Sinco Pharmaceuticals Holdings Limited - Proxy Solicitation & Information Statement 2018

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your securities in Sino Biopharmaceutical Limited (the “ Company ”), you should at once hand this circular to the purchaser or the transferee or to the bank, stockbrokers, licensed securities dealer, registered institution in securities or other agent through whom the sales or transfer was effected for transmission to the purchaser or the 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 representation 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 is for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for securities of the Company.

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(Incorporated in the Cayman Islands with limited liability)

Website: www.sinobiopharm.com (Stock code: 1177)

(1) MAJOR AND CONNECTED TRANSACTION; (2) ISSUE OF CONSIDERATION SHARES UNDER SPECIFIC MANDATE; AND

(3) APPLICATION FOR WHITEWASH WAIVER

Financial adviser to the Company in respect of the Acquisition

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

Capitalised terms used on this cover shall have the same meanings as those defined in this circular, unless the context requires otherwise. A letter from the Board is set out on pages 6 to 29 of this circular. A letter from the Independent Board Committee is set out on pages 30 to 31 of this circular. A letter from the Independent Financial Adviser containing its advice and recommendation to the Independent Board Committee and the Independent Shareholders is set out on pages 32 to 78 of this circular.

A notice convening the extraordinary general meeting of the Company to be held at 10:00 a.m. on Monday, 12 February 2018 at The Dynasty Club, Dynasty I, 7/F South West Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong is set out from pages EGM-1 to EGM-3 of this circular. Whether or not you are able to attend the meeting in person, you are requested to complete and return the accompanying form of proxy to the Company’s branch share registrar in Hong Kong, Tricor Tengis Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding of the meeting. Completion and return of the form of proxy will not preclude you from attending and voting at the extraordinary general meeting of the Company should you so wish.

26 January 2018

			Page
Expected Timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			1
Definitions . . .	.	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2
Letter From the		Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Letter From the		Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . .	30
Letter From Guotai Junan Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			32
Appendix I	–	Financial Information of the Group . . . . . . . . . . . . . . . . . . . .	I-1
Appendix IIA	–	Financial Information of Sino Biopharm Beijing . . . . . . . . . .	IIA-1
Appendix IIB	–	Financial Information of Super Demand . . . . . . . . . . . . . . . . .	IIB-1
Appendix IIC	–	Financial Information of Beijing Tide . . . . . . . . . . . . . . . . . . .	IIC-1
Appendix III	–	Management discussion and analysis on
		Sino Biopharm Beijing, Super Demand and Beijing Tide . .	III-1
Appendix IV	–	Unaudited Pro Forma Financial Information of
		the Enlarged Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	IV-1
Appendix V	–	Third Quarter Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	V-1
Appendix VI	–	Letter from Ernst & Young on the Third Quarter Results . . .	VI-1
Appendix VII	–	Letter from CCBI on the Third Quarter Results . . . . . . . . . .	VII-1
Appendix VIII	–	General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	VIII-1
Notice of EGM		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	EGM-1

– i –

EXPECTED TIMETABLE

The expected timetable of the Acquisition and the EGM is set out below:

	2018
Despatch of circular and notice of EGM . . . . . . . . . . . . . . . . . . . . . . . .	Friday, 26 January
Record date for determining the entitlement of the shareholders
of the Company to attend and vote at the EGM . . . . . . . . . . . . . . .	Tuesday, 6 February
Latest time for lodging transfer of shares to qualify
for attendance and voting at the EGM . . . . . . . . . . . . 4:30 p.m. on	Tuesday, 6 February
Date of EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 12 February
Announcement of poll results of the EGM . . . . . . . . . . . . . . . . . . . . . Monday, 12 February

– 1 –

DEFINITIONS

In this circular, unless the context otherwise requires, the following terms shall have the meanings set out below:

“Acquisition” the First Acquisition and the Second Acquisition;

“acting in concert” has the meaning ascribed to it under the Takeovers Code;

“Announcement” the announcement of the Company dated 5 January 2018;
“associate” has the meaning ascribed to it under the Listing Rules;
“Beijing Tide” Beijing Tide Pharmaceutical Co. Ltd.（北京泰德製藥股份有限公司）, a company established under the laws of the PRC;
“Board” the board of directors of the Company;
“CCBI” CCB International Capital Limited;

“Company” Sino Biopharmaceutical Limited, a company incorporated in the Cayman Islands with limited liability, the shares of which are listed on the Main Board of the Stock Exchange (Stock Code: 1177);

“Completion” completion of the First Acquisition and the Second Acquisition;
“Concert Group” the Whitewash Applicant, Ms. Cheng Cheung Ling, the Vendor and parties acting in concert with any of them;
“connected person” has the meaning ascribed to it under the Listing Rules;
“Consideration Shares” the First Consideration Shares and the Second Consideration Shares;
“Director(s)” the director(s) of the Company;
“EGM”

the extraordinary general meeting of the Company to be convened to approve the Acquisition and the transactions contemplated thereunder;

“Enlarged Group” the Group immediately upon completion of the Acquisition;

– 2 –

DEFINITIONS

“Executive” the Executive Director of the Corporate Finance Division of the SFC from time to time or any delegate of such Executive Director;
“First Acquisition” the acquisition of the First Sale Shares;
“First Agreement”
the agreement dated 5 January 2018 between the Company, the Vendor and Miss Tse in relation to the purchase of the First Sale Shares by the Company;
“First Consideration Shares” 723,283,511 Shares to be issued by the Company to satisfy the consideration for the First Acquisition;
“First Sale Shares” 51% of the issued share capital in Sino Biopharm Beijing;
“France Investment BVI” France Investment (China I) Group Limited, a company incorporated under the laws of the British Virgin Islands;
“Group” the Company and its subsidiaries;
“HK$” Hong Kong dollar, the lawful currency of Hong Kong;
“Hong Kong”
the Hong Kong Special Administrative Region of the People’s Republic of China;
“Independent Board Committee” the independent board committee of the Board, comprising all the independent non-executive Directors, established pursuant to the Listing Rules and the Takeovers Code to give recommendation to the Independent Shareholders in respect of the Acquisition and the Whitewash Waiver;
“Independent Financial Adviser”
“Independent Shareholders”
Guotai Junan Capital Limited, a corporation licensed to carry out Type 6 (advising on corporate finance) regulated activity under the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong), being the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Acquisition and the Whitewash Waiver; Shareholders other than (a) the Concert Group (to the extent any of the members owns any Shares as at the date of the EGM); and (b) those who are involved in or interested in the Acquisition and/or the Whitewash Waiver;

– 3 –

DEFINITIONS

“Independent Third Parties” an individual(s) or a company(ies) who or which is/are not connected (within the meaning of the Listing Rules) with Directors, chief executive or substantial shareholders (within the meaning of the Listing Rules) of the Company, its subsidiaries or any of their respective associates;

“Issue Price” HK$12.73;
“Last Trading Day” 4 January 2018, the last full trading day of the Shares prior to the date of the First Agreement and the Second Agreement;
“Latest Practicable Date” 23 January 2018, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained herein;
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange;
“Miss Tse” Miss Tse, Theresa Y Y, the chairlady of the Board and an executive Director;
“PRC” the People’s Republic of China, which for the purpose of this circular shall exclude Hong Kong, Macau and Taiwan;
“Relevant Period” the period beginning 6 months immediately prior to the date of the Announcement and ending on the Latest Practicable Date;
“RMB” Renminbi, the lawful currency of the PRC;
“Second Acquisition” the acquisition of the Second Sale Shares;

“Second Agreement” the agreement dated 5 January 2018 between the Company, the Vendor and Miss Tse in relation to the purchase of the Second Sale Shares by the Company;

“Second Consideration Shares” 289,718,605 Shares to be issued by the Company to satisfy the consideration for the Second Acquisition;
“Second Sale Shares” 52% of the issued share capital in Super Demand;
“SFC” the Securities and Futures Commission of Hong Kong;
“Shares”

shares of nominal value of HK$0.025 each in the share capital of the Company;

– 4 –

DEFINITIONS

“Shareholders”

shareholders of the Company;

“Sino Biopharm Beijing” Sino Biopharmaceutical (Beijing) Limited, a company incorporated under the laws of Hong Kong;

“Specific Mandate” the specific mandate proposed to be obtained from the Independent Shareholders at the EGM to allot and issue the Consideration Shares at the Issue Price;
“Stock Exchange” The Stock Exchange of Hong Kong Limited;
“substantial shareholder”
has the meaning ascribed to it under the Listing Rules;
“Super Demand” Super Demand Investments Limited, a company incorporated under the laws of the British Virgin Islands;
“Takeovers Code” the Hong Kong Code on Takeovers and Mergers;
“Third Quarter Results” the unaudited consolidated financial information of the Company for the nine months ended 30 September 2017
“Third Quarter Results the announcement dated 9 November 2017 issued by Announcement” the Company in relation to the Third Quarter Results, an extract of which is set out in Appendix V of this Circular
“US$” United States dollar, the lawful currency of the United States;
“Vendor”
France Investment (China 1) Group Limited （法國投資（中國1）集團有限公司）, a company incorporated under the laws of Hong Kong;
“Whitewash Applicant” Mr. Tse Ping; and
“Whitewash Waiver”

the whitewash waiver from the Executive pursuant to Note 1 on dispensations from Rule 26 of the Takeovers Code in respect of any obligation of the Concert Group to make a mandatory general offer for all of the Shares not already owned (or agreed to be acquired) by the Concert Group which would, if the Acquisition proceeds, otherwise be triggered as a result of the issue of the Consideration Shares.

– 5 –

LETTER FROM THE BOARD

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(Incorporated in the Cayman Islands with limited liability) Website: www.sinobiopharm.com

(Stock code: 1177)

Executive Directors: Miss Tse, Theresa Y Y (Chairlady) Mr. Tse Ping (Chief Executive Officer) Ms. Cheng Cheung Ling (Vice Chairlady) Mr. Tse Hsin Mr. Wang Shanchun Mr. Tian Zhoushan Ms. Li Mingqin

Independent Non-executive Directors: Mr. Lu Zhengfei Mr. Li Dakui Ms. Lu Hong Mr. Zhang Lu Fu

Registered office: Codan Trust Company (Cayman) Limited Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands

Head office and principal place of business: Unit 09, 41st Floor Office Tower Convention Plaza 1 Harbour Road Wanchai Hong Kong 26 January 2018

To the Shareholders

Dear Sir or Madam,

(1) MAJOR AND CONNECTED TRANSACTION;

(2) ISSUE OF CONSIDERATION SHARES UNDER SPECIFIC MANDATE; AND

(3) APPLICATION FOR WHITEWASH WAIVER

INTRODUCTION

Reference is made to the Announcement.

– 6 –

LETTER FROM THE BOARD

The purposes of this circular are to provide you with, among other things, (i) further details of the Acquisition and the Specific Mandate; (ii) details of the application for the Whitewash Waiver; (iii) further details of Sino Biopharm Beijing, Super Demand and Beijing Tide; (iv) a letter of recommendation from the Independent Board Committee to the Independent Shareholders; (v) a letter of advice from Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Acquisition and all transactions contemplated thereunder (including the issuance of Consideration Shares and the Specific Mandate) and the Whitewash Waiver; (vi) a notice of the EGM; and other information as required under the Listing Rules and the Takeovers Code, in order to enable you to make an informed decision on how to vote at the EGM.

THE ACQUISITION

On 5 January 2018, the Company and the Vendor entered into the First Agreement and the Second Agreement, under which the Company has conditionally agreed to purchase, and the Vendor has conditionally agree to sell, the First Sale Shares and the Second Sale Shares.

The First Acquisition

On 5 January 2018, the Company, the Vendor and Miss Tse entered into the First Agreement. The principal terms of the First Agreement are set out below.

Subject matter

The Vendor has conditionally agreed to sell, and the Company has conditionally agreed to acquire, the First Sale Shares, representing 51% of the entire issued share capital of Sino Biopharm Beijing.

As at the date of the First Agreement, Sino Biopharm Beijing is owned as to 51% by the Vendor and as to 49% by the Company. Upon completion of the First Acquisition, the Company will hold the entire issued share capital of Sino Biopharm Beijing, which in turn owns approximately 33.6% equity interest in Beijing Tide.

Consideration

The consideration for the First Sale Shares is HK$9,207,399,095.

The consideration was determined after arm’s length negotiations between the parties after taking into account the following factors.

(i) the historical financial position and performance of Beijing Tide

Beijing Tide has sound financial track record and financial position in the recent years, which is demonstrated by growing revenue, outstanding gross profit margin amongst the peers, sufficient working capital and growing cash flow from operating activities. For further details, please refer to Appendix III to this Circular.

– 7 –

LETTER FROM THE BOARD

(ii) the nature and scope of the business and the future prospects of Beijing Tide, including Beijing Tide’s commitments to innovation and clinical needs, specialized research, development and commercialization platform of high-end targeted medicines in China, together with rich reserve of innovative products under research

For details, please refer to sub-paragraph (iii) and (iv) of the third paragraph of the section headed “Reasons for the Acquisition”.

(iii) the brand and market recognition of Beijing Tide’s leading products within the pharmaceutical industry, the marketing, sales and distribution capabilities of Beijing Tide including the comprehensive strength of its sales and marketing teams and the extensive coverage among hospitals

For details, please refer to second paragraph and sub-paragraph (vi) of the third paragraph of the section headed “Reasons for the Acquisition”.

(iv) the price to earnings ratio of certain companies listed on the Stock Exchange considered by the Directors of having businesses comparable

Reference was made to six companies listed in Hong Kong (not including the Company) which principally engaging in the production of pharmaceutical products with (i) their own research and development capacity, purchase and production chain and distribution network; (ii) majority of their sales generated in China; and (iii) market capitalizations of over HK$10 billion, (the “ Comparable Companies ”) with price to earnings ratio ranging from 15x to 51x upon market close as of the Last Trading Day and, upon attributing the price to earnings ratio for Beijing Tide, further reference was made to two Comparable Companies with price to earnings ratios towards the high end for the reason that they share the following unique features which are not otherwise dominant in other competitors: comprehensive research and development capabilities for innovative medical products, effective integration of academic resources and product promotion, rich reserve of innovative products under research and seamless cooperation with overseas pharmaceutical corporations.

– 8 –

LETTER FROM THE BOARD

The price to earnings ratios of the Comparable Companies, as of 4 January 2018, being the Last Trading Day are set out as below:

	Latest financial year
	price to earnings
	ratio upon market
	close as of the Last
Company name	Trading Day
CSPC Pharmaceutical Group Limited (1093.HK)	49.9
Livzon Pharmaceutical Group Inc. (1513.HK)	35.9
3SBio Inc. (1530.HK)	51.5
Sihuan Pharmaceutical Holding Group Ltd. (460.HK)	15.5
Luye Pharma Group Ltd. (2186.HK)	20.5
YiChang HEC ChangJiang Pharmaceutical Co., Ltd. (1558.HK)	30.7
Maximum	51.5
Minimum	15.5

The consideration for the First Acquisition will be satisfied by the Company by the issuance of the First Consideration Shares at the Issue Price to the Vendor at the completion of the First Acquisition.

The First Consideration Shares to be allotted and issued by the Company upon completion of the First Acquisition represent (i) approximately 9.76% of the issued share capital of the Company as at the Latest Practicable Date; and (ii) approximately 8.58% of the issued share capital of the Company as enlarged by the allotment and issue of the Consideration Shares.

Conditions

Completion of the First Acquisition will be conditional upon the satisfaction of all the following conditions (unless otherwise waived pursuant to the terms of the First Agreement):

(a) the Independent Shareholders approving in general meeting of the Company in compliance with the Listing Rules and/or the Takeovers Code:
(i) the transactions contemplated under the First Agreement, including the allotment and issue of the First Consideration Shares; and
(ii) if applicable, the grant of the Whitewash Waiver;
(b) if applicable, the Executive granting the Whitewash Waiver, and such waiver not having been revoked or withdrawn;
(c) the Stock Exchange having granted the listing of, and permission to deal in, the First Consideration Shares;

– 9 –

LETTER FROM THE BOARD

(d) the Second Agreement having become unconditional (save for those conditions in relation to the First Agreement); and
(e) the representations and warranties under the First Agreement remaining true and accurate in all respects and there have been no material omission.

The Company has the right to waive condition (e) above. If conditions (a), (b), (c) and (d) are not fulfilled before 30 June 2018 or such later date as the parties may otherwise agree, the First Agreement will become null and void and cease to have any further effect save for any antecedent breach.

As at the Latest Practicable Date, none of the conditions precedent set out above have been satisfied and waived (if applicable).

The Second Acquisition

On 5 January 2018, the Company, the Vendor and Miss Tse entered into the Second Agreement. The principal terms of the Second Agreement are set out below.

Subject matter

The Vendor has conditionally agreed to sell, and the Company has conditionally agreed to acquire, the Second Sale Shares, representing 52% of the entire issued share capital of Super Demand.

As at the date of the Second Agreement, Super Demand is owned as to 52% by the Vendor and as to 48% by the Company. Upon completion of the Second Acquisition, the Company will hold the entire issued share capital of Super Demand. Super Demand owns approximately 55% interest in France Investment BVI which in turn owns approximately 24% equity interest in Beijing Tide.

Consideration

The consideration for the Second Sale Shares is HK$3,688,117,842 and was determined after arm’s length negotiations between the parties after taking into consideration the factors that are disclosed in the paragraph headed “The Acquisition – The First Acquisition – Consideration” above. The original acquisition cost of the Second Sale Shares to the Vendor was HK$28,067,520.

The consideration for the Second Acquisition will be satisfied by the Company by the issuance of the Second Consideration Shares at the Issue Price to the Vendor at the completion of the Second Acquisition.

The Second Consideration Shares to be allotted and issued by the Company upon completion of the Second Acquisition represent (i) approximately 3.91% of the issued share capital of the Company as at the Latest Practicable Date; and (ii) approximately 3.44% of the issued share capital of the Company as enlarged by the allotment and issue of the Consideration Shares.

– 10 –

LETTER FROM THE BOARD

Conditions

Completion of the Second Acquisition will be conditional upon the satisfaction of all the following conditions (unless otherwise waived pursuant to the terms of the Second Agreement):

(a) the Independent Shareholders approving in general meeting of the Company in compliance with the Listing Rules and/or the Takeovers Code:
(i) the transactions contemplated under the Second Agreement, including the allotment and issue of the Second Consideration Shares; and
(ii) if applicable, the grant of the Whitewash Waiver;
(b) if applicable, the Executive granting the Whitewash Waiver, and such waiver not having been revoked or withdrawn;
(c) the Stock Exchange having granted the listing of, and permission to deal in, the Second Consideration Shares;
(d) the First Agreement having become unconditional (save for those conditions in relation to the Second Agreement); and
(e) the representations and warranties under the Second Agreement remaining true and accurate in all respects and there have been no material omission.

The Company has the right to waive condition (e) above. If conditions (a), (b), (c) and (d) are not fulfilled before 30 June 2018 or such later date as the parties may otherwise agree, the Second Agreement will become null and void and cease to have any further effect save for any antecedent breach.

As at the Latest Practicable Date, none of the conditions precedent set out above have been satisfied and waived (if applicable).

Completion of the Acquisition

Completion shall take place at the same time on the fifth business day (or at such other time as the parties may otherwise agree) after the conditions to the First Agreement and the Second Agreement (save for condition (e)) have been fulfilled or waived.

The Consideration Shares

The Consideration Shares to be allotted and issued by the Company upon completion of the First Acquisition and the Second Acquisition represent (i) approximately 13.67% of the issued share capital of the Company as at the Latest Practicable Date; and (ii) approximately 12.02% of the issued share capital of the Company as enlarged by the allotment and issue of the Consideration Shares.

– 11 –

LETTER FROM THE BOARD

The Consideration Shares will be allotted and issued under the Specific Mandate to be sought at the EGM. The Consideration Shares will rank equally among themselves and pari passu in all respects with the Shares in issue on the date of allotment and the issue of the Consideration Shares.

The Consideration Shares have a nominal value of HK$0.025 per Share and a market value of approximately HK$14,323,849,920 based on the closing price of the Shares of HK$14.14 per Share on the Last Trading Day.

The Consideration Shares are not subject to any lock up requirement.

Issue Price

The Consideration Shares will be issued at HK$12.73 per Share. The Issue Price represents:

(i) a discount of approximately 18.29% to the closing price of the Shares of HK$15.58 per Share as quoted on the Stock Exchange on the Latest Practicable Date.
(ii) a discount of approximately 9.97% to the closing price of the Shares of HK$14.14 per Share as quoted on the Stock Exchange on the Last Trading Day;
(iii) a discount of approximately 7.95% to the average of the closing prices of the Shares as quoted on the Stock Exchange for the last 5 trading days up to and including the Last Trading Day of approximately HK$13.83 per Share;
(iv) a discount of approximately 4.43% to the average of the closing prices of the Shares as quoted on the Stock Exchange for the last 10 trading days up to and including the Last Trading Day of approximately HK$13.32 per Share; and
(v) a premium of approximately 6.88% to the average of the closing prices of the Shares as quoted on the Stock Exchange for the last 30 trading days up to and including the Last Trading Day of approximately HK$11.91 per Share.

The Issue Price was determined after arm’s length negotiations between the Vendor and the Company with reference to the average closing price of the Shares for the last 10 trading days and the average closing price of the Shares for the last 20 trading days (both up to and including the Last Trading Day).

Application for listing of the Consideration Shares

The Company has applied to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Consideration Shares.

– 12 –

LETTER FROM THE BOARD

CHANGE IN THE SHAREHOLDING STRUCTURE OF THE COMPANY

The following table illustrates the shareholding structure of the Company as at the Latest Practicable Date and immediately upon Completion (assuming that there is no change in the issued share capital of the Company other than the issue of the Consideration Shares between the date of the First Agreement and the Second Agreement and up to Completion):

Shareholders The Concert Group The Whitewash Applicant (Note 1) Ms. Cheng Cheung Ling (Note 2) The Vendor (Note 3) Sub-total Mr. Tse Hsin Public shareholders Total	As at the date of the Latest Practicable Date Number of Shares % (approximately) 1,222,526,722 16.49 1,863,371,000 25.14 – – 3,085,897,722 41.63 61,257,000 0.83 4,265,037,487 57.54 7,412,192,209 100.00	Immediately upon Completion Number of Shares % (approximately) 1,222,526,722 14.51 1,863,371,000 22.12 1,013,002,116 12.02 4,098,899,838 48.65 61,257,000 0.73 4,265,037,487 50.62 8,425,194,325 100.00	Immediately upon Completion Number of Shares % (approximately) 1,222,526,722 14.51 1,863,371,000 22.12 1,013,002,116 12.02 4,098,899,838 48.65 61,257,000 0.73 4,265,037,487 50.62 8,425,194,325 100.00
			48.65 0.73 50.62
			100.00

Notes:

(1) Out of 1,222,526,722 Shares, 140,400,000 Shares are held by the Whitewash Applicant directly, and 1,082,126,722 Shares are held by the Whitewash Applicant through Validated Profits Limited, the entire issued share capital of which is owned by the Whitewash Applicant.
(2) Out of 1,863,371,000 Shares, 63,371,000 Shares are held by Ms. Cheng Cheung Ling directly, 1,050,000,000 Shares and 750,000,000 Shares are held by Ms. Cheng Cheung Ling through Chia Tai Bainian Holdings Limited and Remarkable Industries Limited, respectively. The entire issued share capital of each of Chia Tai Bainian Holdings Limited and Remarkable Industries Limited is owned by Ms. Cheng Cheung Ling.
(3) The Vendor is a company owned as to 91.33% by Miss Tse and as to 8.67% by Ms. Kwok Suk Lan.

INFORMATION OF THE VENDOR

The Vendor is a company incorporated in Hong Kong principally engaged in investment holding. As at the date of the First Agreement and the Second Agreement, it is owned as to 91.33% by Miss Tse and as to 8.67% by Ms. Kwok Suk Lan.

– 13 –

LETTER FROM THE BOARD

INFORMATION ON SINO BIOPHARM BEIJING

Sino Biopharm Beijing is a company incorporated in Hong Kong and principally engaged in investment holding. Its sole asset is its 33.6% interest in Beijing Tide. As at the date of the First Agreement, Sino Biopharm Beijing is owned as to 51% by the Vendor and as to 49% by the Company.

Based on the audited financial results (after equity pick up of financial result of Beijing Tide) of Sino Biopharm Beijing, the net asset value of Sino Biopharm Beijing as at 30 September 2017 was approximately HK$1,134.1 million. The audited financial results (after equity pick up of financial result of Beijing Tide) of Sino Biopharm Beijing for the two years immediately preceding the date of the First Agreement and the nine months ended 30 September 2017 (which were prepared in accordance with Hong Kong Financial Reporting Standards) are as follows:

				For the nine
	For the year ended			months ended
	31 December			30 September
	2015		2016	2017
	HK$’ million	_HK$’ _	million	HK$’ million
	(approximately)	(approximately)		(approximately)
Net profit before taxation and
extraordinary items	317.1		336.1	366.7
Net profit after taxation and
extraordinary items	280.7		319.3	351.3

Upon completion of the First Acquisition, the Company will hold the entire issued share capital of Sino Biopharm Beijing, which in turn owns approximately 33.6% equity interest in Beijing Tide. Upon completion of the First Acquisition, Sino Biopharm Beijing will continue to be a subsidiary of the Group, and the financial statements of Sino Biopharm Beijing will continue to be consolidated with the accounts of the Group [(Note)] .

Note: Sino Biopharm Beijing has been accounted as a wholly-owned subsidiary of the Company pursuant to the unwind mechanism under the restructuring agreement entered into by the Company, the Vendor and the Whitewash Applicant on 1 June 2012. Please also refer to the circular of the Company dated 22 June 2012 for further details.

Details of the financial information of Sino Biopharm Beijing together with a discussion are set out in Appendix IIA and Appendix III of this circular.

– 14 –

LETTER FROM THE BOARD

INFORMATION ON SUPER DEMAND

Super Demand

Super Demand is a company incorporated in the British Virgin Islands and principally engaged in investment holding. Its sole asset is its 55% interest in France Investment BVI. As at the date of the Second Agreement, Super Demand is owned as to 52% by the Vendor and as to 48% by the Company.

Based on the audited consolidated financial results of Super Demand which comprised the financial results of France Investment BVI, the net asset value of Super Demand as at 30 September 2017 was approximately US$85.6 million. The audited consolidated financial results of Super Demand for the two years immediately preceding the date of the Second Agreement and the nine months ended 30 September 2017 (which were prepared in accordance with Hong Kong Financial Reporting Standards) are as follows:

				For the nine
	For the year ended			months ended
	31 December			30 September
	2015		2016	2017
	US$’ million	_US$’ _	million	US$’ million
	(approximately)	(approximately)		(approximately)
Net profit before taxation and
extraordinary items	28.0		32.0	32.0
Net profit after taxation and
extraordinary items	25.1		29.0	29.2

Details of the financial information of Super Demand together with a discussion are set out in Appendix IIB and Appendix III of this circular.

As at 30 September 2017, apart from 24% equity interests in Beijing Tide, no other significant asset was held by France Investment BVI.

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LETTER FROM THE BOARD

Based on the information provided by the Vendor, on 6 October 2009, the Vendor acquired 100% equity interests of Super Demand from an Independent Third Party in which Super Demand held 100% equity interests in France Investment BVI, at a consideration of HK$53,976,000.

INFORMATION ON BEIJING TIDE

Beijing Tide is a company established in the PRC with limited liability and one of the leading pharmaceutical companies developing, manufacturing and marketing high-technology pharmaceutical products in the PRC.

Shareholding structure

A simplified shareholding structure of Beijing Tide immediately prior to Completion is as follows:

==> picture [396 x 324] intentionally omitted <==

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

Miss Tse Ms. Kwok Suk Lan
91.33% 8.67%
the Vendor the Company
52% 48%
Independent
Super Demand Third Parties
55% 45%
51% 49% 4.92% 75.88% 19.2%
France
Independent Sino Biopharm LTT Bio-Pharm
Investment
Third Parties Beijing Co., Ltd.
BVI
30.88% 24% 33.6% 11.52%
Beijing Tide
----- End of picture text -----

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LETTER FROM THE BOARD

A simplified shareholding structure of Beijing Tide immediately upon Completion is as follows:

==> picture [390 x 190] intentionally omitted <==

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

the Company
Independent
Third Parties
100%
Super Demand
55% 100% 4.92% 75.88% 19.2%
Independent 45% France Sino Biopharm LTT Bio-Pharm
Third Parties Investment BVI Beijing Co., Ltd.
30.88% 24% 33.6% 11.52%
Beijing Tide
----- End of picture text -----

As at the date of the Latest Practicable Date, the Company holds an attributable interest of 33.6% in Beijing Tide and Beijing Tide is accounted as an associate company of the Group. Upon Completion, the Company’s interest in Beijing Tide will be increased to 57.6% and Beijing Tide will become a non-wholly owned subsidiary of the Company with its financial statements to be consolidated with the accounts of the Group.

Background information

As disclosed in the circular of the Company dated 7 November 2003, the Company entered into an equity transfer agreement (the “ Equity Transfer Agreement ”) dated 17 October 2003 and a capital increase agreement (the “ Capital Increase Agreement ”) dated 17 October 2003 in relation to Beijing Tide.

Under the Equity Transfer Agreement, the Company, as transferee, acquired 20.42% and 8.75% of the equity interests of Beijing Tide from two Independent Third Parties at a consideration of RMB37,335,100 and RMB15,998,100, respectively.

Under the Capital Increase Agreement, the Company made a capital contribution of RMB26,663,500 to Beijing Tide.

Upon completion of the equity transfer and capital contribution as contemplated under the Equity Transfer Agreement and Capital Increase Agreement, the Company became interested in 35% of Beijing Tide. In 2010, the Company’s interest was lowered to 33.6% subsequent to the transfer of certain of its equity interest in Beijing Tide to the then officers of Beijing Tide under an employee incentive plan.

On 1 June 2012, the Company, the Vendor and Sino Biopharm Beijing entered into a restructuring agreement (the “ Restructuring Agreement ”) in relation to the restructuring of Beijing Tide in preparation of the then proposed listing of Beijing Tide on the ChiNext of the Shenzhen Stock Exchange (the “ Proposed Listing ”).

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LETTER FROM THE BOARD

Pursuant to the Restructuring Agreement, the Company has agreed to:

(i) sell to the Vendor the First Sale Shares (the “ 2012 Disposal ”); and
(ii) acquire 48% interest in Super Demand from the Vendor and 45% interest in France Investment BVI from Super Demand (the “ 2012 Acquisition ”).

Immediately upon completion of the restructuring as contemplated under the Restructuring Agreement, the Company held as to 49%, 48% and 45% interest in Sino Biopharm Beijing, Super Demand and France Investment BVI, respectively.

The total consideration for the 2012 Acquisition and that of the 2012 Disposal were the same, both being at HK$293,040,370. The total consideration for the 2012 Disposal, which was the acquisition cost of the First Sale Shares to the Vendor under the restructuring as contemplated under the Restructuring Agreement, had been determined by the Company and the Vendor after arm’s length negotiation with reference to, among other things, the then prevailing market conditions, the development of the pharmaceutical industry, the original investment cost for the First Sale Shares, and the carrying value of Beijing Tide dated 25 May 2012 prepared by Beijing Guorong Xinghua Asset Appraisal Company Limited（北京國融興華資產評估有限責任公司）based on the cost approach.

The restructuring as contemplated under the Restructuring Agreement was one of the steps taken to address certain competition issue in relation to the Proposed Listing.

On 12 September 2014, the Company was informed that the approval for the Proposed Listing was not granted at a meeting held by the Listing Review Committee of the ChiNext of the CSRC on 12 September 2014. For further details, please also refer to the announcement of the Company dated 12 September 2014.

As at the Latest Practicable Date, to the best of the information and belief of the Directors, the Proposed Listing has been suspended.

Since the Company’s acquisition of the equity interest of Beijing Tide in 2003 as set out above, Beijing Tide has achieved major development. Its revenue has grown from approximately RMB194.8 million in 2003 to approximately RMB2,998.1 million in 2016, its net profit (after tax) has grown from approximately RMB94.5 million in 2003 to approximately RMB928.8 million in 2016, its team of research and development specialists has grown from 4 employees in 2003 to 229 employees in 2016, and the number of its drug registration approvals granted by China Food and Drug Administration has grown from 2 in 2003 to 11 in 2016.

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LETTER FROM THE BOARD

Financial information

The audited consolidated net asset value of Beijing Tide as at 30 September 2017 was approximately RMB1,921.1 million. The audited consolidated financial results of Beijing Tide for the two years immediately preceding the date of the First Acquisition and the Second Acquisition and the nine months ended 30 September 2017 (which were prepared in accordance with the Hong Kong Financial Reporting Standards) are as follows:

				For the nine
	For the year ended			months ended
	31 December			30 September
	2015		2016	2017
	RMB’ million	_RMB’ _	million	RMB’ million
	(approximately)	(approximately)		(approximately)
Revenue	2,649.9		2,998.1	2,510.6
Net profit before taxation and
extraordinary items	973.9		1,141.4	1,032.2
Net profit after taxation and
extraordinary items	783.0		928.8	874.7

Details of the financial information of Beijing Tide together with a discussion are set out in Appendix IIC and Appendix III of this circular.

REASONS FOR THE ACQUISITION

The Group is principally engaged in the research, development and production and sale of a series of modernized Chinese medicines and chemical medicines for the treatment of hepatitis, cardio-cerebral diseases and other diseases.

Beijing Tide is an exceptional pharmaceutical and healthcare enterprise in China, specializing in the development of high-end pharmaceutical products and innovative drugs. It is the first high-technology pharmaceutical manufacturer which succeeded in the research and development and industrial production of targeted medicines in China, and takes the lead in the research and development and sale of Alprostadil Injection and Flurbiprofen Axetil Injection, which are targeted medicines with lipo-microsphere as carriers. It has now become the world’s largest production base for micro-sphere medicines. By virtue of its high-standard sterile injection quality system, it is the first domestic enterprise being authorized to export high-end micro-sphere injections to Japan. After over 20 years of development, Beijing Tide has been decorated with numerous awards and honours, including Beijing Municipality Bio-pharmaceutical Industry Leapfrog Development Program (“G20 Program”), International Leading Chinese Pharmaceutical Production Enterprise and The Chinese Pharmaceutical Enterprise With The Highest Investment Value and since 2009, Beijing Tide has ranked within the top five largest taxpayees in the Beijing Economic and

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LETTER FROM THE BOARD

Technology Development Area amongst other large renowned enterprises home and abroad. These awards and honours created a formidable brand reputation which instilled confidence in customers and thereby sustaining product demand and revenue.

As one of Top 50 Enterprises in the PRC pharmaceutical industry and a leader in the advanced Drug Delivery System (DDS) with over two decades of experience, Beijing Tide has the following competitive advantages:

(i) Beijing Tide has an outstanding product mix as well as a prominent position and competitive advantages in the categories of cardio-cerebral and analgesic medicines. Beijing Tide always places innovation as the core of product research and development, and five of its products including “Kaishi[®] (凱時[®] )” of Alprostadil Injection, “Kaifen[®] (凱紛[®] )” of Flurbiprofen Axetil Injection, “Kaina[®] (凱那[®] )” of Beraprost Sodium Tablet, “Debaian[®] (得百安[®] )” of Flurbiprofen Gel Patches and “Deyou[®] (得佑[®] )” of Pronase Granules have filled the gap of the relevant pharmaceutical segments in China. Amongst the foregoing, “Kaishi[®] ” (“ 凱時[®] ”) of Alprostadil Injection, “Kaifen[®] ” (“凱紛[®] ”) of Flurbiprofen Axetil Injection, “Kaina[®] ” (“凱那[®] ”) of Beraprost Sodium Tablet and “Debaian[®] ” (“得百 ®
安 ”) of Flurbiprofen Cataplasms were admitted into the National Reimbursement Drug List in 2004, 2009, 2009 and 2017, respectively;
(ii) currently, the above products are in a leading position in their respective segments. Among them, the targeted medicine “Kaishi[®] ” is used for treating and improving cardio-cerebral microcirculation blockage and is the first lipo-microsphere targeted and sustained release medicine in the PRC. Its proprietary drugs preparation technology makes the product more effective as compared to similar products, thus allowing it to occupy a majority of market share. Lipo-microsphere targeted and sustained release injection “Kaifen[®] ”, an exclusive product in China, is developed based on the DDS theory and is mainly used for after-surgery and cancer pain relief. With distinctive targeted effects, it is famous for strong pain relief with minimal side effects, and is one of the best-selling injection prescription medicines of the non-steroidal anti-inflammatory drugs (NSAIDs) in China;
(iii) strong research and development capability and advantages in technology. Beijing Tide is the first enterprise engaged in the research and development of targeted medicine, and has a sound scientific research and development system and high-caliber research and development team. Leveraging on the international advanced level of core DDS technologies, the innovation and advancement of products can be enhanced, thereby making the products less likely to be replicated. It has six high-end technology production platforms, i.e. lipo-microsphere, liposome, polymer hydrogel, sustained release, solid micro-dispersion and pressure-sensitive adhesive, and channels for technology cooperation around the world;

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LETTER FROM THE BOARD

(iv) rich reserve of innovative products under research. Currently, Beijing Tide has not less than 30 products under research, the majority of which are exclusive or pioneer products with technical barriers and self-owned intellectual property rights mainly in the fields of micro-circulation, analgesia and respiratory system with a view to fulfilling unmet clinical needs as soon as possible. Among them, the lecithin and superoxide dismutase lyophilized powder for injection（注射用卵磷脂化超氧化物歧化酶凍乾粉針劑）is a revolutionary product which is designed to facilitate safer treatment and rehabilitation of cardiovascular diseases, which are on a growing trend in China. It is a Class 1 new drug of biological products which has been classified as the category of National Science and Technology Major Project for “Major Drugs Innovation and Development” in China. It is able to protect heart muscle cells and prevent heart failure after percutaneous coronary intervention, and is now undergoing phase II clinical trials. The Lidocaine gel cream（利多卡因凝膠膏）, if successfully developed, will be the first domestic gel cream for the treatment of post-herpetic neuralgia（帶狀皰疹後遺神經痛）. It is estimated that there are more than 4 million patients suffering from post-herpetic neuralgia and the number is expected to increase, and as there are no known domestic manufacturers of similar products at present, it is expected to dominate the market and become a key revenue driver for a considerable period of time. The Limaprost Alfadex tablets（利馬前列素片）, if successfully developed, will be the first domestic chemical medicine for the indication of lumbar spinal stenosis（腰椎管狹窄）. In addition, a Class 1 small-molecule new drug with new target and mechanism for treating pulmonary fibrosis has completed its layout for intelligent property worldwide. Beijing Tide is also applying its domestically leading technology in topical patches and gel cream production of systemic onset patches that treat moderate Alzheimer’s disease by using carbamate acetylcholinesterase inhibitor, as well as topical onset gel patches containing benzenepropanoic acid, a nonsteroidal anti-inflammatory drug, that alleviate pains associated with rheumatoid arthritis, muscular pain and post-traumatic swelling and pain. The rich drugs reserve including the above products under research will lay a solid foundation for the future revenue growth of Beijing Tide;
(v) advanced industralization capability and quality system. By self-innovation, Beijing Tide has acquired various core technologies including the technologies for lipo-microsphere flash pasteurization, liposome production industrialization upscale, viscosity control of cataplasm, penetration enhancement of whole body onset patches and micro-dispersion of highly active raw materials, which addressed various process technological issues to ensure the rapid industrialization of production;
(vi) it has unique systems of academic promotion and marketing, a high-caliber marketing team with over 1,800 people and a sales network covering more than 5,000 hospitals across the country. The marketing team are well versed in product knowledge which enabled them to organize academic forums and clinical tests and create effective two-way communication channels with doctors and hospitals especially in terms of how the products work, application, dosage, clinical test results, thereby creating product awareness, demand and brand loyalty which, when combined together, formed the bedrock for sustainable product sales and revenue generation;

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LETTER FROM THE BOARD

(vii) a professional and dedicated management team. The core management team is experienced in administration of pharmaceutical enterprises, research and development of new drugs and medical clinical services; and
(viii) a leading brand with market impact.

Besides, Beijing Tide is constructing a “Health Industrial Park of Tide（泰德健康產業園）” for expanding the production of existing products and industrialization of products under research, with the addition of production capacity of medicines including injections, patch for external use, solid preparation medicines and biological products. The total investment cost for the industrial park exceeds RMB1 billion. Upon completion, the industrial park would realize the smart production of medicines and become the largest base for industrialization of innovative products so as to lay a healthy foundation for the long-term development of Beijing Tide.

Pharmaceutical industry is a sunrise industry in China. With factors including the increase of per capita income, continuous aging of population, extension of life expectancy and expansion of medical insurance coverage, there will be a huge potential growth for pharmaceutical industry. Also, part of the industry policies issued by the State, such as the consistency evaluation of medicines and self-censorship of research and development, have a long-term and positive effect on pharmaceutical enterprises with stronger innovation of research and development and core competitiveness. In addition, the scope of application of DDS is extensive, and has a greater development potential on illnesses requiring lifelong medication, large drug doses and adverse reaction to medicines. Various industrial policy documents of the State have clearly stated the support for the development of DDS, notably “Outline of the 12th Five-Year Plan for Medical Technology Development”（《醫學科技發展「十二五」規劃》）, “Outline of the 12th Five-Year Plan for Medical Industry Development” （《醫藥工業「十二五」發展規劃》）, “Made in China 2025” （《中國製造2025》） and “High-Tech Fields Supported By The State”（《國家重點支持的高新技術領域》）, providing huge room for development for pharmaceutical enterprises which are familiar with the core DDS technology.

In view of the high growth potential of the pharmaceutical industry and the outstanding quality of Beijing Tide, the Company considers that the Acquisition is in line with the strategic planning of the Group as well as the recent trend of industry consolidation and will help enhancing the core competitiveness and the long-term profitability of the Group, reasons of which are as follows:

(i) the Company considers that Beijing Tide has a leading technological research and development capability and excellent product lines in China, and is optimistic about the development prospect of Beijing Tide. Upon Completion, the Group will become the controlling shareholder of Beijing Tide and have stronger control over Beijing Tide in order to fully share its future growth potential;

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LETTER FROM THE BOARD

(ii) with continuous strengthening and expansion of the position and layout of the Group in each pharmaceutical segment, including the products and research and development layouts and competitive advantages in the cardio-cerebral (microcirculation), pain relief and respiratory categories, the Company is optimistic about the future growth potential of the above segments;
(iii) the product lines of the Group will be further extended so as to reduce the sensitivity of revenue to the fluctuation of sales of a particular product and enhance the resistance to risks;
(iv) to enhance cooperation in respect of research and development (including the early development of products and international cooperation), marketing and sales (such as academic promotion, hospital sales, etc.), government affairs and mergers and acquisitions in order to further enhance the overall deployment of the Group’s strategies and increase the synergy;
(v) Beijing Tide will be able to effectively utilize the offshore listed platform of the Group to seek for various opportunities in respect of expansion of overseas businesses and cross-border cooperation, so as to achieve cross-phase development; and
(vi) upon Completion, the shares of Beijing Tide held by the controlling shareholders of the Company will be converted into shares of the Company, with the shareholding by the controlling shareholders in the Company increased correspondingly. This demonstrates that the controlling shareholders will be more focused on pharmaceutical industry and attach more importance to the Company, their sole listed platform in Hong Kong.

The consideration for the Acquisition will be satisfied by the Company allotting and issuing the Consideration Shares to the Vendor at Completion. The Acquisition will not increase the Company’s level of debt and debt-related finance costs. Upon Completion, the consolidated revenue, earnings and operating cash flows of the Group will increase correspondingly and as illustrated in the Unaudited Pro Forma Financial Information of the Enlarged Group in Appendix IV to this circular, had the Acquisition been completed on 30 September 2017, the net asset value per share would have been increased from approximately RMB1.23 before the Acquisition to approximately RMB2.37 on an enlarged basis upon Completion.

When considering the form of payment of the total consideration, the Company considered payment of the consideration by cash and/or by the issue of consideration shares.

Having considered the available cash on hand, which has been reserved for daily operations and research and development, payment in cash would require the Company to raise such amount via debt financing or other equity fund raising methods.

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LETTER FROM THE BOARD

Debt financing would increase the gearing level of the Group and the resulting interest expenses and finance costs would impose additional financial burden to the Group’s future cash flow which would in turn restrict the Group’s ability to conduct research and development for new innovative products.

With respect to equity fund raising including share placement, rights issue or open offer, the Board considered that such fundraising method is time consuming, costly (in the case of rights issue and open offer) and there is no guarantee of success.

Accordingly, settling the total consideration by the issue of Consideration Shares will not increase the Company’s debt and debt-related finance costs while the consolidated revenue, earnings and operating cash flows of the Group will increase correspondingly upon Completion.

The Consideration Shares will be allotted and issued to the Vendor, owned as to 91.33% by Miss Tse and as to 8.67% by Ms. Kwok Suk Lan, Miss Tse is the daughter of the Whitewash Applicant and Ms. Cheng Cheng Ling, who collectively have, since the listing of the Company in 2000, been the largest Shareholder of the Company. As a result of the issue of the Consideration Shares to the Vendor, the interest of the Concert Group will be increased from 41.63% to 48.65% of the issued share capital of the Company as enlarged by the allotment and issue of the Consideration Share. An increase in interest by the Concert Group shows the continuous support, confidence and commitment of the largest Shareholder of the Company to the long-term and sustainable development of the Company. The Company considers that the continuous support of the largest group of Shareholders is beneficial to the Company and the Shareholders as a whole and will contribute towards the continued business stability and long-term development of the Group.

Based on the foregoing, the Directors (excluding (i) the independent non-executive Directors whose views are contained in its letter set out in this circular after taking into consideration the advice of the Independent Financial Adviser; and (ii) Miss Tse, the Whitewash Applicant, Ms. Cheng Cheung Ling and Mr. Tse Hsin whom were considered to be interested in the Acquisition and have abstained from voting in respect of the resolution proposed to approve the Acquisition) are of the view that the terms of the Acquisition are fair and reasonable and in the interest of the Company and the Shareholders as a whole.

LISTING RULES IMPLICATIONS ON THE ACQUISITION

Major transaction

As one or more of the applicable percentage ratios in respect of the Acquisition are more than 25% but less than 100%, the Acquisition constitutes a major transaction for the Company under Chapter 14 of the Listing Rules and is subject to the approval by the Shareholders at the EGM.

Connected transaction

As at the Latest Practicable Date, the Vendor is a company owned as to 91.33% by Miss Tse and as to 8.67% by Ms. Kwok Suk Lan.

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LETTER FROM THE BOARD

Miss Tse is the daughter of the Whitewash Applicant and Ms. Cheng Cheung Ling. The Whitewash Applicant is an executive Director and a substantial shareholder of the Company holding approximately 16.49% of the issued share capital of Company. Ms. Cheng Cheung Ling is an executive Director and a substantial shareholder of the Company holding approximately 25.14% of the issued share capital of the Company.

Ms. Kwok Suk Lan is the mother of Mr. Tse Hsin. Mr. Tse Hsin is an executive Director, an uncle of Miss Tse, and a first cousin of the Whitewash Applicant. Mr. Tse Hsin is interested in approximately 0.83% of the issued share capital of the Company.

Accordingly, the Acquisition also constitutes a connected transaction for the Company under Chapter 14A of the Listing Rules and is subject to the approval by the Independent Shareholders at the EGM by way of poll.

Each of the Whitewash Applicant, Ms. Cheng Cheung Ling, Mr. Tse Hsin and their respective associates will abstain from voting at the EGM in respect of the resolution relating to the Acquisition.

TAKEOVERS CODE IMPLICATIONS AND APPLICATION FOR WHITEWASH WAIVER

(1) The Acquisition

As at the date of the Latest Practicable Date, members of the Concert Group are, in aggregate, interested in 3,085,897,722 Shares, representing approximately 41.63% of the issued share capital of the Company. Upon Completion, the Concert Group will, in aggregate, be interested in 4,098,899,838 Shares, representing (a) approximately 55.30% of the issued share capital of the Company as at the Latest Practicable Date; and (b) approximately 48.65% of the issued share capital of the Company as enlarged by the allotment and issue of the Consideration Shares (assuming that there is no change in the issued share capital of the Company other than the issue of the Consideration Shares from the Latest Practicable Date and up to the date of Completion).

An application has been made by the Whitewash Applicant to the Executive for the Whitewash Waiver. In the absence of the Whitewash Waiver, the Whitewash Applicant and parties acting in concert with him would be obliged to make a mandatory general offer under Rule 26 of the Takeovers Code for all the issued Shares not already owned or agreed to be acquired by the Concert Group as a result of the issue of the Consideration Shares.

The Whitewash Waiver, if granted by the Executive, will be subject to, among other things:

(i) the approval of the Independent Shareholders in respect of the Whitewash Waiver at the EGM by way of poll;
(ii) the Concert Group not having acquired any voting rights of the Company in the six months prior to the date of the Announcement; and

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LETTER FROM THE BOARD

(iii) the Concert Group not having any acquisitions or disposals of voting rights of the Company between the date of the Announcement and the Completion unless with the prior consent of the Executive.

Completion is conditional upon, among other things, the Whitewash Waiver being granted by the Executive and the Independent Shareholders approving the Whitewash Waiver at the EGM on a vote to be taken by way of a poll. The Executive may or may not grant the Whitewash Waiver and the Independent Shareholders may or may not approve the Whitewash Waiver. The granting of the Whitewash Waiver is a non-waivable condition precedent to Completion. If the Whitewash Waiver is not obtained and/or approved by the Independent Shareholders, the Acquisition will not proceed.

As at the Latest Practicable Date, the Company does not believe that the Acquisition and the transactions contemplated thereunder gives rise to any concerns in relation to compliance with other applicable rules or regulations (including the Listing Rules).

(2) The Third Quarter Results

Reference is made to the Third Quarter Results Announcement. The Third Quarter Results constitutes a profit forecast of the Company under Rule 10 of the Takeovers Code and have been reported on by the financial adviser and the auditors or consultant accountants of the Company. The report by Ernst & Young, the auditor of the Company, is set out in Appendix VI of this circular. The report by CCBI, the financial advisor, is set out in Appendix VII of this circular.

INFORMATION REQUIRED UNDER THE TAKEOVERS CODE

As at the Latest Practicable Date, none of the members of the Concert Group:

(a) is interested in any issued Shares or other relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) of the Company otherwise than as disclosed in the section headed “CHANGE IN THE SHAREHOLDING STRUCTURE OF THE COMPANY” in this letter from the Board;
(b) holds, controls or has discretion over any derivatives in respect of securities in the Company, or hold any relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) of the Company;
(c) has borrowed or lent any relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) in the Company;
(d) has made any arrangement referred to in Note 8 to Rule 22 of the Takeovers Code (whether by way of option, indemnity or otherwise) with any other persons in relation to the relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) of the Company or of the Vendor and which might be material to the Acquisition and/or the Whitewash Waiver;

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LETTER FROM THE BOARD

(e) has made any agreement or arrangement which relates to the circumstances in which it/he/she may or may not invoke or seek to invoke a pre-condition or a condition to the Acquisition and/or the Whitewash Waiver, other than the conditions precedent to the Acquisition as set out in this letter from the Board;
(f) has received any irrevocable commitment from any Shareholder as to whether they will vote for or against the resolution approving the Acquisition and/or the Whitewash Waiver to be proposed at the EGM; or
(g) has acquired or entered into any agreement or arrangement to acquire any voting rights in the Company within the six months prior to the date of the Announcement except as contemplated under the First Agreement and the Second Agreement.

INTENTION OF CONTROLLING SHAREHOLDERS

Upon Completion, the Concert Group will continue to be the single largest shareholder and the controlling shareholder (as defined under the Listing Rules).

The Concert Group considers and confirms that:

(i) it is intended that the Group will continue with its existing business following Completion;
(ii) they share the view of the Directors as disclosed in the paragraph headed “Reasons for the Acquisition” above, in which it is mentioned that the Acquisition are in the interests of the Group; and
(iii) there is no intention to introduce any major changes to the existing business of the Group or the continued employment of the Group’s employees and there is no intention to redeploy the fixed assets of the Group other than in its ordinary course of business.

The Directors consider that the intentions of the Concert Group in respect of the Group and its employees will maintain the continuity of the business of the Group and are therefore is in the interests of the Company and the Shareholders as a whole.

As at the Latest Practicable Date, the Company had not entered into or proposed to enter into any agreement, arrangement, understanding or undertaking, whether formal or informal, express or implied, and negotiation (whether concluded or not) with an intention to acquire any new asset, business or body corporate, other than pursuant to the First Agreement and the Second Agreement and in the ordinary course of business, and/or to dispose of the existing business of the Group.

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LETTER FROM THE BOARD

FINANCIAL EFFECTS OF THE ACQUISITION

Assets and liabilities

Based on the unaudited pro forma financial information set out in Appendix IV to this circular, the total assets of the Group as at 30 September 2017 would increase from approximately RMB20,583.2 million to approximately RMB33,335.4 million, and its total liabilities as at 30 September 2017 would increase from approximately RMB8,689.8 million to approximately RMB9,784.4 million, as a result of the Acquisition.

Earnings

Upon completion of the Acquisition, Beijing Tide will become a non-wholly owned subsidiary of the Company and the financial results of Beijing Tide will be consolidated in the consolidated financial statements of the Group. In light of the potential future prospects offered by the Acquisition as illustrated in the section headed “Reasons for the Acquisition” in this letter from the Board, the Directors are of the view that the Acquisition will likely contribute positively to the Group. However, the actual effect on earnings will depend on the future financial performance of Beijing Tide.

THE INDEPENDENT BOARD COMMITTEE AND THE INDEPENDENT FINANCIAL ADVISOR

The Independent Board Committee has been established to advise the Independent Shareholders on the Acquisition and the Whitewash Waiver.

At the Board meeting held to approve the Acquisition, Miss Tse, the Whitewash Applicant, Ms. Cheng Cheung Ling and Mr. Tse Hsin were considered to be interested in the Acquisition and have abstained from voting in respect of the resolution to approve the Acquisition.

Members of the Independent Board Committee (namely Mr. Lu Zhengfei, Mr. Li Dakui, Ms. Lu Hong and Mr. Zhang Lu Fu), who have taken into account the terms of the Acquisition, the principal factors and reasons considered by and the opinion of the Independent Financial Adviser as set out in the “Letter From the Independent Financial Adviser” of this circular, considered that (i) the Acquisition is on normal commercial terms and fair and reasonable so far as the Independent Shareholders are concerned; (ii) the entering into of the First Agreement and the Second Agreement, while not in the ordinary and usual course of business of the Company, is in the interests of the Company and the Shareholders as a whole; and (iii) the Whitewash Waiver is fair and reasonable so far as the Independent Shareholders are concerned.

None of the members of the Independent Board Committee are interested in the Shares or underlying Shares, and none of the members of the Independent Board Committee is interested in the Acquisition and/or the Whitewash Waiver.

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LETTER FROM THE BOARD

Guotai Junan Capital Limited has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders on the Acquisition and the Whitewash Waiver. Their letter of advice is set out in the “Letter from the Independent Financial Advisor” of this circular.

RECOMMENDATIONS

You are advised to read carefully the letter from the Independent Board Committee on pages 30 to 31 of this circular. The Independent Board Committee, having taken into account the advice of the Independent Financial Adviser, the text of which is set out on pages 32 to 78 of this circular, consider that (a) the terms and conditions of the Acquisition and all transactions contemplated thereunder (including the allotment and issue of the Consideration Shares under the Specific Mandate) are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole; and (b) the Whitewash Waiver is fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the relevant resolutions to be proposed at the EGM to approve the Acquisition (including the Specific Mandate) and the Whitewash Waiver.

The Board (excluding (i) Mr. Tse, Ms. Cheng Cheung Ling and Mr. Tse Hsin, and all the independent non-executive Directors whose views are set out in more detail in the letter from the Independent Board Committee and (ii) Miss Tse, Theresa Y Y, an executive Director who is the daughter of Mr. Tse and Ms. Cheng Cheung Ling, have abstained from voting) considers that (1) the terms and conditions of the Acquisition and the respective transactions contemplated thereunder (including the allotment and issue of the Consideration Shares and under the Specific Mandate) are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole; and (2) the Whitewash Waiver is fair and reasonable and in the interests of the Company and the Shareholders as a whole, and recommend the Independent Shareholders to vote in favour of the relevant resolutions to be proposed at the EGM.

ADDITIONAL INFORMATION

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

Yours faithfully, By Order of the Board Sino Biopharmaceutical Limited Tse, Theresa Y Y Chairlady

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [217 x 124] intentionally omitted <==

(Incorporated in the Cayman Islands with limited liability) Website: www.sinobiopharm.com (Stock code: 1177)

26 January 2018

To the Independent Shareholders

(1) MAJOR AND CONNECTED TRANSACTION; (2) ISSUE OF CONSIDERATION SHARES UNDER SPECIFIC MANDATE; AND (3) APPLICATION FOR WHITEWASH WAIVER

Dear Sir or Madam,

We refer to the circular of the Company dated 26 January 2018 (the “ Circular ”), of which this letter forms part. Unless the context requires otherwise, capitalised terms used in this letter have the same meanings as defined in the Circular.

We have been appointed by the Board as the Independent Board Committee to advise the Independent Shareholders as to whether (1) the terms of the Acquisition (including the allotment and issue of the Consideration Shares under the Specific Mandate) are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole; and (2) the Whitewash Waiver is fair and reasonable and in the interests of the Company and the Shareholders as a whole.

We wish to draw your attention to (i) the letter of advice from the Independent Financial Advisor. Details of the advice of the Independent Financial Adviser, together with the principal factors and reasons it has taken into consideration, are set out on pages 32 to 78 of the Circular; and (ii) the letter from the Board as set out on pages 6 to 29 of the Circular.

Having considered the terms of the Acquisition and the principal factors and reasons considered by and the opinion of the Independent Financial Advisor as set out in its letter of advice, we consider that the Acquisition is on normal commercial terms and fair and reasonable so far as the Independent Shareholders are concerned. We consider the entering into of the First Agreement and the Second Agreement, while not in the ordinary and usual

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

course of business of the Company, is in the interests of the Company and its Shareholders as a whole. We also consider that the Whitewash Waiver is fair and reasonable so far as the Independent Shareholders are concerned.

Accordingly, we recommend that the Independent Shareholders to vote in favour of the resolution to approve the Acquisition and the Whitewash Waiver at the EGM.

Yours faithfully, For and on behalf of the Independent Board Committee

Mr. Lu Zhengfei Mr. Li Dakui Ms. Lu Hong Mr. Zhang Lu Fu Independent Independent Independent Independent Non-executive Non-executive Non-executive Non-executive Director Director Director Director

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LETTER FROM GUOTAI JUNAN CAPITAL

The following is the text of the letter of advice from Guotai Junan Capital Limited, the Independent Financial Adviser appointed by the Company (while the appointment has been approved by the Independent Board Committee), to the Independent Board Committee and the Independent Shareholders in respect of the Acquisition and the Whitewash Waiver, which has been prepared for the purpose of inclusion in the Circular.

GUOTAI JUNAN CAPITAL LIMITED

27/F., Low Block Grand Millennium Plaza 181 Queen’s Road Central Hong Kong

26 January 2018

To: The Independent Board Committee and the Independent Shareholders of Sino Biopharmaceutical Limited

Dear Sirs,

(1) MAJOR AND CONNECTED TRANSACTION; (2) ISSUE OF CONSIDERATION SHARES UNDER SPECIFIC MANDATE; AND (3) APPLICATION FOR WHITEWASH WAVIER

INTRODUCTION

We refer to our engagement as the independent financial adviser (the “ Independent Financial Adviser ”) to advise the Independent Board Committee and the Independent Shareholders in respect of the Acquisition and the Whitewash Waiver, details of which are set out in the letter from the Board in the circular issued by the Company to the Shareholders dated 26 January 2018 (the “ Circular ”), of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as those defined in the Circular unless the context otherwise requires.

On 5 January 2018, the Company and the Vendor entered into the First Agreement and the Second Agreement, pursuant to which the Company has conditionally agreed to acquire, and the Vendor has conditionally agreed to sell, the First Sale Shares and the Second Sale Shares at the Consideration of HK$9,207,399,095 and HK$3,688,117,842, respectively, which shall be satisfied by the Company by the allotment and issue of 723,283,511 and 289,718,605 Shares at the issue price of HK$12.73 per Share to the designated parties of the Vendor at completion of the First Acquisition and Second Acquisition, respectively.

The key subject matter of the Acquisition as held by Sino Biopharm Beijing (“ Target Company I ”), and Super Demand (“ Target Company II ”) (collectively the “ Target Companies ”) are the equity interests of Beijing Tide (“ Beijing Tide ”). Upon Completion, the Company will, in aggregate, be interested in 57.6% of the issued share capital of Beijing

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LETTER FROM GUOTAI JUNAN CAPITAL

Tide and it will become a non-wholly owned subsidiary of the Company. Independent Shareholders’ attention is drawn to the further details of Beijing Tide as set out in the paragraph headed “Information on Beijing Tide” in the letter from the Board of the Circular.

As one or more of the applicable percentage ratios in respect of the Acquisition are more than 25% but less than 100%, the Acquisition constitutes a major transaction of the Company and is subject to the reporting, announcement and shareholders’ approval requirements under Chapter 14 of the Listing Rules.

As at the date of the Latest Practicable Date, the Vendor is a company owned as to 91.33% by Miss Tse, an executive Director and the Chairlady of the Company and as to 8.67% by Ms. Kwok Suk Lan, the mother of Mr. Tse Hsin. Miss Tse is the daughter of the Whitewash Applicant and Ms. Cheng Cheung Ling. The Whitewash Applicant is an executive Director and a substantial shareholder of the Company holding approximately 16.49% of the issued share capital of Company. Ms. Cheng Cheung Ling is an executive Director and a substantial shareholder of the Company holding approximately 25.14% of the issued share capital of the Company. Ms. Kwok Suk Lan is the mother of Mr. Tse Hsin. Mr. Tse Hsin is an executive Director, an uncle of Miss Tse, and a first cousin of the Whitewash Applicant. Mr. Tse Hsin is interested in approximately 0.83% of the issued share capital of the Company. Accordingly, the Acquisition constitutes a connected transaction for the Company under Chapter 14A of the Listing Rules and is subject to the reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

As at the Latest Practicable Date, members of the Concert Group, in aggregate, are interested in 3,085,897,722 Shares, representing approximately 41.63% of the issued share capital of the Company. Upon Completion, the Concert Group will, in aggregate, be interested in 4,098,899,838 Shares, representing approximately 48.65% of the issued share capital of the Company as enlarged by the allotment and issue of the Consideration Shares (assuming that there is no change in the issued share capital of the Company other than the issue of the Consideration Shares from the Latest Practicable Date and up to the date of Completion). As a result, under Rule 26 of the Takeovers Code, the Whitewash Applicant and parties acting in concert with him would be obliged to make a mandatory general offer to the Shareholders for all the issued Shares other than those already owned or agreed to be acquired by the Concert Group, unless the Whitewash Waiver is obtained from the Executive. In this regard, the Whitewash Applicant has applied to the Executive for the Whitewash Waiver pursuant to Note 1 on the dispensations from Rule 26 of the Takeovers Code. The Completion is subject to, among other things, the approval by the Independent Shareholders of the Whitewash Waiver at the EGM by way of a poll and the granting of the Whitewash Waiver by the Executive. The granting of the Whitewash Waiver is a non-waivable condition precedent to Completion. If the Whitewash Waiver is not obtained and/or approved by the Independent Shareholders, the Acquisition will not proceed.

The voting in respect of, among others, the Acquisition and the Whitewash Waiver at the EGM will be conducted by way of a poll. The Whitewash Applicant, Ms. Cheng Cheung Ling and Mr. Tse Hsin and their respective associates will abstain from voting at the EGM in respect of the resolutions relating to the Acquisition and the Whitewash Waiver.

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LETTER FROM GUOTAI JUNAN CAPITAL

The Independent Board Committee comprising all the independent non-executive Directors, namely Mr. Lu Zhengfei, Mr. Li Dakui, Ms. Lu Hong and Mr. Zhang Lu Fu, has been established to advise the Independent Shareholders in respect of, among others, the Acquisition and the Whitewash Waiver, and to make a recommendation to the Independent Shareholders on how to vote on the proposed resolutions. We have been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in the same regard. Our appointment has been approved by the Independent Board Committee.

OUR INDEPENDENCE

As at the Latest Practicable Date, we, Guotai Junan Capital Limited, were not aware of any relationships or interests between us and (i) the Company; (ii) the Vendor; (iii) any other parties acting, or presumed to be acting, in concert with any of them, that could be reasonably regarded as a hindrance to our independence as defined under the Takeovers Code and/or Rule 13.84 of the Listing Rules to act as the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Acquisition and the Whitewash Waiver. We have not, in the past two years prior to the date of this Circular, provided any services to the Company or had any financial or other connection with the Company.

BASIS OF OUR OPINION AND RECOMMENDATION

In formulating our opinion and recommendation, we have relied on the information and facts supplied, and the opinions expressed, by the Directors and the management of the Group, the Target Companies, France Investment BVI, and Beijing Tide (collectively the “ Target Group ”) and have assumed that they are true, accurate and complete in all material aspects. We have reviewed the First Agreement, the Second Agreement, the published information on the Company, including but not limited to, a circular of the Company dated 7 November 2003 in relation to the acquisition of 35% equity interests in Beijing Tide, a valuation report in respect of Beijing Tide dated 25 May 2012, a circular of the Company dated 22 June 2012 in relation to the restructuring of Beijing Tide, an announcement of the Company dated 12 September 2014 in relation to the results of review by CSRC regarding the proposed listing of Beijing Tide in ChiNext, the annual reports of the Company for the years ended 31 December 2012, 2013, 2014, 2015 and 2016, interim report of the Company for the six months ended 30 June 2017, the third quarterly results announcement for the nine months ended 30 September 2017, the accountants’ report of the Target Group for the three years ended 31 December 2014, 2015 and 2016 and the nine months ended 30 September 2017, the unaudited pro forma financial information of the Enlarged Group as contained in Appendix IV to the Circular, the Announcement, and the information contained in the Circular. We have discussed with the management of the Group and the Target Group regarding the background of and reasons for the Acquisition. We have also conducted site visits to selected production facilities and research and development facilities of the Target Group. We have reviewed the trading performance of the Shares on the Stock Exchange. We have sought and received confirmation from the Directors that no material facts have been omitted from the information supplied and opinions expressed by them. We consider that the information we have received is sufficient for us to reach our opinion and recommendation as set out in this letter. We have no reason to doubt the truth and accuracy of the

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LETTER FROM GUOTAI JUNAN CAPITAL

information provided to us or to believe that any material facts have been omitted or withheld. We have, however, not conducted any independent investigation into the business and affairs of the Group, the Vendor, the Target Group, or their respective substantial shareholders, associates or any party acting, or presumed to be acting, in concert with any of them, nor have we carried out any independent verification of the information supplied. We have also assumed that all representations contained or referred to in the Circular were true at the time they were made and will continue to be true until the Latest Practicable Date. The Company will notify the Shareholders of any material changes as soon as practicable, if any.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion and recommendation with regard to the Acquisition and the Whitewash Waiver, we have taken into account the following principal factors and reasons:

1. Information on the Group

1.1 Business of the Group

The Company was incorporated in Cayman Islands and its Shares have been listed on the Main Board of the Stock Exchange since 2003. The Group is an integrated pharmaceutical enterprise and principally engaged in the research and development, production and sale of a series of health enhancing modernised Chinese medicines and chemical medicines by applying advanced modernised Chinese and biomedical technology.

The Group’s major products can be grouped under two major therapeutic categories of hepatitis and cardio-cerebral diseases. For hepatitis diseases, the Group is the first pharmaceutical manufacturer which obtained approval certificate and production approval for its self-developed hepatitis B medicine, Runzhong (Entecavir) dispersible tablet （潤眾（恩替卡韋）分散片）. For cardio-cerebral diseases, the Group produces Yilunping tablets（依倫平片）and Tuotuo calcium tablet（托妥鈣片）. The Group also develops medicines for treating tumors, analgesia, orthopedic diseases, anti-infection, parenteral nutrition, respiratory system diseases, anorectal diseases, diabetes and other diseases to meet the increasing demands of the market, medical practitioners and patients. The Group has obtained Good Manufacturing Practice certifications issued by the China Food and Drug Administration of the PRC (“ CFDA ”) for the following dosage forms: large volume injections, small volume injections, PVC-free soft bags for intravenous injections, capsules, tablets, powdered medicines and granulated medicines. The Group also received the Good Manufacturing Practice certification for health food in capsules from the Department of Health of Jiangsu Province.

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LETTER FROM GUOTAI JUNAN CAPITAL

1.2 Financial performance of the Group

Set out below is a summary of the financial performance of the Group for the three years ended 31 December 2014, 2015 and 2016 as extracted from the published annual financial statements of the Group for the relevant years and the nine months ended 30 September 2016 and 2017 as extracted from the published third quarterly results announcement for the nine months ended 30 September 2017. Since the principal business and operation of the Group are in China and the transactions with major stakeholders are settled by Renminbi, the Board decided to change the reporting currency of the Group from Hong Kong dollars to Renminbi with effect from 1 January 2017. Hence, the financial statements are presented in Renminbi from 1 January 2017 and the comparative figures are also restated thereof.

				For the nine months	For the nine months
	For the year ended 31		December	ended 30	September
	2014	2015	2016	2016	2017
	HK$’000	HK$’000	HK$’000	RMB’000	RMB’000
	(audited)	(audited)	(audited)	(unaudited)	(unaudited)
				(restated)
Revenue	12,378,350	14,550,225	15,825,438	10,450,096	11,446,729
Gross profit	9,457,819	11,300,528	12,534,217	8,256,659	9,049,458
Gross profit margin	76.4%	77.7%	79.2%	79.0%	79.1%
Profit for the period/
year	2,361,054	2,911,008	3,188,260	1,954,517	2,510,721
Net profit margin	19.1%	20.0%	20.1%	18.7%	21.9%
Profit attributable to
owners of the parent	1,513,205	1,778,692	1,913,276	1,299,673	1,804,961

The Group generated revenue from three operating segments, being (i) modernised Chinese medicines and chemical medicines; (ii) investment; and (iii) others. The modernized Chinese medicines and chemical medicines segment is the largest segment of the Group and generated almost all revenue of the Group during the last three financial years.

Revenue of the Group increased approximately by 17.5% from approximately HK$12,378.4 million in 2014 to approximately HK$14,550.2 million in 2015. It was primarily attributable to the increase in sales of blockbuster hepatitis medicines. In particular, sales of Runzhong dispersible tablet （潤眾（恩替卡韋）分散片）, the latest generation of guanine nucleoside analogue oral medicine used for the treatment of hepatitis B, amounted to approximately HK$3,120.8 million in 2015, representing an increase of approximately 33.4% over the previous year. The sales of Tianqingganmei Injections （天晴甘美注射液） also increased to approximately HK$2,256.4 million in 2015, representing an increase of approximately 17.2% compared to previous year. In 2016, the sales of Runzhong dispersible tablet grew moderately and increased by

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LETTER FROM GUOTAI JUNAN CAPITAL

approximately 13.2% to approximately HK$3,533.8 million, which led to an increase in revenue of the Group by approximately 8.8% to approximately RMB15,825.4 million in 2016. For the first nine months of 2017, the Group recorded a period-on-period increase of revenue by approximately 9.5% to approximately RMB11,446.7 million. The increase in revenue is mainly driven by the improved performance of hepatitis and cardio-cerebral medicines. For the nine months ended 30 September 2017, the growth in sales of Runzhong dispersible tablet remained stable and increased by approximately 6.2% to approximately RMB2,487.5 million. The sales of Tianding tablets （天丁片） amounted to approximately RMB299.1 million with a growth of approximately 74.9% on period-on-period basis. For the nine months ended 30 September 2017, it recorded the sales of Yilunping tablets （依倫平片） amounted to approximately RMB479.8 million, representing an increase of approximately 16.4%.

The gross profit margin of the Group improved slightly from approximately 76.4% to approximately 79.2% over the last three financial years. For the nine months ended 30 September 2017, the Group achieved a gross profit margin of approximately 79.1% which is almost the same as approximately 79.0% achieved in same period last year. Notwithstanding the adverse impacts from medical insurance premium control and lower price tender policies implemented by the PRC government, the gross profit margin of the Group improved slightly as it strengthened the promotion of new medicines with fewer competition in the market.

The profit attributable to owners of the parent increased from approximately HK$1,513.2 million in 2014 to approximately HK$1,778.7 million in 2015, and further increased to approximately HK$1,913.3 million in 2016. It represented an increase of approximately 17.5% and approximately 7.6% in 2015 and 2016 respectively, mainly due to continual business expansion which led to revenue improvement. The net profit margin increased slightly from approximately 19.1% in 2014 to approximately 20.0% in 2015, which was in line with the increase in gross profit margin. Although the gross profit margin improved in 2016, net profit margin remained stable at approximately 20.1% in 2016 as the research and development costs increased by approximately 22.8% to approximately HK$1,598.7 million in 2016.

For the nine months ended 30 September 2017, the net profit margin increased moderately from approximately 18.7% to approximately 21.9%, mainly due to the realised gain and fair value gain on equity investments, and effective cost control on administrative expenses.

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LETTER FROM GUOTAI JUNAN CAPITAL

1.3 Financial position of the Group

Set out below is a summary of the financial position of the Group as at 31 December 2014, 2015 and 2016 as extracted from the published annual financial statements of the Group for the relevant years, and the financial position of the Group as at 30 September 2017 as extracted from the published third quarterly results announcement for the nine months ended 30 September 2017. For the same reason as stated earlier, the Board decided to change the reporting currency of the Group from Hong Kong dollars to Renminbi with effect from 1 January 2017. Hence, the financial statements are presented in Renminbi from 1 January 2017 and the comparative figures are also restated thereof.

