SSY Group Limited - Annual Report 2011

==> picture [206 x 115] intentionally omitted <==

==> picture [103 x 91] intentionally omitted <==

Annual Report 2011

	Pages
CorporateInformation	2
Chairman’sStatement	3-8
ManagementDiscussionandAnalysis	9-13
BiographicalDetailsofDirectorsandSeniorManagement	14-17
ReportoftheDirectors	18-27
CorporateGovernanceReport	28-40
IndependentAuditor’sReport	41-42
ConsolidatedBalanceSheet	43-44
BalanceSheetoftheCompany	45
ConsolidatedStatementofComprehensiveIncome	46-47
ConsolidatedStatementofChangesinEquity	48
ConsolidatedCashFlowStatement	49
NotestotheConsolidatedFinancialStatements	50-119
FiveYearsFinancialSummary	120

AnnualReport2011

CORPORATEINFORMATION

STOCK CODE

NOMINATION COMMITTEE

2005

EXECUTIVE DIRECTORS

Mr.wuqin(Chairman) Mr.quJiguang Mr.XieYunfeng Mr.HuangChao Mr.wangXianjun Mr.Duanwei Ms.ZhangGuifu Mr.BaoLeyuan Ms.GaoShuping

INDEPENDENT NON-EXECUTIVE DIRECTORS

Mr.wangYibing Mr.LeungChongShun Mr.ChowKwokwai

COMPANY SECRETARY

Mr.ChowHingYeung

REGISTERED OFFICE

CricketSquare,HutchinsDrive P.O.Box2681GT,GrandCayman KY1-1111,CaymanIslands

HEAD OFFICE AND PRINCIPAL PLACE OF BUSINESS IN HONG KONG

Office2809,28thFloor OfficeTower,ConventionPlaza 1HarbourRoad,wanchai HongKong

AUTHORISED REPRESENTATIVES

Mr.wangXianjun Mr.BaoLeyuan

Mr.wangYibing(CommitteeChairman) Mr.LeungChongShun Mr.ChowKwokwai

PRINCIPAL SHARE REGISTRAR AND TRANSFER OFFICE

ButterfieldFulcrumGroup(Cayman)Limited P.O.Box705,ButterfieldHouse,68FortStreet GeorgeTown,GrandCayman,CaymanIslands BritishwestIndies

HONG KONG BRANCH SHARE REGISTRAR AND TRANSFER OFFICE

ComputershareHongKongInvestorServicesLimited 17MFloor,HopewellCentre 183queen’sRoadEast,HongKong

PRINCIPAL BANKERS

BankofChina BankofChina(HongKong)Ltd. IndustrialandCommercialBankofChina ChinaConstructionBank ChinaConstructionBank(Asia) ChinaMerchantsBank ChinaMinshengBankingCorp.,Ltd. ChinaCITICBank HangSengBank CITICBankInternational BanksofCommunications ShanghaiPudongDevelopmentBank AgriculturalBankofChina ShijiazhuangCityCommercialBank

LEGAL ADVISER TO THE COMPANY AS TO HONG KONG LAW

DLAPiperHongKong

AUDIT COMMITTEE

AUDITOR

Mr.ChowKwokwai(CommitteeChairman) Mr.wangYibing Mr.LeungChongShun

PricewaterhouseCoopers

WEBSITE

REMUNERATION COMMITTEE

Mr.LeungChongShun(CommitteeChairman) Mr.wangYibing Mr.ChowKwokwai

http://www.lijun.com.hk

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

CHAIRMAN’SSTATEMENT

OnbehalfoftheboardofdirectorsofLijunInternationalPharmaceutical(Holding)Co.,Ltd.(the“Company”), IpresenttheannualresultsoftheCompanyanditssubsidiaries(the“Group”)fortheyearended31December 2011.

1. RESULTS AND DIVIDEND DISTRIBUTION

In2011,thedifficultiesfacedbytheGroupwereunprecedented.Ononehand,withintensifyingdomestic inflation,thepricesofenergypower,rawandauxiliarymaterialsandlabourcostshadcontinuedtorise, whileontheotherhand,theNationalDevelopmentandReformCommissionhadsubstantiallyreduced thepricesofpharmaceuticalproductswiththenationwidelaunchingoftheessentialmedicinetender policyof“onlylowerpricecanprevail”.Hence,salesoftheGroup’sproductswasvastlyaffected,resulting asubstantialdropofitsoverallgrossprofitmargin.Meanwhile,cityconstructiontaxandsupplemental educationtaxwereimposedsince2011.Facingsuchuncontrollableandunfavourableprofitreduction factors,theGroupmanagedtoexpandtheproductionandsalesscaleofitsleadingbrandedproducts, strivetoreduceitsproductionandoperationcosts,proactivelyadjustthemanagementandgrowthmodels, andstrivetoovercometheadverseimpactfrompolicychangeandmarketcompetition,forwhichboththe Companyandstaffhadmadegreatcontributioninthisrespect.

During2011,theGroup’srevenueofitsprincipalbusinessamountedtoHK$2,155,000,000,representing anincreaseof9.3%ascomparedwithlastyear;amongwhich,HK$1,119,000,000wasfromXi’an Lijun,representingadecreaseof5.4%ascomparedwithlastyear,andHK$1,036,000,000wasfrom ShijiazhuangNo.4Pharma,representinganincreaseof31.4%ascomparedwithlastyear.TheGroup achievedanetprofitofHK$183,000,000,andafterdeductingprovisionforimpairmentofgoodwillof HK$224,000,000,thelossattributabletoshareholderswasHK$41,400,000.Theimpairmentofgoodwill willnotaffectthecashflowpositionoftheGroup.

TheBoardrecommendedthepaymentoffinaldividendofHK$0.02pershareforthesecondhalfyear,and togetherwiththeinterimdividendofHK$0.02pershare,totaldividendfortheyearwereHK$97,790,000, representinganincreaseof1.8%ascomparedwiththetotaldividendforlastyearofHK$96,080,000.

2. REVIEW OF OPERATING RESULTS

(1) Product marketing

1. Doubling production scale and further optimizing the structure of intravenous infusion solutions

Theinfusionsolutionproductsbecametheseverely-affectedsectorunderthenewessential medicinetenderpolicy.However,theGroupwassuccessfulincopingwiththemarket changesandpolicyvariation,andachievedremarkableresultsthroughenhancingthe domesticmarketandexpandingforeigntradesales.TheGrouphadfurtheroptimized itsinfusionsolutionproductstructurewithsalesrevenueofnon-PVCsoftbaginfusion solutionandPPplasticbottleinfusionsolutionduringtheyearincreasedby49%and31.2% respectivelyascomparedwiththesameperiodlastyear.TheGroup’scustomerbaseis movingfurthertowardsthehigh-end.

Foreigntradeexportandprocessingcontinuedtogrowth.TheGroup’sproductisexporting to50countriesandregionswithexportsalesreachedUS$7,500,000,representingayear-onyearincreaseof14.3%.

AnnualReport2011

CHAIRMAN’SSTATEMENT

2. REVIEW OF OPERATING RESULTS (continued)

(1) Product marketing (continued)

2. Antibiotics business was severely affected by national price reduction policy

InMarch2011,theNationalDevelopmentandReformCommissionloweredthepricesof numerousantibiotics.Amongwhich,thepricesofLijunshaandPaiqi,ourleadingbranded products,wereloweredby10%to52%respectively.Asaresult,bothsalesandprofitwere reduced.SalesofLijunshadroppedforthefirsttimeformorethan10yearstolessthan HK$400,000,000,andsalesofPaiqiproductsalsofailedtoachievetheanticipatedtarget. AmidthepricereductionofLijunsha,theGroupdeterminedtorectifyLijunsha’smarketby solvingproblemsofpricedistortioninitsmarket.Atthesametime,theGroupvigorously developedthesecond-tierdistributiontostriveforachievingcomprehensivecommercial distributionandcontinuouslyenhancementoftheterminalnetworksystems,whichhad mitigated,toacertainextent,theimpactfromthenationalpolicychangeontheGroup’s operation.

3. Steady development of key brand preparation and general medicines

TheGroupfurtherstrengthenedtheend-usermarketpromotionofkeyproductssuch asDobesilateandLixidingandmadeeveryefforttoexpandthemarketshareofgeneral medicinesproductmarket.Underthedemiseofseveremarketsituation,salesofDobesilate amountedtoHK$92,600,000fortheyear,representingagrowthof13%ascomparedto lastyear.Facingthestate’spricereductionpressureof23.8%,salesofLixidingamounted toHK$31,790,000fortheyear,representingadecreaseof10.5%ascomparedtolast year.SalesofnewOTCproductsincludingHaoganinfluenzadrugs,Lijungai,weikoujiaand KehaoamountedtoHK$20,790,000,representinganincreaseof42%ascomparedtolast year.SalesofgeneralmedicinesamountedtoHK$424,000,000fortheyear,representingan increaseof11％ascomparedtolastyear.

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

CHAIRMAN’SSTATEMENT

2. REVIEW OF OPERATING RESULTS (continued)

(2) New projects establishment and new products development

1. Infusion solution capacity expansion project was completed and commenced operation

Duringtheyear,themodernizedsoft-packaginginfusionsolutionwithanannualcapacity of500,000,000bottles(bags)anditsancillarylogisticprojectwerefullycompletedand commencedproductioninMarch2012.Themodernizedsoft-packaginginfusionsolution anditslogisticsancillaryprojectwerealldesignedforfullycompliancewithEuropean Unioncertificationstandards.Theprojectmainlyproducednewsoftbaginfusionsolution productslikesingle-outletpipeanddouble-outletdoublevalvewhichdoubledtheproduction capacityofinfusionsolution.Thisprojecthadgreatlyincreasedthesupplycapacityand competitivenessoftheGroup’ssoft-packaginginfusionsolutionproductinthemarketand helpedtofurtherconsolidateitsleadingpositionintheindustry,therebylayinganeven strongerfoundationforthefuturesustainabledevelopmentoftheGroup.

2. New product research and development was making progress

ShijiazhuangNo.4Pharmaobtainedfourspecificationsadd-inproductionpermits successively,includingLevofloxacinLactateandSodiumChlorideInjectionandMannitol Injection,tenpermitsforproductiontechniquealterationandpackagingmaterials registration,andonedesignpatent.ShijiazhuangNo.4Pharmacompletedtheapplication andpreparationmethodsofthreeinventionpatentssuchasCefprozilTabletsandCefdinir Capsules.

“NewdrugforcuringAlzheimer’sdisease”ofXi’anLijunPharmaceuticalhadobtainedthe authorizationforcompoundsinventionpatent;“TechnologyRe-engineeringonErythromycin EthylsuccinateCrystallization”,aprojectof“NewKeyDrugProjectofTwelfthFive-Year”, hadenteredintoacontractwiththeMinistryofScienceandTechnologyofChina;the“Duan XueLiuCapsules”projectwasawardedtheThirdPrizeofXi’anScientificandTechnological Advancement;DirithromycinEnteric-coatedTablets(0.25gspecification)hadobtainedthe clinicaltrialpermit.“CompoundDextralIbuprofenSustained-releaseDouble-layeredTablets”, adrugforcuringtracheainflammation,and“Type1.1NewDrugMeN061016-1”,adrugfor curingvasculardementiahadcompletedtheapplicationofadomesticinventionpatentfor newindication.

(3) Impairment of goodwill

ThegoodwillwasattributabletotheGroup’sacquisitionofShijiazhuangNo.4PharmainJune 2007.Accordingtotheaccountingstandard,goodwillistestedfordeterminingwhetherthereis evidenceforimpairmenteveryyear.Accordingtothedatafrom2012-2016developmentprojection ofShijiazhuangNo.4Pharma,andaftertheevaluationperformedbythevaluer,JonesLang LaSalle,grossprofitmarginofinfusionsolutionbusinessisexpectedtodecrease,soaprovisionfor impairmentgoodwillofHK$224,000,000isrequired.Theprovisionforimpairmentwillnotaffect thecashflowpositionoftheGroup,andwebelievetheinfusionsolutionbusinesswillstillmake positivecontributionstotheGroup.

AnnualReport2011

CHAIRMAN’SSTATEMENT

3. DEVELOPMENT OUTLOOK

Lookingforwardto2012,IbelievethesituationthattheGroupencounterwillstillbesevereandthe operationenvironmentwillbecomemoredifficult.Therewillbeafurtherincreasesinpriceforraw materialsandpowerandlaborcostswhichwilladverselyaffectourprofit.Productsellingpricewill continuetomakedownwardadjustmentsduetothedualrestrictionsinnationalpolicyandmarket competition.Thegrossprofitmarginwillbedecreasedandthusenterprisesarefacingthedouble challengesofsurvivalanddevelopment.TheGroupwillfurtherenhancethemarketing,economizecosts inallaspects,reduceexpenditureanddevelopbetternewproducts,inordertobepreparedforsurpassing thischallengeaswellaslayingasolidfoundationformarketturnaroundinthefuture.

(1) Product marketing

1. Expanding the scale of production and market share of infusion solution products

Forthisyear,wewillstrivetorealizefulloperationofnewproductionlinesandfacilitate themtoachievethedesignedproductionscale.wewillfurtherexpandthesalesproportion ofnon-glassbottleinfusionsolutionproductsandtherapeuticalinfusionsolutionproducts andincreasetheproductionandsaleforcategoriesofinfusionsolutionsinnewpackaging. whileexpandingthedomesticmarket,wewillenhanceouroverseassalesandfocusonthe marketdevelopmentinAPECandAfricancountries.

2. Ensuring a steady growth for the sales of antibiotics categories

wewillfurtherenhancethesecond-tierdistributionofourleadingbrandedproduct, Lijunsha,onthebasisofensuring“rightsellingpriceinplace”andstrivetoachieve comprehensivecommercialsales.wewillalsoputemphasisonthedeliveryandscale expansionintheregioninwhichthetenderwasbeingawardedforLijunshacapsules, enhancethedistributionandend-userpromotionofLijunshagranulesandstrivetorealizea steadygrowthfortheoverallsalesofLijunshafortheyear.

wewillleverageonthestrengthsof“Chinesewell-knownTrademark”forPaiqiseriesand strengthenitseffortsinpromotionandenhancemarketingtowardstheend-users.wewill alsofocusonthedevelopmentofpotentialsalesforPaiqioralintakeseries,proactively expandtheend-usermarketsandstrivetoincreaseitssales.Basedonthecurrentactual marketconditions,wewillfurtherstudytheimprovementandadjustmentofthepackaging andpricingofLimaixian,enhancetheacademicpromotioninhospitalsanditssalesgrowthin drugstores.wewilloperateCephalosporinPowderInjectionseriesbasedonscalemarketing prudentiallytoensureattainingourannualtarget.

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

CHAIRMAN’SSTATEMENT

3. DEVELOPMENT OUTLOOK (continued)

(1) Product marketing (continued)

3. Strive for rapid growth in the sales of advantageous featured categories and general medicines

whilecontinuingtostrengthenoureffortsintheacademicpromotioninhospitalsand clinicsandsecuringthegrowthintheprescriptionsalesforDobesilate,wewillalsofocuson expandingthedrugstoresOTCmarket.Bystrengthenoureffortsinend-userpromotionand marketingmainlythroughlarger-saledrugstorechains,weareabletoensureasalesvolume ofexceedingtheHK$100,000,000markforthisyear.Inadditiontopromotingthesalesof the25mginfusionsolutionofLixiding,wewillfocusonthesalesof50mginfusionsolution byintensifyingourpromotionandmarketingeffortinhospitalsanddepartments,small promotionconferenceandnationalandprovincialannualmeeting,soastostriveforanew growthinitssales.

Haogan,Lijungai,Shengtai,Zijin,weikoujia,Kehao,Lingzhihongaswellasotherfeatured OTCproductsshouldfocusonthecorevisionof“End-usersdriven,profitdrivenandprice control”,acceleratetheestablishmentofagencylayoutandintensifytheeffortsinthe promotionamongconsumergroups.weshouldalsocontinuetohostend-userpromotion conferenceandputmoreemphasisonthefollow-uphousekeepingworksandsubsequent salesgrowth.wewillpromotedirectnegotiation,directsupplyanddirectagencywithlargescaledrugstoresandstrivetoachievebreakthroughinsalesgrowthofOTCfortheyear.

wewillcontinueourpersistenceonproductswithrelativelyadvantageousfeaturesinselling generalmedicine.Throughactiverestructuring,promotingthesalesofhighmarginproducts, attachgreatimportancetotenderworkandachievesalesgrowthfortenderwinning productsandcontinuousexpansionoftheend-usenetwork,weassuresustainablesalesand profitgrowth.

(2) New Products Development

ShijiazhuangNo.4PharmahadobtainedtheType3.3newdrugcertificatesandproductionpermits forthe2,000mlcompoundelectrocularirrigatingsolutionduringtheyear.GlycineIrrigationSolution 2,000mlandotherproductsareexpectedtoobtainproductionpermits.Ourexclusivepatented product,ShanheKoufuye,andotheroralliquidsproductswillstriveforapprovalforchangeof plasticpackageduringtheyear.TherawmaterialsandpreparationfortwonewType3.1mentaland neuropathologydrugs,whichareunderdevelopment,havebeenreportedtoSFDAandareexpected tobeapprovedforclinicalresearch.

Xi’anLijunPharmaceuticalisexpectedtoobtainproductionpermitsforEdaravonerawmaterials andinjection,GlipizideTabletsandtheNalmefeneHydrochloriderawmaterialandinjectionand CompoundMetforminHydrochlorideduringtheyear.Itwillstriveforobtainingthehealthfood permitsforLingzhihongCapsules.Type1newdrugCompoundAlanylGlutamineDouble-layer TabletswillalsostriveforcompletingclinicaltrialapplicationandType1newdrugCompound DexibuprofenSustained-releaseDouble-layerTabletsislikelytopassthetechnologyevaluationof theNationalPharmaceuticalApprovalCentre.LoratadineSoftCapsuleandShengtaiCapsuleare closelyfollowupwiththeevaluationoftheNationalPharmaceuticalApprovalCentre.

AnnualReport2011

CHAIRMAN’SSTATEMENT

3. DEVELOPMENT OUTLOOK (continued)

(2) New Products Development (continued)

In2012,nomatterhowharshtheoperationenvironmentandhowintensethemarketcompetition willbe,inviewofthatthetwomajorsubsidiariesoftheGrouphavemanyproductswithadvantages andcharacteristics,coupledwithmanyyearsofexperienceinmarketingmanagementandimproving financialpositon,wearestillfullofconfidenceinourcorporatedevelopment.withtheGroup’s solidfoundationandvariousstrengths,wewillbeabletoovercomethechallengesaheadand achievegreaterdevelopment,bringingfruitfulreturnstotheinvestorseventually.

Wu Qin ChairmanoftheBoard

HongKong,23March2012

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

MANAGEMENTDISCUSSIONANDANALYSIS

REVENUE

Fortheyearended31December2011,therevenueoftheGroupamountedtoapproximatelyHK$2,155,215,000, representinganincreaseof9.3%ascomparedwithHK$1,971,657,000inlastyear.Abreakdownoftherevenue oftheGroupfortheyearended31December2011issetoutasfollows:

	2011 2010 Change HK$’000 % HK$’000 % % IntravenousInfusionSolution 1,036,463 48.1 788,904 40.0 31.4
	(Including:PPPlasticBottle Infusion Solution 386,488 17.9 294,500 14.9 31.2 Non-PVCSoft BagInfusion Solution) 366,459 17.0 246,021 12.5 49.0

	Antibiotics 629,355 29.2 744,826 37.8 (15.5)
	(Including:Lijunsha 382,888 17.8 471,362 23.9 (18.8) Paiqi) 112,456 5.2 133,014 6.7 (15.5)

	Non-antibioticsfinished medicines 375,973 17.4 335,552 17.0 12.0
	(Including:Dobesilate 92,596 4.3 81,971 4.2 13.0 Lixiding 31,791 1.5 35,510 1.8 (10.5)

	Salesofbulkpharmaceuticals 107,799 5.0 100,654 5.1 7.1 Others 5,625 0.3 1,721 0.1 227.0
	Total 2,155,215 100 1,971,657 100 9.3

INTRAVENOUS INFUSION SOLUTION

TheGroup’sintravenousinfusionsolutionproductsweremainlymanufacturedandsoldbyShijiazhuangNo.4 Pharmaandtherewere3formsofpackinginintravenousinfusionproducts,namelyGlassesBottle,PPPlastic BottleandNon-PVCSoftBag.

RevenueofShijiazhuangNo.4Pharmafortheyearended31December2011wasHK$1,036,463,000(2010: HK$788,904,000),representingagrowthof31.4%onayear-to-yearbasis.Amongwhich,salesofintravenous infusionsolutionproductscontributedHK$946,420,000(2010:HK$714,206,000),representingagrowthof 32.5%onayear-to-yearbasis.Amongwhich,salesofNon-PVCSoftBaginfusionsolutionwasHK$366,459,000, representing38.7%ofthetotalsalesofintravenousinfusionsolutionandanincreaseof49.0%ascompared withlastyear;salesofPPPlasticBottleinfusionsolutionwasHK$386,488,000,representing40.8%ofthetotal salesofintravenousinfusionsolutionandanincreaseof31.2%ascomparedwithlastyear;salesofGlassesBottle infusionsolutionwasHK$193,473,000,representing20.5%ofthetotalsalesofintravenousinfusionsolutionand aincreaseof11.4%ascomparedwithlastyear.

AnnualReport2011 9

MANAGEMENTDISCUSSIONANDANALYSIS

withtheincreasingdemandinthehighqualityintravenousinfusionsolutionproductsinthePRC,theGroupwill keepfocusingitsproductioninthePPPlasticBottleinfusionsolutionandNon-PVCSoftBaginfusionsolution.It isbelievedthattheintravenousinfusionsolutionbusinesswillbeoneofthegrowthdriversoftheGroupinthe comingyears.

