,075 (2,037) 2,038 18,334 (16,296) 2,038 Patents and special techniques
		RMB’000 18,334 (16,296) 2,038 2,038 (1,019) (1,019) — 18,334 (17,315) (1,019) —

11. INVESTMENT IN A JOINT VENTURE

11. INVESTMENT IN A JOINT VENTURE
Share of net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2013 RMB’000 722,517	2014 RMB’000 811,069	2015
			RMB’000 918,431

Particulars of the Target Company’s joint venture are as follows:

Name Sunshine Guojian Pharmaceutical (Shanghai) Co., Ltd. (formerly known as Shanghai CP Guojian Pharmaceutical Co., Ltd.)	Place of registration and business PRC/ Mainland China	Nominal value of registered capital RMB’000 510,223	Percentage of ownership interest attributable to the Target Company 2013 2014 2015 41.69% 41.69% 41.69%	Percentage of ownership interest attributable to the Target Company 2013 2014 2015 41.69% 41.69% 41.69%	Principal activities
			2013 41.69%	2014 41.69%
					Production, marketing and sale of bio- pharmaceutical products

The above investment is directly held by the Target Company.

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ACCOUNTANTS’ REPORT OF LANSHENG GUOJIAN

APPENDIX III

The following table illustrates the summarised financial information in respect of Sunshine Guojian Pharmaceutical (Shanghai) Co., Ltd. adjusted for any differences in accounting policies and reconciled to the carrying amount in the financial statements:

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity attributable to owners of the parent . . . . . . . . . . . . . . . . . . . . . . . . . . . Proportion of the Target Company’s ownership . . . . . . . . . . . . . . . . . . . . . . . Carrying amount of the investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2013 RMB’000 877,045 1,190,878 1,085,213 (289,983) (148,994) 1,837,114 1,733,070 41.69% 722,517	2014 RMB’000 526,526 849,227 1,441,717 (85,561) (154,856) 2,050,527 1,945,475 41.69% 811,069	2015
			RMB’000 575,582 959,639 1,612,764 (98,425) (169,626) 2,304,352 2,202,997 41.69% 918,431

The following table illustrates the summarised financial information of Sunshine Guojian Pharmaceutical (Shanghai) Co., Ltd. and reconciled to the share of profit of a joint venture in the financial statements:

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Profit attributable to owners of the parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2013 RMB’000 727,837 24,213 52,547 15,228 49,630 295,261 (31)	2014 RMB’000 775,851 20,076 59,418 2,539 32,375 212,413 (8)	2015
			RMB’000 877,346 20,266 70,534 — 29,946 210,704 237

12. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

	2013	2014	2015
	RMB’000	RMB’000	RMB’000
Lease prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	—	286	—
Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	379	91	153
	379	377	153

13. CASH AND CASH EQUIVALENTS

Cash and bank balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2013 RMB’000 50,591	2014 RMB’000 40,309	2015
			RMB’000 34,769

The RMB is not freely convertible into other currencies. However, under Mainland China’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Target Company is permitted to exchange RMB for other currencies through banks authorised to conduct foreign exchange business. The remittance of funds out of Mainland China is subject to exchange restrictions imposed by the PRC government.

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ACCOUNTANTS’ REPORT OF LANSHENG GUOJIAN

APPENDIX III

Cash at banks earn interest at floating rates based on daily bank deposit rates. The bank balances and time deposits are deposited with creditworthy banks with no recent history of default.

14. OTHER PAYABLES AND ACCRUALS

Staff payroll and welfare payables . . . . . . . . . . . . . . . . . . . . . . . Taxes payable (other than income tax) . . . . . . . . . . . . . . . . . . . Other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2013 RMB’000 1,035 52 6 1,093	2014 RMB’000 795 112 18 925	2015
			RMB’000 50 24 3 77

Other payables are non-interest-bearing and have an average term of three months.

15. SHARE CAPITAL

Issued and fully paid: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2013 RMB’000 410,000	2014 RMB’000 410,000	2015
			RMB’000 410,000

16. RESERVES

The amounts of the Target Company’s reserves and the movements therein for the Relevant Periods are presented in the statements of changes in equity of the Financial Information.

17. OPERATING LEASE ARRANGEMENTS

The Target Company leases its offices, motor vehicles and office equipment under operating lease arrangements. Leases are negotiated for terms ranging from one to three years.

The Target Company had total future minimum lease payments under non-cancellable operating leases falling due as follows:

	2013	2014	2015
	RMB’000	RMB’000	RMB’000
Within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	80	559	—
One to two years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	—	140	—
	80	699	—

The Target Company terminated the lease in July 2015.

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ACCOUNTANTS’ REPORT OF LANSHENG GUOJIAN

APPENDIX III

18. FINANCIAL INSTRUMENTS BY CATEGORY

The carrying amounts of each of the categories of financial instruments as at the end of the Relevant Periods are as follows:

31 December 2013

Financial assets

Financial assets
Financial assets included in prepayments, deposits and other receivables . . . . . . . . . . . . . . . . . . . Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 December 2013 Financial liabilities Financial liabilities included in other payables and accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 December 2014 Financial assets Financial assets included in prepayments, deposits and other receivables . . . . . . . . . . . . . . . . . . . Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial liabilities Financial liabilities included in other payables and accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Loans and receivables
	RMB’000 379 50,951 51,330 Financial liabilities at amortised cost
	RMB’000 6 6 Loans and receivables
	RMB’000 91 40,309 40,400 Financial liabilities at amortised cost
	RMB’000 18 18

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ACCOUNTANTS’ REPORT OF LANSHENG GUOJIAN

APPENDIX III

31 December 2015

Financial assets

Financial assets included in prepayments, deposits and other receivables . . . . . . . . . . . . . . . . . . . Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial liabilities Financial liabilities included in other payables and accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Loans and receivables
	RMB’000 153 34,769 34,922 Financial liabilities at amortised cost
	RMB’000 3 3

19. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Target Company’s principal financial instruments comprise cash and cash equivalents. The main purposes of these financial instruments are to provide finance for the Target Company’s operations and to earn interest income. The Target Company has various other financial assets and liabilities such as other receivables and other payables, which arise directly from its operations.

The main risks arising from the Target Company’s financial instruments are credit risk and liquidity risk. The board of directors reviews and agrees policies for managing each of these risks and they are summarised below.

Credit risk

The carrying amounts of cash and cash equivalents, and other current assets except for prepayments, represent the Target Company’s maximum exposure to credit risk in relation to financial assets. All the Target Company’s cash and cash equivalents are held in major financial institutions located in Mainland China, which management believes are of high credit quality. The Target Company has policies in place to evaluate credit risk when accepting new business and to limit its credit exposure to individual customers. The directors consider that the Target Company does not have a significant concentration of credit risk. No sales to a single customer accounted for more than 5% of the Target Company’s total revenues for the year.

Liquidity risk

The Target Company aims to maintain sufficient cash and credit lines to meet its liquidity requirements. The Target Company finances its working capital requirements through a combination of funds generated from operations and bank and other borrowings.

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APPENDIX III

ACCOUNTANTS’ REPORT OF LANSHENG GUOJIAN

The table below summarises the maturity profile of the Target Company’s non-derivative financial liabilities (including issued financial guarantee contracts) based on contractual undiscounted payments including interest payments computed using contractual rates or, if floating, based on rates current at the end of the reporting period.

31 December 2013 Financial liabilities included in other payables and accruals . . . . . . . . . . . . . . 31 December 2014 Financial liabilities included in other payables and accruals . . . . . . . . . . . . . . 31 December 2015 Financial liabilities included in other payables and accruals . . . . . . . . . . . . . .	On demand RMB’000 6 On demand RMB’000 18 On demand RMB’000 3	Less than 3 months RMB’000 — Less than 3 months RMB’000 — Less than 3 months RMB’000 —	3 to less than 12 months RMB’000 — 3 to less than 12 months RMB’000 — 3 to less than 12 months RMB’000 —	1 to 5 years RMB’000 — 1 to 5 years RMB’000 — 1 to 5 years RMB’000 —	Over 5years RMB’000 — Over 5years RMB’000 — Over 5years RMB’000 —	Total
						RMB’000 6 Total
						RMB’000 18 Total
						RMB’000 3

Capital management

The Target Company’s objectives when managing capital are to safeguard the Target Company’s ability to continue as a going concern in order to provide returns for shareholders and to maintain an optimal capital structure to reduce the cost of capital.

The Target Company manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust the capital structure, the Target Company may adjust the dividend payment to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. No changes in the objectives, policies or processes for managing capital were made during the Relevant Periods.

20. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Target Company in respect of any period subsequent to 31 December 2015.

Yours faithfully,

Ernst & Young

Certified Public Accountants

Hong Kong

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ACCOUNTANTS’ REPORT OF GAINS PRESTIGE

APPENDIX IV

22/F, CITIC Tower, 1 Tim Mei Avenue, Central, Hong Kong

16 March 2016

The Directors 3SBio Inc.

Dear Sirs,

We set out below our report on the financial information of Gains Prestige Limited (the “Target Company”) and its subsidiary (together, the “Target Group”) comprising the consolidated statements of profit or loss and other comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows of the Target Group for the period from 2 September 2014 (date of incorporation) to 31 December 2014 and for the year ended 31 December 2015 (the “Relevant Periods”), and the consolidated statements of financial position of the Target Group as at 31 December 2014 and 2015, together with the notes thereto (the “Financial Information”), for inclusion in the circular of 3SBio Inc. dated 25 April 2016 (the “Circular”) in connection with the proposed acquisition of a 100% equity interest of target company (the “Acquisition”) by 3SBio Inc. and its subsidiaries.