Non-current assets Current assets Current liabilities Non-current liabilities Net assets Equity Non-controlling interests Total equity Net asset value attributable to the Shareholders (“NAV”) per share – in RMB – in HK$	As at 31 December 2014 2015 2016 HK$’000 HK$’000 HK$’000 (audited) (audited) (audited) 5,983,415 6,546,887 6,327,540 8,180,526 9,935,731 14,211,986 3,861,272 5,524,052 6,313,610 1,484,373 515,521 2,287,987 8,818,296 10,443,045 11,937,929 6,610,642 7,755,888 8,884,724 2,207,654 2,687,157 3,053,205 8,818,296 10,443,045 11,937,929 N/A N/A N/A 1.34 1.05 1.20	As at 30 September 2016 2017 RMB’000 RMB’000 (audited) (unaudited) (restated) 5,585,165 6,617,916 12,754,918 13,965,312 5,660,726 6,190,578 1,937,446 2,499,210 10,741,911 11,893,440 7,983,435 9,151,940 2,758,476 2,741,500 10,741,911 11,893,440 1.08 1.23 N/A N/A	As at 30 September 2016 2017 RMB’000 RMB’000 (audited) (unaudited) (restated) 5,585,165 6,617,916 12,754,918 13,965,312 5,660,726 6,190,578 1,937,446 2,499,210 10,741,911 11,893,440 7,983,435 9,151,940 2,758,476 2,741,500 10,741,911 11,893,440 1.08 1.23 N/A N/A
			11,893,440 9,151,940 2,741,500
			11,893,440 1.23 N/A

As at 30 September 2017, the majority of the Group’s non-current assets were (i) properties, plant and equipment of approximately RMB3,060.9 million, and (ii) investment in associates of approximately RMB897.6 million, while the majority of the Group’s current assets were (i) cash and bank balances of approximately RMB4,926.9 million, (ii) prepayments, deposits and other receivables of approximately RMB2,492.6 million, (iii) available-for-sale investments of approximately RMB2,468.7 million, and (iv) trade and bills receivables of approximately RMB2,338.2 million. Non-current assets increased moderately by approximately 18.5% due to the additions in property, plant and equipment and prepaid land lease payments for business expansion. As the

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LETTER FROM GUOTAI JUNAN CAPITAL

operations of the Group expanded, current assets increased moderately by approximately 9.5% as bank balances increased by approximately RMB1,161.1 million and equity investments increased by approximately RMB514.5 million, offset by decrease in prepayment, deposit and other receivables by approximately RMB702.7 million.

As at 30 September 2017, non-current liabilities of the Group mainly comprised non-current portion of interest-bearing bank borrowings of approximately RMB2,263.3 million. Current liabilities of the Group mainly comprised (i) other payables and accruals of approximately RMB4,455.8 million and (ii) trade and bills payables of approximately RMB807.2 million. Current liabilities increased moderately by approximately 9.4% as other payables and accruals increased by approximately RMB1,184.3 million, offset by decrease in current portion of bank borrowing by approximately RMB629.9 million. Non-current liabilities increased by approximately 29.0% due to the increase in non-current bank borrowings by approximately RMB584.4 million.

The NAV per share decreased from approximately HK$1.34 in 2014 to approximately HK$1.05 in 2015 as there was a bonus issue of one bonus share for every two existing shares held by members on 19 November, 2015, resulting in the issuance of 2,470,730,736 ordinary shares.

2. Information on the Vendor

The Vendor is a company incorporated in Hong Kong and principally engaged in investment holding business. As at the Latest Practicable Date, it is owned as to 91.33% by Miss Tse and as to 8.67% by Ms. Kwok Suk Lan.

3. Information on the Target Group

3.1 Background and business of the Target Group

(a) Background

Target Company I is a company incorporated in Hong Kong and principally engaged in investment holding. As at the Latest Practicable Date, it is owned as to 51.0% by the Vendor and as to 49.0% by the Company. Its sole asset is its 33.6% equity interests in Beijing Tide.

Target Company II is a company incorporated in the British Virgin Islands and principally engaged in investment holding. As at the Latest Practicable Date, it is owned as to 52.0% by the Vendor and as to 48.0% by the Company. Its sole asset is its 55.0% equity interests in France Investment BVI.

France Investment BVI is a company incorporated in the British Virgin Islands and principally engaged in investment holding. As at the Latest Practicable Date, it is owned as to 55.0% by Target Company II and as to 45.0% by the Company. Its sole asset is its 24.0% equity interests in Beijing Tide.

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LETTER FROM GUOTAI JUNAN CAPITAL

Upon Completion, the Company will hold the entire issued share capital of the Target Companies and France Investment BVI. As they become the wholly-owned subsidiaries of the Group, the financial statements of each of them will be consolidated with the accounts of the Group.

Beijing Tide is a company established in the PRC with limited liability and one of the leading pharmaceutical companies developing, manufacturing and marketing high technology pharmaceutical products in the PRC. As set out in the Letter from the Board, it takes the lead in the research, development and sale of Alprostadil Injection（前列地爾注射液）and Flurbiprofen Axetil Injection（氟比洛芬酯注射液）, which are targeted medicines with lipo-microsphere as carriers, and is currently one of the top enterprises specialising in the research, development and production of targeted medicine and a leader in the advanced Drug Delivery System (“ DDS ”) with over two decades of experience in the PRC. It is one of Top 50 Enterprises in the PRC pharmaceutical industry as published by China National Pharmaceutical Industry Information Centre in 2017.

It was selected by Ministry of Science and Technology and City of Beijing as Hi-tech Enterprise since 2008, Beijing Foreign Invested Enterprise with Advanced Technology in 2004, an innovation pilot enterprise for National Independent Innovation Demonstration Zone in Zhongguancun Science & Technology Park in 2009 and a member of “Ten, Hundred and Thousand Program” （「十百千工程」） in 2011. According to the statistics published by National Ministry of Industry and Information Technology, Beijing Tide is among the top 100 best pharmaceutical enterprises in terms of total revenue in PRC since 2010.

As set out in the Letter from the Board, the Company acquired approximately 29.17% equity interest, in aggregate, of Beijing Tide from two independent third parties at a total consideration of approximately RMB53.3 million on 17 October 2003. The Company also made a capital contribution of approximately RMB26.7 million to Beijing Tide. Upon the completion of the equity transfer and capital contribution, the Company was interested in 35.00% equity interest of Beijing Tide. As stated in the Company’s circular dated 7 November 2003, the profit after taxation (based on audited accounts prepared in accordance with the PRC accounting standards) of Beijing Tide for the year ended 31 December 2001 and 2002 amounted to RMB54.5 million and RMB67.1 million, respectively. As at 31 December 2002, the net tangible assets value of Beijing Tide was RMB93.0 million (based on audited accounts prepared in accordance with the PRC accounting standards).

In 2010, due to the additional shares issued under employee incentive plan, the equity interest held by the Company decreased from 35.00% to approximately 33.60%.

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LETTER FROM GUOTAI JUNAN CAPITAL

On 1 June 2012, the Company, the Vendor and Target Company I entered into a restructuring agreement in relation to the preparation of the proposed listing of Beijing Tide on the ChiNext of the Shenzhen Stock Exchange. Pursuant to the restructuring agreement, the Company sold and the Vendor acquired 51.00% of equity interest of Target Company I (which in effect held approximately 17.14% of equity interest of Beijing Tide) (“ 2012 Disposal ”) and the Company acquired and the Vendor sold 48.00% and 45.00% equity interests in Target Company II and France Investment BVI respectively (which in effect held approximately 17.14%, in aggregate, of equity interest of Beijing Tide (“ 2012 Acquisition ”). The consideration for the 2012 Disposal and 2012 Acquisition were the same, being HK$293,040,370 and was set-off against each other. No proceeds were received or paid by the Company in relation to such restructuring.

Set out below is a chart showing the shareholding structure of the Target Group as at the Latest Practicable Date:

==> picture [427 x 344] intentionally omitted <==

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

Miss Tse Ms. Kwok Suk Lan
91.33% 8.67%
the Vendor the Company
52.00% (note 2) 48.00%
45.00% Independent
Super Demand Third Parties
(“Target Company II”)
55.0% 75.88%
51.00%
49.0% 4.92%
(note 1)
19.20%
LTT
Independent France Investment BVI Sino Biopharm Beijing Bio-Pharm
shareholders (“Target Company I”)
Co., Ltd.
30.88% 24.00% 33.6% 11.52%
Beijing Tide
----- End of picture text -----

Notes:

(1) Being the First Acquisition Shares.

(2) Being the Second Acquisition Shares.

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LETTER FROM GUOTAI JUNAN CAPITAL

A simplified shareholding structure of Beijing Tide immediately upon Completion is as follows:

==> picture [426 x 257] intentionally omitted <==

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

the Company
Independent
Third Parties
100.00%
75.88%
45.00% Target Company II
4.92%
19.20%
55.00% 100.00%
France Target LTT Bio-Pharm
Independent
Investment BVI Company I Co., Ltd.
shareholders
24.00% 33.60% 11.52%
30.88%
Beijing Tide
----- End of picture text -----

As at the Latest Practicable Date, the Company holds as to 33.6% equity interest in Beijing Tide which is accounted as an associate company of the Group on an equity basis. Upon Completion, the Company’s equity interest in Beijing Tide will be increased to 57.6% and it will in turn become a non-wholly owned subsidiary of the Company with its financial statements being consolidated with the accounts of the Group.

(b) Business

As set out in the Letter from the Board, the Target Group is a pharmaceutical enterprise in China specializing in the development of high-end pharmaceutical products and innovative drugs. It is the first high-technology pharmaceutical manufacturer which succeeded in the research and development, and industrial production of targeted medicines in the PRC.

The Target Group’s research and development activities include targeting preparation, biological preparation, preparation for external use and solid preparation. At present, Beijing Tide has obtained a total of 11 drug registration approval documents issued by CFDA, seven of which are approved for production by CFDA. Its blockbuster products include (i) Alprostadil Injection, under the brand name “Kaishi[®] ”, being the first lipo-microsphere carrier targeting drug for curing vascular diseases approved by the CFDA in PRC and (ii) Flurbiprofen Axetil Injection, under the brand name “Kaifen[®] ”, being the first lipid microsphere carrier targeting drug for postoperative and cancer analgesia approved by CFDA in PRC. According to the information provided by the management, Beijing Tide, at present, is one of the top companies specialising in research, development and production of targeted drugs in PRC and also the first drug manufacturer in China that owns a series of targeted drug products.

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Beijing Tide has its own research and development system, procurement and production chain, distribution and sales network for the DDS drugs. It has a sales team of over 1,800 staff which covers prescription drug sales market for over 5,000 large and medium-sized hospitals in PRC.

3.2 Financial information of the Target Group

The Target Companies and France Investment BVI are a group of investment holding companies with no business operations other than holding, in aggregate, 24.0% of the effective equity interest in Beijing Tide according to their audited financial information.

The sole asset of Target Company I is its 33.6% equity interest in Beijing Tide. Based on the audited financial information of Target Company I as set out in Appendix IIA to the Circular, the net asset value as at 30 September 2017 was approximately HK$1,134.1 million. The financial results of Target Company I for the two years immediately preceding the Latest Practicable Date and the nine months ended 30 September 2017 (which were prepared in accordance with Hong Kong Financial Reporting Standards) are as follows:

				For the nine
				months
	For the year ended			ended 30
	31 December			September
	2015		2016	2017
	HK$’ million	_HK$’ _	million	HK$’ million
Net profit before taxation and
extraordinary items	317.1		336.1	366.7
Net profit after taxation and
extraordinary items	280.7		319.3	351.3

The sole asset of Target Company II is its 55.0% equity interest in France Investment BVI. Based on the audited consolidated financial information of Target Company II as set out in Appendix IIB to this circular, the net asset value as at 30 September 2017 was approximately US$85.6 million. The consolidated financial results of Target Company II for the two years immediately preceding the Latest Practicable Date and the nine months ended 30 September 2017 (which were prepared in accordance with International Financial Reporting Standards) are as follows:

				For the nine
				months
	For the year ended			ended 30
	31 December			September
	2015		2016	2017
	USD’ million	USD’ million		USD’ million
Net profit before taxation and
extraordinary items	28.0		32.0	32.0
Net profit after taxation and
extraordinary items	25.1		29.0	29.2

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The following table set out a summary of the consolidated statement of profit or loss of Beijing Tide for the three years ended 31 December 2014, 2015 and 2016, and for the nine months ended 30 September 2016 and 2017, as extracted from the Accountants’ Report set out in Appendix IIC to the Circular:

Revenue Cost of sales Gross profit Gross profit margin Other income and gains Selling and distribution costs Administrative expenses Other expenses Share of profits and losses of associates Profit before tax Income tax expense Profit for the period/ year Net profit margin	For the year ended 31 December 2014 2015 2016 RMB’000 RMB’000 RMB’000 (audited) (audited) (audited) 2,325,720 2,649,832 2,998,069 (292,061) (359,324) (394,515) 2,033,659 2,290,508 2,603,554 87.4% 86.4% 86.8% 51,939 52,491 53,133 (963,437) (1,038,673) (1,149,155) (162,937) (166,955) (188,007) (124,802) (165,749) (171,747) 1,258 2,262 (6,342) 835,680 973,884 1,141,436 (149,335) (190,836) (212,649) 686,345 783,048 928,787 29.5% 29.6% 31.0%	For the nine months ended 30 September 2016 2017 RMB’000 RMB’000 (unaudited) (audited) 2,236,184 2,510,590 (292,523) (366,006) 1,943,661 2,144,584 86.9% 85.4% 29,038 30,562 (855,727) (876,287) (154,393) (138,110) (137,733) (137,392) (4,757) 8,884 820,089 1,032,241 (141,687) (157,533) 678,402 874,708 30.3% 34.8%

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Revenue

Revenue of Beijing Tide derives from the sale of (i) targeted medicines, including Alprostadil Injection and Flurbiprofen Axetil Injection, (ii) solid dosage forms, including Beraprost Sodium Tablet and Pronase Granules, and (iii) band-aids, including Flurbiprofen Cataplasms. The table below sets out the segment revenues of Beijing Tide:

Targeted medicines Solid dosage forms Band-aids	For the year ended 31 December 2014 2015 2016 RMB’000 RMB’000 RMB’000 (audited) (audited) (audited) 2,059,975 2,234,806 2,409,199 165,391 240,266 318,155 100,354 174,760 270,715 2,325,720 2,649,832 2,998,069	For the nine months ended 30 September 2016 2017 RMB’000 RMB’000 (unaudited) (audited) 1,809,317 1,935,012 234,089 296,030 192,778 279,548 2,236,184 2,510,590	For the nine months ended 30 September 2016 2017 RMB’000 RMB’000 (unaudited) (audited) 1,809,317 1,935,012 234,089 296,030 192,778 279,548 2,236,184 2,510,590
			2,510,590

The revenue increased by approximately 13.9% in 2015 to approximately RMB2,649.8 million, which is mainly due to the growth in all three product segments. In 2016, the revenue further increased by approximately 13.1% to approximately RMB2,998.1 million which was also driven by the stable growth in all three product segments. For the nine months ended 30 September 2017, Beijing Tide recorded an increase in revenue by approximately 12.3% to RMB2,510.6 million comparing to the same period of 2016, which is attributable to the stable growth in sales of all three product segments.

As set out in the Appendix III to the Circular, the revenue maintained a stable growth for the three years ended 31 December 2014, 2015 and 2016, and for the nine months ended 30 September 2016 and 2017 as Beijing Tide carried out effective marketing activities to promote its products.

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Cost of sales, gross profit and earnings before interests, tax, depreciation and amortisation (“ EBITDA ”)

The table below sets out the gross profits of the three segments and also EBITDA of Beijing Tide:

Targeted medicine Solid dosage forms Band-aids Sales taxes and surcharge Gross profit EBITDA(1)	For the year ended 31 December 2014 2015 2016 RMB’000 RMB’000 RMB’000 (audited) (audited) (audited) 1,867,464 2,014,994 2,189,839 143,953 209,367 276,817 64,464 114,051 188,557 2,075,881 2,338,412 2,655,213 42,222 47,904 51,659 2,033,659 2,290,508 2,603,554 882,916 1,035,230 1,200,140	For the nine months ended 30 September 2016 2017 RMB’000 RMB’000 (unaudited) (audited) 1,647,140 1,741,772 204,383 256,210 129,486 193,299 1,981,009 2,191,281 37,348 46,697 1,943,661 2,144,584 865,729 1,095,469	For the nine months ended 30 September 2016 2017 RMB’000 RMB’000 (unaudited) (audited) 1,647,140 1,741,772 204,383 256,210 129,486 193,299 1,981,009 2,191,281 37,348 46,697 1,943,661 2,144,584 865,729 1,095,469
			2,191,281 46,697
			2,144,584

			1,095,469

Note 1: EBITDA represents the earnings before income tax, finance costs, amortization and depreciation.

Cost of sales mainly consisted of materials cost, labour costs and manufacturing costs for the pharmaceutical products. The increases in cost of sales, gross profits and EBITDA for the three years ended 31 December 2014, 2015 and 2016, and for the nine months ended 30 September 2016 and 2017 were due to the increases in sales of the three product segments.

Gross profit margins

The table below sets out the gross profit margins of the three segments of Beijing Tide:

				For the nine months	For the nine months
	For the year	ended 31	December	ended 30 September
	2014	2015	2016	2016	2017
	%	%	%	%	%
Targeted medicines	90.8	90.2	90.9	91.0	90.0
Solid dosage forms	87.0	87.1	87.0	87.3	86.5
Band-aid	64.2	65.3	69.7	67.2	69.1
Overall	87.4	86.4	86.8	86.9	85.4

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In general, the gross profit margins of the three product segments for the three years ended 31 December 2014, 2015 and 2016, and for the nine months ended 30 September 2016 and 2017 were generally stable. The gross profit margin of band-aid in 2016 increased approximately 4.4% to approximately 69.7% due to a decrease in materials cost.

Selling and distribution costs

Selling and distribution costs mainly include salaries and welfares, marketing expenses, transportation fees, office expenses and depreciation expenses. The increases in selling and distribution costs for the three years ended 31 December 2014, 2015 and 2016, and for the nine months ended 30 September 2016 and 2017 were in line with the increases in revenue. The selling and distribution costs as percentage of revenue decreased gradually from approximately 41.4% in 2014 to approximately 39.2% in 2015, and further decreased to approximately 38.3% in 2016, while for the nine months ended 30 September 2016 and 2017, it decreased from approximately 38.3% to approximately 34.9%. The downward trend was mainly due to the effective and efficient market promotion activities on the existing products which are well received by the market.

Research and development costs

Research and development costs amounted to approximately RMB124.7 million, RMB145.2 million, RMB170.2 million, RMB144.1 million and RMB133.6 million for the three years ended 31 December 2014, 2015 and 2016, and for the nine months ended 30 September 2016 and 2017, respectively. The increase in research and development costs reflects the amount of resources incurred for developing new products.

Net profit and net profit margin

Net profit of Beijing Tide increased moderately by approximately 14.1%, 18.6% and 28.9% in 2015, 2016 and in the nine months ended 30 September 2017 respectively. The increases in net profit were mainly attributable to the growth in sales of all three product segments.

The net profit margin in 2015 was approximately 29.6% and remained stable when compared to 29.5% achieved in 2014. In 2016, it increased slightly to approximately 31.0%, which was mainly due to a stable gross profit margin and a decrease in proportion of selling and distribution costs as revenue. For the periods ended 30 September 2016 and 2017, the net profit margin continued to increase from approximately 30.3% to 34.8% as there was a reduction in office expenses and consulting expenses.

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The following table set out the consolidated statement of financial position of Beijing Tide as at 31 December 2014, 2015 and 2016, and as at 30 September 2017, as extracted from the Accountants’ Report set out in Appendix IIC to the Circular:

Non-current assets Property, plant and equipment Prepaid land lease payments Other intangible assets Investments in associates Deferred tax assets Current Assets Inventories Trade and bill receivables Prepayments, deposits and other receivables Available-for-sale investments Cash and bank balances Total assets	As at 31 December As at 30 September 2014 2015 2016 2017 RMB’000 RMB’000 RMB’000 RMB’000 (audited) (audited) (audited) (audited) 628,826 779,207 964,145 1,071,335 208,091 203,636 199,194 195,862 2,878 – – – 5,146 5,556 2,472 8,944 44,734 20,795 15,043 48,384 889,675 1,009,194 1,180,854 1,324,525 135,816 112,978 160,228 187,375 365,537 418,406 457,090 470,517 52,184 81,139 37,866 131,861 740,754 – – 791,521 854,664 1,242,464 1,532,687 82,596 2,148,955 1,854,987 2,187,871 1,663,870 3,038,630 2,864,181 3,368,725 2,988,395	As at 31 December As at 30 September 2014 2015 2016 2017 RMB’000 RMB’000 RMB’000 RMB’000 (audited) (audited) (audited) (audited) 628,826 779,207 964,145 1,071,335 208,091 203,636 199,194 195,862 2,878 – – – 5,146 5,556 2,472 8,944 44,734 20,795 15,043 48,384 889,675 1,009,194 1,180,854 1,324,525 135,816 112,978 160,228 187,375 365,537 418,406 457,090 470,517 52,184 81,139 37,866 131,861 740,754 – – 791,521 854,664 1,242,464 1,532,687 82,596 2,148,955 1,854,987 2,187,871 1,663,870 3,038,630 2,864,181 3,368,725 2,988,395
		1,324,525 187,375 470,517 131,861 791,521 82,596
		1,663,870 2,988,395

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Current liabilities Trade and bills payables Tax payable Other payables and accruals Interest-bearing bank borrowings Total assets less current liabilities Non-current liability Deferred government grants Total liabilities Net current assets Net assets	As at 31 December As at 30 September 2014 2015 2016 2017 RMB’000 RMB’000 RMB’000 RMB’000 (audited) (audited) (audited) (audited) 3,514 5,989 38,130 16,107 54,655 44,841 53,182 56,233 348,587 384,240 1,181,027 659,907 – – – 122,000 406,756 435,070 1,272,339 854,247 2,631,874 2,429,111 2,096,386 2,134,148 138,712 151,268 160,948 213,028 545,468 586,338 1,433,287 1,067,275 1,742,199 1,419,917 915,532 809,623 2,493,162 2,277,843 1,935,438 1,921,120	As at 31 December As at 30 September 2014 2015 2016 2017 RMB’000 RMB’000 RMB’000 RMB’000 (audited) (audited) (audited) (audited) 3,514 5,989 38,130 16,107 54,655 44,841 53,182 56,233 348,587 384,240 1,181,027 659,907 – – – 122,000 406,756 435,070 1,272,339 854,247 2,631,874 2,429,111 2,096,386 2,134,148 138,712 151,268 160,948 213,028 545,468 586,338 1,433,287 1,067,275 1,742,199 1,419,917 915,532 809,623 2,493,162 2,277,843 1,935,438 1,921,120
		854,247 2,134,148 213,028 1,067,275 809,623 1,921,120

Property, plant and equipment

The largest asset of Beijing Tide was property, plant and equipment as at 30 September 2017 which amounted to approximately RMB1,071.3 million. It mainly includes land and buildings, and plant and machinery. The increases in property, plant and equipment were mainly attributable to the expansion of research and development facilities, and the acquisitions of new plant and machinery to cope with the sales growth.

Available-for sale investments

The amount represented wealth management products, including bonds and bond funds, money market funds, investment products issued in inter-bank market and bond financing products, purchased from financial institutions in order to earn relatively higher rate of return.

These products have terms within one year.

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Cash and bank balances

Cash and bank balances amounted to approximately RMB82.6 million as at 30 September 2017. When compared to the balance as at 31 December 2016, the amount decreased significantly by approximately 94.6% as it is used to finance the payout of interim dividend of RMB900.0 million during the nine months ended 30 September 2017 and the purchase of wealth management products.

Other payables and accruals

As at 30 September 2017, the other payables and accruals amounted to approximately RMB659.9 million. When compared to the balance as at 31 December 2016, the amount decreased significantly by approximately 44.1%, attributable to the payment of dividend payable of RMB795.6 million.

4. Industry Overview

4.1 Overview of China’s pharmaceutical market

The health care system in China has been developing rapidly during the last decade when the Chinese Government started continuous reform to expand access, increase affordability and improve the quality of care. With the continuous government support and changing demographics and lifestyles, the demand for and the delivery of health care services, in particular the research and development on, and manufacturing of, pharmaceutical products, accelerated over the past years.

According to the “Decision of the State Council on Accelerating the Cultivation and Development of Strategic Emerging Industries”（《國務院關於加快培育和發展戰略性新興產業的決定》）issued by the State Council on October 2010, it stated clearly that in the future, the PRC would vigorously develop a large variety of innovative drugs applying in the prevention and control of serious diseases, including biotechnological drugs, new vaccines and diagnostic reagents, chemical drugs, modernised Chinese medicines, etc., and also enhance the level of biomedical industry.

According to the “Guidelines of the Planning of the Development for Pharmaceutical Industry” （《醫藥工業發展規劃指南》） jointly issued by the Ministry of Industry and Information Technology of the PRC, National Development and Reform Commission, Ministry of Science and Technology of the PRC, Ministry of Commerce of the PRC, National Health and Family Planning Commission of the PRC and CFDA in October 2016, the pharmaceutical market will experience a steady growth due to (i) the rapid growth of the PRC economy; (ii) the increase in disposable income of residents and the upgrading of consumption expenditure structure; (iii) the steady progress of the construction of “Healthy China 2030”（「健康中國2030」）; (iv) the further improvement of health insurance system; and (v) the aging of population and the implementation of comprehensive two-child policy.

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4.2 Key market drivers for the rapid increase in the demand of pharmaceutical products in China

Rapid aging population

According to the National Bureau of Statistics of the PRC, the population aged 65 years or above increased from 9.1% of the total population or 122.9 million people in 2011 to 10.8% or 150.0 million people in 2016, and the population aged 65 years or above is projected to reach 11.9% of the total population in 2020. According to the data released by The World Bank, the life expectancy at birth in the PRC increased gradually from 75.3 years to 76.1 years in 2015. The nation’s aging and the increasing life expectancy will shape care delivery within the health care system. The elderly patients will require a substantially different type of care than younger populations, often needing long-term, chronic support versus the more acute care seen in younger patients. As a result, it would generate higher on-going demand for pharmaceutical and health care products in the PRC, since elderly groups have weaker immune systems, resulting in a higher incidence of illness.

Increasing urbanisation and westernisation

The population in China has seen rapid urbanisation and modernisation over the years, people’s lifestyle become more resemble the western world, including in the habit of meat-heavy diet, higher prevalence of smoking and increasing sedentary and office-based working environment. Consequently, the “lifestyle-oriented” illnesses are increasingly prevalent. According to the National Bureau of Statistics of the PRC, malignant tumors, heart attack, and cardiovascular diseases were the three leading causes of death in China in 2016. There is an increasing demand of those relevant pharmaceutical products.

Rising income

According to the “National Economic and Social Development Statistics Bulletin” （《國民經濟和社會發展統計公報》） published by the National Bureau of Statistics of PRC, the annual disposable income per capita increased by 6.3% to RMB23,821 in 2016, with a compound annual growth rate of 9.6% from 2012 to 2016. 7.6% of the annual consumption expenditure was related to medication and health sector in 2016, compared to 7.4% in 2015. An increase in consumption is bolstered by the rapid rise in disposable incomes over the years. The spending power of the residents has been rising, so as their ability to pay for medicine and health care services.

Supportive government policies and measures

In October 2016, the State Council of the PRC promulgated the “Healthy China 2030 Planning Outline” （《健康中國2030規劃綱要》） which documented a medium to long term strategic plan for health sector in the PRC. It is stated that the scale of the health care industry, including fitness and leisure industry,

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pharmaceutical industry, health services industry, expects to increase from RMB1 trillion in 2015 to RMB8 trillion by 2020, and further increase to RMB16 trillion by 2030. As the PRC government promoted that public health is a precondition for future economic and social development, the national government strategy provides a growth engine for the medical and health development in the next decade.

Innovation, and research and development of pharmaceutical products

Since 2015, several PRC government bodies have issued a number of new policies to encourage drugs innovation and research and development:

On August 2015, the State Council of the PRC issued the guideline “The State Council’s opinion on the reform of review and approval system on drugs and medical instruments” （《國務院關於改革藥品醫療器械審評審批制度的意見》） to reform the approval system for drugs and medical instruments in order to improve drug safety and quality, and encourage innovation. Institutions and staff engaging in research and development of drugs will be allowed to apply for registration for new drugs, and once the drugs are transferred to manufacturers for production, no further appraisal will be required.

On February 2016, CFDA issued “Opinions on solving the backlog of applications for drug registration and carrying out priority review and approval” （《關於解決藥品註冊申請積壓實行優先審評審批的意見》）to strengthen drug registration management, speed up the research and development of new drugs with clinical value or urgently needed generic drugs, and reduce the backlog of drug registration application.

The General Office of the Communist Party of China Central Committee and the General Office of the State Council of PRC further issued the guideline “Opinion on deepening the examination and approval system for drugs, and reforming and encouraging innovation of drugs and medical instruments”（《關於深化審評審批制度改革鼓勵藥品醫療器械創新的意見》） on October 2017. The guideline aimed to promote technological advancement and industry competition by expanding the reform of review and approval system in the medical sector. Measures will be introduced for the reform of management of clinical trials, accelerating the approval of urgently needed drugs, setting up catalog of marketed drugs and a linked system for review and approval of drugs with patents.

Distribution and price setting of pharmaceutical products

On January 2017, the State Council Healthcare Reform Office, the National Health and Family Planning Commission of the PRC, the FDA, as well as another six ministries and commissions, including the National Development and Reform Commission, Ministry of Industry and Information Technology, Ministry of Commerce, State Administration of Taxation and State Administration of Traditional Chinese Medicine, jointly promulgated the “Opinions on the Implementation of the “Two Invoices System” in the Drug Procurement of

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pharmaceutical products by Public Medical Institutions (for Trial Implementation) (GYGBF [2016] No.4)” （《在公立醫療機構藥品採購中推行“兩票制”的實施意見（試行）》）to promote the gradual introduction of the Two-Invoice System in full swing by 2018. The implementation of the “Two Invoices System” （「兩票制」） would regulate and streamline the distribution of drugs, creating a better distribution environment where the public could afford pharmaceutical products at a reasonable price. The expansion of the National Basic Medical Insurance Drug list （《國家基本醫療保險藥品目錄》） by the Ministry of Human Resources and Social Security of the PRC also allows the public to gain reasonable access to different types of drugs at a affordable price.

Circulation of pharmaceutical products

In December 2016, the Ministry of Commerce of PRC issued “The National Development Plan for Drug Circulation Industry” （《全國藥品流通行業發展規劃（2016-2020年）》）. Several measures were included, like optimising laws and regulations, constructing a unified market, safeguarding fair competition, to reform the drug circulation industry in PRC. Furthermore, in February 2017, the State Council of PRC released a guideline “Opinion on the use of policies on further reforming and improving the production and circulation of drugs”（《關於進一步改革完善藥品生產流通使用政策的若干意見》）to better satisfying medical needs in PRC. These policies will help improve the circulation of medicine, which better fulfils the medical needs of the public and in turn increase the demand of medicine.

Aligning the regulatory regime to international standards

In June 2017, CFDA has become a regulatory member of The International Council for Harmonization of Technical Requirements for Pharmaceuticals for Human Use (the “ ICH ”). The technical guidelines issued by ICH are widely adapted in the pharmaceutical industry in Europe, Japan and United States. Becoming a regulatory member of ICH allows the CFDA and pharmaceutical companies in PRC to learn the latest scientific development and regulatory standards. Research and registration costs would also be reduced as they have the same technical requirements when performing international drug registration.

4.3 Key market drivers for the rapid development of DDS technology and products in China

According to the “Medical Science and Technology Development Twelfth Five-Year Plan”（《醫學科技發展「十二五」規劃》）released by the Ministry of Science and Technology in October 2011, it pointed out that the development of medical science and technology in China should grasp the development trend during the period of “12th Five-Year Plan” and take the past technology development such as biology, information, materials, engineering and nanotechnology as pioneer to strengthen multi-disciplinary integration, promote the incorporation of new technology into medical applications. It also stated that “targeted drug delivery nano-carrier” is one of the main medical technology developments.

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According to the “Twelfth Five-Year Plan for the pharmaceutical industry”（《醫藥工業「十二五」發展規劃》） released by the Ministry of Industry and Information Technology in January 2012, it is stated that during the period of “12th Five-Year Plan”, the development of the DDS technology is one of the main medical technology developments.

According to the “Made in China 2025” （《中國製造2025》）issued by the State Council in May 2015, it pointed out the focus of the future development would be on those new products including the chemical drugs, Chinese medicines and biotechnological drugs which targeted serious diseases. It also encouraged foreign enterprises and research institutes to set up research center in China.

Based on the factors mentioned above, the prospect of the pharmaceutical industry in the PRC, in particular the medicine research and development, and distribution, as well as the development of the DDS technology and products are generally optimistic and it is an opportunity for existing industry participants to capture the potential brought by the market reform. However, it should be noted that any material change in the regulatory regime for the DDS technology and products, as well as the pharmaceutical industry in the PRC could pose a systematic risk to the business prospects of the DDS technology and products, as well as the pharmaceutical industry in the PRC.

5. Reasons for and benefits of the Acquisition

The main reasons for and benefits of the Acquisition are set out in the letter from the Board in the Circular. The competitive strengths of Beijing Tide are summarised below:

Established market recognition in the pharmaceutical industry in the PRC. As set out in the Letter from the Board, Beijing Tide is currently one of the top enterprises specialising in the research, development and production of targeted medicines, and a leader in the advanced DDS in PRC. Beijing Tide was one of the Top 100 Enterprises in the PRC pharmaceutical industry in 2016 and promoted to one of Top 50 Enterprises in the PRC pharmaceutical industry in 2017 as published by China National Pharmaceutical Industry Information Center. Beijing Tide is selected by the Ministry of Science and Technology and City of Beijing as Hi-tech Enterprise, Beijing Foreign Invested Enterprise with Advanced Technology, one of the innovation pilot enterprises for National Independent Innovation Demonstration Zone in Zhongguancun Science & Technology Park and a member of “Ten, Hundred and Thousand Program”. According to the statistics published by the Ministry of Industry and Information Technology, Beijing Tide has been among the top 100 best pharmaceutical enterprises in the PRC in terms of revenue since 2010.
Recognised products with proven track record. As set out in the Letter from the Board, Beijing Tide has an outstanding product mix and leading brand with impact in cardio-cerebral and analgesic medicines. Five of its products including “Kaishi[®] （凱時[®] ）” of Alprostadil Injection, “Kaifen[®] （凱紛[®] ）” of Flurbiprofen Axetil Injection, “Kaina[®] （凱那[®] ）” of Beraprost Sodium Tablet, “Debaian[®] （得百

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安[®] ）” of Flurbiprofen Gel Patches and “Deyou[®] （得佑[®] ）” of Pronase Granules have filled the gap of the relevant pharmaceutical segments in China. These products are in leading position in the respective segments, in particular, “Kaifen”, an exclusive product in China, a DDS medicine mainly for after-surgery and cancer pain relief, is one of the injection prescription medicines of the non-steroidal anti-inflammatory drugs (“ NSAIDs ”) in PRC; “Kaifen” had been admitted into the National Reimbursement Drug List（《國家基本醫療保險藥品目錄》） (the “ Drug List ”) as published by Ministry of Human Resources and Social Security of the PRC in 2009; and “Kaishi”, a DDS medicine for curing vascular diseases, which had been admitted into the Drug List in 2004. “Kaina” and “Debaian” were also admitted into the Drug List in 2009 and 2017, respectively. The admission into the Drug List would increase the usage by the market and thus the demand of these products and may drive the revenue growth in the future. The products are widely adopted in many different treatment areas, including cancer, cardio-cerebral diseases, pain relief and respiratory diseases.

Proven research and development capability. Beijing Tide has a strong research and development capability and advantages in technology, and has a sound and high-calibre research and development system and personnel. As advised by the management, Beijing Tide has six core technology production platforms and owns over 40 core technologies through independent research and development and technology introduction. Through self-innovation, it has developed various core technologies, including the technologies for lipo-microsphere flash pasteurization, liposome production industrialization upscale, viscosity control of cataplasm, penetration enhancement of whole body owed patches and micro-dispersion of highly active raw materials. It has a research and development personnel of 229, of whom master degree or above accounted for approximately 33%. In addition to its independent research and development capabilities, it also established long-term and stable technical cooperation with foreign pharmaceutical companies, universities and tertiary educational institutions for continuous introducing other core technologies into Beijing Tide.
Rich reserve of products under research. As advised by the management of Beijing Tide, it has over 30 innovative products in the product pipeline which are under research or clinical trials. The lecithin and superoxide dismutase lyophilized powder for injection（注射用卵磷脂化超氧化物歧化酶凍乾粉針劑）will be a Class 1 new drug of biological products which is able to protect heart muscle cells and prevent heart failure after percutaneous coronary intervention. The Lidocaine gel cream（利多卡因凝膠膏）will be the first domestic gel cream for the treatment of post-herpetic neuralgia in the PRC and the Limaprost Alfadex tablets（利馬前列素片）which will be the first chemical medicine for the indication of lumbar spinal stenosis（腰椎管狹窄）in the PRC, if developed successfully. For the time being, one product which can be used in treating pain-relief has completed the research and development process and targeted to be launched in 2018. One product, which will be used in treating rheumatoid arthritis, muscle pain and other symptoms of anti-inflammatory analgesia, is undergoing clinical trials and targeted to be launched before 2020. Two products which will be used in treating lumbar spinal

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stenosis and Alzheimer disease, are undergoing clinical trials and targets to launch before 2021, Beijing Tide is also developing a medicine for preventing heart failure which targeted to be launched in 2022.

Commercialisation capability . Beijing Tide has an advanced commercialisation capability and quality system. Its technologies have enabled the mass and efficient production of its products with standardised quality to meet the huge market demands. As advised by the management, Beijing Tide has invested approximately RMB1 billion to construct the “Health Industrial Park of Tide”（「泰德健康產業園」） with a gross floor area of approximately 107,000 square meters. The newly constructed site could expand the production and research area, enlarge the production capacity, increase storage space, and industrialisation of product under research, and to meet the rising demand of the products in the future and also to provide rooms for further expansion and long term development of Beijing Tide.
Experienced and dedicated senior management personnel and sales team. As advised by Beijing Tide, all its products are sold through its own sales network. It also has a team of over 1,800 high-calibe marketing personnel for academic promotion and marketing and a sales network covering more than 5,000 hospitals in PRC. The in-house sales team would introduce the principles, effectiveness, application method, dosage and potential side effect of the products to doctors directly by periodically organising promotion events, academic seminars, conducting animal experiments and clinical trials. When orders for its products are received, it would sell the products to hospitals through qualified drugs procurement and circulation companies or distributors. The core management team is professional and dedicated with experience in pharmaceutical enterprises, research and development of new drugs and clinical services. The marketing team is experienced in product knowledge, which enables them to understand the nature of the products and the demand of the market.

We note that the Directors consider the Acquisition a valuable opportunity for the Company to strengthen its position in the pharmaceutical industry in the PRC by consolidating Beijing Tide upon Completion. In addition to expand its layout in cardio-cerebral, pain relief and respiratory product categories, the Group also treasures the opportunity, through the Acquisition, to work together with the Target Group to research, develop and launch more innovative and quality pharmaceutical products to meet the rising demands in the market. Beijing Tide could achieve cross-phase product development by utilising the offshore listed platform of the Group for overseas expansion and cross-border cooperation.

As mentioned in the Chairman’s statement in the Annual Report 2016, the Group expected that industry consolidation and regulatory development will provide new opportunities for companies capable of carrying out research and development of quality products. It is noted that the Group will focus on and capture investment opportunities in health care industries supported by the government policies.

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Based on the above consideration, we concur with the Directors’ view that the Acquisition is in line with the strategic planning of the Group as well as the recent trend of industry consolidation and will help enhancing the core competitiveness and the long-term profitability of the Group.

6. Principal terms of the First Agreement and the Second Agreement

Set out below are summaries of the principal terms of the First Agreement. Independent Shareholders are advised to read in full further details of the First Agreement as set out in the letter from the Board in the Circular.

6.1. Interests to be acquired in the Acquisition

The Company has conditionally agreed to acquire from the Vendor the First Sale Shares, representing 51.0% of the entire issued share capital of Target Company I at Completion.

The Company has conditionally agreed to acquire from the Vendor the Second Sale Shares, representing 52.0% of the entire issued share capital of Target Company II at Completion.

6.2 Consideration

The Consideration payable by the Company to the Vendor pursuant to the First Agreement and the Second Agreement is HK$9,207,399,095 and HK$3,688,117,842 respectively, which will be satisfied by the allotment and issue of 723,283,511 and 289,718,605 Consideration Shares at the Issue Price of HK$12.73 per Consideration Share to the Vendor upon Completion. The Issue Price of HK$12.73 per Consideration Share and the number of Consideration Shares shall be adjusted accordingly in the event that the Shares are traded on ex-rights and ex-dividends basis.

As set out in the Letter from the Board, the Consideration has been determined after arm’s length negotiations between the parties after taking into account (i) the historical financial position and performance of Beijing Tide; (ii) the nature and scope of the business and the future prospects of Beijing Tide, including its commitments to innovation and clinical needs, specialised research, development and commercialization platform of high-end targeted medicines in China, together with rich reserve of innovative products under research; (iii) the brand and market recognition of Beijing Tide’s leading products within the pharmaceutical industry, the marketing, sales and distribution capabilities of Beijing Tide including the comprehensive strength of its sales and marketing teams and the extensive coverage among hospitals; (iv) the price-to-earnings (“ P/E ”) ratio of certain companies listed on the Stock Exchange considered by the Directors of having businesses comparable to that of Beijing Tide; and (v) the benefits to be derived by the Group from the Acquisition. It will be satisfied at Completion by the allotment and issue of the Consideration Shares at the Issue Price credited as fully paid.

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In assessing whether the Consideration of the Acquisition is fair and reasonable, we have obtained and reviewed the historical financial information of Beijing Tide comprising the consolidated statements of comprehensive income, financial position, changes in equity and cash flows, which set out in the Appendix IIC – Accountants’ Report to the Circular, we noted that Beijing Tide recorded (i) a year-on-year/ period-on-period increase in revenue of over 12.0% in each of the respective year/ period for the three years ended 31 December 2014, 2015 and 2016, and for the nine months ended 30 September 2016 and 2017; (ii) the gross profit margin of over 85.0%, for the three years ended 31 December 2014, 2015 and 2016, and for the nine months ended 30 September 2016 and 2017; (iii) the net profit margin of approximately 30.0% for the three years ended 31 December 2014, 2015 and 2016, and increased to 34.8% for the nine months ended 30 September 2017; (iv) Beijing Tide had the net assets value of approximately RMB2,493.2 million, RMB2,277.8 million, RMB1,935.4 million and RMB1,921.1 million as of 31 December 2014, 2015 and 2016, and 30 September 2017, respectively; (v) Beijing Tide recorded positive net cash flow from operating activities of approximately RMB716.1 million, RMB820.8 million, RMB965.4 million and RMB835.9 million as of 31 December 2014, 2015 and 2016, and 30 September 2017, respectively; and (vi) Beijing Tide paid dividends amounting to approximately RMB200.0 million, RMB1,000.0 million, RMB484.4 million and RMB1,495.2 million for the three years ended 31 December 2014, 2015 and 2016, and for the nine months ended 30 September 2017, respectively, which can demonstrate the stable growth of its financial performance across the years/period concerned, and the sound financial position and working capital of Beijing Tide as at the end of the years/period concerned. For details, please refer to the section headed “Financial information of the Target Group” in this letter. We have also enquired the management of Beijing Tide and, as at the date of this letter, nothing has come to our attention that there is any material change in the financial performance and financial position of Beijing Tide after 30 September 2017.

Furthermore, we have discussed with the management of Beijing Tide in relation to the nature and scope of the business and the future prospects of Beijing Tide, we have been advised by the management of Beijing Tide that Beijing Tide has an operating history for over 20 years aiming to research and develop, manufacture and sales of innovative pharmaceutical products, particularly focusing on DDS products; with years of contribution and efforts, Beijing Tide has established market recognition in the pharmaceutical industry in the PRC and its products are being recognised by the government, the hospitals and the doctors in the PRC, and also being introduced into Japan. Beijing Tide has over 30 innovative products in the product pipeline which are under research or clinical trials. Over the years, Beijing Tide has also obtained a number of awards in the industry, please refer to the Letter from the Board for more information. We have also researched into the news of Beijing Tide, the government policies or notices, the industry news and latest development of the pharmaceutical industry in PRC. We were not aware of any information which causes us to doubt the future prospects of the business Beijing Tide operates in. For details, please refer to the section headed “Industry Overview” in this letter.

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In addition to the above, we have obtained and reviewed the market statistics of the leading products of Beijing Tide from the management of Beijing Tide which demonstrated its strong ranking by sales and market position in the PRC. During our discussion with the management of Beijing Tide, we were given the understanding that the products of Beijing Tide are promoted through its own sales network by its in-house sales team comprise of over 1,800 marketing personnel who introduce the products to doctors directly through organising various marketing events periodically, instead of selling to agents directly. As advised by the management of Beijing Tide, its sales model is, in general, different from the other pharmaceutical manufacturers in the PRC which do not have their own sales team and sales network but selling to agents who would then sell the products in the designated districts. The management of Beijing Tide considered that under its sales model, they can have more in-depth understanding on the market demand and expectation on their products which are valuable information for their research and development.

6.3 Consideration Shares

The aggregate 1,013,002,116 Consideration Shares represent approximately 13.67% of the total issued share capital of the Company as at the Latest Practicable Date and approximately 12.02% of the total issued share capital of the Company as enlarged by the issue of the Consideration Shares immediately upon Completion (assuming there is no change in the issued share capital of the Company other than the issue of the Consideration Shares from the Latest Practicable Date and up to the Completion Date). They will be allotted to the shareholders of the Vendor and issued by the Company at Completion under the Specific Mandate. The Consideration Shares will rank pari passu in all respects with the Shares in issue on the date of allotment and the issue of the Consideration Shares. The Consideration Shares have a nominal value of HK$0.025 per Share and a market value of approximately HK$14,323,849,920 based on the closing price of the Shares of HK$14.14 per Share on the Last Trading Day. Further information on the effect of the issuance of the Consideration Shares on the shareholding structure of the Company is set out in the section headed “Change in the shareholding structure of the Company”.

The Directors has considered other methods of financing, such as share placement, rights issue or open offer, or bank borrowings. Equity fund raising exercises by way of issue of new shares to independent third parties or to existing shareholders on a pro rata basis (i.e. rights issue or open offer) may not provide the requisite amount of funds in timely manner given the size of the Consideration, more costly and there is no guarantee of success. Meanwhile, share placement is not the most appropriate way to fund the Acquisition as the dilution of shareholding to the controlling shareholders may affect the Group’s operational efficiency and external investors’ support. Debt fund raising exercises will not only require finance costs but also increase the gearing level of the Group. In choosing the source of financing to satisfy the Consideration, the Directors have taken into consideration of (i) the funding requirements for the Group’s future research and development for innovative products; (ii) the Group’s gearing level; (iii) the size of the Consideration and the timeliness the Acquisition required; and (iv) the required finance costs, the current proposed financing structure proposal was arrived at after due and careful consideration of the various

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alternatives by the Directors, who consider that the proposed issue of the Consideration Shares is a suitable payment method for the Acquisition, and that the dilution effects on the shareholdings in the Company by the existing public Shareholders are acceptable.

According to the third quarter results announcement for the nine months ended 30 September 2017, the Group had cash and bank balances of approximately RMB4,926.9 million only and was insufficient to fully pay for the consideration of the Acquisition. According to the annual reports of the Company for the past five years from 2012 to 2016, as at the year end of the each of the last five years, the cash and bank balances ranged from approximately HK$2,711.1 million to approximately HK$4,468.3 million. We have discussed with the management of the Company about the budgeted research and development expenses and capital expenditures in the next two years. We noted that the Company expects to invest not less than RMB3.8 billion in total in 2018 and 2019 in such respect. Having considered the above, we considered that financing the entire Consideration by its own cash and bank balances would not only affect the research and development plan of the Group, but may also affect the financial position and working capital of the Group.

Assuming half of the Consideration is to be financed by interest-bearing bank borrowings instead of proceeds from issuance new shares, the estimated gearing ratio, being total interest-bearing bank borrowings divided by total assets, of the Enlarged Group would increase significantly from approximately 9.4% to approximately 25.5%. The estimated finance cost, calculated by using the effective interest rate of approximately 3.5%, being the interest expense on bank borrowings divided by the average balance of total interest-bearing bank borrowings in 2015 and 2016, would increase by approximately HK$225.2 million per annum. The net profit margin would have decreased from approximately 20.1% to approximately 18.7% in 2016. If the entire amount of Consideration is to be financed by interest-bearing bank borrowings, the estimated gearing ratio of the Enlarged Group would increase further to approximately 41.6% and the estimated finance cost would increase by approximately HK$450.4 million per annum. Based on the above, we believe that if the Consideration is to be satisfied partly or solely by way of bank loans, the Group’s gearing ratio and the additional interest burden would significantly increase and cause adverse effect to the financial position and profitability of the Group.

Furthermore, given the sizeable amount of the total Consideration payable (approximately HK$12,895.5 million), the Company advised that (i) it would take at least three months to secure such sizeable funding by negotiating with financial institutions for additional banking facilities (if the Consideration was to be satisfied partly or solely by way of bank loans); or (ii) the required time is uncertain for securing a number of new investors, identifying placing agents or underwriters and negotiating the terms including the amount of placing agents’ fee/commission or underwriting commission. We are advised by the management of the Company that they have approached several placing agents and/or underwriters, the Company is given to understand that the range of market rates of placing agent’s fee/commission or underwriter’s commission which are typically around 1.5% to 2% of the amount, equal to the placing price multiplied by the number of placing shares placed by a placing

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agent, or of the fund raising, as the case may be. Given the size of the fund raising required, the fee or commission payable to the placing agents or underwriters is estimated to be approximately between HK$193.4 million to HK$257.9 million (if the Consideration was to be satisfied by way of issue new shares to independent third parties (e.g. new share placement) or to existing shareholders (e.g. rights issue or open offer) on a pro rata basis), which may significantly increase the financial cost of the fund raising and may eventually delay the completion of the Acquisition and the timing which the financial results of the Operating Results being consolidated by the Group.

Either the Consideration is funded solely by share placement to investors other than the Concert Group or by issue of Consideration Shares, the dilution effect to the shareholding held by Independent Shareholders would effectively be the same while the shareholding held by the Concert Group would decrease from approximately 41.63% to approximately 36.6%. We have researched on the shareholding structure of a few largest pharmaceutical companies in terms of the market capitalisation in Hong Kong, including CSPC Pharmaceutical Group Limited, China Resources Pharmaceutical Group Ltd., China Medical System Holdings Ltd. and WuXi Biologics (Cayman) Inc., which also have similar shareholding structure. In addition, we noted that the Whitewash Applicant, being one of the Concert Group members, is the founder of the Company and has been acting as executive Director since the initial listing of the Company on GEM in 2003. We also noted from the annual report of the Company that Ms. Tse, the other Concert Group member is a devoted charity supporter, actively participating in and caring for community philanthropy and has been holding a large number of public offices and committed to facilitating communication and trade between Mainland China and Hong Kong. We believe that enabling the Concert Group to maintain a controlling stake in the Company would help to align the interest of the Company with its controlling shareholders and would better gain support from them when passing resolutions at shareholders meeting(s) (e.g. conducting merger and acquisitions in the pharmaceuticals industry or issuance of new shares to independent investors under specific mandate which would require shareholders’ approval). Having considered the above, we concurred with the view of the Directors that share placement would dilute the shareholding of the controlling shareholders which undermines the operational efficiency and external investors’ support.

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6.4 Conditions precedent

Details of the conditions precedent to Completion are set out in the section headed “Conditions Precedent” in the letter from the Board in the Circular. The major ones are as follows:

(a) the Independent Shareholders approving in general meeting of the Company in compliance with the Listing Rules and/or the Takeovers Code:
(i) the transactions contemplated under the First Agreement and the Second Agreement, including the allotment and issue of the Consideration Shares; and
(ii) if applicable, the grant of the Whitewash Waiver;
(b) if applicable, the Executive granting the Whitewash Waiver, and such waiver not having been revoked or withdrawn;
(c) the Stock Exchange having granted the listing of, and permission to deal in, the Consideration Shares;
(d) either the First Agreement or the Second Agreement having become unconditional; and
(e) the representations and warranties under the First Agreement remaining true and accurate in all respects and there have been no material omission.

The Company has the right to waive condition (e) above. If conditions (a), (b), (c) and (d) are not fulfilled before the Long-Stop Date, being 30 June 2018 or such later date as the parties may otherwise agree, the First Agreement and the Second Agreement will become null and void and cease to have any further effect save for any antecedent breach.

6.5 Completion

Completion of the First Acquisition and the Second Acquisition shall take place on the fifth business day (or at such other time as the parties may otherwise agree) after the conditions to the First Agreement and Second Agreement have been fulfilled or waived, respectively. Completion of the First Acquisition and the Second Acquisition will take place at the same time.

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7. Assessment of the Consideration

As set out in the section headed “Information on the Target Group”, the Target Group is one of the leading pharmaceutical companies developing, manufacturing and marketing high technology pharmaceutical products in the PRC, and has its own research development system, procurement and production chain, and sales network for the DDS drugs. In assessing the fairness of the Consideration, we have identified and analysed based on the Stock Exchange filings, the following companies whose shares are listed on the Stock Exchange (the “ Comparable Companies ”) that we consider to have a business, similar to the Target Group, based on (i) the majority of revenue being generated from sales of pharmaceutical products in PRC, (ii) having its own research and development system, procurement and production chain, own distribution and sales network and (iii) having a market capitalisation of over HK$10 billion. As at the Latest Practicable Date, total of seven Comparable Companies (including the Company) was identified. In our view, the Comparable Companies set out below represent an exhaustive list of relevant comparable companies based on the criteria set out above based on public information available to us.

The table below contains the P/E ratio and the enterprise value (“ EV ”) to EBITDA multiple (the “ EV/EBITDA ”) of the Comparable Companies, which we consider to be suitable ratios for comparison after considering the business model of Beijing Tide. Both P/E ratio and EV/EBITDA multiple make reference to the income generating ability of a company, rather than, for example, the net asset backing as is the case for the price-to-book (the “ P/B ”) ratio, which is less relevant because the value of a pharmaceutical company is more closely related to profitability of its products mix which in turn is dependent on research and development expenditure and cash flows. Moreover, the denominator of the P/B Ratio, as compared to the P/E ratio and EV/EBITDA multiple, is considered to be more prone to be affected by the differences in capital structure of a company. P/B ratio is usually adopted in the valuation of asset-intensive companies and captures only the tangible assets of a company; however, companies in pharmaceutical industry may have numerous knowhow, patents and other assets which are intangible. As such, P/B ratio is not commonly used as valuation multiple to assessing the valuation of a pharmaceutical company and we have not considered the P/B ratio.

Despite Beijing Tide is not a listed company, it has long been an associate of the Company which is listed in Hong Kong. Another major shareholder, LTT Bio-Pharm Co., Ltd., holds approximately 11.52% of Beijing Tide was listed on Tokyo Stock Exchange in 2004 and subsequently delisted in 2011. We are of the view that comparing the implied P/E ratio and the EV/EBITDA multiples of Beijing Tide with those of the selected listed companies engaging in similar business activities resembles a reasonable proxy of valuation and it is also an industry practice to perform such comparison in assessing the relevant valuation.

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					EV/ EBITDA	multiples	(times)	(Notes 6, 7)	27.9			34.4				41.8				30.7			9.1			17.9			22.3			26.3	27.9	41.8	9.1	36.8
		Latest	financial year	P/E ratio	after	adjustments	(times)		61.9			54.6				60.3				50.6			18.5			24.6			32.2			43.2	50.6	61.9	18.5	49.4
			Latest	financial	year P/E	ratio	(times)		60.4			54.4				50.1				46.4			14.5			21.5			31.6			39.8	46.4	60.4	14.5	49.0
Latest	financial	year’s profits	attributable to	shareholders	after	adjustments	(million)	(Note 4)	HK$1,866.1			HK$2,096.4				RMB650.9				RMB653.4			RMB1,333.8			RMB779.1			RMB373.0			Mean	Median	Maximum	Minimum	RMB921.5
		Latest	financial	year’s profits	attributable to	shareholders	(million)	(Note 3)	HK$1,913.3			HK$2,100.8				RMB784.3				RMB712.6			RMB1,708.2			RMB891.5			RMB380.6							RMB928.8
	Market	capitalisation	as at the	Latest	Practicable	Date	(HK$ million)		115,482			114,372				46,369				38,996			29,171			22,583			14,194							53,731	(Note 5)
		Closing price	as at the	Latest	Practicable	Date	(HK$)		15.58			18.32				66.00				15.36			3.08			6.80			31.40
						Principal activities			Research and development, production and sale of a series of health enhancing	modernised Chinese medicines and chemical medicines by applying advanced	modernised Chinese and biomedical technology	Research and development, manufacture and sales of pharmaceutical products,	including finished drugs (such as antibiotics, cardio-cerebrovascular drugs and	traditional Chinese medicines), antibiotics, vitamin C and caffeine and others	under the brand of CSPS	Research, development, production and distribution of pharmaceutical products,	including western pharmaceutical preparations (such as cardiovascular,	anti-infectious), bulk drugs (such as ceftriaxone sodium, mevastatin), traditional	Chinese medicines, as well as diagnostic reagents and equipment	Research and development, production, marketing and sale of biopharmaceutical	products which applied in therapeutic area including nephrology, oncology,	auto-immune diseases and other areas, metabolic and dermatology	Research and development, manufacture and sales of pharmaceutical products in	China, including cardio-cerebral vascular system drugs, central nervous system	drugs, metabolism drugs, oncology and anti-infective drugs	Development, production, marketing and sale of pharmaceutical products in	China, including oncology drugs, cardiovascular system drugs, alimentary tract	and metabolism drugs	Research and development, manufacture and sales of pharmaceutical products,	including anti-viral drugs, endocrine and metabolic drugs and cardiovascular drugs
						Name			The Company (1177.HK)			CSPC Pharmaceutical	Group Limited	(1093.HK)		Livzon Pharmaceutical	Group Inc. (1513.HK)	(Note 1)		3SBio Inc. (1530.HK)			Sihuan Pharmaceutical	Holding Group Ltd.	(0460.HK)	Luye Pharma Group Ltd.	(2186.HK)		YiChang HEC ChangJiang	Pharmaceutical Co., Ltd.	(1558.HK) (Note 2)					Beijing Tide

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Notes:

(1) The market capitalisation as at the Latest Practicable Date also includes A shares listed on the Shenzhen Stock Exchange.
(2) The market capitalisation as at the Latest Practicable Date also includes domestic shares.
(3) The latest financial year’s net profits attributable to shareholders have been extracted from the latest published annual reports of the Comparable Companies.
(4) The amounts are adjusted to exclude extraordinary gains or losses (i.e. income from government grants, gains or losses from disposal of non-current assets and expenses incurred for acquisition of subsidiaries).
(5) The implied market capitalisation and implied P/E ratios of Beijing Tide are arrived at based on the Consideration of approximately HK$12,895.5 million.
(6) EV represents the sum of the respective (a) market capitalization; (b) non-controlling interests; (c) bank borrowing; minus (d) cash and cash equivalent, as extracted from the latest published financial statements.
(7) EBITDA represents the earnings before net interest expenses, taxes, depreciation and amortisation, as extracted from the respective latest published full year financial statements.

As set out in the table above, the implied P/E ratio of Beijing Tide is approximately 49.0 times based on its profit attributable to the shareholders in 2016, which is within the range of P/E ratios of the Comparable Companies and yet higher than the mean of approximately 39.8 times and slightly higher than the median of approximately 46.4 times of the P/E ratio of the Comparable Companies. In order to better reflect the performance of the principal activities of Beijing Tide and the Comparable Companies, the profits attributable to shareholders are adjusted for income and expenses generated outside ordinary course of business, that is, excluding income of government grants, gains or losses from disposal of non-current assets and expenses incurred for acquisition of subsidiaries. Based on such analysis, the adjusted P/E ratio of approximately 49.4 times of Beijing Tide is found to be lower than the median of approximately 50.6 times yet higher than the mean of approximately 43.2 times of the Comparable Companies. The implied EV/EBITDA multiple of Beijing Tide is approximately 36.8 times, which is within the range of EV/EBITDA multiple of the Comparable Companies and yet higher than the mean of approximately 26.3 times and the medium of approximately 27.9 times, of the EV/EBITDA multiples of the Comparable Companies. We note that the business of Beijing Tide achieved significant development since their first investment in 2003. Revenue has increased significantly by approximately 14.4 times to approximately RMB2,998.1 million in 2016, representing a compound annual growth rate of approximately 118.4% since 2003. The net profit after tax also increased significantly by approximately 8.8 times to approximately RMB928.8 million in 2016, representing a compound annual growth rate of approximately 75.6% since 2003.

We have searched for precedent transactions through public sources including the website of the Stock Exchange and Bloomberg, using the criteria (i) completed public transactions in 2017 with disclosed transaction value and financials, (ii) the acquirer being listed in Hong Kong and the acquiree is engaged in research and development, manufacturing, sales of high-end targeted medicines in PRC, and (iii) the implied market capitalisation of the acquiree amounts over HK$10 billion. Based on the criteria above, we have not been able to identify any transaction directly comparable for this purpose.

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In assessing the Consideration, we have also considered the Vendor’s cost of investment in Beijing Tide. As stated in the Letter from the Board, the Company entered into a restructuring agreement in 2012 in relation to the restructuring of Beijing Tide in preparation for the proposed listing of Beijing Tide on the ChiNext of the Shenzhen Stock Exchange. As stated in the Company’s circular dated 22 June 2012, the total consideration for the 2012 Disposal (representing 17.14% equity interest in Beijing Tide and essentially the First Sale Shares acquired by the Vendor during the restructuring) amounted to HK$293,040,370 and was determined after arm’s length negotiation with reference to, among other things, a valuation report (“ 2012 Valuation Report ”) in respect of Beijing Tide dated 25 May 2012 prepared by Beijing Guorong Xinghua. Such consideration, being the acquisition cost of the First Sale Shares by the Vendor, if taken prima facie, would imply that the Company will be paying a significant premium over the historical valuation in 2012 for the Acquisition. In this respect, we have reviewed the 2012 Valuation Report and noted that it was indeed prepared on an asset-based approach by appraising the market value of all assets and liabilities of Beijing Tide as at 31 December 2011 without taking into consideration the income generating ability of Beijing Tide. We have also reviewed the principal terms of the restructuring agreement as contained in the Company’s circular dated 22 June 2012. Having considered, among others, that (i) the 2012 Disposal was merely part of the restructuring carried out primarily to achieve a legal structure to facilitate the proposed listing of Beijing Tide; (ii) the Company’s aggregated effective interest in Beijing Tide immediately before and after the restructuring remained the same; (iii) other terms and arrangement of the restructuring as disclosed in the Company’s circular dated 22 June 2012; (iii) the 2012 Valuation Report was prepared on an asset-based approach without taking into consideration the income generating ability of Beijing Tide, we consider that the consideration of HK$293,040,370 attributed to the First Sale Shares (or 17.14% equity interest of Beijing Tide) in 2012 could not fairly reflect the Vendor’s cost of investment in Beijing Tide and any implied premium calculated thereof is not meaningful for our assessment of the Consideration.

As set out in the Letter from the Board, on 12 September 2014, the Company was informed that the approval of the proposed listing of Beijing Tide on the ChiNext of the Shenzhen Stock Exchange was not granted by the CSRC and the Directors believe that the proposed listing has been suspended as at the Latest Practicable Date. As advised by the management of Beijing Tide, save for the 2012 Valuation Report, no other official valuation of Beijing Tide had been performed during the then proposed listing and up to the Latest Practicable Date.

On the other hand, as stated in the Letter from the Board, the Vendor acquired 100% equity interests of Super Demand in 2009 from an independent third party in which Super Demand held 100% equity interests in France Investment BVI which held 24% interests in Beijing Tide, the total historical investment cost amounted to RMB53,976,000. However, having considered (a) the Acquisition would enable the Company to become a majority shareholder of Beijing Tide; (b) upon Completion of the Acquisition, the financial results of Beijing Tide will be consolidated into the Company; and (c) the major developments of Beijing Tide has achieved since the Vendor’s initial acquisition in 2009, including (i) Beijing Tide’s revenue has grown from approximately RMB653 million in 2008 to approximately RMB2,998 million in 2016, representing an increase of approximately 359.1%; (ii) Beijing Tide’s net profit after tax has grown from approximately RMB310 million in 2008 to

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LETTER FROM GUOTAI JUNAN CAPITAL

approximately RMB929 million in 2016, representing an increase of approximately 199.7%; (iii) the research and development team of Beijing Tide has grown from a small team to 229 employees in 2016; (iv) Beijing Tide had obtained 11 drug registration approvals granted by CFDA in 2016; and (v) the risks and uncertainties for investing in Beijing Tide for over eight years by the Vendor, we consider that the significant premium to be paid by the Company during the Acquisition over the Vendor’s historical cost of investment would not affect our assessment of the Consideration.

8. Assessment of the Issue Price of the Consideration Shares

8.1 Historical price performance of the Shares

Set out below is the share price chart illustrating the historical closing price the Shares quoted on the Stock Exchange from 30 December 2016 (being approximately one year prior to the publication of the Announcement) up to and including the Latest Practicable Date (the “ Review Period ”).

==> picture [405 x 192] intentionally omitted <==

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

Share price
(HK$)
18
16
Issue Price = HK$12.73 Announcement on drug
14 registration approval
12
10
Publication of the
2017 first quarter results announcement
Announcement
8
2017 third quarter
6 results announcement
2016 annual results announcement 2017 interim results announcement
4
30/12/2016 30/3/2017 30/6/2017 30/9/2017 31/12/2017
Share price Issue price
----- End of picture text -----

Source: Bloomberg

In the first and second quarter of 2017, the Share price increased gradually from HK$5.46 on 30 December 2016 to HK$6.90 on 30 June 2016, representing an increase of approximately 26.4% in the first half of 2017. At the beginning of the third quarter in 2017, the market price of the Shares remained stable until the publication of the Company’s 2017 interim results announcement on 21 August 2017, which showed that profit attributable to owners of the Group for the first half of 2017 increased by approximately 25.7% when compared the same period last year. On the next trading day, the Share price of the Company increased by approximately 4.6% to HK$6.81. Consequently, the Share price continued to increase after the publication of the 2017 interim results announcement and the market price of the Shares closed at HK$8.26 on 29 September 2017, representing an increase of approximately 19.7% in the third quarter of 2017.

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LETTER FROM GUOTAI JUNAN CAPITAL

In the fourth quarter, the upward trend was more notable as the market sentiment continued to improve in Hong Kong and research report expressing positive view on the Share price of the Company have been released by several investment banks. On 31 October 2017 and 1 November 2017, the market price of the Shares increased by approximately 6.2% and 5.4% respectively. On 9 November 2017, the Company released its third quarter results announcement which showed a period-over-period increase of approximately 38.9% in profit attributable to owners of the Group for the first three quarters in 2017. The Share price of the Company increased significantly by approximately 11.3% to HK$11.42 on the next trading day. After the Share price reached HK$11.54 on 21 November 2017, the market price of the Shares retreats moderately with the Hang Seng index to HK$10.22 on 6 December 2017. However, the Share price bounced again after the Company announced that the drug registration approval of a first-line drug used for treatment of chronic hepatitis B had been granted by CFDA. The market price of the Shares peaked at HK$14.14 on 4 January 2018, which was also the Last Trading Day.

On 8 January 2018, the trading day immediately after the publication of the Announcement, the Share price closed at HK$14.1, which was approximately 0.3% lower than the closing price on the Last Trading Day. Since then, the Share price continued to trade higher and closed at HK$15.58 on the Latest Practicable Date.

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LETTER FROM GUOTAI JUNAN CAPITAL

8.2 Historical trading volumes of the Shares

The table below sets out the total monthly trading volume of the Shares during the period from 3 January 2017 up to and including the Latest Practicable Date; and the percentage of total monthly trading volume of the Shares to the total issued number of Shares in each of the respective months:

			% of total
			monthly
			trading
		Total	volume of
		monthly	the Shares
		trading	to the total
		volume of	issued
		the Shares	Shares
2017
January		329,173,430	4.4%
February		447,164,683	6.0%
March		495,086,271	6.7%
April		275,693,261	3.7%
May		403,394,579	5.4%
June		440,149,523	5.9%
July		278,130,523	3.8%
August		395,949,776	5.3%
September		384,287,452	5.2%
October		247,045,561	3.3%
November		587,430,056	7.9%
December		543,386,376	7.3%
2018
January	(up to the Latest Practicable Date)	516,853,693	7.0%
Source:	the Stock Exchange, the Company

The monthly trading volumes of the Shares accounted for approximately 3.3% to 7.9% of the total issued Shares. As such, we consider that the Shares have been fairly actively traded, particularly in November when research reports were released by several investment banks. The trading activity in March had also increased moderately because of the 2016 annual results announcement is published by the Company. It is noted that immediately following the Announcement, the trading volume of the Shares increased notably with a total of approximately 204.5 million Shares traded in the subsequent five trading days, representing approximately 2.8% of the total issued Shares.

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LETTER FROM GUOTAI JUNAN CAPITAL

8.3 Analysis of the Issue Price

(a) Comparison of the Issue Price against different average prices of the Shares before the Latest Practicable Date

The Issue Price of HK$12.73 for the Consideration Shares represents:

a) a discount of approximately 9.97% to HK$14.14, the closing price of the Shares as quoted on the Stock Exchange on 4 January 2018, being the Last Trading Date;
b) a discount of approximately 7.95% to HK$13.83, the average closing price of Shares as quoted on the Stock Exchange for the last 5 trading days up to and including the Last Trading Date;
c) a discount of approximately 4.43% to HK$13.32, the average closing price of Shares as quoted on the Stock Exchange for the last 10 trading days up to and including the Last Trading Date;
d) a premium of approximately 6.88% over HK$11.91, the average closing price of Shares as quoted on the Stock Exchange for the last 30 trading days up to and including the Last Trading Date;
e) a discount of approximately 18.29% to HK$15.58, the closing price of Shares as quoted on the Stock Exchange on the Latest Practicable Date; and
f) a premium of approximately 960.8% over the audited net asset value attributable to owners of the Group of approximately HK$1.20 per Share as at 31 December 2016.

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LETTER FROM GUOTAI JUNAN CAPITAL

(b) Comparison of the valuation multiples implied by the Issue Price against the Comparable Companies (excluding the Company)

Apart from the analysis above, in assessing the fairness and reasonableness of the Issue Price, we have also compared the implied P/E ratio represented by the Issue Price with the Comparable Companies (excluding the Company). The Company is removed from the Comparable Companies so as to avoid double counting for such comparison.

				Latest
		Market		financial
	Closing price	capitalization	Latest	year’s profits
	as at the	as at the	financial	attributable to	Latest	Latest
	Latest	Latest	year’s profits	shareholders	financial	financial year
	Practicable	Practicable	attributable to	after	year P/E	P/E ratio after
Name	Date	Date	shareholders	adjustment	ratio	adjustment
	(HK$)	(HK$ million)	(million)	(million)	(times)	(times)
			(Note 3)	(Note 4)
CSPC Pharmaceutical
Group Limited
(1093.HK)	18.32	114,372	HK$2,100.8	HK$2,096.4	54.4	54.6
Livzon Pharmaceutical
Group Inc. (1513.HK)
(Note 1)	66.00	46,369	RMB784.3	RMB650.9	50.1	60.3
3SBio Inc. (1530.HK)	15.36	38,996	RMB712.6	RMB653.4	46.4	50.6
Sihuan Pharmaceutical
Holding Group Ltd.
(0460.HK)	3.08	29,171	RMB1,708.2	RMB1,333.8	14.5	18.5
Luye Pharma Group Ltd.
(2186.HK)	6.80	22,583	RMB891.5	RMB779.1	21.5	24.6
YiChang HEC ChangJiang
Pharmaceutical Co.,
Ltd. (1558.HK) (Note 2)	31.40	14,194	RMB380.6	RMB373.0	31.6	32.2
				Mean	36.4	40.1
				Median	39.0	41.4
				Maximum	54.4	60.3
				Minimum	14.5	18.5
				The Issue Price	49.3	50.6

Source: Comparable Companies’ annual report, Bloomberg

Notes:

(1) The market capitalisation as at the Latest Practicable Date also includes A shares listed on the Shenzhen Stock Exchange.
(2) The market capitalisation as at the Latest Practicable Date also includes domestic shares.
(3) The latest financial year’s net profits attributable to shareholders have been extracted from the latest published annual reports of the Comparable Companies.
(4) The amounts are adjusted to exclude extraordinary gains or losses (i.e. income from government grants, gains or losses from disposal of non-current assets and expenses incurred for acquisition of subsidiaries).

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LETTER FROM GUOTAI JUNAN CAPITAL

The implied P/E ratio of the Issue Price is calculated based on the Issue Price of HK$12.73 divided by the Company’s earnings per Share of HK25.81 cents for the year ended 31 December 2016, being approximately 49.3 times, which is higher the mean and the median of approximately 36.4 times and 39.0 times of the P/E ratio of the Comparable Companies (excluding the Company). It is within the range of P/E ratio of the Comparable Companies (excluding the Company), i.e. between approximately 14.5 times and 54.4 times.

(c) Comparison of the Issue Price against comparable transactions

In addition to the previous analysis, we have also assessed the fairness and reasonableness of the Issue Price by comparing the Issue Price against the recent share issuance by pharmaceutical companies. In this regard, we have researched relevant transactions involving issuance of shares by the listed pharmaceutical company. We have attempted to identify comparable transactions in which (i) the issuer has a market capitalisation of at least HK$10 billion as at Latest Practicable Date; and (ii) the issuers are in pharmaceutical industry who issued ordinary shares in 2017, the period of which reflects the positive market sentiment and upward market trend of stock market in Hong Kong. We consider the selection criteria of the comparable transactions are reasonable and appropriate. Based on the above criteria, we have identified the following two comparable transactions (the “ Comparable Transactions ”). In our view, the Comparable Transactions set out below represent an exhaustive list of relevant comparable transactions based on the criteria set out above.