ANTIBIOTICS

In2011,salesofLijunshadecreasedby18.8%toHK$382,888,000(2010:HK$471,362,000),salesofPaiqi decreasedby15.5%toHK$112,456,000(2010:HK$133,014,000)andsalesofothersantibioticsfinished productsdecreasedby4.6%toHK$134,011,000(2010:HK$140,450,000),whichwereduetopricereductionfor theantibioticsproductsandvolumecontrolbythePRCgovernment.Overallsalesofantibioticsfinishedproducts decreasedby15.5%toHK$629,355,000(2010:HK$744,826,000).

TherelianceoftheGroup’ssalesonantibioticsproductscontinuedtodecrease.Salesproportionofantibiotics productstototalGroup’ssalesdecreasedfrom37.8%in2010to29.2%in2011andsalesproportionofLijunsha accountedforonly17.8%ofthetotalGroup’ssalesin2011,comparingto23.9%in2010.

NON-ANTIBIOTICS FINISHED PRODUCTS

Thankstotheexpandedsalesnetworkinsmall-to-mediumsizedcitiesandruralareasandthecontributionof similarproductssalesfromShijiazhuangNo.4Pharma,salesoftheGroup’snon-antibioticsproductsincreased by12.0%toHK$375,973,000(2010:HK$335,552,000).Amongwhich,salesofDobesilateincreasedby13.0% toHK$92,596,000(2010:HK$81,971,000)andsalesofLixidingdecreasedby10.5%toHK$31,791,000(2010: 35,510,000)duetoapricereductionof23.8%bythePRCgovernment.

SALES OF BULK PHARMACEUTICALS

ExportsalesofbulkpharmaceuticalsamountedtoHK$107,799,000in2011(2010:HK$100,654,000), representinganincreaseof7.1%.

COST OF SALES

TheGroup’scostofsalesincreasedby26.7%fromHK$980,031,000fortheyearended31December2010 toHK$1,241,525,000fortheyearended31December2011.Thecostofdirectmaterials,directlabourand othercostsrepresentedapproximately72.2%,10.0%and17.8%ofthetotalcostofsalesrespectivelyforthe yearended31December2011whiletheircomparativepercentagefor2010were73.0%,10.5%and16.5% respectively.

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

MANAGEMENTDISCUSSIONANDANALYSIS

GROSS PROFIT MARGIN

GrossprofitoftheGroupin2011amountedtoHK$913,690,000(2010:HK$991,626,000),representingagross profitmarginof42.4%,whichwasdecreasedby7.9percentagepointcomparingtothatoflastyear(50.3%). Thisismainlyduetofactorsthatincludepricereductionofmainproducts;costincrease(includingrawand auxiliarymaterialsandpackagingmaterials,labourandutilitycharges),andurbanmaintenanceandconstruction taxandeducationalsurchargeincludedasproductioncosts.

SELLING AND MARKETING COSTS

Fortheyearended31December2011,sellingandmarketingcostsamountedtoapproximatelyHK$441,342,000 (2010:HK$461,270,000),whichmainlyconsistedofadvertisingexpensesofapproximatelyHK$63,175,000(2010: HK$67,493,000),salescommissionofapproximatelyHK$150,382,000(2010:HK$183,512,000),salariesexpenses ofsalesandmarketingstaffofapproximatelyHK$64,737,000(2010:HK$74,898,000)andtransportationcostof approximatelyHK$96,552,000(2010:HK$69,985,000).

Thedecreaseof4.3%insellingandmarketingcostsin2011ascomparedwiththatof2010wasmainlydueto theGroup’scostcontrol.

GENERAL AND ADMINISTRATIVE EXPENSES

GeneralandadministrativeexpensesamountedtoapproximatelyHK$466,783,000(2010:HK$215,429,000) fortheyearended31December2011whichmainlycomprisedgoodwillimpairmentlossofapproximately HK$223,552,000(2010:Nil),salariesexpensesfortheadministrativestaffofapproximatelyHK$91,454,000 (2010:HK$81,989,000),depreciationandamortisationofapproximatelyHK$54,050,000(2010:HK$47,477,000) andofficeandrentalexpensesofapproximatelyHK$10,080,000(2010:HK$9,409,000).

Theincreaseof116.7%ingeneralandadministrativeexpensesin2011ascomparedwiththatof2010was mainlyduetoanimpairmentlossonthegoodwillinrespectoftheGroup’sintravenousinfusionsolutionbusiness ofHK$223,552,000in2011(2010:Nil)andexpansionoftheGroup’soperations.

OPERATING PROFIT

DuetoagoodwillimpairmentlossofHK$223,552,000,theGroup’soperatingprofitin2011decreasedby96.0%, amountedtoHK$13,146,000(2010:HK$324,993,000)withitsoperatingprofitmargin(definedasoperating profitdividedbytotalsales)decreasedfrom16.5%to0.61%.

FINANCE COSTS

ThefinancecostsfortheyearhasdecreasedtoHK$18,111,000in2011(2010:HK$23,852,000).Duringtheyear, interestexpenseonbankborrowingsamountedtoHK$22,071,000(2010:HK$23,476,000)andfinancecostson discountofbillsreceivablesamountedtoHK$343,000(2010:HK$1,596,000).

AnnualReport2011 11

MANAGEMENTDISCUSSIONANDANALYSIS

INCOME TAX EXPENSE

BothXi’anLijunPharmaceuticalCo.,Ltd(“Xi’anLijun”)andShijiazhuangNo.4Pharmaarequalifiedasnewhigh technologyenterprisesandentitledtoa15%preferentialMainlandChinaEnterpriseIncomeTax(“EIT”)rate fortheyearsfrom2010to2012.Fortheyearended31December2011,theincometaxexpenseamountedto HK$39,183,000(2010:HK$44,992,000).

LOSS ATTRIBUTABLE TO EQUITY HOLDERS FOR THE YEAR

LossattributabletoequityholdersoftheCompanyfortheyearamountedtoHK$41,401,000(2010:profit attributabletoequityholdersoftheCompanyHK$260,592,000)withanetlossmargin(lossattributabletoequity holdersoftheCompanyfortheyeardividedbytotalsales)of1.9%(2010:netprofitmarginof13.2%).

LIQUIDITY AND FINANCIAL RESOURCES

TheGroupprimarilyfinancesitsworkingcapitalandothercapitalrequirementsbynetcashgeneratedfrom operatingactivitiesandresortstoexternalfinancingincludingbothlong-termandshort-termbankborrowings fromtimetotimeincasetheoperatingcashflowisinsufficienttomeetthecapitalrequirements.

Asat31December2011,thecashandcashequivalentsaggregatedtoHK$257,980,000(2010: HK$598,911,000),comprisingHK$50,688,000(2010:HK$316,387,000)ofcashandcashequivalents denominatedinHongKongdollars,HK$204,418,000(2010:HK$280,987,000)inRMBandHK$2,874,000(2010: HK$1,537,000)inothercurrencies.

Asat31December2011,theGrouphaspledgedbankdepositsamountingtoHK$4,443,000(2010: HK$30,531,000)asguaranteeofpayablesforproperty,plantandequipmentandbillspayable.

ThecarryingamountsoftheborrowingsamountingtoHK$416,615,000(2010:HK$433,146,000)asat31 December2011,comprisingHK$151,412,000(2010:HK$80,590,000)ofborrowingsdenominatedinHongKong dollarsandHK$265,203,000(2010:HK$352,556,000)inRMB.

Gearingratio(definedasbankborrowingslesscashandcashequivalentsdividedbytotalcapital)increasedfrom -7.6%asat31December2010to6.5%asat31December2011.

Currentratio(definedascurrentassetsdividedbycurrentliabilities)decreasedfrom1.76asat31December2010 to1.42asat31December2011.

FOREIGN EXCHANGE RISK

MajorityoftheGroup’sbusinessesareoperatedinthePRCandaredenominatedinRMBandHKdollar.The Groupisoftheopinionthatitsexposuretoforeignexchangerateriskislimited.

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

MANAGEMENTDISCUSSIONANDANALYSIS

PLEDGE OF ASSETS

Asat31December2011,thenetbookamountoftheGroup’slanduserightofHK$50,025,000(2010: HK$65,449,000),thenetbookamountoftheGroup’sbuildings,plantandmachineriesofHK$246,470,000 (2010:HK$246,749,000)andbankdepositsofHK$4,443,000(2010:HK$30,531,000)werepledgedascollateral fortheGroup’sbankborrowings,payablesforproperty,plantandequipmentandbillspayable.

CONTINGENT LIABILITIES

Asat31December2011,theGroupdidnothaveanysignificantcontingentliabilities.

EXCHANGE RATE

Asat2011and2010,theexchangeratesofconvertingHK$intoRMB(ascalculatedinHK$)were:

1January2010 31December2010 31December2011

0.88048 0.85093 0.81070

AnnualReport2011

BIOGRAPHICALDETAILSOFDIRECTORSANDSENIORMANAGEMENT

DIRECTORS

Executive directors

Mr. Wu Qin（吳秦） ,aged59,thechairmanoftheCompany,isresponsibleforthestrategicplanning,business developmentandoverallmanagementoftheGroup.Mr.wuwasthechairmanofRejoyGroupLimitedLiability Company(“RejoyGroup”)fromOctober1998toAugust2011.HehasalsobeenthechairmanofXi’anLijun sinceNovember1999.HeisalsoadirectorofPrimeUnitedIndustriesLimited(“PrimeUnited”),acontrolling shareholderoftheCompany.Mr.wuwasthegeneralmanagerofXi’anLijun.Mr.wuhasover30yearsof experienceinthepharmaceuticalindustry.Heisparticularlyexperiencedinthebusinessplanning,marketingand enterprisemanagementforpharmaceuticalbrands.Inadditiontosettingupanumberofuniquemanagement models,hehasalsoachievedgreatsuccessinestablishingthe“Lijunsha”brand,whichisoneoftheprominent “well-knownTrademarkinChina”inthepharmaceuticalindustryinthePRC.Mr.wugraduatedfromtheOpen UniversityofHongKongwithadegreeofMasterinBusinessAdministrationin2002.Hewasadeputytothe 10thStandingCommitteeoftheNationalPeople’sCongress,andwasawardedtheNationalLabourModelAward （全國勞動模範）,NationalMayFirstLabourMedal（全國五一勞動獎章）,InternationalChineseCommercial LeadersAward（世界華商領袖功勛獎）,OutstandingChineseEntrepreneursAward（中國傑出企業領袖）and 100MostInnovativeChineseCharactersAward（中國改革100新銳人物）.Hewasalsoanexecutivedirectorof PharmaceuticalAdministrationAssociation/ChinaPharmaceuticalAssociation.Healsoenjoysspecialsubsidyfor theyear2002grantedbytheStateCouncilofthePRC.HeiscurrentlyavicepresidentofShaanxiIndustrialand EconomicFederationandDeputyChairmanoftheShaanxiAssociationofCommerceoftheChinaInternational AssociationofCommerce.HeisalsoasenioreconomistaccreditedbyTheMinistryofPersonnelofChina,the DeputyChairmanofLawandSocialOrderCommitteeoftheStandingCommitteeofShaanxiProvincePeople’s CongressandmemberofStrategies&AdvisoryCommitteeofShaanxiProvince.

Mr. Qu Jiguang（曲繼廣） ,aged57,anexecutiveDirector,thevice-chairmanandthechiefexecutiveofficer oftheCompany.Mr.quisresponsibletoleadthemanagementimplementingthebusinessstrategiesofthe Group.Mr.qujoinedShijiazhuangNo.1PharmaceuticalFactory(“No.1Pharma”)asdeputyfactorymanager in1995.HelaterbecameadirectorandthevicegeneralmanagerofShijiazhuangPharmaceuticalGroup.From December2004,Mr.quhasbeenthechairmanofNewOrientInvestmentsLimited,awhollyownedsubsidiaryof theCompany(“NewOrient”),thechairmanandgeneralmanagerofShijiazhuangNo.4Pharma,awhollyowned subsidiaryofNewOrient,thechairmanofChinaPharmaceuticalCompanyLimited,acontrollingshareholderof theCompany(“CPCL”)andthechairmanofCMPGroupLimited(“CMP”).Mr.quwasanindependentnonexecutiveDirectoroftheCompanyandwasanexecutivedirectorofChinaPharmaceuticalGroupLimited,a companylistedonTheStockExchangeofHongKongLimited(the“StockExchange”),fromFebruary2001 toSeptember2004.Mr.qugraduatedfromTianjinFinanceCollegewithapostgraduatedegreeinFinancein 1999.HeisalsoaneconomistaccreditedbyTheMinistryofPersonnelofChina.Mr.quhasnearly30yearsof experienceinpharmaceuticalindustry.HeiscurrentlyRepresentativeofHebeiProvincialPeople’sCongress（河北省人大代表）,ExecutiveCommitteeMemberofAll-ChinaFederationofIndustryandCommerce（全國工商聯執委）,Vice-ChairmanofChinaPharmaceuticalIndustryAssociation（中國化學製藥協會副會長）,Vice-Chairman ofHebeiProvincialFederationofIndustryandCommerce（河北省工商聯副主席）,Vice-ChairmanofHebei ProvincialAssociationofEnterprise（河北省企業聯合會副會長）,Vice-ChairmanofHebeiPharmaceuticalIndustry Association（河北省醫藥行業協會副會長）.

14 LijunInternationalPharmaceutical(Holding)Co.,Ltd.

BIOGRAPHICALDETAILSOFDIRECTORSANDSENIORMANAGEMENT

DIRECTORS (Continued)

Executive directors (Continued)

Mr. Xie Yunfeng（謝雲峰） ,aged57,anexecutiveDirectorandisresponsibleforoverallmanagementindaily administrationofXi’anLijun.Mr.XiehasbeenadirectorandthedeputygeneralmanagerofXi’anLijunsince November1999.HewasadirectorofRejoyGroupfromAugust1999toMay2004.Hehasbeenthechairman ofRejoyGroupLimitedLiabilityCompanysinceAugust2011.Mr.XiejoinedtheGroupsinceitsestablishmentin November1999andhasnearly30yearsofexperienceinpharmaceuticalproduction.HeisalsoadirectorofPrime United.Mr.XiegraduatedfromPartySchooloftheCPCCentralCommitteemajoringinlawin2001.Mr.Xiewas awardedtheLabourModelofShaanxiProvinceandthesecondsessionofthehonorarytitleofOutstandingYoung EntrepreneursofXi’anCity.

Mr. Huang Chao（黃朝） ,aged56,anexecutiveDirectorandisresponsibleforthesalesofpharmaceuticalin drugstoresofXi’anLijun.Mr.HuanghasbeenadirectorofXi’anLijunsinceNovember1999andhadbeenthe deputychairmanofXi’anLijununtilDecember2004.Mr.HuanghasbeenthegeneralmanagerofXi’anLijunfrom November1999toJanuary2012andwasthedeputychairmanofRejoyGroupfromAugust1999toSeptember 2005.Mr.HuangjoinedtheGroupsinceitsestablishmentinNovember1999andhasover30yearsofexperience inpharmaceuticalproduction.HeisadirectorofPrimeUnited.Mr.HuanggraduatedfromTheOpenUniversityof HongKongwithadegreeofMasterinBusinessAdministrationin2002,heisalsoaseniorengineeraccreditedby TheMinistryofPersonnelofChina.

Mr. Wang Xianjun（王憲軍） ,aged49,anexecutivedirector.Mr.wanghasover20years’experienceinthe pharmaceuticalindustryandisresponsibleforinvestorrelationsandpublicrelationsaffairsoftheGroup.Mr. wangjoinedShijiazhuangPharmaceuticalGroupin1987andbecamethedeputychiefengineerin1989anda directorin1993.Mr.wangwastheexecutivedirectorandvice-chairmanofChinaPharmaceuticalGroupLimited, acompanywhosesharesarelistedontheMainBoardoftheStockExchange,fromMay1994toDecember2002. Mr.wangwasalsoanindependentnon-executivedirectorofGreaterChinaHoldingLimitedfromJuly2002to August2005,acompanywhosesharesarelistedontheMainBoardoftheStockExchange.Mr.wanggraduated fromBeijingChemicalEngineeringCollegewithaMaster’sdegreeinEngineeringin1987.HejoinedtheGroup inJuly2004andwasthedeputygeneralmanagerofXi’anLijunfromJuly2004toDecember2004.Hewas appointedasgeneralmanageroftheCompanyinDecember2004.

Mr. Duan Wei（段偉） ,aged54,anexecutiveDirectorandisresponsibleforsalesandhumanresourcesfunctions ofShijiazhuangNo.4PharmaceuticalCo.,Ltd..HejoinedNo.1PharmaasasupervisorinMarch1984andwas laterpromotedasthesupervisorofShijiazhuangPharmaceuticalGroup.Mr.Duanhasbeenanexecutivedirector andthevicegeneralmanagerofShijiazhuangNo.4PharmasinceMarch1999andhehasalsobeenanexecutive directorofNewOrient,CPCLandCMP.Mr.DuangraduatedfromHebeiCentralRadioandTVUniversity（河北廣播電視大學）andhasampleexperiencesinsalesmanagement.

Ms. Zhang Guifu（張桂馥） ,aged52,anexecutiveDirectorandisresponsibleforthefinancefunctionsof ShijiazhangNo.4PharmaceuticalCo.,Ltd..Ms.ZhangjoinedHebeiYuanzhengPharmaceuticalCompanyLimited （河北遠征藥業有限公司）asthefinancemanagerin1991.ShehasbeenthefinancemanagerofShijiazhuangNo. 4PharmasinceAugust2001andanexecutivedirectorofShijiazhuangNo.4PharmasinceDecember2001.She hasalsobeenanexecutivedirectorofNewOrient,CPCLandCMP.Ms.ZhanggraduatedfromHebeiEconomic ManagementCollege（河北經濟管理幹部學院）andhasover28yearsofexperienceinfinancialcontrol.

AnnualReport2011 15

BIOGRAPHICALDETAILSOFDIRECTORSANDSENIORMANAGEMENT

DIRECTORS (Continued)

Executive directors (Continued)

Mr. Bao Leyuan（包樂源） ,aged54,anexecutiveDirectorandiscurrentlyadirectorofRejoyGroupLimited LiabilityCompany,Xi’anLijunFangyuanPharmaceuticalCo.,Ltd.andShaanxiLijunModernTraditionalChinese MedicineCo.,Ltd..Mr.BaojoinedXi’anLijunPharmaceuticalCo.,Ltd.,asubsidiaryoftheCompany,asavice chiefaccountantsince1999,responsiblefortheassetmanagementfunctionsoftheGroup.Mr.Baohasbeen theChairmanoftheSupervisoryBoardofRejoyTechnologysinceNovember2008.Mr.BaograduatedfromXi’an RadioandTelevisionUniversityin1986.HeisalsoanaccountantinChinaandhasampleexperienceinfinancial management.

Ms. Gao Shuping（高淑平） ,aged52,anexecutiveDirectorandiscurrentlyadirectorofNewOrient InvestmentsLimited,adirectwholly-ownedsubsidiaryoftheCompanyandadirectorandvicegeneralmanager ofShijiazhuangNo.4PharmaceuticalCo.,Ltd.,anindirectwholly-ownedsubsidiaryoftheCompany.Ms.Gaois responsibleforimplementationofinfrastructureprojectsandlandandpropertymanagementoftheCompany. Ms.GaojoinedShijiazhuangNo.4PharmaceuticalFactoryinAugust1982andhasbeenthechiefofficerof technologydepartment,assistantchiefengineerandvicegeneralmanager.Ms.Gaohasbeenthemanagerof qualitydepartmentofShijiazhuangPharmaceuticalGroupCo.,Ltd.fromJanuary1998toJanuary2002.Ms. GaotookupthepostofvicegeneralmanagerofShijiazhuangNo.4PharmaceuticalCo.,Ltd.fromJanuary 2002toDecember2004.Afterwards,sheservedasadirectorandvicegeneralmanagerofShijiazhuangNo.4 PharmaceuticalCo.,Ltd.fromDecember2004,andshewasanexecutiveDirectorofNewOrientaswell.Ms.Gao hasbeenengaginginthequalitymanagementofpharmaceuticalproductionandthetechnologicaltransformation ofpharmaceuticalfacilitiesforalongtime,andhasaccumulatedprofoundtheoreticalandpracticalexperience. Ms.GaograduatedfromHebeiInstituteofChemicalTechnologywithabachelor’sdegreemajoredinChemical Technology.SheisaseniorengineeraccreditedbyTheMinistryofPersonnelofthePeople’sRepublicofChina, andisapracticingpharmacist.

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

BIOGRAPHICALDETAILSOFDIRECTORSANDSENIORMANAGEMENT

DIRECTORS (Continued)

Independent non-executive directors

Mr. Wang Yibing（王亦兵） ,aged49,anindependentnon-executiveDirector.HegraduatedfromShenyang PharmaceuticalUniversity,majoredinpharmacy（瀋陽藥科大學藥學）.Heiscurrentlytheexecutivevice-president ofHebeiProvincePharmaceuticalIndustrialChamberofCommerce（河北省醫藥行業協會）.Mr.wangjoined HeibeiProvincialPharmaceuticalResearchCentre（河北省藥物研究所）inJuly1983andbecamesupervisorin researchcentreofpharmacodynamics,researchcentreofpreparations,thepharmaceuticalfactoryandscientific researchmanagementcentresuccessively.In1991,Mr.wangjoinedtheGeneralEconomicsDivisionofHebei ProvincialAdministrationofMedicine（河北省醫藥管理局綜合經濟處）asvicesupervisorandwaspromotedto supervisorandthedeputydirectorsuccessively.FromApril2000toJuly2005,hewastheDirectorofDivisionof DrugRegistrationandDivisionofDrugSafetyandInspectionofHebeiFoodandDrugAdministration（河北省食品藥品監督管理局藥品註冊處，藥品安全監管處）.Mr.wangpossessesabout25yearsexperienceinpharmaceutical research,productionandindustryregulation,isfamiliarwithpharmaceuticallawsandregulationsanddrug inspectionprocedures.Hehasprofoundexposureintheareasofpharmaceuticalresearch,production,circulation andapplication,whilecomprehendsandprovidesinsightsintotheoverallsituationandtrendofdevelopmentof thepharmaceuticalindustryatboththeprovincialandstatelevels.