The Target Company was incorporated in the British Virgin Islands (the “BVI”) on 2 September 2014 as a company with limited liability.

Directors’ responsibility

The directors of the Target Group (the “Directors”) are responsible for the preparation of the Financial Information that gives a true and fair view in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), and for such internal control as the Directors determine is necessary to enable the preparation of the Financial Information that is free from material misstatement, whether due to fraud or error.

Reporting accountants’ responsibility

It is our responsibility to form an independent opinion on the Financial Information, and to report our opinion thereon to you.

Opinion in respect of the Financial Information

In our opinion, for the purpose of this report, the Financial Information gives a true and fair view of the financial position of the Target Group as at 31 December 2014 and 2015, and of the financial performance and cash flows of the Target Group for each of the Relevant Periods.

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ACCOUNTANTS’ REPORT OF GAINS PRESTIGE

APPENDIX IV

I. FINANCIAL INFORMATION

(A) CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Share of profit of a joint venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PROFIT BEFORE TAX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PROFIT FOR THE PERIOD/YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OTHER COMPREHENSIVE INCOME/(LOSS) Other comprehensive income/(loss) to be reclassified to profit or loss in subsequent periods: Exchange differences on translation of foreign operations . . . . . . . . . . . . . . . Share of other comprehensive income of a joint venture . . . . . . . . . . . . . . . . . Net other comprehensive income/(loss) to be reclassified to profit or loss in subsequent periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OTHER COMPREHENSIVE INCOME/(LOSS) FOR THE PERIOD/ YEAR, NET OF TAX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL COMPREHENSIVE INCOME FOR THE PERIOD/ YEAR . . . . . . Attributable to: Owners of the parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Notes 4 6	Period from 2 September 2014 (date of incorporation) to 31 December 2014 HK$’000 (45) 23,297 23,252 — 23,252 3,688 (4) 3,684 3,684 26,936 26,936	Year ended 31 December 2015	Year ended 31 December 2015
				HK$’000 19 113,710 113,729 — 113,729 (70,439) 128 (70,311) (70,311) 43,418 43,418

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ACCOUNTANTS’ REPORT OF GAINS PRESTIGE

APPENDIX IV

(B) CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

NON-CURRENT ASSETS Investment in a joint venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CURRENT ASSETS Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CURRENT LIABILITIES Accruals expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Due to an intermediate holding company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Due to the immediate holding company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NET CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL ASSETS LESS CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EQUITY Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Notes 8 9 10 11 12	2014 HK$’000 1,112,182 1,112,182 4 4 20 1,085,201 29 1,085,250 (1,085,246) 26,936 26,936 — 26,936 26,936	2015 HK$’000 1,180,719 1,180,719 3 3 — — 1,085,230 1,085,230 (1,085,227) 95,492 95,492 — 95,492 95,492

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APPENDIX IV

ACCOUNTANTS’ REPORT OF GAINS PRESTIGE

			Total	equity	HK$’000		—	23,252		3,688	(4)	26,936	26,936	113,729		(70,439)	128	43,418	25,138	95,492
			Retained	earnings*	HK$’000		—	23,252		—	—	23,252	23,252	113,729		—	—	113,729	—	136,981
			Other	reserve*	HK$’000		—	—		—	—	—	—	—		—	—	—	25,138	25,138
Reserve for	share of other	comprehensive Exchange	Share income of a revaluation	capital joint venture reserve**	HK$’000 HK$’000 HK$’000	At 2 September 2014 (date of incorporation)	Issue of shares upon incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — —	Profit for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — —	Other comprehensive income for the period:	Exchange differences on translation of foreign operations . . . . . . . . . . . . . . . . . . . . . . . . . . — — 3,688	Share of other comprehensive income of a joint venture . . . . . . . . . . . . . . . . . . . . . . . . . . . — (4) —	Total comprehensive income for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (4) 3,688	At 31 December 2014 and 1 January 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (4) 3,688	Profit for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — —	Other comprehensive income for the year:	Exchange differences on translation of foreign operations . . . . . . . . . . . . . . . . . . . . . . . . . . — — (70,439)	Share of other comprehensive income of a joint venture . . . . . . . . . . . . . . . . . . . . . . . . . . . — 128 —	Total comprehensive income for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 128 (70,439)	Share of other reserve of a joint venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — —	At 31 December 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 124 (66,751)	* These reserve accounts comprise the consolidated reserves of HK$95,492,000 (2014: HK$26,936,000) in the consolidated statement of financial position.

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ACCOUNTANTS’ REPORT OF GAINS PRESTIGE

APPENDIX IV

(D) CONSOLIDATED STATEMENTS OF CASH FLOWS

		Period from
		2 September
		2014 (date of
		incorporation)
		to	Year ended
		31 December	31 December
	Note	2014	2015
		HK$’000	HK$’000
CASH FLOWS USD IN OPERATING ACTIVITIES
Profit before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		23,252	113,729
Adjustments for:
Share of profit of a joint venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		(23,297)	(113,710)
		(45)	19
Increase/(decrease) in accruals expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		20	(20)
Net cash flows used in operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		(25)	(1)
CASH FLOWS USD IN INVESTING ACTIVITIES
Acquisition of a joint venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		(1,085,201)	—
Net cash flows used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		(1,085,201)	—
CASH FLOWS FROM FINANCING ACTIVITIES
Increase/(decrease) in an amount due to an intermediate holding company . . .		1,085,201	(1,085,201)
Increase in an amount due to the immediate holding company . . . . . . . . . . . . .		29	1,085,201
Net cash flows from financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1,085,230	—
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS . . .		4	(1)
Cash and cash equivalents at beginning of period/year . . . . . . . . . . . . . . . . . . .		—	4
CASH AND CASH EQUIVALENTS AT END OF PERIOD/YEAR . . . . . . . .		4	3
ANALYSIS OF CASH AND CASH EQUIVALENTS
Cash and bank balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9	4	3

IV-5 -

ACCOUNTANTS’ REPORT OF GAINS PRESTIGE

APPENDIX IV

II. NOTES TO FINANCIAL INFORMATION

1. CORPORATE INFORMATION

Gains Prestige Limited (the “Target Company”) is a limited liability company incorporated in the British Virgin Islands. The registered office address of the Target Company is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands.

During the Relevant Periods, the Target Company acted as an investment holding company.

In the opinion of the directors of the Company, the ultimate holding company of the Target Company is CITIC Group Corporation, which is a wholly state-owned company established under the laws of the People’s Republic of China. The intermediate holding company, CITIC Limited, which is incorporated and listed in Hong Kong, produces financial statements available for public use.

Information about a subsidiary

Particulars of the Target Company’s subsidiary are as follows:

Name Full Gain Pharmaceutical Limited . . . . . . .	Place of incorporation/ registration and business Hong Kong	Issued ordinary/registered share capital HK$1	Percentage of equity attributable to the Target Company 100%	Principal activity
				Investment holding

The statutory financial statements of the Target company and its subsidiary for the period from 2 September 2014 to 31 December 2014 and for the year ended 31 December 2015 prepared in accordance with Hong Kong Financial Reporting Standards were audited by KPMG Huazheng LLP. and Ernst & Young Hua Ming LLP., respectively.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of preparation

The Financial Information has been prepared in accordance with HKFRSs (which include all Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations) issued by the HKICPA, accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. They have been prepared under the historical cost convention. The Financial Information is presented in Hong Kong dollars (“HK$”) and all values are rounded to the nearest thousand except when otherwise indicated.

Basis of consolidation

The consolidated financial information includes the financial information of the Target Company and its subsidiary (collectively referred to as the “Target Group”) for the Relevant Periods. A subsidiary is an entity (including a structured entity), directly or indirectly, controlled by the Target Company. Control is achieved when the Target Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee (i.e., existing rights that give the Target Group the current ability to direct the relevant activities of the investee).

IV-6 -

ACCOUNTANTS’ REPORT OF GAINS PRESTIGE

APPENDIX IV

When the Target Company has, directly or indirectly, less than a majority of the voting or similar rights of an investee, the Target Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

(a) the contractual arrangement with the other vote holders of the investee;
(b) rights arising from other contractual arrangements; and
(c) the Target Group’s voting rights and potential voting rights.

The financial information of the subsidiary are prepared for the same reporting period as the Target Company, using consistent accounting policies. The results of subsidiary are consolidated from the date on which the Target Group obtains control, and continue to be consolidated until the date that such control ceases.

The principal accounting policies applied in the preparation of the Financial Information of the Target Group are set out below. These policies have been consistently applied to year/period presented. The Financial Information have been prepared in accordance with HKFRS, and under the historical cost convention.