		Premium/ (Discount) of the issue price	Premium/ (Discount) of the issue price	Premium/ (Discount) of the issue price
			over/(to) the average closing price of
				Last 10	Last 30
		Last trading	Last 5 trading	trading days	trading days
		day on the	days up to and	up to and	up to and
		date of the	including the	including the	including the
	Date of first	relevant	Last Trading	Last Trading	Last Trading
Name	announcement	announcement	Day	Day	Day
CSPC Pharmaceutical Group	12 October
Limited (1093.HK)	2017	(6.04%)	(7.09%)	(6.16%)	(2.74%)
China Grand Pharmaceutical
and Healthcare Holdings	10 October
Limited (512.HK)	2017	(17.34%)	(17.10%)	(17.89%)	(18.91%)
Shanghai Fosun
Pharmaceutical (Group)
Co., Ltd. (2196.HK)	17 May 2017	(7.25%)	(5.79%)	(4.21%)	(1.47%)
	The Acquisition	(9.97%)	(7.95%)	(4.43%)	6.88%

As set out above, the issue prices of the Comparable Transactions ranged from a discount of approximately 6.04% to 17.34% to the closing price of the last trading day of the Comparable Transactions (the “ Market Range I ”); from a discount of approximately 5.79% to 17.10% to the average closing price of the 5 trading days up to and including the last trading day of the Comparable Transactions (the “ Market Range II ”); from a discount of approximately 4.21%

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LETTER FROM GUOTAI JUNAN CAPITAL

to 17.89% to the average closing price of the last 10 trading days up to and including the last trading day of the Comparable Transactions (the “ Market Range III ”); and from a discount of approximately 1.47% to 18.91% to the average closing price of the 30 trading days up to and including the last trading day of the Comparable Transactions (the “ Market Range IV ”).

We noted that the Issue Price represents a discount of approximately 9.97% to the closing price of the Shares on the Last Trading Date (the “ Issue Price Discount I ”), a discount of approximately 7.95% to the average closing price of last 5 trading days up to and including the Last Trading Day (the “ Issue Price Discount II ”), a discount of approximately 4.43% to the average closing price of last 10 trading days up to and including the Last Trading Day (the “ Issue Price Discount III ”), and a premium of approximately 6.88% over the average closing price of last 30 trading days up to and including the Last Trading Days (the “ Issue Price Premium ”).

The Issue Price Discount I, the Issue Price Discount II and the Issue Price Discount III are in the range of the Market Range I, the Market Range II and the Market Range III, respectively. However, the Issue Price is at premium over the 30 trading days up to and including the Last Trading Day, compared to the Market Range IV.

With reference to the letter from the Board in the Circular, the Issue Price was arrived at after arm’s length negotiations between the Company and the Vendor with reference to the average closing price per Share for the last 10 trading days and the average closing price of the Shares for the last 20 trading days (both up to and including the Last Trading Date). As mentioned above, the market price of the Shares increased significantly by approximately 185.3% from HK$5.46 to HK$15.58 during the Review Period. The Issue Price of HK$12.73 represented a discount to the closing price on the Last Trading Date, the average closing price of Shares for the last 5 and 10 trading days, and on the Latest Practicable Date. By referencing to the average closing price of Shares for the last 30 trading days, the Issue Price represented a premium of approximately 6.88%. In general, the Issue Price is lower than the average closing price of the Shares on a short term basis, but higher than the average closing price of the Shares on a 30-day basis.

Having considered (i) the Issue Price is close to the average closing prices of Shares for the last 5, 10 and 30 trading days which taken into the account for the significant increase in Share price caused by market optimism in December 2017; (ii) the implied P/E ratio of the Issue Price is in the range of the P/E ratio of the Comparable Companies (excluding the Company); (iii) the Issue Price Discount I, the Issue Price Discount II and the Issue Price Discount III are in the range of the Market Range I, the Market Range II and the Market Range III, respectively; and (iv) the Issue Price is at premium over the average closing price for a long term basis, we consider the Issue Price is fair and reasonable.

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LETTER FROM GUOTAI JUNAN CAPITAL

9. The Whitewash Waiver

9.1 Background

As at the Latest Practicable Date, members of the Concert Group were, in aggregate, interested in 3,085,897,222 Shares, representing approximately 41.63% of the issued share capital of the Company. Upon Completion, the Concert Group will, in aggregate, be interested in 4,098,899,838 Shares, representing (i) approximately 55.30% of the issued share capital of the Company; and (ii) approximately 48.65% of the issued share capital of the Company as enlarged by the allotment and issue of the Consideration Shares (assuming that there is no change in the issued share capital of the Company other than the issue of the Consideration Shares from the date of this Circular and up to the date of Completion).

In the absence of the Whitewash Waiver, the Whitewash Applicant would be obligated to make a mandatory general offer under Rule 26 of the Takeovers Code for all the securities of the Company not already owned or agreed to be acquired by the Concert Group as a result of the allotment and issue of the Consideration Shares. An application to the Executive for the Whitewash Waiver has been made. The Whitewash Waiver, if granted by the Executive, would be subject to, among other things, approval by the Independent Shareholders at the EGM by way of poll.

9.2 The Whitewash Waiver as a condition to the Acquisition

Independent Shareholders should note that Completion is conditional upon, among other things, the Whitewash Waiver being granted by the Executive and the Independent Shareholders approving the Whitewash Waiver at the EGM on a vote to be taken by way of a poll. The Executive may or may not grant the Whitewash Waiver and the Independent Shareholders may or may not approve the Whitewash Waiver. Such condition precedent cannot be waived under the terms of the First Agreement and Second Agreement. If the granting of the Whitewash Waiver is not obtained and/ or approved by the Independent Shareholders, the Acquisition will not proceed.

Having considered (i) the key reasons for and benefits of the Acquisition as set out in the section headed “Reasons for and benefits of the Acquisition”; (ii) the fairness and reasonableness of the terms of the Agreement (including the Consideration and the Issue Price); (iii) the obtaining of the Whitewash Waiver being an essential element of the Acquisition, the granting of the Whitewash Waiver is considered fair and reasonable and in the interests of the Company and the Shareholders as a whole as far as the Independent Shareholders are concerned.

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LETTER FROM GUOTAI JUNAN CAPITAL

10. The effect of the Acquisition on the shareholding structure of the Company

The following table illustrates the shareholding structure of the Company as at the Latest Practicable Date, and immediately upon Completion (assuming that there is no change in the issued share capital of the Company other than the issue of the Consideration Shares between the date of the First Agreement and the Second Agreement and up to Completion):

As at the date of the Latest

	As at the date of the Latest
Shareholders The Concert Group The Whitewash Applicant Ms. Cheng Cheung Ling The Vendor Sub-total Mr. Tse Hsin Public Shareholders Total	Practicable Date Number of Shares % (approximately) 1,222,526,722 16.49 1,863,371,000 25.14 – – 3,085,897,722 41.63 61,257,000 0.83 4,265,037,487 57.54 7,412,192,209 100.00	Immediately upon Completion Number of Shares % (approximately) 1,222,526,722 14.51 1,863,371,000 22.12 1,013,002,116 12.02 4,098,899,838 48.65 61,257,000 0.73 4,265,037,487 50.62 8,425,194,325 100.00
			48.65 0.73 50.62
			100.00

As shown in the table above, the shareholdings held by the existing Public Shareholders will be decreased from approximately 57.54% as at the Latest Practicable Date to approximately 50.62% upon the allotment and issue of the Consideration Shares. For further information on the shareholding structure of the Company, please reference to the letter from the Board in the Circular. Upon Completion, the Concert Group will continue to be the single largest shareholder and the controlling shareholder of the Company.

Although the shareholding of the existing Public Shareholders will be slightly diluted due to the issue of the Consideration Shares, taking into account (i) the benefits of the Acquisition as set out in the section headed “Reasons for and benefits of the Acquisition”; (ii) the fairness and reasonableness of the Consideration and the Issue Price as set out in the section headed “Assessment of the Issue Price of the Consideration Shares”; (iii) the saving of fundraising costs and financing costs from other financing method; and (iv) the issue of the Consideration Shares will avoid an immediate cash outlay (either from internal resources and/or external borrowings) and hence prevent weakening the working capital position, we are of the view that the dilution effect on the shareholding of the existing Public Shareholders to be acceptable so far as the Independent Shareholders are concerned.

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LETTER FROM GUOTAI JUNAN CAPITAL

11. Financial effects of the Acquisition on the Group

Following Completion, the Company’s interest in Beijing Tide will be increased to 57.6% and Beijing Tide will become a non-wholly owned subsidiary of the Company with its financial statements to be consolidated into the financial statements of the Group.

11.1 Earnings

As set out in the section headed “Financial information of the Target Group”, the gross margins and profit margins of Beijing Tide in 2016 and for the nine months ended 30 September 2017 are higher than that of the Group. As such, on a historical pro forma basis, the gross margin and profit margin of the enlarged Group would improve following Completion. In addition, as discussed in the section headed “Reasons for and benefit of the Acquisition”, it is expected that the Acquisition would reinforce the Group’s position and layout in different pharmaceutical segments and hence would have a positive effect on the growth of the Group’s earnings in the future.

11.2 NAV attributable to the Shareholders

Upon Completion, Beijing Tide will no longer be an associate and will become a non-wholly owned subsidiary of the Company. Accordingly, all assets and liabilities of Beijing Tide will be consolidated into that of the Group. Based on the historical pro forma financial information as set out in Appendix IV to the Circular, assuming the Acquisition being completed on 30 September 2017, the pro forma NAV of the Enlarged Group attributable to the Shareholders would increase from approximately RMB9,151.9 million by approximately RMB10,843.0 million to approximately RMB19,994.9 million. The increase was mainly due to the effect of fully consolidating the assets and liabilities of Beijing Tide into the Group. On a per Share basis, the pro forma NAV attributable to the Shareholders per Share of the Enlarged Group as at 30 September 2017 would have enhanced from approximately RMB1.23 to approximately RMB2.37.

Shareholders should note that, as contained in the pro forma financial information as set out in Appendix IV to the Circular, a goodwill of approximately RMB10,281.3 million arising from the Acquisition will be recorded by the Group. According to the Group’s accounting policy, the goodwill will be tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.

11.3 Gearing

As at 31 December 2016, the Group’s gearing ratio, being total interest-bearing bank borrowings divided by total assets, was approximately 16.6%. Based on the pro forma financial information as set out in Appendix IV to the Circular and, assuming the Acquisition being completed on 30 September 2017, the Enlarged Group’s pro forma gearing ratio would decrease to approximately 9.4% as the Target Group had much less interest-bearing liabilities while the total assets of Beijing Tide being consolidated into the Enlarged Group as at 30 September 2017.

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LETTER FROM GUOTAI JUNAN CAPITAL

11.4 Liquidity

The net working capital, being the current assets less current liabilities, and current ratio of the Group were approximately HK$7,898.4 million and 2.25 respectively as at 31 December 2016. Based on the pro forma financial information as set out in appendix IV to the Circular, assuming the Acquisition being completed on 30 September 2017, the Enlarged Group’s pro forma net working capital and current ratio would be approximately RMB8,708.8 million and 2.24. The current ratio of the Enlarged Group would decrease as the current ratio of Beijing Tide was 1.95 as at 30 September 2017, which is lower than that of the Group.

DISCUSSION

The Group is principally engaged in the research, development, manufacturing and marketing of a vast array of health enhancing modernised Chinese medicines and chemical medicines by applying advanced modernised Chinese and biomedical technology. On the other hand, the Target Group is principally engaged in the principally engaged in the research, development, production and sale of drugs of the DDS. We concur with the Directors’ view that the Acquisition is in line with the strategic planning of the Group as well as the recent trend of industry consolidation and will help enhancing the core competitiveness and the long-term profitability of the Group.

The Target Group has experienced steady growth in revenue and net profit in recent years, which was attributable to growth in sale across its three product segments. We note that the implied P/E ratio of Beijing Tide is approximately 49.0 times, which is within the range of 14.5 times and 60.4 times for P/E ratios of the Comparable Companies yet higher than the mean of 39.8 times. After excluding the extraordinary gains or less, such as income from government grants, gains or losses from disposal of non-current assets and expenses incurred for acquisition of subsidiaries, the adjusted implied P/E ratio of Beijing Tide is 49.4 times, which is comparable to the mean of 43.2 times of the Comparable Companies. The EV/EBITDA multiple of Beijing Tide is approximately 36.8 times, which is within the range of EV/EBITDA multiple of the Comparable Companies and yet higher than the mean of approximately 26.3 times and the medium of approximately 27.9 times.

The Consideration will be financed solely by the issue of the Consideration Shares. We consider the Acquisition to be substantial hence financing the Acquisition by issuing shares would save finance costs, and provide the requisite amount of funds in timely manner, and would not affect the gearing level of the Group and its future research and development. We also consider the Issue Price to be set at a reasonable level as it is close to the average closing prices of Shares for the last 5, 10 and 30 trading days which taken into the account for the significant increase in Share price, which is caused by market optimism from December 2017. Following the Announcement, the market price of the Shares has increased to HK$15.58 at the Latest Practicable Date.

Upon Completion, the profitability of the Group would be enhanced from the consolidation of financial performance of Beijing Tide as it has a higher gross margin and net profit margin than the Group. The Acquisition will also bring positive impact on the gearing ratio of the Group.

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LETTER FROM GUOTAI JUNAN CAPITAL

The issue of the Consideration Shares will result in the Shares held by the Public Shareholders being slightly diluted from approximately 57.54% to approximately 50.62%. Considering the size and benefits of the Acquisition, a prudent financing structure is needed and we consider such dilution to be acceptable. As a result of the allotment and issue of the Consideration Shares, the shareholding held by the Concert Group will increase from approximately 41.63% to approximately 48.65%, which would trigger a mandatory general offer to the Shareholders for all the securities of the Company other than those already owned or agreed to be acquired by the Concert Group, unless the Whitewash Waiver is obtained from the Executive. Independent Shareholders should note that the Acquisition is conditional on the Whitewash Waiver being granted and such condition is not waivable, i.e. if the Whitewash Waiver is not granted, the Acquisition will not proceed.

OPINION AND RECOMMENDATION

Having considered the factors and reasons set out above, we consider the Acquisition are on normal commercial terms, fair and reasonable so far as the Independent Shareholders are concerned. We consider the entering into of the Agreements, while not in the ordinary and usual course of business of the Company, is in the interests of the Company and its Shareholders as a whole. We also consider that the Whitewash Waiver is fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, we recommend that the Independent Board Committee to advise, and we ourselves recommend, the Independent Shareholders to vote in favour of the resolutions to approve the Acquisition and the Whitewash Waiver at the EGM.

Yours faithfully, For and on behalf of

GUOTAI JUNAN CAPITAL LIMITED Anthony Wong Deputy General Manager

Mr. Anthony Wong is a licensed person registered with the SFC and a responsible officer of Guotai Junan Capital Limited, which is licensed under the SFO to carry out Type 6 (advising on corporate finance) regulated activity. He has over 18 years of experience in the corporate finance industry.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL INFORMATION OF THE GROUP

The audited consolidated financial statements, together with the accompanying notes to the financial statements, of the Group for the years ended 31 December 2014, 2015 and 2016 and the unaudited consolidated financial information, together with the accompanying notes to the financial statements, of the Group for the six months ended 30 June 2017 are disclosed in the following documents which have been published on the websites of the Stock Exchange (http://www.hkex.news.hk) and the Company (http://www.sinobiopharm.com):

Annual report for the year ended 31 December 2014 (pages 59 to 156): http://www.hkexnews.hk/listedco/listconews/SEHK/2015/0427/LTN20150427463.pdf

Annual report for the year ended 31 December 2015 (pages 57 to 146): http://www.hkexnews.hk/listedco/listconews/SEHK/2016/0428/LTN20160428557.pdf

Annual report for the year ended 31 December 2016 (pages 60 to 154): http://www.hkexnews.hk/listedco/listconews/SEHK/2017/0427/LTN201704271536.pdf

Interim report for the six months ended 30 June 2017 (pages 17 to 31): http://www.hkexnews.hk/listedco/listconews/SEHK/2017/0907/LTN20170907658.pdf

– I-1 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The following is a summary of the audited consolidated financial information of the Group for the years ended 31 December 2014, 2015 and 2016 as extracted from the published annual financial statements of the Group for the relevant years and the unaudited consolidated financial information of the Group for the six months ended 30 June 2017 as extracted from the published interim financial statements of the Group for the six months ended 30 June 2017.

RESULTS Revenue, net of sales tax Profit/(loss) before tax Income tax expense Profit/(loss) for the year/period attributable to: Owners of the Company Non-controlling interest Earnings per shares attributable to equity holders of the Company Basic and diluted per share Dividends Dividends per share	For the six months ended 30 June 30 June 2016 2017 (unaudited) (unaudited) RMB’000 RMB’000 6,768,203 7,482,859 1,381,459 1,684,269 (219,617) (285,637) 875,596 1,100,582 286,246 298,050 1,161,842 1,398,632 RMB11.81 cents RMB14.85 cents 187,192 259,168 HK3 cents HK4 cents	For the 2016 (audited) HK$000 15,825,438 3,743,279 (555,019) 1,913,276 1,274,984 3,188,260 HK25.81 cents 444,732 HK6 cents	year ended 31 December 2015 2014 (audited) (audited) HK$000 HK$000 14,550,225 12,378,350 3,443,884 2,801,207 (532,876) (440,153) 1,778,692 1,513,205 1,132,316 847,849 2,911,008 2,361,054 HK24.00 cents HK20.42 cents 333,549 296,488 HK5.5 cents HK6 cents	year ended 31 December 2015 2014 (audited) (audited) HK$000 HK$000 14,550,225 12,378,350 3,443,884 2,801,207 (532,876) (440,153) 1,778,692 1,513,205 1,132,316 847,849 2,911,008 2,361,054 HK24.00 cents HK20.42 cents 333,549 296,488 HK5.5 cents HK6 cents
				2,361,054

				HK20.42 cents

				296,488 HK6 cents

The auditors of the Company have issued unqualified opinions on the audited consolidated financial statements of the Group for the years ended 31 December 2014, 2015 and 2016.

– I-2 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. AUDITED CONSOLIDATED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2016

Set out below are the audited consolidated financial statements of the Group for the financial year ended 31 December 2016 extracted from the annual report of the Company for the year ended 31 December 2016.

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

Year ended 31 December 2016

Notes REVENUE 5 Cost of sales Gross profit Other income and gains 5 Selling and distribution costs Administrative expenses Other expenses Finance costs 7 Share of profits and losses of associates 19 PROFIT BEFORE TAX 6 Income tax expense 10 PROFIT FOR THE YEAR Attributable to: Owners of the parent Non-controlling interests EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT 12 Basic and diluted	2016 HK$’000 15,825,438 (3,291,221) 12,534,217 320,790 (6,371,990) (1,214,579) (1,783,219) (89,563) 347,623 3,743,279 (555,019) 3,188,260 1,913,276 1,274,984 3,188,260 HK25.81 cents	2015 HK$’000 14,550,225 (3,249,697) 11,300,528 391,633 (5,897,286) (1,234,046) (1,362,387) (79,812) 325,254 3,443,884 (532,876) 2,911,008 1,778,692 1,132,316 2,911,008 HK24.00 cents

– I-3 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Year ended 31 December 2016

Note PROFIT FOR THE YEAR OTHER COMPREHENSIVE LOSS Other comprehensive loss to be reclassified to profit or loss in subsequent periods: Available-for-sale investments: Changes in fair value Reclassification adjustments for losses included in the consolidated statement of profit or loss – loss on disposal 6 Exchange differences: Exchange differences on translation of foreign operations Net other comprehensive loss to be reclassified to profit or loss in subsequent periods Other comprehensive (loss)/income not to be reclassified to profit or loss in subsequent periods: Gains on property revaluation Income tax effect Share of other comprehensive loss of associates Net other comprehensive loss not to be reclassified to profit or loss in subsequent periods OTHER COMPREHENSIVE LOSS FOR THE YEAR, NET OF TAX TOTAL COMPREHENSIVE INCOME FOR THE YEAR Attributable to: Owners of the parent Non-controlling interests	2016 HK$’000 3,188,260 – – (596,041) (596,041) 34,972 (7,203) 27,769 (63,790) (36,021) (632,062) 2,556,198 1,509,362 1,046,836 2,556,198	2015 HK$’000 2,911,008 (9,052) 7,846 (341,327) (342,533) 30,056 (3,473) 26,583 (114,352) (87,769) (430,302) 2,480,706 1,470,504 1,010,202 2,480,706

– I-4 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

31 December 2016

Notes NON-CURRENT ASSETS Property, plant and equipment 13 Investment properties 14 Property under development 15 Prepaid land lease payments 16 Goodwill 17 Other intangible assets 18 Investments in associates 19 Available-for-sale investments 20 Financial assets designated as at fair value through profit or loss 21 Deferred tax assets 31 Prepayments 24 Total non-current assets CURRENT ASSETS Inventories 22 Trade and bills receivables 23 Prepayments, deposits and other receivables 24 Dividend due from an associate Available-for-sale investments 20 Equity investments at fair value through profit or loss 25 Cash and bank balances 26 Total current assets CURRENT LIABILITIES Trade and bills payables 27 Tax payable Other payables and accruals 28 Interest-bearing bank borrowings 29 Total current liabilities NET CURRENT ASSETS	31 December 2016 HK$’000 2,999,626 470,472 – 519,208 110,515 203,789 998,680 412,377 165,115 402,868 44,890 6,327,540 999,147 2,227,742 3,566,847 389,776 2,368,976 456,031 4,203,467 14,211,986 922,801 215,454 3,646,749 1,528,606 6,313,610 7,898,376	31 December 2015 HK$’000 2,656,187 496,489 529,735 333,884 110,709 198,907 1,258,323 368,351 224,989 214,966 154,347
		6,546,887
		950,148 1,866,408 1,527,610 – 2,419,678 460,826 2,711,061
		9,935,731
		767,592 257,221 3,079,249 1,419,990
		5,524,052
		4,411,679

– I-5 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes TOTAL ASSETS LESS CURRENT LIABILITIES TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Deferred government grants 30 Interest-bearing bank borrowings 29 Deferred tax liabilities 31 Total non-current liabilities Net assets EQUITY Equity attributable to owners of the parent Share capital 32 Reserves 34 Non-controlling interests Total equity	31 December 2016 HK$’000 14,225,916 14,225,916 225,029 1,874,064 188,894 2,287,987 11,937,929 185,305 8,699,419 8,884,724 3,053,205 11,937,929	31 December 2015 HK$’000 10,958,566
		10,958,566
		141,638 306,062 67,821
		515,521
		10,443,045

		185,305 7,570,583
		7,755,888 2,687,157
		10,443,045

– I-6 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Year ended 31 December 2016

		Attributable to owners of the parent	Attributable to owners of the parent			Total equity HK$’000 8,818,296 2,911,008 (9,052) 7,846 26,583 (61,538) (341,327) (52,814)
Share premium account HK$’000 1,285,444 – – – – – – – – – – – – (61,769) – – – – 1,223,675*	Asset Capital revaluation reserve reserve HK$’000 HK$’000 (171,651) 253,736 – – – – – – – 12,796 – (61,538) – – – – – (48,742) – – (30,320) – – – – – – – – – – – – – – – (201,971) 204,994	Available- for-sale investment revaluation reserve HK$’000 1,206 – (9,052) 7,846 – – – – (1,206) – – – – – – – – – –*	Contributed Reserve surplus funds HK$’000 HK$’000 (note 34) 20,743 924,744 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 420,128 – 1,550 20,743 1,346,422	Exchange fluctuation Retained reserve profits HK$’000 HK$’000 210,296 3,888,466 – 1,778,692 – – – – – – – – (205,426) – (52,814) – (258,240) 1,778,692 – – – – – – – – – – – (222,366) – (111,183) – (420,128) – – (47,944) 4,913,481	Proposed final dividend HK$’000 (note 11) 74,122 – – – – – – – – – – – (74,122) – – 111,183 – – 111,183*
						2,480,706 43,693 (47,488) (557,224) (74,122) – (222,366) – – 1,550
						10,443,045

– I-7 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

		Attributable to owners of the parent	Attributable to owners of the parent			Total equity HK$’000 10,443,045 3,188,260 – – 27,769 (3,446) (596,041) (60,344)
Share premium account HK$’000 1,223,675 – – – – – – – – – – – – – – – – 1,223,675*	Asset Capital revaluation reserve reserve HK$’000 HK$’000 (201,971) 204,994 – – – – – – – 18,927 – (3,446) – – – – – 15,481 – – – – – – – – – – – – – – – – (201,971) 220,475	Available- for-sale investment revaluation reserve HK$’000 – – – – – – – – – – – – – – – – – –*	Contributed Reserve surplus funds HK$’000 HK$’000 (note 34) 20,743 1,346,422 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 420,885 – 839 20,743 1,768,146	Exchange fluctuation Retained reserve profits HK$’000 HK$’000 (47,944) 4,913,481 – 1,913,276 – – – – – – – – (359,051) – (60,344) – (419,395) 1,913,276 – – 63,367 – – – – – – (333,549) – (111,183) – (420,885) – – (403,972) 5,961,140	Proposed final dividend HK$’000 (note 11) 111,183 – – – – – – – – – – – (111,183) – 111,183 – – 111,183*
						2,556,198 6,363 62,958 (686,742) (111,183) (333,549) – – 839
						11,937,929

These reserve accounts comprise the consolidated reserves of approximately HK$8,699,419,000 (2015: approximately HK$7,570,583,000) in the consolidated statement of financial position.

– I-8 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CASH FLOWS

Year ended 31 December 2016

Notes CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax Adjustments for: Finance costs 7 Share of profits and losses of associates 19 Bank interest income 5 Interest income on convertible bonds 5 Investment income 5 Dividend income 5 Depreciation of property, plant and equipment 13 Revaluation (surplus)/deficit of property, plant and equipment 6 Depreciation of investment properties 6 Recognition of prepaid land lease payments 6 Amortisation of other intangible assets 6 Loss on disposal of items of property, plant and equipment 5,6 Loss on disposal of subsidiaries 6,36 Impairment of an investment in an associate 6 Fair value (gain)/loss, net: Available-for-sale investments (transfer from equity in disposal) 6 Equity investments at fair value through profit or loss – held for trading 5,6 Financial assets designated as at fair value through profit or loss 6 Increase in inventories (Increase)/decrease in trade and bills receivables Increase in prepayments, deposits and other receivables Decrease in equity investments at fair value through profit or loss Decrease in amounts due from related companies Increase/(decrease) in trade and bills payables Increase in other payables and accruals Increase in deferred government grants Decrease in amounts due to related companies	2016 HK$’000 3,743,279 89,563 (347,623) (25,119) (20,307) (158,611) (14,788) 355,295 (10,568) 26,017 9,660 13,026 13,805 57,944 – – 32,938 59,874 3,824,385 (49,064) (361,334) (186,551) – – 177,867 641,241 83,391 –	2015 HK$’000 3,443,884 79,812 (325,254) (74,503) (18,798) (194,595) (12,848) 317,902 27,852 23,849 7,345 11,559 134 – 15,699 7,846 (31,278) 25,281 3,303,887 (48,523) 23,253 (1,154,405) 100,123 18,050 (7,649) 635,184 22,588 (33,959)

– I-9 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes Cash generated from operations Profits tax paid Net cash flows from operating activities Net cash flows from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Interest received Investment income received Dividends received from unlisted investments Dividends received from associates Purchases of items of property, plant and equipment Purchases of investment properties Addition to properties under development Increase in available-for-sale investments Increase in wealth management products recorded in other receivables Purchases of financial assets designated as at fair value through profit or loss Proceeds from disposal of items of property, plant and equipment Proceeds from disposal of available-for-sale investments Additions to other intangible assets Acquisition of associates Acquisition of an equity investment of a subsidiary Increase in prepaid land lease payments Decrease in equity investments at fair value through profit or loss (Increase)/decrease in long term prepayments (Increase)/decrease in time deposits with original maturity of more than three months Net cash outflow for disposal of subsidiaries Net cash flows used in investing activities	2016 HK$’000 4,129,935 (678,055) 3,451,880 3,451,880 25,119 158,611 14,788 115,492 (834,571) – (75,805) (37,350) (1,348,311) – 10,837 – (28,014) (24,487) – (106,084) (28,143) (15,491) (113,867) (7,135) (2,294,411)	2015 HK$’000 2,858,549 (567,892) 2,290,657 2,290,657 74,503 194,595 12,848 425,094 (735,332) (520,338) (529,735) (2,426,403) – (250,270) 9,024 56,091 (54,304) (126,793) (47,488) (17,437) – 981,543 1,120,921 – (1,833,481)

– I-10 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes CASH FLOWS FROM FINANCING ACTIVITIES New bank loans Repayment of bank loans Dividends paid Interest paid Dividends paid to non-controlling shareholders Contribution from non-controlling shareholders Net cash flows from/(used in) financing activities NET INCREASE/(DECREASE) 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, unrestricted 26 Time deposits with original maturity of less than three months when acquired 26 Cash and cash equivalents as stated in the statement of cash flows	2016 HK$’000 3,095,060 (1,418,442) (444,732) (89,563) (686,742) 6,363 461,944 1,619,413 2,530,879 (240,874) 3,909,418 1,648,265 2,261,153 3,909,418	2015 HK$’000 794,724 (792,456) (296,488) (79,812) (557,224) 43,693 (887,563) (430,387) 3,167,230 (205,964) 2,530,879 1,230,422 1,300,457 2,530,879

– I-11 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 December 2016

1. CORPORATE AND GROUP INFORMATION

The Company was incorporated as an exempted company with limited liability in the Cayman Islands on 2 February 2000 under the Companies Law, Cap. 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands. The Company’s shares were listed on The Growth Enterprise Market (the “GEM”) of the Stock Exchange of Hong Kong Limited (the “Stock Exchange”) on 29 September 2000. Upon approval by the Stock Exchange, the Company’s shares were withdrawn from the GEM and were listed on the Main Board on 8 December 2003.

The head office and principal place of business of the Company in Hong Kong is located at Unit 9, 41st Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong.

During the year, the Group continued to be principally engaged in the research and development, production and sale of a series of modernised Chinese medicines and chemical medicines.

Information about subsidiaries

Particulars of the Company’s subsidiaries are as follows:

	Place of		Percentage	of equity
	incorporation/	Issued/	attributable to
	registration and	paid-up	the Company			Principal
Company name	kind of legal entity	capital	Direct	Indirect		activities
Champion First	British Virgin	US$2	100		–	Investment holding
Investments Limited	Islands/
	Hong Kong
China Biotech & Drug	Hong Kong	HK$100	–	51		Research and
Development Limited		Ordinary				development of
						pharmaceutical
						products
Chia Tai-Tianqing	PRC/	RMB690,000,000	–	60		Development,
Pharmaceutical	Mainland China*					manufacture and
Holdings Co., Ltd.						distribution of
(“CT Tianqing”)						pharmaceutical
						products
Jiangsu Runji Investment	PRC/	RMB10,000,000	–	60		Investment holding
Co., Ltd.	Mainland China**
Magnificent Technology	British Virgin	US$500,000	–	60		Investment holding
Limited	Islands/
	Hong Kong
Nanjing Chia Tai	PRC/	RMB117,609,001	–	55.6		Development,
Tianqing	Mainland China*					manufacture and sale
Pharmaceutical						of pharmaceutical
Co., Ltd. (“NJCTT”)						products

– I-12 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

	Place of		Percentage	of equity
	incorporation/	Issued/	attributable to
	registration and	paid-up	the Company			Principal
Company name	kind of legal entity	capital	Direct	Indirect		activities
Lianyungang Hualing	PRC/	US$5,000,000	–	60		Manufacture and
Medicines Technology	Mainland China**					sale of pharmaceutical
Co., Ltd.						products
(“LYG Hualing”)
Lianyungang Runzhong	PRC/	RMB65,000,000	–	60		Development,
Pharmaceutical	Mainland China**					manufacture and sale
Co., Ltd.						of pharmaceutical
(“LYG Runzhong”)						products
Lianyungang Chia Tai	PRC/	RMB50,000,000	–	60		Distribution of
Tianqing Medicines	Mainland China**					pharmaceutical
Co., Ltd.						products
(“LYG Tianqing”)
Chia Tai Refined	Hong Kong	HK$2	100		–	Investment holding
Chemical Industry		Ordinary
Limited
Evon Industries Limited	Hong Kong	HK$2	100		–	Property holding
		Ordinary
Fine Enterprise	Hong Kong	HK$1	100		–	Investment holding
Investment Limited		Ordinary
Sino Biopharmaceutical	Hong Kong	HK$1	100			Investment holding
(Tianjin) Co., Ltd.		Ordinary
Jiangsu Chia Tai	PRC/	RMB48,960,000	–	55.588		Development,
Qingjiang	Mainland China*					manufacture and sale
Pharmaceutical Co., Ltd.						of pharmaceutical
(“Jiangsu Qingjiang”)						products
Jiangsu Chia Tai	PRC/	RMB5,000,000	–	55.588		Distribution of
Qingjiang Medicines	Mainland China**					pharmaceutical
Co., Ltd.						products
(“Jiangsu Qingjiang
Medicines”)
Jiangsu Chia Tai	PRC/	US$9,363,500	–	60.898		Development,
Fenghai	Mainland China*					manufacture and sale
Pharmaceutical Co., Ltd.						of pharmaceutical
(“Jiangsu Fenghai”)						products
Jiangsu Chia Tai	PRC/	RMB20,000,000	–	60.898		Distribution of
Fenghai Medicines	Mainland China**					pharmaceutical
Co., Ltd.						products
(“Jiangsu Fenghai
Medicines”)

– I-13 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

	Place of		Percentage	of equity	of equity
	incorporation/	Issued/	attributable to
	registration and	paid-up	the Company				Principal
Company name	kind of legal entity	capital	Direct	Indirect			activities
Nanjing Chia Tai	PRC/	RMB500,000	–	60.898			Distribution of
Fenghai Medicines	Mainland China**						pharmaceutical
Technology Co., Ltd.							products
Chia Tai Wing Fuk	Hong Kong	HK$1	100			–	Investment holding
Limited		Ordinary
Qingdao Chia Tai	PRC/	US$7,560,000	–		51		Development,
Haier Pharmaceutical	Mainland China*						manufacture and sale
Co., Ltd.							of pharmaceutical
							products
Qingdao Hang Seng	PRC/	RMB1,250,000	–		51		Retail of
Tang Pharmacy	Mainland China**						pharmaceutical
Co., Ltd.							products
Qingdao Haier	PRC/	RMB5,000,000	–		51		Sale of
Medicines Co., Ltd.	Mainland China**						pharmaceutical
							products
Talent Forward Limited	Hong Kong	HK$1	100			–	Investment holding
		Ordinary
Sino Biopharmaceutical	Hong Kong	HK$100	100			–	Investment holding
(Beijing) Limited		Ordinary
Chia Tai Pharmaceutical	Hong Kong	HK$1	100			–	Investment holding
(Lianyungang)		Ordinary
Company Limited
(“CTP(LYG)”)
Lucky Symbol Holdings	Hong Kong	HK$1	100			–	Investment holding
Limited		Ordinary
Ace Elite Investments	Hong Kong	HK$10	–		100		Investment holding
Limited		Ordinary
Shanghai Tongyong	PRC/	RMB56,000,000	–	81.786			Manufacture and
Pharmaceutical	Mainland China*						sale of pharmaceutical
Co., Ltd.							products
(“Shanghai Tongyong”)1
Chia Tai Pharmaceutical	PRC/	US$118,500,000	100			–	Investment holding
Investment	Mainland China***
(Beijing) Co., Ltd.
(“CTP Investment”)

– I-14 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

	Place of		Percentage	of equity	of equity
	incorporation/	Issued/	attributable to
	registration and	paid-up	the Company				Principal
Company name	kind of legal entity	capital	Direct	Indirect			activities
Chia Tai Healthcare	Hong Kong	HK$100	100			–	Investment holding
(Holding) Limited		Ordinary
Chia Tai Shaoyang	PRC/	RMB129,928,711	–		44.2		Orthopaedic outpatient
Orthopaedic Hospital	Mainland China*						and surgical
(“Shaoyang Hospital”)2							procedures
Lianyungang Tianrun	PRC/	RMB100,000	–		60		Retail of
Pharmacy Ltd.	Mainland China**						pharmaceutical
							products
Shanghai Tongzheng	PRC/	RMB1,200,000	–	81.786			Distribution of
Import-Export Co., Ltd.	Mainland China**						pharmaceutical
							products
Suzhou Tianqing	PRC/	RMB30,000,000	–		33		Distribution of
Xingwei Medicines	Mainland China**						pharmaceutical
Co., Ltd.							products
(“Suzhou Xingwei”)
Nanjing Shunxin	PRC/	RMB500,000,000	–		60		Manufacture and
Pharmaceutical Co., Ltd.	Mainland China**						sale of pharmaceutical
							products
Tianjin Chia Tai	PRC/	RMB19,000,000	–		51		Manufacture and
Zhenwutang	Mainland China*						sale of health food
Food Co., Ltd.
(“Tianjin Zhenwutang”)
Tianjin Chia Tai Likang	PRC/	RMB500,000	–		51		Distribution and
Trading Co., Ltd.	Mainland China**						retail of health food
(“Tianjin Likang
Trading”)
Zhejiang Tianqing	PRC/	RMB30,000,000	–		33		Distribution of
Zhongwei Medicines	Mainland China**						pharmaceutical
Co., Ltd. (“Zhejiang							products
Zhongwei”)
Chia Tai Medicines	Hong Kong	HK$100	100			–	Investment holding
Investment Ltd.		Ordinary
(“CT Medicines
Investment”)
CP Boai Investment Ltd.	Hong Kong	US$4,224,819	–		55		Investment holding
(“Hong Kong Pacific”)

– I-15 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

	Place of		Percentage	of equity	of equity
	incorporation/	Issued/	attributable to
	registration and	paid-up	the Company				Principal
Company name	kind of legal entity	capital	Direct	Indirect			activities
Beijing Fuxing Boai Vision	PRC/	RMB500,000	–		55		Optometry for optical
Optical Centre Co., Ltd.	Mainland China**						glasses and sale of
							ophthalmic products
Zhengzhou Boai	PRC/	RMB7,000,000	–		38.5		Ophthalmic
Ophthalmology	Mainland China*						examination
Center Co., Ltd.							and diagnosis
Jiangxi Boai	PRC/	RMB5,000,000	–		38.5		Ophthalmic
Ophthalmology	Mainland China*						examination
Center Co., Ltd.							and diagnosis
Beijing Pacific Boai	PRC/	RMB17,373,261	–		55		Medical management
Medical Management	Mainland China*						consultancy services
Co., Ltd.
Zhengzhou Puai	PRC/	RMB100,000	–		55		Optometry for optical
Optical Sales Co., Ltd.	Mainland China**						glasses and sale of
							ophthalmic products
Linyi City People Hospital	PRC/	RMB15,101,000	–		33		Ophthalmic prevention
– Boai Ophthalmology	Mainland China						and diagnosis
Hospital
Linyi Boai Vision	PRC/	–	–		33		Optometry for optical
Optical Centre Co., Ltd.	Mainland China**						glasses and sale of
							ophthalmic products
Jiangxi Boai Optometry	PRC/	RMB1,000,000	–		38.5		Optometry for optical
Optical Centre Co., Ltd.	Mainland China**						glasses and retail and
							wholesale of optical
							and auditory products
Zhengzhou Boai	PRC/	RMB3,000,000	–		55		Outpatient and
Otorhinolaryngology	Mainland China**						surgical procedures
Hospital Co., Ltd.
Zhengzhou Boai Vision	PRC/	RMB100,000	–		55		Optometry for optical
Optical Co., Ltd.	Mainland China**						glasses and sale
							of glasses
Beijing Fuxing Boai	PRC/	RMB13,870,032	–	41.25			Ophthalmic diagnosis
Ophthalmology Centre	Mainland China*
Chia Tai Resources	Hong Kong	HK$10	100			–	Investment holding
Limited (“CT		Ordinary
Resources”)

– I-16 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

	Place of		Percentage	of equity	of equity
	incorporation/	Issued/	attributable to
	registration and	paid-up	the Company				Principal
Company name	kind of legal entity	capital	Direct	Indirect			activities
Chia Tai Health	PRC/	–	–		55.6		Manufacture and
Technology Co., Ltd.	Mainland China**						sale of pharmaceutical
(formerly known							products
as Huaian Jiuli
Biotech Co., Ltd.)
Qingdao Hang Seng Tang	PRC/	RMB30,000	–		51		Hospital and
Pharmacy Co. Ltd.	Mainland China**						sale of pharmaceutical
Clinic (“QDHST							products
Clinic”)
Anhui Chia Tai Banlanhua	PRC/	RMB75,000,000	–	36.5388			Distribution and
Healthcare Industry	Mainland China**						retail of health food
Co., Ltd. (“Anhui
Banlanhua”)3
Karolinska Development	Hong Kong	HK$1	100			–	Investment holding
(Asia) Limited		Ordinary
(“KD Asia”)
Golden Sword	British Virgin	US$1	100			–	Investment holding
Ventures Limited	Islands/
(“Golden Sword”)	Hong Kong
Chia Tai Likang (Tianjin)	PRC/	RMB1,000,000	–	43.35			Distribution of
Technology Co., Ltd.	Mainland China**						pharmaceutical
(“Tianjin LK”)							products
Suzhou Suhang	PRC/	RMB100,000	–		33		Retail of
Pharmacy Co., Ltd.	Mainland China**						pharmaceutical
(“Suzhou Suhang”)4							products
Champ Profit	Hong Kong	HK$1	100			–	Investment holding
(China) Limited		Ordinary
(“Champ Profit”)5
Heroic Wise	British Virgin	US$1	100			–	Investment holding
Investments Limited	Islands/
(“Heroic Wise”)6	Hong Kong

Notes:

1 During the year ended 31 December 2016, Shanghai Tongyong increased its paid-up capital from RMB52,800,000 to RMB56,000,000. The Group’s effective equity holding in Shanghai Tongyong was 81.786% (2015: 80.682%).
2 During the year ended 31 December 2016, Shaoyang Hospital increased its paid-up capital from RMB127,228,711 to RMB129,928,711. A third party had made an additional capital contribution of RMB2,700,000. The Group’s effective equity holding in Shaoyang Hospital was 44.2% (2015: 46.7%).

– I-17 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3 During the year ended 31 December 2016, Anhui Banlanhua increased its paid-up capital from RMB72,000,000 to RMB75,000,000. A third party had made an additional capital contribution of RMB3,000,000. The Group’s effective equity holding in Anhui Banlanhua was 36.5388% (2015: 38.06125%).
4 Suzhou Suhang was newly established during the year ended 31 December 2016. The Company holds 33% of its equity interest through Suzhou Xingwei.
5 Champ Profit was newly acquired during the year ended 31 December 2016. The Company holds 100% of its equity interest.
6 Heroic Wise was newly acquired during the year ended 31 December 2016. The Company holds 100% of its equity interest.
7 On 31 December 2016, Talent Forward Limited transferred its entire 75% direct equity interest in Beijing Chia Tai Green Continent Pharmaceutical Co., Ltd. (“CTGP”) to two individuals and a third party for a consideration of approximately HK$1,250,000 in aggregate. The Group’s share of net assets in CTGP as at the date of disposal was approximately HK$1,226,000.
8 On 14 December 2016, the Group transferred its entire 100% direct equity interest in Chia Tai Haiyu Company Limited (“CT Haiyu”) and its wholly-owned subsidiary, Chia Tai Kaiyue (Wuxi) Real Property Co., Ltd. (“CT Kaiyue Wuxi”) to a third party for a consideration of approximately HK$502,281,000. The Group’s share of net assets in CT Haiyu and CT Kaiyue Wuxi as at the date of disposal was approximately HK$560,249,000.
These subsidiaries were registered as foreign-owned enterprises under PRC law.
** These subsidiaries were registered as limited liability companies under PRC law.
*** This subsidiary was registered as a wholly-foreign owned enterprise under PRC law.

– I-18 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2.1 BASIS OF PREPARATION

These consolidated financial statements of the Group have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) (which include all Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants (“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, except for certain buildings classified as property, plant and equipment and equity investments which have been measured at fair value, as further explained in note 2.4. These financial statements are 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 statements include the financial statements of the Company and its subsidiaries (collectively referred to as the “Group”) for the year ended 31 December 2016. A subsidiary is an entity (including a structured entity), directly or indirectly, controlled by the Company. Control is achieved when the 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 Group the current ability to direct the relevant activities of the investee).

When the Company has, directly or indirectly, less than a majority of the voting or similar rights of an investee, the 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 Group’s voting rights and potential voting rights.

The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. The results of subsidiaries are consolidated from the date on which the 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 Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

The 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 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 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 Group had directly disposed of the related assets or liabilities.

– I-19 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2.2 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES

The Group has adopted the following new and revised HKFRSs for the first time for the current year’s financial statements.

Amendments to HKFRS 10, Investment Entities: Applying the Consolidation Exception HKFRS 12 and HKAS 28 (2011) Amendments to HKFRS 11 Accounting for Acquisitions of Interests in Joint Operations HKFRS 14 Regulatory Deferral Accounts Amendments to HKAS 1 Disclosure Initiative Amendments to HKAS 16 Clarification of Acceptable Methods of Depreciation and HKAS 38 and Amortisation Amendments to HKAS 16 Agriculture: Bearer Plants and HKAS 41 Amendments to HKAS 27 (2011) Equity Method in Separate Financial Statements Annual Improvements Amendments to a number of HKFRSs 2012-2014 Cycle

The adoption of the above new and revised standards has had no significant financial effect on these financial statements.

2.3 ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS

The Group has not applied the following new and revised HKFRSs, that have been issued but are not yet effective, in these financial statements.

Amendments to HKFRS 2	Classification and Measurement of Share-based Payment
	_Transactions_2
Amendments to HKFRS 4	Applying HKFRS 9 Financial Instruments with HKFRS 4
	_Insurance Contracts_2
HKFRS 9	_Financial Instruments_2
Amendments to HKFRS 10	Sale or Contribution of Assets between an Investor and
and HKAS 28 (2011)	_its Associate or Joint Venture_4
HKFRS 15	_Revenue from Contracts with Customers_2
Amendments to HKFRS 15	Clarifications to HKFRS 15 Revenue from Contracts with
	_Customers_2
HKFRS 16	_Leases_3
Amendments to HKAS 7	_Disclosure Initiative_1
Amendments to HKAS 12	_Recognition of Deferred Tax Assets for Unrealised Losses_1

1 Effective for annual periods beginning on or after 1 January 2017

2 Effective for annual periods beginning on or after 1 January 2018

3 Effective for annual periods beginning on or after 1 January 2019

4 No mandatory effective date yet determined but available for adoption

– I-20 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

The HKICPA issued amendments to HKFRS 2 in August 2016 that address three main areas: the effects of vesting conditions on the measurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding a certain amount in order to meet the employee’s tax obligation associated with the share-based payment; and accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash-settled to equity-settled. The amendments clarify that the approach used to account for vesting conditions when measuring equity-settled share-based payments also applies to cash-settled share-based payments. The amendments introduce an exception so that a share-based payment transaction with net share settlement features for withholding a certain amount in order to meet the employee’s tax obligation is classified in its entirety as an equity-settled share-based payment transaction when certain conditions are met. Furthermore, the amendments clarify that if the terms and conditions of a cash-settled share-based payment transaction are modified, with the result that it becomes an equity-settled share-based payment transaction, the transaction is accounted for as an equity-settled transaction from the date of the modification. The Group expects to adopt the amendments from 1 January 2018. The amendments are not expected to have any significant impact on the Group’s financial statements.

In September 2014, the HKICPA issued the final version of HKFRS 9, bringing together all phases of the financial instruments project to replace HKAS 39 and all previous versions of HKFRS 9. The standard introduces new requirements for classification and measurement, impairment and hedge accounting. The Group expects to adopt HKFRS 9 from 1 January 2018. The Group is currently assessing the impact of the standard upon adoption and expects that the adoption of HKFRS 9 will have an impact on the classification and measurement of the Group’s financial assets.

Amendments to HKFRS 10 and HKAS 28 (2011) address an inconsistency between the requirements in HKFRS 10 and in HKAS 28 (2011) 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 previous mandatory effective date of amendments to HKFRS 10 and HKAS 28 (2011) was removed by the HKICPA in January 2016 and a new mandatory effective date will be determined after the completion of a broader review of accounting for associates and joint ventures. However, the amendments are available for adoption now.

HKFRS 15 establishes a new five-step model to account for revenue arising from contracts with customers. Under HKFRS 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 HKFRS 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 HKFRSs. In June 2016, the HKICPA issued amendments to HKFRS 15 to address the implementation issues on identifying performance obligations, application guidance on principal versus agent and licences of intellectual property, and transition. The amendments are also intended to help ensure a more consistent application when entities adopt HKFRS 15 and decrease the cost and complexity of applying the standard. The Group expects to adopt HKFRS 15 on 1 January 2018 and is currently assessing the impact of HKFRS 15 upon adoption.

– I-21 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

HKFRS 16 replaces HKAS 17 Leases, HK(IFRIC)-Int 4 Determining whether an Arrangement contains a Lease , HK(SIC)-Int 15 Operating Leases – Incentives and HK(SIC)-Int 27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease . The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to recognise assets and liabilities for most leases. The standard includes two recognition exemptions for lessees – leases of low-value assets and short-term leases. At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). The right-of-use asset is subsequently measured at cost less accumulated depreciation and any impairment losses unless the right-of-use asset meets the definition of investment property in HKAS 40. The lease liability is subsequently increased to reflect the interest on the lease liability and reduced for the lease payments. Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset. Lessees will also be required to remeasure the lease liability upon the occurrence of certain events, such as change in the lease term and change in future lease payments resulting from a change in an index or rate used to determine those payments. Lessees will generally recognise the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset. Lessor accounting under HKFRS 16 is substantially unchanged from the accounting under HKAS 17. Lessors will continue to classify all leases using the same classification principle as in HKAS 17 and distinguish between operating leases and finance leases. The Group expects to adopt HKFRS 16 on 1 January 2019 and is currently assessing the impact of HKFRS 16 upon adoption.

Amendments to HKAS 7 require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. The amendments will result in additional disclosure to be provided in the financial statements. The Group expects to adopt the amendments from 1 January 2017.

Amendments to HKAS 12 were issued with the purpose of addressing the recognition of deferred tax assets for unrealised losses related to debt instruments measured at fair value, although they also have a broader application for other situations. The amendments clarify that an entity, when assessing whether taxable profits will be available against which it can utilise a deductible temporary difference, needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of that deductible temporary difference. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explain the circumstances in which taxable profit may include the recovery of some assets for more than their carrying amount. The Group expects to adopt the amendments from 1 January 2017.

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Investments in associates

An associate is an entity in which the Group has a long term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies.

The Group’s investments in associates are stated in the consolidated statement of financial position at the Group’s share of net assets under the equity method of accounting, less any impairment losses.

Adjustments are made to bring into line any dissimilar accounting policies that may exist.

– I-22 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

If an investment in an associate becomes an investment in a joint venture or vice versa, the retained interest is not remeasured. Instead, the investment continues to be accounted for under the equity method. In all other cases, upon loss of significant influence over the associate or joint control over the joint venture, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate or joint venture upon loss of significant influence or joint control and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss.

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

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 Group, liabilities assumed by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. For each business combination, the Group elects whether to measure the non-controlling 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 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.

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 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.

– I-23 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 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 Group’s cash-generating 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 Group are assigned to those units or groups of units.

Impairment is determined by assessing the recoverable amount of the cash-generating unit (or group of cash-generating units) to which the goodwill relates. Where the recoverable amount of the cash-generating unit (or 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 Group measures its investment properties, derivative financial instruments and equity investments 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 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.

The 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 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.

– I-24 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 in the period in which it arises, unless the asset is carried at a revalued amount, in which case the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued 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 the prior years. A reversal of such an impairment loss is credited to the statement of profit or loss in the period in which it arises, unless the asset is carried at a revalued amount, in which case the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

Related parties

A party is considered to be related to the 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 Group;
(ii) has significant influence over the Group; or
(iii) is a member of the key management personnel of the Group or of a parent of the Group;

(b) the party is an entity where any of the following conditions applies:
(i) the entity and the 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 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 controlled or jointly controlled by a person identified in (a);
(vi) 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

– I-25 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(vii) the entity, or any member of a group of which it is a part, provides key management personnel services to the Group or to the parent of the Group.

Property, plant and equipment and depreciation

Property, plant and equipment, other than construction in progress, are stated at cost or valuation 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 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 Group recognises such parts as individual assets with specific useful lives and depreciates them accordingly.

Valuations are performed on buildings frequently enough to ensure that the fair value of a revalued asset does not differ materially from its carrying amount. Changes in the values of buildings are dealt with as movements in the asset revaluation reserve. If the total of this reserve is insufficient to cover a deficit, on an individual asset basis, the excess of the deficit is charged to the statement of profit or loss. Any subsequent revaluation surplus is credited to the statement of profit or loss to the extent of the deficit previously charged. An annual transfer from the asset revaluation reserve to retained profits is made for the difference between the depreciation based on the revalued carrying amount of an asset and the depreciation based on the asset’s original cost. On disposal of a revalued asset, the relevant portion of the asset revaluation reserve realised in respect of previous valuations is transferred to retained profits as a movement in reserves.

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:

Buildings	4%-5%
Leasehold improvements	5%-20%
Plant and machinery	5%-9%
Motor vehicles	9%-18%
Furniture and fixtures	18%

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 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 factory buildings, plant and machinery and other assets under construction or installation, which are stated at cost less any impairment losses, and are not depreciated. Cost comprises the direct costs of construction, installation and testing 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.

– I-26 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Investment properties

Investment properties are interests in land and buildings (including the leasehold interest under an operating lease for a property which would otherwise meet the definition of an investment property) held to earn rental income and/or for capital appreciation, rather than for use in the production or supply of goods or services or for administrative purposes; or for sale in the ordinary course of business. Such properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are measured at historical cost less accumulated depreciation and provision for any impairment in value. Depreciation is calculated on the straight-line basis over the expected useful life of 20 years.

Subsequent expenditure is charged to the asset’s carrying amount only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are expensed in the statement of profit or loss during the financial period in which they are incurred.

Any gains or losses on the retirement or disposal of an investment property are recognised in the statement for profit or loss in the year of the retirement or disposal.

If an investment property becomes owner-occupied, it is reclassified as property, plant and equipment, and its carrying amount at the date of reclassification becomes its cost for accounting purposes. If an item of property, plant and equipment becomes an investment property because its use has changed, the carrying amount of this item at the date of transfer is recognised as the cost of an investment property for accounting purposes. Property being constructed or developed for future as an investment property is classified as an investment property.

Properties under development

Properties under development are stated at the lower of cost and net realisable value and comprise land costs, construction costs, borrowing costs, professional fees and other costs directly attributable to such properties incurred during the development period.

Properties under development which are intended to be held for sale and expected to be completed within 12 months from the end of the reporting period are classified as current assets.

Properties under development which are intended to be held for sale and expected to be completed beyond 12 months from the end of the reporting period are classified as non-current assets.

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 finite. 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.

Trademarks

Trademarks with finite useful lives are measured initially at cost and are amortised on the straight-line basis over the respective estimated useful lives of 30 years. Trademarks 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 lives of trademarks are 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.

– I-27 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Patents and licences

Purchased patents and licences are stated at cost less any impairment losses and are amortised on the straight-line basis over their estimated useful lives of not exceeding 10 years.

Research and development costs

All research costs are charged to the statement of profit or loss as incurred.

Expenditure incurred on projects to develop new products is capitalised and deferred only when the 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 years, commencing from the date when the products are put into commercial production.

Operating Leases

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Group is the lessor, assets leased by the Group under operating leases are included in non-current assets, and rentals receivable under the operating leases are credited to the statement of profit or loss on the straight-line basis over the lease terms. Where the 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 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.

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 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.

The Group’s financial assets include cash and bank balances, trade and other receivables, equity investments at fair value through profit or loss and available-for-sale investments.

– I-28 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 HKAS 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. 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 HKAS 39 are satisfied.

Derivatives embedded in host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held for trading or designated as at fair value through profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognised in the statement of profit or loss. Reassessment only occurs if there is either a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the fair value through profit or loss category.

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. The loss arising from impairment is recognised in the statement of profit or loss 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 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 in other expenses. Interest and dividends earned whilst 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 as other income in accordance with the policies set out for “Revenue recognition” below.

– I-29 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 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 Group is unable to trade these financial assets due to inactive markets, the 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.

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 Group’s consolidated statement of financial position) when:

the rights to receive cash flows from the asset have expired; or
the 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 Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the 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 Group continues to recognise the transferred asset to the extent of the Group’s continuing involvement. In that case, the 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 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 Group could be required to repay.

Impairment of financial assets

The 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.

– I-30 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Financial assets carried at amortised cost

For financial assets carried at amortised cost, the 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 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. Interest income continues to be accrued on the reduced carrying amount 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 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 the statement of profit or loss.

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, 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.

Available-for-sale financial investments

For available-for-sale financial investments, the 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, is removed from other comprehensive income and recognised in the statement of profit or loss.

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 – is removed from other comprehensive income and recognised in the statement of profit or loss. Impairment losses on equity instruments classified as available for sale are not reversed through the statement of profit or loss. Increases in their fair value after impairment are recognised directly in other comprehensive income.

– I-31 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The determination of what is “significant” or “prolonged” requires judgement. In making this judgement, the 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. Future interest income continues to be accrued based on the reduced carrying amount of the asset 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, 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.

Financial liabilities

Initial recognition and measurement

Financial liabilities are classified, at initial recognition, as loans and borrowings.

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

The Group’s financial liabilities include trade and bills payables, other payables, deposits received and interest-bearing bank borrowings.

Subsequent measurement

The subsequent measurement of financial liabilities depends on classification as follows:

Loans and borrowings

After initial recognition, interest-bearing loans and 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 when the liabilities are derecognised as well as through the 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.

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.

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.

– I-32 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Treasury shares

Own equity instruments which are reacquired and held by the Company or the Group (treasury shares) are recognised directly in equity at cost. No gain or loss is recognised in the statement of profit or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined on the weighted average 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 consolidated 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.

For the purpose of the consolidated statement of financial position, cash and cash equivalents comprise cash on hand and at banks, including term deposits, 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.

A contingent liability recognised in a business combination is initially measured at its fair value. Subsequently, it is measured at the higher of (i) the amount that would be recognised in accordance with the general guidance for provisions above; and (ii) the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with the guidance for revenue recognition.

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 countries in which the 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.

– I-33 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

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
in respect of taxable temporary differences associated with investments in subsidiaries and associates, 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:

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
in respect of deductible temporary differences associated with investments in subsidiaries and associates, 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 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 by way of a reduced depreciation charge.

Where the Group receives government loans granted with no or at a below-market rate of interest for the construction of a qualifying asset, the initial carrying amount of the government loans is determined using the effective interest rate method, as further explained in the accounting policy for “Financial liabilities” above. The benefit of the government loans granted with no or at a belowmarket rate of interest, which is the difference between the initial carrying value of the loans and the proceeds received, is treated as a government grant and released to the statement of profit or loss over the expected useful life of the relevant asset by equal annual instalments.

– I-34 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to the 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 Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold;
(b) interest income, on an accrual basis using the effective interest method by applying the rate that exactly discounts the estimated future cash receipts over the expected life of the financial instrument or a shorter period, when appropriate, to the net carrying amount of the financial asset; and
(c) dividend income, when the shareholders’ right to receive payment has been established.

Employee benefits

Share-based payments

The Company operates a share option scheme for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations. Employees (including directors) of the 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 for grants after 7 November 2002 is measured by reference to the fair value at the date at which they are granted. The fair value is determined using a binomial model.

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 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 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 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.

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.

– I-35 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 non-vesting conditions within the control of either the 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.

Pension schemes

The Company and the Group’s subsidiaries which operate in Hong Kong operate a defined contribution Mandatory Provident Fund retirement benefit scheme (the “MPF Scheme”) under the Mandatory Provident Fund Schemes Ordinance for those employees who are eligible to participate in the MPF Scheme. Contributions are made based on a percentage of the employees’ basic salaries and are charged to the statement of profit or loss as they become payable in accordance with the rules of the MPF Scheme. The assets of the MPF Scheme are held separately from those of the Group in an independently administered fund. The Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme.

The employees of the Group’s subsidiaries, which operate in Mainland China are required to participate in a central pension scheme operated by the local municipal government. The subsidiaries are required to contribute 20% to 23% of their payroll costs to the central pension scheme. The contributions are charged to the statement of profit or loss as they become payable in accordance with the rules of the central pension scheme.

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.

Dividends

Final dividends are recognised as a liability when they are approved by the shareholders in a general meeting.

Interim dividends are simultaneously proposed and declared, because the Company’s memorandum and articles of association grant the directors the authority to declare interim dividends. Consequently, interim dividends are recognised immediately as a liability when they are proposed and declared.

Foreign currencies

These financial statements are presented in Hong Kong dollars, which is the Company’s functional currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Foreign currency transactions recorded by the entities in the Group are initially recorded using their respective 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.

– I-36 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Differences arising on settlement or translation of monetary items are recognised in the statement of profit or loss with the exception of monetary items that are designated as part of the hedge of the 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. 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 currency of certain Mainland China subsidiaries and associates is Renminbi (“RMB”). As at the end of the reporting period, the assets and liabilities of these entities are translated into Hong Kong dollars at the exchange rate prevailing at the end of the reporting period and their statements of profit or loss are translated into Hong Kong dollars at the weighted average exchange rate 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.

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 Hong Kong dollars 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 Hong Kong dollars at the weighted average exchange rates for the year.

3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES

The preparation of the 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 Group’s accounting policies, management has made the following judgements, apart from those involving estimations, which have the most significant effect on the amounts recognised in the financial statements:

Consolidation of entities in which the Group holds less than a majority of equity interest

The Group considers that it controls Chia Tai Shaoyang Orthopaedic Hospital (“Shaoyang Hospital”) even though it owns less than 50% of the equity interest. This is because the Group is the single largest shareholder of Shaoyang Hospital with a 44.2% equity interest and owns more than 50% of the voting rights. The number of directors assigned by the Group to Shaoyang Hospital’s board has been more than half of the total number of directors since the date of acquisition by the Group.

– I-37 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Recognition of deferred tax assets

The Group recognised deferred tax assets which resulted from the deductible temporary differences of subsidiaries. The Group considers that the deferred tax assets are recognised to the extent that it is probable that the subsidiaries will have sufficient taxable profit relating to the same taxation authority and the same taxable entity against which the deductible temporary differences can be utilised. The carrying amount of deferred tax assets at 31 December 2016 was approximately HK$402,868,000 (2015: approximately HK$214,966,000). More details are given in note 31.

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 goodwill

The Group determines whether goodwill is impaired on an annual basis. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The carrying amount of goodwill at 31 December 2016 was approximately HK$110,515,000 (2015: approximately HK$110,709,000). More details are given in note 17.

Development costs

Development costs are capitalised in accordance with the accounting policy for research and development costs in note 2.4 to the financial statements. 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. At 31 December 2016, the best estimate of the carrying amount of capitalised development costs was approximately HK$128,658,000 (2015: approximately HK$117,056,000). More details are given in note 18.

Assessment of useful lives of deferred development costs

In assessing the estimated useful lives of deferred development costs, the Group takes into account factors such as the expected life span of the underlying pharmaceutical products based on past experience or from a change in the market demand for the products. The estimation of the useful lives is based on the experience of management.

4. OPERATING SEGMENT INFORMATION

Management considers the business from a product/service perspective. The three reportable segments are as follows:

(a) the modernised Chinese medicines and chemical medicines segment comprises the manufacture, sale and distribution of modernised Chinese medicine products and western medicine products;
(b) the investment segment is engaged in long term investments; and
(c) the “others” segment comprises, principally, (i) the Group’s research and development sector which provides services to third parties; and (ii) related healthcare and hospital business.

Management monitors the results of the Group’s operating segments separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on reportable segment profit or loss, which is a measure of adjusted profit or loss before tax.

– I-38 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Segment assets exclude deferred tax assets and the investments in associates as these assets are managed on a group basis.

Segment liabilities exclude tax payable and deferred tax liabilities as these liabilities are managed on a group basis.

Year ended 31 December 2016

Segment revenue: Sales to external customers Segment results Reconciliation: Interest and unallocated gains Share of profits and losses of associates Unallocated expenses Profit before tax Income tax expense Profit for the year Assets and liabilities Segment assets Reconciliation: Investments in associates Other unallocated assets Total assets Segment liabilities Reconciliation: Other unallocated liabilities Total liabilities Other segment information: Depreciation and amortisation Capital expenditure Other non-cash expenses	Modernised Chinese medicines and chemical medicines HK$’000 15,299,024 3,899,205 13,661,756 5,116,383 361,961 958,322 16,693	Investment HK$’000 – (287,675) 4,825,445 2,829,935 33,806 8,597 2	Others HK$’000 526,414 112,107 650,777 250,931 8,231 1,750 365	Total HK$’000 15,825,438 3,723,637 25,119 347,623 (353,100) 3,743,279 (555,019) 3,188,260 19,137,978 998,680 402,868 20,539,526 8,197,249 404,348 8,601,597 403,998 968,669 17,060

– I-39 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Year ended 31 December 2015

Segment revenue: Sales to external customers Segment results Reconciliation: Interest and unallocated gains Share of profits and losses of associates Unallocated expenses Profit before tax Income tax expense Profit for the year Assets and liabilities Segment assets Reconciliation: Investments in associates Other unallocated assets Total assets Segment liabilities Reconciliation: Other unallocated liabilities Total liabilities Other segment information: Depreciation and amortisation Capital expenditure Other non-cash expenses	Modernised Chinese medicines and chemical medicines HK$’000 14,045,796 3,296,629 10,134,496 3,727,461 299,757 772,324 325	Investment HK$’000 – (47,442) 4,294,458 1,751,865 53,403 546,642 16	Others HK$’000 504,429 95,178 580,375 235,205 7,495 8,445 1	Total HK$’000 14,550,225 3,344,365 74,503 325,254 (300,238) 3,443,884 (532,876) 2,911,008 15,009,329 1,258,323 214,966 16,482,618 5,714,531 325,042 6,039,573 360,655 1,327,411 342

No further geographical segment information is presented as over 90% of the Group’s revenue is derived from customers based in Mainland China, and over 90% of the Group’s non-current assets other than available-for-sale investments and deferred tax assets are based in Mainland China.

– I-40 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

No information about major customers is presented as no single customer contributes to over 10% or more of the Group’s revenue for the years ended 31 December 2016 and 2015.

5. REVENUE, OTHER INCOME AND GAINS

Revenue represents the net invoiced value of goods sold, after allowances for returns and trade discounts.

An analysis of revenue, other income and gains is as follows:

Revenue Sale of goods Others Other income Bank interest income Interest income on convertible bonds Dividend income Government grants Sale of scrap materials Investment income Gross rental income Revaluation deficit of property, plant and equipment Others Gains* Gain on disposal of items of property, plant and equipment Gain on disposal of a subsidiary Fair value gains Equity investments at fair value through profit or loss – held for trading Total other income and gains	2016 HK$’000 15,432,257 393,181 15,825,438 25,119 20,307 14,788 43,941 17,450 158,611 6,072 10,568 20,655 317,511 3,255 24 – 3,279 320,790	2015 HK$’000 14,550,225 –
		14,550,225

		74,503 18,798 12,848 29,767 8,271 194,595 2,024 – 19,341
		360,147
		208 – 31,278
		31,486
		391,633

Various government grants have been received for setting up research activities in Mainland China. Government grants received for which related expenditure has not yet been undertaken are included in deferred government grant in the statement of financial position. There are no unfulfilled conditions or contingencies relating to these grants.

– I-41 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. PROFIT BEFORE TAX

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

Notes Cost of inventories sold Depreciation of property, plant and equipment 13 Depreciation of investment properties 14 Recognition of prepaid land lease payments 16 Amortisation of other intangible assets* 18 Research and development costs Revaluation (surplus)/deficit of property, plant and equipment Gain on disposal of items of property, plant and equipment 5 Loss on disposal of items of property, plant and equipment Bank interest income 5 Dividend income 5 Investment income 5 Loss on disposal of subsidiaries, net Impairment of an investment in an associate Fair value (gain)/losses, net: Available-for-sale investments (transfer from equity in disposal) Equity investments at fair value through profit or loss – held for trading Financial assets designated as at fair value through profit or loss Auditor’s remuneration Employee benefit expense (including directors’ remuneration_(note 8)): Wages and salaries Pension scheme contributions Accrual of impairment losses of trade receivables _23 Foreign exchange differences, net	2016 HK$’000 3,291,221 355,295 26,017 9,660 13,026 1,598,732 (10,568) (3,255) 17,060 (25,119) (14,788) (158,611) 57,944 – – 32,938 59,874 5,401 1,233,527 265,027 1,498,554 167 75,300	2015 HK$’000 3,249,697 317,902 23,849 7,345 11,559 1,301,959 27,852 (208) 342 (74,503) (12,848) (194,595) – 15,699 7,846 (31,278) 25,281 4,699 1,108,851 215,217 1,324,068 319 87,711

The amortisation of patents and licences, deferred development costs, and trademarks for the year were included in “Cost of sales” and “Other expenses”, respectively, on the face of the consolidated statement of profit or loss.

– I-42 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

7. FINANCE COSTS

An analysis of finance costs is as follows:

	2016	2015
	HK$’000	HK$’000
Interest on bank borrowings	89,563	79,812

8. DIRECTORS’ AND CHIEF EXECUTIVE’S REMUNERATION

Directors’ and chief executive’s remuneration for the year, disclosed pursuant to the Listing Rules, sections 383(1)(a), (b), (c) and (f) of the Hong Kong Companies Ordinance and Part 2 of the Companies (Disclosure of Information about Benefits of Directors) Regulation, is as follows:

Fees Other emoluments: Salaries, allowances and benefits in kind Pension scheme contributions Discretionary bonuses	2016 HK$’000 1,176 25,367 144 28,181 53,692 54,868	2015 HK$’000 1,132
		22,035 256 23,448
		45,739
		46,871

(a) Independent non-executive directors

The fees paid to independent non-executive directors during the year were as follows:

Mr. Lu Zhengfei Mr. Li Dakui Ms. Lu Hong Mr. Zhang Lufu Ms. Li Jun Mr. Mei Xingbo	2016 HK$’000 300 300 276 300 – – 1,176	2015 HK$’000 276 276 192 192 108 88
		1,132

There was no arrangement under which a director waived or agreed to waive any remuneration during the year.

– I-43 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Executive directors

2016

Executive directors: Miss Tse, Theresa Y Y Mr. Tse Ping Mr. Tse Hsin Mr. Wang Shanchun Mr. Tian Zhoushan Ms. Li Mingqin	Fees HK$’000 – – – – – – –	Salaries, allowances Employee Pension and benefits Discretionary share option scheme Total in kind bonuses benefits contributions remuneration HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 1,950 5,000 – 18 6,968 11,050 22,000 – 18 33,068 1,365 480 – 18 1,863 6,969 – – 45 7,014 3,395 – – 45 3,440 638 701 – – 1,339 25,367 28,181 – 144 53,692	Salaries, allowances Employee Pension and benefits Discretionary share option scheme Total in kind bonuses benefits contributions remuneration HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 1,950 5,000 – 18 6,968 11,050 22,000 – 18 33,068 1,365 480 – 18 1,863 6,969 – – 45 7,014 3,395 – – 45 3,440 638 701 – – 1,339 25,367 28,181 – 144 53,692
			53,692

2015

Executive directors: Miss Tse, Theresa Y Y Mr. Tse Ping Mr. Xu Xiaoyang Mr. Tse Hsin Mr. Wang Shanchun Mr. Tian Zhoushan Ms. Li Mingqin	Fees HK$’000 – – – – – – – –	Salaries, allowances Employee Pension and benefits Discretionary share option scheme Total in kind bonuses benefits contributions remuneration HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 754 1,000 – 9 1,763 10,010 20,000 – 18 30,028 834 1,258 – 121 2,213 1,261 450 – 18 1,729 5,688 – – 45 5,733 2,846 – – 45 2,891 642 740 – – 1,382 22,035 23,448 – 256 45,739	Salaries, allowances Employee Pension and benefits Discretionary share option scheme Total in kind bonuses benefits contributions remuneration HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 754 1,000 – 9 1,763 10,010 20,000 – 18 30,028 834 1,258 – 121 2,213 1,261 450 – 18 1,729 5,688 – – 45 5,733 2,846 – – 45 2,891 642 740 – – 1,382 22,035 23,448 – 256 45,739
			45,739

There was no arrangement under which a director waived or agreed to waive any remuneration during the year.

9. FIVE HIGHEST PAID EMPLOYEES

The five highest paid employees during the year represented five (2015: five) directors, details of whose remuneration are set out in note 8 above.

– I-44 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

10. INCOME TAX

Hong Kong profits tax has been provided at a rate of 16.5% (2015: 16.5%) on the estimated assessable profits arising in Hong Kong during the year. Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the jurisdictions in which the Group operates.

Current – Hong Kong Current – Mainland China income tax Deferred tax_(note 31)_ Total tax charge for the year	2016 HK$’000 – 629,051 (74,032) 555,019	2015 HK$’000 – 590,724 (57,848) 532,876

In the year ended 31 December 2016, Nanjing Chia Tai Tianqing Pharmaceutical Co., Ltd. (“NJCTT”), Chia Tai-Tianqing Pharmaceutical Holdings Co., Ltd. (“CT Tianqing”), Jiangsu Chia Tai Fenghai Pharmaceutical Co., Ltd. (“Jiangsu Fenghai”), Jiangsu Chia Tai Qingjiang Pharmaceutical Co., Ltd. (“Jiangsu Qingjiang”), Qingdao Chia Tai Haier Pharmaceutical Co., Ltd., Shanghai Tongyong Pharmaceutical Co., Ltd. (“Shanghai Tongyong”) and Lianyungang Runzhong Pharmaceutical Co., Ltd. (“LYG Runzhong”) were entitled to a corporate income tax rate of 15% because they were qualified as “High and New Technology Enterprises”.

Other than the above-mentioned entities, the entities located in Mainland China were subject to corporate income tax at a rate of 25% in 2016.

A reconciliation of the tax expense applicable to profit before tax using the statutory rates for the jurisdictions in which the Company and its subsidiaries are domiciled to the tax expense at the effective tax rates is as follows:

2016 Profit before tax Tax at the statutory tax rate Less: Preferential tax rate reduction Income not subject to tax Expenses not deductible for tax Additional tax deduction Tax losses not recognised Effect of withholding tax at 5% on the distributable profits of the Group’s PRC subsidiaries Tax charge at the Group’s effective rate	Mainland China HK$’000 3,352,824 838,206 (309,317) – 37,448 (76,691) – 489,646	Hong Kong HK$’000 390,455 64,425 – (158,428) 67,324 – 26,679 –	Total HK$’000 3,743,279 902,631 (309,317) (158,428) 104,772 (76,691) 26,679 489,646 65,373 555,019

– I-45 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2015

Mainland China HK$’000 Profit before tax 3,117,723 Tax at the statutory tax rate 779,431 Less: Preferential tax rate reduction (294,993) Income not subject to tax (1,673) Expenses not deductible for tax 39,022 Additional tax deduction (61,836) 459,951 Effect of withholding tax at 5% on the distributable profits of the Group’s PRC subsidiaries Tax charge at the Group’s effective rate 11. DIVIDENDS Interim – HK$0.045 (2015: HK$0.04) per ordinary share Proposed final – HK$0.015 (2015: HK$0.015) per ordinary share	Hong Kong HK$’000 326,161 53,817 – (109,340) 76,846 – 21,323 2016 HK$’000 333,549 111,183 444,732	Total HK$’000 3,443,884 833,248 (294,993) (111,013) 115,868 (61,836) 481,274 51,602 532,876 2015 HK$’000 222,366 111,183 333,549

The proposed final dividend for the year is subject to the approval of the Company’s shareholders at the forthcoming annual general meeting.

12. EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT

The calculation of the basic earnings per share amount is based on the profit for the year attributable to ordinary equity holders of the parent for the year of approximately HK$1,913,276,000 (2015: approximately HK$1,778,692,000), and the weighted average number of ordinary shares of 7,412,192,209 (2015: 7,412,192,209 as to take into account the bonus shares issued) in issue during the year.

The Group had no potentially dilutive ordinary shares in issue during the years 2016 and 2015.

– I-46 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

13. PROPERTY, PLANT AND EQUIPMENT

31 December 2016

At 1 January 2016: Cost or valuation Accumulated depreciation Net carrying amount At 1 January 2016, net of accumulated depreciation Additions Depreciation provided during the year Surplus on revaluation Disposals Disposal of subsidiaries_(note 36)_ Transfers Exchange realignment At 31 December 2016, net of accumulated depreciation At 31 December 2016: Cost or valuation Accumulated depreciation Net carrying amount	Leasehold Buildings improvements HK$’000 HK$’000 1,124,789 8,941 – (8,863) 1,124,789 78 1,124,789 78 3,183 14 (83,769) (27) 45,540 – (186) – – – 49,373 – (53,915) (4) 1,085,015 61 1,085,015 8,892 – (8,831) 1,085,015 61	Plant and machinery HK$’000 1,465,718 (515,927) 949,791 949,791 116,866 (145,515) – (15,351) (284) 93,282 (53,014) 945,775 1,520,077 (574,302) 945,775	Motor Furniture Construction vehicles and fixtures in progress HK$’000 HK$’000 HK$’000 181,503 456,800 237,301 (62,666) (231,409) – 118,837 225,391 237,301 118,837 225,391 237,301 39,458 136,288 538,762 (34,524) (91,460) – – – – (2,748) (6,357) – (384) (254) – – 2,354 (145,009) (7,368) (8,679) (32,833) 113,271 257,283 598,221 192,465 542,217 598,221 (79,194) (284,934) – 113,271 257,283 598,221	Total HK$’000 3,475,052 (818,865)
				2,656,187

				2,656,187 834,571 (355,295) 45,540 (24,642) (922) – (155,813)
				2,999,626

				3,946,887 (947,261)
				2,999,626

– I-47 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

31 December 2015

At 1 January 2015: Cost or valuation Accumulated depreciation Net carrying amount At 1 January 2015, net of accumulated depreciation Additions Depreciation provided during the year Surplus on revaluation Disposals Transfers Exchange realignment At 31 December 2015, net of accumulated depreciation At 31 December 2015: Cost or valuation Accumulated depreciation Net carrying amount	Leasehold Buildings improvements HK$’000 HK$’000 1,075,592 8,975 – (8,481) 1,075,592 494 1,075,592 494 33,849 11 (79,690) (418) 2,204 – (129) – 128,145 – (35,182) (9) 1,124,789 78 1,124,789 8,941 – (8,863) 1,124,789 78	Plant and machinery HK$’000 1,186,211 (415,003) 771,208 771,208 177,211 (132,042) – (2,142) 172,204 (36,648) 949,791 1,465,718 (515,927) 949,791	Motor Furniture Construction vehicles and fixtures in progress HK$’000 HK$’000 HK$’000 180,345 376,826 193,561 (83,861) (173,985) – 96,484 202,841 193,561 96,484 202,841 193,561 60,071 101,030 363,160 (29,312) (76,440) – – – – (3,582) (647) (2,658) – 6,047 (306,396) (4,824) (7,440) (10,366) 118,837 225,391 237,301 181,503 456,800 237,301 (62,666) (231,409) – 118,837 225,391 237,301	Total HK$’000 3,021,510 (681,330)
				2,340,180

				2,340,180 735,332 (317,902) 2,204 (9,158) – (94,469)
				2,656,187

				3,475,052 (818,865)
				2,656,187

The Group’s buildings as at 31 December 2016 were revalued as at that date by RHL Appraisal Ltd., independent professionally qualified valuers at fair value of approximately HK$1,085,015,000 (2015: approximately HK$1,124,789,000) based on their existing use. The revaluation resulted in a surplus of approximately HK$45,540,000 (2015: approximately HK$2,204,000). The Group has credited approximately HK$15,481,000 (2015: debited approximately HK$48,742,000) to the revaluation reserve in the current year. The Group has credited approximately HK$10,568,000 (2015: debited approximately HK$27,852,000) to the statement of profit or loss in the current year.

Had the buildings been carried at historical cost less accumulated depreciation, their carrying value would have been approximately HK$768,495,000 (2015: approximately HK$822,001,000).

At 31 December 2016, certain of the Group’s buildings with a net carrying amount of approximately HK$40,239,000 (2015: approximately HK$37,228,000) were pledged to secure general banking facilities granted to the Group (note 29).

– I-48 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Fair value hierarchy

The following table illustrates the fair value measurement hierarchy of the Group’s buildings:

As at 31 December 2016

	Fair value	measurement	measurement	using
	Quoted prices	Significant		Significant
	in active	observable	unobservable
	markets	inputs		inputs
	(Level 1)	(Level 2)		(Level 3)	Total
	HK$’000	HK$’000		HK$’000	HK$’000
Properties held for own use	–	–		1,085,015	1,085,015

As at 31 December 2015

	Fair value	measurement	measurement	using
	Quoted prices	Significant		Significant
	in active	observable	unobservable
	markets	inputs		inputs
	(Level 1)	(Level 2)		(Level 3)	Total
	HK$’000	HK$’000		HK$’000	HK$’000
Properties held for own use	–	–		1,124,789	1,124,789

During the year, there were no transfers of fair value measurements between Level 1 and Level 2 and no transfers into or out of Level 3 (2015: Nil).

Below is a summary of the valuation techniques used and the key inputs to the valuation of buildings:

	Valuation	Significant
	technique	unobservable inputs	Range of weighted average
			2016	2015
Properties held	Depreciated	(1) Replacement cost	HK$ 510-5,750;	HK$ 510-5,620;
for own use	Replacement Cost	(2) Rate of newness	5%-93%	5%-95%
	Method

– I-49 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

14. INVESTMENT PROPERTIES

Cost: Opening balance at 1 January Additions Closing balance at 31 December Accumulated depreciation: Opening balance at 1 January Charge for the year Closing balance at 31 December Net book value Closing balance at 31 December	2016 HK$’000 520,338 – 520,338 23,849 26,017 49,866 470,472	2015 HK$’000 – 520,338
		520,338
		– 23,849
		23,849
		496,489

The Group’s investment properties consist of two commercial properties in Hong Kong, which are held to earn rentals. The properties are measured initially and subsequently at cost. Depreciation commences on the day the transaction of purchase is completed and is calculated on the straight-line basis over 20 years.

The Group’s investment properties as at 31 December 2016 were revalued as at that date by RHL Appraisal Ltd., independent professionally qualified valuers, at fair value of approximately HK$492,000,000 (2015: HK$504,000,000).

The investment properties are leased to third parties under operating leases, further summary details of which are included in note 37(a) to the financial statements.

The properties have been mortgaged for bank loans as mentioned in note 29.

Fair value hierarchy

The following table illustrates the fair value measurement hierarchy of the Group’s investment properties:

As at 31 December 2016

	Fair value	measurement	measurement	using
	Quoted prices	Significant		Significant
	in active	observable	unobservable
	markets	inputs		inputs
	(Level 1)	(Level 2)		(Level 3)	Total
	HK$’000	HK$’000		HK$’000	HK$’000
Investment properties	–	–		492,000,000	492,000,000

– I-50 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

As at 31 December 2015

	Fair value	measurement	measurement	using
	Quoted prices	Significant		Significant
	in active	observable	unobservable
	markets	inputs		inputs
	(Level 1)	(Level 2)		(Level 3)	Total
	HK$’000	HK$’000		HK$’000	HK$’000
Investment properties	–	–		504,000,000	504,000,000

Below is a summary of the valuation techniques used and the key inputs to the valuation of investment properties:

	Valuation technique	Significant unobservable inputs	Significant unobservable inputs
Investment properties	Depreciated Replacement	(1)	Replacement cost
	Cost Method
		(2)	Rate of newness

15. PROPERTY UNDER DEVELOPMENT

Carrying amount at 1 January Additions Disposal of a subsidiary_(note 36)_ Exchange realignment Carrying amount at 31 December	2016 HK$’000 529,735 75,805 (576,177) (29,363) –	2015 HK$’000 – 529,735 – –
		529,735

The Group’s property under development is located in Mainland China.

– I-51 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

16. PREPAID LAND LEASE PAYMENTS

Carrying amount at 1 January Addition during the year Recognised during the year Exchange realignment Carrying amount at 31 December Current portion included in prepayments, deposits and other receivables Non-current portion	2016 HK$’000 341,226 231,032 (9,660) (32,415) 530,183 (10,975) 519,208	2015 HK$’000 346,674 17,437 (7,345) (15,540) 341,226 (7,342) 333,884

At 31 December 2016, certain of the Group’s land with a net carrying amount of approximately HK$7,479,000 (2015: Nil) were pledged to secure general banking facilities granted to the Group (note 29).

17. GOODWILL

Cost and carrying amount at 1 January 2016 Exchange realignment Cost and net carrying amount at 31 December 2016 Cost and carrying amount at 1 January 2015 Exchange realignment Cost and net carrying amount at 31 December 2015	31 December 2016 HK$’000 110,709 (194) 110,515 31 December 2015 HK$’000 110,850 (141) 110,709

Impairment testing of goodwill

The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired.

The carrying amount of goodwill of the Group is related to twelve different cash-generating units (“CGUs”), namely Hong Kong Pacific, Zhejiang Zhongwei, Suzhou Xingwei, Shanghai Tongyong, Shaoyang Hospital, and seven other subsidiaries of the Group acquired in previous years. Approximately 43% of the carrying amount of goodwill arose from the acquisition of Hong Kong Pacific in the previous years.

The recoverable amounts of the goodwill attributable to the acquisition of equity interests in these CGUs have been determined based on a value in use calculation using cash flow projections based on financial budgets covering a five-year period approved by senior management. The following describes each key assumption on which the management has based its cash flow projections to undertake impairment testing of goodwill:

– I-52 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Discount rates – The discount rates used are before tax and reflect specific risks relating to the relevant units.

Growth rates – The growth rates are based on industry growth forecasts.

Changes in selling prices and direct costs – These are based on past practices and expectations of future changes in the market.

The values assigned to the key assumptions on discount rates, growth rates and changes in selling prices and direct costs are consistent with external information sources.

18. OTHER INTANGIBLE ASSETS

31 December 2016

Cost: At 1 January 2016 Additions Disposal of a subsidiary Exchange realignment At 31 December 2016 Accumulated amortisation: At 1 January 2016 Provided during the year Disposal of a subsidiary Exchange realignment At 31 December 2016 Net carrying amount	Patents and licences HK$’000 45,178 1,969 (285) (3,223) 43,639 22,353 5,109 (274) (1,818) 25,370 18,269	Deferred development costs HK$’000 145,440 26,045 – (10,893) 160,592 28,384 5,753 – (2,203) 31,934 128,658	Trademarks HK$’000 63,317 – – – 63,317 4,291 2,164 – – 6,455 56,862	Total HK$’000 253,935 28,014 (285) (14,116) 267,548 55,028 13,026 (274) (4,021) 63,759 203,789

– I-53 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

31 December 2015

Patents and licences HK$’000 Cost: At 1 January 2015 37,178 Additions 10,163 Exchange realignment (2,163) At 31 December 2015 45,178 Accumulated amortisation: At 1 January 2015 20,055 Provided during the year 3,422 Exchange realignment (1,124) At 31 December 2015 22,353 Net carrying amount 22,825 INVESTMENTS IN ASSOCIATES Investments in associates Beijing Tide Pharmaceutical Co., Ltd. (“Beijing Tide”) Tianjin Binhai Teda Logistics (Group) Corporation Ltd. (“Tianjin Teda”) Others	Deferred development costs HK$’000 107,669 44,141 (6,370) 145,440 23,749 5,973 (1,338) 28,384 117,056 (i) (ii) (iii)	Deferred development costs HK$’000 107,669 44,141 (6,370) 145,440 23,749 5,973 (1,338) 28,384 117,056 (i) (ii) (iii)	Trademarks HK$’000 63,317 – –		Total HK$’000 208,164 54,304 (8,533) 253,935 45,931 11,559 (2,462) 55,028 198,907 2015 HK$’000 946,806 212,874 98,643 1,258,323
			63,317
			2,127 2,164 –
			4,291
			59,026

	(i) (ii) (iii)		2016 HK$’000 703,303 207,546 87,831 998,680

19. INVESTMENTS IN ASSOCIATES

Particulars of the material associates are as follows:

			Percentage of
		Place of	ownership interest
	Particulars of	registration	attributable	Principal
Name	issued shares held	and business	to the Group	activity
Tianjin Teda	Ordinary shares	PRC/	21.82%	Provision of
		Mainland China		comprehensive
				logistics
				services
Beijing Tide	Registered capital of	PRC/	33.6%	Manufacture and
	RMB500,000,000	Mainland China		sale of
				pharmaceutical
				products

The above table lists the associates of the Group which, in the opinion of the directors, principally affected the results for the year or formed a substantial portion of the net assets of the Group. To give details of other associates would, in the opinion of the directors, result in particulars of excessive length.

– I-54 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(i) Beijing Tide

Share of net assets Goodwill on acquisition Share of net assets	2016 HK$’000 663,414 39,889 703,303	2015 HK$’000 906,917 39,889
		946,806

On 1 June 2012, the Company entered into a restructuring agreement (the “Restructuring Agreement”) with France Investment (China 1) Group Limited (incorporated in Hong Kong, “France Investment Hong Kong”) and Mr. Tse Ping (Chairman and executive director of the Company) in preparation for the proposed listing of Beijing Tide on the ChiNext of the Shenzhen Stock Exchange. Pursuant to the Restructuring Agreement, (a) the Company sold a 51% equity interest in Sino Biopharmaceutical (Beijing) Limited (which in turn holds approximately a 33.6% equity interest in Beijing Tide) to France Investment Hong Kong for a consideration of HK$293 million; (b) France Investment Hong Kong sold its 48% equity interest in Super Demand Investments Limited (“Super Demand”) (which in turn holds approximately a 24% equity interest in Beijing Tide through a whollyowned subsidiary, France Investment (China 1) Group Limited (incorporated in the British Virgin Islands, (“France Investment BVI”), to the Company; and (c) Super Demand sold its 45% equity interests in France Investment the British Virgin Islands to the Company. The total consideration for the acquisitions under (b) and (c) was HK$293 million. Pursuant to the Restructuring Agreement, the Company is entitled to unwind the restructuring in the event that the completion of the proposed listing of Beijing Tide has not taken place by 31 December 2013 (the “Proposed Listing Date”). The above transactions were completed in the year ended 31 December 2012. For accounting purposes, given that there is a possibility for the restructuring to be unwound, the Group will account for the above transactions only when (a) the proposed listing of Beijing Tide is completed; (b) the Company elects to unwind the restructuring but such unwinding was not completed (if the proposed listing of Beijing Tide has not completed by 31 December 2013); or (c) the Company elects not to unwind the restructuring.

On 23 December 2013, after amicable negotiations, the Company, France Investment Hong Kong and Mr. Tse Ping entered into a supplemental agreement (the “Supplemental Agreement”) pursuant to which the parties thereto agreed to extend the Proposed Listing Date from 31 December 2013 to 31 December 2016. Save for the extension of the Proposed Listing Date, all the terms and conditions of the Restructuring Agreement remain unchanged. The investment in Beijing Tide was classified as an investment in an associate from the year ended 31 December 2013 as management assessed that the Group still had a significant influence on Beijing Tide after entering into the Supplemental Agreement.

The following table illustrates the summarised financial information of Beijing Tide adjusted for any differences in accounting policies and reconciled to the carrying amount in the consolidated financial statements.

– I-55 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Current assets Non-current assets Current liabilities Non-current liabilities Net assets Net assets, excluding goodwill Reconciliation to the Group’s interest in the associate: Proportion of the Group’s ownership Group’s share of net assets of the associate, excluding goodwill Goodwill on acquisition (less cumulative impairment) Exchange realignment Carrying amount of the investment Revenue Profit for the year Total comprehensive income for the year Dividend received Tianjin Teda Share of net assets Goodwill on acquisition Share of net assets	2016 HK$’000 207,546 – 207,546	2016 HK$’000 2,443,945 1,365,016 (1,468,271) (179,650) 2,161,040 2,161,040 33.6% 726,109 39,889 (62,695) 703,303 3,503,244 1,105,358 957,564 502,549 2015 HK$’000 212,874 – 212,874

(ii) Tianjin Teda

Tianjin Teda, which is considered a material associate of the Group, is a strategy partner of the Group engaged in the provision of comprehensive logistic services and is accounted for using the equity method.

The following table illustrates the summarised financial information of Tianjin Teda adjusted for any differences in accounting policies and reconciled to the carrying amount in the consolidated financial statements.

– I-56 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Current assets Non-current assets Current liabilities Non-current liabilities Net assets Net assets, excluding goodwill Reconciliation to the Group’s interest in the associate: Proportion of the Group’s ownership Group’s share of net assets of the associate, excluding goodwill Goodwill on acquisition (less cumulative impairment) Exchange realignment Carrying amount of the investment Revenue Profit for the year Total comprehensive loss for the year Dividend received	2016 HK$’000 2,143,426 774,536 (1,688,391) (213,637)
	1,015,934

	1,015,934 21.82% 221,677 – (14,131) 207,546

	3,255,536 52,806 (11,957) 2,719

(iii) Others

The following table illustrates the aggregate financial information of the Group’s associates that are not individually material:

	2016	2015
	HK$’000	HK$’000
Share of the associates’ loss for the year	35,299	12,451
Share of the associates’ total comprehensive loss	35,299	12,451
Aggregate carrying amount of the Group’s investments
in the associates	87,831	98,643

20. AVAILABLE-FOR-SALE INVESTMENTS

Current Wealth management products and trust funds Non-current Unlisted equity investments, at cost	2016 HK$’000 2,368,976 412,377	2015 HK$’000 2,419,678

		368,351

During the year, the gross loss in respect of the Group’s available-for-sale investments recognised in other comprehensive was Nil (2015: loss amounted to approximately HK$1,206,000), of which Nil (2015: approximately HK$1,206,000) was reclassified from other comprehensive income to the statement of profit or loss for the year.

– I-57 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The unlisted equity investments comprised the Group’s 5% equity investment in Chia Tai Qingchunbao Pharmaceutical Co., Ltd., 4.93% equity investment in LTT Bio-pharma Co., Ltd., 5% equity investment in Chia Tai Oversea Chinese Realty Development Co., Ltd. (“CTOCRD”), 6.9% equity investment in Wuxi Healthcare Ventures II, L.P and 9.6% equity investment in Pitango Growth Fund I L.P.

The unlisted equity investments are stated at cost less any impairment losses because the range of reasonable fair value estimates is so significant that the directors are of the opinion that their fair value cannot be measured reliably. The Group does not intend to dispose of them in the near future.

21. FINANCIAL ASSETS DESIGNATED AS AT FAIR VALUE THROUGH PROFIT OR LOSS

	2016	2015
	HK$’000	HK$’000
Convertible bonds of Karolinska Development AB	165,115	224,989

As at 31 December 2016, the Company and its subsidiary, CT Resources, have subscribed the convertible bonds of Karolinska Development AB with an aggregate nominal value of SEK22,858,294 and SEK250,000,000 respectively.

The bonds are convertible at an option of the bondholders into class B shares at any time during the conversion period at an initial conversion price of SEK22 per share at the Swedish Companies Registration Office until 30 June 2019.

The bonds bear interest at 8% per annum, which is annually compounded paid on the maturity date of the convertible bonds unless conversion has taken place before that. The interest income is accrued in other receivables.

The above investments at 31 December 2016 were designated by the Group as financial assets at fair value through profit or loss.

22. INVENTORIES

Raw materials Work in progress Finished goods Spare parts and consumables	2016 HK$’000 241,720 298,677 441,824 16,926 999,147	2015 HK$’000 266,675 181,909 498,635 2,929
		950,148

23. TRADE AND BILLS RECEIVABLES

Trade and bills receivables Impairment	2016 HK$’000 2,228,551 (809) 2,227,742	2015 HK$’000 1,867,102 (694)
		1,866,408

– I-58 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group’s trading terms with its customers are mainly on credit, except for new customers, where payment in advance is normally required. The credit period ranges from 60 days to 180 days. The Group seeks to maintain a strict control over its outstanding receivables and has a credit control department to minimise credit risk. Overdue balances are reviewed regularly by senior management. In view of the aforementioned and the fact that the Group’s trade receivables relate to a large number of diversified customers, there is no significant concentration of credit risk. The Group does not hold any collateral or other credit enhancements over its trade receivable balances. Trade receivables are non-interest-bearing.

An aging analysis of the Group’s trade receivables as at end of the reporting period, based on the invoice date and net of provisions, is as follows:

Current to 90 days 91 days to 180 days Over 180 days	2016 HK$’000 1,850,147 350,895 26,700 2,227,742	2015 HK$’000 1,603,326 235,107 27,975
		1,866,408

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

At 1 January Impairment losses recognised/(reversal)(note 6) Amount written off as uncollectible Exchange realignment	2016 HK$’000 694 167 – (52) 809	2015 HK$’000 2,359 319 (1,932) (52)
		694

The aging analysis of the trade and bills receivables that are not considered to be impaired is as follows:

Neither past due nor impaired Less than 30 days past due Between 31 and 90 days past due Between 91 and 180 days past due Between 181 and 365 days past due	2016 HK$’000 2,207,497 19,257 610 106 272 2,227,742	2015 HK$’000 1,680,660 148,005 35,725 1,656 362
		1,866,408

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.

– I-59 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Receivables that were past due but not impaired relate to a number of independent customers that have a good track record with the Group. Based on past experience, the directors of the Company 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. The Group does not hold any collateral or other credit enhancements over these balances.

The carrying amounts of the trade receivables approximate to their fair values due to their relatively short maturity term.

Financial assets that are derecognised in their entirety

At 31 December 2016, the Group endorsed certain bills receivable accepted by banks in Mainland China (the “Derecognised Bills”) to certain of its suppliers in order to settle the trade payables due to such suppliers with a carrying amount in aggregate of approximately RMB714,087,000 (equivalent to approximately HK$797,064,000) (2015: approximately RMB549,831,000, equivalent to approximately HK$656,058,000). The Derecognised Bills had maturity of one to six months at the end of the reporting period. In accordance with the Law of Negotiable Instruments in the PRC, the holders of the Derecognised Bills shall have recourse against the Group if the PRC banks default (the “Continuing Involvement”). In the opinion of the directors, the Group has transferred substantially all the risks and rewards relating to the Derecognised Bills. Accordingly, it has derecognised the full carrying amounts of the Derecognised Bills and the associated trade payables. The maximum exposures to loss from the Group’s Continuing Involvement in the Derecognised Bills and the undiscounted cash flows to repurchase these Derecognised Bills is equal to their carrying amounts. In the opinion of the directors, the fair values of the Group’s Continuing Involvement in the Derecognised Bills are not significant.

During the year ended 31 December 2016, the Group has not recognised any gain or loss on the date of transfer of the Derecognised Bills. No gains or losses were recognised from the continuing involvement, both during the year or cumulatively. The endorsement has been made evenly throughout the year.

24. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

Current Prepayments Other receivables Investment in wealth management products Prepaid expenses Current portion of prepaid land lease payments Non-current Prepayments	2016 HK$’000 157,583 833,693 2,542,704 21,892 10,975 3,566,847 44,890	2015 HK$’000 85,532 216,672 1,194,393 23,671 7,342
		1,527,610

		154,347

The carrying amounts of other receivables, prepayments, investment in wealth management products and prepaid expenses approximate to their fair values due to their relatively short maturity terms.

Long term prepayments represent prepayments to purchase a land use right in Nanjing.

None of the above assets is either past due or impaired. The financial assets included in the above balances relate to receivables for which there was no recent history of default.

– I-60 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

25. EQUITY INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

	2016	2015
	HK$’000	HK$’000
Listed equity investments, at market value	456,031	460,826

The above equity investments at 31 December 2016 were classified as held for trading and were, upon initial recognition, designated by the Group as financial assets at fair value through profit or loss.

26. CASH AND BANK BALANCES

Cash and bank balances, unrestricted Time deposits with original maturity of less than three months Time deposits with original maturity of more than three months Cash and bank balances	2016 HK$’000 1,648,265 2,261,153 294,049 4,203,467	2015 HK$’000 1,230,422 1,300,457 180,182
		2,711,061

At the end of the reporting period, the cash and bank balances and time deposits of the Group denominated in Renminbi (“RMB”) amounted to approximately HK$2,436,567,000 (2015: approximately HK$2,250,880,000). 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 Group is permitted to exchange RMB for other currencies through banks authorised to conduct foreign exchange business.

Cash at banks earns interest at floating rates based on daily bank deposit rates. Short term time deposits are made for varying periods of between one day and twelve months depending on the immediate cash requirements of the 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. The carrying amounts of the cash and cash equivalents approximate to their fair values.

27. TRADE AND BILLS PAYABLES

An aging analysis of the Group’s trade and bills payables as at the end of the reporting period, based on the invoice date, is as follows:

Current to 90 days 91 days to 180 days Over 180 days	2016 HK$’000 640,342 240,209 42,250 922,801	2015 HK$’000 617,372 111,786 38,434
		767,592

Trade and bills payables are non-interest-bearing and are normally settled on 90-day terms. The carrying amounts of the trade and bills payables approximate to their fair values due to their relatively short maturity terms.

– I-61 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

28. OTHER PAYABLES AND ACCRUALS

Advances from customers Accrued payroll and bonuses Other payables Accrued expenses Staff welfare and bonus fund Tax payable other than profits tax	2016 HK$’000 82,167 815,656 894,201 1,652,954 62,321 139,450 3,646,749	2015 HK$’000 57,880 757,277 810,431 1,246,521 55,049 152,091
		3,079,249

Other payables are non-interest-bearing and have an average term of three months. The carrying amounts of the other payables and accruals approximate to their fair values due to their relatively short maturity terms.

29. INTEREST-BEARING BANK BORROWINGS

2016 Effective interest rate (%) Maturity Current Bank loans – unsecured – – Bank loans – unsecured (c) – – Bank loans – unsecured (f) HIBOR+1.6 On demand Bank loans – secured (b) 5.0-6.2 2017 Bills receivable discounted (d) 3.0-3.8 2017 Current portion of long term bank loans – secured (e) HIBOR+1.75 2017 bank loans – secured (e) HIBOR+1.95 2017 Non-current Bank loans – unsecured (g) LIBOR+1.35 2019 Bank loans – secured (b) 4.51 2019 Bank loans – secured (e) HIBOR+1.75 2030 Bank loans – secured (e) HIBOR+1.95 2022 Analysed into: Bank loans repayable: Within one year or on demand In the second year In the third to fifth years, inclusive Beyond five years	2015 Effective interest HK$’000 rate (%) Maturity – 4.85 2016 – LIBOR+2 2016 800,000 – – 41,299 5.6-6.2 2016 671,437 3.0-3.8 2016 12,750 HIBOR+1.75 2016 3,120 HIBOR+1.95 2016 1,560,000 – – 22,324 – – 135,881 HIBOR+1.75 2030 155,859 HIBOR+1.95 2022 3,402,670 1,528,606 15,870 1,631,532 226,662 3,402,670	HK$’000 5,966 1,287,000 – 34,603 76,551 12,750 3,120 – – 137,453 168,609
		1,726,052

		1,419,990 15,870 47,609 242,583
		1,726,052

– I-62 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes:

(a) Except for the LIBOR plus 1.35% unsecured bank loan which is denominated in United States dollars, all borrowings are denominated in Renminbi and Hong Kong dollars.
(b) At 31 December 2016, the Group’s bank borrowings were secured by the Group’s buildings with a carrying amount of approximately HK$40,239,000 (2015: approximately HK$37,228,000), and Group’s land with a carrying amount of approximately HK$7,479,000 (2015: Nil).
(c) On 20 December 2013, the Company, as the borrower, entered into a facility agreement with Societe Generale Asia Limited, Industrial and Commercial Bank of China (Asia) Limited and Mega International Commercial Bank Co., Ltd. for a three-year unsecured loan in the principal sum of US$165,000,000 at an interest rate of LIBOR plus 2.00% per annum (“Syndicated Loan”). The amounts borrowed under the Syndicated Loan will be used by the Company for general corporate purposes. As of 31 December 2015, the Group had used all the drawdown from the facility. As at 31 December 2016, the Group had already repaid the loan of US$165,000,000.
(d) As at 31 December 2016, bills receivable of an amount of approximately HK$671,437,000 (2015: approximately HK$76,551,000) were discounted at banks to obtain certain bank facilities of HK$671,437,000 (2015: HK$76,551,000).
(e) As at 31 December 2016, the Group’s bank borrowings were secured by the Group’s investment properties with a carrying amount of approximately HK$470,472,000 (2015: 496,488,859).
(f) On 21 June 2016, the Company, as the borrower, entered into a facility agreement with Bank of Communications Co., Ltd. Hong Kong Branch, for an unsecured loan in the principal sum of HK$800,000,000 at an interest rate of HIBOR plus 1.60% per annum.
(g) On 27 September 2016, the Company, as the borrower, entered into a facility agreement with Bank of China (Hong Kong) Limited, Hang Seng Bank Limited, TaiPei Fubon Commercial Bank Co., Ltd., Bank of Communications Co.,Ltd. Hong Kong Branch and CTBC Bank Co., Ltd. for a three-year unsecured loan in the principal sum of US$300,000,000 at an interest rate of LIBOR plus 1.35% per annum (the “Loan Facility”). The amounts borrowed under the Loan Facility will be used by the Company for general corporate purposes. As of 31 December 2016, the Group had used US$200,000,000 from the facility.

30. DEFERRED GOVERNMENT GRANTS

The Group’s deferred government grants represented government grants received for projects and are credited to the statement of profit or loss on a straight-line basis over the expected lives of the related assets.

– I-63 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

31. DEFERRED TAX

Deferred tax liabilities

2016

Depreciation allowance in excess of Development Revaluation Withholding related costs of properties taxes depreciation HK$’000 HK$’000 HK$’000 HK$’000 At 1 January 2016 25,592 68,480 149,690 29,089 Deferred tax charged/(credited) to the statement of profit or loss_(note 10)_ 3,212 2,414 65,373 19,475 Realised during the year – – (49,871) (2,384) Deferred tax debited to equity – 7,203 – – Gross deferred tax liabilities at 31 December 2016 28,804 78,097 165,192 46,180 Deferred tax assets	Acquisition HK$’000 22,659 (1,356) – – 21,303	Total HK$’000 295,510 89,118 (52,255) 7,203
		339,576

2016

Provision for Government trade grants receivables HK$’000 HK$’000 At 1 January 2016 33,854 814 Deferred tax credited to the statement of profit or loss_(note 10)_ 20,726 (736) Gross deferred tax assets at 31 December 2016 54,580 78	Elimination of Building unrealised revaluation profits on Accruals depreciation inventories HK$’000 HK$’000 HK$’000 306,737 19,300 81,950 80,238 6,722 3,945 386,975 26,022 85,895	Total HK$’000 442,655 110,895
		553,550

For presentation purposes, certain deferred tax assets and liabilities have been offset. The following is an analysis of the deferred tax balances of the Group for financial reporting purposes:

Net deferred tax assets recognised in the consolidated statement of financial position Net deferred tax liabilities recognised in the consolidated statement of financial position	2016 HK$’000 402,868 (188,894)
	213,974

– I-64 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Deferred tax liabilities

2015

Depreciation allowance in Development Revaluation Withholding excess of related costs of properties taxes depreciation HK$’000 HK$’000 HK$’000 HK$’000 At 1 January 2015 18,560 69,054 159,421 9,198 Deferred tax charged/(credited) to the statement of profit or loss_(note 10)_ 7,032 (4,047) 51,602 20,127 Realised during the year – – (61,333) (236) Deferred tax debited to equity – 3,473 – – Gross deferred tax liabilities at 31 December 2015 25,592 68,480 149,690 29,089 Deferred tax assets	Acquisition HK$’000 24,203 (1,544) – – 22,659	Total HK$’000 280,436 73,170 (61,569) 3,473
		295,510

2015

Provision for Government trade grants receivables HK$’000 HK$’000 At 1 January 2015 20,789 794 Deferred tax credited to the statement of profit or loss_(note 10)_ 13,065 20 Gross deferred tax assets at 31 December 2015 33,854 814	Elimination of Building revaluation Accruals depreciation HK$’000 HK$’000 236,051 12,960 70,686 6,340 306,737 19,300	unrealised profits on inventories HK$’000 41,043 40,907 81,950	Total HK$’000 311,637 131,018
			442,655

For presentation purposes, certain deferred tax assets and liabilities have been offset. The following is an analysis of the deferred tax balances of the Group for financial reporting purposes:

Net deferred tax assets recognised in the consolidated statement of financial position Net deferred tax liabilities recognised in the consolidated statement of financial position	2015 HK$’000 214,966 (67,821)
	147,145

The Group has tax losses arising in Hong Kong of approximately HK$255,647,000 (2015: approximately HK$93,957,000) that are available indefinitely for offsetting against future taxable profits of the companies in which the losses arose.

– I-65 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Deferred tax assets have not been recognised in respect of accumulated losses of approximately HK$255,647,000 (2015: approximately HK$93,957,000) as they have occurred in the Company that has been loss-making for some time and it is not considered probable that taxable profits will be available against which the tax losses can be utilised.

Pursuant to the PRC Corporate Income Tax Law, a 10% withholding tax is levied on dividends declared to foreign investors from the foreign investment enterprises established in Mainland China. The requirement is effective from 1 January 2008 and applies to earnings after 31 December 2007. A lower withholding tax rate may be applied if there is a tax treaty between Mainland China and the jurisdiction of the foreign investors. For the Group, the applicable rate is 5%. The Group is therefore liable to withholding taxes on dividends distributed by those subsidiaries established in Mainland China in respect of earnings generated from 1 January 2008.

32. SHARE CAPITAL

	2016	2015
	HK$’000	HK$’000
Issued and fully paid:
7,412,192,209 ordinary shares of HK$0.025 each	185,305	185,305

33. SHARE OPTION SCHEMES

The Company operates a share option scheme (the “2013 Scheme”) for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations.

The 2013 Scheme became effective on 28 May 2013 upon the listing of the Company’s shares on the Main Board, unless otherwise cancelled or amended, the 2013 Scheme remains in force for 10 years from that date.

The maximum number of shares which may be allotted to and issued upon the exercise of all outstanding share options granted and yet to be exercised under the 2013 Scheme and any other share option schemes of the Company must not in aggregate exceed 30% of the relevant class of shares of the Company in issue at any time.

The maximum number of shares in respect of which options may be granted under the share option scheme when aggregated with the maximum number of shares in respect of which options over shares or other securities may be granted by the Group under any other scheme shall not exceed 10% of the issued share capital as at the date of adoption of the 2013 Scheme (representing 494,146,147 shares).

The total number of shares issued and to be issued upon exercise of options granted under the 2013 Scheme and any other share option schemes of the Company to each participant, including cancelled, exercised and outstanding options, in any 12-month period up to the date of grant, shall not exceed 1% of the issued share capital of the Company. Any further grant of share options in excess of such limit is subject to shareholders’ approval in a general meeting.

– I-66 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Share options granted to a director, chief executive, or substantial shareholder of the Company, or to any of their associates, are subject to approval in advance by the independent non-executive directors. Where any grant of share options to a substantial shareholder of the Company or an independent non-executive director of the Company, or any of their respective associates, would result in the total number of shares issued and to be issued upon exercise of share options already granted and to be granted to such person under the 2013 Scheme and any other share option schemes of the Company (including options exercised, cancelled and outstanding) in any 12-month period up to and including the date of such grant (a) representing in aggregate over 0.1% of the shares in issue; and (b) having an aggregate value (based on the closing price of the shares at the date of each grant) in excess of HK$5 million, such further grant of options must be approved by the shareholders in a general meeting.

Any change in the terms of the share options granted to a substantial shareholder of the Company or any independent non-executive director, or any of their respective associates must be approved by the shareholders in a general meeting.

The offer of a grant of share options may be accepted within 30 days from the date of the offer, upon payment of a nominal consideration of HK$1 in total by the grantee. A share option may be exercised in accordance with the terms of the 2013 Scheme at any time during a period to be determined on the date of offer of grant of a share option and notified by the directors to each grantee. The exercise period may commence once the offer of the grant is accepted by the grantee within the prescribed time from the date of its offer and shall end in any event not later than 10 years from the date grant of the share option. Unless otherwise determined by the directors and provided in the offer of grant of options to a grantee, there is no minimum period required under the 2013 Scheme for the holding of a share option before it can be exercised.

The exercise price of the shares under the 2013 Scheme shall be a price determined by the board of directors but shall not be less than the highest of (i) the closing price of the shares on the date of the offer of the grant; (ii) the average closing price of the shares for the five business days immediately preceding the date of the offer of the grant; and (iii) the nominal value of the shares.

Share options do not confer rights on the holders to dividends or to vote at shareholders’ meetings.

Pursuant to Clause 10 of the Rules of the 2013 Scheme regarding the alteration in the capital structure of the Company and the approval of the shareholders for the subdivision of the every issued and un-issued share of HK$0.10 into four shares of HK$0.025 each, the outstanding share options and the exercise price have been adjusted under the 2013 Scheme accordingly.

No share options have been granted under the 2013 Scheme since 28 May 2013.

34. RESERVES

The amounts of the Group’s reserves and the movements therein for the current and prior years are presented in the consolidated statement of changes in equity.

The Group’s contributed surplus represents the difference between the nominal value of the shares and the share premium account of the former group holding companies acquired pursuant to the group reorganisation as stated in the Company’s prospectus dated 22 September 2000, and the nominal value of the Company’s shares issued in exchange therefor.

– I-67 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Pursuant to the relevant laws and regulations for foreign investment enterprises incorporated under the Law of Mainland China on Joint Venture Using Chinese and Foreign Investment and the articles of association of the Group’s Mainland China joint ventures, profits of the Group’s Mainland China joint ventures as determined in accordance with the accounting rules and regulations in Mainland China are available for distribution in the form of cash dividends to the joint venture partners after the joint ventures have: (1) satisfied all tax liabilities; (2) provided for losses in previous years; and (3) made any required appropriations to the statutory reserve funds, including the general reserve fund, the enterprise expansion fund and the staff welfare and bonus fund. According to the articles of association of the respective Mainland China joint ventures of the Group, the appropriation to the statutory reserve funds is at the discretion of the boards of directors of the respective joint ventures. The basis of appropriation of the general reserve fund and the enterprise expansion fund is 5% of the statutory annual net profit after tax of the respective Mainland China joint ventures. The appropriation to the staff welfare and bonus fund is based on nil to 10% of the statutory annual net profit after tax of the respective Mainland China joint ventures and has been reclassified as an expense on consolidation as it is a liability to the employees.

The general reserve fund can be used either to offset accumulated losses or be capitalised as equity. The enterprise expansion fund can be used to expand the joint venture’s production and operation and subject to the approval of the relevant government authorities, can be utilised for increasing the capital of the joint venture. The staff welfare and bonus fund is recorded and reported as a current liability of the joint venture and can be utilised for making special bonuses or collective welfare to the employees of the joint venture.

The capital reserve is non-distributable and arose from the capitalisation of the statutory reserve funds as paid-up capital upon approval for increasing the registered capital of the Mainland China joint ventures.

– I-68 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

35. PARTLY-OWNED SUBSIDIARIES WITH MATERIAL NON-CONTROLLING INTERESTS

Details of the Group’s subsidiaries that have material non-controlling interests are set out below:

Percentage of equity interests held by non-controlling interests: CT Tianqing NJCTT LYG Runzhong Profit for the year allocated to non-controlling interests: CT Tianqing NJCTT LYG Runzhong Accumulated balances of non-controlling interests at the reporting date: CT Tianqing NJCTT LYG Runzhong	2016 40.0% 44.4% 40.0% 2016 HK$’000 1,066,849 175,979 620,886 1,660,509 376,328 830,792	2015 40.0% 44.4% 40.0%

		2015 HK$’000 813,427 139,459 615,725

		1,287,169 319,350 739,447

The following tables illustrate the summarised financial information of the above subsidiaries. The amounts disclosed are before any inter-company eliminations:

2016 Revenue Total expenses Profit for the year Total comprehensive income for the year Current assets Non-current assets Current liabilities Non-current liabilities Net cash flows from operating activities Net cash flows used in investing activities Net cash flows used in financing activities Net increase in cash and cash equivalents	CT Tianqing HK$’000 8,419,194 (5,752,070) 2,667,124 2,448,350 4,120,335 2,564,391 (2,286,886) (246,567) 1,890,097 (383,665) (1,434,480) 71,952	NJCTT HK$’000 2,159,281 (1,762,932) 396,349 345,859 867,704 778,847 (790,298) (8,667) 539,985 (221,601) (217,529) 100,855	LYG Runzhong HK$’000 2,374,610 (822,395) 1,552,215 1,419,554

			2,658,159 294,829 (849,855) (26,152)

			849,111 (177,507) (666,323)
			5,281

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

2015 Revenue Total expenses Profit for the year Total comprehensive income for the year Current assets Non-current assets Current liabilities Non-current liabilities Net cash flows from operating activities Net cash flows used in investing activities Net cash flows used in financing activities Net decrease in cash and cash equivalents 36. DISPOSAL OF SUBSIDIARIES CT Haiyu & CT Kaiyue Wuxi Net assets disposed of: Property, plant and equipment Property under development Intangible assets Long term prepayment Prepayments and other receivables Cash and bank balances Available-for-sale investments Trade payables Tax payable Other payables and accruals Exchange fluctuation reserve Loss on disposal of a subsidiary	CT Tianqing HK$’000 7,654,929 (5,621,362) 2,033,567 1,893,554 2,438,674 2,318,215 (1,347,326) (191,641) 1,263,652 (1,291,528) (1,290,050) (1,317,926)	NJCTT HK$’000 1,801,169 (1,487,071) 314,098 284,630 748,482 593,122 (615,201) (7,146) 276,755 (405,453) (339,472) (468,170) Notes 13 15 18	LYG Runzhong HK$’000 2,513,208 (973,896) 1,539,312 1,463,099 2,077,246 149,659 (357,858) (20,430) 842,027 (49,823) (794,746) (2,542) At the date of Disposal HK$’000 254 576,177 11 17 1,414 7,042 563 (22,650) 7,239 (73,185) 496,882 63,367 560,249 (57,968) 502,281

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

An analysis of the net outflow of cash and cash equivalents in respect of the disposal of the subsidiaries is as follows:

Cash consideration received
Cash and bank balances disposed of
Net outflow of cash and cash equivalents in respect of the disposal of subsidiaries
CTGP
Notes
Net assets disposed of:
Property, plant and equipment
13
Inventories
Prepayments and other receivables
Cash and bank balances
Trade payables
Tax payable
Other payables and accruals
Non-controlling interests
Gain on disposal of a subsidiary
5

2016
HK$’000
–
(7,042)
(7,042)
At the date
of Disposal
HK$’000
668
65
125
1,343
(8)
(2)
(556)
(409)
1,226
24
1,250

An analysis of the net outflow of cash and cash equivalents in respect of the disposal of a subsidiary is as follows:

Cash consideration received Cash and bank balances disposed of Net outflow of cash and cash equivalents in respect of the disposal of a subsidiary	2016 HK$’000 1,250 (1,343) (93)

– I-71 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

37. OPERATING LEASE ARRANGEMENTS

(a) As lessor

The Group leases its investment properties (note 14 to the financial statements) under operating lease arrangements, with leases negotiated for terms of five years. The terms of the leases generally also require the tenants to pay security deposits and provide for periodic rent adjustments according to the then prevailing market conditions.

At 31 December 2016, the Group had total future minimum lease receivables under noncancellable operating leases with its tenants falling due as follows:

Within one year In the second to fifth years, inclusive	2016 HK$’000 6,072 16,698 22,770	2015 HK$’000 6,072 22,770
		28,842

(b) As lessee

The Group leases certain of its office properties and land use rights under operating lease arrangements. Leases for office equipment are for terms ranging between two and five years, and those for land use rights are for terms ranging from ten to fifty years.

At the end of the reporting period, the Group had total future minimum lease payments under noncancellable operating leases falling due as follows:

Within one year In the second to fifth years, inclusive After five years	2016 HK$’000 6,728 6,558 27,867 41,153	2015 HK$’000 15,684 13,703 30,136
		59,523

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

38. COMMITMENTS

In addition to the operating lease commitments detailed in note 37 above, the Group had the following capital commitments at the end of the reporting period:

Contracted, but not provided for: – Land, plant and machinery – Capital Investments – Others	2016 HK$’000 404,091 219,430 94,319 717,840	2015 HK$’000 117,682 – 78,936
		196,618

39. RELATED PARTY TRANSACTIONS

(a) In addition to the transactions detailed elsewhere in these financial statements, the Group had the following transactions with related parties during the year:

Operating lease rentals payable to: – a company beneficially owned by one director_(note (i)) Provision of consulting services to: – a company beneficially owned by connected persons(note (ii)) _Notes:	2016 HK$’000 5,533 6,318	2015 HK$’000 5,689 6,983

(i) The lease rentals were based on tenancy agreements entered into between the Group and the related party with reference to market prices.
(ii) The service fees were based on consulting agreements entered into between CTP Investment and CTOCRD with reference to market prices.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Other transactions with related parties
(i) On 4 December 2013, CT Tianqing, as service provider, entered into the 2013 NJCTT Master Technical Service and Tenancy Agreement with NJCTT (an associate of Jiangsu Agribusiness and a connected person of the Company) for the provision of research and development services for improvement and application of cardio-cerebral medicines for three years from 1 January 2014 to 31 December 2016 for an annual cap not exceeding RMB35,500,000 (approximately HK$44,900,000) each year. The terms of the 2013 NJCTT Master Technical Service and Tenancy Agreement are to be determined by reference to the prevailing market prices in the PRC. The 2013 NJCTT Master Technical Service and Tenancy Agreement constitutes a continuing connected transaction under Chapter 14A of the Listing Rules. Details of the 2013 NJCTT Master Technical Service and Tenancy Agreement are set out in the Company’s announcement dated 4 December 2013. There were no transactions arising from the 2013 NJCTT Master Technical Service and Tenancy Agreement in 2016 (2015: Nil).
(ii) On 4 December 2013, CT Tianqing, as service provider, entered into the 2013 JQ Master Technical Service Agreement with Jiangsu Qingjiang (an associate of Jiangsu Agribusiness and a connected person of the Company) for the provision of research and development services for improvement and application of orthopaedic medicines for three years from 1 January 2014 to 31 December 2016 for annual caps not exceeding RMB20,000,000 (approximately HK$25,300,000), RMB30,000,000 (approximately HK$37,900,000) and RMB50,000,000 (approximately HK$63,200,000), respectively. The terms of the 2013 JQ Master Technical Service Agreement are to be determined by reference to the prevailing market prices in the PRC. The 2013 JQ Master Technical Service Agreement constitutes a continuing connected transaction under Chapter 14A of the Listing Rules. Details of the 2013 JQ Master Technical Service Agreement are set out in the Company’s announcement dated 4 December 2013. The fee for services provided by CT Tianqing to Jiangsu Qingjiang of the year amounted to approximately HK$112,000 (2015: Nil) and have been eliminated on consolidation.
(iii) On 4 December 2013, LYG Tianqing, as the purchaser, entered into the 2013 NJCTT-LYG Tianqing Master Pharmaceutical Supply Agreement with NJCTT (an associate of Jiangsu Agribusiness and a connected person of the Company), as the supplier, for the purchase of cardio-cerebral, digestive system, oncology and anti-infectious medicines for three years from 1 January 2014 to 31 December 2016 for annual caps not exceeding RMB63,300,000 (approximately HK$80,000,000), RMB75,900,000 (approximately HK$95,900,000) and RMB90,900,000 (approximately HK$114,900,000), respectively. The terms of the 2013 NJCTT-LYG Tianqing Master Pharmaceutical Supply Agreement are to be determined by reference to the prevailing market prices and demand for cardio-cerebral, digestive system, oncological and anti-infectious medicines in the PRC. The 2013 NJCTT-LYG Tianqing Master Pharmaceutical Supply Agreement constitutes a continuing connected transaction under Chapter 14A of the Listing Rules. Details of the 2013 NJCTT-LYG Tianqing Master Pharmaceutical Supply Agreement are set out in the Company’s announcement dated 4 December 2013. The sales of goods by NJCTT to LYG Tianqing of the year amounted to approximately HK$37,939,000 (2015: approximately HK$34,398,000) and have been eliminated on consolidation.

– I-74 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(iv) On 4 December 2013, LYG Tianqing, as the purchaser, entered into the 2013 LYG Tianqing-JF Master Pharmaceutical Purchase Agreement with Jiangsu Fenghai (an associate of Jiangsu Agribusiness and a connected person of the Company), as the supplier, for the purchase of nutritious, anti-infectious, digestive system, antipsychotic, respiratory system, cardio-cerebral, gynaecology and internal medicines for three years from 1 January 2014 to 31 December 2016 for annual caps not exceeding RMB12,900,000 (approximately HK$16,300,000), RMB15,300,000 (approximately HK$19,300,000) and RMB18,400,000 (approximately HK$23,300,000), respectively. The terms of the 2013 LYG TianqingJF Master Pharmaceutical Purchase Agreement are to be determined by reference to the prevailing market prices and demand for nutritious, anti-infectious, digestive system, antipsychotic, respiratory system, cardio-cerebral, gynaecology and internal medicines in the PRC. The 2013 LYG Tianqing-JF Master Pharmaceutical Purchase Agreement constitutes a continuing connected transaction under Chapter 14A of the Listing Rules. Details of the 2013 LYG Tianqing-JF Master Pharmaceutical Purchase Agreement are set out in the Company’s announcement dated 4 December 2013. The sales of goods by Jiangsu Fenghai to LYG Tianqing of the year amounted to approximately HK$10,412,000 (2015: approximately HK$14,356,000) and have been eliminated on consolidation.
(v) On 4 December 2013, LYG Tianqing, as the purchaser, entered into the 2013 LYG Tianqing-JFM Master Pharmaceutical Purchase Agreement with Jiangsu Fenghai Medicines (an associate of Jiangsu Agribusiness and a connected person of the Company), as the supplier, for the purchase of oncological medicines for three years from 1 January 2014 to 31 December 2016 for annual caps not exceeding RMB1,500,000 (approximately HK$1,900,000), RMB2,000,000 (approximately HK$2,500,000) and RMB2,500,000 (approximately HK$3,200,000), respectively. The terms of the 2013 LYG TianqingJFM Master Pharmaceutical Purchase Agreement are to be determined by reference to the prevailing market prices of and demand for oncological medicines in the PRC. The LYG Tianqing-JFM Master Pharmaceutical Purchase Agreement constitutes a continuing connected transaction under Chapter 14A of the Listing Rules. Details of the 2013 LYG Tianqing-JFM Master Pharmaceutical Purchase Agreement are set out in the Company’s announcement dated 4 December 2013. The sales of goods by Jiangsu Fenghai Medicines to LYG Tianqing of the year amounted to approximately HK$1,766,000 (2015: approximately HK$1,618,000) and have been eliminated on consolidation.
(vi) On 4 December 2013, the Company, as the tenant, entered into the 2013 Billion SourceSino Tenancy Agreement with Billion Source (a connected person of the Company owned as to 50% by each of Mr. Tse Ping, a director of the company and Ms. Cheng Cheung Ling), as the landlord, regarding the letting of premises in Beijing for a term of three years from 1 January 2014 to 31 December 2016 for an annual rental not exceeding RMB3,600,000 (equivalent to approximately HK$4,500,000), RMB3,840,000 (equivalent to approximately HK$4,900,000) and RMB4,200,000 (equivalent to approximately HK$5,300,000), respectively. The terms of the 2013 Billion Source-Sino Tenancy Agreement are to be determined by reference to the prevailing market prices in the PRC. Billion Source is a company beneficially owned by two directors. Billion Source is a connected party under Chapter 14A of the Listing Rules. Details of the 2013 Billion Source-Sino Tenancy Agreement are set out in the Company’s announcement dated 4 December 2013. The rental paid to Billion Source for the year amounted to approximately RMB3,600,000 (equivalent to approximately HK$4,333,000) (2015: approximately RMB3,600,000 (equivalent to approximately HK$4,489,000)) and has been disclosed in note (a) above under “Operating lease rentals payable to a company beneficially owned by one director”.

– I-75 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(vii) On 4 December 2013, CT Tianqing, as service provider, entered into the CT Tianqing Master Entrusted Pharmaceutical Processing Agreement with NJCTT (an associate of Jiangsu Agribusiness, a 33.5% equity holder of CT Tianqing and a connected person of the Company) for the processing of sub-contract production for lyophilised formulation for NJCTT for three years from 1 January 2014 to 31 December 2016 for an annual cap not exceeding RMB10,000,000 (approximately HK$12,600,000) each year. The terms of the CT Tianqing Master Entrusted Pharmaceutical Processing Agreement are to be determined with reference to the prevailing market price in the PRC. The CT Tianqing Master Entrusted Pharmaceutical Processing Agreement constitutes a continuing connected transaction under Chapter 14A of the Listing Rules. Details of the CT Tianqing Master Entrusted Pharmaceutical Processing Agreement are set out in the Company’s announcement dated 4 December 2013. The service fee paid to CT Tianqing for the year amounted to approximately HK$44,000 (2015: approximately HK$386,000) and has been eliminated on consolidation.
(viii) On 4 December 2013, CT Tianqing, as the landlord, entered into the CT Tianqing-Jiangsu Fenghai Tenancy Agreement with Jiangsu Fenghai (an associate of Jiangsu Agribusiness and a connected person of the Company), as the tenant, regarding the leasing of premises and four car parking spaces in Nanjing for a term of three years from 1 January 2014 to 31 December 2016 for an annual rental not exceeding RMB900,000 (approximately HK$1,100,000) each year. The terms of the CT Tianqing-Jiangsu Fenghai Tenancy Agreement are to be determined with reference to the current market rental rate in the PRC. The CT Tianqing-Jiangsu Fenghai Tenancy Agreement constitutes a continuing connected transaction under Chapter 14A of the Listing Rules. Details of the CT Tianqing-Jiangsu Fenghai Tenancy Agreement are set out in the Company’s announcement dated 4 December 2013. The rental paid to Jiangsu Fenghai for the year was nil (2015: approximately HK$580,000).
(ix) On 4 December 2013, CT Tianqing, as the landlord, entered into the 2013 NJCTT Master Technical Service and Tenancy Agreement with NJCTT, as the tenant, regarding the leasing of premises at Nanjing for a term of three years from 1 January 2014 to 31 December 2016 for an annual rental not exceeding RMB4,500,000 (approximately HK$5,700,000) each year. The terms of the 2013 NJCTT Master Technical Service and Tenancy Agreement are to be determined with reference to the current market rental rate in the PRC. The 2013 NJCTT Master Technical Service and Tenancy Agreement constitutes a continuing connected transaction under Chapter 14A of the Listing Rules. Details of the 2013 NJCTT Master Technical Service and Tenancy Agreement are set out in the Company’s announcement dated 4 December 2013. The rental paid to NJCTT for the year was nil (2015: approximately HK$3,408,000).
(x) On 4 December 2013 LYG Runzhong, as the tenant, entered into the LYG Hualing-LYG Runzhong Tenancy Agreement with LYG Hualing (an associate of Jiangsu Agribusiness and a connected person of the Company), as the landlord, regarding the leasing of industrial complex, roads and facilities at Lianyungang for a term of three years from 1 January 2014 to 31 December 2016 for annual rentals not exceeding RMB14,200,000 (approximately HK$17,900,000), RMB15,800,000 (approximately HK$20,000,000) and RMB17,300,000 (approximately HK$21,900,000), respectively. The terms of the LYG Hualing-LYG Runzhong Tenancy Agreement are to be determined with reference to the current market rental rate in the PRC. The LYG Hualing-LYG Runzhong Tenancy Agreement constitutes a continuing connected transaction under Chapter 14A of the Listing Rules. Details of the LYG Hualing-LYG Runzhong Tenancy Agreement are set out in the Company’s announcement dated 4 December 2013. The rental paid to LYG Hualing for the year amounted to approximately HK$12,121,000 (2015: approximately HK$12,872,000) and has been eliminated on consolidation.

– I-76 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(xi) On 4 December 2013, Shanghai Tongyong, as the supplier, entered into the Jiangsu Fenghai Medicines-Shanghai Tongyong Master Pharmaceutical Purchase Agreement with Jiangsu Fenghai Medicines (an associate of Jiangsu Agribusiness and a connected person of the Company), as the purchaser, regarding the purchase of dermatological medicines for three years from 1 January 2014 to 31 December 2016 for annual caps not exceeding RMB800,000 (approximately HK$1,000,000), RMB1,200,000 (approximately HK$1,500,000) and RMB1,600,000 (approximately HK$2,000,000), respectively. The terms of the Jiangsu Fenghai Medicines-Shanghai Tongyong Master Pharmaceutical Purchase Agreement are to be determined with reference to the prevailing market prices and demand for dermatological medicines in the PRC. The Jiangsu Fenghai Medicines-Shanghai Tongyong Master Pharmaceutical Purchase Agreement constitutes a continuing connected transaction under Chapter 14A of the Listing Rules. Details of the Jiangsu Fenghai Medicines-Shanghai Tongyong Master Pharmaceutical Purchase Agreement are set out in the Company’s announcement dated 4 December 2013. There were no transactions arising from the Jiangsu Fenghai Medicines-Shanghai Tongyong Master Pharmaceutical Purchase Agreement in 2016 (2015: Nil).
(xii) On 4 December 2013, LYG Runzhong, as the supplier, entered into the Jiangsu FenghaiLYG Runzhong Master Pharmaceutical Purchase Agreement with Jiangsu Fenghai (an associate of Jiangsu Agribusiness and a connected person of the Company), as the purchaser, for the purchase of raw materials of medicines for treating diarrhoea and respiratory system diseases for three years from 1 January 2014 to 31 December, 2016 for annual caps not exceeding RMB4,000,000 (approximately HK$5,100,000), RMB5,000,000 (approximately HK$6,300,000) and RMB6,000,000 (approximately HK$7,600,000), respectively. The terms of the Jiangsu Fenghai-LYG Runzhong Master Pharmaceutical Purchase Agreement are to be determined with reference to the prevailing market prices and demand for raw materials of diarrhoea and respiratory system disease medicines in the PRC. The Jiangsu Fenghai-LYG Runzhong Master Pharmaceutical Purchase Agreement constitutes a continuing connected transaction under Chapter 14A of the Listing Rules. Details of the Jiangsu Fenghai-LYG Runzhong Pharmaceutical Purchase Agreement are set out in the Company’s announcement dated 4 December 2013. The sales of goods by LYG Runzhong to Jiangsu Fenghai of the year amounted to approximately HK$698,000 (2015: approximately HK$567,000) and have been eliminated on consolidation.
(xiii) On 4 December 2013, NJCTT, as the purchaser, entered into the NJCTT-LYG Runzhong Master Pharmaceutical Purchase Agreement with LYG Runzhong (an associate of Jiangsu Agribusiness and a connected person of the Company), as the supplier, for the purchase of medicines for treating cardio-cerebral diseases, and oncological and anorectal diseases for three years from 1 January 2014 to 31 December 2016 for annual caps not exceeding RMB40,000,000 (approximately HK$50,500,000), RMB56,000,000 (approximately HK$70,800,000) and RMB78,400,000 (approximately HK$99,100,000), respectively. The terms of the NJCTT-LYG Runzhong Master Pharmaceutical Purchase Agreement are to be determined with reference to the prevailing market prices and demand for cardiocerebral diseases, oncology and anorectal diseases medicines in the PRC. The NJCTT-LYG Runzhong Master Pharmaceutical Purchase Agreement constitutes a continuing connected transaction under Chapter 14A of the Listing Rules. Details of the NJCTT-LYG Runzhong Master Pharmaceutical Purchase Agreement are set out in the Company’s announcement dated 4 December 2013. The sales of goods by LYG Runzhong to NJCTT of the year amounted to approximately HK$13,447,000 (2015: approximately HK$19,007,000) and have been eliminated on consolidation.

– I-77 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(xiv) On 4 December 2013, NJCTT, as the purchaser, entered into the NJCTT-Jiangsu Qingjiang Master Pharmaceutical Purchase Agreement with Jiangsu Qingjiang (an associate of Jiangsu Agribusiness and a connected person of the Company), as the supplier, for the purchase of raw materials of oncological medicines for three years from 1 January 2014 to 31 December 2016 for annual caps not exceeding RMB2,000,000 (approximately HK$2,500,000), RMB3,000,000 (approximately HK$3,800,000) and RMB4,000,000 (approximately HK$5,100,000), respectively. The terms of the NJCTT-Jiangsu Qingjiang Master Pharmaceutical Purchase Agreement are to be determined with reference to the prevailing market prices and demand for oncological medicines in the PRC. The NJCTTJiangsu Qingjiang Master Pharmaceutical Purchase Agreement constitutes a continuing connected transaction under Chapter 14A of the Listing Rules. Details of the NJCTTJiangsu Qingjiang Master Pharmaceutical Purchase Agreement are set out in the Company’s announcement dated 4 December 2013. The sales of goods by Jiangsu Qingjiang to NJCTT of the year amounted to approximately HK$496,000 (2015: approximately HK$2,657,000) and have been eliminated on consolidation.
(xv) On 4 December 2013, LYG Tianqing, as the purchaser, entered into the LYG TianqingJiangsu Qingjiang Master Pharmaceutical Purchase Agreement with Jiangsu Qingjiang (an associate of Jiangsu Agribusiness and a connected person of the Company), as the supplier, for the purchase of cardio-cerebral, respiratory system and orthopaedic medicines for three years from 1 January 2014 to 31 December 2016 for annual caps not exceeding RMB3,300,000 (approximately HK$4,200,000), RMB4,000,000 (approximately HK$5,100,000) and RMB4,800,000 (approximately HK$6,100,000), respectively. The terms of the LYG Tianqing-Jiangsu Qingjiang Master Pharmaceutical Purchase Agreement are to be determined with reference to the prevailing market prices and demand for cardiocerebral, respiratory system and orthopaedic medicines in the PRC. The LYG TianqingJiangsu Qingjiang Master Pharmaceutical Purchase Agreement constitutes a continuing connected transaction under Chapter 14A of the Listing Rules. Details of the LYG Tianqing-Jiangsu Qingjiang Master Pharmaceutical Purchase Agreement are set out in the Company’s announcement dated 4 December 2013. There were no transactions arising from the LYG Tianqing-Jiangsu Qingjiang Master Pharmaceutical Purchase Agreement in 2016 (2015: approximately HK$802,000).
(xvi) On 4 December 2013, Suzhou Xingwei, as the purchaser, entered into the Suzhou XingweiJiangsu Fenghai Master Pharmaceutical Purchase Agreement with Jiangsu Fenghai (an associate of Jiangsu Agribusiness and a connected person of the Company), as the supplier, for the purchase of infusion solution including mainly invert sugar for three years from 1 January 2014 to 31 December 2016 for annual caps not exceeding RMB10,000,000 (approximately HK$12,600,000), RMB13,000,000 (approximately HK$16,400,000) and RMB16,900,000 (approximately HK$21,400,000) respectively. The terms of the Suzhou Xingwei-Jiangsu Fenghai Master Pharmaceutical Purchase Agreement are to be determined with reference to the prevailing market prices and demand for infusion solution in the PRC. The Suzhou Xingwei-Jiangsu Fenghai Master Pharmaceutical Purchase Agreement constitutes a continuing connected transaction under Chapter 14A of the Listing Rules. Details of the Suzhou Xingwei-Jiangsu Fenghai Master Pharmaceutical Purchase Agreement are set out in the Company’s announcement dated 4 December 2013. The sales of goods by Jiangsu Fenghai to Suzhou Xingwei of the year amounted to approximately HK$4,844,000 (2015: approximately HK$3,316,000) and have been eliminated on consolidation.

– I-78 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(xvii) On 4 December 2013, Suzhou Xingwei, as the purchaser, entered into the Suzhou XingweiJiangsu Qingjiang Master Pharmaceutical Purchase Agreement with Jiangsu Qingjiang (an associate of Jiangsu Agribusiness and a connected person of the Company), as the supplier, for the purchase of anti-infectious and endocrinal medicines for three years from 1 January 2014 to 31 December 2016 for annual caps not exceeding RMB10,000,000 (approximately HK$12,600,000), RMB13,000,000 (approximately HK$16,400,000) and RMB16,900,000 (approximately HK$21,400,000), respectively. The terms of the Suzhou Xingwei-Jiangsu Qingjiang Master Pharmaceutical Purchase Agreement are to be determined with reference to the prevailing market prices and demand for anti-infectious and endocrinal medicines in the PRC. The Suzhou Xingwei-Jiangsu Qingjiang Master Pharmaceutical Purchase Agreement constitutes a continuing connected transaction under Chapter 14A of the Listing Rules. Details of the Suzhou Xingwei-Jiangsu Qingjiang Master Pharmaceutical Purchase Agreement are set out in the Company’s announcement dated 4 December 2013. There were no transactions arising from the Suzhou Xingwei-Jiangsu Qingjiang Master Pharmaceutical Purchase Agreement in 2016 (2015: Nil).
(xviii) On 4 December 2013, Suzhou Xingwei, as the purchaser, entered into the Suzhou XingweiLYG Tianqing Master Pharmaceutical Purchase Agreement with LYG Tianqing (an associate of Jiangsu Agribusiness and a connected person of the Company), as the supplier, for the purchase of hepatitis, oncological, anti-infectious, diabetes, respiratory system and osteoporosis medicines for three years from 1 January 2014 to 31 December 2016 for annual caps not exceeding RMB156,000,000 (approximately HK$197,100,000), RMB202,800,000 (approximately HK$256,300,000) and RMB255,000,000 (approximately HK$322,200,000), respectively. The terms of the Suzhou Xingwei-LYG Tianqing Master Pharmaceutical Purchase Agreement are to be determined with reference to the prevailing market prices and demand for the above mentioned medicines in the PRC. The Suzhou Xingwei-LYG Tianqing Master Pharmaceutical Purchase Agreement constitutes a continuing connected transaction under Chapter 14A of the Listing Rules. Details of the Suzhou Xingwei-LYG Tianqing Master Pharmaceutical Purchase Agreement are set out in the Company’s announcement dated 4 December 2013. The sales of goods by LYG Tianqing to Suzhou Xingwei of the year amounted to approximately HK$206,345,000 (2015: HK$214,902,000) and have been eliminated on consolidation.
(xix) On 4 December 2013, Suzhou Xingwei, as the purchaser, entered into the Suzhou Xingwei-NJCTT Master Pharmaceutical Purchase Agreement with NJCTT (an associate of Jiangsu Agribusiness and a connected person of the Company), as the supplier, for the purchase of cardio-cerebral, anti-infectious, digestive system, oncological and anticardiac failure medicines for three years from 1 January 2014 to 31 December 2016 for annual caps not exceeding RMB20,000,000 (approximately HK$25,300,000), RMB26,000,000 (approximately HK$32,900,000) and RMB33,800,000 (approximately HK$42,700,000), respectively. The terms of the Suzhou Xingwei-NJCTT Master Pharmaceutical Purchase Agreement are to be determined with reference to the prevailing market prices and demand for the above mentioned medicines in the PRC. The Suzhou Xingwei-NJCTT Master Pharmaceutical Purchase Agreement constitutes a continuing connected transaction under Chapter 14A of the Listing Rules. Details of the Suzhou Xingwei-NJCTT Master Pharmaceutical Purchase Agreement are set out in the Company’s announcement dated 4 December 2013. The sales of goods by NJCTT to Suzhou Xingwei of the year amounted to approximately HK$35,724,000 (2015: approximately HK$21,512,000) and have been eliminated on consolidation.

– I-79 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(xx) On 4 December 2013, NJCTT, as the supplier, entered into the NJCTT-Jiangsu Fenghai Medicines Master Pharmaceutical Supply Agreement with Jiangsu Fenghai Medicines (an associate of Jiangsu Agribusiness), as the purchaser, for the supply of cardio-cerebral, antiinfectious, digestive system, oncological and anticardiac failure medicines for three years from 1 January 2014 to 31 December 2016 for annual caps not exceeding RMB9,600,000 (approximately HK$12,100,000), RMB11,600,000 (approximately HK$14,700,000) and RMB15,000,000 (approximately HK$19,000,000), respectively. The terms of the NJCTTJiangsu Fenghai Medicines Master Pharmaceutical Supply Agreement are to be determined with reference to the prevailing market prices and demand for cardio-cerebral, antiinfectious, digestive system, oncological and anticardiac failure medicines in the PRC. The NJCTT-Jiangsu Fenghai Medicines Master Pharmaceutical Supply Agreement constitutes a continuing connected transaction under Chapter 14A of the Listing Rules. Details of the NJCTT-Jiangsu Fenghai Medicines Master Pharmaceutical Supply Agreement are set out in the Company’s announcement dated 4 December 2013. The sales of goods by NJCTT to Jiangsu Fenghai Medicines of the year amounted to approximately HK$3,958,000 (2015: approximately HK$4,086,000) and have been eliminated on consolidation.
(xxi) On 4 December 2013, Shaoyang Hospital, as the purchaser, entered into the NJCTTShaoyang Hospital Master Pharmaceutical Supply Agreement with NJCTT (an associate of Jiangsu Agribusiness and a connected person of the Company), as the supplier, for the supply of cardio-cerebral, anti-infectious, digestive system, oncological and anticardiac failure medicines for three years from 1 January 2014 to 31 December 2016 for annual caps not exceeding RMB2,000,000 (approximately HK$2,500,000), RMB2,600,000 (approximately HK$3,300,000) and RMB3,500,000 (approximately HK$4,400,000), respectively. The terms of the NJCTT-Shaoyang Hospital Master Pharmaceutical Supply Agreement are to be determined with reference to the prevailing market price and demand for cardio-cerebral, anti-infectious, digestive system, oncological and anti-cardiac failure medicines in the PRC. The NJCTT-Shaoyang Hospital Master Pharmaceutical Supply Agreement constitutes a continuing connected transaction under Chapter 14A of the Listing Rules. Details of the NJCTT-Shaoyang Hospital Master Pharmaceutical Supply Agreement are set out in the Company’s announcement dated 4 December, 2013. The sales of goods by NJCTT to Shaoyang Hospital of the year amounted to approximately HK$3,297,000 (2015: approximately HK$2,909,000) and have been eliminated on consolidation.
(xxii) On 4 December 2013, the Company, as the tenant, entered into the Sino-Ledo Properties Tenancy Agreement with Ledo Properties Ltd. (“Ledo Properties”) (a connected person of the Company held as to 99% by Ms. Cheng, a Director of the Company), as the landlord, regarding the letting of the premises in Hong Kong for a term of three years from 1 January 2014 to 31 December 2016 for annual rentals not exceeding HK$1,200,000, HK$1,440,000 and HK$1,800,000, respectively. The terms of the Sino-Ledo Properties Tenancy Agreement are to be determined with reference to the current market rental rate. The Sino-Ledo Properties Tenancy Agreement constitutes a continuing connected transaction under Chapter 14A of the Listing Rules. Details of the Sino-Ledo Properties Tenancy Agreement are set out in the Company’s announcement dated 4 December 2013. The rental paid to Ledo Properties for the year amounted to approximately HK$1,200,000 (2015: HK$1,200,000), and has been disclosed in note (a) above under “Operating lease rentals payable to a company beneficially owned by one director”.

– I-80 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(xxiii) On 4 December 2013, LYG Runzhong, as the purchaser, entered into the LYG HualingLYG Runzhong Master Pharmaceutical Supply Agreement with LYG Hualing (an associate of Jiangsu Agribusiness and a connected person of the Company), as the supplier, for the supply of raw materials of anti-infectious medicines for three years from 1 January 2014 to 31 December 2016 for annual caps not exceeding RMB32,300,000 (approximately HK$40,800,000), RMB36,500,000 (approximately HK$46,100,000) and RMB39,600,000 (approximately HK$50,000,000), respectively. The terms of the LYG Hualing-LYG Runzhong Master Pharmaceutical Supply Agreement are to be determined with reference to the prevailing market prices and demand for raw materials of anti-infectious medicines in the PRC. The LYG Hualing-LYG Runzhong Master Pharmaceutical Supply Agreement constitutes a continuing connected transaction under Chapter 14A of the Listing Rules. Details of the LYG Hualing-LYG Runzhong Master Pharmaceutical Supply Agreement are set out in the Company’s announcement dated 4 December 2013. The sales of goods by LYG Hualing to LYG Runzhong of the year amounted to approximately HK$21,732,000 (2015: approximately HK$32,493,000) and have been eliminated on consolidation.
(xxiv) On 4 December 2013, CTP Investment, as service provider, entered into a master consultancy service agreement with CTOCRD (an associate of the Chearavanont Shareholders and a connected person of the Company) the (“CTOCRD Master Consultancy Service Agreement”) for the provision of consultancy services in relation to corporate management, information technology, financial, internal control and human resources matters for three years from 1 January 2014 to 31 December 2016 for an annual cap not exceeding RMB6,000,000 (approximately HK$7,600,000). The terms of the CTOCRD Master Consultancy Service Agreement are to be determined with reference to the prevailing market price in the PRC. The CTOCRD Master Consultancy Service Agreement constitutes a continuing connected transaction under Chapter 14A of the Listing Rules. Details of the CTOCRD Master Consultancy Services Agreement are set out in the Company’s announcement dated 4 December 2013. The fee for services provided by CTP Investment to CTOCRD of the year amounted to approximately HK$6,318,000 (2015: approximately HK$6,983,000), and has been disclosed in note 39(a) under “provision of consulting services to a company beneficially owned by connected persons”.
(xxv) In 2010, Validated Profits Limited (“Validated Profits”), which is wholly owned by Mr. Tse, Chia Tai Land Company Limited (“CT Land”) and some other investors entered into an agreement (the “Consortium Agreement”) to form an investment consortium for the purpose of tendering a bid to the relevant governmental authorities in Beijing for the acquisition of a site located at Beijing Chaoyang District CBD and, subject to the bid being successful, to form a project company for the purpose of carrying out the development. On 6 December 2010, CTP Investment, a wholly-owned subsidiary, entered into (a) an investment agreement with Validated Profits whereby Validated Profits agreed to transfer to CTP Investment all of its investment rights and obligations under the Consortium Agreement in connection with 7.5% of the total investment to be contributed by the Investment Consortium with nil consideration, and (b) an investment agreement with CT Land whereby CTP Investment agreed to transfer to CT Land all of its investment rights and obligations under the Consortium Agreement in connection with 2.5% of the total investment to be contributed by the Investment Consortium with nil consideration. Details are set out in the Company’s press announcement dated 6 December 2010. As at 31 December 2016, the Group’s capital contribution was approximately HK$266,708,000 in relation to this investment (note 20) (2015: prepayment of approximately HK$280,402,000). During the year ended 31 December 2016, the project company CTOCRD was registered in the PRC with a registered capital of RMB4,700,000,000. The Group, through CTP Investment, holds a 5% equity interest in CTOCRD.