Mr. Leung Chong Shun（梁創順） ,aged46,anindependentnon-executiveDirector.Heisalsoanindependent non-executivedirectorofChinaNationalMaterialsCompanyLimited(Stockcode:1893),ChinaMetalRecycling (Holdings)Limited(Stockcode:773)andChinaCommunicationsConstructionCompanyLimited(Stockcode: 1800),companieslistedontheStockExchange.Mr.LeunggraduatedfromtheUniversityofHongKongwith aBachelorofLawsdegreein1988andobtainedthePostgraduateCertificateinLawsin1989.Mr.Leungwas qualifiedasasolicitorinHongKongin1991andEngland&walesin1994.Hehasbeenapartnerofwoo,Kwan, Lee&Lo,alawfirminHongKong,since1997andisexperiencedincorporatefinance.

Mr. Chow Kwok Wai（周國偉） , aged45,wasappointedasanindependentnon-executiveDirectorof theCompanyon16October2005.Mr.ChowhasworkedinPricewaterhouse,whichisnowknownas PricewaterhouseCoopersandaccumulatedvaluableauditexperiencethere.Mr.ChowreceivedhisBachelor ofSocialSciencesDegreefromtheUniversityofHongKongin1990.Mr.ChowisaFellowmemberofthe AssociationofCharteredCertifiedAccountants,aFellowCPAoftheHongKongInstituteofCertifiedPublic AccountantsandaFellowmemberoftheTaxationInstituteofHongKong(“TIHK”).Mr.Chowisalsoaregistered CertifiedTaxAdviser（註冊稅務師）oftheTIHKeffectivefrom7September2010.Hehasover20years’of experienceinaccounting,financialmanagementandcorporatefinance.Mr.Chowiscurrentlyanexecutive director,aDeputyGeneralManagerandthequalifiedAccountantofSilverGrantInternationalIndustriesLimited (Stockcode:171),anon-executivedirectorofCindaInternationalHoldingsLimited(Stockcode:111)andan independentnon-executivedirectorofYouyuanInternationalHoldingsLimited(Stockcode:2268),whoseshares arelistedontheMainBoardoftheStockExchange.

QUALIFIED ACCOUNTANT AND COMPANY SECRETARY

Mr. Chow Hing Yeung（周興揚） ,aged33,isthequalifiedaccountant,companysecretaryandchieffinancial officeroftheCompany.Mr.ChowgraduatedfromtheChineseUniversityofHongKongwithaBachelor’s DegreeinBusinessAdministration.Hehasmorethantenyearsofexperienceinareasofauditing,accountingand financialmanagement.Mr.ChowisamemberoftheHongKongInstituteofCertifiedPublicAccountants.

AnnualReport2011 17

REPORTOFTHEDIRECTORS

TheBoardpresenttheirreporttogetherwiththeauditedfinancialstatementsfortheyearended31December 2011.

PRINCIPAL ACTIVITIES

TheprincipalactivityoftheCompanyisinvestmentholdingandtheactivitiesofitssubsidiariesaresetoutinnote 9tothefinancialstatements.

SEGMENTAL INFORMATION

AnanalysisoftheGroup’sturnoverandresultsbybusinesssegmentsfortheyearended31December2011isset outinnote5tothefinancialstatements.

RESULTS

TheresultsoftheGroupfortheyeararesetoutintheconsolidatedstatementofcomprehensiveincomeonpages 46to47.

DIVIDENDS

AninterimdividendofHK$0.02persharewasdeclaredon26August2011andpaidon30September2011.

TheDirectorsrecommendthepaymentofafinaldividendofHK$0.02persharewhich,togetherwiththeinterim dividendofHK$0.02pershare,willresultintotaldividendsofHK$0.04(2010:HK$0.04)persharefortheyear ended31December2011.Thefinaldividendissubjecttoapprovalbytheshareholdersattheannualgeneral meetingtobeheldon25May2012andpayableon11June2012toshareholderswhosenamesappearonthe registerofmembersoftheCompanyatthecloseofbusinesson30May2012.

RESERVES

DetailsofmovementsinthereservesoftheGroupandoftheCompanyduringtheyeararesetoutinnote18to thefinancialstatements.

PROPERTY, PLANT AND EQUIPMENT

Detailsofthemovementsinproperty,plantandequipmentoftheGroupandoftheCompanyduringtheyearare setoutinnote7tothefinancialstatements.

SHARE CAPITAL

DetailsofthemovementsinsharecapitaloftheCompanyduringtheyeararesetoutinnote17tothefinancial statements.

DISTRIBUTABLE RESERVES

RetainedearningsoftheCompanyasat31December2011availablefordistributionamountedtoHK$7,462,000 (2010:HK$60,986,000).TheCompany’ssharepremiumaccountintheamountofHK$1,351,525,000(2010: HK$1,371,873,000)isalsoavailablefordistributiontoshareholders,subjecttotheconditionthatnodistribution ordividendmaybepaidtoshareholdersoutofthesharepremiumaccountunless,immediatelyfollowingthedate onwhichthedistributionordividendisproposedtobepaid,theCompanyshallbeabletopayitsdebtsasthey falldueintheordinarycourseofbusiness.

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

REPORTOFTHEDIRECTORS

PRE-EMPTIVE RIGHTS

Thereisnoprovisionforpre-emptiverightsundertheCompany’sarticlesofassociationorthelawsoftheCayman Islands,whichwouldobligetheCompanytooffernewsharesonapro-ratabasistoexistingshareholders.

FIVE YEAR FINANCIAL SUMMARY

AsummaryoftheresultsandoftheassetsandliabilitiesoftheGroupforthelastfivefinancialyearsissetouton page120.

PURCHASE, SALE OR REDEMPTION OF SECURITIES

Saveforthepurchaseof4,050,000sharesinMay2011andJune2011whichdetailsaresetoutinthenext paragraph,neithertheCompanynoranyofitssubsidiarieshaspurchasedorsoldanyoftheCompany’slisted securitiesfortheyearended31December2011.

Duringtheyear,theCompanyacquiredanaggregateof4,050,000ordinarysharesthroughpurchaseson TheStockExchangeofHongKongLimited(the“StockExchange”)atanaggregateconsideration(including transactioncosts)ofHK$6,756,518withaviewtobenefitshareholdersasawholeinenhancingthenetassets valueandearningspershareoftheCompany.Allofthepurchasedsharesweresubsequentlycancelledon30June 2011.

Date of the purchases 30May2011 31May2011 9June2011	Total number of the ordinary shares purchased Highest price paid per share Lower price paid per share HK$ HK$ 1,150,000 1.68 1.66 350,000 1.67 1.67 2,550,000 1.68 1.60 4,050,000	Aggregate consideration HK$ 1,926,053 586,850 4,243,615 6,756,518

AnnualReport2011 19

REPORTOFTHEDIRECTORS

SHARE OPTION SCHEME

PursuanttoashareoptionschemeapprovedbyawrittenresolutionofallshareholdersoftheCompanyon16 October2005(“ShareOptionScheme”),theCompanymaygrantoptionsto,amongstothers,thedirectors oremployeesoftheCompanyoritssubsidiaries,fortherecognitionoftheircontributionstotheGroup,to subscribefortheshares.Theofferforgrantofoptions(“Offer”)mustbetakenupwithin28daysfromthedate ofOffer,withapaymentofHK$1.00asconsiderationforthegrant.Theexercisepriceoftheshareoptionwill bedeterminedatthehigherof(i)theaverageclosingpricesofsharesasstatedintheStockExchange’sdaily quotationssheetsforthefivetradingdaysimmediatelyprecedingthedateofOffer;(ii)theclosingpriceofshares asstatedintheStockExchange’sdailyquotationssheetonthedateofOffer;and(iii)thenominalvalueofthe shares.Theshareoptionsareexercisableatanytimeduringaperiodofnotmorethan10yearsfromthedate ofOffer,subjecttothetermsandconditionsoftheShareOptionSchemeandanyconditionsofgrantasmaybe stipulatedbytheBoard.UnlessterminatedbytheCompanybyresolutioningeneralmeeting,theShareOption Schemeshallbevalidandeffectiveforaperiodof10yearscommencingonthedateonwhichtheShareOption Schemebecomesunconditional.

Themaximumnumberofshareswhichmaybeissueduponexerciseofalloutstandingoptionsgrantedandyet tobeexercisedundertheShareOptionSchemeandanyotherschemesshallnotexceed30%oftheissuedshare capitaloftheCompanyfromtimetotime.Thetotalnumberofshareswhichmaybeissueduponexerciseofall optionstobegrantedundertheShareOptionSchemeandanyotherschemesmustnot,inaggregate,exceed 10%ofthenumberofsharesinissueasatthedatedealingsinthesharesfirstcommenceontheStockExchange unlessfurthershareholders’approvalhasbeenobtainedpursuanttotheconditionssetoutintheShareOption Scheme.ThetotalnumberofsharesissuedandtobeissueduponexerciseofalloptionsgrantedundertheShare OptionSchemeandanyotherschemes(includingbothexercisedoroutstandingoptions)toeachparticipantin any12-monthperiodshallnotexceed1%oftheissuedsharecapitaloftheCompany.

Asat7August2008,theCompanygranted100,000,000shareoptionstodirectorsandseniormanagementof theGroup,representingabout4.93%oftheissuedsharecapitalasatthedateimmediatelybeforetheoptions weregranted.TheexercisepricewasHK$0.7.Asat4October2010,alloftheshareoptionsgrantedwere exercised.

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

REPORTOFTHEDIRECTORS

DIRECTORS

TheDirectorsduringtheyearwere:

Executive Directors

Mr.wuqin Mr.quJiguang Mr.XieYunfeng Mr.HuangChao Mr.wangXianjun Mr.Duanwei Ms.ZhangGuifu Mr.BaoLeyuan Ms.GaoShuping Ms.SunXinglai(resignedon29July2011)

Non-executive Director

Mr.LiuZhiyong(resignedon16October2011)

Independent Non-executive Directors

Mr.wangYibing Mr.LeungChongShun Mr.ChowKwokwai

PursuanttoArticle87oftheCompany’sarticlesofassociation,ateveryannualgeneralmeetingone-thirdofthe directorsforthetimebeing(oriftheirnumberisnotthreeoramultipleofthree,thenumbernearesttobutnot lessthanone-third)shallretirefromofficebyrotationandeveryretiringdirectorshallbeeligibleforre-election. Accordingly,Mr.wangXianjun,Mr.Duanwei,Ms.GaoShupingandMr.BaoLeyuanwillretirefromofficeby rotationintheforthcomingannualgeneralmeetingand,beingeligible,offerthemselvesforre-election.

TheCompanyhasreceivedfromeachoftheindependentnon-executiveDirectorsanannualconfirmationof hisindependencepursuanttoRule3.13oftheRulesGoverningtheListingofSecuritiesontheStockExchange (“ListingRules”)andconsiderstheindependentnon-executiveDirectorstobeindependent.

AnnualReport2011 21

REPORTOFTHEDIRECTORS

DIRECTORS’ SERVICE CONTRACTS

EachoftheDirectorshasenteredintoaserviceagreementwiththeCompanyforaninitialtermof3years commencingfromtheappointmentdate.

Saveasdisclosedabove,noneoftheDirectorshasenteredintoaservicecontractwiththeCompanywhich isnotdeterminablebytheCompanywithinoneyearwithoutpaymentofcompensationotherthanstatutory compensation.

DIRECTORS’ INTERESTS IN CONTRACTS

Saveasdisclosedundertheheading“Connectedtransactions”,nocontractsofsignificanceinrelationtothe Group’sbusinesstowhichtheCompany,itsholdingcompanyoranyofitssubsidiariesandfellowsubsidiarieswas apartyandinwhichadirectoroftheCompanyhadamaterialinterest,whetherdirectlyorindirectly,subsistedat theendoftheyearoratanytimeduringtheyear.

BIOGRAPHICAL DETAILS OF DIRECTORS AND SENIOR MANAGEMENT

Biographicaldetailsofdirectorsandseniormanagementaresetoutonpages14to17.

DIRECTORS’ RIGHTS TO ACQUIRE SHARES AND DEBENTURES

Saveasdisclosedunderthesectionsheaded“Directors’andchiefexecutives’interestsintheshares”and“Share optionscheme”,atnotimeduringtheyearwererightstoacquirebenefitsbymeansoftheacquisitionofshares ordebenturesoftheCompanygrantedtoanydirectorsortheirrespectivespouseorminorchildren,orwereany suchrightsexercisedbythem;orwastheCompanyoranyofitssubsidiariesapartytoanyarrangementtoenable thedirectorsoftheCompanytoacquiresuchrightsinanyotherbodycorporate.

EMPLOYEES AND REMUNERATION POLICY

TheremunerationofthedirectorsisdeterminedbytheBoard,withreferencetotheprevailingmarketpractice, theCompany’sremunerationpolicy,dutiesandresponsibilitiesoftheDirectorsandtheircontributiontothe Group.

Asat31December2011,theGrouphadapproximately4,400employees,mostofwhomweremembersofthe Group’sproductionteambasedinthePRC.ThenumberofworkersemployedbytheGroupvariesfromtimeto timedependingonitsneedsandtheremunerationpolicyofemployeesisbasedonindustrypractice.

TheremunerationpolicyoftheGroup’semployeesareperiodicallyreviewed.Apartfromsocialinsuranceandinhousetrainingprogrammes,discretionarybonusesandshareoptionsmaybeawardedtoemployeesaccordingto theassessmentofindividualperformance.

ThetotalremunerationcostincurredbytheGroupforyearended31December2011wasHK$280,855,000 (2010:HK258,991,000).DetailsoftheremunerationoftheDirectorsfortheyearended31December2011are setoutinnote31tothefinancialstatements.

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

REPORTOFTHEDIRECTORS

RETIREMENT BENEFIT PLANS

AsstipulatedbytherulesandregulationsinthePRC,theGrouphasparticipatedinstate-sponsoreddefined contributionretirementplansforitsemployeesinthePRC.TheGroupandtheeligibleemployeesarerequiredto contribute20%and8%,respectively,oftheemployees’basicsalary.Thestate-sponsoredretirementplansare responsiblefortheentirepensionobligationspayabletoretiredemployees.TheGroupalsohasanearlyretirement plan.ExpensesincurredbytheGroupinconnectionwiththeretirementbenefitplanswereapproximately HK$24,772,000fortheyearended31December2011(2010:HK$18,120,000).

InHongKong,theGrouphassetuparetirementschemeinaccordancewiththemandatoryprovidentfund requirementsprescribedbytheMandatoryProvidentFundSchemesOrdinance,Chapter485oftheLawsofHong Kong.AllHongKongbasedemployeesandtheGrouparerequiredtocontribute5%oftheirrespectivemonthly wages(uptoamaximumcontributionofHK$1,000byeachoftheemployeeandtheGroup)onamonthlybasis tothefund.

DIRECTORS’ AND CHIEF EXECUTIVES’ INTERESTS IN THE SHARES

Asat31December2011,theinterestsoftheDirectorsinthesharecapitaloftheCompanyanditsassociated corporations(withinthemeaningofPartXVoftheSecuritiesandFuturesOrdinance(“SFO”))asrecordedinthe registerrequiredtobekeptbytheCompanypursuanttosection352oftheSFO,orasotherwisenotifiedtothe CompanyandtheStockExchangepursuanttotheModelCodeforSecuritiesTransactionsbyDirectorsofListed Issuers(“ModelCode”)assetoutinAppendix10totheListingRulesoncethesharesarelisted,wereasfollows:

Long positions in the shares of the Company

			Approximate
			percentage
			of the issued
		Number of	share capital
Name of Director	Capacity	shares held	of the Company
Mr.wuqin	Beneficialowner	15,420,000	0.63%
Mr.quJiguang	Interestinacontrolledcorporation(Note1)	571,500,000	23.38%

Note:

1. TheseshareswereregisteredinthenameofandbeneficiallyownedbyChinaPharmaceuticalCompanyLimited (“CPCL”).CPCLisheldasto72.93%byMr.quJiguangandasto27.07%by39othershareholders.ByvirtueofPart XVoftheSFO,Mr.quJiguangisdeemedtobeinterestedintheSharesheldbyCPCL.

Saveasdisclosedabove,asat31December2011,noneoftheDirectorsorchiefexecutivesoftheCompany hadaninterestorshortpositionintheshares,underlyingsharesordebenturesoftheCompanyoranyofits associatedcorporations(withinthemeaningofPartXVoftheSFO)whichwererequired(a)tobenotifiedtothe CompanyortheStockExchangepursuanttosection352oftheSFO,tobeenteredintheregisterreferredto therein,or(b)pursuanttotheModelCodetobenotifiedtotheCompanyandtheStockExchange.

AnnualReport2011 23

REPORTOFTHEDIRECTORS

SUBSTANTIAL SHAREHOLDERS’ AND OTHER PERSON’S INTERESTS IN THE SHARES

TheregisterofsubstantialshareholdersrequiredtobekeptbytheCompanyundersection336oftheSFOshows thatasat31December2011,theCompanyhadbeennotifiedofthefollowinginterestsandshortpositions, being5%ormoreintheissuedsharecapitaloftheCompany.Theseinterestsareinadditiontothosedisclosed aboveinrespectoftheDirectorsandchiefexecutives.

Long positions in the shares of the Company

			% of the issued
		Number of	share capital of
Name of Shareholder	Capacity	shares	the Company
PrimeUnitedIndustries	Beneficialowner	641,655,000	26.25%
Limited(Note1)
CPCL(Note2)	Beneficialowner	571,500,000	23.38%
Mr.quJiguang	Interestofcontrolledcorporation(Note2)	571,500,000	23.38%

Notes:

(1) PrimeUnitedIndustriesLimitedisheldastoabout8.86%byMr.wuqin,anexecutiveDirector,astoabout4%byMr. XieYunfeng,anexecutiveDirector,astoabout2.41%byMr.HuangChao,anexecutiveDirector,astoabout84.73% byMr.wuqin,Mr.XieYunfengandMr.HuangChaowhojointlyholdsuchsharesontrustfor3,085individualswho arepresentandformeremployeesortheirrespectiveestatesofXi’anLijunandRejoyGroupLimitedLiabilityCompany (“RejoyGroup”).Mr.wuqin,Mr.XieYunfengandMr.HuangChao,theexecutiveDirectors,arealsodirectorsofPrime UnitedIndustriesLimited.Xi’anLijunisacompanyestablishedinthePRCwithlimitedliabilityandwholly-ownedby theCompany.RejoyGroupisacompanyestablishedinthePRCwithlimitedliabilityand100%ownedbyState-owned AssetsSupervisionandAdministrationCommissionofthePeople’sGovernmentofXian.
(2) CPCLisheldasto72.93%byMr.quJiguangandasto27.07%by39othershareholders.ByvirtueofPartXVofthe SFO,Mr.quJiguangisdeemedtobeinterestedintheSharesheldbyCPCL.

MANAGEMENT CONTRACTS

Saveasdisclosedundertheheading“Connectedtransactions”,noothercontractsconcerningthemanagement andadministrationofthewholeoranysubstantialpartofthebusinessoftheGroupwereenteredintoorin existenceduringtheyear.

MAJOR SUPPLIERS AND CUSTOMERS

Duringtheyear,theGrouppurchasedlessthan30%ofitstotalpurchasesfromits5largestsuppliersandsoldless than30%ofitsturnovertoits5largestcustomers.

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

REPORTOFTHEDIRECTORS

CONNECTED TRANSACTIONS

Certainrelatedpartytransactionsasdisclosedinnote35tothefinancialstatementsalsofellunderthedefinition of“connectedtransaction”or“continuingconnectedtransaction”inChapter14AoftheListingRules,details ofwhicharesetoutbelow.TheCompanyhascompliedwiththedisclosurerequirements,whereapplicable,in accordancewithChapter14AoftheListingRules.

Continuing connected transactions

(1) Distribution of the Group’s products by Rejoy Technology Group (“Xi’an Rejoy Technology Investment Co., Ltd. and its subsidiaries, including but not limited to Xi’an Rejoy Packaging Materials Co., Ltd.”)

PursuanttotheMasterSaleAgreementdated18December2009,theGroupagreedtosellandtheRejoy TechnologyGroupagreedtopurchaseanddistributeproductsoftheGroup.TheRejoyTechnologyGroup purchasesproductsfromtheGroupanddistributessuchproductstootherdistributorsandendcustomers. ThedirectorsconfirmedthatthesellingpricesoftheGroup’sproductssoldtotheRejoyTechnologyGroup weredeterminedinaccordancewiththemarketpricesandtermsandthattheGroupchargedtheRejoy TechnologyGroupfortheproductsatpricesnolessfavourablethanthosechargedtoindependentthird partiesandontermsnolessfavorablethanthosetheGroupcanobtainfromindependentthirdparties.

Xi’anRejoyTechnologyInvestmentCo.Ltd.,theissuedsharecapitalofwhichisheldasto100%bythe beneficialshareholdersofPrimeUnitedIndustriesLimited,thecontrollingshareholderoftheCompanyand isaccordinglyaconnectedpersonoftheCompany.

Fortheyearended31December2011,therewasnosalesofGroupproductstotheRejoyTechnology Group(2010:Nil),whichdidnotexceedtheannualcapofRMB21,500,000(2010:RMB21,500,000) prescribedfortheyearended31December2011asdisclosedintheannouncementdated21December 2009.

(2) Purchasing of Raw Materials from Rejoy Technology Group

PursuanttotheMasterPurchaseAgreementdated18December2009,theRejoyTechnologyGroupagrees tosellandtheGroupagreestopurchaserawmaterialsandpackagingmaterialsfromtheRejoyTechnology GroupfortheproductionandpackagingoftheproductsoftheGroup.ThepricesandtermsoftheMaster PurchaseAgreementareaspermarketandshallbenolessfavourablethanmarketpricesandterms.