IV-7 -

ACCOUNTANTS’ REPORT OF GAINS PRESTIGE

APPENDIX IV

The following new standards, amendments and interpretation which have been issued by the HKICPA may impact the Target Group in future years but are not yet effective for the Relevant Periods:

Standard No. HKFRS 11 (Amendment) Amendments to HKAS 1 Amendments to HKAS 27 (2011) HKAS 16 and HKAS 38 (Amendments) HKFRS 15 HKFRS 9 HKFRS 14 Annual Improvements to HKFRSs 2012-2014 Cycle Amendments to HKFRS 10 and HKAS 28 (2011) Amendments to HKFRS 10, HKFRS 12 and HKAS 28 (2011) Amendments to HKAS 16 and HKAS 41	Title Accounting for Acquisitions of Interests in Joint Operations Disclosure Initiative Separate Financial Statements—Equity Method in Separate Financial Statements Clarification of Acceptable Methods of Depreciation and Amortisation Revenue from Contracts with Customers Financial Instruments Regulatory Deferral Accounts Sale or Contribution of Assets between an Investor and its Associate or Joint Venture Investment Entities: Applying the Consolidation Exception Agriculture: Bearer Plants	Applicable accounting period of the Target Group
		2016 2016 2016 2016 2018 2018 2016 2016 No mandatory effective date 2016 2016

The Target Group has not early adopted the new standards, amendments to existing standards and interpretations issued by the HKICPA that are not yet effective for the Relevant Periods, and is in the process of assessing their impact on future accounting periods.

The consolidated financial statements incorporate the accounts of the Target Company and its subsidiary made up to the end of the reporting period. The financial statements of the subsidiary are prepared for the same reporting period as the Target Company, using consistent accounting policies. The results of the subsidiary are consolidated from the date on which the Target Group obtains control, and continue to be consolidated until the date of such control ceases. The results of the subsidiary acquired or disposed of during the Relevant Periods are included as from the effective date of acquisition or up to the effective date of disposal respectively.

Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated. Accounting policies of the subsidiary have been changed where necessary in the accounts to ensure consistency with the accounting policies adopted by the Target Group.

(b) A joint venture

A joint venture is an arrangement whereby the Target Group and other parties contractually agree to share control of the arrangement, and have rights to the net assets of the arrangement.

The consolidated profit and loss account includes the Target Group’s share of the results of the joint venture for the Relevant Periods, unless the joint venture is classified as held for sale (or included in a disposal group held for sale), and adjusted by impairment losses, if any. The consolidated balance sheet includes the Target Group’s share of the net assets of the joint venture and goodwill on acquisition.

IV-8 -

ACCOUNTANTS’ REPORT OF GAINS PRESTIGE

APPENDIX IV

When the Target Group’s share of losses equals or exceeds its interest in the joint venture, including any unsecured receivables, the Target Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the joint venture.

Unrealised gains on transactions between the Target Group and its joint venture are eliminated to the extent of the Target Group’s interest in the joint venture. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of an asset transferred.

Share of profit of the joint venture has been adjusted where necessary to ensure consistency with the accounting policies adopted by the Target Group.

(c) Goodwill

Goodwill arising on the acquisition of subsidiary company and a joint venture represents the excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of any previous equity interest in the acquiree at the date of acquisition over the fair value of the Target Group’s share of the identifiable net assets acquired. If this is less than the fair value of the net assets of the acquiree in the case of a bargain purchase, the difference is recognised directly in the profit or loss account.

(d) Impairment of assets

Assets that have an indefinite useful life are tested for impairment annually. Assets that are subject to depreciation or amortisation are reviewed for impairment to determine whether there is any indication the carrying value of these assets may not be recoverable. If such assets are considered to be impaired, the impairment to be recognised in the profit and loss account is measured by the amount by which the carrying amount of the assets exceeds the recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows (called cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

(e) Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held at call with banks, other shortterm highly liquid investments with original maturities of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the Target Group’s cash management are also included as a component of cash and cash equivalents for the purpose of the consolidated statements of cash flows.

(f) Foreign currencies

The consolidated and the Target Company’s accounts are presented in Hong Kong dollars, which is the Target Company’s functional and presentation currency. Items included in the financial statements of each of the Target Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”).

Transactions in foreign currencies are translated into the functional currency at the rates ruling at the transaction dates. Foreign exchange gains and losses resulting from the settlement of such

IV-9 -

ACCOUNTANTS’ REPORT OF GAINS PRESTIGE

APPENDIX IV

transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the profit and loss account, except when deferred in equity as a qualifying cash flow hedge or net investment hedge.

Assets and liabilities of subsidiary company and a joint venture together with all other monetary assets and liabilities expressed in foreign currencies, are translated into Hong Kong dollars at the rates of exchange at the end of the reporting period. Results in foreign currencies are translated at the average rates of exchange ruling during the Relevant Periods. All resulting exchange differences are recognised as a separate component of equity - exchange fluctuation reserve.

Exchange differences arising from the translation of the net investment in foreign entities are taken directly to the exchange fluctuation reserve. On the disposal of these investments, such exchange differences are recognised in the consolidated profit and loss account as part of profit or loss on disposal.

When a gain or loss on a non-monetary item is recognised directly in equity, any translation difference on that gain or loss is recognised directly in equity. When a gain or loss on a non-monetary item is recognised in the profit and loss account any translation difference on that gain or loss is recognised in the profit and loss account.

Goodwill and fair value adjustments arising on acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the rate of exchange ruling at the end of the reporting period. Such differences are taken directly to the exchange fluctuation reserve.

(g) Income tax

Income tax for the Relevant Periods comprises current tax and movements in deferred tax assets and liabilities.

The balance sheet liability method is adopted whereby deferred tax is recognised in respect of temporary differences between the tax bases of assets and liabilities and their carrying amounts.

Deferred tax assets are recognised to the extent that their future utilisation is probable.

3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Target Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

(i) Impairment of assets

The Target Group has made substantial investments in tangible and intangible assets. The Target Group considers impairment assessment as an area requiring extensive application of judgement and

IV-10 -

ACCOUNTANTS’ REPORT OF GAINS PRESTIGE

APPENDIX IV

estimation. Assets that have an indefinite useful life are tested for impairment annually. Other assets are reviewed for impairment when there is an indication that the carrying value of these assets may not be recoverable. If such indication exists, the recoverable amount of the assets is estimated in order to determine the extent of the impairment loss, if any. The recoverable amount is the higher of an asset’s fair value less cost to sell and value in use. Such impairment loss is recognised in the profit or loss account.

For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows (called cash-generating units).

(ii) A joint venture

The Target Group regularly reviews its investment in the joint venture for impairment based on both quantitative and qualitative criteria. Such analysis typically includes various estimates and assumptions, the intent and ability to hold to maturity or until forecasted recovery, the financial health, cash flow projections and future prospects of the companies.

4. PROFIT BEFORE TAX

The Target Group’s loss before tax is arrived at after charging/(crediting):

Provision/(reversal) of auditors’ remuneration . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Period from 2 September 2014 (date of incorporation) 31 December 2014 HK$’000 20	Year ended to 31 December 2015 HK$’000 (20)

The auditor’s remuneration for the Relevant Periods of 2015 was borne by the immediate holding company.

5. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS

No director received any fees or emoluments in respect of their services rendered to the Target Group during the Relevant Periods (2014: Nil).

6. INCOME TAX

Hong Kong profits tax has not been provided for as the Target Group has no estimated assessable profit during the Relevant Periods.

There was no deferred taxation in respect of temporary differences.

7. DIVIDEND

The board of directors of the Target Group does not recommend the payment of any dividend for the Relevant Periods.

IV-11 -

ACCOUNTANTS’ REPORT OF GAINS PRESTIGE

APPENDIX IV

8. INVESTMENT IN A JOINT VENTURE

8. INVESTMENT IN A JOINT VENTURE
Share of net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2014 HK$’000 1,112,182	2015
		HK$’000 1,180,719

Particulars of the Target Company’s joint venture are as follows:

Name Sunshine Guojian Pharmaceutical (Shanghai) Co., Ltd. (formerly known as Shanghai CP Guojian Pharmaceutical Co., Ltd.) . . . . . . . . . . . . . . . .	Place of registration and business People’s Republic of China	Percentage of ownership interest attributable to the Target Company 2014 2015 43.42% 43.42%	Principal activities
		2014 43.42%
			Research and development of medicine products

The investment in the joint venture was directly held by the Target Company.

Summarised financial information in respect of the Target Group’s material joint venture is set out below. The summarised financial information below represents amounts shown in the joint venture’s financial statements prepared in accordance with HKFRSs adjusted by the Target Group for equity accounting purposes. The joint venture is accounted for using the equity method in the consolidated financial statements.

The following table illustrates the summarised financial information in respect of Sunshine Guojian Pharmaceutical (Shanghai) Co., Ltd. and reconciled to the carrying amount in the financial statements:

statements:
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity attributable to owners of the parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proportion of the Target Group’s ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Carrying amount of the investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2014 HK$’000 1,076,480 1,965,331 (108,456) (196,296) 2,737,059 2,561,451 43.42% 1,112,182	2015
		HK$’000 1,145,424 1,924,995 (117,479) (202,465) 2,750,475 2,719,297
		43.42% 1,180,719

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Profit and total comprehensive income for the period/year: Profit attributable to owners of the parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Period from 2 September 2014 (date of incorporation) to 31 December 2014 HK$’000 291,992 23,906 7,789 53,654 (10)	Year ended 31 December 2015
		HK$’000 1,090,454 87,666 37,220 261,885 295

IV-12 -

ACCOUNTANTS’ REPORT OF GAINS PRESTIGE

APPENDIX IV

9. CASH AND CASH EQUIVALENTS

	2014		2015
	HK$’000		HK$’000
Cash and bank balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		4		3

Cash at banks earns interest at floating rates based on daily bank deposit rates. The bank balances are deposited with creditworthy banks with no recent history of default.