– I-81 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(xxvi) On 1 June 2012, the Company entered into a restructuring agreement with France Investment Hong Kong and Mr. Tse Ping (Chairman and executive director of the Company) in preparation for the proposed listing of Beijing Tide on the ChiNext of the Shenzhen Stock Exchange. Pursuant to the Restructuring Agreement, (a) the Company sold a 51% equity interest in Sino Biopharmaceutical (Beijing) Limited (which in turn holds approximately 33.6% equity interests in Beijing Tide) to France Investment Hong Kong for a consideration of HK$293 million; (b) France Investment Hong Kong sold its 48% equity interests in Super Demand (which in turn holds approximately 24% equity interests in Beijing Tide through a wholly-owned subsidiary, France Investment BVI to the Company; and (c) Super Demand sold its 45% equity interests in France Investment the British Virgin Islands to the Company. The total consideration for the acquisition under (b) and (c) is HK$293 million. Pursuant to the Restructuring Agreement, the Company is entitled to unwind the restructuring in the event that the completion of the proposed listing of Beijing Tide has not taken place by 31 December 2013. The above transactions were completed in the year ended 31 December 2012. For accounting purposes, given that there is a possibility for the restructuring to be unwound, the Group will account for the above transactions only when (a) the proposed listing of Beijing Tide is completed; (b) the Company elects to unwind the restructuring but such unwinding was not completed (if the proposed listing of Beijing Tide was not completed by 31 December 2013); or (c) the Company elects not to unwind the restructuring. On 23 December 2013, after amicable negotiations, the Company, France Investment Hong Kong and Mr. Tse Ping entered into a supplemental agreement (the “Supplemental Agreement”) pursuant to which the parties thereto agreed to extend the Proposed Listing Date from 31 December 2013 to 31 December 2016. Save for the extension of the Proposed Listing Date, all the terms and conditions of the Restructuring Agreement remain unchanged.

(c) Key management personnel remuneration

Remuneration of key management personnel of the Group, including amounts paid to the Directors as disclosed in note 8 to the financial statements, is as follows:

Salaries and other short-term employee benefits Pension scheme contributions	2016 HK$’000 104,832 1,108 105,940	2015 HK$’000 90,415 1,292
		91,707

– I-82 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

40. FINANCIAL INSTRUMENTS BY CATEGORY

The carrying amounts of each of the categories of financial instruments as at the end of the reporting period are as follows:

Financial assets

2016

Equity investments at fair value through profit or loss Financial assets designated as at fair value through profit or loss Available-for-sale investments Trade and bills receivables Financial assets included in prepayments, deposits and other receivables Dividend due from an associate Cash and bank balances 2015 Equity investments at fair value through profit or loss Financial assets designated as at fair value through profit or loss Available-for-sale investments Trade and bills receivables Financial assets included in prepayments, deposits and other receivables Cash and bank balances	Financial assets at fair value through profit or loss Designated as such Held for upon initial trading recognition HK$’000 HK$’000 456,031 – – 165,115 – – – – – – – – – – 456,031 165,115 Financial assets at fair value through profit or loss Held for trading Designated as such upon initial recognition HK$’000 HK$’000 460,826 – – 224,989 – – – – – – – – 460,826 224,989	Loans and receivables HK$’000 – – – 2,227,742 3,376,397 389,776 4,203,467 10,197,382 Loans and receivables HK$’000 – – – 1,866,408 1,411,065 2,711,061 5,988,534	Available-for- sale financial assets HK$’000 – – 2,781,353 – – – – 2,781,353 Available-for- sale financial assets HK$’000 – – 2,788,029 – – – 2,788,029	Total HK$’000 456,031 165,115 2,781,353 2,227,742 3,376,397 389,776 4,203,467
				13,599,881

				Total HK$’000 460,826 224,989 2,788,029 1,866,408 1,411,065 2,711,061
				9,462,378

– I-83 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Financial liabilities

Trade and bills payables Financial liabilities included in other payables and accruals Interest-bearing bank borrowings	Financial liabilities at amortised cost 2016 2015 HK$’000 HK$’000 922,801 767,592 894,201 810,431 3,402,670 1,726,052 5,219,672 3,304,075	Financial liabilities at amortised cost 2016 2015 HK$’000 HK$’000 922,801 767,592 894,201 810,431 3,402,670 1,726,052 5,219,672 3,304,075
		3,304,075

41. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS

The carrying amounts and fair values of the Group’s financial instruments are as follows:

Financial assets Equity investments at fair value through profit or loss Financial assets designated as at fair value through profit or loss Available-for-sale investments Trade and bills receivables Financial assets included in prepayments, deposits and other receivables Dividend due from an associate Cash and bank balances Financial liabilities Trade and bills payables Financial liabilities included in other payables and accruals Interest-bearing bank borrowings	Carrying amounts 2016 2015 HK$’000 HK$’000 456,031 460,826 165,115 224,989 2,781,353 2,788,029 2,227,742 1,866,408 3,376,397 1,411,065 389,776 – 4,203,467 2,711,061 13,599,881 9,462,378 922,801 767,592 894,201 810,431 3,402,670 1,726,052 5,219,672 3,304,075	Fair values 2016 2015 HK$’000 HK$’000 456,031 460,826 165,115 224,989 2,781,353 2,788,029 2,227,742 1,866,408 3,376,397 1,411,065 389,776 – 4,203,467 2,711,061 13,599,881 9,462,378 922,801 767,592 894,201 810,431 2,814,237 1,662,096 4,631,239 3,240,119	Fair values 2016 2015 HK$’000 HK$’000 456,031 460,826 165,115 224,989 2,781,353 2,788,029 2,227,742 1,866,408 3,376,397 1,411,065 389,776 – 4,203,467 2,711,061 13,599,881 9,462,378 922,801 767,592 894,201 810,431 2,814,237 1,662,096 4,631,239 3,240,119
			9,462,378

			767,592 810,431 1,662,096
			3,240,119

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

– I-84 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

The fair values of cash and cash equivalents, trade and bills receivables, trade and bills payables, financial assets included in prepayments, deposits and other receivables, financial liabilities included in other payables and accruals, and dividend due from an associate approximate to their carrying amounts largely due to the short term maturities of these instruments.

The fair values of the interest-bearing bank borrowings have been calculated by discounting the expected future cash flows using rates currently available for instruments with similar terms, credit risk and remaining maturities.

The fair values of the listed equity investments are based on quoted market prices.

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

Assets measured at fair value

As at 31 December 2016

Equity investments at fair value through profit or loss Financial assets designated as at fair value through profit or loss As at 31 December 2015 Equity investments at fair value through profit or loss Financial assets designated as at fair value through profit or loss	Fair value measurement Quoted prices Significant in active observable markets inputs (Level 1) (Level 2) HK$’000 HK$’000 456,031 – 165,115 – Fair value measurement Quoted prices Significant in active observable markets inputs (Level 1) (Level 2) HK$’000 HK$’000 460,826 – 224,989 –	using Significant unobservable inputs (Level 3) HK$’000 – – using Significant unobservable inputs (Level 3) HK$’000 – –	Total HK$’000 456,031 165,115

			Total HK$’000 460,826 224,989

During the year, there were no transfers of fair value measurements between Level 1 and Level 2 and no transfers into or out of Level 3 for both financial assets and financial liabilities (2015: Nil).

– I-85 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

42. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group’s principal financial instruments comprise bank borrowings, cash and short term deposits. The main purpose of these financial instruments is to raise finance for the Group’s operations. The 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 Group’s financial instruments are interest rate risk, foreign currency risk, credit risk, liquidity risk and equity price risk. The board of directors reviews and agrees policies for managing each of these risks and they are summarised below.

Interest rate risk

The Group’s exposure to interest rate risk for changes in interest rates relates primarily to the Group’s bank borrowings with floating interest rates. The Group does not use derivative financial instruments to hedge its interest rate risk.

The following table demonstrates the sensitivity to a reasonably possible change in HK$ and US$ interest rate, with all other variables held constant, of the Group’s profit before tax (through the impact on floating rate borrowings) and the Group’s equity.

		(Decrease)/
	Increase/	increase	(Decrease)/
	(decrease)	in profit	increase
	in basis points	before tax	in equity
		HK$’000	HK$’000
2016
HK$ – denominated borrowings	50	(7,800)	(7,800)
US$ – denominated borrowings	50	(5,538)	(5,538)
HK$ – denominated borrowings	(50)	7,800	7,800
US$ – denominated borrowings	(50)	5,538	5,538
2015
HK$ – denominated borrowings	50	(1,610)	(1,610)
US$ – denominated borrowings	50	(6,435)	(6,435)
HK$ – denominated borrowings	(50)	1,610	1,610
US$ – denominated borrowings	(50)	6,435	6,435

– I-86 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Foreign currency risk

Foreign exchange risk arises from the change in foreign exchange rates that may have an adverse effect on the Group in the current reporting year and in the future years. Most of the assets and liabilities of the Group were denominated in Renminbi and Hong Kong dollars. In Mainland China, foreign investment enterprises are authorised to convert Renminbi to foreign currencies in respect of the current account items (including payment of dividend and profit to the foreign joint venture partner).

The following table demonstrates the sensitivity at the end of the reporting period to a reasonably possible change in the Hong Kong dollar exchange rate, with all other variables held constant, of the Group’s equity (due to changes in the fair value of monetary assets and liabilities):

		Increase/
	Increase/	(decrease)	Increase/
	(decrease) in	in profit	(decrease)
	exchange rate	before tax	in equity
	%	HK$’000	HK$’000
2016
If the Hong Kong dollar weakens
against Renminbi	5	72,384	458,365
If the Hong Kong dollar strengthens
against Renminbi	(5)	(72,384)	(458,365)
2015
If the Hong Kong dollar weakens
against Renminbi	5	–	235,490
If the Hong Kong dollar
strengthens against Renminbi	(5)	–	(235,490)

Credit risk

The Group trades only with recognised and creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis and the Group’s exposure to bad debts is not significant.

The credit risk of the Group’s other financial assets, which comprise cash and cash equivalents, available-for-sale financial assets, equity investments at fair value through profit or loss and other receivables, arises from default of the counterparty, with a maximum exposure equal to the carrying amounts of these instruments.

Since the Group trades only with recognised and creditworthy third parties, there is no requirement for collateral. There are no significant concentrations of credit risk within the Group as the customer bases of the Group’s trade receivables are widely dispersed in different sectors and industries.

– I-87 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Liquidity risk

The Group’s liquidity remained strong as at the end of the reporting period. During the year, the Group’s primary source of funds was cash derived from operating activities and investment income. The directors consider that the Group’s exposure to liquidity risk is not significant.

The maturity profile of the Group’s financial liabilities as at the end of the reporting period, based on the contractual undiscounted payments, is as follows:

2016 Trade and bills payables Other payables Interest-bearing bank borrowings 2015 Trade and bills payables Other payables Interest-bearing bank borrowings	On demand HK$’000 293,037 325,860 800,000 1,418,897 On demand HK$’000 261,178 364,835 – 626,013	Less than 3 months HK$’000 576,344 328,774 1,925 907,043 Less than 3 months HK$’000 456,245 266,585 79,233 802,063	3 to 12 months HK$’000 48,562 155,650 726,681 930,893 3 to 12 months HK$’000 47,300 141,729 1,380,044 1,569,073	1 to 5 years HK$’000 4,858 83,917 1,874,064 1,962,839 1 to 5 years HK$’000 2,869 37,282 333,793 373,944	Total HK$’000 922,801 894,201 3,402,670
					5,219,672

					Total HK$’000 767,592 810,431 1,793,070
					3,371,093

– I-88 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Equity price risk

Equity price risk is the risk that the fair values of equity securities decrease as a result of changes in the value of individual securities. The Group was exposed to equity price risk arising from individual equity investments classified as held-for-trading investments (note 25) as at 31 December 2016. The Group’s listed investments are listed on the Hong Kong Stock Exchange and Tokyo Stock Exchange, and the investments were valued at quoted market prices at the end of the reporting period.

The following table demonstrates the sensitivity to every 1% change in the fair values of the equity investments, with all other variables held constant and before any impact on tax, based on their carrying amounts at the end of the reporting period.

	Carrying	Increase/
	amount of	(decrease)	Increase/
	equity	in profit	(decrease)
	investments	before tax	in equity
	HK$’000	HK$’000	HK$’000
2016
Investments listed in
Hong Kong – Held-for-trading	425,217	4,252/(4,252)	4,252/(4,252)
US – Held-for-trading	30,814	308/(308)	308/(308)
2015
Investments listed in
Hong Kong – Held-for-trading	431,573	4,316/(4,316)	4,316/(4,316)
Japan – Held-for-trading	29,253	293/(293)	293/(293)

Capital management

The primary objectives of the Group’s capital management are to safeguard the Group’s abilities to continue as a going concern and to maintain healthy capital ratios in order to support its business and maximise shareholders’ value. The Group funds its operations principally via its capital.

The 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 Group may adjust the dividend payment to shareholders. No changes were made in the objectives, policies or processes for managing capital during the years ended 31 December 2016 and 31 December 2015.

– I-89 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

43. STATEMENT OF FINANCIAL POSITION OF THE COMPANY

Information about the statement of financial position of the Company at the end of the reporting period is as follows:

NON-CURRENT ASSETS Property, plant and equipment Investment properties Investments in subsidiaries Investments in associates Available-for-sale investments Financial assets designated as at fair value through profit or loss Prepayments Total non-current assets CURRENT ASSETS Due from subsidiaries Prepayments, deposits and other receivables Equity investments at fair value through profit or loss Cash and bank balances Total current assets CURRENT LIABILITIES Due to subsidiaries Other payables and accruals Interest-bearing bank borrowings Total current liabilities NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Interest-bearing bank borrowings Total non-current liabilities Net assets EQUITY Share capital Reserves_(note)_ Total equity	2016 HK$’000 9,831 470,472 1,025,819 65,412 40,438 13,832 17,161 1,642,965 2,027,715 540,433 456,031 2,658,980 5,683,159 1,296,062 78,993 815,870 2,190,925 3,492,234 5,135,199 1,851,740 1,851,740 3,283,459 185,305 3,098,154 3,283,459	2015 HK$’000 15,922 496,489 1,025,819 98,644 23,278 18,848 –
		1,679,000
		1,506,506 43,344 460,826 1,362,290
		3,372,966
		260,892 75,159 1,302,870
		1,638,921
		1,734,045
		3,413,045 306,062
		306,062
		3,106,983

		185,305 2,921,678
		3,106,983

– I-90 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Note:

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

Balance at 1 January 2015 Total comprehensive income for the year Final 2014 dividend declared Issue of shares Interim 2015 dividend Proposed final 2015 dividend At 31 December 2015 Balance at 1 January 2016 Total comprehensive income for the year Final 2015 dividend declared Interim 2016 dividend Proposed final 2016 dividend At 31 December 2016	Share premium account HK$’000 1,285,444 – – (61,769) – – 1,223,675 1,223,675 – – – – 1,223,675	Contributed surplus HK$’000 60,464 – – – – – 60,464 60,464 – – – – 60,464	Available- for-sale investment HK$’000 1,206 (1,206) – – – – – – – – – – –	Retained profits HK$’000 835,393 1,024,512 – – (222,366) (111,183) 1,526,356 1,526,356 621,208 – (333,549) (111,183) 1,702,832	Proposed final dividend HK$’000 74,122 – (74,122) – – 111,183 111,183 111,183 – (111,183) – 111,183 111,183	Total HK$’000 2,256,629 1,023,306 (74,122) (61,769) (222,366) –
						2,921,678

						2,921,678 621,208 (111,183) (333,549) –
						3,098,154

The share option reserve comprises the fair value of share options granted which are yet to be exercised, as further explained in the accounting policy for share-based payments in note 2.4 to the financial statements. The amount will either be transferred to the share premium account when the related options are exercised, or be transferred to retained profits should the related options expire or be forfeited.

44. APPROVAL OF THE FINANCIAL STATEMENTS

The financial statements were approved and authorised for issue by the board of directors on 13 March, 2017.

– I-91 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. UNAUDITED CONSOLIDATED FINANCIAL INFORMATION FOR THE SIX MONTHS ENDED 30 JUNE, 2017

Set out below are the unaudited consolidated financial statements of the Group for the six months ended 30 June, 2017 extracted from the interim report of the Company for the six months ended 30 June, 2017.

RESULTS

The Board announces the unaudited consolidated results of the Group for the six months ended 30 June, 2017 together with the comparative consolidated results for 2016 as follows:

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

Notes
REVENUE
3
Cost of sales
Gross profit
Other income and gains
3
Selling and distribution costs
Administrative expenses
Other expenses
Finance cost
4
Share of profits and losses of associates
PROFIT BEFORE TAX
5
Income tax expense
6
PROFIT FOR THE PERIOD
Profit attributable to:
Owners of the parent
Non-controlling interests
EARNINGS PER SHARE ATTRIBUTABLE
TO ORDINARY EQUITY HOLDERS OF
THE PARENT
8
– Basic and diluted

For the six months ended 30 June,
2017
2016
RMB’000
RMB’000
(Unaudited)
(Unaudited)
(Restated)
7,482,859
6,768,203
(1,568,413)
(1,452,802)
5,914,446
5,315,401
223,739
124,687
(3,169,426)
(2,830,705)
(254,581)
(417,999)
(1,173,558)
(954,357)
(34,127)
(27,862)
177,776
172,294
1,684,269
1,381,459
(285,637)
(219,617)
1,398,632
1,161,842
1,100,582
875,596
298,050
286,246
1,398,632
1,161,842
RMB14.85 cents
RMB11.81 cents

Details of the dividend payable and declared for the period are disclosed in note 7 of this announcement.

– I-92 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

PROFIT FOR THE PERIOD OTHER COMPREHENSIVE (LOSS)/INCOME Other comprehensive (loss)/income to be reclassified to profit or loss in subsequent periods: Exchange differences on translation of foreign operations Net other comprehensive (loss)/income to be reclassified to profit or loss in subsequent periods TOTAL COMPREHENSIVE INCOME FOR THE PERIOD Attributable to: Owners of the parent Non-controlling interests	For the six months ended 30 June, 2017 2016 RMB’000 RMB’000 (Unaudited) (Unaudited) (Restated) 1,398,632 1,161,842 (113,300) 108,491 (113,300) 108,491 1,285,332 1,270,333 988,528 983,602 296,804 286,731 1,285,332 1,270,333	For the six months ended 30 June, 2017 2016 RMB’000 RMB’000 (Unaudited) (Unaudited) (Restated) 1,398,632 1,161,842 (113,300) 108,491 (113,300) 108,491 1,285,332 1,270,333 988,528 983,602 296,804 286,731 1,285,332 1,270,333

		108,491
		108,491
		1,270,333

		983,602 286,731
		1,270,333

– I-93 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Notes NON-CURRENT ASSETS 3 Property, plant and equipment Investment properties Prepaid land lease payments Goodwill Other intangible assets Investments in associates Available-for-sale investments Financial assets designated at fair value through profit or loss Deferred tax assets Prepayments Total non-current assets CURRENT ASSETS Inventories Trade and bills receivables 9 Prepayment, deposit and other receivables Dividend due from an associate Available-for-sale investments Equity investments at fair value through profit or loss Cash and bank balances 10 Total current assets CURRENT LIABILITIES Trade and bills payables 11 Tax payable Other payables and accruals Interest-bearing bank borrowings Total current liabilities NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES	30 June, 2017 RMB’000 (Unaudited) 7,482,859 2,866,296 397,442 519,927 99,384 177,243 1,017,212 530,972 160,246 245,522 360,671 6,374,915 873,899 2,399,646 2,568,941 – 2,825,588 703,742 3,859,639 13,231,455 1,165,229 96,293 4,641,820 998,823 6,902,165 6,329,290 12,704,205	31 December, 2016 RMB’000 (Audited) (Restated) 6,768,203 2,658,160 421,494 465,061 99,384 176,203 946,660 369,447 147,926 260,817 40,013
		5,585,165
		917,868 1,995,827 3,195,323 349,199 2,122,358 408,557 3,765,786
		12,754,918
		826,734 193,024 3,271,494 1,369,474
		5,660,726
		7,094,192
		12,679,357

– I-94 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Note NON-CURRENT LIABILITIES Deferred government grants Interest-bearing bank borrowings Deferred tax liabilities Total non-current liabilities Net assets EQUITY Equity attributable to owners of the parent Share capital 12 Reserves Non-controlling interests Total equity	30 June, 2017 RMB’000 (Unaudited) 133,986 1,632,527 25,683 1,792,196 10,912,009 170,033 8,474,044 8,644,077 2,267,932 10,912,009	31 December, 2016 RMB’000 (Audited) (Restated) 201,603 1,678,968 56,875
		1,937,446
		10,741,911

		170,033 7,813,402
		7,983,435 2,758,476
		10,741,911

– I-95 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

At 31 December, 2016 and 1 January, 2017
Profit for the period
Other comprehensive loss for the period:
Exchange differences on translation of
foreign operations
Total comprehensive income for the period
Contribution from non-controlling interests
Dividend paid to non-controlling shareholders
Final 2016 dividend declared
Interim 2017 dividend
Transfer from/(to) retained earnings
As at 30 June, 2017
At 31 December, 2015 and 1 January, 2016
(Restated)
Profit for the period
Other comprehensive income for the period :
Exchange differences on translation of
foreign operations
Total comprehensive income for the period
Dividend paid to non-controlling shareholders
Final 2015 dividend declared
Interim 2016 dividend
As at 30 June, 2016

Attributable to equity holders of the parent
Issued
share
capital
Share
premium
account
Captial
reserve
Asset
revaluation
reserve
Contributed
surplus
Reserve
funds
Exchange
fluctuation
reserve
Retained
profits
Proposed
final
dividend
Total
Non-
controlling
interests
Total
equity
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
170,033
1,128,455
(169,686)
185,993
22,691
1,420,955
(83,207)
5,213,051
95,150
7,983,435
2,758,476
10,741,911
–
–
–
–
–
–
–
1,100,582
–
1,100,582
298,050
1,398,632
–
–
–
–
–
–
(112,054)
–
–
(112,054)
(1,246)
(113,300)
–
–
–
–
–
–
(112,054)
1,100,582
–
988,528
296,804
1,285,332
–
–
–
–
–
–
–
–
–
–
698
698
–
–
–
–
–
–
–
–
–
–
(788,046)
(788,046)
–
–
–
–
–
–
–
–
(95,150)
(95,150)
–
(95,150)
–
–
–
–
–
–
–
(232,736)
–
(232,736)
–
(232,736)
–
–
–
–
–
14,022
–
(14,022)
–
–
–
–
170,033
1,128,455
(169,686)
185,993
22,691
1,434,977
(195,261)
6,066,875
–
8,644,077
2,267,932
10,912,009
170,033
1,128,455
(169,686)
169,037
22,691
1,074,912
(325,396)
4,335,530
90,121
6,495,697
2,246,168
8,741,865
–
–
–
–
–
–
–
875,596
–
875,596
286,246
1,161,842
–
–
–
–
–
–
108,006
–
–
108,006
485
108,491
–
–
–
–
–
–
108,006
875,596
–
983,602
286,731
1,270,333
–
–
–
–
–
–
–
–
–
–
(546,228)
(546,228)
–
–
–
–
–
–
–
–
(90,121)
(90,121)
–
(90,121)
–
–
–
–
–
–
–
(190,663)
–
(190,663)
–
(190,663)
170,033
1,128,455
(169,686)
169,037
22,691
1,074,912
(217,390)
5,020,463
–
7,198,515
1,986,671
9,185,186

– I-96 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

CASH FLOWS FROM OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
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 PERIOD
ANALYSIS OF BALANCES OF CASH AND
CASH EQUIVALENTS
Cash and bank balances
Time deposits with original maturity of less than
3 months when acquired

For the six months ended 30 June,
2017
2016
RMB’000
RMB’000
(Unaudited)
(Unaudited)
(Restated)
3,218,565
1,440,863
(1,585,214)
251,039
(1,389,331)
(802,576)
244,020
889,326
3,498,538
2,121,086
(154,594)
122,659
3,587,964
3,133,071
1,696,909
1,808,248
1,891,055
1,324,823
3,587,964
3,133,071

– I-97 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES:

1. BASIS OF PREPARATION

These consolidated financial statements of the Group have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) (which include all HKFRSs, Hong Kong Accounting Standards and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants, and accounting principles generally accepted in Hong Kong. These financial statements also comply with the applicable disclosure requirements of the Hong Kong Companies Ordinance. The financial statements have been prepared under the historical cost convention, except for certain buildings classified as property, plant and equipment and equity investments which have been measured at fair value. Since the Group’s principal operating activities are engaged in China, the Board determined to change the reporting currency of the Group and the Company from Hong Kong dollars to Renminbi (“RMB”) with effect from 1 January, 2017 so as to reflect the actual business position of the Group accurately. Hence, these financial statements are presented in RMB and all values are rounded to the nearest thousand except when otherwise indicated. The comparative figures will also be restated thereof.

The unaudited consolidated financial information should be read in conjunction with the 2016 annual financial statements.

The accounting policies and methods of computation used in the preparation of this unaudited consolidated financial information are consistent with those used in the annual financial statements for the year ended 31 December, 2016.

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries (collectively referred to as the “Group”) for the six months ended 30 June, 2017. A subsidiary is an entity (including a structured entity), directly or indirectly, controlled by the Company. Control is achieved when the 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 Group the current ability to direct the relevant activities of the investee).

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

– I-98 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The 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 in the accounting policy for subsidiaries above. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

2. OPERATING SEGMENT INFORMATION

The management considers the business from products/services perspective. The three reportable segments are as follows:

(a) the modernized Chinese medicines and chemical medicines segment comprises the manufacture, sale and distribution of the modernized Chinese medicine products and chemical medicine products;
(b) the investment segment is engaged in long term and short term investments; and
(c) the other segment comprises, principally, (i) the Group’s R&D sector which provides services to third-party; and (ii) related healthcare and hospital business.

Management monitors the results of its operating segments separately for the purpose of making decisions about resources allocation and performance assessment. Segment performance is evaluated based on reportable segment profit/(loss), which is a measure of adjusted profit/(loss) before tax.

Segment assets exclude deferred tax assets and investments in associates as these assets are managed on a group basis.

Segment liabilities exclude tax payable and deferred tax liabilities as these liabilities are managed on a group basis.

– I-99 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The segment results for the six months ended 30 June, 2017

Segment revenue: Sales to external customers Segment results Reconciliation: Interest and unallocated gains Share of profits and losses of associates Unallocated expenses Profit before tax Income tax expense Profit for the period Assets and liabilities Segment assets Reconciliation: Investments in associates Other unallocated assets Total assets Segment liabilities Reconciliation: Other unallocated liabilities Total liabilities Other segment information: Depreciation and amortisation Capital expenditure Other non-cash expenses	Modernized Chinese medicines and chemical medicines RMB’000 7,266,830 1,496,927 13,146,270 5,560,958 144,116 436,967 527	Investment RMB’000 1,935 96,615 4,585,784 2,712,396 15,125 69 37	Others RMB’000 214,094 37,261 611,582 299,031 9,200 – –	Total RMB’000 7,482,859 1,630,803 22,302 177,776 (146,612) 1,684,269 (285,637) 1,398,632 18,343,636 1,017,212 245,522 19,606,370 8,572,385 121,976 8,694,361 168,441 437,036 564

– I-100 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The segment results for the six months ended 30 June, 2016 (Restated)

Segment revenue: Sales to external customers Segment results Reconciliation: Interest and unallocated gains Share of profits and losses of associates Unallocated expenses Profit before tax Income tax expense Profit for the period Assets and liabilities Segment assets Reconciliation: Investments in associates Other unallocated assets Total assets Segment liabilities Reconciliation: Other unallocated liabilities Total liabilities Other segment information: Depreciation and amortisation Capital expenditure Other non-cash expenses	Modernized Chinese medicines and chemical medicines RMB’000 6,550,516 1,460,899 10,277,943 4,336,810 123,161 169,662 378	Investment RMB’000 1,814 (125,838) 3,116,733 1,759,783 14,126 11 –	Others RMB’000 215,873 14,754 962,865 263,477 8,957 1,490 –	Total RMB’000 6,768,203 1,349,815 15,535 172,294 (156,185) 1,381,459 (219,617) 1,161,842 14,357,541 1,132,148 237,296 15,726,985 6,360,070 181,730 6,541,800 146,244 171,163 378

No information about a major customer is presented as no single customer contributes to over 10% of the Group’s revenue for the six months ended 30 June, 2017 and 2016.

– I-101 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. REVENUE, OTHER INCOME AND GAINS

Revenue, which is the Group’s revenue, represents the net invoiced value of goods sold, after allowances for returns and trade discounts.

An analysis of revenue, other income and gains is as follows:

Revenue Sale of goods Others Other income Bank interest income Interest income from convertible bonds Dividend income Government grants Sale of scrap materials Investment income Gross rental income Others Gains Gain on disposal of items of property, plant and equipment Gain on disposal of equity investments Fair value gains Equity investments at fair value through profit or loss – held for trading Total other income and gains	For the six months ended 30 June, 2017 2016 RMB’000 RMB’000 (Unaudited) (Unaudited) (Restated) 7,297,582 6,583,102 185,277 185,101 7,482,859 6,768,203 22,302 15,535 8,364 8,567 6,207 9,384 14,714 15,555 2,579 507 59,359 50,694 2,686 2,556 13,612 19,785 129,823 122,583 976 249 67,721 – 25,219 1,855 93,916 2,104 223,739 124,687	For the six months ended 30 June, 2017 2016 RMB’000 RMB’000 (Unaudited) (Unaudited) (Restated) 7,297,582 6,583,102 185,277 185,101 7,482,859 6,768,203 22,302 15,535 8,364 8,567 6,207 9,384 14,714 15,555 2,579 507 59,359 50,694 2,686 2,556 13,612 19,785 129,823 122,583 976 249 67,721 – 25,219 1,855 93,916 2,104 223,739 124,687
		6,768,203

		15,535 8,567 9,384 15,555 507 50,694 2,556 19,785
		122,583
		249 – 1,855
		2,104
		124,687

– I-102 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. FINANCE COST

	For the six months	For the six months
	ended 30 June,
	2017	2016
	RMB’000	RMB’000
	(Unaudited)	(Unaudited)
		(Restated)
Interest on bank borrowings	34,127	27,862

5. PROFIT BEFORE TAX

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

Cost of sales Depreciation of property, plant and equipment Depreciation of investment properties Recognition of prepaid land lease payments Amortization of other intangible assets Research and development costs Gain on disposal of items of property, plant and equipment Loss on disposal of items of property, plant and equipment Bank interest income Dividend income Investment income Fair value (gains)/losses, net: Equity investments at fair value through profit or loss – held for trading Financial assets designated as fair value through profit or loss Auditors’ remuneration Staff cost (including directors’ remuneration) Wages and salaries Pension contributions Accrual of impairment loss of trade receivables Foreign exchange differences, net	For the six months ended 30 June, 2017 2016 RMB’000 RMB’000 (Unaudited) (Unaudited) (Restated) 1,568,413 1,452,802 150,863 130,745 11,509 10,951 482 482 5,587 4,066 1,155,532 914,606 (976) (249) 564 378 (22,302) (15,535) (6,207) (9,384) (59,359) (50,694) (25,219) (1,855) 978 1,735 1,921 1,951 488,427 455,016 112,707 93,378 601,134 548,394 16,288 64 (70,165) 32,655	For the six months ended 30 June, 2017 2016 RMB’000 RMB’000 (Unaudited) (Unaudited) (Restated) 1,568,413 1,452,802 150,863 130,745 11,509 10,951 482 482 5,587 4,066 1,155,532 914,606 (976) (249) 564 378 (22,302) (15,535) (6,207) (9,384) (59,359) (50,694) (25,219) (1,855) 978 1,735 1,921 1,951 488,427 455,016 112,707 93,378 601,134 548,394 16,288 64 (70,165) 32,655
		548,394
		64 32,655

– I-103 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. INCOME TAX EXPENSE

Group: Current – Hong Kong Current – Mainland China income tax Deferred tax Total tax charge for the period	For the six months ended 30 June, 2017 2016 RMB’000 RMB’000 (Unaudited) (Unaudited) (Restated) – – 299,058 246,820 (13,421) (27,203) 285,637 219,617

Hong Kong profits tax has been provided at a rate of 16.5% (2016: 16.5%) on the estimated assessable profits arising in Hong Kong during the period. Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the countries in which the Group operates based on existing legislation, interpretations and practices in respect thereof.

During the six months ended 30 June, 2017, CT Tianqing, NJCTT, Jiangsu Fenghai, Jiangsu Qingjiang, Qingdao Haier, Shanghai Tongyong and LYG Runzhong were subject to a corporate income tax rate of 15% because they are qualified as a “High and New Technology Enterprise”.

Other than the above mentioned entities, the other entities located in the PRC are subject to a corporate income tax rate of 25% in 2017.

7. DIVIDEND AND CLOSURE OF REGISTER OF MEMBERS

The Board has declared the payment of a second quarterly dividend of HK2 cents per ordinary share for the three months ended 30 June, 2017 (2016: HK1.5 cents). The dividend will be paid to shareholders on Friday, 29 September, 2017 whose names appear on the Register of Members of the Company on Friday, 15 September, 2017. For the purpose of determining shareholders who are qualified for the second quarterly dividend, the register of members of the Company will be closed from Thursday, 14 September, 2017 to Friday, 15 September, 2017, both days inclusive, during which period no transfer of shares will be effected. In order to qualify for the second quarterly dividend, all transfers accompanied by the relevant share certificates must be lodged with the Company’s branch share registrar, Tricor Tengis Limited, Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong by 4:30 p.m. on Wednesday, 13 September, 2017.

8. EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT

The calculation of basic earnings per share amounts is based on the profit attributable to ordinary equity holders of the parent for the period of approximately RMB1,100,582,000 (2016: approximately RMB875,596,000 (Restated) ), and the weighted average number of ordinary shares of 7,412,192,209 (2016: 7,412,192,209) in issue during the period.

The Group had no potentially dilutive ordinary shares in issue during these two periods.

– I-104 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

9. TRADE AND BILL RECEIVABLES

The Group’s trading terms with its customers are mainly on credit, except for new customers, where payment in advance is normally required. The credit period ranges from 60 days to 180 days. The Group seeks to maintain strict control over its outstanding receivables and has a credit control department to minimise credit risk. Overdue balances are reviewed regularly by senior management. In view of the aforementioned and the fact that the Group’s trade receivables relate to a large number of diversified customers, there is no significant concentration of credit risk. Trade receivables are non-interest bearing.

An aged analysis of the Group’s trade and bill receivables as at the end of reporting period, based on invoice date and net of provisions, is as follows:

Current to 90 days 91 days to 180 days Over 180 days CASH AND BANK BALANCES Cash and bank balances, unrestricted Time deposits with original maturity of less than three months Time deposits with original maturity of more than three months	30 June, 2017 RMB’000 (Unaudited) 2,196,235 161,569 41,842 2,399,646 30 June, 2017 RMB’000 (Unaudited) 1,696,909 1,891,055 271,675 3,859,639	31 December, 2016 RMB’000 (Audited) (Restated) 1,657,541 314,366 23,920
		1,995,827

		31 December, 2016 RMB’000 (Audited) (Restated) 1,472,778 2,025,760 267,248
		3,765,786

10. CASH AND BANK BALANCES

11. TRADE AND BILLS PAYABLES

An aged analysis of the Group’s trade and bills payables as at the end of reporting period, based on invoice date, is as follows:

Current to 90 days 91 days to 180 days Over 180 days	30 June, 2017 RMB’000 (Unaudited) 962,253 114,857 88,119 1,165,229	31 December, 2016 RMB’000 (Audited) (Restated) 573,680 215,202 37,852
		826,734

– I-105 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

12. SHARE CAPITAL

	30 June,	31 December,
	2017	2016
	RMB’000	RMB’000
	(Unaudited)	(Audited)
		(Restated)
*Issued and fully paid:*
7,412,192,209 ordinary shares of approximately RMB0.02294
each (2016: 7,412,192,209 ordinary shares of approximately
RMB0.02294 each)	170,033	170,033

13. RELATED PARTY TRANSACTION

The Group had the following material transactions with related parties during the period:

Operating lease rental payable to: – a company beneficially owned by a director_(note a) – a company beneficially owned by a director(note a) Consultancy fee receivable from: – a company beneficially owned by connected persons(note b) _Notes:	For the six months ended 30 June, 2017 2016 RMB’000 RMB’000 (Unaudited) (Unaudited) (Restated) 531 505 1,800 1,800 1,557 1,415	For the six months ended 30 June, 2017 2016 RMB’000 RMB’000 (Unaudited) (Unaudited) (Restated) 531 505 1,800 1,800 1,557 1,415

(a) Lease rentals were based on tenancy agreements entered into between the Group and each of the related parties with reference to the market prices.

(b) Consultancy fee was based on services agreement entered into between the Group and connected persons with reference to the market prices.

– I-106 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. INDEBTEDNESS STATEMENT

As at the close of business on 30 November 2017, being the latest practicable date for this statement of indebtedness prior to the printing of this circular, the Group had unsecured and unguaranteed short term bank loans of approximately RMB35.0 million; secured short term bank loans of approximately RMB49.3 million; unsecured and unguaranteed long term bank loans of approximately RMB2,696.3 million; and secured long term bank loans of approximately RMB235.6 million.

Save as otherwise disclosed herein, as at the close of business on 30 November 2017 and apart from intra-group liabilities, the Group did not have any material:

(i) debt securities issued and outstanding, authorised or otherwise created but unissued;
(ii) term loans;
(iii) borrowings or indebtedness in the nature of borrowing of the Group including bank overdrafts and liabilities under acceptances (other than normal trade bills) or acceptance credits or hire purchase commitments;
(iv) mortgages or charges; or
(v) contingent liabilities or guarantees.

5. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material change in the financial or trading position or outlook of the Group since 31 December 2016, being the date to which the latest published audited financial statements of the Company were made up.

6. WORKING CAPITAL SUFFICIENCY

The Directors are of the opinion that, in the absence of unforeseeable circumstances, the Group’s present internal resources and available banking facilities, the Group has sufficient working capital for its present requirements for at least the next twelve months from the date of this circular.

– I-107 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

7. FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

With global economic growth slowing, and occasionally faltering, and domestic economy undergoing structural adjustments, the new phenomenon of slower economic growth will continue in the PRC. Correspondingly, the industry predicts that the growth of the PRC pharmaceutical industry will level off. With new reforms leading to greater control of medical costs, and tendering resulting in lower prices for medicines, growth of the pharmaceutical industry will be further affected. However, companies with solid R&D capabilities will enjoy a bigger advantage in the wake of reforms to the registration of new medicines. In addition, tiered medical services, migration of medical consultations from central hospitals to local medical practitioners, and insufficient medical resources in public hospitals at the county level are developments that will lead to fresh opportunities for companies with established medical services. The Group believes that the new medical reforms and pharmaceutical policies will result in a growing polarization of enterprises in the industry.

Upon Completion, Beijing Tide will become a non-wholly owned subsidiary of the Company with the integration of the development of high-end pharmaceutical products and innovative drugs as part of the Group’s growth strategy. More importantly, as mentioned in the section headed “Letter from the Board – Reasons for the Acquisition”, the Company considers that the Acquisition will enhance the core competitiveness and the long-term profitability of the Group.

The unaudited consolidated pro forma financial information of the Enlarged Group illustrating the financial impact of the Acquisition on the assets and liabilities of the Group is set out in Appendix III to this circular. The pro forma financial information of the Enlarged Group has been prepared for illustrative purpose only, based on the judgments and assumptions of the Directors, and, due to its hypothetical nature, it may not give a true picture of the financial position of the Group as at the date of completion of the Acquisition or any future date.

– I-108 –

FINANCIAL INFORMATION OF SINO BIOPHARM BEIJING

APPENDIX IIA

The following is the text of a report received from Sino Biopharm Beijing’s reporting accountants, Ernst & Young, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this Circular.

==> picture [72 x 32] intentionally omitted <==

26 January 2018

The Directors

Sino Biopharmaceutical Limited

Dear Sirs,

We report on the historical financial information of Sino Biopharmaceutical (Beijing) Limited (“Sino Biopharm Beijing”) set out on pages IIA-4 to IIA-24, which comprises the statements of financial position as at 31 December 2014, 2015 and 2016 and 30 September 2017, and the statements of profit or loss and other comprehensive income, the statements of changes in equity, and the statements of cash flows for each of the years ended 31 December 2014, 2015 and 2016 and for the nine months ended 30 September 2017 (the “Relevant Periods”) and a summary of significant accounting policies and other explanatory information (together, the “Historical Financial Information”). The Historical Financial Information set out on pages IIA-4 to IIA24 forms an integral part of this report, which has been prepared for inclusion in the circular of Sino Biopharmaceutical Limited (the “Company”) dated 26 January 2018 (the “Circular”) in connection with the proposed acquisition of 51% equity interest in Sino Biopharm Beijing (the “Acquisition”).

DIRECTORS’ RESPONSIBILITY FOR THE HISTORICAL FINANCIAL INFORMATION

The directors of Sino Biopharm Beijing (the “Directors”) are responsible for the preparation of the Historical Financial Information that gives a true and fair view in accordance with the basis of preparation and presentation set out in Note 2 to the Historical Financial Information, and for such internal control as the Directors determine is necessary to enable the preparation of Historical Financial Information that is free from material misstatement, whether due to fraud or error.

– IIA-1 –

FINANCIAL INFORMATION OF SINO BIOPHARM BEIJING

APPENDIX IIA

REPORTING ACCOUNTANTS’ RESPONSIBILITY

Our responsibility is to express an opinion on the Historical Financial Information and to report our opinion to you. We conducted our work in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 200, Accountants’ Reports on Historical Financial Information in Investment Circulars issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). This standard requires that we comply with ethical standards and plan and perform our work to obtain reasonable assurance about whether the Historical Financial Information is free from material misstatement.

Our work involved performing procedures to obtain evidence about the amounts and disclosures in the Historical Financial Information. The procedures selected depend on the reporting accountants’ judgement, including the assessment of risks of material misstatement of the Historical Financial Information, whether due to fraud or error. In making those risk assessments, the reporting accountants consider internal control relevant to the entity’s preparation of the Historical Financial Information that gives a true and fair view in accordance with the basis of preparation and presentation set out in Note 2 to the Historical Financial Information in order to design procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Our work also included evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the Historical 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, the Historical Financial Information gives, for the purposes of the accountants’ report, a true and fair view of Sino Biopharm Beijing’s financial position as at 31 December 2014, 2015 and 2016 and 30 September 2017 and of Sino Biopharm Beijing’s financial performance and cash flows for each of the Relevant Periods in accordance with the basis of preparation and presentation set out in Note 2 to the Historical Financial Information.

– IIA-2 –

FINANCIAL INFORMATION OF SINO BIOPHARM BEIJING

APPENDIX IIA

REVIEW OF STUB PERIOD COMPARATIVE FINANCIAL INFORMATION

We have reviewed the stub period comparative financial information of Sino Biopharm Beijing which comprises statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows for the nine months ended 30 September 2016 and other explanatory information (the “Stub Period Comparative Financial Information”). The Directors are responsible for the preparation and presentation of the Stub Period Comparative Financial Information in accordance with the basis of preparation and presentation set out in Note 2 to the Historical Financial Information. Our responsibility is to express a conclusion on the Stub Period Comparative Financial Information based on our review. We conducted our review in accordance with Hong Kong Standard on Review Engagements 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the HKICPA. A review consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the Stub Period Comparative Financial Information, for the purposes of the accountants’ report, is not prepared, in all material respects, in accordance with the basis of preparation and presentation set out in Note 2 to the Historical Financial Information.

REPORT ON MATTERS UNDER THE MAIN BOARD LISTING RULES OF THE STOCK EXCHANGE OF HONG KONG LIMITED AND THE COMPANIES (WINDING UP AND MISCELLANEOUS PROVISIONS) ORDINANCE

Adjustments

In preparing the Historical Financial Information, no adjustments to the Underlying Financial Statements as defined on page IIA-4 have been made.

Dividends

We refer to note 13 to the Historical Financial Information which contains information about the dividends declared by Sino Biopharm Beijing in respect of the Relevant Periods.

Ernst & Young Certified Public Accountants Hong Kong

– IIA-3 –

FINANCIAL INFORMATION OF SINO BIOPHARM BEIJING

APPENDIX IIA

I. HISTORICAL FINANCIAL INFORMATION

Preparation of Historical Financial Information

Set out below is the Historical Financial Information which forms an integral part of this accountants’ report.

The financial statements of Sino Biopharm Beijing for the Relevant Periods, on which the Historical Financial Information is based, were audited by Ernst & Young, Hong Kong in accordance with Hong Kong Standards on Auditing issued by the HKICPA (the “Underlying Financial Statements”).

The Historical Financial Information is presented in Hong Kong dollars (“HK$”) which is also Sino Biopharm Beijing’s functional currency.

Statements of Profit or Loss and Other Comprehensive Income

Notes Other income 4 Other expense Administrative expenses Share of profit of an associate 8 PROFIT BEFORE TAX 5 Income tax expense 6 PROFIT FOR THE YEAR/PERIOD	Year ended 31 December 2014 2015 2016 HK$ HK$ HK$ 6,622 6,043 9,530 (4,250,373) (7,532,450) (26,837,419) (762) (2,743) (1,716,552) 290,248,176 324,592,300 364,655,559 286,003,663 317,063,150 336,111,118 (14,171,918) (36,389,015) (16,857,181) 271,831,745 280,674,135 319,253,937	Nine months ended 30 September 2016 2017 HK$ HK$ (Unaudited) 8,951 31,272,203 (4,184,460) – (1,174,917) (3,827,892) 266,351,480 339,280,579 261,001,054 366,724,890 (5,856,178) (15,449,721) 255,144,876 351,275,169	Nine months ended 30 September 2016 2017 HK$ HK$ (Unaudited) 8,951 31,272,203 (4,184,460) – (1,174,917) (3,827,892) 266,351,480 339,280,579 261,001,054 366,724,890 (5,856,178) (15,449,721) 255,144,876 351,275,169
			366,724,890 (15,449,721)
			351,275,169

– IIA-4 –

FINANCIAL INFORMATION OF SINO BIOPHARM BEIJING

APPENDIX IIA

PROFIT FOR THE YEAR/PERIOD

				Nine months ended	Nine months ended
	Year	ended 31 December		30 September
	2014	2015	2016	2016	2017
Notes	HK$	HK$	HK$	HK$	HK$
				(Unaudited)
	271,831,745	280,674,135	319,253,937	255,144,876	351,275,169

OTHER COMPREHENSIVE INCOME

Other comprehensive (losses)/income to be reclassified to profit or loss in subsequent periods:

Share of other comprehensive (losses)/income of an associate

(23,759,842) (38,551,357) (51,635,248) (38,726,947) 48,344,352

Other comprehensive income not to be reclassified to profit or loss in subsequent periods:

Share of other comprehensive income of an associate OTHER COMPREHENSIVE (LOSSES)/INCOME FOR THE YEAR/PERIOD, NET OF TAX TOTAL COMPREHENSIVE INCOME FOR THE YEAR/PERIOD	2,018,346 (21,741,496) 250,090,249	705,716 (37,845,641) 242,828,494	2,179,215 (49,456,033) 269,797,904	– (38,726,947) 216,417,929	5,606,491
					53,950,843
					405,226,012

– IIA-5 –

FINANCIAL INFORMATION OF SINO BIOPHARM BEIJING

APPENDIX IIA

STATEMENTS OF FINANCIAL POSITION

Notes NON-CURRENT ASSETS Property, plant and equipment 7 Investment in an associate 8 Total non-current assets CURRENT ASSETS Prepayments Other receivables Cash and cash equivalents 9 Dividend receivable from an associate 10 Amount due from ultimate holding company 10 Total current assets NET CURRENT ASSETS NON-CURRENT LIABILITIES Deferred tax liabilities 11 Total non-current liabilities Net assets EQUITY Share capital 12 Reserves TOTAL EQUITY	As at 31 December 2014 2015 2016 HK$ HK$ HK$ – – 390,947 1,046,374,316 913,221,775 725,872,821 1,046,374,316 913,221,775 726,263,768 2,355 – – – – 543,074 1,538,634 1,976,723 1,124,504 – – 349,165,219 173,015,694 165,550,690 153,524,223 174,556,683 167,527,413 504,357,020 174,556,683 167,527,413 504,357,020 34,639,588 29,038,683 20,768,440 34,639,588 29,038,683 20,768,440 1,186,291,411 1,051,710,505 1,209,852,348 100 100 100 1,186,291,311 1,051,710,405 1,209,852,248 1,186,291,411 1,051,710,505 1,209,852,348	As at 30 September 2017 HK$ 945,109 768,757,715
		769,702,824
		– 547,022 228,019,236 – 154,558,513
		383,124,771
		383,124,771
		18,700,835
		18,700,835
		1,134,126,760

		100 1,134,126,660
		1,134,126,760

– IIA-6 –

FINANCIAL INFORMATION OF SINO BIOPHARM BEIJING

APPENDIX IIA

STATEMENTS OF CHANGES IN EQUITY

Year ended 31 December 2014

Note At 1 January 2014 Profit for the year Other comprehensive income/(losses) for the year: Changes in fair value of available-for-sale investment of an associate, net of tax Surplus on revaluation of buildings of an associate Exchange differences related to an associate Total comprehensive income/(losses) for the year Dividend paid 13 At 31 December 2014	Issued capital HK$ 100 – – – – – – 100	Capital reserve HK$ 73,519,824 – – – – – – 73,519,824	Attributable to owners of the parent Available- for-sale investment Asset Exchange revaluation revaluation revaluation Retained reserve reserve reserve profits Total HK$ HK$ HK$ HK$ HK$ – 8,277,364 73,690,865 860,546,609 1,016,034,762 – – – 271,831,745 271,831,745 318,940 – – – 318,940 – 2,018,346 – – 2,018,346 – – (24,078,782) – (24,078,782) 318,940 2,018,346 (24,078,782) 271,831,745 250,090,249 – – – (79,833,600) (79,833,600) 318,940 10,295,710 49,612,083 1,052,544,754 1,186,291,411

– IIA-7 –

FINANCIAL INFORMATION OF SINO BIOPHARM BEIJING

APPENDIX IIA

Year ended 31 December 2015

Note At 1 January 2015 Profit for the year Other comprehensive income/(losses) for the year: Changes in fair value of available-for-sale investment of an associate, net of tax Surplus on revaluation of buildings of an associate Exchange differences related to an associate Total comprehensive income/(losses) for the year Dividend paid 13 At 31 December 2015	Issued capital HK$ 100 – – – – – – 100	Capital reserve HK$ 73,519,824 – – – – – – 73,519,824	Attributable to owners of the parent Available- for-sale investment Asset Exchange revaluation revaluation revaluation Retained reserve reserve reserve profits Total HK$ HK$ HK$ HK$ HK$ 318,940 10,295,710 49,612,083 1,052,544,754 1,186,291,411 – – – 280,674,135 280,674,135 (318,940) – – – (318,940) – 705,716 – – 705,716 – – (38,232,417) – (38,232,417) (318,940) 705,716 (38,232,417) 280,674,135 242,828,494 – – – (377,409,400) (377,409,400) – 11,001,426 11,379,666 955,809,489 1,051,710,505

– IIA-8 –

FINANCIAL INFORMATION OF SINO BIOPHARM BEIJING

APPENDIX IIA

Year ended 31 December 2016

Note At 1 January 2016 Profit for the year Other comprehensive income/(losses) for the year: Surplus on revaluation of buildings of an associate Exchange differences related to an associate Total comprehensive income/(losses) for the year Dividend paid 13 At 31 December 2016	Issued capital HK$ 100 – – – – – 100	Attributable to owners of the parent Asset Exchange Capital revaluation revaluation Retained reserve reserve reserve profits Total HK$ HK$ HK$ HK$ HK$ 73,519,824 11,001,426 11,379,666 955,809,489 1,051,710,505 – – – 319,253,937 319,253,937 – 2,179,215 – – 2,179,215 – – (51,635,248) – (51,635,248) – 2,179,215 (51,635,248) 319,253,937 269,797,904 – – – (111,656,061) (111,656,061) 73,519,824 13,180,641 (40,255,582) 1,163,407,365 1,209,852,348

– IIA-9 –

FINANCIAL INFORMATION OF SINO BIOPHARM BEIJING

APPENDIX IIA

Nine months ended 30 September 2017

Note At 1 January 2017 Profit for the period Other comprehensive income/(losses) for the period: Surplus on revaluation of buildings of an associate Exchange differences related to an associate Total comprehensive income/(losses) for the period Dividend paid 13 At 30 September 2017	Issued capital HK$ 100 – – – – – 100	Attributable to owners of the parent Asset Exchange Capital revaluation revaluation Retained reserve reserve reserve profits Total HK$ HK$ HK$ HK$ HK$ 73,519,824 13,180,641 (40,255,582) 1,163,407,365 1,209,852,348 – – – 351,275,169 351,275,169 – 5,606,491 – – 5,606,491 – – 48,344,352 – 48,344,352 – 5,606,491 48,344,352 351,275,169 405,226,012 – – – (480,951,600) (480,951,600) 73,519,824 18,787,132 8,088,770 1,033,730,934 1,134,126,760

– IIA-10 –

FINANCIAL INFORMATION OF SINO BIOPHARM BEIJING

APPENDIX IIA

Nine months ended 30 September 2016

Note At 1 January 2016 Profit for the period (Unaudited) Other comprehensive income/(losses) for the period(Unaudited): Exchange differences related to an associate (Unaudited) Total comprehensive income/(losses) for the period (Unaudited) Dividend paid (Unaudited) 13 At 30 September 2016 (Unaudited)	Issued capital HK$ 100 – – – – 100	Attributable to owners of the parent Asset Exchange Capital revaluation revaluation Retained reserve reserve reserve profits Total HK$ HK$ HK$ HK$ HK$ 73,519,824 11,001,426 11,379,666 955,809,489 1,051,710,505 – – – 255,144,876 255,144,876 – – (38,726,947) – (38,726,947) – – (38,726,947) 255,144,876 216,417,929 – – – (111,656,061) (111,656,061) 73,519,824 11,001,426 (27,347,281) 1,099,298,304 1,156,472,373

– IIA-11 –

FINANCIAL INFORMATION OF SINO BIOPHARM BEIJING

APPENDIX IIA

STATEMENTS OF CASH FLOWS

Notes CASH FLOWS USED IN OPERATING ACTIVITIES Profit before tax Adjustments for: Share of profits of an associate Bank interest income 4 Depreciation of property, plant and equipment Realised losses/(gains) from changes in foreign currency exchange (Increase)/decrease in prepayments and other receivables Decrease/(increase) in amount due from ultimate holding company Cash used in operations NET CASH FLOWS USED IN OPERATING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES Dividends received from an associate 14 Interest received Purchases of items of property, plant and equipment NET CASH FLOWS FROM INVESTING ACTIVITIES CASH FLOWS USED IN FINANCING ACTIVITIES Dividends paid NET CASH FLOWS USED IN FINANCING ACTIVITIES NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of year/period CASH AND CASH EQUIVALENTS AT END OF YEAR/PERIOD 9 ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances 9	Year ended 31 December 2014 2015 2016 HK$ HK$ HK$ 286,003,663 317,063,150 336,111,118 (290,248,176) (324,592,300) (364,655,559) (6,622) (6,043) (9,530) – – 140,553 – – 16,529,773 (2,355) 2,355 (543,074) 4,219,930 7,465,004 12,026,467 (33,560) (67,834) (400,252) (33,560) (67,834) (400,252) 79,634,016 377,909,280 111,726,064 6,622 6,043 9,530 – – (531,500) 79,640,638 377,915,323 111,204,094 (79,833,600) (377,409,400) (111,656,061) (79,833,600) (377,409,400) (111,656,061) (226,522) 438,089 (852,219) 1,765,156 1,538,634 1,976,723 1,538,634 1,976,723 1,124,504 1,538,634 1,976,723 1,124,504	Nine months ended 30 September 2016 2017 HK$ HK$ (Unaudited) 261,001,054 366,724,890 (266,351,480) (339,280,579) (8,951) (13,496) 97,110 425,312 24,141 (27,034,558) (521,095) (3,948) 5,374,033 (1,034,290) (385,188) (216,669) (385,188) (216,669) 111,726,064 709,028,979 8,951 13,496 (517,921) (979,474) 111,217,094 708,063,001 (111,656,061) (480,951,600) (111,656,061) (480,951,600) (824,155) 226,894,732 1,976,723 1,124,504 1,152,568 228,019,236 1,152,568 228,019,236	Nine months ended 30 September 2016 2017 HK$ HK$ (Unaudited) 261,001,054 366,724,890 (266,351,480) (339,280,579) (8,951) (13,496) 97,110 425,312 24,141 (27,034,558) (521,095) (3,948) 5,374,033 (1,034,290) (385,188) (216,669) (385,188) (216,669) 111,726,064 709,028,979 8,951 13,496 (517,921) (979,474) 111,217,094 708,063,001 (111,656,061) (480,951,600) (111,656,061) (480,951,600) (824,155) 226,894,732 1,976,723 1,124,504 1,152,568 228,019,236 1,152,568 228,019,236
			(216,669) (216,669)
			709,028,979 13,496 (979,474)
			708,063,001
			(480,951,600) (480,951,600)
			226,894,732 1,124,504
			228,019,236

			228,019,236

– IIA-12 –

FINANCIAL INFORMATION OF SINO BIOPHARM BEIJING

APPENDIX IIA

II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION

1. GENERAL INFORMATION

Sino Biopharm Beijing is a limited company registered in Hong Kong. Its registered office is located at Room 4109, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong.

During the Relevant Periods, Sino Biopharm Beijing is involved in investment holding.

2. BASIS OF PREPARATION

The Historical Financial Information has been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) (which include all HKFRSs, Hong Kong Accounting Standards (“HKASs”) and Interpretations) issued by the HKICPA, accounting principles generally accepted in Hong Kong and the Hong Kong Companies Ordinance.

The Historical Financial Information has been prepared under the historical cost convention.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES

3.1 ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS

Sino Biopharm Beijing has not applied the following new and revised HKFRSs that have been issued but are not yet effective, in these financial statements.

Amendments to HKFRS 2	Classification and Measurement of Share-based Payment
	_Transactions_1
Amendments to HKFRS 4	Applying HKFRS 9 Financial Instruments with HKFRS 4
	_Insurance Contracts_1
HKFRS 9	_Financial Instruments_1
Amendments to HKFRS 10	Sale or Contribution of Assets between an Investor and its
and HKAS 28 (2011)	_Associate or Joint Venture_3
HKFRS 15	_Revenue from Contracts with Customers_1
Amendments to HKFRS 15	Clarifications to HKFRS 15 Revenue from Contracts with
	_Customers_1
HKFRS 16	_Leases_2
Amendments to HKFRS 9	_Prepayment Features with Negative Compensation_2
Amendments to HKAS 40	_Transfers of Investment Property_1
HK(IFRIC)-Int 22	_Foreign Currency Transactions and Advance Consideration_1
HK(IFRIC)-Int 23	_Uncertainty over Income Tax Treatments_2
Annual Improvements	Amendments to the following HKFRSs:1
2014-2016 Cycle	HKFRS 1_First-time Adoption of HKFRSs_
	HKAS 28_Investments in Associates and Joint Ventures_

1 Effective for annual periods beginning on or after 1 January 2018 2
2 Effective for annual periods beginning on or after 1 January 2019 3
No mandatory effective date yet determined but available for adoption

– IIA-13 –

FINANCIAL INFORMATION OF SINO BIOPHARM BEIJING

APPENDIX IIA

Sino Biopharm Beijing is in the process of making an assessment of the impact of these new and revised HKFRSs upon initial application. So far, Sino Biopharm Beijing considers that these new and revised HKFRSs may results in changes in accounting policies and are unlikely to have a significant impact on Sino Biopharm Beijing’s results of operations and financial position.

3.2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Investment in an associate

An associate is an entity in which Sino Biopharm Beijing has a long term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies.

Sino Biopharm Beijing’s investments in associates are stated in the statements of financial position at Sino Biopharm Beijing’s share of net assets under the equity method of accounting, less any impairment losses.

Adjustments are made to bring into line any dissimilar accounting policies that may exist.

Sino Biopharm Beijing’s share of the post-acquisition results and other comprehensive income of associates is included in the statements of profit or loss and statement of other comprehensive income, respectively. In addition, when there has been a change recognised directly in the equity of the associate, Sino Biopharm Beijing recognises its share of any changes, when applicable, in the statements of changes in equity. Unrealised gains and losses resulting from transactions between Sino Biopharm Beijing and its associates are eliminated to the extent of Sino Biopharm Beijing’s investments in the associates, except where unrealised losses provide evidence of an impairment of the asset transferred. Goodwill arising from the acquisition of associates is included as part of Sino Biopharm Beijing’s investments in associates.

If an investment in an associate becomes an investment in a joint venture or vice versa, the retained interest is not remeasured. Instead, the investment continues to be accounted for under the equity method. In all other cases, upon loss of significant influence over the associate, Sino Biopharm Beijing measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss.

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

Related parties

A party is considered to be related to Sino Biopharm Beijing 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 Sino Biopharm Beijing;
(ii) has significant influence over Sino Biopharm Beijing; or
(iii) is a member of the key management personnel of Sino Biopharm Beijing or of a parent of Sino Biopharm Beijing;

– IIA-14 –

FINANCIAL INFORMATION OF SINO BIOPHARM BEIJING

APPENDIX IIA

(b) the party is an entity where any of the following conditions applies:
(i) the entity and Sino Biopharm Beijing 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 Sino Biopharm Beijing 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 controlled or jointly controlled by a person identified in (a);
(vi) the entity is a post-employment benefit plan for the benefit of either Sino Biopharm Beijing or an entity related to Sino Biopharm Beijing;
(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 Sino Biopharm Beijing or to the parent of Sino Biopharm Beijing.

Financial instruments

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are initially recorded at fair value plus any directly attributable transaction costs and are subsequently measured at amortised cost using the effective interest rate method, less impairment allowances.

Sino Biopharm Beijing recognises losses for impaired loans promptly where there is objective evidence that impairment of a loan or a portfolio of loans has occurred. Impairment allowances are assessed either individually for individually significant loans or collectively for loan portfolios with similar credit risk characteristics including those individually assessed balances for which no impairment provision is made on an individual basis.

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 writeoff is later recovered, the recovery is credited to the statement of profit or loss.

The fair value of financial instruments that are traded in active markets is determined by reference to quoted market prices or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. For financial instruments where there is no active market, the fair value is determined using appropriate valuation techniques. Such techniques include using recent arm’s length market transactions; reference to the current market value of another instrument which is substantially the same; a discounted cash flow analysis, and other valuation models.

– IIA-15 –

FINANCIAL INFORMATION OF SINO BIOPHARM BEIJING

APPENDIX IIA

Financial assets are derecognised when the rights to receive cash flows from the assets have expired; or where Sino Biopharm Beijing has transferred its contractual rights to receive the cash flows of the financial assets and has transferred substantially all the risks and rewards of ownership; or where control is not retained. Financial liabilities are derecognised when they are extinguished, i.e., when the obligation is discharged or cancelled, or expires.

Property and equipment and depreciation

Items of equipment are stated at cost less accumulated depreciation and any impairment losses. The cost of an item of property 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 and equipment have been put into operation, such as repairs and maintenance, is normally charged to the profit or loss 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 and equipment are required to be replaced at intervals, Sino Biopharm Beijing recognises such parts as individual assets with specific useful lives and depreciates them accordingly.

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

Motor vehicles	25%
Furniture and fixtures	25%

The gain or loss on disposal of items of property and equipment is the difference between the net sales proceeds and the carrying amount of the relevant asset and is recognised in profit and loss.

The assets’ residual values, useful lives and the depreciation method are reviewed, and adjusted if appropriate, at least at each financial year end.

Income tax

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 year, taking into consideration interpretations and practices prevailing in the countries in which Sino Biopharm Beijing operates.

Deferred tax is provided using the liability method, on temporary differences at the end of the reporting period arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Tax rates enacted or substantively enacted by the end of the reporting period are used to determine the deferred tax.

Deferred tax liabilities are provided in full while deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

– IIA-16 –

FINANCIAL INFORMATION OF SINO BIOPHARM BEIJING

APPENDIX IIA

Cash and cash equivalents

For the purpose of the statement of cash flows, cash and cash equivalents include cash on hand, deposits held at call with banks, and other short term highly liquid investments with original maturity of three months or less when acquired, less bank overdrafts.

Dividends

Interim dividends are recognised directly as a liability when they are proposed and declared by the Directors.

Final dividends are recognised as a liability when they are approved by the shareholders.

Proposed final dividends are disclosed in the notes to the financial statements.

Foreign currency transactions

Transactions in foreign currencies are translated into the functional currency of Sino Biopharm Beijing using the exchange rates prevailing at the dates of the transactions. Exchange differences arising from the settlement of such transactions and from the retranslation at the year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.

Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to Sino Biopharm Beijing and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable, net of returns and discounts.

Interest income is recognised using the effective interest rate method.

4. OTHER INCOME

Other income includes the following:

Exchange gain Bank interest income	Year ended 31 December 2014 2015 2016 HK$ HK$ HK$ – – – 6,622 6,043 9,530 6,622 6,043 9,530	Nine months ended 30 September 2016 2017 HK$ HK$ (Unaudited) – 31,258,707 8,951 13,496 8,951 31,272,203	Nine months ended 30 September 2016 2017 HK$ HK$ (Unaudited) – 31,258,707 8,951 13,496 8,951 31,272,203
			31,272,203

– IIA-17 –

FINANCIAL INFORMATION OF SINO BIOPHARM BEIJING

APPENDIX IIA

5. PROFIT BEFORE TAX

Sino Biopharm Beijing’s profit before tax is arrived mainly at after charging/(credit):

				Nine months ended	Nine months ended
	Year	ended 31 December		30 September
	2014	2015	2016	2016	2017
	HK$	HK$	HK$	HK$	HK$
				(Unaudited)
Exchange loss/(gain)	4,250,373	7,532,450	26,837,419	4,184,460	(31,258,707)
Rental	–	–	1,237,350	864,595	1,237,350

Auditor’s remuneration was borne by Sino Biopharm Beijing’s ultimate holding company.

No director received any fees or emolument in respect of their services rendered to Sino Biopharm Beijing during the Relevant Periods.

6. INCOME TAX EXPENSE

Profit before tax Tax at the statutory tax rate (16.5%) Less: Preferential tax rate reduction Share of profit of an associate Income not subject to tax Expenses not deductible for tax Effect of withholding tax at 5% on the distributable profits of the associate Tax charge at the effective rate	Year ended 31 December 2014 2015 2016 HK$ HK$ HK$ 286,003,663 317,063,150 336,111,118 47,190,604 52,315,420 55,458,334 (47,890,949) (53,557,730) (60,168,167) (1,093) (997) (1,572) 701,438 1,243,307 4,711,405 – – – 14,171,918 36,389,015 16,857,181 14,171,918 36,389,015 16,857,181	Nine months ended 30 September 2016 2017 HK$ HK$ (Unaudited) 261,001,054 366,724,890 43,065,174 60,509,607 (43,947,994) (55,981,296) (1,477) (5,159,913) 884,297 631,602 – – 5,856,178 15,449,721 5,856,178 15,449,721

Hong Kong profits tax has been provided at a rate of 16.5% on the estimated assessable profits arising in Hong Kong during the Relevant Periods.

No provision for Hong Kong profits tax has been made as Sino Biopharm Beijing did not generate any assessable profits arising in Hong Kong during the Relevant Periods.

The income tax expense represents the effect of the People’s Republic of China (the “PRC”) withholding taxes on the distributable profits of the PRC associate.

– IIA-18 –

FINANCIAL INFORMATION OF SINO BIOPHARM BEIJING

APPENDIX IIA

7. PROPERTY, PLANT AND EQUIPMENT

31 December 2016

At 1 January 2016: Cost Accumulated depreciation Net carrying amount At 1 January 2016, net of accumulated depreciation Additions Depreciation provided during the year At 31 December 2016, net of accumulated depreciation At 31 December 2016: Cost Accumulated depreciation Net carrying amount 30 September 2017 At 1 January 2017: Cost Accumulated depreciation Net carrying amount At 1 January 2017, net of accumulated depreciation Additions Depreciation provided during the period At 30 September 2017, net of accumulated depreciation At 30 September 2017: Cost Accumulated depreciation Net carrying amount	Furniture and fixtures HK$ – – – – 517,920 (140,270) 377,650 517,920 (140,270) 377,650 Furniture and fixtures HK$ 517,920 (140,270) 377,650 377,650 959,480 (416,935) 920,195 1,477,400 (557,205) 920,195	Motor vehicles HK$ – – – – 13,580 (283) 13,297 13,580 (283) 13,297 Motor vehicles HK$ 13,580 (283) 13,297 13,297 19,994 (8,377) 24,914 33,574 (8,660) 24,914	Total HK$ – – – – 531,500 (140,553) 390,947 531,500 (140,553) 390,947 Total HK$ 531,500 (140,553) 390,947 390,947 979,474 (425,312) 945,109 1,510,974 (565,865) 945,109

– IIA-19 –

FINANCIAL INFORMATION OF SINO BIOPHARM BEIJING

APPENDIX IIA

8. INVESTMENT IN AN ASSOCIATE

				As at
		As at 31 December		30 September
	2014	2015	2016	2017
	HK$	HK$	HK$	HK$
Beijing Tide Pharmaceutical
Co., Ltd (“Beijing Tide”)	1,046,374,316	913,221,775	725,872,821	768,757,715

Particulars of an associate which is directly held by Sino Biopharm Beijing are as follows:

			Percentage of equity
			Paid-up attributable to
	Place of		Sino Biopharm Beijing	Principal
Company name	incorporation	capital	Direct Indirect	activities
Beijing Tide	PRC/	RMB	33.60% –	Manufacture and sale
	Mainland China	500,000,000		of pharmaceutical
				products

– IIA-20 –

FINANCIAL INFORMATION OF SINO BIOPHARM BEIJING

APPENDIX IIA

									As at
			As at 31 December						30 September
		2014		2015		2016			2017
		HK$		HK$		HK$			HK$
Current assets	2,684,258,619			2,213,368,396	2,442,104,445				1,626,179,541
Non-current assets	1,117,739,331			1,227,110,214	1,365,092,732				1,978,010,148
Current liabilities	(514,523,864)			(542,063,863)	(1,467,211,477)				(1,062,972,505)
Non-current liabilities	(173,264,812)			(180,492,799)	(179,649,923)				(253,247,793)
Net assets	3,114,209,274			2,717,921,948	2,160,335,777				2,287,969,391

Proportion of Sino
Biopharm Beijing’s
ownership		33.6%		33.6%		33.6%			33.6%
Carrying amount of
the investment	1,046,374,316			913,221,775	725,872,821				768,757,715

						Nine		months ended
		Year	ended 31 December			30		September
		2014		2015	2016	2016 2017
		HK$		HK$	HK$		HK$ HK$
Revenue	2,927,150,982		3,269,097,639 3,503,243,951			2,612,981,004 2,898,225,268
Profit for the year/period	863,833,858		966,048,511 1,085,284,403			792,712,734 1,009,763,627
Other comprehensive income for the
year/period	(64,706,834)		(112,635,836) (147,190,577)			(154,630,302) 160,567,985
Total comprehensive income for
the year/period	799,127,024		853,412,675 938,093,826			638,082,432 1,170,331,612
Dividend received	83,825,280		419,899,200 502,548,480			502,548,480 350,346,528

CASH AND CASH EQUIVALENTS
									As at
			As at 31 December						30 September
		2014		2015		2016			2017
		HK$		HK$		HK$			HK$
Cash at banks		1,538,634		1,976,723	1,124,504				228,019,236

9. CASH AND CASH EQUIVALENTS

Cash at banks earns interest at floating rates based on daily bank deposit rates. The carrying amounts of the cash and bank balances approximate to their fair values.

10. DIVIDEND RECEIVABLE FROM AN ASSOCIATE/AMOUNT DUE FROM ULTIMATE HOLDING COMPANY

Dividend receivable from an associate and the balances with ultimate holding company are unsecured, interest-free and has no fixed terms of repayment. The carrying amounts of these balances approximate to their fair values.

– IIA-21 –

FINANCIAL INFORMATION OF SINO BIOPHARM BEIJING

APPENDIX IIA

11. DEFERRED TAX LIABILITIES

At 1 January 2014 Deferred tax charged to the statement of profit or loss Realised during the year Deferred tax liabilities at 31 December 2014 At 1 January 2015 Deferred tax charged to the statement of profit or loss Realised during the year Deferred tax liabilities at 31 December 2015 At 1 January 2016 Deferred tax charged to the statement of profit or loss Realised during the year Deferred tax liabilities at 31 December 2016 At 1 January 2017 Deferred tax charged to the statement of profit or loss Realised during the period Deferred tax liabilities at 30 September 2017	Withholding taxes HK$ 24,658,934 14,171,918 (4,191,264) 34,639,588 Withholding taxes HK$ 34,639,588 36,389,015 (41,989,920) 29,038,683 Withholding taxes HK$ 29,038,683 16,857,182 (25,127,425) 20,768,440 Withholding taxes HK$ 20,768,441 15,449,721 (17,517,327) 18,700,835	Total HK$ 24,658,934 14,171,918 (4,191,264) 34,639,588 Total HK$ 34,639,588 36,389,015 (41,989,920) 29,038,683 Total HK$ 29,038,683 16,857,182 (25,127,425) 20,768,440 Total HK$ 20,768,441 15,449,721 (17,517,327) 18,700,835

Pursuant to the PRC Corporate Income Tax Law, a 10% withholding tax is levied on dividends declared to foreign investors from the foreign investment enterprises established in Mainland China. The requirement is effective from 1 January 2008 and applies to earnings after 31 December 2007. A lower withholding tax rate may be applied if there is a tax treaty between Mainland China and the jurisdiction of the foreign investors. For Sino Biopharm Beijing, the applicable rate is 5%. The approval for the 5% tax rate expired in 2015 which was not renewed, and the dividend received in 2015 was therefor subject to a 10% tax rate. The additional 5% tax charges was charged to income tax in 2015. The approval was renewed in 2016 and the applicable tax rate became 5% again.