ThedirectorsconfirmedthattheGrouppaysRejoyTechnologyGroupfortherawmaterialsandpackaging materialsatpricesnolessfavourablethanthosepaidtoindependentthirdpartiesandontermsnoless favourablethanthosetheGroupcanobtainfromothercomparableindependentthirdparties.Forthe yearended31December2011,thetotalpurchaseofrawmaterialsandpackagingmaterialsfromthe RejoyTechnologyGroupwasRMB2,473,000(2010:Nil),whichdidnotexceedtheestimatedannualcapof RMB5,000,000(2010:RMB5,000,000)prescribedfortheyearended31December2011asdisclosedinthe announcementdated21December2009.

AnnualReport2011 25

REPORTOFTHEDIRECTORS

CONNECTED TRANSACTIONS (continued)

Continuing connected transactions (continued)

Theaforesaidcontinuingconnectedtransactionshavebeenreviewedbyindependentnon-executiveDirectors oftheCompany.Theindependentnon-executiveDirectorsconfirmedthattheaforesaidconnectedtransactions wereenteredinto(a)intheordinaryandusualcourseofbusinessoftheGroup;(b)eitheronnormalcommercial termsorontermsnolessfavourabletotheGroupthantermsavailabletoorfromindependentthirdparties; (c)inaccordancewiththerelevantagreementsgoverningthemontermsthatarefairandreasonableandin theinterestsoftheshareholdersoftheCompanyasawhole;(d)havenotexceededtherespectiveannualcaps disclosedinpreviousannouncements.

Inaccordancewithparagraph14A.38oftheListingRules,theBoardofDirectorsengagedtheauditorsofthe Companytoperformcertainfactualfindingproceduresontheabovecontinuingconnectedtransactionsin accordancewithHongKongStandardonAssuranceEngagements3000“AssuranceEngagementsOtherThan AuditsorReviewsofHistoricalFinancialInformation”andwithreferencetoPracticeNote740“Auditor’sLetter onContinuingConnectedTransactionsundertheHongKongListingRules”issuedbytheHongKongInstitute ofCertifiedPublicAccountants.Theauditorshaveissuedanunqualifiedlettercontainingtheirfindingsand conclusionstotheBoardofDirectors.Acopyoftheauditors’letterhasbeenprovidedbytheCompanytoThe StockExchange.

SUFFICIENCY OF PUBLIC FLOAT

BasedontheinformationthatispubliclyavailabletotheCompanyandwithintheknowledgeoftheDirectors, itisconfirmedthatasufficientpublicfloatofmorethan25%oftheissuedcapitaloftheCompanyhasbeen maintainedasatthelatestpracticabledatepriortotheissueofthisannualreport,being23March2012,andat alltimesduringtheyearended31December2011.

MODEL CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS

TheBoardhasadoptedacodeofconductregardingDirectors’securitiestransactionsontermsnolessexacting thantherequiredstandardsetoutintheModelCodeforSecuritiesTransactionsbyDirectorsofListedIssuersas setoutinAppendix10totheListingRules.AllDirectorshaveconfirmedthattherewerenotanynon-compliance withthestandardsetoutintheModelCodeandtheCompany’scodeofconductregardingDirectors’securities transactionsduringtheyearended31December2011.

AUDITORS

ThefinancialstatementshavebeenauditedbyPricewaterhouseCooperswhowillretireand,beingeligible,offer themselvesforre-appointmentattheforthcomingannualgeneralmeeting.

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

REPORTOFTHEDIRECTORS

ANNUAL GENERAL MEETING

The2012AnnualGeneralMeetingoftheCompanywillbeheldat2:00p.m.on25May2012atOffice2809, 28thFloor,OfficeTower,ConventionPlaza,1HarbourRoad,wanchai,HongKongandanoticeofannualgeneral meetingwillbepublishedanddespatchedinduecourse.

CLOSURE OF REGISTER OF MEMBERS

TheregisterofmembersoftheCompanywillbeclosedfromwednesday,23May2012toFriday,25May2012, bothdatesinclusive,duringwhichperiod,notransferofShareswillberegistered.Inordertoqualifytoattend andvoteattheforthcomingannualgeneralmeeting,allproperlycompletedtransferformsaccompaniedbythe relevantsharecertificatesmustbelodgedwiththeCompany’sbranchshareregistrarandtransferofficeofthe CompanyinHongKong,ComputershareHongKongInvestorServicesLimitedat17MFloor,HopewellCentre,183 queen’sRoadEast,wanchai,HongKongbynolaterthan4:30p.m.,Tuesday,22May2012.

Inordertoqualifyfortheproposedfinaldividendtobeapprovedattheforthcomingannualgeneralmeeting, allproperlycompletedtransferforms,accompaniedbytherelevantsharecertificates,mustbelodgedwiththe Company’sbranchshareregistrarandtransferofficeoftheCompanyinHongKong,ComputershareHongKong InvestorServicesLimitedat17MFloor,HopewellCentre,183queen’sRoadEast,wanchai,HongKongbynolater than4:30p.m.,wednesday,30May2012.

OnbehalfoftheBoard Wu Qin Chairman

HongKong,23March2012

AnnualReport2011 27

CORPORATEGOVERNANCEREPORT

REPORT ON CORPORATE GOVERNANCE PRACTICES

TheCompanyappliedtheprinciplesandcompliedwithallrequirementsoftheCodeonCorporateGovernance Practices(“CGCode”)containedinAppendix14totheListingRules.Duringtheyear,theCompanyhascomplied withtheapplicableCodeProvisionssetoutintheCGCode.

ThefollowingsummarisestheCompany’scorporategovernancepractices.

Key Corporate Governance Principles and the Company’s Practices

A.1 Board of Directors

TheBoardisresponsibleforleadershipandcontroloftheCompanyandoverseestheGroup’sbusinesses, strategicdirectionandperformance.TheManagementwasdelegatedtheauthorityandresponsibility bytheBoardforthemanagementoftheGroup.Inaddition,theBoardhasalsodelegatedvarious responsibilitiestotheBoardCommittees.Furtherdetailsofthesecommitteesaresetoutinthisreport.

Fourregularboardmeetingswereheldfortheyearended31December2011andtheattendancewasas follows:

		Meetings
		attended/held	Attendance
wuqin		4/4	100%
quJiguang		4/4	100%
XieYunfeng		4/4	100%
HuangChao		4/4	100%
wangXianjun		4/4	100%
Duanwei		4/4	100%
ZhangGuifu		4/4	100%
BaoLeyuan		4/4	100%
GaoShuping		4/4	100%
SunXinglai	(resignedon29July2011)	1/4	25%
LiuZhiyong	(resignedon16October2011)	0/4	0%
wangYibing		4/4	100%
LeungChongShun		4/4	100%
ChowKwokwai		4/4	100%

AlldirectorsweregivenanopportunitytocontacttheCompanySecretarytoincludemattersintheagenda forregularboardmeeting.

Noticeofatleast14daysweregivenofaregularboardmeeting.Forallotherboardmeetings,reasonable noticewillbegiven.

AllminutesofBoardmeetingswererecordedinsufficientdetailthemattersconsideredbytheboardand decisionsreached.DraftandfinalversionsofminutesofBoardmeetingsweresenttoalldirectorsfortheir commentandrecordrespectivelywithin3businessdaysaftertheboardmeetingwasheld.

28 LijunInternationalPharmaceutical(Holding)Co.,Ltd.

CORPORATEGOVERNANCEREPORT

REPORT ON CORPORATE GOVERNANCE PRACTICES (continued)

Key Corporate Governance Principles and the Company’s Practices (continued)

A.1 Board of Directors (continued)

TheCompanyhasestablishedthepolicyonobtainingindependentprofessionaladvicebyDirectorsto enabletheDirectors,uponreasonablerequest,toseekindependentprofessionaladviceinappropriate circumstances,attheCompany’sexpense.

IfasubstantialshareholderoraDirectorhasaconflictofinterestinamattertobeconsideredbytheBoard whichtheBoardhasdeterminedtobematerial,themattershallbediscussedbyaBoardmeetingactually hold.Independentnon-executivedirectorswhohavenomaterialinterestinthetransactionshallbepresent atsuchBoardmeeting. AlldirectorshaveaccesstotheadviceandservicesoftheCompanySecretarywithaviewtoensuring thatboardprocedures,andallapplicablerulesandregulations,arefollowed.Minutesofboardmeetings andmeetingsofboardcommitteearetobekeptbyadulyappointedsecretaryofthemeetingandsuch minutesareopenforinspectionatanyreasonabletimeandonreasonablenoticebyanyDirector.

A.2 Chairman and chief executive officer

TheBoardappointedMr.wuqinastheChairman,whowasresponsiblefortheleadershipandeffective runningoftheBoard,andensuringthatallkeyandappropriateissueswerediscussedbytheBoardina timelyandconstructivemanner.

TheBoardappointedMr.quJiguangastheChiefExecutiveOfficer,whowasdelegatedwiththe responsibilitiestoleadthemanagementimplementingthebusinessstrategiesoftheGroup.TheBoardalso comprisesindependentnon-executiveDirectorswhobringstrongindependentjudgment,knowledgeand experiencetotheBoard.Asnotedbelow,alltheAuditCommitteemembersandRemunerationCommittee membersareindependentnon-executivedirectors.Thisstructureistoensureasufficientbalanceofpower andauthorityinplacewithintheGroup.

TheChairmanisresponsibleforensuringthatDirectorsareproperlybriefedonissuesarisingatBoard meetingsandreceiveadequateinformation,whichiscompleteandreliable,inatimelymanner.

A.3 Board composition

TheBoardcomprisesnineexecutiveDirectors,namelyMr.wuqin,Mr.quJiguang,Mr.XieYunfeng,Mr. HuangChao,Mr.wangXianjun,Mr.Duanwei,Ms.ZhangGuifu,Mr.BaoLeyuanandMs.GaoShuping, andthreeindependentnon-executiveDirectors,beingMr.wangYibing,Mr.LeungChongShunandMr. ChowKwokwai.TheDirectorsareconsideredtohaveabalanceofskillandexperienceappropriateforthe requirementsofthebusinessoftheCompany,detailsoftheDirectorsareshownonpages14to17under thesectionheaded“BiographicalDetailsofDirectorsandSeniorManagement”.

Therearesufficientnumbersofindependentnon-executivedirectorsintheCompany,amongwhich,Mr. ChowKwokwaiisacertifiedpublicaccountantandMr.LeungChongShunisaqualifiedsolicitorinHong Kong.

AnnualReport2011 29

CORPORATEGOVERNANCEREPORT

REPORT ON CORPORATE GOVERNANCE PRACTICES (continued)

Key Corporate Governance Principles and the Company’s Practices (continued)

A.3 Board composition (continued)

AllDirectorsareexpresslyidentifiedbycategoriesofexecutivedirectors,non-executivedirectorand independentnon-executivedirectors,inallcorporatecommunicationsthatdisclosethenamesofDirectors oftheCompany.

Subsequenttotheyear,theCompanyhasmaintainedonitswebsiteanupdatedlistofDirectorsidentifying theirroleandfunctionandwhethertheyareindependentnon-executiveDirectors.

Therearenofinancial,business,familyandothermaterialorrelevantrelationshipsamongmembersofthe Board.

A.4 Appointments, re-election and removal

AllDirectorsappointedasanadditiontotheBoardshallbesubjecttore-electionbytheshareholdersatthe firstgeneralmeetingaftertheirappointment.

Also,ateachannualgeneralmeeting,one-thirdoftheDirectorsforthetimebeing(or,iftheirnumber isnotamultipleofthree,thenumbernearesttobutnotlessthanone-third)shallretirefromofficeby rotationprovidedthateveryDirectorshallbesubjecttoretirementatleastonceeverythreeyears.

PursuanttoArticle87oftheArticlesofAssociation,Mr.wangXianjun(anexecutiveDirector),Mr.Duan wei(anexecutiveDirector),Ms.GaoShuping(anexecutiveDirector)andMr.BaoLeyuan(anexecutive Director)willretirefromofficebyrotationintheforthcomingannualgeneralmeetingandbeingeligible, offerthemselvesforre-electionattheAGM.

EveryDirectorincludingnon-executivedirector,includingthoseappointedforaspecificterm,weresubject toretirementbyrotationatleastonceeverythreeyears.

Duringtheyear,theCompanyhadnotestablishedaNominationCommitteeandretainedthefunctions totheBoard.TheDirectorsfromtimetotimeidentifyindividualsuitabletobeaBoardmemberandmake recommendationtotheBoard.Themaincriteriainselectingacandidatearewhetherhecanaddvalueto themanagementthroughhiscontributionsintherelevantstrategicbusinessareasandiftheappointment resultsinastronganddiverseBoard.

Subsequenttotheyear,theBoardhasestablishedaNominationCommitteewithallthemembersbeing anindependentnon-executivedirector.TheNominationCommitteeischairedbyMr.wangYibing (anindependentnon-executiveDirector)andwithcommitteemembersofMr.LeungChongShun(an independentnon-executiveDirector)andMr.ChowKwokwai(anindependentnon-executiveDirector).

30 LijunInternationalPharmaceutical(Holding)Co.,Ltd.

CORPORATEGOVERNANCEREPORT

REPORT ON CORPORATE GOVERNANCE PRACTICES (continued)

Key Corporate Governance Principles and the Company’s Practices (continued)

A.4 Appointments, re-election and removal (continued)

ThetermsofreferenceoftheNominationCommitteeincludethefollowingspecificduties:

(a) toreviewthestructure,sizeandcomposition(includingtheskills,knowledgeandexperience)of theBoardatleastannuallyandmakerecommendationsonanyproposedchangestotheBoardto complementtheCompany’scorporatestrategy;
(b) toidentifyindividualssuitablyqualifiedtobecomeBoardmembersandselectormake recommendationstotheBoardontheselectionofindividualsnominatedfordirectorships;
(c) toassesstheindependenceofindependentnon-executiveDirectors;and
(d) tomakerecommendationstotheBoardontheappointmentorre-appointmentofDirectorsand successionplanningforDirectors,inparticularthechairmanandthechiefexecutiveofficer.

A.5 Responsibilities of directors

EverynewlyappointedDirectoroftheCompanyreceivedaninformationpackagefromtheCompanyon thefirstoccasionofhisappointment.Thisinformationpackageisacomprehensive,formalandtailored inductionontheresponsibilitiesandongoingobligationstobeobservedbyadirector.Inaddition,the packageincludesmaterialsontheoperationsandbusinessoftheCompany.Themanagementofthe Companyconductedbriefingontheirresponsibilitiesandobligationsunderthelawsandapplicable regulationssuchasListingRulesandCompaniesOrdinanceaswasnecessary.

Thefunctionsofindependentnon-executiveDirectorsincludebutnotlimitedtothefollowing:

(a) participatinginboardmeetingsoftheCompanytobringanindependentjudgmenttobearon issuesofstrategy,policy,performance,accountability,resources,keyappointmentsandstandardsof conduct;
(b) takingtheleadwherepotentialconflictsofinterestsarise;
(c) servingontheaudit,remunerationandnominationcommittees;and
(d) scrutinisingtheCompany’sperformanceinachievingagreedcorporategoalsandobjectives, monitoringthereportingofperformance.

EveryDirectorensuresthathecangivesufficienttimeandattentiontotheaffairsoftheCompany.

TheBoardhasadoptedacodeofconductregardingDirectors’securitiestransactionsontermsnoless exactingthantherequiredstandardsetoutintheModelCode.TheDirectorshaveconfirmedthatthere werenotanynoncompliancewiththestandardsetoutintheModelCodeandtheCompany’scodeof conductregardingDirectors’securitiestransactionsduringtheyearended31December2011.

AnnualReport2011 31

CORPORATEGOVERNANCEREPORT

REPORT ON CORPORATE GOVERNANCE PRACTICES (continued)

Key Corporate Governance Principles and the Company’s Practices (continued)

A.6 Supply of and access to information

Inrespectofregularboardandcommitteemeetings,agendasandaccompanyingboardpapersweresentin fulltoallDirectorsatleast3daysbeforetheintendeddateofmeetings.

ThemanagementandtheCompanySecretaryassisttheChairmaninestablishingthemeetingagendaand boardpapers,providingadequateinformationinatimelymannertoenabletheboardandcommittees inmakingdecisiontothematterbeingdiscussedinthemeetings.EachDirectormayrequestinclusionof itemsintheagendaandmoreinformationthanisvolunteeredbythemanagement.TheBoardandeach DirectormayseparatelyandindependentlyaccesstotheCompany’sseniormanagementandshallreceive promptresponse.

MinutesoftheBoard/committeesmeetingsarekeptbytheCompanySecretaryandareopenforinspection byDirectors.

B.1 Remuneration of Directors and senior management

TheBoardhasestablishedaRemunerationCommittee,chairedbyMr.LeungChongShunandwith committeemembersofMr.wangYibingandMr.ChowKwokwai,allofthemareindependentnonexecutiveDirectorsappointedbytheBoard.

TheprincipalresponsibilitiesofRemunerationCommitteeincludeformulationoftheremuneration policy,reviewandrecommendingtotheBoardtheannualremunerationpolicy,anddeterminationofthe remunerationoftheexecutiveDirectorandmembersoftheSeniorManagement.Theoverridingobjective oftheremunerationpolicyistoensurethattheGroupisabletoattract,retain,andmotivateahighcalibre teamwhichisessentialtothesuccessoftheGroup.

TwomeetingshadbeenheldfortheRemunerationCommitteeduringtheyearended31December2011 andtheattendancewasasfollows:

	Meetings
	attended/held	Attendance
LeungChongShun	2/2	100%
wangYibing	1/2	50%
ChowKwokwai	2/2	100%

ThefunctionsspecifiedinCodeProvisionB1.3(a)to(f)oftheCGCodehadbeenincludedintheTermsof ReferenceoftheRemunerationCommittee,whichalsoexplainstheroleandtheauthoritydelegatedbythe Board.

TheRemunerationCommitteeshouldconsultthechairmanand/orchiefexecutiveofficerabouttheir proposalsrelatingtotheremunerationofotherexecutivedirectorsandhaveaccesstoprofessionaladviceif considerednecessary.

32 LijunInternationalPharmaceutical(Holding)Co.,Ltd.

CORPORATEGOVERNANCEREPORT

REPORT ON CORPORATE GOVERNANCE PRACTICES (continued)

Key Corporate Governance Principles and the Company’s Practices (continued)

B.1 Remuneration of Directors and senior management (continued)

TheRemunerationCommitteewillmakeavailableonrequest,itstermsofreference,explainingitsroleand theauthoritydelegatedtoitbytheboard.

ThetermsofreferenceoftheRemunerationCommitteeincludethefollowingspecificduties:

(a) tomakerecommendationstotheBoardontheCompany’spolicyandstructureforalldirectorsand seniormanagementremunerationandontheestablishmentofaformalandtransparentprocedure fordevelopingremunerationpolicy;
(b) toreviewandapprovethemanagement’sremunerationproposalswithreferencetotheBoard’s corporategoalsandobjectives;
(c) tomakerecommendationstotheBoardontheremunerationpackagesofindividualexecutive directorsandseniormanagement,includingbenefitsinkind,pensionrightsandcompensation payments,includinganycompensationpayableforlossorterminationoftheirofficeor appointment;
(d) tomakerecommendationstotheBoardontheremunerationofnon-executivedirectors;
(e) toconsidersalariespaidbycomparablecompanies,timecommitmentandresponsibilitiesand employmentconditionselsewhereintheGroup;
(f) toconsiderandapprovethegrantofshareoptionstoeligibleparticipantspursuanttotheshare optionschemeoftheCompany;
(g) toreviewandapprovecompensationpayabletoexecutivedirectorsandseniormanagementforany lossorterminationofofficeorappointmenttoensurethatitisconsistentwithcontractualterms andisotherwisefairandnotexcessive;
(h) toreviewandapprovecompensationarrangementsrelatingtodismissalorremovalofdirectorsfor misconducttoensurethattheyconsistentwithcontractualtermsandareotherwisereasonableand appropriate;and
(i) toensurethatnodirectororanyofitsassociatesisinvolvedindecidinghisownremuneration.

TheRemunerationCommitteewillbeprovidedwithsufficientresourcestodischargeitsduties.

AnnualReport2011 33

CORPORATEGOVERNANCEREPORT

REPORT ON CORPORATE GOVERNANCE PRACTICES (continued)

Key Corporate Governance Principles and the Company’s Practices (continued)

B.1 Remuneration of Directors and senior management (continued)

ThefollowingisasummaryoftheworkoftheRemunerationCommitteeduring2011regardingthe remunerationofDirectors:

(i) reviewofthetermsofDirector’sservicecontract;and
(ii) reviewoftheremunerationofDirectors;

Theobjectiveofremuneratingnon-executiveDirectorsistoensurethattheyareremuneratedsufficiently butnotexcessivelyfortheireffortsandtimededicatedtotheCompany.Everyofthenon-executive DirectorshasenteredintoaserviceagreementwiththeCompanyforaninitialtermof3yearscommencing fromtheappointmentdate.TheannualemolumentisHK$180,000foreachoftheindependentnonexecutiveDirectors,namelyMr.wangYibing,Mr.LeungChongShunandMr.ChowKwokwai.

RemunerationpackagesofexecutiveDirectorscomprisefixedandvariablecomponents:

(1) Fixedcomponent–basesalary;and
(2) Variablecomponent–annualperformancebonus.

Fringebenefitsincludetheprovidentfund,medicalinsuranceandothermiscellaneousbenefits.

AlltheDirectorsareentitledtoparticipateintheShareOptionScheme.

EmolumentsoftheDirectorsaredeterminedbytheBoardwithreferencetotheprevailingmarketpractice, hisdutiesandresponsibilitieswithintheGroupandhiscontributiontotheGroup.

DetailsoftheremunerationofDirectorsfortheyearended31December2011aresetoutinthepage111 oftheAnnualReport.

C.1 Accountability and audit

TheBoardpresentsabalanced,clear,andcomprehensibleassessmentoftheCompany’sperformance, position,andprospects.