10. BALANCE WITH AN INTERMEDIATE HOLDING COMPANY

The balance with an intermediate holding company, which is CITIC Pacific Limited (formerly known as Golden Crest Company Ltd.), is unsecured, interest-free and has no fixed terms of repayment.

11. BALANCE WITH THE IMMEDIATE HOLDING COMPANY

The balance with the immediate holding company, which is CITIC Hong Kong (Holdings) Limited, is unsecured, interest-free and has no fixed terms of repayment.

12. SHARE CAPITAL

Authorised: Ordinary shares of US$1 each . . . . . . . . . . . . . . . . . . . . . . . . . . . Issued and fully paid: Ordinary share of US$1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2014 Number of share(s) Nominal value HK$’000 50,000 390 1 —	2015	2015
	Number of share(s) 50,000 1	Number of share(s) 50,000 1	Nominal value
			HK$’000 390 —

The holder of the ordinary share is entitled to receive dividends as declared from time to time and is entitled to one vote per share at meetings of the Target Company. All ordinary shares rank equally with regard to the Target Company’s residual assets.

13. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Target Group is not exposed to any significant credit risk and interest rate risk in the normal course of the Target Group’s business and information about the foreign currency risk of the Target Group is as follows:

Foreign currency risk

The joint venture of the Target Company has transactions denominated in Renminbi (“RMB”). The Target Group is exposed to foreign exchange risk arising from the exposure of RMB against the Hong Kong dollar.

At present, the Target Group does not intend to seek to hedge its exposure to foreign exchange fluctuations. However, the Target Group will constantly review the economic situation and its foreign exchange risk profile and will consider appropriate hedging measures in the future as may be necessary.

IV-13 -

ACCOUNTANTS’ REPORT OF GAINS PRESTIGE

APPENDIX IV

At 31 December 2015, it is estimated that a general increase/decrease of 0.5% in the exchange rate of RMB against the Hong Kong dollar, with all other variables held constant, would increase/ decrease the Target Group’s profit for the Relevant Periods and increase/decrease retained profits by approximately HK$5,904,000 (the period ended 31 December 2014:HK$5,561,000).

Capital risk management

The Target Group’s objectives for managing capital are to safeguard the Target Group’s ability to continue as a going concern in order to provide returns for shareholder. The Target Group is not subject to externally imposed capital requirements.

14. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Target Group in respect of any period subsequent to 31 December 2015.

Yours faithfully,

Ernst & Young

Certified Public Accountants Hong Kong

IV-14 -

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX V

A. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Introduction

The accompanying unaudited pro forma consolidated statement of assets and liabilities (the “Unaudited Pro Forma Financial Information” ) of 3SBio Inc. (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) , Sunshine Guojian Pharmaceutical (Shanghai) Co., Ltd. (formerly known as Shanghai CP Guojian Pharmaceutical Co. Ltd., the “Target”) and its subsidiaries (hereinafter collectively referred to as the “Target Group”) , Shanghai Lansheng Guojian Pharmaceutical Company Limited (“Lansheng Guojian”) and Gains Prestige Limited (“Gains Prestige”) (the Group, the Target Group, Lansheng Guojian and Gains Prestige are hereinafter collectively referred to as the “Enlarged Group”) has been prepared by the directors of the Company (the “Directors”) in accordance with Rule 4.29 of The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) for the purpose of illustrating the effect of the proposed acquisition of the equity interests of the Target Group, Lansheng Guojian and Gains Prestige (the “Acquisition”) on the Group.

The Unaudited Pro Forma Financial Information assumed that the Acquisition had been completed on 31 December 2015 and has been prepared based on (i) the consolidated financial information of the Group as at 31 December 2015, which was extracted from the published annual results announcement of the Company for the year ended 31 December 2015 as incorporated by reference in Appendix I ; and (ii) the audited consolidated statement of financial position of the Target Group as at 31 December 2015, which was extracted from the accountants’ report as set out in Appendix II; and (iii) the audited statement of financial position of Lansheng Guojian as at 31 December 2015, which was extracted from the accountants’ report as set out in Appendix III; and (iv) the audited consolidated statement of financial position of the Gains Prestige as at 31 December 2015, which was extracted from the accountants’ report as set out in Appendix IV, and adjusted on a pro forma basis to reflect the effect of the Acquisition as explained in the accompanying notes that directly attributable to the Acquisition and not relating to future events or decisions, and are factually supportable.

The accompanying Unaudited Pro Forma Financial Information of the Enlarged Group is prepared by the Directors based on a number of assumptions, estimates, uncertainties and currently available information to provide information of the Enlarged Group upon completion of the Acquisition. As it is prepared for illustrative purpose only and because of its hypothetical nature, it does not purport to describe the actual financial position of the Enlarged Group that would have been attained had the Acquisition been completed on 31 December 2015. Furthermore, accompanying Unaudited Pro Forma Financial Information of the Enlarged Group does not purport to predict the future financial position of the Enlarged Group.

The Unaudited Pro Forma Financial Information of the Enlarged Group should be read in conjunction with the consolidated financial information of the Group as incorporated by reference in Appendix I to this Circular, the accountants’ report of the Target Group as set out in Appendix II to this Circular, the accountants’ report of Lansheng Guojian as set out in Appendix III to this Circular, the accountants’ report of Gains Prestige as set out in Appendix IV to this Circular and other financial information included elsewhere in this Circular.

V-1 -

APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Group as at	31 December	2015	RMB’000			1,688,612	311,008	3,901,785	2,001,102		13,326	131	—	25,173	61,999	44,766	8,047,902		236,958	727,774	181,763	150,312	1,317,965		519,488	31,484	3,165,744	11,213,646
	Pro forma	adjustments	RMB’000	Note 2		25,962 (c)	94,146 (c)	3,340,262 (c)	1,317,159 (c)			(1,907,637) (a)	(505,883) (b)	(1,704,045) (c)									(591,787) (b)(d)(e)
Gains Prestige	as at	31 December 2015*	RMB’000	Note 1		—	—	—	—		—	989,206	—	—	—	—	989,206		—	—	—	—	3		—	—	3	989,209
Lansheng	Guojian as at	31 December 2015	RMB’000	Note 1		72	—	—	—		—	918,431	—	—	—	—	918,503		—	—	153	—	34,769		—	—	34,922	953,425
The Target	Group as at	31 December 2015	RMB’000	Note 1		1,212,324	124,954	640	186,190		—	—	—	—	46,588	42,068	1,612,764		102,567	178,178	34,585	68,727	575,582		—	—	959,639	2,572,403
	The Group as at	31 December 2015	RMB’000	Note 1		450,254	91,908	560,883	497,753		13,326	131	505,883	1,729,218	15,411	2,698	3,867,465		134,391	549,596	147,025	81,585	1,299,398		519,488	31,484	2,762,967	6,630,432
					NON-CURRENT ASSETS	Property, plant and equipment . . . . . . . . . . . . . . .	Prepaid land lease payments . . . . . . . . . . . . . . . .	Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Other intangible assets . . . . . . . . . . . . . . . . . . . . .	Advance payments for property, plant and	equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Investment in a joint venture . . . . . . . . . . . . . . . .	Advanced payments for acquisitions . . . . . . . . . .	Investment in associates . . . . . . . . . . . . . . . . . . . .	Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . .	Other non-current assets . . . . . . . . . . . . . . . . . . . .	Total non-current assets . . . . . . . . . . . . . . . . . . . .	CURRENT ASSETS	Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Trade and notes receivables . . . . . . . . . . . . . . . . .	Prepaid expenses and other receivables . . . . . . . .	Available-for-sale investments . . . . . . . . . . . . . . .	Cash and cash equivalents . . . . . . . . . . . . . . . . . .	Non-pledged time deposits with original maturity	over three months when acquired . . . . . . . . . . .	Pledged deposits . . . . . . . . . . . . . . . . . . . . . . . . . .	Total current assets . . . . . . . . . . . . . . . . . . . . . . . .	TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . .

V-2 -

APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The Enlarged	The Target Lansheng Gains Prestige Group as at	The Group as at Group as at Guojian as at as at Pro forma 31 December	31 December 2015 31 December 2015 31 December 2015 31 December 2015 adjustments 2015*	RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000	Note 1 Note 1 Note 1 Note 1 Note 2	CURRENT LIABILITIES	Trade and bills payable . . . . . . . . . . . . . . . . . . . . . . . 34,444 10,194 — — 44,638	Other payables and accruals . . . . . . . . . . . . . . . . . . . . 309,992 82,320 — 909,206 (909,206) (a) 392,312	Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,959 — — — 12,959	Interest-bearing bank borrowings . . . . . . . . . . . . . . . 405,000 — — — 1,212,340 (d) 1,617,340	Tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,215 5,911 — — 16,126	Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . 772,610 98,425 — 909,206 2,083,375	NON-CURRENT LIABILITIES	Interest-bearing bank borrowings . . . . . . . . . . . . . . . — — — — 2,735,279 (d) 2,735,279	Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122,567 169,626 — — 292,193	Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,000 — 77 — 18,077	Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . 81,790 — — — 215,590 (c) 297,380	Total non-current liabilities . . . . . . . . . . . . . . . . . . . . 222,357 169,626 77 — 3,342,929	TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . 994,967 268,051 77 909,206 5,426,304	NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,635,465 2,304,352 953,348 80,003 5,787,342			* The balances denominated in Hong Kong dollar (“HKD”) included in the consolidated financial statement of assets and liabilities of Gains Prestige have been translated into Renminbi (“RMB”) at	the rate of HKD1.00 = RMB0.8378, being the central parity rate set by the People’s Bank of China as at 31 December 2015 for illustration only.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX V

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES AS AT 31 DECEMBER 2015

Notes:

The balances of the Group as at 31 December 2015 are extracted from the published annual results announcement of the Company for the year ended 31 December 2015 as incorporated by reference in Appendix I to this circular.
The balances of the Target Group, Lansheng Guojian and Gains Prestige as at 31 December 2015 are extracted from the accountants’ report as set out in Appendix II, Appendix III and Appendix IV to this circular, respectively.
The pro forma adjustments reflect the following:

Property, plant and equipment . . . . . . . . . . . . . . . . . . . Prepaid land lease payments . . . . . . . . . . . . . . . . . . . . . Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . Investment in a joint venture . . . . . . . . . . . . . . . . . . . . Investment in an associate . . . . . . . . . . . . . . . . . . . . . . Advance payments for acquisition . . . . . . . . . . . . . . . . Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . Bank borrowings—non-current . . . . . . . . . . . . . . . . . . Bank borrowings—current . . . . . . . . . . . . . . . . . . . . . . Other payables and accruals . . . . . . . . . . . . . . . . . . . . .			Notes		(e) RMB’000 — — — — — — — (80,226) — — — —	Total RMB’000 25,962 94,146 3,340,262 1,317,159 (1,907,637) (1,704,045) (505,883) (591,787) 215,590 2,735,279 1,212,340 (909,206)
	(a) RMB’000 — — — — (1,907,637) — — — — — — (909,206)	(b) RMB’000 — — — — — — (505,883) (4,459,180) — — — —	(c) RMB’000 25,962 94,146 3,340,262 1,317,159 (1,704,045) — — 215,590 — — —	(d) RMB’000 — — — — — — — 3,947,619 — 2,735,279 1,212,340

Notes:

a. The investment in a joint venture represents the equity interests held by Lansheng Guojian and Gains Prestige in the Target Group which is eliminated for the consolidated statement of assets and liabilities of the Enlarged Group.

The other payables and accruals represent the shareholder loan payable by Gains Prestige which will be transferred to the balance due to the Group as part of the Acquisition, which is eliminated for the consolidated statement of assets and liabilities of the Enlarged Group.

The adjustments reflect the eliminations of the intra-group balances and investments for the consolidated statement of assets and liabilities of the Enlarged Group.

b. On 26 January 2016, the Group acquired further equity interests in the Target Group at a total cash consideration of RMB1,033,319,000, out of which RMB340,000,000 was recorded as the advance payments for acquisitions as at 31 December 2015.

On 4 March 2016, the Group acquired further equity interest in the Target Group at a total cash consideration of RMB3,931,744,000, out of which RMB165,883,000 was recorded as the advance payments for acquisitions as at 31 December 2015.

The adjustments reflect the settlement of the cash considerations which amount to RMB4,965,063,000 in aggregate.

c. The adjustments reflect the financial effects of the Acquisition with the adoption of acquisition method in accordance with International Financial Reporting Standard 3 Business Combinations issued by the International Accounting Standards Board.

For the purpose of preparing the Unaudited Pro Forma Financial Information, the Directors have estimated the fair value of the identifiable assets and liabilities owned by the Target Group with reference to the valuation prepared by an independent valuer (the ‘‘Valuation’’). It is assumed that the fair values of the identifiable assets and liabilities of Lansheng Guojian and Gains Prestige approximate to their carrying amounts.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX V

The fair values of the consolidated identifiable assets and liabilities of the Target Group, Lansheng Guojian and Gains Prestige and their corresponding carrying amounts in the books are as follows:

Non-current assets Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepaid land lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current assets Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trade and notes receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepaid expenses and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Available for sales investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current liabilities Trade and bills payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other payables and accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-current liabilities Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Identifiable net assets attributable to the owners of the Target Group, Lansheng Guojian and Gains Prestige . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: identifiable net assets attributable to the retained shareholders of the Target Group, Lansheng Guojian and Gains Prestige . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Identifiable net assets acquired by the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fair value of the 28.8% equity interest held by the Group in the Target Group as at 31 December 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash consideration for the Acquisition (note b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Fair value RMB’000 1,238,358 219,100 — 1,503,349 46,588 42,068 3,049,463 102,567 178,178 34,738 68,727 610,354 994,564 4,044,027 10,194 82,320 5,911 98,425 169,626 77 215,590 385,293 483,718 3,560,309 101,355 3,458,954 130,748 3,328,206 1,704,045 4,965,063 6,669,108 3,340,902	Carrying amount	Carrying amount
			RMB’000 1,212,396 124,954 640 186,190 46,588 42,068 1,612,836 102,567 178,178 34,738 68,727 610,354 994,564 2,607,400 10,194 82,320 5,911 98,425 169,626 77 — 169,703 268,128 2,339,272 101,355 2,237,917

The details of goodwill adjustment are as follows:

Goodwill recorded in the Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: goodwill recognised in connection with the previous acquisitions made by the Target Group . . . . . . . . . . . . . . . .	RMB’000 3,340,902 (640)
	3,340,262

The details of the fair value adjustments are as follows:

Fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fair value adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Property, plant and equipment RMB’000 1,238,358 (1,212,396) 25,962	Prepaid land lease payments RMB’000 219,100 (124,954) 94,146	Other intangible assets RMB’000 1,503,349 (186,190) 1,317,159	Deferred tax liabilities RMB’000 444,121 (228,531) 215,590

V-5 -

APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

With reference to the Valuation, the fair value of property, plant and equipment is RMB1,238,358,000. The fair value is determined by cost approach and market approach.

With reference to the Valuation, the fair value of the prepaid land lease payments, is RMB219,100,000. The fair value is determined by market approach.

With reference to the Valuation, the fair value of the other intangible assets is RMB1,503,349,000 which represents the fair value of the technology, in progress research and development, GMP Licenses and software amounting to RMB1,400,200,000, RMB39,918,000, RMB20,700,000 and RMB42,531,000, respectively. The fair value of the technology is determined by the present value of the profits attributable to them by the adoption of excess earning method. The fair value of GMP licenses is determined by replacement cost method. The fair values of the in progress research and development and software approximate to their carrying amounts.

The adjustment on deferred tax liabilities of approximately RMB215,590,000 is determined based on the differences between the fair values of property, plant and equipment, prepaid land lease payments and other intangible assets of approximately RMB1,238,358,000, RMB219,100,000 and RMB1,503,349,000, respectively, and their carrying amounts of approximately RMB1,212,396,000, RMB124,954,000 and RMB186,190,000, respectively, by applying the Target’s income tax rate of 15%, which is a preferential income tax rate as the Target has been qualified as High and New Technology Enterprises.

The Directors confirm that consistent accounting policies and assumptions have been applied for the purpose of assessing impairment of goodwill and other intangible assets under IAS 36 Impairment of Assets (‘‘IAS 36’’), and consider that no provision for impairment of the Target Group’s goodwill and other intangible assets is required after considering the nature, prospects, financial condition and business risks of the Target Group.

The Directors confirm that they will apply consistent accounting policies, principal assumptions and valuation methods to assess impairment of goodwill and other intangible assets in subsequent reporting periods in accordance with the requirements under IAS 36.

Since the fair values of the net identifiable assets of the Target Group as at the completion date may be substantially different from the fair values used in the preparation of the Unaudited Pro Forma Financial Information, the final amount of the goodwill may be different from the amount presented above.

d. The adjustment represents the part of the consideration of RMB3,947,619,000 for the Acquisition, of which the Group satisfied the settlements by bank borrowings. The Group had entered into bank borrowing agreements and settled the consideration subsequent to 31 December 2015.
e. The adjustment represents the estimated professional fees and other transaction costs of approximately RMB80,226,000 to be incurred in connection with the Acquisition.
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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX V

B. INDEPENDENT REPORTING ACCOUNTANTS’ ASSURANCE REPORT ON THE COMPILATION OF THE UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following is the text of a report, prepared for the sole purpose of inclusion in this Circular, received from the reporting accountants of the Company, Ernst & Young, Certified Public Accountants, Hong Kong, in respect of the unaudited pro forma financial information of the Enlarged Group as set out in Section A of Appendix V to this Circular.

==> picture [31 x 33] intentionally omitted <==

25 April 2016

The Board of Directors 3SBio Inc. Offices of Codan Trust Company (Cayman) Limited Cricket Square, Hutchins Drive, PO Box 2681, Grand Cayman, KY1-1111, Cayman Islands.