– IIA-22 –

FINANCIAL INFORMATION OF SINO BIOPHARM BEIJING

APPENDIX IIA

12. SHARE CAPITAL

							As at
		As at	31	December		30	September
	2014			2015	2016		2017
	HK$			HK$	HK$		HK$
Issued and fully paid	100			100	100		100

During the Relevant Periods, France Investment (China 1) Group Limited, a company incorporated under the laws of Hong Kong, and Sino Biopharmaceutical Limited, held 51% and 49% equity interest of Sino Biopharm Beijing, respectively.

13. DIVIDENDS

The distribution amounts set out in the Statements of Changes in Equity of HK$79,833,600, HK$377,409,400, HK$111,656,061 and HK$480,951,600 for the year ended 31 December 2014, 2015 and 2016 and nine months ended 30 September 2017, respectively, represented the dividends declared by Sino Biopharm Beijing to the shareholders during the Relevant Periods.

14. NOTE TO THE STATEMENTS OF CASH FLOWS

Major non-cash transactions

Withholding tax for the dividend received of HK$4,191,264, HK$41,989,920, HK$5,880,319, HK$5,880,319 and HK$37,317,315 for the years ended 31 December 2014, 2015 and 2016 and for the nine months ended 30 September 2016 and 30 September 2017 was paid by Beijing Tide on behalf of Sino Biopharm Beijing, respectively.

15. OPERATING LEASE ARRANGEMENTS

As lessee

Sino Biopharm Beijing leases its office under operating lease arrangements. Leases for the property is negotiated for terms of two years and five months.

At 31 December 2016, Sino Biopharm Beijing had total future minimum lease payments under non-cancellable operating leases falling due as follows:

Within one year In the second to fifth years, inclusive	As at 31 December 2014 2015 HK$ HK$ – – – – – –	2016 HK$ 1,491,020 869,762 2,360,782	As at 30 September 2017 HK$ 1,570,248 915,978
			2,486,226

– IIA-23 –

FINANCIAL INFORMATION OF SINO BIOPHARM BEIJING

APPENDIX IIA

16. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

Sino Biopharm Beijing’s principal financial instrument comprises other receivables, amounts due from ultimate holding company and an associate.

The main risk arising from Sino Biopharm Beijing’s financial instruments is liquidity risk. The directors of Sino Biopharm Beijing meet periodically to analyse and formulate measures to manage Sino Biopharm Beijing’s exposure to this risk. As Sino Biopharm Beijing’s exposure to financial risk is minimal, Sino Biopharm Beijing has not used any derivatives and other instruments for hedging purposes.

17. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by Sino Biopharm Beijing in respect of any period subsequent to 30 September 2017.

– IIA-24 –

FINANCIAL INFORMATION OF SUPER DEMAND

APPENDIX IIB

The following is the text of a report received from Super Demand’s reporting accountants, Ernst & Young, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this Circular.

==> picture [72 x 32] intentionally omitted <==

26 January 2018

The Directors

Sino Biopharmaceutical Limited

Dear Sirs,

We report on the historical financial information of Super Demand Investments Limited (“Super Demand BVI”) and its subsidiaries (together, “Super Demand”) set out on pages IIB-5 to IIB-22, which comprises the consolidated statements of financial position of Super Demand as at 31 December 2014, 2015 and 2016 and 30 September 2017, and the consolidated statements of profit or loss and other comprehensive income, the consolidated statements of changes in equity, and the consolidated statements of cash flows of Super Demand for each of the years ended 31 December 2014, 2015 and 2016 and for the nine months ended 30 September 2017 (the “Relevant Periods”) and a summary of significant accounting policies and other explanatory information (together, the “Historical Financial Information”). The Historical Financial Information set out on pages IIB-5 to IIB-22 forms an integral part of this report, which has been prepared for inclusion in the circular of Sino Biopharmaceutical Limited (the “Company”) dated 26 January 2018 (the “Circular”) in connection with the proposed acquisition of 52% equity interest in Super Demand (the “Acquisition”).

DIRECTORS’ RESPONSIBILITY FOR THE HISTORICAL FINANCIAL INFORMATION

The directors of Super Demand BVI (the “Directors”) are responsible for the preparation of the Historical Financial Information that gives a true and fair view in accordance with the basis of preparation and presentation set out in Note 2 to the Historical Financial Information, and for such internal control as the Directors determine is necessary to enable the preparation of Historical Financial Information that is free from material misstatement, whether due to fraud or error.

– IIB-1 –

FINANCIAL INFORMATION OF SUPER DEMAND

APPENDIX IIB

REPORTING ACCOUNTANTS’ RESPONSIBILITY

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

OPINION

In our opinion, the Historical Financial Information gives, for the purposes of the accountants’ report, a true and fair view of Super Demand’s financial position as at 31 December 2014, 2015 and 2016 and 30 September 2017 and of Super Demand’s financial performance and cash flows for each of the Relevant Periods in accordance with the basis of preparation and presentation set out in Note 2 to the Historical Financial Information.

– IIB-2 –

FINANCIAL INFORMATION OF SUPER DEMAND

APPENDIX IIB

REVIEW OF STUB PERIOD COMPARATIVE FINANCIAL INFORMATION

We have reviewed the stub period comparative financial information of Super Demand which comprises consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows of Super Demand for the nine months ended 30 September 2016 and other explanatory information (the “Stub Period Comparative Financial Information”). The Directors are responsible for the preparation and presentation of the Stub Period Comparative Financial Information in accordance with the basis of preparation and presentation set out in Note 2 to the Historical Financial Information. Our responsibility is to express a conclusion on the Stub Period Comparative Financial Information based on our review. We conducted our review in accordance with Hong Kong Standard on Review Engagement 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the HKICPA. A review consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the Stub Period Comparative Financial Information, for the purposes of the accountants’ report, is not prepared, in all material respects, in accordance with the basis of preparation and presentation set out in Note 2 to the Historical Financial Information.

REPORT ON MATTERS UNDER THE MAIN BOARD LISTING RULES OF THE STOCK EXCHANGE OF HONG KONG LIMITED AND THE COMPANIES (WINDING UP AND MISCELLANEOUS PROVISIONS) ORDINANCE

Adjustments

In preparing the Historical Financial Information, no adjustments to the Underlying Financial Statements as defined on page IIB-5 have been made.

Dividends

We refer to note 12 to the Historical Financial Information which contains information about the dividends declared by Super Demand BVI in respect of the Relevant Periods.

– IIB-3 –

APPENDIX IIB FINANCIAL INFORMATION OF SUPER DEMAND

NO HISTORICAL FINANCIAL STATEMENTS FOR SUPER DEMAND

As at the date of this report, no statutory financial statements have been prepared for Super Demand since its date of incorporation.

Ernst & Young Certified Public Accountants Hong Kong

– IIB-4 –

APPENDIX IIB FINANCIAL INFORMATION OF SUPER DEMAND

I. HISTORICAL FINANCIAL INFORMATION

Preparation of Historical Financial Information

Set out below is the Historical Financial Information which forms an integral part of this accountants’ report.

The financial statements of Super Demand for the Relevant Periods, on which the Historical Financial Information is based, were audited by Ernst & Young, Hong Kong in accordance with Hong Kong Standards on Auditing issued by the HKICPA (the “Underlying Financial Statements”).

The Historical Financial Information is presented in United States dollars (“US$”) which is also Super Demand BVI’s functional currency.

Consolidated Statements of Profit or Loss and Other Comprehensive Income

Notes Other income 4 Other expense Administrative expenses Share of profit of an associate PROFIT BEFORE TAX 5 Income tax expense 6 PROFIT FOR THE YEAR/PERIOD	Year ended 31 December 2014 2015 2016 US$ US$ US$ 85 76 109 (36,340) (1,092,122) (82,893) (36,639) (43,572) (90,004) 26,605,540 29,114,236 32,180,853 26,532,646 27,978,618 32,008,065 (2,575,687) (2,870,257) (3,020,512) 23,956,959 25,108,361 28,987,553	Nine months ended 30 September 2016 2017 US$ US$ (Unaudited) 48 103,180 – – (43,279) (38,951) 23,505,815 31,938,855 23,462,584 32,003,084 (1,089,074) (2,769,768) 22,373,510 29,233,316	Nine months ended 30 September 2016 2017 US$ US$ (Unaudited) 48 103,180 – – (43,279) (38,951) 23,505,815 31,938,855 23,462,584 32,003,084 (1,089,074) (2,769,768) 22,373,510 29,233,316
			32,003,084 (2,769,768)
			29,233,316

– IIB-5 –

APPENDIX IIB

FINANCIAL INFORMATION OF SUPER DEMAND

Notes Attributable to: Owners of the parent Non-controlling interests PROFIT FOR THE YEAR/PERIOD OTHER COMPREHENSIVE INCOME Other comprehensive (losses)/income to be reclassified to profit or loss in subsequent periods: Share of other comprehensive (losses)/ income of an associate Other comprehensive income not to be reclassified to profit or loss in subsequent periods: Share of other comprehensive income of an associate OTHER COMPREHENSIVE (LOSSES)/INCOME FOR THE YEAR/PERIOD, NET OF TAX TOTAL COMPREHENSIVE INCOME FOR THE YEAR/ PERIOD Attributable to: Owners of the parent Non-controlling interests	Year ended 31 December 2014 2015 2016 US$ US$ US$ 13,176,327 13,809,599 15,943,155 10,780,632 11,298,762 13,044,398 23,956,959 25,108,361 28,987,553 23,956,959 25,108,361 28,987,553 (2,058,207) (2,705,289) (4,554,313) 185,011 63,299 192,316 (1,873,196) (2,641,990) (4,361,997) 22,083,763 22,466,371 24,625,556 12,146,069 12,356,504 13,544,056 9,937,694 10,109,867 11,081,500 22,083,763 22,466,371 24,625,556	Nine months ended 30 September 2016 2017 US$ US$ (Unaudited) 12,305,431 16,078,323 10,068,079 13,154,993 22,373,510 29,233,316 22,373,510 29,233,316 (3,415,779) 2,183,195 – 527,778 (3,415,779) 2,710,973 18,957,731 31,944,289 10,426,752 17,569,359 8,530,979 14,374,930 18,957,731 31,944,289	Nine months ended 30 September 2016 2017 US$ US$ (Unaudited) 12,305,431 16,078,323 10,068,079 13,154,993 22,373,510 29,233,316 22,373,510 29,233,316 (3,415,779) 2,183,195 – 527,778 (3,415,779) 2,710,973 18,957,731 31,944,289 10,426,752 17,569,359 8,530,979 14,374,930 18,957,731 31,944,289
			29,233,316

			29,233,316
			2,183,195
			527,778
			2,710,973
			31,944,289

			17,569,359 14,374,930
			31,944,289

– IIB-6 –

FINANCIAL INFORMATION OF SUPER DEMAND

APPENDIX IIB

Consolidated Statements of Financial Position

Notes NON-CURRENT ASSETS Investment in an associate 7 Total non-current assets CURRENT ASSETS Cash and cash equivalents 8 Dividend receivable from an associate 9 Total current assets NET CURRENT ASSETS NON-CURRENT LIABILITIES Deferred tax liabilities 10 Total non-current liabilities NET ASSETS EQUITY Equity attributable to owners of the parent Share capital 11 Reserves Non-controlling interests TOTAL EQUITY	As at 31 December 2014 2015 2016 US$ US$ US$ 96,392,766 84,166,819 66,864,149 96,392,766 84,166,819 66,864,149 77,179 89,935 52,009 – – 30,724,541 77,179 89,935 30,776,550 77,179 89,935 30,776,550 6,373,456 5,373,894 3,882,283 6,373,456 5,373,894 3,882,283 90,096,489 78,882,860 93,758,416 55 55 55 49,553,014 43,385,518 51,567,074 49,553,069 43,385,573 51,567,129 40,543,420 35,497,287 42,191,287 90,096,489 78,882,860 93,758,416	As at 30 September 2017 US$ 69,422,645
		69,422,645
		19,649,156 –
		19,649,156
		19,649,156
		3,442,918
		3,442,918
		85,628,883

		55 47,095,831
		47,095,886
		38,532,997
		85,628,883

– IIB-7 –

FINANCIAL INFORMATION OF SUPER DEMAND

APPENDIX IIB

Consolidated Statements of Changes in Equity

Year ended 31 December 2014

Notes At 1 January 2014 Profit for the year Other comprehensive income/(losses) for the year: Changes in fair value of available-for-sale investment of an associate, net of tax Surplus on revaluation of buildings Exchange differences related to an associate Total comprehensive income for the year Dividend paid 12 At 31 December 2014	Share capital US$ 55 – – – – – – 55	Attributable to owners of the parent Capital reserve Available- for-sale investment revaluation reserve Asset revaluation reserve Exchange revaluation reserve Retained profits US$ US$ US$ US$ US$ 2,031,712 – 419,384 1,233,715 37,523,253 – – – – 13,176,327 – 16,080 – – – – – 101,756 – – – – – (1,148,094) – – 16,080 101,756 (1,148,094) 13,176,327 – – – – (3,801,119) 2,031,712 16,080 521,140 85,621 46,898,461	Total Non- controlling interests US$ US$ 41,208,119 33,715,733 13,176,327 10,780,632 16,080 13,156 101,756 83,255 (1,148,094) (939,349) 12,146,069 9,937,694 (3,801,119) (3,110,007) 49,553,069 40,543,420	Total Equity US$ 74,923,852 23,956,959 29,236 185,011 (2,087,443)
				22,083,763 (6,911,126)
				90,096,489

– IIB-8 –

FINANCIAL INFORMATION OF SUPER DEMAND

APPENDIX IIB

Year ended 31 December 2015

Attributable to owners of the parent

		Attributable to owners of the parent
Notes At 1 January 2015 Profit for the year Other comprehensive income/(losses) for the year: Changes in fair value of available-for-sale investment of an associate, net of tax Surplus on revaluation of buildings Exchange differences related to an associate Total comprehensive income for the year Dividend paid 12 At 31 December 2015	Share capital US$ 55 – – – – – – 55	Capital reserve Available- for-sale investment revaluation reserve Asset revaluation reserve Exchange revaluation reserve Retained profits Total Non- controlling interests Total Equity US$ US$ US$ US$ US$ US$ US$ US$ 2,031,712 16,080 521,140 85,621 46,898,461 49,553,069 40,543,420 90,096,489 – – – – 13,809,599 13,809,599 11,298,762 25,108,361 – (16,080) – – – (16,080) (13,156) (29,236) – – 34,814 – – 34,814 28,485 63,299 – – – (1,471,829) – (1,471,829) (1,204,224) (2,676,053) – – 34,814 (1,471,829) 13,809,599 12,356,504 10,109,867 22,466,371 – – – – (18,524,000) (18,524,000) (15,156,000) (33,680,000) 2,031,712 – 555,954 (1,386,208) 42,184,060 43,385,573 35,497,287 78,882,860	Total Equity US$ 90,096,489 25,108,361 (29,236) 63,299 (2,676,053)
			78,882,860

– IIB-9 –

APPENDIX IIB

FINANCIAL INFORMATION OF SUPER DEMAND

Year ended 31 December 2016

Notes At 1 January 2016 Profit for the year Other comprehensive income/(losses) for the year: Changes in fair value of available-for- sale investment of an associate, net of tax Surplus on revaluation of buildings Exchange differences related to an associate Total comprehensive income for the year Dividend paid 12 At 31 December 2016	Share capital US$ 55 – – – – – – 55	Attributable to owners of the parent Capital reserve Asset revaluation reserve Exchange revaluation reserve Retained profits Total US$ US$ US$ US$ US$ 2,031,712 555,954 (1,386,208) 42,184,060 43,385,573 – – – 15,943,155 15,943,155 – – – – – – 105,774 – – 105,774 – – (2,504,873) – (2,504,873) – 105,774 (2,504,873) 15,943,155 13,544,056 – – – (5,362,500) (5,362,500) 2,031,712 661,728 (3,891,081) 52,764,715 51,567,129	Non- controlling interests US$ 35,497,287 13,044,398 – 86,542 (2,049,440) 11,081,500 (4,387,500) 42,191,287	Total Equity US$ 78,882,860 28,987,553 – 192,316 (4,554,313)
				24,625,556 (9,750,000)
				93,758,416

– IIB-10 –

APPENDIX IIB

FINANCIAL INFORMATION OF SUPER DEMAND

Nine months ended 30 September 2017

Notes At 1 January 2017 Profit for the period Other comprehensive income/(losses) for the period: Changes in fair value of available-for-sale investment of an associate, net of tax Surplus on revaluation of buildings Exchange differences related to an associate Total comprehensive income for the period Dividend paid 12 At 30 September 2017	Share capital US$ 55 – – – – – – 55	Attributable to owners of the parent Capital reserve Asset revaluation reserve Exchange revaluation reserve Retained profits Total Non- controlling interests Total Equity US$ US$ US$ US$ US$ US$ US$ 2,031,712 661,728 (3,891,081) 52,764,715 51,567,129 42,191,287 93,758,416 – – – 16,078,323 16,078,323 13,154,993 29,233,316 – – – – – – – – 290,278 – – 290,278 237,500 527,778 – – 1,200,758 – 1,200,758 982,437 2,183,195 – 290,278 1,200,758 16,078,323 17,569,359 14,374,930 31,944,289 – – – (22,040,602) (22,040,602) (18,033,220) (40,073,822) 2,031,712 952,006 (2,690,323) 46,802,436 47,095,886 38,532,997 85,628,883	Total Equity US$ 93,758,416 29,233,316 – 527,778 2,183,195
			85,628,883

– IIB-11 –

APPENDIX IIB

FINANCIAL INFORMATION OF SUPER DEMAND

Nine months ended 30 September 2016

Notes At 1 January 2016 Profit for the period Other comprehensive income/(losses) for the period: Changes in fair value of available-for-sale investment of an associate, net of tax Surplus on revaluation of buildings Exchange differences related to an associate Total comprehensive income for the period Dividend paid 12 At 30 September 2016	Share capital US$ 55 – – – – – – 55	Attributable to owners of the parent Capital reserve Asset revaluation reserve Exchange revaluation reserve Retained profits Total US$ US$ US$ US$ US$ 2,031,712 555,954 (1,386,208) 46,243,172 47,444,685 – – – 12,305,431 12,305,431 – – – – – – – – – – – – (1,878,679) – (1,878,679) – – (1,878,679) 12,305,431 10,426,752 – – – (5,362,500) (5,362,500) 2,031,712 555,954 (3,264,887) 49,126,991 48,449,825	Non- controlling interests US$ 31,438,175 10,068,079 – – (1,537,100) 8,530,979 (4,387,500) 39,640,766	Total Equity US$ 78,882,860 22,373,510 – – (3,415,779)
				18,957,731 (9,750,000)
				88,090,591

– IIB-12 –

FINANCIAL INFORMATION OF SUPER DEMAND

APPENDIX IIB

Consolidated Statements of Cash Flows

Notes CASH FLOWS USED IN OPERATING ACTIVITIES Profit before tax Adjustments for: Share of profits and losses of an associate Bank interest income 4 Realised losses/(gains) from changes in foreign currency exchange Cash used in operations NET CASH FLOWS USED IN OPERATING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES Dividends received 13 Interest received NET CASH FLOWS FROM INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid NET CASH FLOWS FROM FINANCING ACTIVITIES NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of year/period CASH AND CASH EQUIVALENTS AT END OF YEAR/PERIOD 8 ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances 8	Year 2014 US$ 26,532,646 (26,605,540) (85) 36,340 (36,639) (36,639) 6,911,080 85 6,911,165 (10,411,555) (10,411,555) (3,537,029) 3,614,208 77,179 77,179	ended 31 December 2015 2016 US$ US$ 27,978,618 32,008,065 (29,114,236) (32,180,853) (76) (109) 1,092,122 83,192 (43,572) (89,705) (43,572) (89,705) 33,736,252 9,801,670 76 109 33,736,328 9,801,779 (33,680,000) (9,750,000) (33,680,000) (9,750,000) 12,756 (37,926) 77,179 89,935 89,935 52,009 89,935 52,009	Nine months ended 30 September 2016 2017 US$ US$ (Unaudited) 23,462,584 32,003,084 (23,505,815) (31,938,855) (48) (383) – (102,797) (43,279) (38,951) (43,279) (38,951) 9,801,670 59,709,537 48 383 9,801,718 59,709,920 (9,750,000) (40,073,822) (9,750,000) (40,073,822) 8,439 19,597,147 89,935 52,009 98,374 19,649,156 98,374 19,649,156	Nine months ended 30 September 2016 2017 US$ US$ (Unaudited) 23,462,584 32,003,084 (23,505,815) (31,938,855) (48) (383) – (102,797) (43,279) (38,951) (43,279) (38,951) 9,801,670 59,709,537 48 383 9,801,718 59,709,920 (9,750,000) (40,073,822) (9,750,000) (40,073,822) 8,439 19,597,147 89,935 52,009 98,374 19,649,156 98,374 19,649,156
				(38,951)
				(38,951)
				59,709,537 383
				59,709,920
				(40,073,822)
				(40,073,822)
				19,597,147 52,009
				19,649,156

				19,649,156

– IIB-13 –

APPENDIX IIB FINANCIAL INFORMATION OF SUPER DEMAND

II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION

1. CORPORATE INFORMATION

Super Demand BVI is a limited company registered in British Virgin Islands. Its registered office is located at Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands.

During the Relevant Periods, Super Demand BVI is involved in investment holding.

Information about subsidiary

As at the end of each of the Relevant Periods and the date of this report, Super Demand BVI had direct interests in its subsidiary, the particular of which is set out below:

			Percentage of equity
			attributable to Super
	Place of		Demand
Name	incorporation	Paid-up capital	Direct Indirect	Principal activities
France Investment
(China I) Group
Limited (“France	British
Investment BVI”)	Virgin Islands	US$100	55% –	Investment holding

2. BASIS OF PREPARATION

The Historical Financial Information has been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) (which include all HKFRSs, Hong Kong Accounting Standards (“HKASs”) and Interpretations) issued by the HKICPA and accounting principles generally accepted in Hong Kong.

The Historical Financial Information has been prepared under the historical cost convention.

Basis of consolidation

The Historical Financial Information include the financial statements of Super Demand BVI and its subsidiary during the Relevant Periods. A subsidiary is an entity (including a structured entity), directly or indirectly, controlled by Super Demand BVI. Control is achieved when Super Demand 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 Super Demand the current ability to direct the relevant activities of the investee).

When Super Demand BVI has, directly or indirectly, less than a majority of the voting or similar rights of an investee, Super Demand 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) Super Demand’s voting rights and potential voting rights.

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

– IIB-14 –

FINANCIAL INFORMATION OF SUPER DEMAND

APPENDIX IIB

Profit or loss and each component of other comprehensive income are attributed to the owners of the parent of Super Demand 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 Super Demand are eliminated in full on consolidation.

Super Demand 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 in the accounting policy for subsidiaries above. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

If Super Demand 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. Super Demand’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 Super Demand had directly disposed of the related assets or liabilities.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES

3.1 ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS

Super Demand has not applied the following new and revised HKFRSs, that have been issued but are not yet effective, in these financial statements.

Amendments to HKFRS 2	Classification and Measurement of Share-based Payment
	_Transactions_1
Amendments to HKFRS 4	Applying HKFRS 9 Financial Instruments with HKFRS 4
	_Insurance Contracts_1
HKFRS 9	_Financial Instruments_1
Amendments to HKFRS 10	Sale or Contribution of Assets between an Investor and its
and HKAS 28 (2011)	_Associate or Joint Venture_3
HKFRS 15	_Revenue from Contracts with Customers_1
Amendments to HKFRS 15	Clarifications to HKFRS 15 Revenue from Contracts with
	_Customers_1
HKFRS 16	_Leases_2
Amendments to HKFRS 9	_Prepayment Features with Negative Compensation_2
Amendments to HKAS 40	_Transfers of Investment Property_1
HK(IFRIC)-Int 22	_Foreign Currency Transactions and Advance Consideration_1
HK(IFRIC)-Int 23	_Uncertainty over Income Tax Treatments_2
Annual Improvements	Amendments to the following HKFRSs_:_1
2014-2016 Cycle	HKFRS 1_First-time Adoption of HKFRSs_
	HKAS 28_Investments in Associates and Joint Ventures_

1 Effective for annual periods beginning on or after 1 January 2018

2 Effective for annual periods beginning on or after 1 January 2019

3 No mandatory effective date yet determined but available for adoption

Super Demand is in the process of making an assessment of the impact of these new and revised HKFRSs upon initial application. So far, Super Demand considers that these new and revised HKFRSs may results in changes in accounting policies and are unlikely to have a significant impact on the Super Demand’s results of operations and financial position.

– IIB-15 –

APPENDIX IIB FINANCIAL INFORMATION OF SUPER DEMAND

3.2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Investment in an associate

An associate is an entity in which Super Demand has a long term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies.

Super Demand’s investments in associates are stated in the consolidated statement of financial position at Super Demand’s share of net assets under the equity method of accounting, less any impairment losses.

Adjustments are made to bring into line any dissimilar accounting policies that may exist.

Super Demand’s share of the post-acquisition results and other comprehensive income of associates is included in the consolidated statement of profit or loss and consolidated other comprehensive income, respectively. In addition, when there has been a change recognised directly in the equity of the associate, Super Demand recognises its share of any changes, when applicable, in the consolidated statement of changes in equity. Unrealised gains and losses resulting from transactions between Super Demand and its associates are eliminated to the extent of Super Demand’s investments in the associates, except where unrealised losses provide evidence of an impairment of the asset transferred. Goodwill arising from the acquisition of associates is included as part of the Super Demand’s investments in associates.

If an investment in an associate becomes an investment in a joint venture or vice versa, the retained interest is not remeasured. Instead, the investment continues to be accounted for under the equity method. In all other cases, upon loss of significant influence over the associate, Super Demand measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss.

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

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 Super Demand, liabilities assumed by Super Demand to the former owners of the acquiree and the equity interests issued by Super Demand in exchange for control of the acquiree. For each business combination, Super Demand elects whether to measure the non-controlling 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 Super Demand 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.

– IIB-16 –

FINANCIAL INFORMATION OF SUPER DEMAND

APPENDIX IIB

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 Super Demand’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. Super Demand 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 Super Demand’s cash-generating 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 Super Demand are assigned to those units or groups of units.

Financial instruments

Other financial liabilities

Other financial liabilities include bank and other borrowings, trade payables, accruals and other monetary liabilities. All other financial liabilities are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, they are subsequently measured at amortised cost using the effective interest rate method.

Financial assets are derecognised when the rights to receive cash flows from the assets have expired; or where Super Demand has transferred its contractual rights to receive the cash flows of the financial assets and has transferred substantially all the risks and rewards of ownership; or where control is not retained. Financial liabilities are derecognised when they are extinguished, i.e., when the obligation is discharged or cancelled, or expires.

– IIB-17 –

FINANCIAL INFORMATION OF SUPER DEMAND

APPENDIX IIB

Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to Super Demand and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable, net of returns and discounts.

Dividend income is recognised when the right to receive payment has been established.

Cash and cash equivalents

Dividends

Interim dividends are recognised directly as a liability when they are proposed and declared by the Directors.

Final dividends are recognised as a liability when they are approved by the shareholders.

Proposed final dividends are disclosed in the notes to the Historical Financial Information.

Foreign currency transactions

Transactions in foreign currencies are translated into the functional currency of Super Demand using the exchange rates prevailing at the dates of the transactions. Exchange differences arising from the settlement of such transactions and from the retranslation at the year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the profit or loss.

4. OTHER INCOME

Other income includes the following:

Exchange gain Bank interest income	Year ended 31 December 2014 2015 2016 US$ US$ US$ – – – 85 76 109 85 76 109	Nine months ended 30 September 2016 2017 US$ US$ (Unaudited) – 102,797 48 383 48 103,180	Nine months ended 30 September 2016 2017 US$ US$ (Unaudited) – 102,797 48 383 48 103,180
			103,180

– IIB-18 –

FINANCIAL INFORMATION OF SUPER DEMAND

APPENDIX IIB

5. PROFIT BEFORE TAX

Super Demand’s profit before tax is arrived mainly at after charging/(credit):

				Nine months	ended
	Year	ended 31 December		30 September
	2014	2015	2016	2016	2017
	US$	US$	US$	US$	US$
				(Unaudited)
Exchange loss	36,340	1,092,122	82,893	–	–
Annual government fee	650	670	970	970	900
Other professional fee	150	–	–	–	275
Bank charge	124	48	85	85	3
Consultancy fee	34,616	39,743	87,180	41,026	11,540
Sundry expenses	330	206	271	–	–

Auditor’s remuneration was borne by Super Demand’s ultimate holding company.

No director received any fees or emolument in respect of their services rendered to Super Demand during the Relevant Periods.

6. INCOME TAX EXPENSE

Effect of withholding tax at 10% on the distributable profits of the associate Tax charge for the year/period	Year ended 31 December 2014 2015 2016 US$ US$ US$ 2,575,687 2,870,257 3,020,512 2,575,687 2,870,257 3,020,512	Nine months ended 30 September 2016 2017 US$ US$ (Unaudited) 1,089,074 2,769,768 1,089,074 2,769,768	Nine months ended 30 September 2016 2017 US$ US$ (Unaudited) 1,089,074 2,769,768 1,089,074 2,769,768
			2,769,768

Pursuant to the rules and regulations of BVI, Super Demand is not subject to any income tax in BVI.

The income tax expense represents the People’s Republic of China (the “PRC”) withholding taxes on the dividend income from the PRC associate.

– IIB-19 –

FINANCIAL INFORMATION OF SUPER DEMAND

APPENDIX IIB

7. INVESTMENT IN AN ASSOCIATE

				As at 30
		As at 31 December		September
	2014	2015	2016	2017
	US$	US$	US$	US$
Beijing Tide Pharmaceutical
Co., Ltd. (“Beijing Tide”)	96,392,766	84,166,819	66,864,149	69,422,645

Particulars of the associate are as follows:

			Percentage of ownership
			interest attributable to
	Place of		Super Demand BVI
Company name	incorporation	Paid-up capital	Direct Indirect	Principal activities
Beijing Tide	PRC/	RMB500,000,000	– 24%	Manufacture and sale
	Mainland China			of pharmaceutical
				products

Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Proportion of France Investment
BVI’s ownership
Carrying amount of the
investment
Revenue
Profit for the year/period
Other comprehensive income
for the year/period
Total comprehensive income for
the year/period
Dividend received

As at 31 December
As at 30
September
2014
2015
2016
2017
US$
US$
US$
US$
346,186,208
285,592,237
314,937,992
205,592,940
144,153,748
158,334,759
176,044,708
250,073,815
(66,357,639)
(69,942,822)
(189,214,117)
(134,388,385)
(22,345,793)
(23,289,093)
(23,167,963)
(32,017,349)
401,636,524
350,695,081
278,600,620
289,261,021
24%
24%
24%
24%
96,392,766
84,166,819
66,864,149
69,422,645
Year ended 31 December
Nine months ended
30 September
2014
2015
2016
2016
2017
US$
US$
US$
US$
US$
375,643,372
410,509,410
432,825,783
322,833,798
381,962,320
110,856,415
121,309,318
134,086,886
93,077,903
133,078,564
(7,804,983)
(11,008,290)
(18,174,986)
(14,232,414)
11,295,719
103,051,432
110,301,028
115,911,900
78,845,489
144,374,283
7,719,358
38,698,194
45,121,526
10,890,743
32,091,332

– IIB-20 –

FINANCIAL INFORMATION OF SUPER DEMAND

APPENDIX IIB

8. CASH AND CASH EQUIVALENTS

						As at 30
		As at	31	December		September
	2014			2015	2016	2017
	US$			US$	US$	US$
Cash at banks	77,179			89,935	52,009	19,649,156

Cash at banks earns interest at floating rates based on daily bank deposit rates. The carrying amounts of the cash and cash equivalents approximate to their fair values.

9. DIVIDEND RECEIVABLE FROM AN ASSOCIATE

Dividend receivable from an associate is unsecured, interest-free and has no fixed terms of repayment. The carrying amounts of the balance approximate to its fair value.

10. DEFERRED TAX LIABILITIES

At 1 January 2014 Deferred tax charged to the statement of profit or loss Realised during the year Deferred tax liabilities at 31 December 2014 At 1 January 2015 Deferred tax charged to the statement of profit or loss Realised during the year Deferred tax liabilities at 31 December 2015 At 1 January 2016 Deferred tax charged to the statement of profit or loss Realised during the year Deferred tax liabilities at 31 December 2016	Withholding taxes US$ 4,569,705 2,575,687 (771,936) 6,373,456 Withholding taxes US$ 6,373,456 2,870,257 (3,869,819) 5,373,894 Withholding taxes US$ 5,373,894 3,020,512 (4,512,123) 3,882,283	Total US$ 4,569,705 2,575,687 (771,936) 6,373,456 Total US$ 6,373,456 2,870,257 (3,869,819) 5,373,894 Total US$ 5,373,894 3,020,512 (4,512,123) 3,882,283

– IIB-21 –

FINANCIAL INFORMATION OF SUPER DEMAND

APPENDIX IIB

At 1 January 2017 Deferred tax charged to the statement of profit or loss Realised during the period Deferred tax liabilities at 30 September 2017	Withholding taxes US$ 3,882,283 2,769,768 (3,209,133) 3,442,918	Total US$ 3,882,283 2,769,768 (3,209,133) 3,442,918

11. SHARE CAPITAL

						As at 30
		As at	31	December		September
	2014			2015	2016	2017
	US$			US$	US$	US$
Issued and fully paid	100			100	100	100

During the Relevant Periods, France Investment (China 1) Group Limited, a company incorporated under the laws of Hong Kong, and Sino Biopharmaceutical Limited, held 52% and 48% equity interest of Super Demand, respectively.

12. DIVIDENDS

The distribution amounts set out in the Statements of Changes in Equity of US$6,911,126, US$33,680,000, US$9,750,000 and US$40,073,822 for the year ended 31 December 2014, 2015 and 2016 and nine months ended 30 September 2017, respectively, represented the dividends declared by Super Demand BVI to the shareholders during the Relevant Periods.

13. NOTE TO THE STATEMENT OF CASH FLOWS

Major non-cash transactions

Withholding tax for the dividend received of US$767,898, US$3,748,472, US$1,089,074, US$1,089,074 and US$6,634,393 for the years ended 31 December 2014, 2015 and 2016 and for the nine months ended 30 September 2016 and 30 September 2017 was deducted from dividend and paid by Beijing Tide on behalf of Super Demand, respectively.

14. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

Super Demand’s principal financial instrument comprises dividend receivables due from an associate.

The main risk arising from Super Demand’s financial instruments is liquidity risk. The directors of Super Demand meet periodically to analyse and formulate measures to manage Super Demand’s exposure to this risk. As Super Demand’s exposure to financial risk is minimal, Super Demand has not used any derivatives and other instruments for hedging purposes.

15. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared for Super Demand in respect of any period subsequent to 30 September 2017.

– IIB-22 –

APPENDIX IIC

FINANCIAL INFORMATION OF BEIJING TIDE

The following is the text of a report received from Beijing Tide’s reporting accountants, Ernst & Young, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this Circular.

==> picture [72 x 32] intentionally omitted <==

26 January 2018

The Directors

Sino Biopharmaceutical Limited

Dear Sirs,

We report on the historical financial information of Beijing Tide Pharmaceutical Co., Ltd (“Tide Pharm”) and its subsidiaries (together, the “Beijing Tide”) set out on pages IIC-4 to IIC-56, which comprises the consolidated statements of financial position as at 31 December 2014, 2015 and 2016 and 30 September 2017 and the consolidated statements of profit or loss, the consolidated statements of comprehensive income, the consolidated statements of changes in equity, and the consolidated statements of cash flows for each of the years ended 31 December 2014, 2015 and 2016 and for the nine months ended 30 September 2017 (the “Relevant Periods”) and a summary of significant accounting policies and other explanatory information (together, the “Historical Financial Information”). The Historical Financial Information set out on pages IIC-4 to IIC-56 forms an integral part of this report, which has been prepared for inclusion in the circular of Sino Biopharmaceutical Limited (the “Company”) dated 26 January 2018 (the “Circular”) in connection with the proposed acquisition of 52% equity interest in Super Demand Investments Limited (the “Acquisition”). Upon completion of the Acquisition, the Company will hold the entire issued share capital of Super Demand Investments Limited, together with Super Demand Investments Limited’s investment of 55% equity interest in France Investment (China I) Group Limited, which in turn owns 24% equity interest in Beijing Tide.

DIRECTORS’ RESPONSIBILITY FOR THE HISTORICAL FINANCIAL INFORMATION

The directors of Tide Pharm (the “Directors”) are responsible for the preparation of the Historical Financial Information that gives a true and fair view in accordance with the basis of preparation and presentation set out in Note 2 to the Historical Financial Information, and for such internal control as the Directors determine is necessary to enable the preparation of Historical Financial Information that is free from material misstatement, whether due to fraud or error.

– IIC-1 –

APPENDIX IIC

FINANCIAL INFORMATION OF BEIJING TIDE

REPORTING ACCOUNTANTS’ RESPONSIBILITY

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

OPINION

In our opinion the Historical Financial Information gives, for the purposes of the accountants’ report, a true and fair view of Beijing Tide’s financial position as at 31 December 2014, 2015 and 2016 and 30 September 2017 and of Beijing Tide’s financial performance and cash flows for each of the Relevant Periods in accordance with the basis of preparation and presentation set out in Note 2 to the Historical Financial Information.

– IIC-2 –

APPENDIX IIC

FINANCIAL INFORMATION OF BEIJING TIDE

REVIEW OF STUB PERIOD COMPARATIVE FINANCIAL INFORMATION

We have reviewed the stub period comparative financial information of Beijing Tide which comprises statements of consolidated profit or loss, comprehensive income, changes in equity and cash flows for the nine months ended 30 September 2016 and other explanatory information (the “Stub Period Comparative Financial Information”). The Directors are responsible for the preparation and presentation of the Stub Period Comparative Financial Information in accordance with the basis of preparation and presentation set out in Note 2 to the Historical Financial Information. Our responsibility is to express a conclusion on the Stub Period Comparative Financial Information based on our review. We conducted our review in accordance with Hong Kong Standard on Review Engagements 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the HKICPA. A review consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the Stub Period Comparative Financial Information, for the purposes of the accountants’ report, is not prepared, in all material respects, in accordance with the basis of preparation and presentation set out in Note 2 to the Historical Financial Information.

REPORT ON MATTERS UNDER THE MAIN BOARD LISTING RULES OF THE STOCK EXCHANGE OF HONG KONG LIMITED AND THE COMPANIES (WINDING UP AND MISCELLANEOUS PROVISIONS) ORDINANCE

Adjustments

In preparing the Historical Financial Information, no adjustments to the Underlying Financial Statements as defined on page IIC-4 have been made.

Dividends

We refer to note 9 to the Historical Financial Information, which contains information about the dividends declared by Tide Pharm in respect of the Relevant Periods.

Ernst & Young

Certified Public Accountants

Hong Kong

– IIC-3 –

APPENDIX IIC

FINANCIAL INFORMATION OF BEIJING TIDE

I. HISTORICAL FINANCIAL INFORMATION

Preparation of Historical Financial Information

Set out below is the Historical Financial Information which forms an integral part of this accountants’ report.

The underlying financial statements of Beijing Tide for the Relevant Periods, on which the Historical Financial Information is based, were audited by Ernst & Young, Hong Kong in accordance with Hong Kong Standards on Auditing issued by the HKICPA (the “Underlying Financial Statements”).

The statutory financial statements of Beijing Tide for the years ended 31 December 2014, 2015 and 2016 were prepared in accordance with China Accounting Standards for Business Enterprises and were audited by Grant Thornton Certified Public Accountants LLP in accordance with China Standards on Auditing issued by the Chinese Institute of Certified Public Accountants.

The Historical Financial Information is presented in Renminbi (“RMB”) which is also Beijing Tide’s functional currency and all values are rounded to the nearest thousand (RMB’000) except when otherwise indicated.

– IIC-4 –

APPENDIX IIC

FINANCIAL INFORMATION OF BEIJING TIDE

Consolidated Statements of Profit or Loss

Notes
REVENUE
4
Cost of sales
Gross profit
Other income
4
Selling and distribution expenses
Administrative expenses
Other expenses
Share of profits and losses of an
associate
13
PROFIT BEFORE TAX
5
Income tax expense
8
PROFIT FOR THE YEAR/
PERIOD
Attributable to:
Owners of the parent

Year ended 31 December
Nine months ended
30 September
2014
2015
2016
2016
2017
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
(Unaudited)
2,325,720
2,649,832
2,998,069
2,236,184
2,510,590
(292,061)
(359,324)
(394,515)
(292,523)
(366,006)
2,033,659
2,290,508
2,603,554
1,943,661
2,144,584
51,939
52,491
53,133
29,038
30,562
(963,437)
(1,038,673)
(1,149,155)
(855,727)
(876,287)
(162,937)
(166,955)
(188,007)
(154,393)
(138,110)
(124,802)
(165,749)
(171,747)
(137,733)
(137,392)
1,258
2,262
(6,342)
(4,757)
8,884
835,680
973,884
1,141,436
820,089
1,032,241
(149,335)
(190,836)
(212,649)
(141,687)
(157,533)
686,345
783,048
928,787
678,402
874,708
686,345
783,048
928,787
678,402
874,708

– IIC-5 –

APPENDIX IIC

FINANCIAL INFORMATION OF BEIJING TIDE

Consolidated Statements of Comprehensive Income

PROFIT FOR THE YEAR/PERIOD
OTHER COMPREHENSIVE INCOME
Other comprehensive (losses)/income to be
reclassified to profit or loss in subsequent
periods:
Changes in fair value of available-for-sale
investment, net of tax
Share of other comprehensive
(losses)/income of an associate
Other comprehensive income not to be
reclassified to profit or loss in subsequent
periods:
Gains on property revaluation
Income tax effect
OTHER COMPREHENSIVE INCOME FOR
THE YEAR/PERIOD, NET OF TAX
TOTAL COMPREHENSIVE INCOME FOR
THE YEAR/PERIOD
Attributable to:
Owners of the parent

Year ended 31 December
Nine months ended
30 September
2014
2015
2016
2016
2017
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
(Unaudited)
686,345
783,048
928,787
678,402
874,708
755
(755)
–
–
–
(1,179)
685
3,258
2,444
(3,480)
(424)
(70)
3,258
2,444
(3,480)
5,615
2,003
6,530
–
17,005
(842)
(300)
(980)
–
(2,551)
4,773
1,703
5,550
–
14,454
4,349
1,633
8,808
2,444
10,974
690,694
784,681
937,595
680,846
885,682
690,694
784,681
937,595
680,846
885,682

– IIC-6 –

APPENDIX IIC

FINANCIAL INFORMATION OF BEIJING TIDE

Consolidated Statements of Financial Position

Notes NON-CURRENT ASSETS Property, plant and equipment 10 Prepaid land lease payments 11 Other intangible assets 12 Investments in an associate 13 Deferred tax assets 23 Total non-current assets CURRENT ASSETS Inventories 15 Trade and bills receivables 16 Prepayments, deposits and other receivables 17 Available-for-sale investments 14 Cash and bank balances 18 Total current assets CURRENT LIABILITIES Trade and bills payables 19 Tax payable Other payables and accruals 20 Interest-bearing bank borrowings 21 Total current liabilities NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Deferred government grants 22 Total non-current liabilities Net assets EQUITY Equity attributable to owners of the parent Share capital 24 Reserves 25 Total equity	As at 31 December 2014 2015 2016 RMB’000 RMB’000 RMB’000 628,826 779,207 964,145 208,091 203,636 199,194 2,878 – – 5,146 5,556 2,472 44,734 20,795 15,043 889,675 1,009,194 1,180,854 135,816 112,978 160,228 365,537 418,406 457,090 52,184 81,139 37,866 740,754 – – 854,664 1,242,464 1,532,687 2,148,955 1,854,987 2,187,871 3,514 5,989 38,130 54,655 44,841 53,182 348,587 384,240 1,181,027 – – – 406,756 435,070 1,272,339 1,742,199 1,419,917 915,532 2,631,874 2,429,111 2,096,386 138,712 151,268 160,948 138,712 151,268 160,948 2,493,162 2,277,843 1,935,438 500,000 500,000 500,000 1,993,162 1,777,843 1,435,438 2,493,162 2,277,843 1,935,438	As at 30 September 2017 RMB’000 1,071,335 195,862 – 8,944 48,384
		1,324,525
		187,375 470,517 131,861 791,521 82,596
		1,663,870
		16,107 56,233 659,907 122,000
		854,247
		809,623
		2,134,148
		213,028
		213,028
		1,921,120

		500,000 1,421,120
		1,921,120

– IIC-7 –

APPENDIX IIC

FINANCIAL INFORMATION OF BEIJING TIDE

Consolidated Statements of Changes in Equity

Year ended 31 December 2014

	Attributable to owners of the parent	Attributable to owners of the parent	Attributable to owners of the parent
Share capital RMB’000 500,000 – – – – – – – 500,000	Capital reserve Available- for-sale investment revaluation reserve RMB’000 RMB’000 93,187 – – – – 755 – – – – – 755 – – – – 93,187 755	Exchange fluctuation reserve Asset revaluation reserve RMB’000 RMB’000 (2,245) 19,235 – – – – – 4,773 (1,179) – (1,179) 4,773 – – – – (3,424) 24,008	Reserve funds RMB’000 202,447 – – – – – – 47,553 250,000	Retained profits RMB’000 1,189,844 686,345 – – – 686,345 (200,000) (47,553) 1,628,636	Total RMB’000 2,002,468 686,345 755 4,773 (1,179)
					690,694 (200,000) –
					2,493,162

– IIC-8 –

FINANCIAL INFORMATION OF BEIJING TIDE

APPENDIX IIC

Year ended 31 December 2015

	Attributable to owners of the parent	Attributable to owners of the parent	Attributable to owners of the parent
Share capital RMB’000 500,000 – – – – – – – 500,000	Capital reserve Available- for-sale investment revaluation reserve RMB’000 RMB’000 93,187 755 – – – (755) – – – – – (755) – – – – 93,187 –	Exchange fluctuation Reserve Asset revaluation reserve RMB’000 RMB’000 (3,424) 24,008 – – – – – 1,703 685 – 685 1,703 – – – – (2,739) 25,711	Reserve funds RMB’000 250,000 – – – – – – 21,721 271,721	Retained profits RMB’000 1,628,636 783,048 – – – 783,048 (1,000,000) (21,721) 1,389,963	Total RMB’000 2,493,162 783,048 (755) 1,703 685
					784,681 (1,000,000) –
					2,277,843

– IIC-9 –

APPENDIX IIC

FINANCIAL INFORMATION OF BEIJING TIDE

Year ended 31 December 2016

Attributable to owners of the parent

Share capital Notes RMB’000 At 1 January 2016 500,000 Profit for the year – Other comprehensive income for the year: Surplus on revaluation of buildings – Exchange differences related to an associate – Total comprehensive income for the year – Dividend paid 9 – At 31 December 2016 500,000	Capital reserve RMB’000 93,187 – – – – – 93,187	Exchange fluctuation Reserve RMB’000 (2,739) – – 3,258 3,258 – 519	Asset revaluation reserve RMB’000 25,711 – 5,550 – 5,550 – 31,261	Reserve funds RMB’000 271,721 – – – – – 271,721	Retained profits RMB’000 1,389,963 928,787 – – 928,787 (1,280,000) 1,038,750	Total RMB’000 2,277,843 928,787 5,550 3,258
						937,595 (1,280,000)
						1,935,438

– IIC-10 –

APPENDIX IIC

FINANCIAL INFORMATION OF BEIJING TIDE

Nine months ended 30 September 2017

Attributable to owners of the parent

Share capital Notes RMB’000 At 1 January 2017 500,000 Profit for the period – Other comprehensive income for the period: Surplus on revaluation of buildings – Exchange differences related to an associate – Total comprehensive income for the period – Dividend paid 9 – At 30 September 2017 500,000	Capital reserve RMB’000 93,187 – – – – – 93,187	Exchange fluctuation Reserve RMB’000 519 – – (3,480) (3,480) – (2,961)	Asset revaluation reserve RMB’000 31,261 – 14,454 – 14,454 – 45,715	Reserve funds RMB’000 271,721 – – – – – 271,721	Retained profits RMB’000 1,038,750 874,708 – – 874,708 (900,000) 1,013,458	Total RMB’000 1,935,438 874,708 14,454 (3,480)
						885,682 (900,000)
						1,921,120

– IIC-11 –

APPENDIX IIC

FINANCIAL INFORMATION OF BEIJING TIDE

Nine months ended 30 September 2016

Attributable to owners of the parent

Share capital RMB’000 At 1 January 2016 500,000 Profit for the period (Unaudited) – Other comprehensive income for the period (Unaudited): Exchange differences related to an associate – Total comprehensive income for the period (Unaudited) – Dividend paid (Unaudited) – At 30 September 2016 (Unaudited) 500,000	Capital reserve RMB’000 93,187 – – – – 93,187	Exchange fluctuation Reserve RMB’000 (2,739) – 2,444 2,444 – (295)	Asset revaluation reserve RMB’000 25,711 – – – – 25,711	Reserve funds RMB’000 271,721 – – – – 271,721	Retained profits RMB’000 1,389,963 678,402 – 678,402 (300,000) 1,768,365	Total RMB’000 2,277,843 678,402 2,444
						680,846 (300,000)
						2,658,689

– IIC-12 –

APPENDIX IIC

FINANCIAL INFORMATION OF BEIJING TIDE

Consolidated Statements of Cash Flows

Notes CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax Adjustments for: Share of profits and losses of an associate 13 Bank interest income 4 Investment income 4 Depreciation and impairment of property, plant and equipment 10 Recognition of prepaid land lease payments 11 Amortisation of other intangible assets 12 Loss on disposal of items of property, plant and equipment 5 (Increase)/decrease in inventories (Increase)/decrease in trade and bills receivables Decrease/(increase) in prepayments, deposits and other receivables Increase/(decrease) in trade and bills payables Increase in other payables and accruals Increase in deferred government grants Cash generated from operations Profits tax paid Net cash flows from operating activities	Year ended 31 December 2014 2015 2016 RMB’000 RMB’000 RMB’000 835,680 973,884 1,141,436 (1,258) (2,262) 6,342 (10,807) (8,281) (8,089) (23,618) (24,901) (34,743) 38,812 53,991 54,240 4,486 4,455 4,442 3,280 2,878 – 124 6,311 982 846,699 1,006,075 1,164,610 (9,281) 22,838 (47,250) (106,508) (52,869) (38,684) 7,714 (28,955) 43,273 1,568 2,475 32,141 130,997 35,653 1,189 20,401 12,556 9,680 891,590 997,773 1,164,959 (175,476) (177,011) (199,538) 716,114 820,762 965,421	Nine months ended 30 September 2016 2017 RMB’000 RMB’000 (Unaudited) 820,089 1,032,241 4,757 (8,884) (7,588) (2,113) (19,220) (24,267) 45,640 59,896 3,332 3,332 – – 903 25 847,913 1,060,230 5,089 (27,147) 89 (13,427) (55,057) (93,995) (1,368) (22,023) 46,983 74,080 53,511 52,080 897,160 1,029,798 (171,175) (193,858) 725,985 835,940

– IIC-13 –

APPENDIX IIC

FINANCIAL INFORMATION OF BEIJING TIDE

Net cash flows from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Interest received Investment income received Dividends received from an associate (Increase)/Decrease in available-for-sale investment Purchases of items of property, plant and equipment Proceeds from disposal of items of property, plant and equipment Decrease/(increase) in time deposits with original maturity of more than three months Net cash flows used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES New bank loans Dividends paid Net cash flows used in financing activities NET DECREASE/(INCREASE) IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of year/period CASH AND CASH EQUIVALENTS AT END OF YEAR/PERIOD ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances, unrestricted Cash and cash equivalents as stated in the statements of cash flows	Year ended 31 December 2014 2015 2016 RMB’000 RMB’000 RMB’000 716,114 820,762 965,421 10,807 8,281 8,089 23,618 24,901 34,743 – 2,534 – (740,000) 740,000 – (107,178) (208,711) (233,684) 685 33 54 127,657 245,186 (1,171) (684,411) 812,224 (191,969) – – – (200,000) (1,000,000) (484,400) (200,000) (1,000,000) (484,400) (168,297) 632,986 289,052 762,527 594,230 1,227,216 594,230 1,227,216 1,516,268 594,230 1,227,216 1,516,268 594,230 1,227,216 1,516,268	Nine months ended 30 September 2016 2017 RMB’000 RMB’000 (Unaudited) 725,985 835,940 7,588 2,113 19,220 24,267 – 2,416 – (791,521) (174,239) (150,106) – – 15,248 585 (132,183) (912,246) – 122,000 (300,000) (1,495,200) (300,000) (1,373,200) 293,802 (1,449,506) 1,227,216 1,516,268 1,521,018 66,762 1,521,018 66,762 1,521,018 66,762

– IIC-14 –

APPENDIX IIC

FINANCIAL INFORMATION OF BEIJING TIDE

II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION

1. CORPORATE INFORMATION

Tide Pharm was incorporated as a company with limited liability in the People’s Republic of China (the “PRC”) on 1 June 1995. The head office and principal place of business of Tide Pharm is located at No.8, Rongjing East Street, Economic and Technological Development, Beijing, PRC.

During the Relevant Periods, Beijing Tide is principally engaged in the research and development, production and sale of a series of chemical medicines in PRC.

Information about subsidiaries

As at the end of each of the Relevant Periods and the date of this report, Tide Pharm had direct interests in its subsidiaries, the particular of which is set out below:

	Place and date of
	incorporation/ registration	Issued/paid-up	Percentage	of equity
Company name	and kind of legal entity	capital	attributable to	Tide Pharm	Principal activities
			Direct	Indirect
Beijing Tide Meilun Technology
Development Co., Ltd.	PRC/Mainland China*				Medical device develop
(“Meilun”)1	10 April 2015	RMB20,000,000	100	–	consultancy services
Beijing Tide Sunshine
Investment Co., Ltd.	PRC/Mainland China*
(“Sunshine Investment”)2	16 March 2016	RMB1,000,000	100	–	Investment holding

These subsidiaries were registered as limited liability companies under PRC law and had no operations during the Relevant Periods.

Notes:

The statutory financial statements of this entity for the years ended 31 December 2015 and 2016 prepared in accordance with Accounting Standards for Business Enterprises were audited by 致同會計師事務所（特殊普通合夥）(Grant Thornton Certified Public Accountants LLP).
The statutory financial statements of this entity for the years ended 31 December 2016 prepared in accordance with Accounting Standards for Business Enterprises was audited by 致同會計師事務所（特殊普通合夥）(Grant Thornton Certified Public Accountants LLP).

2. BASIS OF PREPARATION

The Historical 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 HKICPA and accounting principles generally accepted in Hong Kong. All HKFRSs effective for the accounting period commencing from 1 January 2014, together with the relevant transitional provisions, have been early adopted by Beijing Tide in the preparation of the Historical Financial Information throughout the Relevant Periods and in the Stub Period Comparative Financial Information.

The Historical Financial Information has been prepared under the historical cost convention, except for certain buildings classified as property, plant and equipment and available-for-sale investments which have been measured at fair value, as further explained in note 3.2 of Section II below.

– IIC-15 –

APPENDIX IIC

FINANCIAL INFORMATION OF BEIJING TIDE

Basis of consolidation

The Historical Financial Information include the financial statements of Tide Pharm and its subsidiaries during the Relevant Periods. A subsidiary is an entity (including a structured entity), directly or indirectly, controlled by Tide Pharm. Control is achieved when Beijing Tide 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 Beijing Tide the current ability to direct the relevant activities of the investee).

When Tide Pharm has, directly or indirectly, less than a majority of the voting or similar rights of an investee, Beijing Tide 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) Beijing Tide’s voting rights and potential voting rights.

The financial statements of the subsidiaries are prepared for the same reporting period as Tide Pharm, using consistent accounting policies. The results of subsidiaries are consolidated from the date on which Beijing Tide 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 Beijing Tide and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of Beijing Tide are eliminated in full on consolidation.

Beijing Tide 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 in the accounting policy for subsidiaries above. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

If Beijing Tide 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. Beijing Tide’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 Beijing Tide had directly disposed of the related assets or liabilities.

– IIC-16 –

APPENDIX IIC

FINANCIAL INFORMATION OF BEIJING TIDE

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES

3.1 ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS

Beijing Tide has not applied the following new and revised HKFRSs, that have been issued but are not yet effective, in these financial statements.

Amendments to HKFRS 2 Classification and Measurement of Share-based Payment Transactions[1] Amendments to HKFRS 4 Applying HKFRS 9 Financial Instruments with HKFRS 4 Insurance Contracts[1] HKFRS 9 Financial Instruments[1] Amendments to HKFRS 10 and Sale or Contribution of Assets between an Investor and its HKAS 28 (2011) Associate or Joint Venture[3] HKFRS 15 Revenue from Contracts with Customers[1] Amendments to HKFRS 15 Clarifications to HKFRS 15 Revenue from Contracts with Customers[1] HKFRS 16 Leases[2] Amendments to HKFRS 9 Prepayment Features with Negative Compensation[2] Amendments to HKAS 40 Transfers of Investment Property[1] HK(IFRIC)-Int 22 Foreign Currency Transactions and Advance Consideration[1] HK(IFRIC)-Int 23 Uncertainty over Income Tax Treatments[2] Annual Improvements Amendments to the following HKFRSs:[1] 2014-2016 Cycle HKFRS 1 First-time Adoption of HKFRSs HKAS 28 Investments in Associates and Joint Ventures

1 Effective for annual periods beginning on or after 1 January 2018 2 Effective for annual periods beginning on or after 1 January 2019 3
No mandatory effective date yet determined but available for adoption

Beijing Tide is in the process of making an assessment of the impact of these new and revised HKFRSs upon initial application. So far, Beijing Tide considers that these new and revised HKFRSs may results in changes in accounting policies and are unlikely to have a significant impact on the Beijing Tide’s results of operations and financial position.

3.2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Investment in an associate

An associate is an entity in which Beijing Tide has a long term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies.

Beijing Tide’s investments in associates are stated in the consolidated statement of financial position at Beijing Tide’s share of net assets under the equity method of accounting, less any impairment losses.

Adjustments are made to bring into line any dissimilar accounting policies that may exist.

– IIC-17 –

FINANCIAL INFORMATION OF BEIJING TIDE

APPENDIX IIC

Beijing Tide’s share of the post-acquisition results and other comprehensive income of associates is included in the consolidated statement of profit or loss and consolidated other comprehensive income, respectively. In addition, when there has been a change recognised directly in the equity of the associate, Beijing Tide recognises its share of any changes, when applicable, in the consolidated statement of changes in equity. Unrealised gains and losses resulting from transactions between Beijing Tide and its associates are eliminated to the extent of Beijing Tide’s investments in the associates, except where unrealised losses provide evidence of an impairment of the asset transferred. Goodwill arising from the acquisition of associates is included as part of the Beijing Tide’s investments in associates.

If an investment in an associate becomes an investment in a joint venture or vice versa, the retained interest is not remeasured. Instead, the investment continues to be accounted for under the equity method. In all other cases, upon loss of significant influence over the associate, Beijing Tide measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss.

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

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 Beijing Tide, liabilities assumed by Beijing Tide to the former owners of the acquiree and the equity interests issued by Beijing Tide in exchange for control of the acquiree. For each business combination, Beijing Tide elects whether to measure the non-controlling 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. Acquisitionrelated costs are expensed as incurred.

When Beijing Tide 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.

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 Beijing Tide’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.

– IIC-18 –

FINANCIAL INFORMATION OF BEIJING TIDE

APPENDIX IIC

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. Beijing Tide 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 Beijing Tide’s cash-generating 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 Beijing Tide are assigned to those units or groups of units.

Fair value measurement

Beijing Tide measures its buildings and available-for-sale investments 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 Beijing Tide. 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.

Beijing Tide 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 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, Beijing Tide 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.

– IIC-19 –

APPENDIX IIC

FINANCIAL INFORMATION OF BEIJING TIDE

Impairment of non-financial assets

Related parties

A party is considered to be related to Beijing Tide 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 Beijing Tide;
(ii) has significant influence over Beijing Tide; or
(iii) is a member of the key management personnel of Beijing Tide or of a parent of Beijing Tide;

(b) the party is an entity where any of the following conditions applies:
(i) the entity and Beijing Tide 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 Beijing Tide 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 controlled or jointly controlled by a person identified in (a);

– IIC-20 –

APPENDIX IIC

FINANCIAL INFORMATION OF BEIJING TIDE

(vi) 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
(vii) the entity, or any member of a group of which it is a part, provides key management personnel services to Beijing Tide or to the parent of Beijing Tide.

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 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, Beijing Tide recognises such parts as individual assets with specific useful lives and depreciates them accordingly.

Buildings	4%-5%
Leasehold improvements	5%-20%
Plant and machinery	5%-9%
Motor vehicles	9%-18%
Furniture and fixtures	18%

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.

– IIC-21 –

APPENDIX IIC

FINANCIAL INFORMATION OF BEIJING TIDE

Intangible assets (other than goodwill)

Patents and licences

Purchased patents and licences are stated at cost less any impairment losses and are amortised on the straight-line basis over their estimated useful lives of not exceeding 10 years.

Research and development costs

All research costs are charged to the statement of profit or loss as incurred.

Expenditure incurred on projects to develop new products is capitalised and deferred only when Beijing Tide 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.

Leases

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where Beijing Tide is the lessor, assets leased by Beijing Tide under operating leases are included in non-current assets, and rentals receivable under the operating leases are credited to the statement of profit or loss on the straight-line basis over the lease terms. Where Beijing Tide 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 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.

Investments and other financial assets

Initial recognition and measurement

All regular way purchases and sales of financial assets are recognised on the trade date, that is, the date that Beijing Tide 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.

Beijing Tide’s financial assets include cash and bank balances, trade and other receivables, amounts due from related companies, equity investments at fair value through profit or loss and available-for-sale investments.

– IIC-22 –

APPENDIX IIC

FINANCIAL INFORMATION OF BEIJING TIDE

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 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 HKAS 39 are satisfied.

Loans and receivables

Available-for-sale financial investments

– IIC-23 –

FINANCIAL INFORMATION OF BEIJING TIDE

APPENDIX IIC

Beijing Tide 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, Beijing Tide is unable to trade these financial assets due to inactive markets, Beijing Tide 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.

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 Beijing Tide’s consolidated statement of financial position) when:

the rights to receive cash flows from the asset have expired; or
Beijing Tide 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) Beijing Tide has transferred substantially all the risks and rewards of the asset, or (b) Beijing Tide has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When Beijing Tide 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, Beijing Tide continues to recognise the transferred asset to the extent of Beijing Tide’s continuing involvement. In that case, Beijing Tide also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that Beijing Tide has retained.

Impairment of financial assets

Beijing Tide 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 Beijing Tide 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.

– IIC-24 –

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FINANCIAL INFORMATION OF BEIJING TIDE

Financial assets carried at amortised cost

For financial assets carried at amortised cost, Beijing Tide first assesses whether impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If Beijing Tide 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 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. Interest income continues to be accrued on the reduced carrying amount and is accrued 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 Beijing Tide.

Assets carried at cost

Available-for-sale financial investments

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

– IIC-25 –

FINANCIAL INFORMATION OF BEIJING TIDE

APPENDIX IIC

The determination of what is “significant” or “prolonged” requires judgement. In making this judgement, Beijing Tide 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. 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, 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.

Financial liabilities

Initial recognition and measurement

Financial liabilities are classified, at initial recognition, as loans and borrowings.

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

Beijing Tide’s financial liabilities include trade and bills payables, other payables, deposits received, amounts due to related companies and interest-bearing bank borrowings.

Subsequent measurement

The subsequent measurement of financial liabilities depends on classification as follows:

Loans and borrowings

Derecognition of financial liabilities

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

– IIC-26 –

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FINANCIAL INFORMATION OF BEIJING TIDE

Offsetting of financial instruments

Inventories

Cash and cash equivalents

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

Provisions

Income tax

– IIC-27 –

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FINANCIAL INFORMATION OF BEIJING TIDE

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

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
in respect of taxable temporary differences associated with investments in subsidiaries and associates, 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.

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
in respect of deductible temporary differences associated with investments in subsidiaries and associates, 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.

Government grants

– IIC-28 –

APPENDIX IIC

FINANCIAL INFORMATION OF BEIJING TIDE

Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to Beijing Tide 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 Beijing Tide maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold;
(b) interest income, on an accrual basis using the effective interest method by applying the rate that exactly discounts the estimated future cash receipts over the expected life of the financial instrument or a shorter period, when appropriate, to the net carrying amount of the financial asset; and
(c) dividend income, when the shareholders’ right to receive payment has been established.

Pension schemes

The employees of Beijing Tide are required to participate in a central pension scheme operated by the local municipal government. Beijing Tide is required to contribute 20% to 23% of its payroll costs to the central pension scheme. The contributions are charged to the statement of profit or loss as they become payable in accordance with the rules of the central pension scheme.

Borrowing costs

Dividends

Interim dividends are recognised directly as a liability when they are proposed and declared by the Directors.

Final dividends are recognised as a liability when they are approved by the shareholders.

Proposed final dividends are disclosed in the notes to the financial statements.

– IIC-29 –

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FINANCIAL INFORMATION OF BEIJING TIDE

Foreign currencies

The Historical Financial Information is presented in RMB, and the functional currency of Beijing Tide is Renminbi (“RMB”). Beijing Tide determines its own functional currency and items included in the financial statements are measured using that functional currency. Foreign currency transactions recorded by Beijing Tide are initially recorded using their respective 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.

Differences arising on settlement or translation of monetary items are recognised in the statement of profit or loss with the exception of monetary items that are designated as part of the hedge of Beijing Tide’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. Tax charges and credits attributable to exchange differences on those monetary items are also recorded in other comprehensive income.

3.3 SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES

The preparation of Beijing Tide’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 Beijing Tide’s accounting policies, management has made the following judgements, apart from those involving estimations, which have the most significant effect on the amounts recognised in the financial statements:

Associates

Beijing Tide’s management determines the classification of Beijing Tide’s equity investments according to its ability to exercise control or influence on the investee companies. The respective accounting treatments under Beijing Tide’s accounting policies are set out in note 3.2 above.

Certain equity investments in which Beijing Tide holds less than 20% of their voting power and over which Beijing Tide is able to exercise significant influence are classified by management as investments in associates. When determining whether Beijing Tide has significant influence over these companies, management takes into consideration whether:

(a) Beijing Tide has representatives on the board of directors or an equivalent governing body of these companies;

– IIC-30 –

APPENDIX IIC

FINANCIAL INFORMATION OF BEIJING TIDE

(b) Beijing Tide can participate in the policy making processes of these companies, including participation in decision making such as dividends or other distributions;
(c) there are any material transactions between Beijing Tide and these companies;
(d) there are any interchange of managerial personnel between Beijing Tide and these companies;
(e) Beijing Tide provides any essential technical information to these companies; or
(f) there is any substantial or majority ownership by other investors which can significantly impair Beijing Tide’s ability to exercise its influence over these companies.

Estimation uncertainty

Recognition of deferred tax assets

Beijing Tide recognised deferred tax assets which resulted from the deductible temporary differences of subsidiaries. Beijing Tide considers that the deferred tax assets are recognised to the extent that it is probable that the subsidiaries will have sufficient taxable profit relating to the same taxation authority and the same taxable entity against which the deductible temporary differences can be utilised. The recognised deferred tax assets for deductible temporary difference was approximately RMB48,971,000, RMB34,301,000, RMB32,639,000, and RMB68,531,000 at 31 December 2014, 2015, 2016 and 30 September 2017, respectively. More details are given in note 23 of the Section II.

Assessment of useful lives of property, plant and equipment

Beijing Tide’s management determines the estimated useful lives and the related depreciation charge for Beijing Tide’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. Management will increase the depreciation charge where useful lives are less than previously estimated lives, or will write off or write down technically obsolete or non-strategic assets that have been abandoned or sold. Actual economic lives may differ from estimated useful lives. Periodic review could result in a change in depreciable lives and therefore depreciation charge in the future periods.

– IIC-31 –

APPENDIX IIC

FINANCIAL INFORMATION OF BEIJING TIDE

4. REVENUE AND OTHER INCOME

Revenue represents the net invoiced value of goods sold, after allowances for returns and trade discounts.

An analysis of revenue, other income is as follows:

Revenue Sale of goods Other income Bank interest income Investment income Government grants* Others	Year ended 31 December 2014 2015 2016 RMB’000 RMB’000 RMB’000 2,325,720 2,649,832 2,998,069 10,807 8,281 8,089 23,618 24,901 34,743 12,485 19,235 8,254 5,029 74 2,047 51,939 52,491 53,133	Nine months ended 30 September 2016 2017 RMB’000 RMB’000 (Unaudited) 2,236,184 2,510,590 7,588 2,113 19,220 24,267 217 482 2,013 3,700 29,038 30,562	Nine months ended 30 September 2016 2017 RMB’000 RMB’000 (Unaudited) 2,236,184 2,510,590 7,588 2,113 19,220 24,267 217 482 2,013 3,700 29,038 30,562

			2,113 24,267 482 3,700
			30,562

Various government grants have been received for setting up research activities in Mainland China. Government grants received for which related expenditure has not yet been undertaken are included in deferred government grants in the statements of financial position. There are no unfulfilled conditions or contingencies relating to these grants.

– IIC-32 –

APPENDIX IIC

FINANCIAL INFORMATION OF BEIJING TIDE

5. PROFIT BEFORE TAX

Beijing Tide’s profit before tax is arrived at after charging/(crediting):

Notes Cost of inventories sold Depreciation of property, plant and equipment 10 Recognition of prepaid land lease payments 11 Amortisation of other intangible assets 12 Research and development costs Loss on disposal of items of property, plant and equipment Bank interest income 4 Investment income 4 Fair value losses, net: Available-for-sale investments at fair value through profit or loss – held for trading Minimum lease payments under operating leases Auditors’ remuneration Employee benefit expense (including directors’ remuneration_(note 6)): Wages and salaries Pension scheme contributions (Reversal)/accrual of impairment loss of trade receivables _16	Year ended 31 December Nine months ended 30 September 2014 2015 2016 2016 2017 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) 292,061 359,324 394,515 292,523 366,006 39,470 54,013 54,262 45,640 59,896 4,486 4,455 4,442 – 3,332 3,280 2,878 – – – 124,678 145,179 170,161 144,119 133,582 124 6,311 982 903 25 (10,807) (8,281) (8,089) (7,588) (2,113) (23,618) (24,901) (34,743) (19,220) (24,267) – 14,259 – – – 6,649 10,171 9,812 7,207 7,040 1,568 1,568 161 144 699 269,017 326,812 365,331 297,744 309,293 35,067 43,568 47,412 39,583 41,118 304,084 370,380 412,743 337,327 350,411 – – (1,039) (1,289) 1,239	Year ended 31 December Nine months ended 30 September 2014 2015 2016 2016 2017 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) 292,061 359,324 394,515 292,523 366,006 39,470 54,013 54,262 45,640 59,896 4,486 4,455 4,442 – 3,332 3,280 2,878 – – – 124,678 145,179 170,161 144,119 133,582 124 6,311 982 903 25 (10,807) (8,281) (8,089) (7,588) (2,113) (23,618) (24,901) (34,743) (19,220) (24,267) – 14,259 – – – 6,649 10,171 9,812 7,207 7,040 1,568 1,568 161 144 699 269,017 326,812 365,331 297,744 309,293 35,067 43,568 47,412 39,583 41,118 304,084 370,380 412,743 337,327 350,411 – – (1,039) (1,289) 1,239
		350,411
		1,239

– IIC-33 –

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FINANCIAL INFORMATION OF BEIJING TIDE

6. DIRECTORS’ AND CHIEF EXECUTIVE’S REMUNERATION

Directors’ and chief executive’s remuneration for the year/period is as follows:

Fees Other emoluments: Salaries, allowances and benefits in kind Discretionary bonuses	Year ended 31 December 2014 2015 2016 RMB’000 RMB’000 RMB’000 714 714 714 12,600 12,600 12,600 4,080 7,626 9,565 16,680 20,226 22,165 17,394 20,940 22,523	Nine months ended 30 September 2016 2017 RMB’000 RMB’000 (Unaudited) 534 534 9,450 7,602 9,557 10,802 19,007 18,404 19,541 18,938	Nine months ended 30 September 2016 2017 RMB’000 RMB’000 (Unaudited) 534 534 9,450 7,602 9,557 10,802 19,007 18,404 19,541 18,938
			7,602 10,802
			18,404
			18,938

(a) Independent non-executive directors

The fees paid to independent non-executive directors during the year/period were as follows:

Mr. Wang Rulong Mr. Wang Yafei Ms. Zheng Qun Ms. Zhang Mei Mr. Re Qiongba Ms. Wei Juan Ms. Zhao Qing Mr. Chiang Shidong Ms. Ye Qing Ms. Ma Jinhong Total	Year ended 31 December 2014 2015 2016 RMB’000 RMB’000 RMB’000 119 119 89 119 119 89 119 119 89 119 119 89 119 119 119 119 119 119 – – 30 – – 30 – – 30 – – 30 714 714 714	Nine months ended 30 September 2016 2017 RMB’000 RMB’000 (Unaudited) 89 – 89 – 89 – 89 – 89 89 89 89 – 89 – 89 – 89 – 89 534 534	Nine months ended 30 September 2016 2017 RMB’000 RMB’000 (Unaudited) 89 – 89 – 89 – 89 – 89 89 89 89 – 89 – 89 – 89 – 89 534 534
			534

There was no arrangement under which a director waived or agreed to waive any remuneration during the year/period.