ManagementoftheCompanyprovidessuchexplanationandinformationtotheBoardaswillenablethe BoardtomakeaninformedassessmentofthefinancialandotherinformationputbeforetheBoardfor approval.

34 LijunInternationalPharmaceutical(Holding)Co.,Ltd.

CORPORATEGOVERNANCEREPORT

REPORT ON CORPORATE GOVERNANCE PRACTICES (continued)

Key Corporate Governance Principles and the Company’s Practices (continued)

C.1 Accountability and audit (continued)

TheDirectorsareresponsibleforoverseeingthepreparationofaccountsofeachfinancialperiod.In preparingtheaccountsfortheyearended31December2011,theDirectorshave:

1. selectedsuitableaccountingpoliciesandappliedthemconsistently;
2. approvedadoptionofallHKFRSs;
3. madejudgmentsandestimatesthatareprudentandreasonable;and
4. havepreparedtheaccountsonthegoingconcernbasis.

AcknowledgementfromtheDirectorsoftheirresponsibilityforpreparingtheaccountshasbeenreceived.

Astatementbytheauditorsabouttheirreportingresponsibilitiesisincludedinpages41to42ofthis annualreportunderthesectionheaded“IndependentAuditor’sReport”.

Duringtheyear,theCompanyhasannounceditsannualresultsinatimelymanneraftertheendofthe relevantperiod,aslaiddownintheListingRules;andduringtheyear,theCompanyhasissuedannual andinterimreports,otherprice-sensitiveannouncementsandotherfinancialdisclosuresrequiredunder theListingRules,andreportstoregulatorsaswellastoinformationrequiredtobedisclosedpursuantto statutoryrequirements.

C.2 Internal controls

TheBoardisresponsibleforreviewingtheeffectivenessofthesystemofinternalcontroloftheGroup whichcoverallmaterialcontrols,includingfinancial,operationalandcompliancecontrolsandrisk managementfunctions.TheBoardiscommittedtoimplementinganeffectiveandsoundinternalcontrol systemtosafeguardtheinterestofshareholdersandtheGroup’sassets.Duringtheyear,themanagement hadconductedareviewoftheeffectivenessoftheinternalcontrolsystemoftheGroup.Suchreviewalso coversadequacyofresources,qualificationsandexperienceofstaffoftheCompany’saccountingand financialreportingfunctionandtheirtrainingprogrammesandbudget.Thereportandfindingsofthe reviewwhichhascoveredallmaterialcontrols,hadbeensubmittedtotheBoardandfollowupplanhad beenadopted.ThereviewdidnotfindanymaterialdeficienciesintheinternalcontrolsystemoftheGroup.

C.3 Audit Committee

TheBoardestablishesformalandtransparentarrangementsforconsideringhowitappliesthefinancial reportingandinternalcontrolprinciplesandformaintaininganappropriaterelationshipwiththe Company’sauditors.TheAuditCommitteeestablishedbytheCompanyhavecleartermsofreference.

AllthemembersoftheAuditCommitteeareindependentnon-executiveDirectors.TheAuditCommittee ischairedbyMr.ChowKwokwaiwhoisacertificatedpublicaccountantandthecommitteemembersare Mr.wangYibingandMr.LeungChongShun.

AnnualReport2011 35

CORPORATEGOVERNANCEREPORT

REPORT ON CORPORATE GOVERNANCE PRACTICES (continued)

Key Corporate Governance Principles and the Company’s Practices (continued)

C.3 Audit Committee (continued)

ThefunctionsspecifiedinCodeProvisionC3.3(a)to(n)oftheCGCodehadbeenincludedinthetermsof referenceoftheAuditCommittee.TheTermsofReferenceoftheAuditCommitteealsoexplainstherole andtheauthoritydelegatedbytheBoard.

TwomeetingshadbeenconvenedbytheAuditCommitteeduringtheyearended31December2011and theattendancewasasfollows:

	Meetings
	attended/held	Attendance
ChowKwokwai	2/2	100%
wangYibing	1/2	50%
LeungChongShun	2/2	100%

FullminutesofauditcommitteemeetingswerekeptbytheCompanySecretary.Draftandfinalversionsof minutesoftheauditcommitteemeetingsweresenttoallmembersofthecommitteefortheircomment andrecordsrespectively,within3businessdaysafterthemeeting.

MembersoftheAuditCommitteeoftheCompanydoesnotcompriseanyformerpartneroftheCompany’s existingauditfirm.

ThetermsofreferenceoftheAuditCommitteeincludesthefollowingduties:

(a) tobeprimarilyresponsibleformakingrecommendationtotheboardontheappointment, reappointmentandremovaloftheexternalauditor,andtoapprovetheremunerationandtermsof engagementoftheexternalauditor,andanyquestionsofresignationordismissalofthatauditor;
(b) toreviewandmonitortheexternalauditor’sindependenceandobjectivityandtheeffectiveness oftheauditprocessinaccordancewithapplicablestandard.TheAuditCommitteeshoulddiscuss withtheauditorthenatureandscopeoftheauditandreportingobligationsbeforetheaudit commences;
(c) todevelopandimplementpolicyontheengagementofanexternalauditortosupplynon-audit services.Forthispurpose,externalauditorshallincludeanyentitythatisundercommoncontrol, ownershipormanagementwiththeauditfirmoranyentitythatareasonableandinformedthird partyhavingknowledgeofallrelevantinformationwouldreasonablyconcludeaspartoftheaudit firmnationallyorinternationally.TheAuditCommitteeshouldreporttotheBoardandshallidentify andmakerecommendationsonanymatterswhereactionorimprovementisneeded;

36 LijunInternationalPharmaceutical(Holding)Co.,Ltd.

CORPORATEGOVERNANCEREPORT

REPORT ON CORPORATE GOVERNANCE PRACTICES (continued)

Key Corporate Governance Principles and the Company’s Practices (continued)

C.3 Audit Committee (continued)

(d) tomonitorintegrityoftheCompany’sfinancialstatementsandannualreportandaccounts,halfyearreportand,ifpreparedforpublication,quarterlyreports,andtoreviewsignificantfinancial reportingjudgementscontainedinthem.InreviewingthesereportsbeforesubmissiontotheBoard, theAuditCommitteeshallfocusparticularlyon:
(i) anychangesinaccountingpoliciesandpractices;
(ii) majorjudgmentalareas;
(iii) significantadjustmentsresultingfromaudit;
(iv) thegoingconcernassumptionsandanyqualifications;
(v) compliancewithaccountingstandards;and
(vi) compliancewiththeListingRulesandlegalrequirementsinrelationtofinancialreporting;
(e) Inregardto(d)above:
(i) membersofthecommitteeshallliaisewiththeBoardandseniormanagementandtheAudit Committeemustmeet,atleasttwiceayear,withtheCompany’sauditors;and
(ii) theAuditCommitteeshouldconsideranysignificantorunusualitemsthatare,ormayneed tobe,reflectedinthereportandaccounts,itshallgivedueconsiderationtoanymattersthat havebeenraisedbytheCompany’sstaffresponsibleforaccountingandfinancialreporting function,complianceofficerorauditors;
(f) toreviewtheCompany’sfinancialcontrols,internalcontrolandriskmanagementsystems;
(g) todiscusstheinternalcontrolsystemwithmanagementtoensurethatmanagementhasperformed itsdutytohaveaneffectiveinternalcontrolsystem.Thisdiscussionshallincludetheadequacyof resources,staffqualificationsandexperience,trainingprogrammesandbudgetoftheCompany’s accountingandfinancialreportingfunction;
(h) toconsidermajorinvestigationfindingsoninternalcontrolmattersasdelegatedbytheBoardoron itsowninitiativeandmanagement’sresponsetothesefindings;
(i) whereaninternalauditfunctionexists,toensureco-ordinationbetweentheinternalandexternal auditors,andtoensurethattheinternalauditfunctionisadequatelyresourcedandhasappropriate standingwithintheCompany,andtoreviewandmonitoritseffectiveness;
(j) toreviewthefinancialandaccountingpoliciesandpracticesoftheGroup;

AnnualReport2011 37

CORPORATEGOVERNANCEREPORT

REPORT ON CORPORATE GOVERNANCE PRACTICES (continued)

Key Corporate Governance Principles and the Company’s Practices (continued)

C.3 Audit Committee (continued)

(k) toreviewtheexternalauditor’smanagementletter,anymaterialqueriesraisedbytheauditorto managementaboutaccountingrecords,financialaccountsorsystemsofcontrolandmanagement’s response;
(l) toensurethattheBoardwillprovideatimelyresponsetotheissuesraisedintheexternalauditor’s managementletter;
(m) toreporttotheBoardonthemattersinthecodeprovisionsofCorporateGovernanceCode containedinAppendix14oftheListingRules(asamendedfromtimetotime);
(n) todevelopandreviewtheCompany’spoliciesandpracticesoncorporategovernanceandmake recommendationstotheboard;
(o) toreviewandmonitorthetrainingandcontinuousprofessionaldevelopmentofdirectorsandsenior management;
(p) toreviewandmonitortheCompany’spoliciesandpracticesoncompliancewithlegalandregulatory requirements;
(q) todevelop,reviewandmonitorthecodeofconductandcompliancemanual(ifany)applicableto employeesanddirectors;
(r) toreviewtheCompany’scompliancewiththecodeanddisclosureinthecorporategovernance report;
(s) toconsiderothertopics,asdefinedbytheBoardfromtimetotime;
(t) toreviewarrangementsemployeesoftheCompanycanuse,inconfidence,toraiseconcernsabout possibleimproprietiesinfinancialreporting,internalcontrolorothermatters.TheAuditCommittee shallensurethatproperarrangementsareinplaceforfairandindependentinvestigationofthese mattersandforappropriatefollow-upaction;and
(u) toactasthekeyrepresentativebodyforoverseeingtheCompany’srelationswiththeexternal auditor.

TheAuditCommitteeshallmakeavailableonrequestitstermsofreference,explainingitsroleandthe authoritydelegatedtoitbytheboard.

wheretheBoarddisagreeswiththeAuditCommittee’sviewontheselection,appointment,resignation ordismissaloftheexternalauditors,theCompanyshouldincludeintheCorporateGovernanceReporta detailedexplanationoftheAuditCommittee’sviewandthereasonsfortheBoardtohavetakensucha differentview.

38 LijunInternationalPharmaceutical(Holding)Co.,Ltd.

CORPORATEGOVERNANCEREPORT

REPORT ON CORPORATE GOVERNANCE PRACTICES (continued)

Key Corporate Governance Principles and the Company’s Practices (continued)

C.3 Audit Committee (continued)

TheAuditCommitteehasbeenprovidedwithsufficientresourcestodischargeitsduties.

PricewaterhouseCoopershadbeenappointedtobetheauditoroftheGroup.During2011,totalfeesof aboutHK$3,600,000paid/payabletoPricewaterhouseCooperswerewhollyrelatedtoauditservices.

TheAuditCommitteerecommendedthere-appointmentofPricewaterhouseCooperstobetheauditorof theGroupin2012.

D.1 Delegation by the board

TheCompanyhasaformalscheduleofmattersspecificallyreservedtotheBoardandthosedelegated tomanagement.TheCompanyreviewthearrangementsonaperiodicbasistoensurethattheyremain appropriatetotheneedsoftheCompany.

TheBoardisresponsiblefordeterminingtheoverallstrategyandapprovingtheannualbusinessplanofthe Group,andensuringthebusinessoperationsareproperlyplanned,authorised,undertakenandmonitored. AllpolicymattersoftheGroup,materialtransactionsortransactionswherethereisconflictofinterestsare reservedfortheBoard’sdecisions.

TheBoardhasdelegatedtheday-to-dayresponsibilitytotheexecutivemanagement.TheBoardhasgiven cleardirectionsastothepowersofmanagement,inparticular,withrespecttothecircumstanceswhere managementshouldreportbackandobtainpriorapprovalfromtheBoardbeforemakingdecisionsor enteringintoanycommitmentsonbehalfoftheCompany.

D.2 Board committees

TheBoardhasprescribedsufficientlycleartermsofreferencefortheAudit,RemunerationandNomination Committees.

ThetermsofreferenceoftheAudit,RemunerationandNominationCommitteesrequirethecommitteesto reportbacktotheBoardontheirdecisionsorrecommendations.

E.1 Effective communication

TheCompanyusesanumberofformalchannelstoaccounttoshareholdersfortheperformanceand operationsoftheCompany,particularlytheannualandinterimreportsandquarterlystatements.The Companyfollowsapolicyofdisclosingrelevantinformationtoshareholdersinatimelymanner.

TheannualgeneralmeetingprovidesanopportunityforcommunicationbetweentheBoardandthe Company’sshareholders.TheCompanyensuresthatshareholders’viewsarecommunicatedtotheBoard.

AnnualReport2011 39

CORPORATEGOVERNANCEREPORT

REPORT ON CORPORATE GOVERNANCE PRACTICES (continued)

Key Corporate Governance Principles and the Company’s Practices (continued)

E.1 Effective communication (continued)

Inrespectofeachsubstantiallyseparateissueatageneralmeeting,aseparateresolutionwillbeproposed bythechairmanofthemeeting.

ThechairmanoftheBoardwillattendtheannualgeneralmeetingandarrangeforthechairmanofthe Audit,RemunerationandNominationCommitteesortheirmemberstobeavailabletoanswerquestionsat theannualgeneralmeeting.

TheCompanyarrangesforthenoticetoshareholderstobesentinthecaseofannualgeneralmeetingsat least21cleardaysbeforethemeetingandtobesentatleast14cleardaysinthecaseofallothergeneral meetings.

E.2 Voting by poll

ThechairmanofameetingwillensuredisclosureintheCompany’scircularstoshareholdersofthe proceduresforandtherightsofshareholderstodemandapollincompliancewiththerequirements aboutvotingbypollcontainedintheListingRulessuchthatshareholdersarefamiliarwiththedetailed proceduresforconductingpoll.

Thechairmanofameetingand/orDirectorswho,individuallyorcollectively,holdproxiesinrespectof sharesrepresenting5%ormoreofthetotalvotingrightsataparticularmeetingwilldemandapoll incertaincircumstanceswhere,onashowofhands,ameetingvotesintheoppositemannertothat instructedinthoseproxies.Ifapollisrequiredundersuchcircumstances,thechairmanofthemeetingwill disclosetothemeetingthetotalnumberofvotesrepresentedbyallproxiesheldbydirectorsindicatingan oppositevotetothevotescastatthemeetingonashowofhands.

TheCompanywillcountallproxyvotesand,exceptwhereapollisrequired,thechairmanofameetingwill indicatetothemeetingthelevelofproxieslodgedoneachresolution,andthebalanceforandagainstthe resolution,afterithasbeendealtwithonashowofhands.TheCompanywillensurethatvotescastare properlycountedandrecorded.

Thechairmanofameetingwillatthecommencementofthemeetingensurethatanexplanationis providedof:

(a) theproceduresfordemandingapollbyshareholdersbeforeputtingaresolutiontothevoteona showofhands;and
(b) thedetailedproceduresforconductingapollandthenansweranyquestionsfromshareholders whenevervotingbywayofapollisrequired.

F. Directors’ and Officers’ Liability Insurance

TheCompanyhasarrangedappropriatedirectors’andofficers’liabilityinsurancetoindemnifytheDirectors andseniorstaffoftheGroupfortheirpotentialliabilitiesincurredbythemindischargingtheirduties.The CompanyreviewstheinsurancecoveragefortheDirectorsandtheGroup’sseniorstaffonanannualbasis.

40 LijunInternationalPharmaceutical(Holding)Co.,Ltd.

Independent AudItor’s report

==> picture [66 x 48] intentionally omitted <==

To the shareholders of

Lijun International Pharmaceutical (Holding) Co., Ltd.

(incorporated in Cayman Islands with limited liability)

We have audited the consolidated financial statements of Lijun International pharmaceutical (Holding) Co., Ltd. (the “Company”) and its subsidiaries (together, the “Group”) set out on pages 43 to 119, which comprise the consolidated and company balance sheets as at 31 december 2011, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

DIRECTORS’ RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS

the directors of the Company are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with Hong Kong Financial reporting standards issued by the Hong Kong Institute of Certified public Accountants and the disclosure requirements of the Hong Kong Companies ordinance, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

AUDITOR’S RESPONSIBILITY

our responsibility is to express an opinion on these consolidated financial statements based on our audit and to report our opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

We conducted our audit in accordance with Hong Kong standards on Auditing issued by the Hong Kong Institute of Certified public Accountants. those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

Annual report 2011

Independent AudItor’s report

==> picture [66 x 48] intentionally omitted <==

AUDITOR’S RESPONSIBILITY (continued)

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. the procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of consolidated financial statements that give a true and fair view in order to design audit 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. An audit also includes 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 consolidated financial statements.

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

OPINION

In our opinion, the consolidated financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31 december 2011, and of the Group’s loss and cash flows for the year then ended in accordance with Hong Kong Financial reporting standards and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies ordinance.

PricewaterhouseCoopers Certified public Accountants

Hong Kong, 23 March 2012

42 Lijun International pharmaceutical (Holding) Co., Ltd.

CONSOLIDATEDBALANCESHEET

Asat31December2011 (AllamountsinHK$unlessotherwisestated)

As at 31 December 2011 Note HK$’000 ASSETS Non-current assets Landuserights 6 220,433 Property,plantandequipment 7 1,444,819 Intangibleassets 8 316,896 Deferredincometaxassets 10 21,526 Available-for-salefinancialassets 11 159	Asat 31December 2010 HK$’000 215,565 994,067 551,977 21,200 152 1,782,961 298,607 484,968 – 176,733 30,531 598,911 1,589,750 3,372,711 55,905 48,977 2,250,237 2,355,119 1,178 2,356,297
2,003,833
Current assets Inventories 12 342,318 Tradeandbillsreceivables 13 704,666 Financialassetsatfairvaluethroughprofitorloss 14 2,367 Prepayments,depositsandotherreceivables 15 128,933 Pledgedbankdeposits 16 4,443 Cashandcashequivalents 16 257,980
1,440,707
Total assets 3,444,540
EQUITY Capital and reserves attributable to equity holders of the Company Sharecapital 17 55,703 Reserves 18 –Proposedfinaldividend 33 48,896 –Others 2,191,078
2,295,677 Non-controlling interests 616
Total equity 2,296,293

AnnualReport2011 43

CONSOLIDATEDBALANCESHEET

Asat31December2011 (AllamountsinHK$unlessotherwisestated)

		As at	Asat
LIABILITIES	Note	31 December 2011 HK$’000	31December 2010 HK$’000
Non-current liabilities
Borrowings	19	86,822	66,594
Deferredincometaxliabilities Deferredrevenue Long-termpayables	10 20 21	25,344 10,608 10,548	26,250 4,818 15,058
		133,322	112,720
Current liabilities
Borrowings	19	329,793	366,552
Tradeandbillspayables	22	259,986	206,322
Advancedreceiptsfromcustomers		17,271	23,276
Dividendspayable		6,050	–
Accrualsandotherpayables	23	393,338	289,832
Incometaxpayable		8,487	17,712
		1,014,925	903,694
Total liabilities		1,148,247	1,016,414
Total equity and liabilities		3,444,540	3,372,711
Net current assets		425,782	686,056
Total assets less current liabilities		2,429,615	2,469,017

WU QIN QU JIGUANG Director Director

Thenotesonpages50to119areanintegralpartoftheseconsolidatedfinancialstatements.

Thefinancialstatementsonpage43to119wereapprovedbytheBoardofDirectorson23March2012andwere signedonitsbehalf.

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

BALANCESHEETOFTHECOMPANY

Asat31December2011 (AllamountsinHK$unlessotherwisestated)

		As at	Asat
ASSETS	Note	31 December 2011 HK$’000	31December 2010 HK$’000
Non-current assets
Property,plantandequipment	7	1,211	1,650
Investmentsinsubsidiariesandadvancetoasubsidiary	9	1,264,848	1,206,959
		1,266,059	1,208,609
Current assets
Dividendsreceivable Prepayments,depositsandotherreceivables	15	193,697 1,396	169,434 1,436
Amountsduefromsubsidiaries Cashandcashequivalents	9 16	28,259 112,729	5,035 316,688
		336,081	492,593
Total assets		1,602,140	1,701,202
EQUITY
Capital and reserves attributable to
equity holders of the Company
Sharecapital	17	55,703	55,905
Reserves	18
–Proposedfinaldividend	33	48,896	48,977
–Others		1,483,794	1,557,585
Total equity		1,588,393	1,662,467
LIABILITIES
Current liabilities
Borrowings	19	12,500	37,500
Accrualsandotherpayables	23	1,247	1,235
		13,747	38,735
Total liabilities		13,747	38,735
Total equity and liabilities		1,602,140	1,701,202
Net current assets		322,334	453,858
Total assets less current liabilities		1,588,393	1,662,467

WU QIN QU JIGUANG Director Director

Thenotesonpages50to119areanintegralpartofthesefinancialstatements.

Thefinancialstatementsonpage43to119wereapprovedbytheBoardofDirectorson23March2012andwere signedonitsbehalf.

AnnualReport2011 45

CONSOLIDATEDSTATEMENTOFCOMPREHENSIVEINCOME

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

2011 Note HK$’000 Revenue 24 2,155,215 Costofsales 26 (1,241,525)	2010 HK$’000 1,971,657 (980,031)
Gross profit 913,690 Sellingandmarketingcosts 26 (441,342) Generalandadministrativeexpenses 26 (466,783) Othergains–net 25 7,581	991,626 (461,270) (215,429) 10,066
Operating profit 13,146	324,993
Financeincome 27 2,771 Financecosts 27 (18,111)	4,540 (23,852)
Financecosts–net (15,340)	(19,312)
(Loss)/profit before income tax (2,194) Incometaxexpense 28 (39,183)	305,681 (44,992)
(Loss)/profit for the year (41,377)	260,689
Other comprehensive income: Currencytranslationdifferences 86,639	63,740
Total comprehensive income for the year 45,262	324,429
(Loss)/profit attributable to: EquityholdersoftheCompany (41,401) Non-controllinginterests 24	260,592 97
(41,377)	260,689

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

CONSOLIDATEDSTATEMENTOFCOMPREHENSIVEINCOME

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

2011 Note HK$’000 Total comprehensive income attributable to: EquityholdersoftheCompany 45,195 Non-controllinginterests 67	2010 HK$’000 324,295 134
45,262	324,429
(Losses)/earnings per share for (loss)/profit attributable to the equity holders of the Company (expressedinHK$pershare) –Basic 32 (0.017)	0.113
–Diluted 32 (0.017)	0.113
Dividends 33 97,792	96,075

Thenotesonpages50to119areanintegralpartoftheseconsolidatedfinancialstatements.