Dear Sirs,

We have completed our assurance engagement to report on the compilation of the unaudited pro forma financial information of 3SBio Inc. (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) by the directors of the Company (the “Directors”) for illustrative purposes only. The unaudited pro forma financial information consists of the unaudited pro forma consolidated statement of assets and liabilities as at 31 December 2015 and related notes as set out on pages V-1 to V-6 of the circular dated 25 April 2016 (the “Circular”) issued by the Company (the “Unaudited Pro Forma Financial Information”) in connection with the proposed acquisition (the “Proposed Acquisition”) of the equity interests of Sunshine Guojian Pharmaceutical (Shanghai) Co., Ltd. (formerly known as Shanghai CP Guojian Pharmaceutical Co. Ltd., the “Target”) and its subsidiaries (hereinafter collectively referred to as the “Target Group”), Shanghai Lansheng Guojian Pharmaceutical Company Limited and Gains Prestige Limited by the Group. The applicable criteria on the basis of which the Directors have compiled the Unaudited Pro Forma Financial Information are described in the section headed “Introduction” in section A of Appendix V to the Circular.

The Unaudited Pro Forma Financial Information has been compiled by the Directors to illustrate the impact of the Proposed Acquisition on the Group’s financial position as at 31 December 2015 as if the transaction had taken place on 31 December 2015. As part of this process, information about the Group’s financial position has been extracted from the published annual results announcement of the Company for the year ended 31 December 2015.

Directors’ responsibility for the Unaudited Pro Forma Financial Information

The Directors are responsible for compiling the Unaudited Pro Forma Financial Information in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline 7 Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars (“AG 7”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX V

Our independence and quality control

We have complied with the independence and other ethical requirements of the Code of Ethics for Professional Accountants issued by the HKICPA, which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behavior.

Our firm applies Hong Kong Standard on Quality Control 1 Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements , and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.

Reporting Accountants’ responsibilities

Our responsibility is to express an opinion, as required by paragraph 4.29(7) of the Listing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

We conducted our engagement in accordance with Hong Kong Standard on Assurance Engagements 3420 Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus issued by the HKICPA. This standard requires that the reporting accountant plan and perform procedures to obtain reasonable assurance about whether the Directors have compiled the Unaudited Pro Forma Financial Information in accordance with paragraph 4.29 of the Listing Rules and with reference to AG 7 issued by the HKICPA.

For purposes of this engagement, we are not responsible for updating or reissuing any reports or opinions on any historical financial information used in compiling the Unaudited Pro Forma Financial Information, nor have we, in the course of this engagement, performed an audit or review of the financial information used in compiling the Unaudited Pro Forma Financial Information.

The purpose of the Unaudited Pro Forma Financial Information included in the Circular is solely to illustrate the impact of the Proposed Acquisition on unadjusted financial information of the Group as if the Proposed Acquisition had been undertaken at an earlier date selected for purposes of the illustration. Accordingly, we do not provide any assurance that the actual outcome of the transaction would have been as presented.

A reasonable assurance engagement to report on whether the Unaudited Pro Forma Financial Information has been properly compiled on the basis of the applicable criteria involves performing procedures to assess whether the applicable criteria used by the Directors in the compilation of the Unaudited Pro Forma Financial Information provide a reasonable basis for presenting the significant effects directly attributable to the Proposed Acquisition, and to obtain sufficient appropriate evidence about whether:

Š the related pro forma adjustments give appropriate effect to those criteria; and
Š the Unaudited Pro Forma Financial Information reflects the proper application of those adjustments to the unadjusted financial information.
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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX V

The procedures selected depend on the reporting accountants’ judgment, having regard to the reporting accountants’ understanding of the nature of the Group, the Proposed Acquisition in respect of which the Unaudited Pro Forma Financial Information has been compiled, and other relevant engagement circumstances.

The engagement also involves evaluating the overall presentation of the Unaudited Pro Forma Financial Information.

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

Opinion

In our opinion:

(a) the Unaudited Pro Forma Financial Information has been properly compiled on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and
(c) the adjustments are appropriate for the purpose of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Yours faithfully,

Ernst & Young Certified Public Accountants Hong Kong

V-9 -

GENERAL INFORMATION

APPENDIX VI

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief, the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. DISCLOSURE OF INTEREST

Interests of the Directors and chief executives in the Company and its associated corporations

As at the Latest Practicable Date, save as disclosed below, the interests and short positions, if any, of each Director and chief executives of the Company in any Shares, underlying shares and debentures of the Company and any associated corporations (within the meaning of Part XV of the SFO) which were required to be (i) notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under provisions of the SFO); (ii) entered in the register kept by the Company pursuant to section 352 of the SFO; or (iii) notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers contained in the Listing Rules, were as follows:

Name of Director Dr. Lou(Note 1) . . . . . . . . . . . . . . . . . . . . . . . . Mr. Tan(Note 2) . . . . . . . . . . . . . . . . . . . . . . . Ms. Su(Note 3) . . . . . . . . . . . . . . . . . . . . . . . . Mr. Huang(Note 4) . . . . . . . . . . . . . . . . . . . . .	Nature of interest Interest in a controlled corporation Interest in a controlled corporation Interest in a controlled corporation Interest in a controlled corporation	Number of Shares Interest as to % of the issued share capital of the Company 599,367,030(L) 23.83% 115,549,920(L) 4.59% 26,403,630(L) 1.05% 33,919,350(L) 1.35%	Interest as to % of the issued share capital of the Company

Notes:

(L) denotes long position

(1) Century Sunshine is owned as to 64.35% by Dr. Lou and 35.65% by Lambda International. As such, Dr. Lou is deemed to be interested in the Shares held by Decade Sunshine, which is wholly-owned by Century Sunshine, for the purposes of the SFO.

(2) Triple Talent Enterprises Limited is wholly-owned by Mr. Tan. As such, Mr. Tan is deemed to be interested in the Shares held by Triple Talent Enterprises Limited.

(3) Joint Palace Group Limited is wholly-owned by Ms. Su. As such, Ms. Su is deemed to be interested in the Shares held by Joint Palace Group Limited.

(4) Known Virtue International Limited is wholly-owned by Mr. Huang. As such, Mr. Huang is deemed to be interested in the Shares held by Known Virtue International Limited.

Interests of the substantial shareholders

As at the Latest Practicable Date, according to the register kept by the Company pursuant to Section 336 of the SFO and, so far as is known to the Directors or chief executives of the Company, the following shareholders (other than a Director or chief executives of the Company) had interests or short positions in the Shares or underlying shares of the Company which would fall to be disclosed to

VI-1 -

GENERAL INFORMATION

APPENDIX VI

the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, who was, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group:

Name of Shareholder Decade Sunshine . . . . . . . . . . . . . . . . . . Century Sunshine(Note 1) . . . . . . . . . . . . . Lambda International(Note 2) . . . . . . . . . . Mr. Lou(Note 3) . . . . . . . . . . . . . . . . . . . . TMF (Cayman) Limited (Note 4) . . . . . . . CS Sunshine . . . . . . . . . . . . . . . . . . . . . CPE China Fund, L.P.(Note 5) . . . . . . . . . CITIC PE Associates, L.P.(Note 6) . . . . . . CITIC PE Funds Limited(Note 7) . . . . . . .	Nature of interest Beneficial owner Interest in a controlled corporation Interest in a controlled corporation Interest in controlled corporations Trustee Beneficial owner Interest in a controlled corporation Interest in a controlled corporation Interest in a controlled corporation	Number of Shares 599,367,030(L) 599,367,030(L) 599,367,030(L) 605,567,040(L) 656,510,160(L) 712,258,360(L) 712,258,360(L) 712,258,360(L) 712,258,360(L)	Interest as to % of the issued share capital of the Company
			23.83% 23.83% 23.83% 24.08% 26.10% 28.32% 28.32% 28.32% 28.32%

Notes:

(L) denotes long position
(1) Century Sunshine holds the entire equity interest in Decade Sunshine, through which it holds its shareholding in the Company.
(2) Century Sunshine is owned as to 64.35% by Dr. Lou and 35.65% by Lambda International. As such, Lambda International is deemed to be interested in the Shares held by Decade Sunshine, which is wholly-owned by Century Sunshine, for the purposes of the SFO.
(3) Mr. Lou holds the entire equity interest in Hero Grand Management Limited and controls Lambda International. Mr. Lou is therefore deemed to be interested in both the Shares held by Decade Sunshine and Hero Grand Management Limited for the purposes of the SFO.
(4) TMF (Cayman) Limited is the trustee of both Lambda International and Medical Recovery Limited. TMF (Cayman) Limited is therefore deemed to be interested in both the Shares held by Decade Sunshine and Medical Recovery Limited for the purposes of the SFO.
(5) CS Sunshine is wholly-owned by CPE China Fund, L.P. As such, CPE China Fund, L.P. is deemed to be interested in the Shares held by CS Sunshine.
(6) CS Sunshine is wholly-owned by CPE China Fund, L.P. The general partner of CPE China Fund, L.P.is CITIC PE Associates, L.P. As such, CITIC PE Associates L.P. is deemed to be interested in the Shares held by CS Sunshine.
(7) CS Sunshine is wholly-owned by CPE China Fund, L.P. The general partner of CPE China Fund, L.P. is CITIC PE Associates, L.P. The general partner of CITIC PE Associates, L.P. is CITIC PE Funds Limited. As such, CITIC PE Funds Limited is deemed to be interested in the Shares held by CS Sunshine.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executives of the Company was aware of any other person, other than a Director or the chief executives of the Company, who had interests or short positions in the Shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who was, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group, or which was recorded in the register required to be kept by the Company pursuant to section 336 of the SFO.