– IIC-34 –

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FINANCIAL INFORMATION OF BEIJING TIDE

(b) Executive directors

Year ended 31 December 2014

Ms. Cheng Cheung Ling Mr. Yuan Jian Mr. Cui Gang Mr. Tohru Mizushima Mr. Tse Ping Ms. Li Minqing Mr. Kong Tai* Mr. Zhang Yang Mr. Cao Shan Hai Total	Fees RMB’000 – – – – – – – – – –	Salaries, allowances and benefits in kind Discretionary bonuses RMB’000 RMB’000 4,800 1,002 – – – – – – – – 1,440 800 1,560 1,052 4,200 813 600 413 12,600 4,080	Employee Share option benefits Pension scheme contributions RMB’000 RMB’000 – – – – – – – – – – – – – – – – – – – –	Total remun- eration RMB’000 5,802 – – – – 2,240 2,612 5,013 1,013
				16,680

Year ended 31 December 2015

Ms. Cheng Cheung Ling Mr. Yuan Jian Mr. Cui Gang Mr. Tohru Mizushima Mr. Tse Ping Ms. Li Minqing Mr. Kong Tai* Mr. Zhang Yang Mr. Cao Shan Hai Total	Fees RMB’000 – – – – – – – – – –	Salaries, allowances and benefits in kind Discretionary bonuses RMB’000 RMB’000 4,800 1,528 – – – – – – – – 1,440 1,000 1,560 3,523 4,200 1,015 600 560 12,600 7,626	Employee Share option benefits Pension scheme contributions RMB’000 RMB’000 – – – – – – – – – – – – – – – – – – – –	Total remun- eration RMB’000 6,328 – – – – 2,440 5,083 5,215 1,160
				20,226

– IIC-35 –

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FINANCIAL INFORMATION OF BEIJING TIDE

Year ended 31 December 2016

Ms. Cheng Cheung Ling Mr. Yuan Jian Mr. Cui Gang Mr. Tohru Mizushima Mr. Tse Ping Ms. Li Minqing Mr. Kong Tai* Mr. Zhang Yang Mr. Cao Shan Hai Total	Fees RMB’000 – – – – – – – – – –	Salaries, allowances and benefits in kind Discretionary bonuses RMB’000 RMB’000 4,800 2,002 – – – – – – – – 1,440 1,100 1,560 4,511 4,200 1,116 600 836 12,600 9,565	Employee Share option benefits Pension scheme contributions RMB’000 RMB’000 – – – – – – – – – – – – – – – – – – – –	Total remun- eration RMB’000 6,802 – – – – 2,540 6,071 5,316 1,436
				22,165

Nine months ended 30 September 2016 (Unaudited)

Ms. Cheng Cheung Ling Mr. Yuan Jian Mr. Cui Gang Mr. Tohru Mizushima Mr. Tse Ping Ms. Li Minqing Mr. Kong Tai* Mr. Zhang Yang Mr. Cao Shan Hai Total	Fees RMB’000 – – – – – – – – – –	Salaries, allowances and benefits in kind Discretionary bonuses RMB’000 RMB’000 3,600 2,002 – – – – – – – – 1,080 1,100 1,170 4,509 3,150 1,113 450 833 9,450 9,557	Employee Share option benefits Pension scheme contributions RMB’000 RMB’000 – – – – – – – – – – – – – – – – – – – –	Total remun- eration RMB’000 5,602 – – – – 2,180 5,679 4,263 1,283
				19,007

– IIC-36 –

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FINANCIAL INFORMATION OF BEIJING TIDE

Nine months ended 30 September 2017

Ms. Cheng Cheung Ling Ms. Tse, Theresa Y Y* Mr. Yuan Jian Mr. Cui Gang Mr. Tohru Mizushima Mr. Tse Ping Ms. Li Minqing Mr. Kong Tai Mr. Zhang Yang Mr. Cao Shan Hai Total	Fees RMB’000 – – – – – – – – – – –	Salaries, allowances and benefits in kind Discretionary bonuses RMB’000 RMB’000 3,600 2,036 390 – – – – – – – – – 1,080 1,212 1,170 6,273 900 31 462 1,250 7,602 10,802	Employee Share option benefits Pension scheme contributions RMB’000 RMB’000 – – – – – – – – – – – – – – – – – – – – – –	Total remun- eration RMB’000 5,636 390 – – – – 2,292 7,443 931 1,712
				18,404

Mr. Kong Tai was appointed as the CEO of Tide Pharm during the Relevant Periods.
** Ms. Tse, Theresa Y Y was newly appointed as the executive director of Tide Pharm at 20 September 2017

There was no arrangement under which a director waived or agreed to waive any remuneration during the year/period.

7. FIVE HIGHEST PAID EMPLOYEES

The five highest paid employees during the Relevant Periods represented five directors, details of whose remuneration are set out in note 6 above.

– IIC-37 –

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FINANCIAL INFORMATION OF BEIJING TIDE

8. INCOME TAX

Taxes on profits assessable have been calculated at the rates of tax prevailing in the jurisdictions in which Beijing Tide operates.

Current – Mainland China income tax Deferred tax_(note 23)_ Total tax charge for the year/period	Year ended 31 December 2014 2015 2016 RMB’000 RMB’000 RMB’000 167,761 167,197 207,877 (18,426) 23,639 4,772 149,335 190,836 212,649	Nine months ended 30 September 2016 2017 RMB’000 RMB’000 (Unaudited) 141,687 193,425 – (35,892) 141,687 157,533

The entities located in Mainland China were subject to corporate income tax at a rate of 25%. During the Relevant Periods, Tide Pharm was entitled to a corporate income tax rate of 15% because it was qualified as “High and New Technology Enterprises”. The subsidiaries of Tide Pham were subject to corporate income tax at a rate of 25%, but these subsidiaries had no operations during the Relevant Periods.

A reconciliation of the tax expense applicable to profit before tax using the statutory rates for the jurisdictions in which Beijing Tide is domiciled to the tax expense at the effective tax rates is as follows:

Profit before tax Tax at the statutory tax rate (15%) Share of profits and losses of an associate Expenses not deductible for tax Additional tax deduction for Research and development cost Tax charge at Beijing Tide’s effective rate	Year ended 31 December 2014 2015 2016 RMB’000 RMB’000 RMB’000 835,680 973,884 1,141,436 125,352 146,083 171,215 (189) (339) 951 30,093 51,266 50,038 (5,921) (6,174) (9,555) 149,335 190,836 212,649	Nine months ended 30 September 2016 2017 RMB’000 RMB’000 (Unaudited) 820,089 1,032,241 123,013 154,836 714 (1,333) 17,960 4,030 – – 141,687 157,533

9. DIVIDENDS

The distribution amounts set out in the Consolidated Statements of Changes in Equity of RMB200,000,000, RMB1,000,000,000, RMB1,280,000,000 and RMB900,000,000 for the year ended 31 December 2014, 2015 and 2016 and nine months ended 30 September 2017, respectively, represented the dividends declared by Tide Pharm and approved by shareholders during the Relevant Periods.

– IIC-38 –

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FINANCIAL INFORMATION OF BEIJING TIDE

10. PROPERTY, PLANT AND EQUIPMENT

31 December 2014

At 1 January 2014: Cost or valuation Accumulated depreciation and impairment Net carrying amount At 1 January 2014, net of accumulated depreciation and impairment Additions Depreciation provided during the year Surplus on revaluation Impairment Disposals Transfers At 31 December 2014, net of accumulated depreciation depreciation and impairment At 31 December 2014: Cost or valuation Accumulated depreciation and impairment Net carrying amount	Buildings RMB’000 236,300 – 236,300 236,300 – (11,815) 5,615 – – – 230,100 230,100 – 230,100	Plant and machinery RMB’000 143,275 (74,091) 69,184 69,184 – (19,563) – 658 (111) 195,328 245,496 338,428 (92,932) 245,496	Motor vehicles RMB’000 12,581 (8,339) 4,242 4,242 1,292 (1,369) – – (47) – 4,118 13,403 (9,285) 4,118	Furniture Construction and fixtures in progress RMB’000 RMB’000 61,093 228,345 (43,510) – 17,583 228,345 17,583 228,345 8,080 97,806 (6,723) – – – – – (651) – 16,187 (211,515) 34,476 114,636 78,998 114,636 (44,522) – 34,476 114,636	Total RMB’000 681,594 (125,940)
					555,654

					555,654 107,178 (39,470) 5,615 658 (809) –
					628,826

					775,565 (146,739)
					628,826

– IIC-39 –

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FINANCIAL INFORMATION OF BEIJING TIDE

31 December 2015

At 1 January 2015: Cost or valuation Accumulated depreciation and impairment Net carrying amount At 1 January 2015, net of accumulated depreciation and impairment Additions Depreciation provided during the year Surplus on revaluation Impairment Disposals Transfers At 31 December 2015, net of accumulated depreciation and impairment At 31 December 2015: Cost or valuation Accumulated depreciation and impairment Net carrying amount	Buildings RMB’000 230,100 – 230,100 230,100 – (11,505) 2,005 – – – 220,600 220,600 – 220,600	Plant and machinery RMB’000 338,428 (92,932) 245,496 245,496 19,137 (29,917) – 22 (79) 85,644 320,303 443,001 (122,698) 320,303	Motor vehicles RMB’000 13,403 (9,285) 4,118 4,118 1,101 (1,153) – – (35) – 4,031 14,159 (10,128) 4,031	Furniture Construction and fixtures in progress RMB’000 RMB’000 78,998 114,636 (44,522) – 34,476 114,636 34,476 114,636 6,696 181,777 (11,438) – – – – – (85) (6,145) 8,162 (93,806) 37,811 196,462 93,021 196,462 (55,210) – 37,811 196,462	Total RMB’000 775,565 (146,739)
					628,826

					628,826 208,711 (54,013) 2,005 22 (6,344) –
					779,207

					967,243 (188,036)
					779,207

– IIC-40 –

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FINANCIAL INFORMATION OF BEIJING TIDE

31 December 2016

At 1 January 2016: Cost or valuation Accumulated depreciation and impairment Net carrying amount At 1 January 2016, net of accumulated depreciation and impairment Additions Depreciation provided during the year Surplus on revaluation Impairment Disposals Transfers At 31 December 2016, net of accumulated depreciation and impairment At 31 December 2016: Cost or valuation Accumulated depreciation and impairment Net carrying amount	Buildings RMB’000 220,600 – 220,600 220,600 – (11,030) 6,530 – – – 216,100 216,100 – 216,100	Plant and machinery RMB’000 443,001 (122,698) 320,303 320,303 8,089 (34,410) – 22 (150) 35,761 329,615 486,517 (156,902) 329,615	Motor vehicles RMB’000 14,159 (10,128) 4,031 4,031 41 (1,106) – – (5) – 2,961 14,155 (11,194) 2,961	Furniture Construction and fixtures in progress RMB’000 RMB’000 93,021 196,462 (55,210) – 37,811 196,462 37,811 196,462 5,122 220,432 (7,716) – – – – – (881) – 6,670 (42,431) 41,006 374,463 96,238 374,463 (55,232) – 41,006 374,463	Total RMB’000 967,243 (188,036)
					779,207

					779,207 233,684 (54,262) 6,530 22 (1,036) –
					964,145

					1,187,473 (223,328)
					964,145

– IIC-41 –

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FINANCIAL INFORMATION OF BEIJING TIDE

30 September 2017

At 1 January 2017: Cost or valuation Accumulated depreciation and impairment Net carrying amount At 1 January 2017, net of accumulated depreciation and impairment Additions Depreciation provided during the period Surplus on revaluation Disposals Transfers At 30 September 2017, net of accumulated depreciation and impairment At 30 September 2017: Cost or valuation Accumulated depreciation and impairment Net carrying amount	Buildings RMB’000 216,100 – 216,100 216,100 – (10,805) 17,005 – – 222,300 222,300 – 222,300	Plant and machinery RMB’000 486,517 (156,902) 329,615 329,615 6,557 (28,457) – – 1,272 308,987 494,345 (185,358) 308,987	Motor vehicles RMB’000 14,155 (11,194) 2,961 2,961 66 (685) – – – 2,342 14,221 (11,879) 2,342	Furniture Construction and fixtures in progress RMB’000 RMB’000 96,238 374,463 (55,232) – 41,006 374,463 41,006 374,463 17,248 126,235 (19,949) – – – (25) – 1,589 (2,861) 39,869 497,837 114,822 497,837 (74,953) – 39,869 497,837	Total RMB’000 1,187,473 (223,328)
					964,145

					964,145 150,106 (59,896) 17,005 (25) –
					1,071,335

					1,343,525 (272,190)
					1,071,335

Beijing Tide’s buildings as at the end of each Relevant Periods were revalued as at that date, by RHL Appraisal Ltd., an independent professional valuer, at fair value of approximately RMB230,100,000, RMB220,600,000, RMB216,100,000, and RMB222,300,000 as at 31 December 2014, 2015, 2016 and 30 September 2017, respectively. The revaluation resulted in a surplus of approximately RMB5,615,000, RMB2,005,000, RMB6,530,000, and RMB17,005,000 for the Relevant Periods ended respectively. Beijing Tide has credited approximately RMB4,773,000, RMB1,703,000, RMB5,550,000 and RMB14,454,000 to the revaluation reserve during the Relevant Periods.

Had the buildings been carried at historical cost less accumulated depreciation, their carrying value would have been approximately RMB200,237,000, RMB190,439,000, RMB180,374,000 and RMB172,826,000 as at 31 December 2014, 2015, 2016 and 30 September 2017, respectively.

– IIC-42 –

APPENDIX IIC

FINANCIAL INFORMATION OF BEIJING TIDE

Fair value hierarchy

The following table illustrates the fair value measurement hierarchy of Beijing Tide’s buildings:

As at 31 December 2014

Buildings As at 31 December 2015 Buildings As at 31 December 2016 Buildings As at 30 September 2017 Buildings	Fair value measurement Quoted prices Significant in active observable markets inputs (Level 1) (Level 2) RMB’000 RMB’000 – – Fair value measurement Quoted prices Significant in active observable markets inputs (Level 1) (Level 2) RMB’000 RMB’000 – – Fair value measurement Quoted prices Significant in active observable markets inputs (Level 1) (Level 2) RMB’000 RMB’000 – – Fair value measurement Quoted prices Significant in active observable markets inputs (Level 1) (Level 2) RMB’000 RMB’000 – –	using Significant unobservable inputs (Level 3) RMB’000 230,100 using Significant unobservable inputs (Level 3) RMB’000 220,600 using Significant unobservable inputs (Level 3) RMB’000 216,100 using Significant unobservable inputs (Level 3) RMB’000 222,300	Total RMB’000 230,100

			Total RMB’000 220,600

			Total RMB’000 216,100

			Total RMB’000 222,300

During the Relevant Periods, there were no transfers of fair value measurements between Level 1 and Level 2 and no transfers into or out of Level 3.

– IIC-43 –

FINANCIAL INFORMATION OF BEIJING TIDE

APPENDIX IIC

Below is a summary of the valuation techniques used and the key inputs to the valuation of buildings:

				Range of weighted average	Range of weighted average
		Significant				As at 30
	Valuation	unobservable	As	at 31 December		September
	technique	inputs	2014	2015	2016	2017
Properties	Depreciated	(1) Replacement	RMB2,370-	RMB2,330-	RMB2,350-	RMB2,650-
held for	Replacement	cost	4,840;	4,770;	4,800;	4,950;
own use	Cost Method	(2) Rate of	79%-95%	77%-93%	75%-91%	77%-89%
		newness

11. PREPAID LAND LEASE PAYMENTS

Carrying amount at beginning of year/period Recognised during the year/period Carrying amount at end of year/period Current portion included in prepayments, deposits and other receivables Non-current portion	As at 31 December 2014 2015 RMB’000 RMB’000 217,020 212,534 (4,486) (4,455) 212,534 208,079 (4,443) (4,443) 208,091 203,636	2016 RMB’000 208,079 (4,442) 203,637 (4,443) 199,194	As at 30 September 2017 RMB’000 203,637 (3,332)
			200,305 (4,443)
			195,862

12. OTHER INTANGIBLE ASSETS

31 December 2014

Cost: At 1 January 2014 and at 31 December 2014 Accumulated amortisation: At 1 January 2014 Provided during the year At 31 December 2014 Net carrying amount	Patents and licences RMB’000 16,000 (9,842) (3,280) (13,122) 2,878	Total RMB’000 16,000
		(9,842) (3,280)
		(13,122)
		2,878

– IIC-44 –

APPENDIX IIC

FINANCIAL INFORMATION OF BEIJING TIDE

31 December 2015

Cost: At 1 January 2015 and at 31 December 2015 Accumulated amortisation: At 1 January 2015 Provided during the year At 31 December 2015 Net carrying amount 31 December 2016 and 30 September 2017 Cost: At 31 December 2016 and 30 September 2017 Accumulated amortisation: At 31 December 2016 and 30 September 2017 Net carrying amount 13. INVESTMENT IN AN ASSOCIATE As at 31 December 2014 2015 RMB’000 RMB’000 LTT Bio-Pharma Co.,Ltd. (“LTT”) 5,146 5,556	Patents and licences RMB’000 16,000 (13,122) (2,878) (16,000) – Patents and licences RMB’000 16,000 16,000 – 2016 RMB’000 2,472	Total RMB’000 16,000 (13,122) (2,878) (16,000) – Total RMB’000 16,000 16,000 – As at 30 September 2017 RMB’000 8,944

– IIC-45 –

APPENDIX IIC

FINANCIAL INFORMATION OF BEIJING TIDE

Particulars of the associate are as follows:

					Percentage of
		Place	of		ownership interest
	Particulars of	registration			attributable
Name	issued shares held	and business			to Beijing Tide	Principal activities
LTT	Ordinary shares	Japan			19.20%	Manufacture and
						sale of pharmaceutical
						products
								As at
					As at 31 December	30	September
				2014	2015	2016		2017
			RMB’000		RMB’000	RMB’000	RMB’000
Share	of net assets			5,146	5,556	2,472		8,944

The following table illustrates the summarised financial information of LTT adjusted for any differences in accounting policies and reconciled to the carrying amount in the consolidated financial statements.

Current assets Non-current assets Current liabilities Non-current liabilities Net assets Proportion of Beijing Tide’s ownership Carrying amount of the investment Revenue Profit for the year/period Other comprehensive income for the year/period Total comprehensive income for the year/period Dividend received	As at 31 December As at 30 September 2014 2015 2016 2017 RMB’000 RMB’000 RMB’000 RMB’000 24,382 27,228 40,073 36,942 3,632 3,680 3,613 33,172 (342) (1,215) (29,959) (22,539) (870) (755) (852) (992) 26,802 28,938 12,875 46,583 19.2% 19.2% 19.2% 19.2% 5,146 5,556 2,472 8,944 Year ended 31 December Nine months ended 30 September 2014 2015 2016 2016 2017 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 2,430 3,289 2,769 2,077 1,193 6,554 11,765 (33,031) (24,773) 64,417 (6,141) 3,568 16,968 12,729 (18,125) 413 15,333 (16,063) (12,044) 46,292 – 2,534 – – 2,416	As at 30 September 2017 RMB’000 36,942 33,172 (22,539) (992)	As at 30 September 2017 RMB’000 36,942 33,172 (22,539) (992)
		46,583

		19.2% 8,944

– IIC-46 –

APPENDIX IIC

FINANCIAL INFORMATION OF BEIJING TIDE

14. AVAILABLE-FOR-SALE INVESTMENTS

Current Wealth management products Non-current Unlisted equity investments, at cost Unlisted equity investments, provision	As at 31 December 2014 2015 RMB’000 RMB’000 740,754 – 24,157 24,157 (24,157) (24,157) – –	2016 RMB’000 – 24,157 (24,157) –	As at 30 September 2017 RMB’000 791,521

			24,157 (24,157)
			–

Wealth management products, include both principal-protected and principle-not-protected products, with terms within one year, were purchased from banks, to earn a relatively higher rate of return. The underlying investments were primarily bonds and bond funds, money market funds, investment products issued in inter-bank market and bond financing products. The ending balance of RMB791,521,000 as at 30 September 2017 has been settled upon its maturity date, 28 December 2017. At 30 September 2017, wealth management products with a carrying amount of RMB98,263,154 is pledged.

The unlisted equity investments comprised the Tide Pharm’s 9.66% equity investment in Mebiopharm Co., Ltd..

The unlisted equity investments are stated at cost less any impairment losses because the range of reasonable fair value estimates is so significant that the directors are of the opinion that their fair value cannot be measured reliably. Tide Pharm does not intend to dispose of them in the near future.

15. INVENTORIES

Raw materials Work in progress Finished goods Spare parts and consumables	As at 31 December 2014 2015 RMB’000 RMB’000 53,623 62,700 21,487 22,129 45,597 15,647 15,109 12,502 135,816 112,978	2016 RMB’000 96,317 23,194 29,254 11,463 160,228	As at 30 September 2017 RMB’000 108,594 26,295 38,636 13,850
			187,375

– IIC-47 –

APPENDIX IIC

FINANCIAL INFORMATION OF BEIJING TIDE

16. TRADE AND BILLS RECEIVABLES

Trade receivables Bills receivables Impairment	As at 31 December 2014 2015 RMB’000 RMB’000 300,594 330,762 65,998 88,699 (1,055) (1,055) 365,537 418,406	2016 RMB’000 363,641 93,465 (16) 457,090	As at 30 September 2017 RMB’000 368,947 102,825 (1,255)
			470,517

Beijing Tide’s trading terms with its customers are mainly on credit, except for new customers, where payment in advance is normally required. The credit period granted to third-party customers normally ranges from 45 days to 90 days. Beijing Tide seeks to maintain a strict control over its outstanding receivables and has a credit control department to minimise credit risk. Overdue balances are reviewed regularly by senior management. In view of the aforementioned and the fact that Beijing Tide’s trade receivables relate to a large number of diversified customers, there is no significant concentration of credit risk. Beijing Tide does not hold any collateral or other credit enhancements over its trade receivable balances. Trade receivables are non-interest-bearing.

An aging analysis of Beijing Tide’s trade receivables as at end of the reporting period, based on the invoice date and net of provisions, is as follows:

Current to 90 days 91 days to 180 days Over 180 days	As at 31 December 2014 2015 RMB’000 RMB’000 299,491 329,674 – – 48 33 299,539 329,707	2016 RMB’000 362,814 811 – 363,625	As at 30 September 2017 RMB’000 367,617 75 –
			367,692

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

At 1 January Impairment losses recognised/ (reversal)(note 5)	As at 31 December 2014 2015 RMB’000 RMB’000 1,055 1,055 – – 1,055 1,055	2016 RMB’000 1,055 (1,039) 16	As at 30 September 2017 RMB’000 16 1,239
			1,255

– IIC-48 –

APPENDIX IIC

FINANCIAL INFORMATION OF BEIJING TIDE

The aging analysis of the trade receivables that are not considered to be impaired is as follows:

Neither past due nor impaired Between 91 and 180 days past due Between 181 and 365 days past due	As at 31 December 2014 2015 RMB’000 RMB’000 299,491 329,674 – – 48 33 299,539 329,707	2016 RMB’000 362,814 811 – 363,625	As at 30 September 2017 RMB’000 367,617 75 –
			367,692

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 Beijing Tide. Based on past experience, the directors of Beijing Tide 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. Beijing Tide does not hold any collateral or other credit enhancements over these balances.

The carrying amounts of the trade receivables approximate to their fair values due to their relatively short maturity term.

At 30 September 2017, bill receivables with a carrying amount of RMB30,000,000 is pledged.

17. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

Current Prepayments Other receivables Current portion of prepaid land lease payments	As at 31 December 2014 2015 RMB’000 RMB’000 41,360 70,985 6,381 5,711 4,443 4,443 52,184 81,139	2016 RMB’000 26,816 6,607 4,443 37,866	As at 30 September 2017 RMB’000 110,042 17,376 4,443
			131,861

The carrying amounts of other receivables and prepaid expenses approximate to their fair values due to their relatively short maturity terms.

None of the above assets is either past due or impaired. The financial assets included in the above balances relate to receivables for which there was no recent history of default.

– IIC-49 –

APPENDIX IIC

FINANCIAL INFORMATION OF BEIJING TIDE

18. CASH AND BANK BALANCES

Cash and bank balances, unrestricted Time deposits with original maturity of less than three months Time deposits with original maturity of more than three months Cash and bank balances	As at 31 December 2014 2015 RMB’000 RMB’000 500,434 1,167,216 93,796 60,000 260,434 15,248 854,664 1,242,464	2016 RMB’000 1,516,268 – 16,419 1,532,687	As at 30 September 2017 RMB’000 66,762 – 15,834
			82,596

Cash at banks earns interest at floating rates based on daily bank deposit rates. Short term time deposits are made for varying periods of between one day and twelve months depending on the immediate cash requirements of Beijing Tide, 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. The carrying amounts of the cash and cash equivalents approximate to their fair values.

19. TRADE AND BILLS PAYABLES

An aging analysis of Beijing Tide’s trade and bills payables as at the end of the reporting period, based on the invoice date, is as follows:

Current to 90 days 91 days to 180 days Over 180 days	As at 31 December 2014 2015 RMB’000 RMB’000 3,514 5,989 – – – – 3,514 5,989	2016 RMB’000 37,314 645 171 38,130	As at 30 September 2017 RMB’000 15,413 561 133
			16,107

– IIC-50 –

APPENDIX IIC

FINANCIAL INFORMATION OF BEIJING TIDE

20. OTHER PAYABLES AND ACCRUALS

Advances from customers Accrued payroll and bonuses Other payables Accrued expenses Tax payable other than income tax Dividend payable	As at 31 December 2014 2015 RMB’000 RMB’000 – 475 108,899 133,712 117,905 85,880 81,035 120,801 40,748 43,372 – – 348,587 384,240	2016 RMB’000 4,016 131,536 78,584 127,402 43,889 795,600 1,181,027	As at 30 September 2017 RMB’000 1,603 165,992 98,254 92,919 100,739 200,400
			659,907

21. INTEREST-BEARING BANK BORROWINGS

	As	at 31 December		As	at 30 September
	2014, 2015 and 2016				2017
	Effective			Effective
	interest rate	Maturity	Amount	interest rate	Maturity	Amount
	(%)		RMB’000	(%)		RMB’000
Current
Bank loans –					28 December
secured_(a)_	nil	nil	nil	3.0-3.8	2017	122,000
Note:

(a) At 30 September 2017, Beijing Tide’s bank borrowings were secured by bills with a carrying amount of RMB30,000,000 and wealth management products with a carrying amount of RMB98,263,154 (31 December 2014, 2015 and 2016: nil).

22. DEFERRED GOVERNMENT GRANTS

Beijing Tide’s deferred government grants represented government grants received for projects and are credited to the statements of profit or loss on a straight-line basis over the expected lives of the related assets.

– IIC-51 –

FINANCIAL INFORMATION OF BEIJING TIDE

APPENDIX IIC

23. DEFERRED TAX

Deferred tax assets	Deferred tax assets	Deferred tax liabilities Decelerated depreciation/ amortization for tax purpose Revaluation of properties Deferred tax liabilities total RMB’000 RMB’000 RMB’000 – (3,395) (3,395) – – – – (842) (842) – (4,237) (4,237) – (4,237) (4,237) (8,969) – (8,969) – (300) (300) (8,969) (4,537) (13,506) Deferred tax liabilities Decelerated depreciation/ amortization for tax purpose Revaluation of properties Deferred tax liabilities total RMB’000 RMB’000 RMB’000 (8,969) (4,537) (13,506) (3,110) – (3,110) – (980) (980) (12,079) (5,517) (17,596) (12,079) (5,517) (17,596) – – – – (2,551) (2,551) (12,079) (8,068) (20,147)	Total RMB’000 27,150 18,426 (842)
Deferred government grants Provision of other receivables Building revaluation depreciation Accrued expenses Impairment of fixed assets RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 17,746 158 (1,161) 13,654 148 3,061 – 918 14,546 (99) – – – – – 20,807 158 (243) 28,200 49 20,807 158 (243) 28,200 49 1,883 – 256 (16,806) (3) – – – – – 22,690 158 13 11,394 46 Deferred tax assets
			44,734

			44,734 (23,639) (300)
			20,795

			Total RMB’000 20,795 (4,772) (980)
Deferred government grants Provision of other receivables Building revaluation depreciation RMB’000 RMB’000 RMB’000 22,690 158 13 1,452 91 145 – – – 24,142 249 158 24,142 249 158 7,812 174 489 – – – 31,954 423 647	Accrued expenses Impairment of fixed assets RMB’000 RMB’000 11,394 46 (3,348) (2) – – 8,046 44 8,046 44 27,417 – – – 35,463 44	Decelerated depreciation/ amortization for tax purpose Revaluation of properties RMB’000 RMB’000 (8,969) (4,537) (3,110) – – (980) (12,079) (5,517) (12,079) (5,517) – – – (2,551) (12,079) (8,068)
			15,043

			15,043 35,892 (2,551)
			48,384

– IIC-52 –

APPENDIX IIC

FINANCIAL INFORMATION OF BEIJING TIDE

24. SHARE CAPITAL

				As at 30
	As at 31 December			September
	2014	2015	2016	2017
	RMB’000	RMB’000	RMB’000	RMB’000
Authorised:
500,000,000 shares of RMB 1 each	500,000	500,000	500,000	500,000
Particulars of the shareholders are as	follows:
				Percentage of
		Place of	ownership interest
	Particulars of	registration		attributable
Name	issued shares held	and business	to Beijing Tide
Sino Biopharmaceutical	Ordinary shares	Hong Kong		33.60%
(Beijing) Limited
China-Japan Friendship Hospital	Ordinary shares	PRC		28.00%
France Investment (China I)		British Virgin
Group Limited	Ordinary shares	Islands		24.00%
LTT	Ordinary shares	Japan		11.52%
Beijing Taitongda Information	Ordinary shares	Japan		2.02%
Consultancy Co., Ltd.
Beijing Decheng Jingwei	Ordinary shares	Japan		0.86%
Consultancy Co., Ltd.

25. RESERVES

The amounts of Beijing Tide’s reserves and the movements therein for the current and prior years are presented in the consolidated statements of changes in equity.

26. OPERATING LEASE ARRANGEMENTS

As lessee

Beijing Tide leases certain of its office properties under operating lease arrangements. Leases for office properties are for terms ranging between two and five years.

At the end of the Relevant Periods, Beijing Tide had total future minimum lease payments under non-cancellable operating leases falling due as follows:

Within one year In the second to fifth years, inclusive	As 2014 RMB’000 4,610 19,935 24,545	at 31 December 2015 2016 RMB’000 RMB’000 7,065 7,508 3,533 3,824 10,598 11,332	As at 30 September 2017 RMB’000 8,063 10,931
			18,994

– IIC-53 –

APPENDIX IIC

FINANCIAL INFORMATION OF BEIJING TIDE

27. COMMITMENTS

In addition to the operating lease commitments detailed in note 26 above, Beijing Tide had the following capital commitments at the end of the reporting period:

Contracted, but not provided for: – Property, plant and machinery	As 2014 RMB’000 – –	at 31 December 2015 2016 RMB’000 RMB’000 280,454 325,501 280,454 325,501	As at 30 September 2017 RMB’000 142,773
			142,773

28. RELATED PARTIES TRANSACTIONS

a) Related parties

Related parties for the years ended 31 December 2014, 2015 and 2016, and nine months ended 30 September 2017 were as follows:

Name Relationship LTT Associate

b) Related party transactions

In addition to the transactions detailed elsewhere in the Historical Financial Information, Beijing Tide had the following transactions with related parties during the Relevant Periods:

Sales of products to LTT Purchase of products from LTT Management fees paid to LTT	As 2014 RMB’000 17 – 167 184	at 31 December 2015 2016 RMB’000 RMB’000 17 – – 2,587 440 360 457 2,947	As at 30 September 2016 2017 RMB’000 RMB’000 – – 822 1,068 176 – 998 1,068	As at 30 September 2016 2017 RMB’000 RMB’000 – – 822 1,068 176 – 998 1,068
				1,068

– IIC-54 –

APPENDIX IIC

FINANCIAL INFORMATION OF BEIJING TIDE

c) Balances with related parties

Beijing Tide had the following significant balances with its related parties at the end of each of the Relevant Periods:

(i) Due from a related party:

				As at 30
	As at	31 December		September
	2014	2015	2016	2017
	RMB’000	RMB’000	RMB’000	RMB’000
LTT	17	–	–	–

29. FINANCIAL INSTRUMENTS BY CATEGORY

Financial assets

Beijing Tide’s financial assets mainly include available-for-sale investments, trade and bills receivables, financial assets included in prepayments deposits and other receivables, and cash and bank balances. Except for available-for-sale investments belong to the category of available-forsale financial assets, all the rest belong to the category of loans and receivables as at the end of 31 December 2014, 2015 and 2016 and 30 September 2017.

Financial liabilities

Beijing Tide’s financial liabilities mainly include trade and bills payables, financial liabilities included in other payables and accruals, and interest-bearing bank borrowings, which are of the category of financial liabilities as at the end of 31 December 2014, 2015 and 2016 and 30 September 2017.

30. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS

Beijing Tide’s financial instruments mainly include cash and bank balances, trade and bills receivables, available-for-sale investments, financial assets included in prepayments, deposits and other receivables, trade and bills payables, and financial liabilities included in other payables and accruals, whose carrying amount approximate to fair value as at the end of 31 December 2014, 2015 and 2016 and 30 September 2017, respectively.

31. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

Beijing Tide’s principal financial instruments comprise bank borrowings, cash and short term deposits. The main purpose of these financial instruments is to raise finance for Beijing Tide’s operations. Beijing Tide has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations.

– IIC-55 –

APPENDIX IIC

FINANCIAL INFORMATION OF BEIJING TIDE

The main risks arising from Beijing Tide’s financial instruments are interest rate 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.

Interest rate risk

Beijing Tide’s exposure to the risk of changes in market interest rates relates primarily to Beijing Tide’s interest-bearing bank borrowings with interest with floating rates. The Directors consider that Beijing Tide’s exposure to liquidity risk is not significant as the maturity of Beijing Tide’s interestbearing bank borrowings is less than 3 months.

Credit risk

Beijing Tide trades only with recognised and creditworthy third parties and related parties. It is Beijing Tide’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis and Beijing Tide’s exposure to bad debts is not significant.

The credit risk of Beijing Tide’s other financial assets, which comprise cash and cash equivalents and available-for-sale financial assets with a maximum exposure equal to the carrying amounts of these instruments.

Liquidity risk

Beijing Tide’s liquidity remained strong as at the end of the reporting period. During the year, Beijing Tide’s primary source of funds was cash derived from operating activities. The Directors consider that Beijing Tide’s exposure to liquidity risk is not significant.

Capital management

The primary objectives of Beijing Tide’s capital management are to safeguard Beijing Tide’s abilities to continue as a going concern and to maintain healthy capital ratios in order to support its business and maximise shareholders’ value. Beijing Tide funds its operations principally via its capital.

Beijing Tide manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust the capital structure, Beijing Tide may adjust the dividend payment to shareholders. No changes were made in the objectives, policies or processes for managing capital during the Relevant Periods.

32. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by Tide Pharm or any of its subsidiaries in respect of any period subsequent to 30 September 2017.

– IIC-56 –

MANAGEMENT DISCUSSION AND ANALYSIS ON SINO BIOPHARM BEIJING, SUPER DEMAND AND BEIJING TIDE

APPENDIX III

The auditors of Sino Biopharmaceutical Limited have issued unqualified opinions on the audited financial statements of Sino Biopharm Beijing, Super Demand and Beijing Tide (collectively, the “Target Group”) for the years ended 31 December 2014, 2015 and 2016, and the nine months ended 30 September 2017.

Set out below is the management discussion and analysis of the Target Group for the three years ended 31 December 2014, 2015 and 2016, and the nine months ended 30 September 2017. The following financial information is based on the accountants’ report of Sino Biopharm Beijing, Super Demand and Beijing Tide as set out in Appendix IIA, IIB and IIC of this Circular.

A. Business review

Beijing Tide is a specialized company engaging in research, development, production and sale of pharmaceutical products. Its systems for research, development, procurement, production and sales are self-owned and independent, enabling the Company to use its resources according to a strategy based on market conditions. Core businesses of Beijing Tide are research, development, production and sale of pharmaceutical products carried by the Drug Delivery System (DDS). Its product research and development are concentrated in the areas of targeted medicines, biologics, adhesive plasters and solid dosage forms. Beijing Tide is an enterprise ranked among the best in China specializing in the research, development and manufacturing of targeted medicines, and was the country’s first manufacturer of serial targeted medicines. Its main products include Alprostadil Injection, Flurbiprofen Axetil Injection, Beraprost Sodium Tablet, Flurbiprofen Cataplasms and Pronase Granules. Notably, Alprostadil Injection was the first targeted medicine with lipo-microsphere as carriers in China, and is currently an important targeted medicine for the treatment of peripheral blood vessel diseases. Flurbiprofen Axetil Injection was the first targeted analgesic in China, Beraprost Sodium Tablet was the first oral prostacyclin medicine in China, Flurbiprofen Cataplasms were the first cataplasms for chemical medicines in China, and Pronase Granules was the first disintegrant for mucin in China.

Beijing Tide has always regarded innovation as a core value of its research and development, giving each product a competitive edge in the market. Continuously introducing innovative products also ensures rapid growth of the company’s scale of operations. As an incentive to manufacturers, current national policy also allows for a reasonable period of higher profit margins on sales of innovative medicines.

Beijing Tide’s main product, targeted medicines with carriers, offers an obvious advantage in curative effect as compared to general medicines. A new type of targeted carrier is lipo-microsphere, which enables medicines to accumulate directionally in blood vessels and create a high drug concentration at the location of the lesion. This considerably reduces the medicine’s inactivation ratio while enhancing its bioavailability. Also, because the medicines are encapsulated in lipo-microsphere, exposure of non-lesion areas is low, substantially reducing the occurrence of adverse drug reactions.

– III-1 –

MANAGEMENT DISCUSSION AND ANALYSIS ON SINO BIOPHARM BEIJING, SUPER DEMAND AND BEIJING TIDE

APPENDIX III

Beijing Tide’s injected product line was the first to receive a Japan’s Ministry of Health, Labour and Welfare Certificate of Foreign Manufacturers of Pharmaceuticals（《醫藥品外國製造者認定證書》）in China, and was the first type of Chinese-made injection used for clinical treatment in Japan. The excellent quality and competitiveness of its products has enabled Beijing Tide to build an excellent brand image in the market.

Beijing Tide will become a subsidiary of the Group upon Completion. After the Acquisition, the core competitiveness and long-term profitability of the Group will be strengthened with the combination of the Group’s strategic brands and the expertise and strength in research and development of Beijing Tide in the aspect of targeted medicines. As cooperation in areas of research, development, marketing and sales is strengthened, it will further enhance the coordination and deployment of the Group’s strategies and their synergistic effect.

Sino Biopharm Beijing is the investment holding company. It holds 33.6% equity interests in Beijing Tide. Sino Biopharm Beijing will become a wholly-owned subsidiary of the Group upon Completion.

Super Demand is the investment holding company. It holds 55% equity interests in France Investment BVI which in turn owns 24% equity interests in Beijing Tide. Super Demand will become a wholly-owned subsidiary of the Group upon Completion.

– III-2 –

MANAGEMENT DISCUSSION AND ANALYSIS ON SINO BIOPHARM BEIJING, SUPER DEMAND AND BEIJING TIDE

APPENDIX III

B. Financial review

Overview

Since Sino Biopharm Beijing and Super Demand are the investment holding companies, their financial result are related to Beijing Tide. Hence, we will concentrate on the discussion of the financial performance of Beijing Tide.

The following table sets forth the breakdown of revenue, gross profit and EBITDA of Beijing Tide by product and their respective contribution to the total revenue, total gross profit and total EBITDA for the year/period indicated, respectively.

Targeted medicines Solid dosage forms Band-aids Total revenue Targeted medicines Solid dosage forms Band-aids Sale taxes and surcharge Total gross profit EBITDA(1)	2014 RMB (’000) 2,059,975 165,391 100,354 2,325,720 1,867,464 143,953 64,464 2,075,881 42,222 2,033,659 882,916	For the year ended 31 December 2015 2016 % RMB (’000) % RMB (’000) 88.6 2,234,806 84.3 2,409,199 7.1 240,266 9.1 318,155 4.3 174,760 6.6 270,715 100.0 2,649,832 100.0 2,998,069 90.0 2,014,994 86.1 2,189,839 6.9 209,367 9.0 276,817 3.1 114,051 4.9 188,557 100.0 2,338,412 100.0 2,655,213 100.0 47,904 100.0 51,659 100.0 2,290,508 100.0 2,603,554 100.0 1,035,230 100.0 1,200,140	% 80.4 10.6 9.0 100.0 82.5 10.4 7.1 100.0 100.0 100.0 100.0	For the nine months ended 30 September 2016 2017 RMB (’000) % RMB (’000) % 1,809,317 80.9 1,935,012 77.1 234,089 10.5 296,030 11.8 192,778 8.6 279,548 11.1 2,236,184 100.0 2,510,590 100.0 1,647,140 83.2 1,741,772 79.5 204,383 10.3 256,210 11.7 129,486 6.5 193,299 8.8 1,981,009 100.0 2,191,281 100.0 37,348 100.0 46,697 100.0 1,943,661 100.0 2,144,584 100.0 865,729 100.0 1,095,469 100.0	For the nine months ended 30 September 2016 2017 RMB (’000) % RMB (’000) % 1,809,317 80.9 1,935,012 77.1 234,089 10.5 296,030 11.8 192,778 8.6 279,548 11.1 2,236,184 100.0 2,510,590 100.0 1,647,140 83.2 1,741,772 79.5 204,383 10.3 256,210 11.7 129,486 6.5 193,299 8.8 1,981,009 100.0 2,191,281 100.0 37,348 100.0 46,697 100.0 1,943,661 100.0 2,144,584 100.0 865,729 100.0 1,095,469 100.0
					100.0

					79.5 11.7 8.8
					100.0 100.0
					100.0

					100.0

Note:

(1) Earnings before income tax, finance costs, amortization and depreciation.

– III-3 –

MANAGEMENT DISCUSSION AND ANALYSIS ON SINO BIOPHARM BEIJING, SUPER DEMAND AND BEIJING TIDE

APPENDIX III

Revenue

Beijing Tide recorded revenue for the three financial years ended 31 December 2014, 2015 and 2016, and the nine months ended 30 September 2016 and 2017 of approximately RMB2,325.7 million, RMB2,649.8 million, RMB2,998.1 million, RMB2,236.2 million and RMB2,510.6 million, respectively.

Revenue increased by approximately 13.9% for the year ended 31 December 2015 as compared to the year ended 31 December 2014. This was mainly due to (i) an approximate 8.5% increase in revenue generated from targeted medicines, resulting largely from the increase in sales of Flurbiprofen Axetil Injection and effective market promotion activities; (ii) an approximate 45.3% increase in revenue generated from solid dosage forms, mainly driven by the strong sales growth of Beraprost Sodium Tablet and Pronase Granules; and (iii) an approximate 74.1% increase in revenue generated from agents for external use, mainly driven by the strong sales growth of Flurbiprofen Cataplasms.

Revenue increased by approximately 13.1% for the year ended 31 December 2016 as compared to the year ended 31 December 2015. This was largely due to (i) an approximate 7.8% increase in revenue generated from targeted medicines, mainly resulting from the increase in sales of Flurbiprofen Axetil Injection and effective market promotion activities; (ii) an approximate 32.4% increase in revenue generated from solid dosage forms, mainly driven by the strong sales growth of Beraprost Sodium Tablet and Pronase Granules; and (iii) an approximate 54.9% increase in revenue generated from agents for external use, mainly driven by the strong sales growth of Flurbiprofen Cataplasms.

For the nine months ended 30 September 2017, revenue increased by approximately 12.3% as compared to the same period of 2016. This increase can be mostly ascribed to (i) an approximate 6.9% increase in revenue generated from targeted medicines, mainly resulting from the increase in sales of Flurbiprofen Axetil Injection and effective market promotion activities; (ii) an approximate 26.5% increase in revenue generated from solid dosage forms, mainly driven by the strong sales growth of Beraprost Sodium Tablet and Pronase Granules; and (iii) an approximate 45.0% increase in revenue generated from agents for external use, mainly driven by the strong sales growth of Flurbiprofen Cataplasms.

Gross profit and gross profit margin

Beijing Tide recorded gross profits of approximately RMB2,033.7 million, RMB 2,290.5 million, RMB2,603.6 million, RMB1,943.7 million and RMB2,144.6 million for the years ended 31 December 2014, 2015 and 2016, and the nine months ended 30 September 2016 and 2017, respectively.

– III-4 –

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS ON SINO BIOPHARM BEIJING, SUPER DEMAND AND BEIJING TIDE

The following table sets forth the gross profit and gross profit margin by products for the year/period indicated:

Targeted medicines Solid dosage forms Band-aid Sale taxes and surcharge Gross Profit	For the year ended 31 December 2014 2015 2016 Gross profit Gross profit margin Gross profit Gross profit margin Gross profit Gross profit margin RMB (’000) % RMB (’000) % RMB (’000) % 1,867,464 90.8 2,014,994 90.2 2,189,839 90.9 143,953 87.0 209,367 87.1 276,817 87.0 64,464 64.2 114,051 65.3 188,557 69.7 2,075,881 89.3 2,338,412 88.2 2,655,213 88.6 42,222 – 47,904 – 51,659 – 2,033,659 87.4 2,290,508 86.4 2,603,554 86.8	For the nine months ended 30 September 2016 2017 Gross profit Gross profit margin Gross profit Gross profit margin RMB (’000) % RMB (’000) % 1,647,140 91.0 1,741,772 90.0 204,383 87.3 256,210 86.5 129,486 67.2 193,299 69.1 1,981,009 88.6 2,191,281 87.3 37,348 – 46,697 – 1,943,661 86.9 2,144,584 85.4	For the nine months ended 30 September 2016 2017 Gross profit Gross profit margin Gross profit Gross profit margin RMB (’000) % RMB (’000) % 1,647,140 91.0 1,741,772 90.0 204,383 87.3 256,210 86.5 129,486 67.2 193,299 69.1 1,981,009 88.6 2,191,281 87.3 37,348 – 46,697 – 1,943,661 86.9 2,144,584 85.4
			87.3 –
			85.4

Gross profit of Beijing Tide increased by 12.6% from 2014 to 2015, by 13.7% from 2015 to 2016 and 10.3% from the nine months ended 30 September 2016 to the same period in 2017, mainly driven by increase in revenue.

The overall gross profit margin for the years ended 31 December 2014, 2015 and 2016 remained stable, which were 87.4%, 86.4% and 86.8%, respectively. The gross profit margin for the nine months ended 30 September 2016 and 2017 were 86.9% and 85.4%, respectively. The gross profit margin of Beijing Tide remained at a stable level, mainly because the sales volume of targeted medicines and solid dosage forms, which had relatively higher gross profit margin, remained stable.

EBITDA

Beijing Tide had recorded total EBITDA of approximately RMB882.9 million, RMB1,035.2 million, RMB1,200.1 million, RMB865.7 million and RMB1,095.5 million for the years ended 31 December 2014, 2015 and 2016, and the nine months ended 30 September 2016 and 2017, respectively.

EBITDA increased by approximately 17.3% for the year ended 31 December 2015 as compared to the year ended 31 December 2014 which was mainly driven by the increment in sales. EBITDA increased by approximately 15.9% for the year ended 31 December 2016 as compared to the year ended 31 December 2015 which was mainly driven by the increment in sales.

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MANAGEMENT DISCUSSION AND ANALYSIS ON SINO BIOPHARM BEIJING, SUPER DEMAND AND BEIJING TIDE

APPENDIX III

For the nine months ended 30 September 2017, EBITDA increased by 26.5% as compared to the nine months ended 30 September 2016, which was mainly driven by the increment in sales.

Other income and gains

For the years ended 31 December 2014, 2015 and 2016, and the nine months ended 30 September 2016 and 2017, Beijing Tide had recorded other income and gains of approximately RMB51.9 million, RMB52.5 million, RMB53.1 million, RMB29.0 million and RMB30.6 million, respectively.

Other income and gains for the year ended 31 December 2016 had increased as compared to the years ended 31 December 2014 and 2015, which was primarily due to the increase in investment gains.

Selling and distribution costs

Beijing Tide had recorded selling and distribution costs of approximately RMB963.4 million, RMB1,038.7 million, RMB1,149.2 million, RMB855.7 million and RMB876.3 million for the years ended 31 December 2014, 2015 and 2016 and the nine months ended 30 September 2016 and 2017, respectively, which mainly comprised salaries and welfares, marketing expenses, business entertainment expenses, transportation fees, office expenses and depreciation expense, etc.

The selling and distribution costs increased by 7.8% for the year ended 31 December 2015 as compared to the year ended 31 December 2014, which was primarily due to the increase in marketing expenses and salaries and welfares of Beijing Tide.

The selling and distribution costs increased by 10.6% for the year ended 31 December 2016 as compared to the year ended 31 December 2015, which was primarily due to the increase in marketing expenses and salaries and transportation fees.

The selling and distribution costs increased by 2.4% for the nine months ended 30 September 2017 as compared to the same period of 2016, which was primarily due to the increase in marketing expenses and salaries and welfares.

The selling and distribution costs as percentage of revenue showed a decreasing trend for the years ended 31 December 2014, 2015 and 2016, declining from 41.4% in 2014 to 38.3% in 2016, and decreased from 38.3% for the nine months ended 30 September 2016 to 34.9% for the nine months ended 30 September 2017.

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MANAGEMENT DISCUSSION AND ANALYSIS ON SINO BIOPHARM BEIJING, SUPER DEMAND AND BEIJING TIDE

APPENDIX III

Administrative expenses

For the financial years ended 31 December 2014, 2015 and 2016 and for the nine months ended 30 September 2016 and 2017, Beijing Tide had recorded administrative expenses amounted to RMB162.9 million, RMB167.0 million, RMB188.0 million, RMB154.4 million and RMB138.1 million, respectively, which mainly comprised salaries and staff welfares, travelling expenses, office expenses, business entertainment expenses, rental fees, amortizations and consulting expenses, etc.

The administrative expenses increased by approximately 2.5% for the year ended 31 December 2015 as compared with the year ended 31 December 2014, and increased by 12.6% for the year ended 31 December 2016 as compared with the year ended 31 December 2015, primarily due to the increase in travelling expenses and consulting expenses.

For the nine months ended 30 September 2017, the administrative expenses decreased by approximately 10.5% as compared to the same period of 2016, primarily due to the decrease in office expenses and consulting expenses.

Other expenses

For the years ended 31 December 2014, 2015 and 2016 and the nine months ended 30 September 2016 and 2017, Beijing Tide had recorded other expenses amounted to approximately RMB124.8 million, RMB165.7 million, RMB171.7 million, RMB137.7 million and RMB137.4 million, respectively, which mainly comprised research and development expenses and losses arising from the disposal of fixed assets. In 2015, other expenses of Beijing Tide included a short-term investment loss of RMB14.3 million.

Finance costs

For the three financial years ended 31 December 2014, 2015 and 2016 and for the nine months ended 30 September 2016 and 2017, Beijing Tide did not incur any finance costs.

Profit for the year/period

For the three financial years ended 31 December 2014, 2015 and 2016 and for the nine months ended 30 September 2016 and 2017, Beijing Tide had recorded profit amounted to approximately RMB686.3 million, RMB783.0 million, RMB928.8 million, RMB678.4 million and RMB874.7 million, respectively.

The profit increased by approximately 14.1% for the year ended 31 December 2015 as compared with the year ended 31 December 2014, increased by approximately 18.6% for the year ended 31 December 2016 as compared with the year ended 31 December 2015, and increased by approximately 28.9% for the nine months ended 30 September 2017 as compared to the same period of 2016.

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MANAGEMENT DISCUSSION AND ANALYSIS ON SINO BIOPHARM BEIJING, SUPER DEMAND AND BEIJING TIDE

APPENDIX III

Liquidity and financial resources

As at 31 December 2014, 2015 and 2016 and 30 September 2017, Beijing Tide had net current assets of approximately RMB1,742.2 million, RMB1,419.9 million, RMB915.5 million and RMB809.6 million, respectively. The current ratio (being current assets over current liabilities) as at 31 December 2014, 2015 and 2016 and 30 September 2017 were approximately 5.3 times, 4.3 times, 1.7 times and 1.9 times, respectively. The decrease in current ratio as at 31 December 2016 as compared with the current ratio as at 31 December 2014 and 31 December 2015 was primarily due to the increase in dividends payable.

As at 31 December 2014, 2015 and 2016 and 30 September 2017, Beijing Tide had net asset value of approximately RMB2,493.2 million, RMB2,277.8 million, RMB1,935.4 million and RMB1,921.1 million, respectively. The gearing ratio (being total liabilities divided by total assets) as at 31 December 2014, 2015 and 2016 were approximately 18.0%, 20.5% and 42.5%, respectively. The increase in gearing ratio as at 31 December 2016 was mainly due to the increase in dividends payable from 31 December 2015 to 31 December 2016. Beijing Tide had a gearing ratio of 35.7% as at 30 September 2017.

As at 31 December 2014, 2015 and 2016 and 30 September 2017, inventories of Beijing Tide amounted to approximately RMB135.8 million, RMB113.0 million, RMB160.2 million and RMB187.4 million, respectively.

As at 31 December 2014, 2015 and 2016 and 30 September 2017, trade and bills receivables of Beijing Tide amounted to approximately RMB365.5 million, RMB418.4 million, RMB457.1 million and RMB470.5 million, respectively. The increase in trade and bills receivables was primarily due to the increase in sales revenue.

As at 31 December 2014, 2015 and 2016 and 30 September 2017, Beijing Tide had other payables and accruals of approximately RMB348.6 million, RMB384.2 million, RMB1,181.0 million and RMB659.9 million, respectively. As at 31 December 2016, other payables and accruals included dividends payables amounted to RMB744.3 million. As at 30 September 2017, other payables and accruals included dividends payables amounted to RMB200.4 million.

Beijing Tide had trade payable of approximately RMB3.5 million, RMB6.0 million, RMB38.1 million and RMB16.1 million, respectively, as at 31 December 2014, 2015 and 2016 and 30 September 2017. The trade payable increased by approximately 70.4% as at 31 December 2015 as compared to 31 December 2014, and further increased by approximately 536.7% as at 31 December 2016 as compared to 31 December 2015. Such increase was primarily due to the increase in purchase as a result of the development of business of Beijing Tide.

As at 30 September 2017, short-term borrowing amounted to approximately RMB122.0 million, with an interest rate of 4.35%.

– III-8 –

MANAGEMENT DISCUSSION AND ANALYSIS ON SINO BIOPHARM BEIJING, SUPER DEMAND AND BEIJING TIDE

APPENDIX III

Capital structure

Beijing Tide obtained a business license from the State Administration for Industry and Commerce of the People’s Republic of China (SAIC). As of 30 September 2017, its registered capital amounted to RMB500 million. The proportions of shareholding are held as to 33.6% by Sino Biopharmaceutical Limited, 28% by China-Japan Friendship Hospital, 24% by France Investment (China 1) Group Limited, 11.52% by LTT Bio-Pharma Co., Ltd., 2.02% by Beijing Taitongda Information Consultancy Co., Ltd.（北京泰通達信息諮詢有限公司）and 0.86% held by Beijing Decheng Jingwei Consultancy Co., Ltd.（北京德成經緯諮詢有限公司）, respectively.

Beijing Tide had declared the dividends of RMB200 million, RMB1,000 million, RMB1,280 million and RMB900 million for the three years ended 31 December 2014, 2015 and 2016 and the nine months ended 30 September 2017, respectively.

Treasury policies

During the three financial years ended 31 December 2014, 2015 and 2016 and the nine months ended 30 September 2017, Beijing Tide usually financed its working capital through its daily operations. To manage liquidity risk, the management of Beijing Tide closely monitors the liquidity position to ensure that the liquidity structure of Beijing Tide’s assets, liabilities and commitments can meet its funding requirements.

Capital expenditures

For the years ended 31 December 2014, 2015 and 2016 and the nine months ended 30 September 2017, capital expenditure of approximately RMB107.2 million, RMB208.7 million, RMB233.7 million and RMB150.1 million were incurred, respectively, representing the additions to property, plant and equipment.

Significant investments and material acquisition and disposals

Beijing Tide did not have any significant investment or material acquisition and disposal for each of the three financial years ended 31 December 2014, 2015 and 2016 and the nine months ended 30 September 2017.

Employees and remuneration policies

As at 31 December 2014, 2015 and 2016 and 30 September 2017, the total number of employees of Beijing Tide was 1,971, 2,230, 2,367 and 2,532, respectively. The employee benefit expense for the three financial years ended 31 December 2014, 2015 and 2016 and the nine months ended 30 September 2016 and 2017 were approximately RMB304.1 million, RMB370.4 million, RMB412.7 million, RMB337.3 million and RMB350.4 million, respectively. The increase in number of employees was mainly attributable to our business development. Each of the employees is member of the state-managed retirement benefit plan.

– III-9 –

MANAGEMENT DISCUSSION AND ANALYSIS ON SINO BIOPHARM BEIJING, SUPER DEMAND AND BEIJING TIDE

APPENDIX III

Foreign exchange exposure

The cash and bank balances of Beijing Tide were denominated in Renminbi. The business operation of Beijing Tide had been primarily conducted in Renminbi. During each of the three financial years ended 31 December 2014, 2015 and 2016 and the nine months ended 30 September 2017, the impact of fluctuations in foreign currency on Beijing Tide were generally minimal and Beijing Tide did not have any foreign currency hedging policy. Beijing Tide does not use financial instruments for hedging purpose. No foreign currency net investments are hedged by currency borrowings or other hedging instruments. However, the management of Beijing Tide monitors foreign exchange exposure and would consider hedging significant foreign currency exposure should the need arise.

Contingent liabilities

As at 31 December 2014, 2015 and 2016 and 30 September 2017, Beijing Tide did not have any contingent liabilities.

Commitments

Beijing Tide did not have other commitment as at 31 December 2014, 2015 and 2016 and 30 September 2017.

Pledge of assets

As at 30 September 2017, bill receivables with a carrying amount of RMB30,000,000 and wealth management products with a carrying amount of RMB98,263,154 (31 December 2014, 2015 and 2016: nil) were pledaged.

Future plans for material investment and capital assets and new business

As at the Latest Practicable Date, Beijing Tide had no future plan for material investment and capital assets and new business.

Indebtedness statement

As at the close of business on 30 November 2017, being the latest practicable date for this statement of indebtedness prior to the printing of this circular, Beijing Tide had unsecured and unguaranteed short term loans of approximately RMB122 million. Save as otherwise disclosed herein, as at the close of business on 30 November 2017, the Target Group did not have any debt securities, charges, mortgages or other similar indebtedness, hire purchase and finance lease commitments, any guarantees or other material contingent liabilities.

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MANAGEMENT DISCUSSION AND ANALYSIS ON SINO BIOPHARM BEIJING, SUPER DEMAND AND BEIJING TIDE

APPENDIX III

Material change

Directors confirmed that there has been no material change in the financial or operating conditions or outlook of Beijing Tide since 30 September 2017, being the date to which the latest published audited consolidated financial statement of Beijing Tide was prepared.

Litigation

As at the latest practicable date, none of the Beijing Tide or its subsidiaries was engaged in any material litigation, arbitration or claim, and no material litigation, arbitration or claim was known to its directors to be pending or threatened against Beijing Tide or any of its subsidiaries.

– III-11 –

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Basis of preparation of the Unaudited Pro Forma Financial Information of the Enlarged Group

The accompanying unaudited pro forma consolidated statement of financial position of the Enlarged Group (the “Unaudited Pro Forma Financial Information”) has been prepared by the directors of the Company (the “Directors”) in accordance with paragraph 29 of Chapter 4 of the Listing Rules for the purpose of illustrating the effects of the acquisition of 51% of the issued share capital in Sino Biopharm Beijing (the “First Acquisition”) and the acquisition of 52% of the issued share capital in Super Demand together with Super Demand’s investment of 55% equity interest in France Investment BVI, which in turn owns 24% equity interest in Beijing Tide (the “Second Acquisition”) (collectively, the “Acquisition”).

The unaudited pro forma consolidated statement of financial position of the Enlarged Group has been prepared based on the unaudited consolidated statement of financial position of the Company and its subsidiaries (the “Group”) as at 30 September 2017, which has been extracted from the Group’s published unaudited interim report for the nine months ended 30 September 2017 dated 9 November 2017, and the audited statements of financial position of Sino Biopharm Beijing, Super Demand, France Investment BVI and Beijing Tide as 30 September 2017, which have been extracted from the accountants’ reports set out in Appendix II to this Circular, after taking into account the pro forma adjustments relating to the Acquisition that are (i) clearly shown and explained; (ii) directly attributable to the Acquisition and not relating to future events or decisions; and (iii) factually supportable, as explained in the accompanying notes, as if the Acquisition had been completed on 30 September 2017. The unaudited Pro Forma Financial Information is prepared based on that, the Directors of the Company assume the Company could obtain the control of Beijing Tide upon the completion of the Acquisition.

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 the Unaudited Pro Forma Financial Information is prepared for illustrative purposes only, and because of its hypothetical nature, it may not give a true picture of the financial position and results of the Enlarged Group following the completion of the Acquisition and does not purport to describe the actual financial position of the Enlarged Group that would have been attained had the Acquisition been completed on the date indicated herein. Further, the accompanying Unaudited Pro Forma Financial Information of the Enlarged Group does not purport to predict the future financial position of the Enlarged Group after the completion of the Acquisition.

– IV-1 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

The Unaudited Pro Forma Financial Information of the Enlarged Group has been prepared in accordance with paragraph 29 of Chapter 4 and paragraph 69(4)(a)(ii) of Chapter 14 of the Listing Rules. The Unaudited Pro Forma Financial Information of the Enlarged Group should be read in conjunction with the financial information of the Group as set out in Appendix I to the Circular, the accountants’ reports as set out in Appendix II to the Circular and other financial information included elsewhere in the Circular.

Unaudited Pro Forma Financial Information of the Enlarged Group

		Sino								Unaudited
		Biopharm	Super	Beijing						Enlarged
	The Group	Beijing	Demand	Tide						Group
	as at 30	as at 30	as at 30	as at 30						as at 30
	September	September	September	September						September
	2017	2017	2017	2017			Pro forma	adjustments		2017
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
	Note 1	Note 2	Note 3	Note 4	Note 5	Note 6	Note 7	Note 8	Note 9
NON-CURRENT ASSETS
Property, plant and equipment	3,060,934	795	–	1,071,335	(795)					4,132,269
Investment properties	384,129	–	–	–						384,129
Prepaid land lease payments	811,560	–	–	195,862						1,007,422
Goodwill	99,384	–	–	–				10,281,301		10,380,685
Other intangible assets	175,418	–	–	–						175,418
Investments in associates	897,649	646,679	456,308	8,944	(646,679)	(456,308)	(646,679)			259,914
Available-for-sale investments	525,186	–	–	–						525,186
Financial assets designated as at
fair value through profit or loss	175,767	–	–	–						175,767
Deferred tax assets	256,667	–	–	48,384						305,051
Prepayment	231,222	–	–	–						231,222
Investment in a subsidiary	–	–	–	–			11,494,388	(11,494,388)		–
Total non-current assets	6,617,916	647,474	456,308	1,324,525						17,577,063

– IV-2 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

		Sino								Unaudited
		Biopharm	Super	Beijing						Enlarged
	The Group	Beijing	Demand	Tide						Group
	as at 30	as at 30	as at 30	as at 30						as at 30
	September	September	September	September						September
	2017	2017	2017	2017			Pro forma	adjustments		2017
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
	Note 1	Note 2	Note 3	Note 4	Note 5	Note 6	Note 7	Note 8	Note 9
CURRENT ASSETS
Inventories	815,886	–	–	187,375						1,003,261
Trade and bills receivables	2,338,181	–	–	470,517						2,808,698
Prepayments, deposit and other
receivables	2,492,586	460	–	131,861	(460)					2,624,447
Due from ultimate holding
company	–	130,015	–	–	(130,015)					–
Available-for-sale investments	2,468,650	–	–	791,521						3,260,171
Equity investments at fair value
through profit or loss	923,079	–	–	–						923,079
Cash and bank balances	4,926,930	191,810	129,152	82,596	(191,810)					5,138,678
Total current assets	13,965,312	322,285	129,152	1,663,870						15,758,334
CURRENT LIABILITIES
Trade and bills payables	807,209	–	–	16,107						823,316
Tax payable	188,012	–	–	56,233						244,245
Other payables and accruals	4,455,755	–	–	659,907					4,709	5,120,371
Interest-bearing bank borrowings	739,602	–	–	122,000						861,602
Total current liabilities	6,190,578	–	–	854,247						7,049,534

– IV-3 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

		Sino								Unaudited
		Biopharm	Super	Beijing						Enlarged
	The Group	Beijing	Demand	Tide						Group
	as at 30	as at 30	as at 30	as at 30						as at 30
	September	September	September	September						September
	2017	2017	2017	2017			Pro forma	adjustments		2017
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
	Note 1	Note 2	Note 3	Note 4	Note 5	Note 6	Note 7	Note 8	Note 9
NET CURRENT ASSETS	7,774,734	322,285	129,152	809,623						8,708,800
TOTAL ASSETS LESS
CURRENT LIABILITIES	14,392,650	969,759	585,460	2,134,148						26,285,863
NON-CURRENT LIABILITIES
Deferred government grants	154,668	–	–	213,028						367,696
Interest-bearing bank borrowings	2,263,342	–	–	–						2,263,342
Deferred tax liabilities	81,200	15,731	22,630	–	(15,731)					103,830
Total non-current liabilities	2,499,210	15,731	22,630	213,028						2,734,868
Net assets	11,893,440	954,028	562,830	1,921,120						23,550,995
EQUITY
Equity attributable to
owners of the parent
Share capital	170,033	1	1	500,000	(1)	(1)	21,273	(500,000)		191,306
Reserves	8,981,907	954,027	309,556	1,421,120	(954,027)	(203,034)	10,826,436	(1,527,642)	(4,709)	19,803,634
	9,151,940	954,028	309,557	1,921,120						19,994,940
Non-controlling interests	2,741,500	–	253,273	–		(253,273)		814,555		3,556,055
Total equity	11,893,440	954,028	562,830	1,921,120						23,550,995

– IV-4 –

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Notes to the Unaudited Pro Forma Financial Information of the Enlarged Group

The unaudited consolidated statement of financial position of the Group as at 30 September 2017 is extracted from the published unaudited interim report of the Group for the nine months ended 30 September 2017.
The audited statement of financial position of Sino Biopharm Beijing as at 30 September 2017 is extracted from the accountants’ report of Sino Biopharm Beijing as set out in Appendix IIA to this Circular.

The presentation currency of Sino Biopharm Beijing is HK$. For illustrative purpose, to be consistent with the presentation currency of the Group, the assets, liabilities and equity of Sino Biopharm Beijing as at 30 September 2017 are translated into RMB, at the exchange rate of HK$1.00 to RMB0.8412.

The audited statement of financial position of Super Demand as at 30 September 2017 is extracted from the accountants’ report of Super Demand as set out in Appendix IIC to this Circular.

The financial information of France Investment BVI has been consolidated by Super Demand as its subsidiary of 55% equity interest. France Investment BVI holds 24% equity interest of Beijing Tide, which has been accounted for as investment in an associate in the audited statement of financial position of Super Demand accordingly.

The presentation currency of Super Demand is US$. For illustrative purpose, to be consistent with the presentation currency of the Group, the assets, liabilities and equity of Super Demand as at 30 September 2017 are translated into RMB, at the exchange rate of US$1.00 to RMB6.5729.

The audited consolidated statement of financial position of Beijing Tide as at 30 September 2017 is extracted from the accountants’ report of Beijing Tide as set out in Appendix IID to this Circular.
Sino Biopharm Beijing has been accounted for as a wholly-owned subsidiary of the Company pursuant to the unwind mechanism under the restructuring agreement entered into by the Company, the Vendor and the Whitewash Applicant on 1 June 2012. For accounting purpose, Sino Biopharm Beijing is accounted for as a subsidiary of the Company. Please also refer to the circular of the Company dated 22 June 2012 for further details.

The adjustment represents the elimination of the financial position of Sino Biopharm Beijing, as it has been consolidated in the accounts of the Group as at 30 September 2017.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Upon completion of the Acquisition, the Company will hold the entire issued share capital of Super Demand, together with Super Demand’s investment of 55% equity interest in France Investment BVI, which in turn owns 24% equity interest in Beijing Tide. In opinion of the Directors, the Company could obtain the control of Beijing Tide upon completion of the Acquisition. Thus, Super Demand will become wholly owned subsidiary of the Company and Beijing Tide will be changed from an associate of the Company with 33.6% equity interest hold by the Company to a subsidiary of the Company with 57.6% equity interest hold by the Company. Based on the assumption above and for the consolidation purpose, the adjustment is to eliminate 1) the share capital of Super Demand, and 2) France Investment BVI’s investment cost of 24% equity interest of Beijing Tide, which was accounted for as investment in an associate in the audited statement of financial position of Super Demand, of RMB456,308,000.
Based on the assumption as mentioned above, in opinion of the Directors, the Company could obtain the control of Beijing Tide upon completion of the Acquisition, Beijing Tide will become a subsidiary of the Company upon completion of the Acquisition. The adjustments represent the following:
1) Before the Acquisition, the Group previously holds the 33.6% equity interest in Beijing Tide. The investment was recorded as an investment in an associate, with a value of RMB646,679,000. For the purpose to present the pro forma adjustments, the investment was adjusted to the account of “Investment in a subsidiary”, which was further eliminated in below Note 8.
2) Pursuant to the terms of the agreement of First Acquisition and the agreement of Second Acquisition, and also as mentioned in Section “Consideration” of the Circular, the consideration is determined as HK$9,207,399,095 and HK$3,688,117,842, respectively. Given for the accounting purpose, Sino Biopharm Beijing is already accounted for as a subsidiary of the Company, the total consideration of the Acquisition should be attributable to acquire the entire issued share capital of Super Demand, together with its investment of 55% equity interest in France Investment BVI, which in turn owns 24% equity interest in Beijing Tide.

The total consideration of the Acquisition, amounted to HK$12,895,516,937, equivalent to RMB10,847,708,847 at the exchange rate of HK$1.00 to RMB0.8412, shall be satisfied by the Company by the issue and allotment of consideration shares.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

For the purpose of the preparation of the Unaudited Pro Forma Financial Information, as mentioned in Section “Issue Price” of the Circular, the Issue Price at HK$12.73 per Share (equivalent to RMB10.71 at the exchange rate of HK$1.00 to RMB0.8412) was adopted for the calculation of the fair value of the consideration shares. As if the Acquisition had been effected on 30 September 2017, and 1,013,002,116 additional ordinary shares of the Company will be issued, the nominal value of which is HK$0.025 (equivalent to RMB0.021 at the exchange rate of HK$1.00 to RMB0.8412) each, which result in additional share capital of RMB21,273,044 and share premium of RMB10,826,435,803 (before issue expenses). The actual fair value of the consideration shares will be determined upon completion of the Acquisition, which consequently may result in a financial effect which is materially different from the above.

For the purpose to present the pro forma adjustments, the consideration was posted in the account of “Investment in a subsidiary”, which was further eliminated in below Note 8.

Upon completion of the Acquisition, the identifiable net assets of Super Demand and Beijing Tide will be accounted for in the consolidated financial statements of the Enlarged Group under the acquisition method in accordance with Hong Kong Financial Reporting Standard 3 “Business Combinations” (“HKFRS 3”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

For the purpose of the Unaudited Pro Forma Financial Information, the Directors had assumed that the carrying values of the identifiable assets and liabilities of Super Demand and Beijing Tide approximated to their fair values, which will be reassessed on the completion date of the Acquisition together with the fair value assessment of the intangible assets and deferred tax impact in relation to such fair value adjustments.

Goodwill is recognized as the amount being the excess of (A) over (B) below:

(A) the aggregate of:
(i) the consideration of the Acquisition;
(ii) the amount of any non-controlling interest in Beijing Tide; and
(iii) the fair value of the Group’s previously held equity interest in Beijing Tide as at 30 September 2017.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

(B) the estimated fair value of the identifiable net assets of Super Demand and Beijing Tide as at 30 September 2017.

		Completion as of
		30 September
		2017
	Notes	RMB’000
The consideration of the Acquisition	a	10,847,709
Non-controlling interests of Beijing Tide	b	814,555
The fair value of the Group’s previously held equity
interest in Beijing Tide	c	646,679
		12,308,943
Carrying amounts of net assets of Super Demand	d	106,522
Carrying amounts of net assets of Beijing Tide		1,921,120
Identifiable net assets of the Target Group assumed	e	2,027,642
Goodwill arising from the Acquisition	f	10,281,301

a. The total consideration of the Acquisition was HK$12,895,516,937 as set out in the Circular (equivalent to RMB10,847,708,847 at the exchange rate of HK$1.00 to RMB0.8412 as at 30 September 2017).

As mentioned in above Note 7, the total consideration of the Acquisition should be attributable to the Second Acquisition to acquire the entire issued share capital of Super Demand, together with its investment of 55% equity interest in France Investment BVI which in turn owns 24% equity interest in Beijing Tide.

b. The amount of non-controlling interests of Beijing Tide is calculated as the remaining 42.4% equity interest of the total fair value of Beijing Tide.
c. The Company recorded the investment in Beijing Tide as an associate based on equity method previously, with carrying value amounted to RMB646,667,000 as at 30 September 2017. Upon completion of the Acquisition, the investment of 33.6% the Company held previously, will be remeasured at fair value. The difference between the carrying value and the fair value of the 33.6% of the equity interest in Beijing Tide as at the Acquisition completion date will be recognized as investment income or loss in the profit or loss of the Group.
d. This represents the carrying amounts of net assets of Super Demand have been adjusted for those adjustments in above Note 6, to eliminate the investment cost to Beijing Tide.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

e. Since the Unaudited Pro Forma Financial Information is prepared solely for illustrative purposes, the Directors had assumed that the carrying values of the identifiable assets and liabilities of the Target Group approximated to their fair values at 30 September 2017. The possible changes to fair values of the assets and liabilities of the Target Group being acquired were not reflected in the Unaudited Pro Forma Financial Information.