AnnualReport2011 47

CONSOLIDATEDSTATEMENTOFCHANGESINEqUITY

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

Balance at 1 January 2010 Comprehensive income Profitfortheyear Other comprehensive income Currencytranslationdifferences	Attributable to equity holders of the Company Share capital Reserves Total Non- controlling interests Total equity HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 48,894 1,575,882 1,624,776 1,044 1,625,820 – 260,592 260,592 97 260,689 311 63,392 63,703 37 63,740
Total comprehensive income	311 323,984 324,295 134 324,429
Transactions with equity holders Issuanceofshares Exerciseofshareoptions Purchaseoftreasuryshares DividendspaidtoequityholdersoftheCompany	4,700 439,330 444,030 – 444,030 2,000 68,000 70,000 – 70,000 – (13,786) (13,786) – (13,786) – (94,196) (94,196) – (94,196)
Total transactions with equity holders	6,700 399,348 406,048 – 406,048
Balance at 31 December 2010	55,905 2,299,214 2,355,119 1,178 2,356,297
Balance at 1 January 2011 Comprehensive income Lossfortheyear Other comprehensive income Currencytranslationdifferences	55,905 2,299,214 2,355,119 1,178 2,356,297 – (41,401) (41,401) 24 (41,377) – 86,596 86,596 43 86,639
Total comprehensive income	– 45,195 45,195 67 45,262
Transactions with equity holders Purchaseoftreasuryshares Cancellationoftreasuryshares Dividendspaidtoequityholdersof theCompany Disposalofasubsidiary Contributionfromnon-controllinginterests	– (6,764) (6,764) – (6,764) (202) 202 – – – – (97,873) (97,873) – (97,873) – – – (1,231) (1,231) – – – 602 602
Total transactions with equity holders	(202) (104,435) (104,637) (629) (105,266)
Balance at 31 December 2011	55,703 2,239,974 2,295,677 616 2,296,293

Thenotesonpages50to119areanintegralpartoftheseconsolidatedfinancialstatements.

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

CONSOLIDATEDCASHFLOwSTATEMENT

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

2011 Note HK$’000 Cash flows from operating activities Cashgeneratedfromoperations 34(a) 244,422 Interestpaid (22,414) Incometaxpaid (50,510)	2010 HK$’000 360,603 (25,072) (47,724) 287,807 (8,452) (180,288) (244) 4,176 6,751 (89,973) 91,381 – 4,540 (172,109) 444,030 70,000 (13,786) 342,257 (439,244) (21,869) (94,196) 287,192 402,890 184,964 11,057 598,911
Netcashgeneratedfromoperatingactivities 171,498
Cash flows from investing activities Purchaseoflanduserights – Purchaseofproperty,plantandequipment (419,831) Purchaseofintangibleassets (3,946) Proceedsfromsaleoflanduserights – Proceedsfromdisposalsofproperty,plantandequipment 34(b) 14,166 Purchaseoffinancialassetsatfairvalue throughprofitorloss (181,534) Proceedsfromsaleoffinancialassetsatfairvalue throughprofitorloss 175,066 Proceedsfromdisposalsofasubsidiary 2,167 Interestreceived 2,771
Netcashusedininvestingactivities (411,123)
Cash flows from financing activities Proceedsfromissuanceofordinaryshares – Proceedsfromexerciseofshareoptions – Purchaseoftreasuryshares (6,764) Proceedsfrombankborrowings 493,985 Repaymentsofbankborrowings (525,472) Decreaseof/(increasein)pledgedbankdeposits 26,088 DividendspaidtoequityshareholdersoftheCompany (91,823)
Netcash(usedin)/generatedfromfinancingactivities (103,986)
Net (decrease)/increase in cash and cash equivalents (343,611) Cashandcashequivalentsatbeginningoftheyear 598,911 Effectofforeignexchangeratechanges 2,680
Cash and cash equivalents at end of the year 257,980

Thenotesonpages50to119areanintegralpartoftheseconsolidatedfinancialstatements.

AnnualReport2011

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

1. GENERAL INFORMATION

LijunInternationalPharmaceutical(Holding)Co.,Ltd.(the“Company”)anditssubsidiaries(together,the “Group”)areengagedintheresearch,development,manufacturingandsellingofawiderangeoffinished medicinesandbulkpharmaceuticalproductstohospitalsanddistributors.TheGrouphasmanufacturing plantsinHebeiProvinceandShaanxiProvince,thePeople’sRepublicofChina(“PRC”orthe“Mainland China”),andsellstocustomersmainlyintheMainlandChina.

TheCompanyisanexemptedcompanywithlimitedliabilityundertheCompaniesLaw,Cap.22(Law3 of1961,ascombinedandrevised)ofCaymanIslands.TheaddressoftheCompany’sregisteredofficeis CenturyYard,CricketSquare,HutchinsDrive,P.O.Box2681,GrandCaymanKY1-1111,CaymanIslands.

TheCompany’sshareshavebeenlistedonTheStockExchangeofHongKongLimited(the“Stock Exchange”)since20December2005.

TheseconsolidatedfinancialstatementsarepresentedinHongKongDollars(“HK$”),unlessotherwise stated.TheseconsolidatedfinancialstatementshavebeenapprovedforissuebytheCompany’sBoardof Directorson23March2012.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Theprincipalaccountingpoliciesappliedinthepreparationoftheseconsolidatedfinancialstatementsare setoutbelow.Thesepolicieshavebeenconsistentlyappliedtoalltheyearspresented,unlessotherwise stated.

2.1 Basis of preparation

TheconsolidatedfinancialstatementsoftheGrouphavebeenpreparedinaccordancewithHong KongFinancialReportingStandards(“HKFRS”)issuedbytheHongKongInstituteofCertifiedPublic Accountants(“HKICPA”).Theconsolidatedfinancialstatementshavebeenpreparedunderthe historicalcostconvention,asmodifiedbytherevaluationoffinancialassetsatfairvaluethrough profitorloss.

ThepreparationoffinancialstatementsinconformitywithHKFRSrequirestheuseofcertain criticalaccountingestimates.Italsorequiresmanagementtoexerciseitsjudgmentintheprocess ofapplyingtheGroup’saccountingpolicies.Theareasinvolvingahigherdegreeofjudgmentor complexity,orareaswhereassumptionsandestimatesaresignificanttotheconsolidatedfinancial statementsaredisclosedinNote4.

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.1 Basis of preparation (continued)

(a) New and amended standards adopted by the Group

Thefollowingnewstandardsandamendmentstostandardsaremandatoryforthefirsttime forthefinancialyearbeginning1January2011thatwouldbeexpectedtohaveamaterial impactontheGroup.

• HKAS24(Revised),“RelatedPartyDisclosures”iseffectiveforannualperiod beginningonorafterJanuary2011.Itintroducesanexemptionfromallofthe disclosurerequirementsofHKAS24fortransactionsamonggovernmentrelated entitiesandthegovernment.Thosedisclosuresarereplacedwitharequirementto disclose:
– Thenameofthegovernmentandthenatureoftheirrelationship;
– Thenatureandamountofanyindividuallysignificanttransactions;and
– Theextentofanycollectively-significanttransactionsqualitativelyor quantitatively.

Italsoclarifiesandsimplifiesthedefinitionofarelatedparty.

(b) New and amended standards have been issued but are not effective for the financial year beginning 1 January 2011 and have not been early adopted

		Effective date
HKFRS7	FinancialInstruments:Disclosures	1January2013
HKFRS9	FinancialInstruments:Classificationand	1January2015
	measurement
HKFRS10	Consolidatedfinancialstatements	1January2013
HKFRS12	Disclosuresofinterestsinotherentities	1January2013
HKFRS13	Fairvaluemeasurement	1January2013
HKAS1	Presentationoffinancialstatements	1July2012
HKAS19	Employeebenefits	1January2013

TherearenootherHKFRSsorHK(IFRIC)interpretationsthatarenotyeteffectivethatwould beexpectedtohaveamaterialimpactontheGroup.

AnnualReport2011 51

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.2 Subsidiaries

2.2.1 Consolidation

Subsidiariesareallentities(includingspecialpurposeentities)overwhichtheGrouphasthe powertogovernthefinancialandoperatingpoliciesgenerallyaccompanyingashareholding ofmorethanonehalfofthevotingrights.Theexistenceandeffectofpotentialvotingrights thatarecurrentlyexercisableorconvertibleareconsideredwhenassessingwhetherthe Groupcontrolsanotherentity.

SubsidiariesarefullyconsolidatedfromthedateonwhichcontrolistransferredtotheGroup. Theyarede-consolidatedfromthedatethatcontrolceases.

Inter-companytransactions,balancesandunrealisedgainsontransactionsbetweengroup companiesareeliminated.Profitsandlossesresultingfromintercompanytransactionsthat arerecognisedinassetsarealsoeliminated.Accountingpoliciesofsubsidiarieshavebeen changedwherenecessarytoensureconsistencywiththepoliciesadoptedbytheGroup.

(a) Businesscombinations

TheGroupappliestheacquisitionmethodtoaccountforbusinesscombinations.The considerationtransferredfortheacquisitionofasubsidiaryisthefairvaluesofthe assetstransferred,theliabilitiesincurredtotheformerownersoftheacquireeandthe equityinterestsissuedbytheGroup.Theconsiderationtransferredincludesthefair valueofanyassetorliabilityresultingfromacontingentconsiderationarrangement. Identifiableassetsacquiredandliabilitiesandcontingentliabilitiesassumedina businesscombinationaremeasuredinitiallyattheirfairvaluesattheacquisition date.TheGrouprecognisesanynon-controllinginterestintheacquireeonan acquisition-by-acquisitionbasis,eitheratfairvalueoratthenon-controllinginterest’s proportionateshareoftherecognisedamountsofacquiree’sidentifiablenetassets.

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.2 Subsidiaries (continued)

2.2.1 Consolidation (continued)

(a) Businesscombinations(continued)

Acquisition-relatedcostsareexpensedasincurred.

Ifthebusinesscombinationisachievedinstages,theacquirer’spreviouslyheldequity interestintheacquireeisremeasuredtofairvalueattheacquisitiondatethrough profitorloss.

AnycontingentconsiderationtobetransferredbytheGroupisrecognisedatfair valueattheacquisitiondate.Subsequentchangestothefairvalueofthecontingent considerationthatisdeemedtobeanassetorliabilityisrecognisedinaccordance withHKAS39eitherinprofitorlossorasachangetoothercomprehensiveincome. Contingentconsiderationthatisclassifiedasequityisnotremeasured,andits subsequentsettlementisaccountedforwithinequity.

Goodwillisinitiallymeasuredastheexcessoftheaggregateoftheconsideration transferredandthefairvalueofnon-controllinginterestoverthenetidentifiable assetsacquiredandliabilitiesassumed.Ifthisconsiderationislowerthanthefairvalue ofthenetassetsofthesubsidiaryacquired,thedifferenceisrecognisedinprofitor loss.

(b) Changesinownershipinterestsinsubsidiarieswithoutchangeofcontrol

Transactionswithnon-controllingintereststhatdonotresultinlossofcontrolare accountedforasequitytransaction–thatis,astransactionswiththeownersintheir capacityasowners.Thedifferencebetweenfairvalueofanyconsiderationpaidand therelevantshareacquiredofthecarryingvalueofnetassetsofthesubsidiaryis recordedinequity.Gainsorlossesondisposalstonon-controllinginterestsarealso recordedinequity.

(c) Disposalofsubsidiaries

whentheGroupceasestohavecontrol,anyretainedinterestintheentityisremeasuredtoitsfairvalueatthedatewhencontrolislost,withthechangeincarrying amountrecognisedinprofitorloss.Thefairvalueistheinitialcarryingamountforthe purposesofsubsequentlyaccountingfortheretainedinterestasanassociate,joint ventureorfinancialasset.Inaddition,anyamountspreviouslyrecognisedinother comprehensiveincomeinrespectofthatentityareaccountedforasiftheGroup haddirectlydisposedoftherelatedassetsorliabilities.Thismaymeanthatamounts previouslyrecognisedinothercomprehensiveincomearereclassifiedtoprofitorloss.

AnnualReport2011 53

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.2 Subsidiaries (continued)

2.2.2 Separate financial statements

Investmentsinsubsidiariesareaccountedforatcostlessimpairment.Costalsoincludes directattributablecostsofinvestment.Theresultsofsubsidiariesareaccountedforbythe Companyonthebasisofdividendandreceivable.

Impairmenttestingoftheinvestmentsinsubsidiariesisrequireduponreceivingdividends fromtheseinvestmentsifthedividendexceedsthetotalcomprehensiveincomeofthe subsidiaryintheperiodthedividendisdeclaredorifthecarryingamountoftheinvestment intheseparatefinancialstatementsexceedsthecarryingamountintheconsolidatedfinancial statementsoftheinvestee’snetassetsincludinggoodwill.

2.3 Segment reporting

Operatingsegmentsarereportedinamannerconsistentwiththeinternalreportingprovidedtothe chiefoperatingdecision-maker.Thechiefoperatingdecision-maker,whoisresponsibleforallocating resourcesandassessingperformanceoftheoperatingsegments,hasbeenidentifiedasthesteering committeethatmakesstrategicdecisions.

2.4 Foreign currency translation

(a) Functional and presentation currency

Itemsincludedinthefinancialstatementsofeachofthegroup’sentitiesaremeasured usingthecurrencyoftheprimaryeconomicenvironmentinwhichtheentityoperates(‘the functionalcurrency’).TheconsolidatedfinancialstatementsarepresentedinHKdollars (HK$),whichistheCompany’sfunctionalandtheGroup’spresentationcurrency.

(b) Transactions and balances

Foreigncurrencytransactionsaretranslatedintothefunctionalcurrencyusingtheexchange ratesprevailingatthedatesofthetransactionsorvaluationwhereitemsarere-measured. Foreignexchangegainsandlossesresultingfromthesettlementofsuchtransactions andfromthetranslationatyear-endexchangeratesofmonetaryassetsandliabilities denominatedinforeigncurrenciesarerecognisedintheincomestatement,exceptwhen deferredinequityasqualifyingcashflowhedgesandqualifyingnetinvestmenthedges.

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.4 Foreign currency translation (continued)

(b) Transactions and balances (continued)

Foreignexchangegainsandlossesthatrelatetoborrowingsandcashandcashequivalents arepresentedintheincomestatementwithin‘financeincomeorcosts’.Allotherforeign exchangegainsandlossesarepresentedintheincomestatementwithin‘othergains–net’.

Changesinthefairvalueofmonetarysecuritiesdenominatedinforeigncurrencyclassified asavailable-for-saleareanalysedbetweentranslationdifferencesresultingfromchangesin theamortisedcostofthesecurity,andotherchangesinthecarryingamountofthesecurity. Translationdifferencesrelatedtochangesintheamortisedcostarerecognisedinprofit orloss,andotherchangesinthecarryingamountarerecognisedinothercomprehensive income.

Translationdifferencesonnon-monetaryfinancialassetsandliabilitiessuchasequitiesheldat fairvaluethroughprofitorlossarerecognisedinprofitorlossaspartofthefairvaluegain orloss.Translationdifferencesonnon-monetaryfinancialassets,suchasequitiesclassifiedas availableforsale,areincludedinothercomprehensiveincome.

(c) Group companies

Theresultsandfinancialpositionofallthegroupentities(noneofwhichhasthecurrencyof ahyperinflationaryeconomy)thathaveafunctionalcurrencydifferentfromthepresentation currencyaretranslatedintothepresentationcurrencyasfollows:

(i) assetsandliabilitiesforeachbalancesheetpresentedaretranslatedattheclosingrate atthedateofthatbalancesheet;
(ii) incomeandexpensesforeachincomestatementaretranslatedataverageexchange rates(unlessthisaverageisnotareasonableapproximationofthecumulativeeffectof theratesprevailingonthetransactiondates,inwhichcaseincomeandexpensesare translatedatthedatesofthetransactions);and
(iii) allresultingexchangedifferencesarerecognisedinothercomprehensiveincome.

Goodwillandfairvalueadjustmentsarisingontheacquisitionofaforeignentityaretreated asassetsandliabilitiesoftheforeignentityandtranslatedattheclosingrate.

AnnualReport2011 55

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.4 Foreign currency translation (continued)

(d) Disposal of foreign operation and partial disposal

Onthedisposalofaforeignoperation(thatis,adisposaloftheGroup’sentireinterestin aforeignoperation,oradisposalinvolvinglossofcontroloverasubsidiarythatincludesa foreignoperation,adisposalinvolvinglossofjointcontroloverajointlycontrolledentity thatincludesaforeignoperation,oradisposalinvolvinglossofsignificantinfluenceover anassociatethatincludesaforeignoperation),alloftheexchangedifferencesaccumulated inequityinrespectofthatoperationattributabletotheequityholdersofthecompanyare reclassifiedtoprofitorloss.

InthecaseofapartialdisposalthatdoesnotresultintheGrouplosingcontrolovera subsidiarythatincludesaforeignoperation,theproportionateshareofaccumulated exchangedifferencesarere-attributedtonon-controllinginterestsandarenotrecognised inprofitorloss.Forallotherpartialdisposals(thatis,reductionsintheGroup’sownership interestinassociatesorjointlycontrolledentitiesthatdonotresultintheGrouplosing significantinfluenceorjointcontrol)theproportionateshareoftheaccumulatedexchange differenceisreclassifiedtoprofitorloss.

2.5 Property, plant and equipment

Property,plantandequipmentsarestatedathistoricalcostlessaccumulateddepreciationand accumulatedimpairmentlosses,ifany.

Historicalcostincludesexpenditurethatisdirectlyattributabletotheacquisitionoftheitems. Subsequentcostsareincludedintheasset’scarryingamountorrecognisedasaseparateasset, asappropriate,onlywhenitisprobablethatfutureeconomicbenefitsassociatedwiththeitem willflowtotheGroupandthecostoftheitemcanbemeasuredreliably.Thecarryingamountof thereplacedpartisderecognised.Allotherrepairsandmaintenancearechargedtotheincome statementduringthefinancialperiodinwhichtheyareincurred.

Depreciationiscalculatedusingthestraight-linemethodtoallocatetheircoststotheirresidual valuesovertheirestimatedusefullives,asfollows:

–	Buildings	10-40years
–	Plantandmachinery	5-18years
–	Vehicles	5-10years
–	Furniture,fixturesandofficeequipment	5-10years

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.5 Property, plant and equipment (continued)

Theassets’residualvaluesandusefullivesarereviewed,andadjustedifappropriate,attheendof eachreportingperiod.

Anasset’scarryingamountiswrittendownimmediatelytoitsrecoverableamountiftheasset’s carryingamountisgreaterthanitsestimatedrecoverableamount(Note2.9).

Gainsandlossesondisposalsaredeterminedbycomparingtheproceedswiththecarryingamount andarerecognisedwithin‘othergains–net’,intheincomestatement.

2.6 Land use rights

AlllandintheMainlandChinaisstate-ownedorcollectively-ownedandnoindividualland ownershiprightexists.TheGroupacquiredtherightstousecertainland.Thepremiumspaidfor suchrightsaretreatedasprepaymentforoperatingleasesandrecordedaslanduserights,which areamortisedtotheincomestatementonastraight-linebasisovertheperiodsoftheleases,or whenthereisimpairment,theimpairmentlossesischangedintheincomestatement.

2.7 Intangible assets

(a) Goodwill

Goodwillarisesontheacquisitionofsubsidiaries,andrepresentstheexcessofthe considerationtransferredovertheCompany’sinterestinnetfairvalueofthenetidentifiable assets,liabilitiesandcontingentliabilitiesoftheacquireeandthefairvalueofthenoncontrollinginterestintheacquiree.

Forthepurposeofimpairmenttesting,goodwillacquiredinabusinesscombinationis allocatedtoeachofthecash-generatingunits(“CGUs”),orgroupsofCGUs,thatisexpected tobenefitfromthesynergiesofthecombination.Eachunitorgroupofunitstowhichthe goodwillisallocatedrepresentsthelowestlevelwithintheentityatwhichthegoodwill ismonitoredforinternalmanagementpurposes.Goodwillismonitoredattheoperating segmentlevel.

Goodwillimpairmentreviewsareundertakenannuallyormorefrequentlyifeventsorchanges incircumstancesindicateapotentialimpairment.Thecarryingvalueofgoodwilliscompared totherecoverableamount,whichisthehigherofvalueinuseandthefairvaluelesscosts tosell.Anyimpairmentisrecognisedimmediatelyasanexpenseandisnotsubsequently reversed.

AnnualReport2011 57

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.7 Intangible assets (continued)

(b) Trademarks and patents

Separatelyacquiredtrademarksandpatentsareshownathistoricalcostlessaccumulated amortisationandaccumulatedimpairmentlosses,ifany.Trademarksandpatentsacquiredin abusinesscombinationarerecognisedatfairvalueatthedateofacquisition.Trademarksand patentshavefiniteusefullives.Amortisationiscalculatedusingthestraight-linemethodto allocatethecostsovertheirestimatedusefullives,asfollows:

Trademarks
– Patents
50years 5-10years

(c) Customer relationships

Customerrelationshipsacquiredinabusinesscombinationarerecognisedatfairvalueatthe acquisitiondateattributabletocustomerbaseorexistingcontractualbidswithcustomers takenoverinconnectionwithbusinesscombinations.Customerrelationshipshavefinite usefullives.Amortisationiscalculatedusingthestraight-linemethodtoallocatetheircosts overtheirestimatedusefullivesof5years.