VI-2 -

GENERAL INFORMATION

APPENDIX VI

3. SHARE CAPITAL

Set out below are the authorized and issued share capital of the Company:

as at the Latest Practicable Date:

Authorized 50,000,000,000 Shares Issued and fully paid 2,515,313,570 Shares	US$
	500,000 25,153.1357

immediately after allotment and issuance of the Shares pursuant to an exercise of the CP Guojian Warrant in full and the Option Shares pursuant to an exercise of the Options in full:

Authorized 50,000,000,000 Shares Issued and fully paid 2,515,313,570 Shares in issue as at the Latest Practicable Date 112,882,033 Shares to be allotted and issued upon exercise of the CP Guojian Warrant in full 125,765,500 Shares to be allotted and issued upon exercise of the Options in full 2,753,961,103 Shares		US$
		500,000 25,153.1357 1,128.82033 1,257.655 27,539.61103

All the issued Shares rank pari passu with each other in all respects including the rights in respect of capital, dividends and voting.

For the details regarding the vesting and exercise conditions of the CP Guojian Warrant, please refer to the section headed “History, Reorganization and Corporate Structure — CP Guojian Warrant” in the Prospectus. As at the Latest Practicable Date, no new Shares had been issued pursuant to an exercise of the CP Guojian Warrant.

As at the Latest Practicable Date, other than the CP Guojian Warrant and the Options (subject to their vesting and/or exercise conditions), the Company did not have any outstanding warrants, options or securities convertible into Shares.

4. DIRECTORS’ MATERIAL INTERESTS

(a) As at the Latest Practicable Date, save for the interests disclosed in the Company’s announcement dated March 29, 2016, none of the Directors had any interest, either directly or indirectly, in any assets which have, since December 31, 2015 (being the date to which the latest published audited accounts of the Group were made up), been acquired or disposed of by or leased to any member of the Enlarged Group, or were proposed to be acquired or disposed of by, or leased to, any member of the Enlarged Group.
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GENERAL INFORMATION

APPENDIX VI

(b) None of the Directors was materially interested in any contract or arrangement subsisting at the Latest Practicable Date and which is significant in relation to the business of the Enlarged Group.
(c) As at the Latest Practicable Date, none of the Directors had any existing or proposed service contract with any member of the Enlarged Group which will not expire or is not determinable by the employer within a year without payment of compensation (other than statutory compensation).
(d) As at the Latest Practicable Date, so far as aware of the Directors and their associates, none of the Directors and their respective associates had any interests in business which competes, or are likely to compete, either directly or indirectly, with the businesses of the Enlarged Group.

5. LITIGATION

As at the Latest Practicable Date, so far as was known to the Directors, none of the members of the Enlarged Group was engaged in any litigation, arbitration or administration proceedings of material importance and there was no litigation, arbitration or administration proceedings or claim of material importance was known to the Directors to be pending or threatened against any member of the Enlarged Group.

6. MATERIAL CONTRACTS

The members of the Enlarged Group had, after the date of two years immediately preceding the date of this circular, entered into the following contracts which were or might be material, other than contracts in the ordinary course of business of the Enlarged Group:

(1) an equity transfer agreement dated October 27, 2014 between Ms. Su and Liaoning Sunshine pursuant to which Ms. Su agreed to assign to Liaoning Sunshine a 10% equity interest in Liaoning Sunshine Science Technology Development Company Limited ( );
(2) an equity transfer agreement dated October 28, 2014 between Collected Mind and Hongkong Sansheng pursuant to which Hongkong Sansheng agreed to acquire the entire equity interest in Shenyang Sunshine from Collected Mind;
(3) an equity transfer agreement dated November 12, 2014 among Shenyang Sunshine, Liaoning Sunshine and Beijing Huansheng Medical Investment Company Limited ( ) (“ Beijing Huansheng ”) pursuant to which Shenyang Sunshine and Liaoning Sunshine agreed to sell and Beijing Huansheng agreed to purchase the entire equity interest in Jiangsu Sunshine Pharmaceutical Technology Company Limited ( );
(4) an equity purchase agreement dated November 28, 2014 among the Company, Shenyang Sunshine and Suzhou Industrial Park Unicorn Venture Capital Co., Ltd. ( ) pursuant to which Suzhou Industrial Park Unicorn Venture Capital Co., Ltd. agreed to sell to Shenyang Sunshine an approximately 1.89% equity interest in the Target;
VI-4 -

GENERAL INFORMATION

APPENDIX VI

(5) an equity purchase agreement dated November 28, 2014 among the Company, Shenyang Sunshine and Beijing Meijin Investment Co. Ltd. ( ) pursuant to which Beijing Meijin Investment Co. Ltd. agreed to sell to Shenyang Sunshine an approximately 0.87% equity interest in the Target;
(6) a termination agreement dated November 28, 2014 among Mr. Lou, the Company, Shenyang Sunshine and Liaoning Sunshine pursuant to which certain contractual arrangements were terminated;
(7) a termination agreement dated November 28, 2014 among Liaoning Sunshine, Liaoning Sunshine Science Technology Development Company Limited and Ms. Su pursuant to which the nominee arrangement between Liaoning Sunshine and Ms. Su regarding the 10% equity interest in Liaoning Sunshine Science Technology Development Company Limited was terminated;
(8) a partnership interest transfer agreement dated December 15, 2014 between Shenyang Sunshine and Ms. Kuai Yuqin ( ) pursuant to which Ms. Kuai Yuqin agreed to sell a 23.5% partnership interest in Shanghai Pudong Tianyu to Shenyang Sunshine;
(9) a partnership interest transfer agreement dated December 15, 2014 between Liaoning Sunshine and Mr. Qu Rongliang ( ) pursuant to which Mr. Qu Rongliang agreed to sell a 76.5% partnership interest in Shanghai Pudong Tianyu to Liaoning Sunshine;
(10) a sale and purchase agreement dated December 26, 2014 among Shenyang Sunshine, Excel Partner Holdings Limited ( ) and First Meditech Limited as amended by a supplemental sale and purchase agreement dated February 4, 2015, pursuant to which First Meditech Limited agreed to sell to Shenyang Sunshine the entire share capital in Excel Partner Holdings Limited;
(11) a sale and purchase agreement dated December 26, 2014 among Century Sunshine, Hongkong Sansheng, Ample Harvest Investments Limited ( ) and Market Age Investments Limited as amended by a supplemental sale and purchase agreement dated December 31, 2014, pursuant to which Market Age Investments Limited agreed to sell to Hongkong Sansheng the entire issued share capital in Ample Harvest Investments Limited;
(12) an equity transfer agreement dated December 26, 2014 among Shenyang Sunshine, Ms. Zheng Huiyin ( ) and Mr. Sheng Weiwei ( ) as amended by a supplemental equity transfer agreement dated December 31, 2014, pursuant to which Ms. Zheng Huiyin and Mr. Sheng Weiwei agreed to sell to Shenyang Sunshine the entire equity interest in Shenzhen Baishitong Technology Development Company Limited ( );
(13) a share exchange agreement dated December 31, 2014 among Century Sunshine, the Company and CICC Harvest Limited pursuant to which the Company agreed to acquire the entire issued share capital in Grand Path from CICC Harvest Limited through a share exchange arrangement between Century Sunshine and CICC Harvest Limited;
(14) a strategic framework agreement dated December 31, 2014 between Shenyang Sunshine and the Target setting out the terms of cooperation for the research and development, manufacturing and marketing of mAb therapeutics;
(15) the CP Guojian Warrant;
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GENERAL INFORMATION

APPENDIX VI

(16) a lock-up agreement dated January 1, 2015 between the Company and Shanghai Junling Investment Partnership (Limited Partnership);
(17) the pre-IPO reorganization agreement dated February 4, 2015 among the Company, Decade Sunshine, Century Sunshine, CS Sunshine, Decheng Capital China Life Sciences USD Fund I, L.P. and the other then shareholders of Century Sunshine;
(18) a deed of indemnity dated March 13, 2015 executed by Dr. Lou in favor of the Company;
(19) a cornerstone investment agreement dated May 25, 2015 entered into among the Company, APAC Alpha Advantage Custom Strategy, Emerging Markets Alpha Advantage Fund — Strategic Ltd, Asia Alpha Advantage Fund Ltd, Pan Asia Opportunities Master Fund Ltd, Emerging Markets Alpha Advantage Fund — Strategic Screened Ltd, Emerging Markets Alpha Advantage Fund Ltd., Emerging Markets Alpha Master Fund Ltd., DC Pacific Growth Fund, BlackRock Global Funds — Asian Dragon Fund, BlackRock Global Funds — Asian Growth Leaders Fund, BlackRock Asia Fund, BlackRock Asia Special Situations Fund, BlackRock Global Funds — China Fund, BlackRock Institutional Equity Funds — Pacific, BlackRock Global Funds — Pacific Equity Fund (the “ BlackRock Funds ”) and the Joint Sponsors and Joint Global Coordinators, pursuant to which the BlackRock Funds agreed to subscribe for the Shares in the aggregate amount of US$40 million;
(20) a cornerstone investment agreement dated May 25, 2015 entered into among the Company, China Life Franklin Asset Management Co., Limited and the Joint Sponsors and Joint Global Coordinators, pursuant to which China Life Franklin Asset Management Co., Limited agreed to subscribe for the Shares in the amount of US$20 million;
(21) a cornerstone investment agreement dated May 25, 2015 entered into among the Company, GIC Private Limited and the Joint Sponsors and Joint Global Coordinators, pursuant to which GIC Private Limited agreed to subscribe for the Shares in the amount of US$30 million;
(22) a cornerstone investment agreement dated May 25, 2015 entered into among the Company, ICBC Credit Suisse Asset Management (International) Company Limited and the Joint Sponsors and Joint Global Coordinators, pursuant to which ICBC Credit Suisse Asset Management (International) Company Limited agreed to subscribe for the Shares in the amount of US$0.1 million;
(23) a cornerstone investment agreement dated May 25, 2015 entered into among the Company, ICBC Credit Suisse Asset Management (International) Company Limited, acting as the investment manager of the National Council For Social Security Fund, and the Joint Sponsors and Joint Global Coordinators, pursuant to which National Council For Social Security Fund agreed to subscribe for the Shares in the amount of US$9.9 million;
(24) a cornerstone investment agreement dated May 25, 2015 entered into among the Company, Lilly Asia Ventures Fund III, L.P., LAV Biosciences Fund III, L.P. and the Joint Sponsors and Joint Global Coordinators, pursuant to which Lilly Asia Ventures Fund III, L.P. and LAV Biosciences Fund III, L.P. agreed to subscribe for the Shares in an aggregate amount of US$30 million;
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GENERAL INFORMATION