For the purpose of the Unaudited Pro Forma Financial Information, in the opinion of the Directors, the Target Group’s fair values of the assets and liabilities being acquired is subject to changes upon the completion of the Acquisition because the fair value of the assets and liabilities being acquired shall be assessed on the completion date. Accordingly, the Goodwill at the completion date of the acquisition may be materially different from that in the calculation above.

f. The goodwill is recognized for an outstanding product mix, strong research and development capability and advantages in technology, unique academic promotion and marketing systems, and a leading brand with market impact. For the purpose of the Unaudited Pro Forma Financial Information, the Company has assessed if there is any impairment loss on the goodwill arising from the Acquisition in accordance with the Hong Kong Accounting Standard No. 36 Impairment of Assets which is consistent with the Company’s accounting policy. The Directors are of the view that, after performing the impairment assessment, there is no impairment indication of the goodwill arising from the Acquisition as set out in the Unaudited Pro Forma Financial Information.

The Directors confirm, as the preparer of the annual financial statements, the basis used in the preparation of the Unaudited Pro Forma Financial Information will be consistent with the accounting policies of the Group, including the principal accounting policies and assumptions of the valuation of the Target Group to be consistently adopted in the first set of the financial statements of the Company after the completion of the Acquisition.

After the completion of the Acquisition, the management will assess the impairment of intangible assets of the Group at each financial year end and will present the first set of the consolidated financial statements of the Company for 2018 audit. The Directors ascertain all applicable disclosure requirements of the annual financial statements will be complied with applicable approved accounting standards.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Even though the impairment assessment will be carried out in the accounting periods in the future, in view of the date of the Circular and the balance sheet date of the first set of the financial statements of the Company after the completion of the Acquisition, any significant changes in the assessment of goodwill impairment is not expected. Accordingly, the Directors considered that no significant goodwill impairment is expected in the first set of financial statements after the completion of the Acquisition.

Since the fair value of the identifiable net assets of the Target Group at the date of the completion of the Acquisition may be substantially different from current fair value adjustment estimated in the Unaudited Pro Forma Financial Information, the goodwill recognized at the completion date of the Acquisition may be different from the amount presented above.

The adjustment represents the estimated transaction costs of approximately RMB4,709,000, which mainly include professional fees payable by the Group in connection with the Acquisition.
No other adjustment has been made to the Unaudited Pro Forma Financial Information to reflect any trading results or other transactions of the Group and the Target Group entered into subsequent to 30 September 2017.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

The following is the text of a report from the reporting accountants, Ernst & Young, Certified Public Accountants, Hong Kong, prepared for the purpose of incorporation in this Circular in respect of the unaudited pro forma financial information of the Enlarged Group.

INDEPENDENT REPORTING ACCOUNTANTS’ ASSURANCE REPORT ON THE COMPILATION OF PRO FORMA FINANCIAL INFORMATION INCLUDED IN THE CIRCULAR

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26 January 2018

To the Directors of Sino Biopharmaceutical Limited

We have completed our assurance engagement to report on the compilation of unaudited pro forma financial information of Sino Biopharmaceutical Limited (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 financial position as at 30 September 2017, and related notes as set out in Appendix IV of the circular dated 26 January 2018 issued by the Company (the “Circular”) (the “Unaudited Pro Forma Financial Information”). The applicable criteria on the basis of which the Directors have compiled the Unaudited Pro Forma Financial Information are described in Appendix IV of the Circular.

The Unaudited Pro Forma Financial Information has been compiled by the Directors to illustrate the impact of the proposed acquisition of 51% equity interest in Sino Biopharmaceutical (Beijing) Limited and 52% equity interest in Super Demand Investments Limited (the “Acquisition”) on the Group’s financial position as at 30 September 2017 as if the Acquisition had taken place at 30 September 2017. Upon completion of the Acquisition, the Company will hold the entire issued share capital of Sino Biopharmaceutical (Beijing) Limited and Super Demand Investments Limited together with Super Demand Investments Limited’s investment of 55% equity interest in France Investment (China I) Group Limited, which totally in turn owns 57.6% equity interest in Beijing Tide Pharmaceutical Co., Ltd. As part of this process, information about the Group’s financial position has been extracted by the Directors from the Group’s unaudited interim financial information for the nine months ended 30 September 2017 as set out in the published interim report of the Company dated 9 November 2017. Information about the financial position of Sino Biopharmaceutical (Beijing) Limited, Super Demand Investments Limited, France Investment (China I) Group Limited and Beijing Tide Pharmaceutical Co., Ltd has been extracted by the Directors from the audited financial information as set out in its accountants’ reports included in Appendix II to the Circular.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

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 (“AG”) 7 Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

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 accountants 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.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

The purpose of Unaudited Pro Forma Financial Information included in the Circular is solely to illustrate the impact of the Acquisition on unadjusted financial information of the Group as if the 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 Acquisition 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 Acquisition, and to obtain sufficient appropriate evidence about whether:

The related pro forma adjustments give appropriate effect to those criteria; and
The Unaudited Pro Forma Financial Information reflects the proper application of those adjustments to the unadjusted financial information.

The procedures selected depend on the reporting accountants’ judgment, having regard to the reporting accountants’ understanding of the nature of the Group, the 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 purposes of the pro forma financial information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Ernst & Young Certified Public Accountants Hong Kong

– IV-13 –

THIRD QUARTER RESULTS

APPENDIX V

The Third Quarter Results was published by the Company on 9 November 2017. As the Third Quarter Results constitutes a profit forecast under Rule 10 of the Takeovers Code, it must be examined, repeated and reported on in this circular.

The reports of Ernst & Young and CCBI, being the auditor and the financial adviser to the Company, respectively, are set out in Appendix VI and Appendix VII of this circular.

Set out below are the unaudited consolidated financial information of the Group for the nine months ended 30 September 2017, extracted from the Third Quarter Results Announcement.

Consolidated Statement of Profit or Loss

For the nine months ended
30 September,
2017
2016
RMB’000
RMB’000
(Unaudited)
(Unaudited)
(Restated)
11,446,729
10,450,096
(2,397,271)
(2,193,437)
9,049,458
8,256,659
391,219
170,594
(4,756,239)
(4,345,471)
(386,826)
(586,074)
(1,501,660)
(1,293,752)
(53,167)
(53,676)
272,230
218,320
3,015,015
2,366,600
(504,294)
(412,083)
2,510,721
1,954,517
1,804,961
1,299,673
705,760
654,844
2,510,721
1,954,517

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THIRD QUARTER RESULTS

APPENDIX V

		For the nine	months	ended
		30 September,
		2017		2016
	Notes	RMB’000	RMB’000
		(Unaudited)	(Unaudited)
			(Restated)
EARNINGS PER SHARE ATTRIBUTABLE
TO ORDINARY EQUITY HOLDERS
OF THE PARENT	8
		RMB24.35	RMB17.53
– Basic and diluted		cents		cents

Details of the dividend payable and declared for the period are disclosed in note 7 of this Appendix.

Consolidated Statement of Comprehensive Income

PROFIT FOR THE PERIOD OTHER COMPREHENSIVE (LOSS)/INCOME Other comprehensive (loss)/income to be reclassified to profit or loss in subsequent periods: Exchange differences on translation of foreign operations Net other comprehensive (loss)/income to be reclassified to profit or loss in subsequent periods TOTAL COMPREHENSIVE INCOME FOR THE PERIOD Attributable to: Owners of the parent Non-controlling interests	For the nine months ended 30 September, 2017 2016 RMB’000 RMB’000 (Unaudited) (Unaudited) (Restated) 2,510,721 1,954,517 (184,841) 94,097 (184,841) 94,097 2,325,880 2,048,614 1,622,048 1,393,085 703,832 655,529 2,325,880 2,048,614	For the nine months ended 30 September, 2017 2016 RMB’000 RMB’000 (Unaudited) (Unaudited) (Restated) 2,510,721 1,954,517 (184,841) 94,097 (184,841) 94,097 2,325,880 2,048,614 1,622,048 1,393,085 703,832 655,529 2,325,880 2,048,614

		94,097
		94,097
		2,048,614

		1,393,085 655,529
		2,048,614

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THIRD QUARTER RESULTS

APPENDIX V

Consolidated Statement of Financial Position

Notes NON-CURRENT ASSETS Property, plant and equipment Investment properties Prepaid land lease payments Goodwill Other intangible assets Investments in associates Available-for-sale investments Financial assets designated at fair value through profit or loss Deferred tax assets Prepayments Total non-current assets CURRENT ASSETS Inventories Trade and bills receivables Prepayment, deposit and other receivables Dividend due from an associate Available-for-sale investments Equity investments at fair value through profit or loss Cash and bank balances 9 Total current assets CURRENT LIABILITIES Trade and bills payables Tax payable Other payables and accruals Interest-bearing bank borrowings Total current liabilities NET CURRENT ASSETS	30 September, 2017 RMB’000 (Unaudited) 3,060,934 384,129 811,560 99,384 175,418 897,649 525,186 175,767 256,667 231,222 6,617,916 815,886 2,338,181 2,492,586 – 2,468,650 923,079 4,926,930 13,965,312 807,209 188,012 4,455,755 739,602 6,190,578 7,774,734	31 December, 2016 RMB’000 (Audited) (Restated) 2,658,160 421,494 465,061 99,384 176,203 946,660 369,447 147,926 260,817 40,013
		5,585,165
		917,868 1,995,827 3,195,323 349,199 2,122,358 408,557 3,765,786
		12,754,918
		826,734 193,024 3,271,494 1,369,474
		5,660,726
		7,094,192

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APPENDIX V

THIRD QUARTER RESULTS

Notes TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Deferred government grants Interest-bearing bank borrowings Deferred tax liabilities Total non-current liabilities Net assets EQUITY Equity attributable to owners of the parent Share capital 10 Reserves Non-controlling interests Total equity	30 September, 2017 RMB’000 (Unaudited) 14,392,650 154,668 2,263,342 81,200 2,499,210 11,893,440 170,033 8,981,907 9,151,940 2,741,500 11,893,440	31 December, 2016 RMB’000 (Audited) (Restated) 12,679,357
		201,603 1,678,968 56,875
		1,937,446
		10,741,911

		170,033 7,813,402
		7,983,435 2,758,476
		10,741,911

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THIRD QUARTER RESULTS

APPENDIX V

Notes:

1. BASIS OF PREPARATION

The unaudited consolidated financial information should be read in conjunction with the 2016 annual financial statements.

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries (collectively referred to as the “Group”) for the nine months ended 30 September, 2017. A subsidiary is an entity (including a structured entity), directly or indirectly, controlled by the Company. Control is achieved when the 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 Group the current ability to direct the relevant activities of the investee).

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

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THIRD QUARTER RESULTS

APPENDIX V

the fair value of any investment retained and (iii) any resulting surplus or deficit in profit or loss. The 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 Group had directly disposed of the related assets or liabilities.

2. OPERATING SEGMENT INFORMATION

The management considers the business from products/services perspective. The three reportable segments are as follows:

(a) the modernized Chinese medicines and chemical medicines segment comprises the manufacture, sale and distribution of the modernized Chinese medicine products and chemical medicine products;
(b) the investment segment is engaged in long term and short term investments; and
(c) the other segment comprises, principally, (i) the Group’s R&D sector which provides services to third-party; and (ii) related healthcare and hospital business.

Segment assets exclude deferred tax assets and investments in associates as these assets are managed on a group basis.

Segment liabilities exclude tax payable and deferred tax liabilities as these liabilities are managed on a group basis.

– V-6 –

THIRD QUARTER RESULTS

APPENDIX V

The segment results for the nine months ended 30 September, 2017

Segment revenue: Sales to external customers Segment results Reconciliation: Interest and unallocated gains Share of profits and losses of associates Unallocated expenses Profit before tax Income tax expense Profit for the period Assets and liabilities Segment assets Reconciliation: Investments in associates Other unallocated assets Total assets Segment liabilities Reconciliation: Other unallocated liabilities Total liabilities Other segment information: Depreciation and amortisation Capital expenditure Other non-cash expenses	Modernized Chinese medicines and chemical medicines RMB’000 11,110,984 2,653,002 12,767,300 4,878,842 234,642 727,978 618	Investment RMB’000 3,813 182,128 5,702,433 3,223,360 22,500 122 37	Others RMB’000 331,932 137,970 959,179 318,374 15,651 30,803 –	Total RMB’000 11,446,729 2,973,100 44,448 272,230 (274,763) 3,015,015 (504,294) 2,510,721 19,428,912 897,649 256,667 20,583,228 8,420,576 269,212 8,689,788 272,793 758,903 655

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THIRD QUARTER RESULTS

APPENDIX V

The segment results for the nine months ended 30 September, 2016 (Restated)

Segment revenue: Sales to external customers Segment results Reconciliation: Interest and unallocated gains Share of profits and losses of associates Unallocated expenses Profit before tax Income tax expense Profit for the period Assets and liabilities Segment assets Reconciliation: Investments in associates Other unallocated assets Total assets Segment liabilities Reconciliation: Other unallocated liabilities Total liabilities Other segment information: Depreciation and amortisation Capital expenditure Other non-cash expenses	Modernized Chinese medicines and chemical medicines RMB’000 10,106,702 2,494,918 11,858,842 5,045,392 166,205 354,999 7,793	Investment RMB’000 4,887 (158,509) 3,436,331 2,256,571 21,323 49 2	Others RMB’000 338,507 39,178 1,027,531 316,986 11,805 1,483 –	Total RMB’000 10,450,096 2,375,587 23,811 218,320 (251,118) 2,366,600 (412,083) 1,954,517 16,322,704 1,182,355 219,478 17,724,537 7,618,949 255,422 7,874,371 199,333 356,531 7,795

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THIRD QUARTER RESULTS

APPENDIX V

No information about a major customer is presented as no single customer contributes to over 10% of the Group’s revenue for the nine months ended 30 September, 2017 and 2016.

3. REVENUE, OTHER INCOME AND GAINS

Revenue, which is the Group’s revenue, represents the net invoiced value of goods sold, after allowances for returns and trade discounts.

An analysis of revenue, other income and gains is as follows:

Revenue Sale of goods Others Other income Bank interest income Interest income from convertible bonds Dividend income Government grants Sale of scrap materials Investment income Gross rental income Others Gains Gain on disposal of items of property, plant and equipment Gain on disposal of equity investments Fair value gains Equity investments at fair value through profit or loss – held for trading – financial assets Total other income and gains	For the nine months ended 30 September, 2017 2016 RMB’000 RMB’000 (Unaudited) (Unaudited) (Restated) 11,149,095 10,145,537 297,634 304,559 11,446,729 10,450,096 44,448 23,811 12,681 12,675 25,483 12,075 21,695 27,413 4,855 716 89,107 76,412 3,981 2,690 31,233 11,968 233,483 167,760 1,504 2,834 81,974 – 63,829 – 10,429 – 157,736 2,834 391,219 170,594	For the nine months ended 30 September, 2017 2016 RMB’000 RMB’000 (Unaudited) (Unaudited) (Restated) 11,149,095 10,145,537 297,634 304,559 11,446,729 10,450,096 44,448 23,811 12,681 12,675 25,483 12,075 21,695 27,413 4,855 716 89,107 76,412 3,981 2,690 31,233 11,968 233,483 167,760 1,504 2,834 81,974 – 63,829 – 10,429 – 157,736 2,834 391,219 170,594
		10,450,096

		23,811 12,675 12,075 27,413 716 76,412 2,690 11,968
		167,760
		2,834 – – –
		2,834
		170,594

– V-9 –

THIRD QUARTER RESULTS

APPENDIX V

4. FINANCE COST

				For the nine	months ended
				30 September,
				2017	2016
				RMB’000	RMB’000
				(Unaudited)	(Unaudited)
					(Restated)
Interest	on	bank	borrowings	53,167	53,676

5. PROFIT BEFORE TAX

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

Cost of sales Depreciation of property, plant and equipment Depreciation of investment properties Recognition of prepaid land lease payments Amortization of other intangible assets Research and development costs Gain on disposal of items of property, plant and equipment Loss on disposal of items of property, plant and equipment Bank interest income Dividend income Investment income Fair value (gains)/losses, net: Equity investments at fair value through profit or loss – held for trading Financial assets designated as fair value through profit or loss Auditors’ remuneration Staff cost (including directors’ remuneration) Wages and salaries Pension contributions Accrual of impairment loss of trade receivables Foreign exchange differences, net	For the nine months ended 30 September, 2017 2016 RMB’000 RMB’000 (Unaudited) (Unaudited) (Restated) 2,397,271 2,193,437 245,401 174,676 17,057 16,542 723 723 9,612 7,392 1,469,177 1,247,805 (1,504) (2,834) 655 7,795 (44,448) (23,811) (25,483) (12,075) (89,107) (76,412) (63,829) 181 (10,429) 1,453 2,871 2,922 791,830 708,718 155,683 149,685 947,513 858,403 31,633 5,495 (87,438) 40,516	For the nine months ended 30 September, 2017 2016 RMB’000 RMB’000 (Unaudited) (Unaudited) (Restated) 2,397,271 2,193,437 245,401 174,676 17,057 16,542 723 723 9,612 7,392 1,469,177 1,247,805 (1,504) (2,834) 655 7,795 (44,448) (23,811) (25,483) (12,075) (89,107) (76,412) (63,829) 181 (10,429) 1,453 2,871 2,922 791,830 708,718 155,683 149,685 947,513 858,403 31,633 5,495 (87,438) 40,516
		858,403
		5,495 40,516

– V-10 –

THIRD QUARTER RESULTS

APPENDIX V

6. INCOME TAX EXPENSE

Group: Current – Hong Kong Current – Mainland China income tax Deferred tax Total tax charge for the period	For the nine months ended 30 September, 2017 2016 RMB’000 RMB’000 (Unaudited) (Unaudited) (Restated) – – 484,764 402,373 19,530 9,710 504,294 412,083	For the nine months ended 30 September, 2017 2016 RMB’000 RMB’000 (Unaudited) (Unaudited) (Restated) – – 484,764 402,373 19,530 9,710 504,294 412,083
		412,083

During the nine months ended 30 September, 2017, CT Tianqing, NJCTT, Jiangsu Fenghai, Jiangsu Qingjiang, Qingdao Haier, Shanghai Tongyong and LYG Runzhong were subject to a corporate income tax rate of 15% because they are qualified as a “High and New Technology Enterprise”.

Other than the above mentioned entities, the other entities located in the PRC are subject to a corporate income tax rate of 25% in 2017.

7. DIVIDEND AND CLOSURE OF REGISTER OF MEMBERS

The Board has declared the payment of a third quarterly dividend of HK2 cents per ordinary share for the three months ended 30 September, 2017 (2016: HK1.5 cents). The dividend will be paid to shareholders on Friday, 15 December, 2017 whose names appear on the Register of Members of the Company on Friday, 1 December, 2017. For the purpose of determining shareholders who are qualified for the third quarterly dividend, the register of members of the Company will be closed from Thursday, 30 November, 2017 to Friday, 1 December, 2017, both days inclusive, during which period no transfer of shares will be effected. In order to qualify for the third quarterly dividend, all transfers accompanied by the relevant share certificates must be lodged with the Company’s branch share registrar, Tricor Tengis Limited, Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong by 4:30 p.m. on Wednesday, 29 November, 2017.

8. EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT

The calculation of basic earnings per share amounts is based on the profit attributable to ordinary equity holders of the parent for the period of approximately RMB1,804,961,000 (2016: approximately RMB1,299,673,000 (Restated) ), and the weighted average number of ordinary shares of 7,412,192,209 (2016: 7,412,192,209) in issue during the period.

The Group had no potentially dilutive ordinary shares in issue during these two periods.

– V-11 –

THIRD QUARTER RESULTS

APPENDIX V

9. CASH AND BANK BALANCES

Cash and bank balances, unrestricted Time deposits with original maturity of less than three months Time deposits with original maturity of more than three months	30 September, 2017 RMB’000 (Unaudited) 1,417,370 3,157,885 351,675 4,926,930	31 December, 2016 RMB’000 (Audited) (Restated) 1,472,778 2,025,760 267,248
		3,765,786

10. SHARE CAPITAL

	30 September,	31 December,
	2017	2016
	RMB’000	RMB’000
	(Unaudited)	(Audited)
		(Restated)
*Issued and fully paid:*
7,412,192,209 ordinary shares of approximately RMB0.02294 each
(2016: 7,412,192,209 ordinary shares of
approximately RMB0.02294 each)	170,033	170,033

– V-12 –

THIRD QUARTER RESULTS

APPENDIX V

MANAGEMENT DISCUSSION AND ANALYSIS

Industry Overview

During the period under review, although some regions continued to be affected by political issues, the global economy had grown faster and economies in countries and regions including the US, Japan and Europe appeared to be on steady recovery. The PRC economy continued to grow at moderate to high speed with GDP growth in the first three quarters reaching 6.9%. New industries such as the high-tech service industry, cloud computing and IoT (Internet of Things) have been growing rapidly and the share of contribution from mid-range to high-end industries has also been increasing gradually. For the pharmaceutical industry, the main operating pressures have come from policy changes such as the new round of lower price tenders, control over medical insurance premium and the change in proportion of medicines hospitals can directly control and, as a result, sales were affected. Since early this year, China has been promoting hierarchical diagnosis and an integrated medical system that patients are transferred to county and community level hospitals and medicine sales follow. The cancellation of mark-up of sales prices of medicines destined to hospitals in late September and the “Two-Invoice System” have changed the pattern of medicine sales. Facing these policy changes, leading pharmaceutical enterprises have actively adjusted their marketing system to cope with associated risks. On the other hand, the industry saw some changes in its favor, such as, a new round of adjustment of the national medical insurance catalogues, expansion of the provincial and municipal medical insurance catalogues and increase in personal medical insurance subsidies. The pharmaceutical industry remained stable overall, but the operational capability of players appeared to be heading towards the two extremes.

Business Review

During the period under review, heeding the new policies such as control over medical insurance premium and lower price tenders, other than continuing to consolidate academic support to existing leading products such as Runzhong, Tianqingganmei, Yilunping, Tuotuo and Gaisanchun, the Group also strengthened academic promotion of new medicines with fewer competitions. New products including Tianding, Gelike, Yinishu, Yigu, Flurbiprofen Axetil Injection and Flurbiprofen Cataplasm saw rapid growth and have already become steady growth drivers. Aisuping, a new product for digestive system health, has quickly become a key “hundred million dollar product” the second year after launch. In response to the changes brought by the hierarchical diagnosis approach, the Group boosted coverage of its professional academic team to county and district level hospitals. With all these efforts, the Group was able to achieve stable growth in its business results. On the research and development (“R&D”) front, the Group obtained production approval for Tenofovir Disoproxil Fumarate ingredient and preparation for HIV indication, while approval for production of original research medicine, Anlotinib capsules, for treating advanced non-small cell lung cancer was still pending. Production applications were filed for 6 products, including Abiraterone acetate ingredient and tablets, Tofacitinib Citrate ingredient and tablets, Celecoxib capsules and Saxagliptin tablets. During the quarter, the Group also filed 12 new clinical applications and obtained 5 new clinical approvals, 17 patent licenses (of which 16 are invention patents and 1 apparel design patent). 120 are invention patents and 2 are utility model patents among the 124 new patent applications filed.

– V-13 –

APPENDIX V

THIRD QUARTER RESULTS

The Group recorded revenue of approximately RMB11,446.73 million during the period under review, an increase of approximately 9.5% over the same period last year. Before and after accounted for unrealized fair value gains and losses of equity investments and financial assets, profit attributable to the Group was approximately RMB1,730.70 million and approximately RMB1,804.96 million, respectively, approximately 33.0% and approximately 38.9% higher than that of the same period last year, respectively. Based on the profit attributable to the Group before and after accounted for unrealized fair value gains and losses of equity investments and financial assets, the basic earnings per share were approximately RMB23.35 cents and approximately RMB24.35 cents, respectively, approximately 33.0% and approximately 38.9% higher than that of the same period last year, respectively. Cash and bank balances totaled approximately RMB4,926.93 million.

The Group continues to focus on developing specialized medicines where its strengths lie so as to build up its brand in specialist therapeutic areas. Leveraging on its existing medicine series for treating hepatitis and cardio-cerebral diseases, the Group also actively develops oncology medicines, analgesic medicines, orthopedic medicines, anti-infectious medicines, parenteral nutritious medicines, respiratory system medicines, anorectal medicines and diabetic medicines, etc.

Hepatitis medicines

For the nine months ended 30 September, 2017, the sales of hepatitis medicines amounted to approximately RMB5,132.49 million, representing approximately 44.8% of the Group’s revenue.

CT Tianqing mainly produces two categories of hepatitis medicines that can protect the liver while lowering enzyme levels and combat hepatitis virus. Ganlixin injections and capsules made with ingredients extracted from Licorice have the dual effects of liver protection and lowering enzyme level. For the nine months ended 30 September, 2017, its sales amounted to approximately RMB87.47 million. After the expiration of the protection period of the product, many replicas have emerged in the market, resulting in intensified competition. The Group thus developed Tianqingganping enteric capsules with better therapeutic effect than Ganlixin capsules and its intellectual property right being protected. Sales of the medicine amounted to approximately RMB310.82 million in the period under review. In 2005, CT Tianqing launched the patented medicine Tianqingganmei injections, which are made with Isoglycyrrhizinate separated from Licorice and have bright prospects. During the period under review, the product recorded the sales of approximately RMB1,526.06 million, an increase of approximately 6.1% against the same period last year. The Group believes that medicine series made with ingredients extracted from Licorice will help to maintain CT Tianqing’s leadership in the market for medicines protecting the liver and lowering enzyme levels.

The Group launched a patented hepatitis medicine called Mingzheng capsules in 2006. As a first-tier synthetic drug for combating hepatitis virus in the international market, the product has been well received by the market since launched with sales increasing rapidly. Mingzheng capsules have become another blockbuster product for combating hepatitis virus. For the nine months ended 30 September, 2017, its sales amounted to approximately RMB261.70 million.

– V-14 –

APPENDIX V

THIRD QUARTER RESULTS

CT Tianqing’s self-developed new medicine for hepatitis B, Runzhong (Entecavir) dispersible tablet, has obtained the new product approval certificate and production approval in February 2010, making CT Tianqing the first pharmaceutical manufacturer to gain the approval for this product in the PRC. The product was launched to the market in March 2010. For the nine months ended 30 September, 2017, the sales amounted to approximately RMB2,487.47 million, an increase of approximately 6.2% against the same period last year. Runzhong dispersible tablet is the latest generation of guanine nucleoside analogue oral medicine used mainly for the treatment of hepatitis B. It inhibits viral replication and has lower risk of triggering the emergence of medicine-resistant virus. After Entecavir was launched in 2005, the medicine recorded strong sales growth around the world as one of the most efficacious hepatitis B medicines. Another product, Tianding tablets, was launched in April 2013, its sales amounted to approximately RMB299.13 million for the nine months ended 30 September, 2017, an increase of approximately 74.9% against the same period last year. For the nine months ended 30 September, 2017, the sales of Ganze (Entecavir) capsules amounted to approximately RMB91.75 million, an increase of approximately 55.3% against the same period last year.

Cardio-cerebral medicines

For the nine months ended 30 September, 2017, after accounted for certain pharmaceutical products not being consolidated but under the management of the Group, the sales of cardio-cerebral medicines amounted to approximately RMB2,233.89 million, representing approximately 16.0% of the adjusted enlarged revenue of the Group. The consolidated sales of cardio-cerebral medicines of the Group amounted to approximately RMB1,153.97 million, representing approximately 10.1% of the Group’s revenue.

NJCTT’s Tianqingning injections is a plasma-volume expander for patients with blood volume deficiencies. As this product can be used as plasma for all blood types, it has huge market potential. For the nine months ended 30 September, 2017, the product recorded the sales of approximately RMB130.74 million. The sales of another pharmaceutical product, Yilunping tablets, amounted to approximately RMB479.81 million for the nine months ended 30 September, 2017, a year-on-year increase of approximately 16.4%. For the nine months ended 30 September, 2017, the sales of Tuotuo calcium tablets amounted to approximately RMB432.15 million, a year-on-year increase of approximately 5.8%.

Kaishi injections works on the Drug Delivery System (DDS) theory to improve cardio-cerebral micro-circulation blockage. It is the first lipo-microsphere targeted sustained release medicine in the PRC. The proprietary pharmaceutical technology used by the Group enhances the product to have more apparent effect than similar products in the market and occupy a large portion of market share. It received many awards from various countries since launched and has obtained the renewed GMP certification for foreign pharmaceutical company from the Public Welfare and Health Ministry of Japan in December 2012. For the nine months ended 30 September, 2017, the sales of Kaishi injections amounted to approximately RMB817.85 million. Applying the technology of micro-solid dispersion with microgram precision, Beraprost Sodium tablets can explicitly improve the ulcer, intermittent claudication, pain and cold symptom from the chronic arterial occlusion. For the nine

– V-15 –

THIRD QUARTER RESULTS

APPENDIX V

months ended 30 September, 2017, the sales of Beraprost sodium tablets amounted to approximately RMB262.07 million, an increase of approximately 22.2% as compared with the same period last year.

Oncology medicines

For the nine months ended 30 September, 2017, the sales of oncology medicines amounted to approximately RMB1,239.17 million, representing approximately 10.8% of the Group’s revenue. Oncology medicines are mainly manufactured by CT Tianqing and NJCTT. For the nine months ended 30 September, 2017, sales of Zhiruo injections amounted to approximately RMB202.63 million. The sales of Saiweijian injections amounted to approximately RMB258.42 million during the period under review, an increase of approximately 11.3% as compared with the same period last year. The sales of Tianqingyitai injections amounted to approximately RMB164.68 million during the period under review, an increase of approximately 4.2% as compared with the same period last year. For the nine months ended 30 September, 2017, the sales of a new product, Qingweike injections, amounted to approximately RMB124.59 million, an increase of 22.0% as compared with the same period last year. Shoufu tablets was launched in February 2014. For the nine months ended 30 September, 2017, its sales amounted to approximately RMB132.47 million, an increase of approximately 12.2% as compared with the same period last year. Sales of Gelike capsules for the nine months ended 30 September, 2017 amounted to approximately RMB131.84 million, an increase of approximately 34.4% as compared with the same period last year. Sales of Yinishu tablets for the nine months ended 30 September, 2017 amounted to approximately RMB81.26 million, an increase of approximately 50.4% as compared with the same period last year.

Analgesic medicines

For the nine months ended 30 September, 2017, after accounted for certain pharmaceutical products not being consolidated but under the management of the Group, the sales of analgesic medicines amounted to approximately RMB1,440.67 million, representing approximately 10.3% of the adjusted enlarged revenue of the Group. Launched in 2005, the analgesic medicine Kaifen injections is a Flurbiprofen Axetil lipo-microsphere targeted sustained release analgesic injection produced based on the DDS theory and enabled by advanced target technology. The product is developed and manufactured by Beijing Tide and is famous for strong pain relieving effect with minimal side effects. The sales of the product for the nine months ended 30 September, 2017 amounted to approximately RMB1,117.16 million, approximately 26.9% higher than that of the same period last year. Another product for relieving non-surgical joint soft tissue pain is Flurbiprofen Cataplasm, its sales for the nine months ended 30 September, 2017 amounted to approximately RMB289.55 million, approximately 50.2% higher than that of the same period last year.

– V-16 –

THIRD QUARTER RESULTS

APPENDIX V

Orthopedic medicines

For the nine months ended 30 September, 2017, the sales of orthopedic medicines amounted to approximately RMB948.47 million, representing approximately 8.3% of the Group’s revenue.

The main product of orthopedic medicines is the New Ossified Triol capsules. For the nine months ended 30 September, 2017, its sales amounted to approximately RMB649.62 million, rose by approximately 16.2% as compared with the same period last year. For the nine months ended 30 September, 2017, the sales of another product, Jiuli tablets, amounted to approximately RMB178.67 million, an increase of approximately 39.1% against the same period last year.

Anti-infectious medicines

For the nine months ended 30 September, 2017, the sales of anti-infectious medicines amounted to approximately RMB673.70 million, representing approximately 5.9% of the Group’s revenue.

The main product of anti-infectious medicines is Tiance injections. For the nine months ended 30 September, 2017, its sales amounted to approximately RMB518.76 million. For the nine months ended 30 September, 2017, the sales of another product, Tianjie tablets, amounted to approximately RMB115.77 million, an increase of approximately 41.7% against the same period last year.

Anorectal medicines

For the nine months ended 30 September, 2017, the sales of anorectal medicines amounted to approximately RMB558.88 million, representing approximately 4.9% of the Group’s revenue.

The main product of anorectal medicines is Getai tablets. For the nine months ended 30 September, 2017, its sales amounted to approximately RMB170.96 million, an increase by approximately 13.4% as compared with the same period last year. A new product, Aisuping (Esomeprazole Sodium) injection was launched in May 2016. Its sales amounted to approximately RMB332.99 million for the nine months ended 30 September, 2017, a significant increase by approximately 2652.6% as compared with the same period last year.

Parenteral nutritious medicines

For the nine months ended 30 September, 2017, the sales of parenteral medicines amounted to approximately RMB537.89 million, representing approximately 4.7% of the Group’s revenue.

The main product of parenteral nutritious medicines is Xinhaineng injections. For the nine months ended 30 September, 2017, its sales amounted to approximately RMB379.09 million. For the nine months ended 30 September, 2017, the sales of Fenghaineng fructose injections amounted to approximately RMB152.69 million.

– V-17 –

THIRD QUARTER RESULTS

APPENDIX V

Respiratory system medicines

For the nine months ended 30 September, 2017, the sales of respiratory medicines amounted to approximately RMB484.99 million, representing approximately 4.2% of the Group’s revenue.

The main product of respiratory system medicines is Tianqingsule inhalation powder. For the nine months ended 30 September, 2017, its sales amounted to approximately RMB311.59 million, an increase by approximately 32.3% as compared with the same period last year. For the nine months ended 30 September, 2017, the sales of another pharmaceutical product, Chia Tai Suke tablets, amounted to approximately RMB124.78 million, an increase by approximately 10.0% as compared with the same period last year.

Diabetic medicines

For the nine months ended 30 September, 2017, the sales of diabetic medicines amounted to approximately RMB82.91 million, representing approximately 0.7% of the Group’s revenue.

The main diabetic medicine of the Group, Taibai sustained release tablets, which is used for lowering blood sugar level, was developed and manufactured by CT Tianqing. There are more than 100 million diabetics in the PRC and the Metformin Hydrochloride has been identified as a first-tier medicine for lowering blood sugar level. As Taibai sustained release tablets has sustained release capability, it can stabilize a patient’s blood sugar level. For the nine months ended 30 September, 2017, the sales of the product amounted to approximately RMB68.28 million, an increase by approximately 19.3% as compared with the same period last year.

AVAILABLE-FOR-SALE INVESTMENTS

As at 30 September, 2017, the Group had the non-current available-of-sale (“AFS”) investment of approximately RMB525.19 million (31 December, 2016: approximately RMB369.45 million (restated) ) and current AFS investment of approximately RMB2,468.65 million (31 December, 2016: approximately RMB2,122.36 million (restated) ). Non-current AFS investments are certain unlisted equity investments and current AFS investments are the wealth management products and trust funds. For wealth management products and trust funds, the Group has entered the investment contracts with several PRC banks, including Ping An Trust (approximately RMB719 million), Jiangsu Bank (approximately RMB518 million), Industrial and Commercial Bank (approximately RMB480.76 million), Xiamen International Bank (approximately RMB380 million) and other banks (approximately RMB370.89 million) during the period. These investments, representing approximately 12.0% of the total assets of the Group, mainly consisted of the principal-guaranteed with floating return products with relatively lower risk of default. All principal and interests will be paid together on the maturity date. The Board believes that the investment in wealth management products and trust funds can strengthen the financial position of the Group and bring the fruitful contribution to the profit of the Group.

– V-18 –

THIRD QUARTER RESULTS

APPENDIX V

FINANCIAL ASSETS/EQUITY INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

As at 30 September, 2017, the Group had (i) non-current financial assets designated as at fair value through profit or loss of approximately RMB175.77 million (31 December, 2016: approximately RMB147.93 million (restated) ) which are the convertible bonds of Karolinska Development AB with an aggregate nominal value of SEK272,858,294 and 8% interest per annum; and (ii) current equity investments at fair value through profit or loss of approximately RMB923.08 million (31 December, 2016: approximately RMB408.56 million (restated) ) which were investments in various listed shares. The Group recorded the realized gain on the disposal of the equity investments of approximately RMB81.97 million and unrealized fair value gain and loss of the financial assets and equity investments of approximately RMB74.26 million for the nine months ended 30 September, 2017. The Board believes that the investment in financial assets and equity investments can diversify the investment portfolio of the Group and achieve a better return to the Group in future.

R&D

The Group has continued to focus its R&D efforts on new cardio-cerebral, hepatitis, oncology, analgesic and respiratory system medicines. During the third quarter, the Group was granted 2 production approvals, 5 clinical approvals, 12 new clinical applications and 6 production applications. Cumulatively, a total of 467 pharmaceutical products had obtained clinical approval, or were under clinical trial or applying for production approval. Out of these, 53 were for cardio-cerebral medicines, 33 for hepatitis medicines, 199 for oncology medicines, 22 for respiratory system medicines, 26 for diabetic medicines and 134 for other medicines.

Over the years, the Group has been placing high importance on R&D and innovation, as well as through collaboration and imitation, to raise both R&D standards and efficiency. In light of the fact that R&D continues to be the lifeblood of the Group’s development, the Group continues to devote into more resources. For the nine months ended 30 September, 2017, the R&D expenditure of approximately RMB1,469.18 million, which accounted for approximately 12.8% of the Group’s revenue, was charged to the statement of profit or loss.

The Group also places major emphasis on the protection of intellectual property rights. It encourages its enterprises to apply for patent applications as a means to enhance the Group’s core competitiveness. During the third quarter, the Group has received 17 authorized patent notices (16 invention patents and 1 apparel design patents) and filed 124 new patent applications (120 invention patents, 2 utility model patents and 2 apparel design patent). Cumulatively, the Group has obtained 575 invention patent approvals, 13 utility model patents and 57 apparel design patents.

LIQUIDITY AND FINANCIAL RESOURCES

The Group’s liquidity remains strong. During the period under review, the Group’s primary sources of funds were cash derived from operating activities and bank borrowings. As at 30 September, 2017, the Group’s cash and bank balances were approximately RMB4,926.93 million (31 December, 2016: approximately RMB3,765.79 million (restated) ).

– V-19 –

THIRD QUARTER RESULTS

APPENDIX V

CAPITAL STRUCTURE

As at 30 September, 2017, the Group had short term loans of approximately RMB739.60 million (31 December, 2016: approximately RMB1,369.47 million (restated) ) and had long term loans of approximately RMB2,263.34 million (31 December, 2016: approximately RMB1,678.97 million (restated) ).

CHARGE ON ASSETS

As at 30 September, 2017, the Group had the charge on assets of approximately RMB405.52 million (31 December, 2016: approximately RMB459.52 million (restated) ).

CONTINGENT LIABILITIES

As at 30 September, 2017, the Group and the Company had no material contingent liabilities (31 December, 2016: Nil).

ASSETS AND GEARING RATIO

As at 30 September, 2017, the total assets of the Group amounted to approximately RMB20,583.23 million (31 December, 2016: approximately RMB18,340.08 million (restated) ) whereas the total liabilities amounted to approximately RMB8,689.79 million (31 December, 2016: approximately RMB7,598.17 million (restated) ). The gearing ratio (total liabilities over total assets) was approximately 42.2% (31 December, 2016: approximately 41.4% (restated) ).

EMPLOYEE AND REMUNERATION POLICIES

The Group had 18,065 employees as at 30 September, 2017 and remunerates its employees based on their performance, experience and the prevailing market rates. Other employee benefits include mandatory provident fund, insurance and medical coverage, subsidized training programmes as well as a share option scheme. Total staff cost (including Directors’ remuneration) for the period was approximately RMB947,513,000 (2016: approximately RMB858,403,000 (restated) ).

EXPOSURE TO FLUCTUATIONS IN EXCHANGE RATES

Most of the assets and liabilities of the Group were denominated in Renminbi, US dollars and HK dollars. In the PRC, foreign investment enterprises are authorized to convert Renminbi to foreign currency in respect of current account items (including payment of dividend and profit to the foreign joint venture partner). The exchange rate of HK dollars and US dollars is pegged under the fixed linked system over a long period of time. The Directors consider that the Group is not significantly exposed to foreign currency risk and no hedging or other alternatives have been implemented.

– V-20 –

THIRD QUARTER RESULTS

APPENDIX V

PROSPECTS

Looking ahead at the fourth quarter, the Group expects the pressures from control over medical insurance premium, lower price tenders plus strict control over R&D and product quality to prevail, and the hierarchical diagnosis system and cancellation of the mark-up of sales price of hospital medicines to affect the existing medicine sales system. However, the continuous roll out of national policies which encourage innovation and aim at improving supply will help promote innovation in the entire industry, while presenting opportunities to pharmaceutical enterprises with proven R&D innovation capability. The Group will continue to pay close attention to any investment and development opportunities born of the national polices announced at the 19th National Congress of the Chinese Communist Party.

– V-21 –

LETTER FROM ERNST & YOUNG ON THE THIRD QUARTER RESULTS

APPENDIX VI

==> picture [71 x 32] intentionally omitted <==

26 January 2018

The Board of Directors Sino Biopharmaceutical Limited

Dear Sirs,

Sino Biopharmaceutical Limited (“the Company”) and its subsidiaries (“the Group”)

Profit estimate for the nine months ended 30 September 2017

We refer to the estimate of the unaudited consolidated profit of the Group for the period for the nine months ended 30 September 2017 (“the Profit Estimate”) set forth in the Appendix V to the circular of the Company dated 26 January 2018 (“the Circular”) in connection with the proposed acquisition of 51% equity interest in Sino Biopharmaceutical (Beijing) Limited and 52% equity interest in Super Demand Investments Limited. The Profit Estimate is required to be reported on under Rule 10 of the Code on Takeovers and Mergers issued by the Securities and Futures Commission.

Directors’ responsibilities

The Profit Estimate has been prepared by the directors of the Company based on the unaudited consolidated results of the Group for the nine months ended 30 September 2017 as shown in the management accounts of the Group for the nine months ended 30 September 2017.

The Company’s directors are solely responsible for the Profit Estimate.

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 Hong Kong Institute of Certified Public Accountants (“HKICPA”), which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behavior.

– VI-1 –

LETTER FROM ERNST & YOUNG ON THE THIRD QUARTER RESULTS

APPENDIX VI

Reporting accountants’ responsibilities

Our responsibility is to express an opinion on the accounting policies and calculations of the Profit Estimate based on our procedures.

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 500 Reporting on Profit Forecasts, Statements of Sufficiency of Working Capital and Statements of Indebtedness and with reference to Hong Kong Standard on Assurance Engagements 3000 (Revised) Assurance Engagements Other Than Audits or Reviews of Historical Financial Information issued by the HKICPA. Those standards require that we plan and perform our work to obtain reasonable assurance as to whether, so far as the accounting policies and calculations are concerned, the Company’s directors have properly compiled the Profit Estimate in accordance with the bases adopted by the directors as set out in Note 1 of Appendix V included in the Circular and as to whether the Profit Estimate is presented on a basis consistent in all material respects with the accounting policies normally adopted by the Group. Our work is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing issued by the HKICPA. Accordingly, we do not express an audit opinion.

Opinion

In our opinion, so far as the accounting policies and calculations are concerned, the Profit Estimate has been properly compiled in accordance with the bases adopted by the directors as set out in Note 1 of Appendix V included in the Circular and is presented on a basis consistent in all material respects with the accounting policies normally adopted by the Group as set out in the annual report of the Company for the year ended 31 December 2016.

Yours faithfully, Ernst & Young Certified Public Accountants Hong Kong

– VI-2 –

LETTER FROM CCBI ON THE THIRD QUARTER RESULTS

APPENDIX VII

PROFIT FORECAST REPORT

The following is the text of a report on the unaudited consolidated results of the Group for the nine months ended 30 September 2017 received from the Company’s financial adviser, CCBI, for the purpose of incorporation in this Circular.

26 January 2018 Sino Biopharmaceutical Limited Unit 09, 41st Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong.

For the attention of the Board of Directors

Sino Biopharmaceutical Limited (the “Company”, and together with its subsidiaries, the “Group”)

(1) MAJOR AND CONNECTED TRANSACTION; (2) ISSUE OF CONSIDERATION SHARES UNDER SPECIFIC MANDATE; AND

(3) APPLICATION FOR WHITEWASH WAIVER – UNAUDITED CONSOLIDATED RESULTS OF THE GROUP FOR THE NINE MONTHS ENDED 30 SEPTEMBER 2017 AS ANNOUNCED BY THE COMPANY ON 9 NOVEMBER 2017

We refer to the unaudited consolidated results of the Group for the nine months ended 30 September 2017 (the “Q3 Results”) prepared by the Company and announced by it on 9 November 2017 and reproduced in Appendix V of the Circular. Capitalized terms used in this letter have the same meanings as those defined in the Circular unless the context otherwise requires.

This letter is issued in compliance with the requirements under Rule 10.4 of the Takeovers Code.

We have reviewed the Q3 Results contained in the Circular and understand that the Q3 Results have been prepared based on the unaudited consolidated management accounts of the Group for the nine months ended 30 September 2017. We have discussed with you the bases upon which the Q3 Results have been prepared, and considered the letter dated 26 January 2018 addressed to the Directors from Ernst and Young, the auditors of the Company, regarding the accounting policies and calculations upon which the Q3 Results have been made.

– VII-1 –

LETTER FROM CCBI ON THE THIRD QUARTER RESULTS

APPENDIX VII

The review carried out by us as described above was primarily based on the information and materials supplied to us by or on behalf of the Company, and the opinions expressed by, and the representations of, the employees and/or the senior management of the Company. We have relied upon the accuracy and completeness of all of such information and materials that were made available to us or which were discussed with or reviewed by us and have assumed such accuracy and completeness for the purpose of providing this letter.

On the basis of the foregoing and on the basis that the Directors are satisfied that there are no further matters that should be brought to our attention, in our view, the Q3 Results, for which you as the Directors are solely responsible, have been made by the Directors with due care and consideration.

This letter is supplied on the understanding that it is for the sole use of the Company. It must not be made available to any other party or filed with or referred to (either in whole or in part) in any other document or otherwise quoted, circulated or used for any other purpose without our prior written consent, except that we understand a copy of this letter will be lodged with the Executive, and a copy of this letter will be appended to the Circular. For the avoidance of doubt, all duties and liabilities (including without limitation those arising from negligence) to third parties are specifically disclaimed, except those of our responsibilities under the Takeovers Code that cannot be disclaimed.

Yours faithfully, For and on behalf of CCB International Capital Limited Gilman Siu

Managing Director, Head of Mergers & Acquisitions

– VII-2 –

GENERAL INFORMATION

APPENDIX VIII

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 Company. 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 in this circular or this circular misleading.

The Directors jointly and severally accept full responsibility for the accuracy of the information contained in this circular (other than the information relating to the Vendor, Sino Biopharm Beijing, Super Demand, France Investment BVI or Beijing Tide) and confirm, having made all reasonable inquires, that to the best of their knowledge, opinions expressed in this circular (other than opinion expressed by the Vendor) have been arrived at after due and careful consideration and there are no other facts not contained in this circular, the omission of which would make any statement in this circular misleading.

All the directors of the Vendor jointly and severally accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable inquiries, that to the best of their knowledge, opinions expressed in this circular have been arrived at after due and careful consideration and there are no other facts not contained in this circular the omission of which would make any statement in this circular misleading.

2. MARKET PRICES

(a) The table below sets out the closing prices of the Shares quoted on the Stock Exchange on (i) the last trading day of each of the calendar months during the period between July 2017 to 23 January 2018, being the Relevant Period; (ii) the Last Trading Day; and (iii) the Latest Practicable Date, respectively:

	Closing
	price per
Month	Share
	HK$
31 July 2017	6.90
31 August 2017	6.87
29 September 2017	8.26
31 October 2017	9.11
30 November 2017	10.22
29 December 2017	13.86
4 January 2018 (being the Last Trading Day)	14.14
23 January 2018 (being the Latest Practicable Date)	15.58

– VIII-1 –

GENERAL INFORMATION

APPENDIX VIII

(b) The highest and the lowest closing price of the Shares as quoted on the Stock Exchange during the Relevant Period were HK$15.58 on 23 January 2018 and HK$6.51 on 18 and 21 August 2017, respectively.

3. SHARE CAPITAL OF THE COMPANY

As at the Latest Practicable Date, the authorized and issued share capital of the Company were as follows:

Authorised share capital

Shares

HK$

Ordinary shares of HK$0.025 each

20,000,000,000 500,000,000.00

Issued and fully paid up (or to be issued and fully paid up) share capital

Shares HK$

Ordinary shares of HK$0.025 each

7,412,192,209 (as at the Latest Practicable Date) 1,013,002,116 (Consideration Shares to be allotted and issued upon Completion) 8,425,194,325 (total)	185,304,805 25,325,053
	210,629,858

All the Shares in issue and the Consideration Shares to be issued will (when allotted and fully paid or credited as fully paid) rank pari passu in all respects with each other as regards dividends, voting rights and return of capital. The holders of the Consideration Shares will be entitled to receive all future dividends and distributions which are declared, made or paid after the date of allotment and issue of the Consideration Shares.

Since 31 December 2017 (being the end of the last financial year of the Company) and up to and including the Latest Practicable Date, no new Shares had been issued by the Company and as at the Latest Practicable Date, the Company did not have any outstanding options, warrants or securities which will be convertible or exchangeable into Shares.

– VIII-2 –

GENERAL INFORMATION

APPENDIX VIII

4. DISCLOSURE OF INTERESTS

(a) Directors’ interests and short positions in the shares, underlying shares and debentures of the Company or its associated corporations

As at the Latest Practicable Date, the interests and short positions of each of the Directors and the chief executive of the Company in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be 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 are taken or deemed to have under such provisions of the SFO), or which were required to be entered in the register required to be kept pursuant to Section 352 of the SFO or which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors (the “ Model Code ”) as set out in Appendix 10 of the Listing Rules were as follows:

Long positions in ordinary shares of the Company

Number of shares held, capacity and nature of interest

						Approximate
						percentage
						of the
		Capacity/	Directly	Through		Company’s
Name of		Nature of	beneficially	controlled		issued share
Director	Note	interest	owned	corporations	Total	capital
Mr. Tse Ping	(1)	Beneficial owner	140,400,000	1,082,126,722	1,222,526,722	16.49%
Ms. Cheng	(2)	Beneficial owner	63,371,000	1,800,000,000	1,863,371,000	25.14%
Cheung Ling
Mr. Tse Hsin		Beneficial owner	61,257,000	–	61,257,000	0.83%

Notes:

(1) Mr. Tse Ping held 1,082,126,722 Shares through Validated Profits Limited, the entire issued share capital of which is owned by Mr. Tse Ping.
(2) Ms. Cheng Cheung Ling held 1,050,000,000 Shares and 750,000,000 Shares through Chia Tai Bainian Holdings Limited and Remarkable Industries Limited, respectively. The entire issued share capital of each of the companies is owned by Ms. Cheng Cheung Ling.

– VIII-3 –

GENERAL INFORMATION

APPENDIX VIII

Long position in shares of associated corporations of the Company

					Approximate
					percentage
	Name of associated			Number of	of the issued
Name of Director	corporation	Note	Capacity	shares	share capital
Miss Tse, Theresa	Beijing Tide	(1)	Interest in a	288,000,000	57.6%
Y Y			controlled
			corporation
Mr. Tse Hsin	Chia Tai – Tianqing		Beneficial owner	229,250	0.18%
	Pharmaceutical
	Holdings Co. Ltd.
	Nanjing ChiaTai		Beneficial owner	26,583	0.53%
	Tianqing
	Pharmaceutical Co.,
	Ltd.

Note:

(1) Miss Tse, Theresa Y Y holds interests in France Investment (China 1) Group Limited which indirectly holds interests in Beijing Tide.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or the chief executive of the Company had any interests or short positions in any shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be 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 are taken or deemed to have under such provisions of the SFO), or which were required to be entered in the register required to be kept pursuant to Section 352 of the SFO or which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code.

– VIII-4 –

GENERAL INFORMATION

APPENDIX VIII

(b) Substantial shareholders’ interests and short positions in the shares and underlying shares

So far as is known to the Directors and chief executive of the Company, as at the Latest Practicable Date, the following persons had interests or short positions in the shares or underlying shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, which were recorded in the register required to be kept by the Company under Section 336 of the SFO:

Interests in the shares and/or underlying shares of the Company

			Number of	Approximate
			shares and/or	percentage of
			underlying	issued share
		Capacity/Nature	shares of the	capital of the
Name	Notes	of Interest	Company	Company
Validated Profits	(2)	Beneficial owner	1,082,126,722	14.60%
Limited			(L)
Chia Tai Bainian	(3)	Beneficial owner	1,050,000,000	14.17%
Holdings Limited			(L)
Remarkable	(3)	Beneficial owner	750,000,000 (L)	10.11%
Industries Limited

Notes:

(1) The letter “L” indicates a long position.
(2) Validated Profits Limited is an investment holding company wholly-owned by Mr. Tse Ping who is its sole director and a Director.
(3) Each of Chia Tai Bainian Holdings Limited and Remarkable Industries Limited is an investment holding company wholly-owned by Ms. Cheng Cheung Ling.

Save as disclosed above, as at the Latest Practicable Date, no person (not being a Director or chief executive of the Company) had an interest and/or short position in the shares and/or underlying shares of the Company as recorded in the register required to be kept by the Company pursuant to Section 336 of the SFO.

Save as disclosed above, at no time during the year were rights to acquire benefits by means of the acquisition of shares in or debentures of the Company granted to any directors or their respective spouse or minor children, or were any such rights exercised by them; or was the Company or any of its subsidiaries or fellow subsidiaries a party to any arrangement to enable the directors to acquire such rights in any other body corporate.

– VIII-5 –

GENERAL INFORMATION

APPENDIX VIII

Save as disclosed above, as at the Latest Practicable Date, there were no other persons who were recorded in the register of the Company as having an interest or short positions in the shares or underlying shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, which were recorded in the register required to be kept by the Company under Section 336 of the SFO.

Save as disclosed below, no other Directors are directors or employees of Validated Profits Limited:

Name of Director	Title	Company
Mr. Tse Ping	Director	Validated Profits Limited

5. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, (i) none of the Directors had any existing or proposed service contracts with the Company or any member of the Group which would not expire or was not determinable within one year without payment of compensation, other than statutory compensation; (ii) there were no service contracts between any of the Directors and the Company or any of its subsidiaries or associated companies which (including both continuous and fixed term contracts) had been entered into or amended within the Relevant Period; (iii) there were no service contracts between any of the Directors and the Company or any of its subsidiaries or associated companies which are continuous contracts with a notice period of 12 months or more; and (iv) there were no service contracts between any of the Directors and the Company or any of its subsidiaries or associated companies which are fixed term contracts with more than 12 months to run irrespective of the notice period.

6. LITIGATION

As at the Latest Practicable Date, neither the Company nor any of its subsidiaries was engaged in any litigation, arbitration or claim of material importance and no litigation, arbitration or claim of material importance was known to the Directors to be pending or threatened against the Company or any of its subsidiaries.

7. COMPETING INTERESTS

As at the Latest Practicable Date, save for the interests of Mr. Tse Ping, Mr. Tse Hsin and their respective associates as well as the interests of Ms. Cheng Cheung Ling (being the mother and an associate of Miss Tse Theresa YY, the Chairlady and an executive Director) in Beijing Tide, none of the Directors and their respective associates had any interest in a business which competes or may compete with the businesses of the Group (which would be required to be disclosed under Rule 8.10 of the Listing Rules if each of them was a controlling shareholder of the Company).

– VIII-6 –

GENERAL INFORMATION

APPENDIX VIII

8. INTEREST IN ASSETS AND CONTRACTS

As at the Latest Practicable Date, none of the Directors had any interest, direct or indirect, in any assets which have been, since 31 December 2016 (being the date to which the latest published audited financial statements of the Group were made up), acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group.

As at Lastest Practicable Date, there was no contract or arrangement in which any of the Directors were materially interested and which was significant to the business of the Group.

9. QUALIFICATION AND CONSENT OF EXPERTS

The following is the qualification of each of the experts who has provided advice for inclusion in this circular:

Name Qualification CCBI a licensed corporation to carry on Type 1 (dealing in securities), Type 4 (advising on securities) and Type 6 (advising on corporate finance) regulated activities under the SFO

Guotai Junan Capital Limited a licensed corporation to carry on Type 6 (advising on corporate finance) (regulated activity under the SFO) Ernst & Young Certified Public Accountants

(collectively, the “ Experts ”)

Each of the Experts has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and/or reference to its name or opinion in the form and context in which it appears.

As at the Latest Practicable Date, each of the Experts was not beneficially interested in the share capital of any member of the Group nor did it 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.

As at the Latest Practicable Date, each of the Experts did not have any direct or indirect interest in any assets which had since 31 December 2016 (being the date to which the latest published audited financial statements of the Group were made up) been acquired or disposed of by or leased to any member of the Group, or were proposed to be acquired or disposed of by or leased to any member of the Group.

– VIII-7 –

GENERAL INFORMATION

APPENDIX VIII

10. MATERIAL CONTRACTS

The following contracts (not being contracts entered into in the ordinary course of business) had been entered into by the members of the Group after the date two years immediately preceding the date of the Announcement, and up to and including the Latest Practicable Date, and were or may be material:

(a) the First Agreement;
(b) the Second Agreement;
(c) the subscription agreement (the “ Subscription Agreement ”) dated 7 January 2016 entered into between the Company and China Cinda Asset Management Co., Ltd. (“ China Cinda ”) in respect of the subscription of 1,907,845,112 new overseas-listed foreign shares in the share capital of China Cinda, with a nominal value of RMB1.00 each by the Company, in an issue price of RMB2.58 per share; and
(d) the termination deed dated 4 February 2016 entered into between the Company and China Cinda terminating the Subscription Agreement.

11. ADDITIONAL DISCLOSURE UNDER THE TAKEOVERS CODE

(i) As at the Latest Practicable Date, there was no agreement, arrangement or understanding pursuant to which the Consideration Shares to be issued to the Vendor under the First Agreement and the Second Agreement would be transferred, charged or pledged to any other persons.
(ii) As at the Latest Practicable Date, save as disclosed in the section headed “Change in the shareholding structure of the Company” in the letter from the Board contained in this circular and the paragraph headed “Disclosure of interests” above in this appendix, none of the Directors, directors of the Vendor, the Vendor and members of the Concert Group owned or controlled or were interested in any other Shares, convertible securities, warrants, options or derivatives of the Company.
(iii) Save for the entering into of the Acquisition, none of the Directors, directors of the Vendor, the Vendor and members of the Concert Group had dealt for value in any Shares, convertible securities, warrants, options or derivatives of the Company during the Relevant Period.
(iv) As at the Latest Practicable Date, no person had irrevocably committed themselves to vote for or against the proposed resolution approving the Acquisition (including the issue of the Consideration Shares) and the Whitewash Waiver.

– VIII-8 –

GENERAL INFORMATION

APPENDIX VIII

(v) As at the Latest Practicable Date, no member of the Concert Group had any arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code with any person.
(vi) No member of the Concert Group had borrowed or lent any Shares, convertible securities, warrants, options or derivatives of the Company during the Relevant Period.
(vii) As at the Latest Practicable Date, no agreement, arrangement or understanding (including any compensation arrangement) existed between members of the Concert Group and any of the Directors, recent Directors, Shareholders or recent Shareholders having any connection with or dependence upon the Acquisition (including the issue of the Consideration Shares), and/or the Whitewash Waiver.
(viii) As at the Latest Practicable Date, save for the Vendor is owned as to 91.33% by Miss Tse and as to 8.67% by Ms. Kwok Suk Lan, they had not dealt for value in any shares, convertible securities, warrants, options or derivatives of the Vendor during the Relevant Period. Save for the aforementioned, none of the Company and the Directors owned or controlled or were interested in any shares, convertible securities, warrants, options or derivatives of the Concert Group as at the Latest Practicable Date or had any of them dealt for value in any shares, convertible securities, warrants, options or derivatives of the Concert Group during the Relevant Period.
(ix) As at the Latest Practicable Date, none of the subsidiaries of the Company, pension fund of the Company or of a subsidiary of the Company and any advisers to the Company (as specified in class (2) of the definition of associate in the Takeovers Code but excluding exempt principal traders) owned or controlled any Shares, convertible securities, warrants, options or derivatives of the Company or had dealt for value in any Shares, convertible securities, warrants, options or derivatives of the Company during the Relevant Period.
(x) As at the Latest Practicable Date, no person had any arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code with the Company or any person who is an associate of the Company by virtue of classes (1), (2), (3) and (4) of the definition of associate under the Takeovers Code.
(xi) As at the Latest Practicable Date, there was no Shares, convertible securities, warrants, options or derivatives of the Company which were managed on a discretionary basis by fund managers connected with the Company.
(xii) As at the Latest Practicable Date, except for Mr. Tse, Ms. Cheng Cheung Ling and Mr. Tse Hsin who will abstain from voting at the EGM, no other Directors had own any beneficial interest in any Shares which would confer any voting rights to any of them at the EGM.

– VIII-9 –

GENERAL INFORMATION

APPENDIX VIII

(xiii) As at the Latest Practicable Date, neither the Company nor any of the Directors had borrowed or lent any Shares, convertible securities, warrants, options or derivatives of the Company.
(xiv) As at the Latest Practicable Date, no benefit had been or would be given to any Director as compensation for loss of office or otherwise in connection with the Acquisition (including the issue of the Consideration Shares) and/or the Whitewash Waiver.
(xv) As at the Latest Practicable Date, there was no agreement or arrangement between any Director and any other person which is conditional on or dependent upon the outcome of the Acquisition (including the issue of the Consideration shares) and/ or the Whitewash Waiver or otherwise connected with the Acquisition (including the issue of the Consideration shares) and/or the Whitewash Waiver.
(xvi) Save for the First Agreement and the Second Agreement, as at the Latest Practicable Date, there was no material contract entered into by the Vendor in which any Director had a material personal interest.

12. GENERAL

(a) Save as disclosed under the section “Interest in Assets and Contracts” in this circular, as at the Latest Practicable Date, none of the Directors was materially interested in any subsisting contract or arrangement which is significant to the business of the Group.
(b) The registered office of the Vendor is at Unit 09, 41st Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong. The correspondence address of the Vendor is at Unit 09, 41st Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong. The directors of the Vendor are Mr. Tse Ping, Mr. Tse Hsin and Miss Tse, Theresa Y Y.
(c) The business address of the Whitewash Applicant is at Unit 09, 41st Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong.
(d) The business address of Ms. Cheng Cheung Ling is at Unit 09, 41st Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong.
(e) The business address of Miss Tse is at Unit 09, 41st Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong.
(f) The secretary of the Company is Mr. Chan Oi Nin Derek. Mr. Chan is a fellow member of the Association of Chartered Certified Accountants and an associate member of the Hong Kong Institute of Certified Public Accountants.
(g) The Company’s registered office is at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman, KY1-1111, Cayman Islands.

– VIII-10 –

GENERAL INFORMATION

APPENDIX VIII

(h) The principal place of business of the Company in Hong Kong is Unit 09, 41st Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong.
(i) The branch share registrar and transfer office of the Company in Hong Kong is Tricor Tengis Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong.
(j) The financial advisor to the Company is CCB International Capital Limited, which correspondence address is at 12/F., CCB Tower, 3 Connaught Road, Central, Hong Kong.
(k) The English text of this circular shall prevail over the Chinese text.

13. DOCUMENTS AVAILABLE FOR INSPECTION AND DOCUMENTS ON DISPLAY

Copies of the following documents will be available for inspection (i) during normal business hours from 9:00 a.m. to 5:00 p.m. on any day (except Saturdays, Sundays and public holidays) at the head office and principal place of business of the Company in Hong Kong at Unit 09, 41st Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong; and (ii) on the websites of the Company (http://www.sinobiopharm.com) and the Securities and Futures Commission (www.sfc.hk) from the date of this circular up to and including the date of the EGM.

(a) the memorandum and articles of association of the Company;
(b) the memorandum and articles of association of the Vendor;
(c) the material contracts referred to under the paragraph headed “Material Contracts” in this appendix;
(d) the written consent from the Experts referred to under the paragraph headed “Qualification and consent of Experts” in this appendix;
(e) the published annual reports of the Company for each of the financial years ended 31 December 2014, 2015 and 2016 and the published interim report of the Company for the six months ended 30 June 2017;
(f) the letter from the Board as set out in this circular;
(g) the letter from the Independent Board Committee as set out in this circular;
(h) the letter from the Independent Financial Adviser as set out in this circular;
(i) the accountants’ report from Ernst & Young in respect of the financial information of Sino Biopharm Beijing, the text of which is set out in Appendix IIA to this circular;

– VIII-11 –

GENERAL INFORMATION

APPENDIX VIII

(j) the accountants’ report from Ernst & Young in respect of the financial information of Super Demand, the text of which is set out in Appendix IIB to this circular;
(k) the accountants’ report from Ernst & Young in respect of the financial information of Beijing Tide, the text of which is set out in Appendix IIC to this circular;
(l) the report on the unaudited pro forma financial information of the Enlarged Group from Ernst & Young, the text of which is set out in Appendix IV to this circular;
(m) the Third Quarter Results Announcement;
(n) the report on the Third Quarter Results from Ernst and Young, the text of which is set out in Appendix VI to this circular;
(o) the report on the Third Quarter Results from CCBI, the text of which is set out in Appendix VII to this circular; and
(p) this circular.

– VIII-12 –

NOTICE OF EGM

==> picture [217 x 124] intentionally omitted <==

(Incorporated in the Cayman Islands with limited liability) Website: www.sinobiopharm.com (Stock code: 1177)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN THAT the extraordinary general meeting (the “ Meeting ”) of Sino Biopharmaceutical Limited (the “ Company ”) will be held at 10:00 a.m. on Monday, 12 February 2018 at The Dynasty Club, Dynasty I, 7/F South West Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong for the purpose of considering and, if thought fit, passing, with or without modification, the following resolution as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

1. “ THAT:

(a) the sale and purchase agreement dated 5 January 2018 (the “ First Agreement ”) entered into between the Company, France Investment (China 1) Group Limited （法國投資（中國1）集團有限公司） (the “ Vendor ”) and Ms. Tse, Theresa Y Y (the “ Guarantor ”) (a copy of which has been produced to the meeting marked “A” and initialled by the chairperson of the meeting for identification purpose), pursuant to which the Vendor conditionally agreed to dispose, and the Company conditionally agreed to acquire, 51% of the entire issued share capital of Sino Biopharmaceutical (Beijing) Limited (the “ First Acquisition ”) at a consideration of HK$9,207,399,095 and to be satisfied by the allotment and issue of 723,283,511 shares (the “ First Consideration Shares ”) of nominal value of HK$0.025 each in the share capital of the Company (the “ Shares ”) at the issue price of HK$12.73 per Share to the Vendor, and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified;
(b) the sale and purchase agreement dated 5 January 2018 (the “ Second Agreement ”) entered into between the Company, the Vendor and the Guarantor (a copy of which has been produced to the meeting marked “B” and initialled by the chairperson of the meeting for identification purpose), pursuant to which the Vendor conditionally agreed to dispose, and the Company conditionally agreed to acquire, 52% of the entire issued share capital of Super Demand Investments Limited (the “ Second Acquisition ”,

– EGM-1 –

NOTICE OF EGM

and together with the First Acquisition, the “ Acquisition ”) at a consideration of HK$3,688,117,842 and to be satisfied by the allotment and issue of 289,718,605 Shares (the “ Second Consideration Shares ”, and together with the First Consideration Shares, the “ Consideration Shares ”) at the issue price of HK$12.73 per Share to the Vendor, and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified;

(c) the grant of specific mandate to allot and issue the Consideration Shares to be sought from the shareholders of the Company other than (a) Mr. Tse Ping, Ms. Cheng Cheung Ling, the Vendor and parties acting in concert with them and (b) those who are involved in or interested in the Acquisition to satisfy the consideration of the Acquisition (the “ Specific Mandate ”) to the directors of the Company (the “ Directors ”) to exercise all the powers of the Company to allot and issue the Consideration Shares at the issue price of HK$12.73 per Share be and is hereby approved, and any one Director be and is authorised to do all such further acts and things, to sign and execute all such documents and to take all such steps which in his opinion may be necessary, appropriate, desirable or expedient to implement and/or give effect to any matter relating to or incidental to the Specific Mandate; and
(d) any one of the Directors or any two Directors (if the affixation of the common seal is necessary) for and on behalf of the Company be and is hereby authorised to sign, execute, perfect, deliver, negotiate, agree (and, if necessary, affix the common seal of the Company on) and do all such other documents, deeds, agreements, and to do all such acts or things, as the case may be, as he or she may, in his or her opinion or discretion, consider reasonable, necessary, desirable or expedient to implement and/or give effect to the First Agreement, the Second Agreement and all the respective transactions contemplated thereunder with any changes as such director may consider reasonable, necessary, desirable or expedient.”
“ THAT subject to and conditional upon the passing of resolution numbered 1 above, and subject to the Executive Director of the Corporate Finance Division of the Securities and Futures Commission granting the whitewash waiver pursuant to Note 1 on dispensations from Rule 26 of the Hong Kong Code on Takeovers and Mergers in respect of any obligation of Mr. Tse Ping, Ms. Cheng Cheung Ling, the Vendor and parties acting in concert with them to make a mandatory general offer to the shareholders of the Company in respect of Shares not already owned (or agreed to be acquired) as a result of the issue of the Consideration Shares (the “ Whitewash Waiver ”) and the satisfaction of any conditions attached to the Whitewash Waiver granted, the Whitewash Waiver be and is hereby approved and any one or more Directors be and is/are hereby authorised to do all things and acts and sign all documents which they consider desirable or expedient to implement and/or give full effect to any matters relating to or in connection with the Whitewash Waiver.”

– EGM-2 –

NOTICE OF EGM

By Order of the Board Sino Biopharmaceutical Limited Tse, Theresa Y Y Chairlady

Hong Kong, 26 January 2018

Notes:

A member entitled to attend and vote at the Meeting is entitled to appoint one or more (if the member is a holder of two or more shares) proxies to attend and vote on his/her behalf. A proxy needs not be a member of the Company.
To be valid, the form of proxy and the power of attorney or other authority (if any) under which it is signed or a notarially certified copy of such power of attorney or authority, must be deposited at the Company’s branch share registrar in Hong Kong, Tricor Tengis Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding of the Meeting or any adjournment thereof. Completion and return of a form of proxy will not preclude a member from attending in person and voting at the meeting or any adjournment thereof, should he/she so wish, and in such event, the form of proxy will be deemed to be revoked.
The record date for determining the entitlement of the shareholders of the Company to attend and vote at the Meeting will be Tuesday, 6 February 2018. All completed transfer forms accompanied by the relevant share certificates must be lodged with the branch share registrar of the Company, Tricor Tengis Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong not later than 4:30 p.m. on Tuesday, 6 February 2018.

As at the date of this notice, the Board of the Company comprises seven Executive Directors, namely Miss Tse, Theresa Y Y, Mr. Tse Ping, Ms. Cheng Cheung Ling, Mr. Tse Hsin, Mr. Wang Shanchun, Mr. Tian Zhoushan and Ms. Li Mingqin and four Independent Non-Executive Directors, namely Mr. Lu Zhengfei, Mr. Li Dakui, Ms. Lu Hong and Mr. Zhang Lu Fu.

– EGM-3 –

AI assistant

Sinco Pharmaceuticals Holdings Limited — Proxy Solicitation & Information Statement 2018

51056_rns_2018-01-26_c2ac5fae-effd-48a0-b459-b9e400b18fbd.pdf

(1) MAJOR AND CONNECTED TRANSACTION; (2) ISSUE OF CONSIDERATION SHARES UNDER SPECIFIC MANDATE; AND

(3) APPLICATION FOR WHITEWASH WAIVER

TABLE OF CONTENTS

EXPECTED TIMETABLE

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

(Stock code: 1177)

(1) MAJOR AND CONNECTED TRANSACTION;

(3) APPLICATION FOR WHITEWASH WAIVER

INTRODUCTION

LETTER FROM THE BOARD

THE ACQUISITION

The First Acquisition

Subject matter

Consideration

LETTER FROM THE BOARD

Conditions

The Second Acquisition

Subject matter

Consideration

Conditions

Completion of the Acquisition

The Consideration Shares

LETTER FROM THE BOARD

Issue Price

Application for listing of the Consideration Shares

CHANGE IN THE SHAREHOLDING STRUCTURE OF THE COMPANY

INFORMATION OF THE VENDOR

INFORMATION ON SINO BIOPHARM BEIJING

INFORMATION ON SUPER DEMAND

Super Demand

INFORMATION ON BEIJING TIDE

Shareholding structure

LETTER FROM THE BOARD

Background information

Financial information

REASONS FOR THE ACQUISITION

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LISTING RULES IMPLICATIONS ON THE ACQUISITION

Major transaction

Connected transaction

TAKEOVERS CODE IMPLICATIONS AND APPLICATION FOR WHITEWASH WAIVER

(1) The Acquisition

(2) The Third Quarter Results

INFORMATION REQUIRED UNDER THE TAKEOVERS CODE

INTENTION OF CONTROLLING SHAREHOLDERS

FINANCIAL EFFECTS OF THE ACQUISITION

Assets and liabilities

Earnings

THE INDEPENDENT BOARD COMMITTEE AND THE INDEPENDENT FINANCIAL ADVISOR

RECOMMENDATIONS

ADDITIONAL INFORMATION

(1) MAJOR AND CONNECTED TRANSACTION; (2) ISSUE OF CONSIDERATION SHARES UNDER SPECIFIC MANDATE; AND (3) APPLICATION FOR WHITEWASH WAIVER

GUOTAI JUNAN CAPITAL LIMITED

(1) MAJOR AND CONNECTED TRANSACTION; (2) ISSUE OF CONSIDERATION SHARES UNDER SPECIFIC MANDATE; AND (3) APPLICATION FOR WHITEWASH WAVIER

INTRODUCTION

LETTER FROM GUOTAI JUNAN CAPITAL

OUR INDEPENDENCE

BASIS OF OUR OPINION AND RECOMMENDATION

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Information on the Group

1.1 Business of the Group

1.2 Financial performance of the Group

LETTER FROM GUOTAI JUNAN CAPITAL

1.3 Financial position of the Group

2. Information on the Vendor

3. Information on the Target Group

3.1 Background and business of the Target Group

(a) Background

LETTER FROM GUOTAI JUNAN CAPITAL

(b) Business

3.2 Financial information of the Target Group

LETTER FROM GUOTAI JUNAN CAPITAL

Sinco Pharmaceuticals Holdings Limited Proxy Solicitation & Information Statement 2018