(d) Computer softwares

Acquiredcomputersoftwaresarecapitalisedonthebasisofthecostsincurredtoacquireand bringtousethespecificsoftwares.Thesecostsareamortisedovertheirestimatedusefullives (5-10years).

2.8 Impairment of non-financial assets

Assetsthathaveanindefiniteusefullife,forexamplegoodwill,arenotsubjecttoamortisationand aretestedatleastannuallyforimpairment.Assetsthataresubjecttoamortisationarereviewed forimpairmentwhenevereventsorchangesincircumstancesindicatethatthecarryingamount maynotberecoverable.Animpairmentlossisrecognisedfortheamountbywhichtheasset’s carryingamountexceedsitsrecoverableamount.Therecoverableamountisthehigherofanasset’s fairvaluelesscoststosellandvalueinuse.Forthepurposesofassessingimpairment,assetsare groupedatthelowestlevelsforwhichthereareseparatelyidentifiablecashflows(cash-generating units).Non-financialassetsotherthangoodwillthatsufferanimpairmentarereviewedforpossible reversaloftheimpairmentateachreportingdate.

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.9 Financial assets

2.9.1 Classification

TheGroupclassifiesitsfinancialassetsinthefollowingcategories:atfairvaluethrough profitorloss,loansandreceivablesandavailable-for-sale.Theclassificationdependson thepurposesforwhichthefinancialassetswereacquired.Managementdeterminesthe classificationofitsfinancialassetsatinitialrecognition.

(a) Financialassetsatfairvaluethroughprofitorloss

Financialassetsatfairvaluethroughprofitorlossarefinancialassetsheldfortrading. Afinancialassetisclassifiedinthiscategoryifacquiredprincipallyforthepurposeof sellingintheshortterm.Derivativesarealsocategorisedasheldfortradingunless theyaredesignatedashedges.Assetsinthiscategoryareclassifiedascurrentassetsif expectedtobesettledwithin12months;otherwise,theyareclassifiedasnon-current.

(b) Loansandreceivables

Loansandreceivablesarenon-derivativefinancialassetswithfixedordeterminable paymentsthatarenotquotedinanactivemarket.Theyareincludedincurrentassets, exceptforthosewithmaturitiesgreaterthan12monthsafterthebalancesheetdate, whichareclassifiedasnon-currentassets.TheGroup’sloansandreceivablescomprise ‘tradeandbillreceivables’,otherreceivablesinthe‘Prepayments,depositsandother receivables’,‘pledgedbankdeposits’,and‘cashandcashequivalents’inthebalance sheet(Note2.13and2.14respectively).

(c) Available-for-salefinancialassets

Available-for-salefinancialassetsarenon-derivativesthatareeitherdesignatedinthis categoryornotclassifiedinanyoftheothercategories.Theyareincludedinnoncurrentassetsunlessmanagementintendstodisposeoftheinvestmentwithin12 monthsoftheendofthereportingperiod.

AnnualReport2011 59

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.9 Financial assets (continued)

2.9.2 Recognition and measurement

Regularwaypurchasesandsalesoffinancialassetsarerecognisedonthetrade-date–the dateonwhichthegroupcommitstopurchaseorselltheasset.Investmentsareinitially recognisedatfairvalueplustransactioncostsforallfinancialassetsnotcarriedatfair valuethroughprofitorloss.Financialassetscarriedatfairvaluethroughprofitorlossare initiallyrecognisedatfairvalue,andtransactioncostsareexpensedintheincomestatement. Financialassetsarederecognisedwhentherightstoreceivecashflowsfromtheinvestments haveexpiredorhavebeentransferredandthegrouphastransferredsubstantiallyallrisks andrewardsofownership.Available-for-salefinancialassetsandfinancialassetsatfair valuethroughprofitorlossaresubsequentlycarriedatfairvalue.Loansandreceivablesare subsequentlycarriedatamortisedcostusingtheeffectiveinterestmethod.

Gainsorlossesarisingfromchangesinthefairvalueofthe‘financialassetsatfairvalue throughprofitorloss’categoryarepresentedintheincomestatementwithin‘othergains –net’,intheperiodinwhichtheyarise.Dividendincomefromfinancialassetsatfairvalue throughprofitorlossisrecognisedintheincomestatementaspartofotherincomewhen theGroup’srighttoreceivepaymentsisestablished.

Changesinthefairvalueofmonetaryandnon-monetarysecuritiesclassifiedasavailablefor salearerecognisedinothercomprehensiveincome.

whenfinancialassetsclassifiedasavailable-for-salearesoldorimpaired,theaccumulated fairvalueadjustmentsrecognisedinequityareincludedintheincomestatementasgainsand lossesfromsalesoffinancialassets.

Financialassetsarestatedatfairvalues.Ifthemarketforafinancialassetisnotactive(and forunlistedsecurities),theGroupestablishedfairvaluebyusingvaluationtechniques.These includetheuseofrecentarm’slengthtransactions,referencetootherinstrumentsthatare substantiallythesame,discountedcashflowanalysis,andoptionpricingmodels,making maximumuseofmarketinputsandrelyingaslittleaspossibleonentity-specificinputs. However,iftherangeofreasonablefairvalueestimateissignificantandtheprobabilitiesof variousestimatescannotbereasonablyassessed,suchfinancialassetsarecarriedatcostless accumulatedimpairmentlosses.

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.9 Financial assets (continued)

2.9.2 Recognition and measurement (continued)

Interestonavailable-for-salesecuritiescalculatedusingtheeffectiveinterestmethodis recognisedintheincomestatementaspartof‘othergains–net’.Dividendsonavailable-forsaleequityinstrumentsarerecognisedintheincomestatementaspartof‘othergains–net’ whentheGroup’srighttoreceivepaymentsisestablished.

2.10 Offsetting financial instruments

Financialassetsandliabilitiesareoffsetandthenetamountreportedinthebalancesheetwhen thereisalegallyenforceablerighttooffsettherecognisedamountsandthereisanintentionto settleonanetbasisorrealisetheassetandsettletheliabilitysimultaneously.

2.11 Impairment of financial assets

(a) Assets carried at amortised cost

TheGroupassessesattheendofeachreportingperiodwhetherthereisobjectiveevidence thatafinancialassetorgroupoffinancialassetsisimpaired.Afinancialassetoragroup offinancialassetsisimpairedandimpairmentlossesareincurredonlyifthereisobjective evidenceofimpairmentasaresultofoneormoreeventsthatoccurredaftertheinitial recognitionoftheasset(a‘lossevent’)andthatlossevent(orevents)hasanimpactonthe estimatedfuturecashflowsofthefinancialassetorgroupoffinancialassetsthatcanbe reliablyestimated.

ThecriteriathattheGroupusestodeterminethatthereisobjectiveevidenceofan impairmentlossinclude:

• Significantfinancialdifficultyoftheissuerorobligor;
• Abreachofcontract,suchasadefaultordelinquencyininterestorprincipal payments;

AnnualReport2011 61

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.11 Impairment of financial assets (continued)

(a) Assets carried at amortised cost (continued)

• TheGroup,foreconomicorlegalreasonsrelatingtotheborrower’sfinancialdifficulty, grantingtotheborroweraconcessionthatthelenderwouldnototherwiseconsider;
• Itbecomesprobablethattheborrowerwillenterbankruptcyorotherfinancial reorganisation;
• Thedisappearanceofanactivemarketforthatfinancialassetbecauseoffinancial difficulties;or
• Observabledataindicatingthatthereisameasurabledecreaseintheestimatedfuture cashflowsfromaportfoliooffinancialassetssincetheinitialrecognitionofthose assets,althoughthedecreasecannotyetbeidentifiedwiththeindividualfinancial assetsintheportfolio,including:
(i) adversechangesinthepaymentstatusofborrowersintheportfolio;
(ii) nationalorlocaleconomicconditionsthatcorrelatewithdefaultsontheassets intheportfolio.

TheGroupfirstassesseswhetherobjectiveevidenceofimpairmentexists.

Forloansandreceivablescategory,theamountofthelossismeasuredasthedifference betweentheasset’scarryingamountandthepresentvalueofestimatedfuturecashflows (excludingfuturecreditlossesthathavenotbeenincurred)discountedatthefinancialasset’s originaleffectiveinterestrate.Thecarryingamountoftheassetisreducedandtheamount ofthelossisrecognisedintheconsolidatedincomestatement.Ifaloanhasavariable interestrate,thediscountrateformeasuringanyimpairmentlossisthecurrenteffective interestratedeterminedunderthecontract.Asapracticalexpedient,theGroupmaymeasure impairmentonthebasisofaninstrument’sfairvalueusinganobservablemarketprice.

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.11 Impairment of financial assets (continued)

(a) Assets carried at amortised cost (continued)

If,inasubsequentperiod,theamountoftheimpairmentlossdecreasesandthedecrease canberelatedobjectivelytoaneventoccurringaftertheimpairmentwasrecognised(such asanimprovementinthedebtor’screditrating),thereversalofthepreviouslyrecognised impairmentlossisrecognisedintheconsolidatedincomestatement.

(b) Assets classified as available for sale

TheGroupassessesattheendofeachreportingperiodwhetherthereisobjectiveevidence thatafinancialassetoragroupoffinancialassetsisimpaired.Inthecaseofequity investmentsclassifiedasavailableforsale,asignificantorprolongeddeclineinthefair valueofthesecuritybelowitscostisalsoevidencethattheassetsareimpaired.Ifanysuch evidenceexistsforavailable-for-salefinancialassets,thecumulativeloss–measuredasthe differencebetweentheacquisitioncostandthecurrentfairvalue,lessanyimpairmentloss onthatfinancialassetpreviouslyrecognisedinprofitorloss–isremovedfromequityand recognisedintheseparateconsolidatedincomestatement.Impairmentlossesrecognisedin theseparateconsolidatedincomestatementonequityinstrumentsarenotreversedthrough theseparateconsolidatedincomestatement.

2.12 Inventories

Inventoriesarestatedatthelowerofcostandnetrealisablevalue.Costisdeterminedusingthe weightedaveragemethod.Thecostoffinishedgoodsandworkinprocesscomprisesrawmaterials, directlabour,otherdirectcostsandrelatedproductionoverheads(basedonnormaloperating capacity).Itexcludesborrowingcosts.Netrealisablevalueistheestimatedsellingpriceinthe ordinarycourseofbusiness,lessapplicablevariablesellingexpenses.

AnnualReport2011 63

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.13 Trade and other receivables

Tradereceivablesareamountsduefromcustomersformerchandisesoldorservicesperformedinthe ordinarycourseofbusiness.Ifcollectionoftradeandotherreceivablesisexpectedinoneyearor less(orinthenormaloperatingcycleofthebusinessiflonger),theyareclassifiedascurrentassets. Ifnot,theyarepresentedasnon-currentassets.

Tradeandotherreceivablesarerecognisedinitiallyatfairvalueandsubsequentlymeasuredat amortisedcostusingtheeffectiveinterestmethod,lessprovisionforimpairment.

2.14 Cash and cash equivalents

Intheconsolidatedstatementofcashflow,cashandcashequivalentsincludecashonhand, depositsheldatcallwithbankswithoriginalmaturitiesofthreemonthsorless.

2.15 Share capital

Ordinarysharesareclassifiedasequity.

Incrementalcostsdirectlyattributabletotheissueofnewsharesoroptionsareshowninequityasa deduction,netoftax,fromtheproceeds.

whereanygroupcompanypurchasestheCompany’sequitysharecapital(treasuryshares),the considerationpaid,includinganydirectlyattributableincrementalcosts(netofincometaxes)is deductedfromequityattributabletoownersoftheCompanyuntilthesharesarecancelledor reissued.wheresuchordinarysharesaresubsequentlyreissued,anyconsiderationreceived,netof anydirectlyattributableincrementaltransactioncostsandtherelatedincometaxeffects,isincluded inequityattributabletoownersoftheCompany.

2.16 Trade and other payables

Tradepayablesareobligationstopayforgoodsorservicesthathavebeenacquiredintheordinary courseofbusinessfromsuppliers.Accountspayableareclassifiedascurrentliabilitiesifpaymentis duewithinoneyearorless(orinthenormaloperatingcycleofthebusinessiflonger).Ifnot,they arepresentedasnon-currentliabilities.

Tradeandotherpayablesarerecognisedinitiallyatfairvalueandsubsequentlymeasuredat amortisedcostusingtheeffectiveinterestmethod.

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.17 Borrowings

Borrowingsarerecognisedinitiallyatfairvalue,netoftransactioncostsincurred.Borrowingsare subsequentlystatedatamortisedcost;anydifferencebetweentheproceeds(netoftransaction costs)andtheredemptionvalueisrecognisedintheincomestatementovertheperiodofthe borrowingsusingtheeffectiveinterestmethod.

Feespaidontheestablishmentofloanfacilitiesarerecognisedastransactioncostsoftheloanto theextentthatitisprobablethatsomeorallofthefacilitywillbedrawndown.Inthiscase,thefee isdeferreduntilthedraw-downoccurs.Totheextentthereisnoevidencethatitisprobablethat someorallofthefacilitywillbedrawndown,thefeeiscapitalisedasaprepaymentforliquidity servicesandamortisedovertheperiodofthefacilitytowhichitrelates.

BorrowingsareclassifiedascurrentliabilitiesunlesstheGrouphasanunconditionalrighttodefer settlementoftheliabilityforatleast12monthsafterthebalancesheetdate.

2.18 Borrowing costs

Generalandspecificborrowingcostsdirectlyattributabletotheacquisition,constructionor productionofqualifyingassets,whichareassetsthatnecessarilytakeasubstantialperiodoftimeto getreadyfortheirintendeduseorsale,areaddedtothecostofthoseassets,untilsuchtimeasthe assetsaresubstantiallyreadyfortheirintendeduseorsale.

Investmentincomeearnedonthetemporaryinvestmentofspecificborrowingspendingtheir expenditureonqualifyingassetsisdeductedfromtheborrowingcostseligibleforcapitalisation.

Allotherborrowingcostsarerecognisedinprofitorlossintheperiodinwhichtheyareincurred.

2.19 Current and deferred income tax

Thetaxexpensefortheperiodcomprisescurrentanddeferredtax.Taxisrecognisedintheincome statement,excepttotheextentthatitrelatestoitemsrecogniseddirectlyinequity.Inthiscase,the taxisalsorecognisedinequity.

(a) Current income tax

Thecurrentincometaxchargeiscalculatedonthebasisofthetaxlawsenactedor substantivelyenactedatthebalancesheetdateintheplaceswheretheCompanyand itssubsidiariesoperateandgeneratetaxableincome.Managementperiodicallyevaluates positionstakenintaxreturnswithrespecttosituationsinwhichapplicabletaxregulationis subjecttointerpretation.Itestablishesprovisionswhereappropriateonthebasisofamounts expectedtobepaidtothetaxauthorities.

AnnualReport2011 65

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.19 Current and deferred income tax (continued)

(b) Deferred income tax

Insidebasisdifferences

Deferredincometaxisrecognised,usingtheliabilitymethod,ontemporarydifferences arisingbetweenthetaxbasesofassetsandliabilitiesandtheircarryingamountsinthe consolidatedfinancialstatements.However,deferredtaxliabilitiesarenotrecognisedifthey arisefromtheinitialrecognitionofgoodwill,thedeferredincometaxisnotaccountedforif itarisesfrominitialrecognitionofanassetorliabilityinatransactionotherthanabusiness combinationthatatthetimeofthetransactionaffectsneitheraccountingnortaxableprofit orloss.Deferredincometaxisdeterminedusingtaxrates(andlaws)thathavebeenenacted orsubstantivelyenactedbythebalancesheetdateandareexpectedtoapplywhenthe relateddeferredincometaxassetisrealisedorthedeferredincometaxliabilityissettled.

Deferredincometaxassetsarerecognisedtotheextentthatitisprobablethatfuturetaxable profitwillbeavailableagainstwhichthetemporarydifferencescanbeutilised.

Outsidebasisdifferences

Deferredincometaxisprovidedontemporarydifferencesarisingoninvestmentsin subsidiaries,exceptfordeferredincometaxliabilitywherethetimingofthereversalof thetemporarydifferenceiscontrolledbytheGroupanditisprobablethatthetemporary differencewillnotreverseintheforeseeablefuture.

(c) Offsetting

Deferredincometaxassetsandliabilitiesareoffsetwhenthereisalegallyenforceableright tooffsetcurrenttaxassetsagainstcurrenttaxliabilitiesandwhenthedeferredincometaxes assetsandliabilitiesrelatetoincometaxesleviedbythesametaxationauthorityoneitherthe taxableentityordifferenttaxableentitieswherethereisanintentiontosettlethebalances onanetbasis.

2.20 Employee benefits

(a) Employee leave entitlements

Employeeentitlementstoannualleavearerecognisedwhentheyareaccruedtoemployees.A provisionismadefortheestimatedliabilityforannualleaveasaresultofservicerenderedby employeesuptothebalancesheetdate.Employeeentitlementstosickleaveandmaternity leavearenotrecogniseduntilthetimeofleave.

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.20 Employee benefits (continued)

(b) Pension obligations

Groupcompaniesoperatevariouspensionschemes.Theschemesaregenerallyfunded throughpaymentstoinsurancecompaniesortrustee-administeredfunds,determinedby periodicactuarialcalculations.TheGrouphasbothdefinedcontributionanddefinedbenefit plans.

(i) Definedcontributionplan

AdefinedcontributionplanisapensionplanunderwhichtheGrouppaysfixed contributionsintoaseparateentity.TheGrouphasnolegalorconstructiveobligations topayfurthercontributionsifthefunddoesnotholdsufficientassetstopayall employeesthebenefitsrelatingtoemployeeserviceinthecurrentandpriorperiods.

TheGrouppayscontributionstopubliclyorprivatelyadministeredpensioninsurance plansonamandatory,contractualorvoluntarybasis.TheGrouphasnofurther paymentobligationsoncethecontributionshavebeenpaid.Thecontributionsare recognisedasemployeebenefitexpensewhentheyaredue.Prepaidcontributionsare recognisedasanassettotheextentthatacashrefundorareductioninthefuture paymentsisavailable.

(ii) Definedbenefitplan

Adefinedbenefitplanisapensionplanthatisnotadefinedcontributionplan. Typicallydefinedbenefitplansdefineanamountofpensionbenefitthatanemployee willreceiveonretirement,usuallydependentononeormorefactorssuchasage, yearsofserviceandcompensation.

Theliabilityrecognisedinthebalancesheetinrespectofdefinedbenefitpension plansisthepresentvalueofthedefinedbenefitobligationattheendofthe reportingperiodlessthefairvalueofplanassets,togetherwithadjustmentsfor unrecognisedpast-servicecosts.Thedefinedbenefitobligationiscalculatedannually byindependentactuariesusingtheprojectedunitcreditmethod.Thepresentvalueof thedefinedbenefitobligationisdeterminedbydiscountingtheestimatedfuturecash outflowsusinginterestratesofhigh-qualitycorporatebondsthataredenominated inthecurrencyinwhichthebenefitswillbepaid,andthathavetermstomaturity approximatingtothetermsoftherelatedpensionobligation.Incountrieswherethere isnodeepmarketinsuchbonds,themarketratesongovernmentbondsareused.

Actuarialgainsandlossesarisingfromexperienceadjustmentsandchangesin actuarialassumptionsarechargedorcreditedtostatementofcomprehensiveincome intheperiodinwhichtheyarise.

Past-servicecostsarerecognisedimmediatelyintheincomestatement,unlessthe changestothepensionplanareconditionalontheemployeesremaininginservicefor aspecifiedperiodoftime(thevestingperiod).Inthiscase,thepast-servicecostsare amortisedonastraight-linebasisoverthevestingperiod.

AnnualReport2011

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.20 Employee benefits (continued)

(b) Pension obligations (continued)

(iii) Otherpost–retirementbenefits

Somegroupcompaniesprovidepost-retirementbenefitstotheirretirees.The entitlementtothesebenefitsisusuallyconditionalontheemployeeremainingin serviceuptoretirementageandthecompletionofaminimumserviceperiod.The expectedcostsofthesebenefitsareaccruedovertheperiodofemploymentusing thesameaccountingmethodologyasusedfordefinedbenefitpensionplan.Actuarial gainsandlossesarisingfromexperienceadjustmentsandchangesinactuarial assumptionsarechargedorcreditedtoequityinothercomprehensiveincomeinthe periodinwhichtheyarise.Theseobligationsarevaluedannuallybyindependent qualifiedactuaries.

(iv) Terminationbenefits

TerminationbenefitsarepayablewhenemploymentisterminatedbytheGroupbefore thenormalretirementdate,orwheneveranemployeeacceptsvoluntaryredundancy inexchangeforthesebenefits.TheGrouprecognisesterminationbenefitswhenitis demonstrablycommittedtoeither:terminatingtheemploymentofcurrentemployees accordingtoadetailedformalplanwithoutpossibilityofwithdrawal;orproviding terminationbenefitsasaresultofanoffermadetoencouragevoluntaryredundancy. Benefitsfallingduemorethan12monthsafterthebalancesheetdatearediscounted totheirpresentvalue.

(c) Share-based compensation

(i) Equity-settledshare-basedpaymenttransactions

TheGroupoperatesanequity-settled,share-basedcompensationplan,underwhich theGroupreceivesservicesfromemployeesasconsiderationforequityinstruments (options)oftheGroup.Thefairvalueoftheemployeeservicesreceivedinexchange forthegrantoftheoptionsisrecognisedasanexpense.Thetotalamountto beexpensedisdeterminedbyreferencetothefairvalueoftheoptionsgranted, excludingtheimpactofanyserviceandnon-marketperformancevestingconditions (forexample,profitability,salesgrowthtargetsandremaininganemployeeofthe entityoveraspecifiedtimeperiod).