APPENDIX VI

(25) a cornerstone investment agreement dated May 25, 2015 entered into among the Company, New China Asset Management (Hong Kong) Limited and the Joint Sponsors and Joint Global Coordinators, pursuant to which New China Asset Management (Hong Kong) Limited agreed to subscribe for the Shares in the amount of US$20 million;
(26) the underwriting agreement dated May 29, 2015, relating to the Global Offering and described in the section headed “Underwriting” in the Prospectus;
(27) the international underwriting agreement dated June 4, 2015, entered into, among others, the Company, Morgan Stanley Asia Limited, Goldman Sachs (Asia) L.L.C., CLSA Limited and China International Capital Corporation Hong Kong Securities Limited, and relating to the international placing of the Shares;
(28) the Price Determination Agreement;
(29) an equity transfer agreement dated July 24, 2015 among Shenyang Sunshine, CITIC Mezzanine (Shanghai) Investment Centre (LP) ( ) and Shanghai Rongyu Investment Management Centre (LP) ( ) pursuant to which CITIC Mezzanine (Shanghai) Investment Centre (LP) and Shanghai Rongyu Investment Management Centre (LP) agreed to sell and Shenyang Sunshine agreed to purchase the entire equity interest in Zhejiang Wansheng Pharmaceutical Co., Ltd. ( );
(30) Agreement I;
(31) Agreement II;
(32) Agreement III;
(33) Agreement IV;
(34) Agreement V;
(35) Agreement VI;
(36) Agreement VII;
(37) Option Deed;
(38) Assignment Agreement;
(39) Agreement VIII; and
(40) the convertible loan agreement dated March 29, 2016 between Shenyang Sunshine and Zhejiang Sunshine Pharmaceutical Company Limited pursuant to which Shenyang Sunshine agreed to make available to Zhejiang Sunshine Pharmaceutical Company. Limited a convertible loan in the principal amount of RMB75,000,000.

7. GENERAL

(a) The joint company secretaries of the Company are Ms. Li Huihui and Ms. Lai Siu Kuen, the latter of whom is a fellow member of the Hong Kong Institute of Chartered Secretaries and The Institute of Chartered Secretaries and Administrators in the United Kingdom.
VI-7 -

GENERAL INFORMATION

APPENDIX VI

(b) The registered office of the Company is at the offices of Codan Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman, KY1-1111, Cayman Islands.
(c) The Company’s principal place of business in Hong Kong is at 36/F, Tower Two, Times Square, 1 Matheson Street, Causeway Bay, Hong Kong.
(d) The branch share registrar of the Company is Computershare Hong Kong Investor Services Limited, Shops 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong.
(e) The English language text of this circular shall prevail over the Chinese language in case of inconsistency.

8. NO MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Company since December 31, 2015, being the date to which the latest published audited consolidated financial statements of the Company have been made up, up to the Latest Practicable Date.

9. DOCUMENTS AVAILABLE FOR INSPECTION

A copy of each of the following documents will be available for inspection at the office of Skadden, Arps, Slate, Meagher & Flom at 42/F, Edinburgh Tower, The Landmark 15 Queen’s Road Central, Hong Kong during normal business hours from 9:00 a.m. to 5:00 p.m. for a period of 14 days from the date of this circular:

(a) the memorandum and articles of association of the Company;
(b) the letter from the Independent Board Committee to the Shareholders on Acquisition VII, the text of which is set out in this circular;
(c) the letter from Alliance Capital to the Independent Board Committee and the Shareholders on Acquisition VII, the text of which is set out in this circular;
(d) the accountants’ reports of the Company for the each of the two financial years ended December 31, 2013 and 2014;
(e) the accountants’ report issued by Ernst & Young on the financial information of the Target Group as set out in Appendix II to this circular;
(f) the accountants’ report issued by Ernst & Young on the financial information of Lansheng Guojian as set out in Appendix III to this circular;
(g) the accountants’ report issued by Ernst & Young on the financial information of Gains Prestige as set out in Appendix IV to this circular;
(h) the report issued by Ernst & Young on the unaudited pro forma financial information of the Enlarged Group as set out in Appendix V to this circular;
(i) the written consents referred to in the section headed “Experts” in this Appendix;
(j) the material contracts referred to in the section headed “Material Contracts” in this Appendix; and
(k) this circular.
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GENERAL INFORMATION

APPENDIX VI

10. EXPERTS

The qualification of the expert who has given its opinion or advice which is contained in this circular is set out below:

Name Qualification Alliance Capital a corporation licensed to carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the SFO Ernst & Young Certified Public Accountants

As at the Latest Practicable Date, neither Alliance Capital nor Ernst & Young (i) had any shareholding in any member of the Group and did not have any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Group; (ii) had any direct or indirect interest in any assets which had been, since December 31, 2015 (being the date to which the latest published audited accounts of the Group were made up), acquired, disposed of by, or leased to any member of the Group, or were proposed to be acquired, disposed of by, or leased to any member of the Group; and (iii) has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and the reference to its name included herein in the form and context in which it appears.

The letters given by Alliance Capital and Ernst & Young are given as of the date of this circular for incorporation herein.

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AI assistant

3SBio Inc. — Proxy Solicitation & Information Statement 2016

49981_rns_2016-04-25_fb286334-09e0-46cf-9383-b9d4bc04182b.pdf

3SBIO INC.

MAJOR AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF FURTHER EQUITY INTERESTS IN SUNSHINE GUOJIAN PHARMACEUTICAL (SHANGHAI) CO., LTD. (FORMERLY KNOWN AS SHANGHAI CP GUOJIAN PHARMACEUTICAL CO., LTD.) AND PROPOSED GRANT OF OPTIONS

Independent Financial Adviser to the Independent Board Committee and the Shareholders

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

3SBIO INC.

(Stock Code: 1530)

MAJOR AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF FURTHER EQUITY INTERESTS IN SUNSHINE GUOJIAN PHARMACEUTICAL (SHANGHAI) CO., LTD. (FORMERLY KNOWN AS SHANGHAI CP GUOJIAN PHARMACEUTICAL CO., LTD.) AND PROPOSED GRANT OF OPTIONS

INTRODUCTION

LETTER FROM THE BOARD

LETTER FROM THE BOARD

THE TRANSACTIONS

Agreement I

Agreement II

Agreement III

LETTER FROM THE BOARD

Agreement IV

Agreement V

Agreement VI

Agreement VII

LETTER FROM THE BOARD

Consideration:

Assignment Agreement

Option Deed

LETTER FROM THE BOARD

Exercise conditions:

LETTER FROM THE BOARD

Agreement VIII

LETTER FROM THE BOARD

INFORMATION OF THE TARGET GROUP, SHANGHAI HONGSHANG, LANSHENG GUOJIAN, GAINS PRESTIGE AND FULL GAIN

Information of the Target Group

Information of Shanghai Hongshang and Lansheng Guojian

LETTER FROM THE BOARD

Information of Gains Prestige and Full Gain

LETTER FROM THE BOARD

LETTER FROM THE BOARD

MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP

Liquidity, financial position and capital structure

Treasury policies

Revenue

Costs of sales

Gross profit

Other income and gains

Selling and distribution expenses

Administrative expenses

LETTER FROM THE BOARD

Other expenses and losses

Net profit

Employment and remuneration policies

Significant investments held and future plans for material investments

Capital commitment and contingent liabilities

Foreign exchange exposure

Acquisitions and disposals

Charges on assets

Outlook

MANAGEMENT DISCUSSION AND ANALYSIS ON LANSHENG GUOJIAN

Liquidity, financial position and capital structure

LETTER FROM THE BOARD

Other income and gains

Administrative expenses

Net profit

Employment and remuneration policies

Significant investments held and future plans for material investments

Capital commitment and contingent liabilities

Foreign exchange exposure

Acquisitions and disposals

Charges on assets

MANAGEMENT DISCUSSION AND ANALYSIS ON GAINS PRESTIGE

Liquidity, financial position and capital structure

LETTER FROM THE BOARD

Investment gains

3SBio Inc. Proxy Solicitation & Information Statement 2016