Non-marketperformanceandserviceconditionsareincludedinassumptionsabout thenumberofoptionsthatareexpectedtovest.Thetotalexpenseisrecognised overthevestingperiod,whichistheperiodoverwhichallofthespecifiedvesting conditionsaretobesatisfied.Inaddition,insomecircumstancesemployeesmay provideservicesinadvanceofthegrantdateandthereforethegrantdatefairvalue isestimatedforthepurposesofrecognisingtheexpenseduringtheperiodbetween servicecommencementperiodandgrantdate.Attheendofeachreportingperiod, theGrouprevisesitsestimatesofthenumberofoptionsthatareexpectedtovest basedonthenon-marketingperformanceandserviceconditions.Itrecognisesthe impactoftherevisiontooriginalestimates,ifany,intheincomestatement,witha correspondingadjustmenttoequity.

whentheoptionsareexercised,theCompanyissuesnewshares.Theproceeds receivednetofanydirectlyattributabletransactioncostsarecreditedtosharecapital (nominalvalue)andsharepremium.

68 LijunInternationalPharmaceutical(Holding)Co.,Ltd.

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.20 Employee benefits (continued)

(c) Share-based compensation (continued)
(ii) Share-basedpaymenttransactionsamonggroupentities

ThegrantbytheCompanyofoptionsoveritsequityinstrumentstotheemployees ofsubsidiaryundertakingsintheGroupistreatedasacapitalcontribution.Thefair valueofemployeeservicesreceived,measuredbyreferencetothegrantdatefair value,isrecognisedoverthevestingperiodasanincreasetoinvestmentinsubsidiary undertakings,withacorrespondingcredittoequityintheparententityaccounts.

(iii) Socialsecuritycontributionsonshareoptionsgains

Thesocialsecuritycontributionspayableinconnectionwiththegrantoftheshare optionsisconsideredanintegralpartofthegrantitself,andthechargewillbetreated asacash-settledtransaction.

(d) Bonus plan

TheGrouprecognisesaprovisionforbonuseswherecontractuallyobligedorwherethereisa pastpracticethathascreatedaconstructiveobligation.

2.21 Provisions

ProvisionsarerecognisedwhentheGrouphasapresentlegalorconstructiveobligationasaresult ofpastevents;itisprobablethatanoutflowofresourceswillberequiredtosettletheobligation; andtheamounthasbeenreliablyestimated.Provisionsarenotrecognisedforfutureoperating losses.

wherethereareanumberofsimilarobligations,thelikelihoodthatanoutflowwillberequired insettlementisdeterminedbyconsideringtheclassofobligationsasawhole.Aprovisionis recognisedevenifthelikelihoodofanoutflowwithrespecttoanyoneitemsincludedinthesame classofobligationsmaybesmall.

Provisionsaremeasuredatthepresentvalueoftheexpendituresexpectedtoberequiredtosettle theobligationusingapre-taxratethatreflectscurrentmarketassessmentofthetimevalueof moneyandtherisksspecifictotheobligation.Theincreaseintheprovisionduetothepassageof timeisrecognisedasinterestexpense.

2.22 Government grants

Governmentgrantsintheformofsubsidyorfinancialrefundarerecognisedwhenthereisa reasonableassurancethattheGroupwillcomplywiththeconditionsattachedtothegrantsandthat thegrantswillbereceived.

Grantsrelatingtoincomearedeferredandrecognisedintheincomestatementovertheperiod necessarytomatchthemwiththecoststhattheyareintendedtocompensate.

Grantsrelatingtopurchasesoflanduserightsandproperty,plantandequipmentareincludedin non-currentliabilitiesandrecognisedintheincomestatementoverthelifeofdepreciableassetsby wayofareduceddepreciationoramortisationcharge.

AnnualReport2011 69

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.23 Revenue recognition

Revenueismeasuredatthefairvalueoftheconsiderationreceivedorreceivable,andrepresents amountsreceivableforgoodssupplied,statednetofdiscountsreturnsandvalueaddedtaxes.

TheGrouprecognisesrevenuewhentheamountofrevenuecanbereliablymeasured;whenitis probablethatfutureeconomicbenefitswillflowtotheentity;andwhenspecificcriteriahavebeen metforeachoftheGroup’sactivities,asdescribedbelow.TheGroupbasesitsestimatesofreturn onhistoricalresults,takingintoconsiderationthetypeofcustomer,thetypeoftransactionandthe specificsofeacharrangement.

(i) Revenuefromthesaleofgoodsisrecogniseduponthetransferofrisksandrewardsof ownership,whichgenerallycoincideswiththetimewhenagroupentityhasdelivered productstothecustomer,thecustomerhasacceptedtheproductsandcollectibilityofthe relatedreceivablesisreasonablyassured.
(ii) Processingincomeisrecognisedwhentheservicesarerendered,byreferencetotheactual serviceprovidedasaproportionofthetotalservicestobeprovided.
(iii) Rentalincomeisrecognisedoverthetermsoftheleasesonastraight-linebasis.
(iv) Interestincomeisrecognisedonatime-proportionbasisusingtheeffectiveinterestmethod.
(v) Dividendincomeisrecognisedwhentherighttoreceivepaymentisestablished.
(vi) Royaltyincomeisrecognisedonanaccrualsbasisinaccordancewiththesubstanceofthe relevantagreements.

Advancesanddepositsfromcustomersarerecognisedasliabilitiesinthefinancialstatementsas advancedreceiptsfromcustomers,whentherearefutureobligationstoprovidegoodsandservices. Theyarederecogniseduponsalesofgoodsandprovisionofservicesasdescribedabove.

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.24 Operating leases

Leasesinwhichasignificantportionoftherisksandrewardsofownershipareretainedbythelessor areclassifiedasoperatingleases.

(a) As a lessee

Paymentsmadeunderoperatingleases(netofanyincentivesreceivedfromthelessor)are chargedtotheincomestatementonastraight-linebasisovertheperiodofthelease.

(b) As a lessor

whenassetsareleasedoutunderanoperatinglease,theassetisincludedinthebalance sheetbasedonthenatureoftheasset.

2.25 Research and development costs

Researchexpenditureisrecognisedasanexpenseasincurred.Costsincurredondevelopment projects(relatingtothedesignandtestingofneworimprovedproducts)arerecognisedas intangibleassetswhenthefollowingcriteriaarefulfilled:

(i) itistechnicallyfeasibletocompletetheintangibleassetsothatitwillbeavailableforuse;
(ii) managementintendstocompletetheintangibleassetanduseit;
(iii) thereisanabilitytousetheintangibleasset;
(iv) itcanbedemonstratedhowtheintangibleassetwillgenerateprobablefutureeconomic benefits;
(v) adequatetechnical,financialandotherresourcestocompletethedevelopmentandtouse theintangibleassetareavailable;and
(vi) theexpenditureattributabletotheintangibleassetduringitsdevelopmentcanbereliably measured.

Otherdevelopmentexpendituresthatdonotmeetthesecriteriaarerecognisedasanexpenseas incurred.Developmentcostspreviouslyrecognisedasanexpensearenotrecognisedasanassetin asubsequentperiod.Capitaliseddevelopmentcostsarerecordedasintangibleassetsandamortised fromthepointatwhichtheassetisreadyforuseonastraight-linebasisoveritsusefullife,not exceedingfiveyears.

AnnualReport2011 71

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.26 Contingent liabilities

Acontingentliabilityisapossibleobligationthatarisesfrompasteventsandwhoseexistencewill onlybeconfirmedbytheoccurrenceornon-occurrenceofoneormoreuncertainfutureeventsnot whollywithinthecontroloftheGroup.Itcanalsobeapresentobligationarisingfrompastevents thatisnotrecognisedbecauseitisnotprobablethatanoutflowofeconomicresourceswillbe requiredortheamountofobligationcannotbemeasuredreliably.

Acontingentliabilityisnotrecognisedbutisdisclosedinthefinancialstatements.whenachange intheprobabilityofanoutflowoccurssothatoutflowisprobable,itwillthenberecognisedasa provision.

2.27 Dividend distributions

DividenddistributiontotheCompany’sshareholdersisrecognisedasaliabilityintheGroup’s andtheCompany’sfinancialstatementsintheperiodinwhichthedividendsareapprovedbythe Company’sshareholders.

2.28 Exceptional items

Exceptionalitemsaredisclosedanddescribedseparatelyinthefinancialstatementswhereitis necessarytodosotoprovidefurtherunderstandingofthefinancialperformanceoftheGroup.They arematerialitemsofincomeorexpensethathavebeenshownseparatelyduetothesignificanceof theirnatureoramount.

2.29 Earnings per share

(a) Basic earnings per share

Basicearningspershareiscalculatedbydividingtheprofitattributabletoequityholdersof theCompany,excludinganycostsofservicingequityotherthanordinaryshares,byweighted averagenumberofordinarysharesoutstandingduringthefinancialyear,adjustedforbonus elementsinordinarysharesissuedduringtheyear.

(b) Diluted earnings per share

Dilutedearningspershareadjuststhefiguresusedindeterminationofbasicearningsper sharetotakeintoaccounttheafterincometaxeffectofinterestandotherfinancingcosts associatedwithdilutivepotentialordinarysharesandtheweightedaveragenumberofshares assumedtohavebeenissuedfornoconsiderationinrelationtodilutivepotentialordinary shares.

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

3. FINANCIAL RISK MANAGEMENT

3.1 Financial risk factors

TheGroup’sactivitiesexposeittoavarietyoffinancialrisks:marketrisk(includingcurrencyrisk,fair valueinterestraterisk,cashflowinterestrateriskandpricerisk),creditriskandliquidityrisk.The Group’soverallriskmanagementprogrammefocusesontheunpredictabilityoffinancialmarkets andseekstominimisepotentialadverseeffectsontheGroup’sfinancialperformance.

(a) Market risk

(i) Foreigncurrencyexchangerisk

TheGroupmainlyoperatesintheMainlandChina,withmostofitstransactions denominatedandsettledinRMB.TheGroupisexposedtoforeignexchangerisk primarilyarisingfromHongKongDollarssincecertaincashandcashequivalentsand borrowingsaredenominatedinHongKongDollars.TheGroupisalsoexposedto foreignexchangeriskthroughtransactionsthataredenominatedinacurrencyother thanthefunctionalcurrencyoftheCompanyanditssubsidiaries.

TheGroupmanagesitsforeigncurrencyexchangerisksbyperformingregularreview andmonitoringitsforeigncurrencyexposures.Ithasnotusedanyforwardcontracts, currencyborrowingsorothermeanstohedgeitsforeigncurrencyexposure.

At31December2011,ifRMBhadstrengthened/weakenedby5%againsttheHK$ withallothervariablesheldconstant,theGroup’sprofitbeforetaxfortheyear wouldhavebeenHK$15,105,000(31December2010:HK$10,473,000)higher/lower, mainlyasaresultofforeignexchangegains/lossesontranslationofHK$denominated cashandcashequivalentsandotherreceivables,accrualsandotherpayables,and borrowings.

(ii) Pricerisk

TheGroupisexposedtoequitysecuritiespriceriskbecauseinvestmentsheldbythe Groupareclassifiedontheconsolidatedbalancesheetasatfairvaluethroughprofit orloss.TheGrouphasnothedgeditspriceriskarisingfrominvestmentsinfinancial assetsatfairvaluethroughprofitorloss.

AstheGroup’sinvestmentsinequityofotherentitlesarepubliclytraded,andtheirfair valueisdeterminedwithreferencetoquotedmarketprices.

AnnualReport2011 73

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

3. FINANCIAL RISK MANAGEMENT (continued)

3.1 Financial risk factors (continued)

(a) Market risk (continued)

(iii) Cashflowandfairvalueinterestraterisk

ExceptforitspledgedbankdepositsandcashatbankstotalledHK$261,607,000asat 31December2011(31December2010:HK$628,353,000),whichcarriedaweighted averageinterestrateof0.6%(31December2010:1.2%)perannum,theGrouphas nosignificantinterest-bearingassets.

TheGroup’sinterestbearingliabilitiesarebankborrowings.Borrowingsissuedat variableratesexposetheGrouptocashflowinterest-raterisk.Borrowingsissuedat fixedratesexposetheGrouptofairvalueinterest-raterisk.

TheGrouphasnotusedanyinterestrateswapstohedgeitsexposuretointerestrate risk.

Atthebalancesheetdate,ifinterestratehadbeenincreased/decreasedby0.6 percentage-pointandallothervariableswereheldconstant,theGroup’sprofitbefore taxfortheyearended31December2011woulddecrease/increasebyapproximately HK$1,961,000(31December2010:0.6percentage-point,HK$950,000).Thisrelates primarilytointerestexpenseonbankborrowings.

(b) Credit risk

TheGrouphasnosignificantconcentrationsofcreditrisk.Thecarryingamountsofits pledgedbankdeposits,cashandcashequivalents,tradeandbillsreceivables,andother receivablesrepresenttheGroup’smaximumexposuretocreditriskinrelationtoitsfinancial assets.

DebtorsoftheGroupmaybeaffectedbytheunfavourableeconomicconditionsandthe lowerliquiditysituationwhichcouldinturnimpacttheirabilitytorepaytheamountsowed. Deterioratingoperatingconditionsfordebtorsmayalsohaveanimpactonmanagement’s cashflowforecastsandassessmentoftheimpairmentofreceivables.Totheextentthat informationisavailable,managementhasproperlyreflectedrevisedestimatesofexpected futurecashflowsintheirimpairmentassessments.

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

3. FINANCIAL RISK MANAGEMENT (continued)

3.1 Financial risk factors (continued)

(b) Credit risk (continued)

Asat31December2011,84%(31December2010:91%)oftheGroup’sbankdepositsare placedinmajorfinancialinstitutionslocatedinPRCandHK,whichmanagementbelievesare ofhighcreditqualitywithoutsignificantcreditrisk.TheGroupalsohaspoliciesthatlimitthe amountofcreditexposuretoanyfinancialinstitution,subjecttoperiodicreview.

TheGrouphaspoliciesinplacetoensurethatsalesaremadetocustomerswithan appropriatecredithistory.Itperformsperiodiccreditevaluations/reviewsofitscustomers (Note13).Asat31December2011,majorityoftradereceivablesarewithcustomershaving anappropriatecredithistory.

Asat31December2011,outofthetotaltradeandbillsreceivables,46%(31December 2010:39%)arebankacceptancenotes,ofwhichthecreditrisksrestwiththeacceptance banks.ThedirectorsoftheCompanyaresatisfiedthattherisksarisingfromthosenotesare minimalconsideringthecreditqualityoftheacceptancebanks.

(c) Liquidity risk

Prudentliquidityriskmanagementincludesmaintainingsufficientcashandtheavailabilityof fundingthroughanadequateamountofcommittedcreditfacilities.Managementmonitors rollingforecastsoftheGroup’sliquidityreservecomprisingundrawnborrowingfacilityand cashandcashequivalentsonthebasisofexpectedcashflow.TheGroupaimstomaintain flexibilityinfundingbykeepingcommittedcreditlinesavailable.

ThetablebelowanalysestheGroup’sfinancialliabilities(includingcontractuallycommitted interestpayments)intorelevantmaturitygroupingsbasedontheremainingperiodatthe balancesheettothecontractualmaturitydate.Theamountsdisclosedinthetablearethe contractualundiscountedcashflows.Balanceduewithin12monthsequaltheircarrying balances,astheimpactofdiscountingisnotsignificant.

AnnualReport2011 75

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

3. FINANCIAL RISK MANAGEMENT (continued)

3.1 Financial risk factors (continued)

(c) Liquidity risk (continued)

		Between	Between
	Less than	1 and	2 and
	1 year	2 years	5 years	Total
	HK$’000	HK$’000	HK$’000	HK$’000
At 31 December 2011
Borrowings	329,793	60,000	26,822	416,615
Interestspaymentsonborrowings	11,915	2,028	907	14,850
Tradeandbillspayables	259,986	–	–	259,986
Accrualsandotherpayables	206,576	–	–	206,576
	808,270	62,028	27,729	898,027
At 31 December 2010
Borrowings	366,552	66,594	–	433,146
Interestspaymentsonborrowings	11,771	1,469	–	13,240
Tradeandbillspayables	206,322	–	–	206,322
Accrualsandotherpayables	102,869	–	–	102,869
	687,514	68,063	–	755,577

3.2 Capital risk management

TheGroup’sobjectiveswhenmanagingcapitalaretosafeguardtheGroup’sabilitytocontinueas agoingconcerninordertoprovidereturnsfortheCompany’sshareholdersandbenefitsforother stakeholdersandtomaintainanoptimalcapitalstructuretoreducethecostofcapital.

Inordertomaintainoradjustthecapitalstructure,theGroupmayadjusttheamountofdividends paidtoshareholders,returncapitaltoshareholders,issuenewsharesorsellassetstoreducedebt. Consistentwithothersintheindustry,theGroupmonitorscapitalonthebasisofthegearingratio. Thisratioiscalculatedasnetborrowingsdividedbytotalequitylessnon-controllinginterests.Net borrowingsiscalculatedastotalborrowings(includingcurrentandnon-currentborrowings)less pledgedbankdepositsandcashandcashequivalents.

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

3. FINANCIAL RISK MANAGEMENT (continued)

3.2 Capital risk management (continued)

Thegearingratiosat31December2011and2010wereasfollows:

Totalborrowings(Note19)	2011 HK$’000 416,615	2010 HK$’000 433,146
Less:Cashandcashequivalents(Note16)	(257,980)	(598,911)
Netdebt	158,635	(165,765)
Totalequity	2,296,293	2,356,297
Totalcapital	2,454,928	2,190,532
Gearingratio 6.5% (7.6%)

3.3 Fair value estimation

Effective1January2009,theGroupadoptedtheamendmenttoHKFRS7forfinancialinstruments thataremeasuredinthebalancesheetatfairvalue.Thisrequiresdisclosureoffairvalue measurementsbylevelofthefollowingfairvaluemeasurementhierarchy:

• quotedprices(unadjusted)inactivemarketsforidenticalassetsorliabilities(level1).
• Inputsotherthanquotedpricesincludedwithinlevel1thatareobservablefortheassetor liability,eitherdirectly(thatis,asprices)orindirectly(thatis,derivedfromprices)(level2).
• Inputsfortheassetorliabilitythatarenotbasedonobservablemarketdata(thatis, unobservableinputs)(level3).

Asof31December2011,theGrouphasthefairvalueoffinancialinstrumentswiththeamountof HK$2,367,000(31December2010:Nil).Thefairvalueoffinancialassetstradedinactivemarkets (suchasfinancialassetsatfairvaluethroughprofitorloss)thatwererecordedduringtheyear ended31December2011isbasedonquotedmarketpricesatthereportingdate(level1).

Thecarryingvaluelessimpairmentprovisionofreceivablesandpayablesareareasonable approximationoftheirfairvalues.Thefairvalueoffinancialliabilitiesfordisclosurepurposesis estimatedbydiscountingthefuturecontractualcashflowsatthecurrentmarketinterestratethatis availabletotheGroupforsimilarfinancialinstruments.

AnnualReport2011 77

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimatesandjudgmentsarecontinuallyevaluatedandarebasedonhistoricalexperienceandother factors,includingexpectationsoffutureeventsthatarebelievedtobereasonableunderthecircumstances.

TheGroupmakesestimatesandassumptionsconcerningthefuture.Theresultingaccountingestimates will,bydefinition,seldomequaltherelatedactualresults.Theestimatesandassumptionsthathavea significantriskofcausingamaterialadjustmenttothecarryingamountsofassetsandliabilitieswithinthe nextfinancialyeararediscussedbelow.

(a) Useful lives of property, plant and equipment, land use rights and intangible assets

TheGroup’smanagementdeterminestheestimatedusefullivesforitsproperty,plantand equipment,landuserightsandintangibleassets.Theseestimatesarebasedonthehistorical experienceoftheactualusefullivesofproperty,plantandequipment,landuserightandintangible assetsofsimilarnatureandfunctions,orbasedonvalue-in-usecalculationsormarketvaluations withreferencetotheestimatedperiodsthattheGroupintendstoderivefutureeconomic benefitsfromtheuseofintangibleassets.Itcouldchangesignificantlyasaresultoftechnical innovations,changedincustomertasteandcompetitoractionsinresponsetosevereindustrycycles. Managementwillincreasethedepreciationoramortisationchargewhereusefullivesarelessthan previouslyestimatedlives,orwillwrite-offorwrite-downtechnicallyobsoleteornon-strategicassets thathavebeenabandonedorsold.

(b) Impairment of property, plant and equipment, land use rights and intangible assets (other than goodwill)

Impairmentlossesforproperty,plantandequipment,landuserightsandintangibleassetsare recognisedfortheamountbywhichthecarryingamountexceedsitsrecoverableamountin accordancewiththeaccountingpolicystatedinNote2.8.Therecoverableamounts,beingthe higheroffairvaluelesscoststosellornetpresentvalueoffuturecashflowswhichareestimated baseduponthecontinueduseoftheassetinthebusiness,aredeterminedwithreferencetothe bestinformationavailableateachofthebalancesheetdate.Changingtheassumptionsselected bytheGroup’smanagementinassessingimpairment,includingthediscountratesortheoperating andgrowthrateassumptionsinthecashflowprojections,couldmateriallyaffectthenetpresent valueusedintheimpairmenttestandasaresultaffecttheGroup’sfinancialpositionandresultsof operations.

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)

(c) Impairment of goodwill

TheGroup’smanagementtestsannuallywhethergoodwillhassufferedanyimpairment.In accordancewiththeaccountingpolicystatedinNote2.7.Therecoverableamountofcashgeneratingunithasbeendeterminedbasedonhigherofvalue-in-useandfairvaluelesscoststosell.

GoodwillisallocatedtotheintravenousinfusionsolutionsegmentintheMainlandChina,thecashgeneratingunit(CGU)identified.TheGroupdeterminedthattherewasanimpairmentindication relatingtoCGUofintravenousinfusionsolutionsegment.

TheGroupmeasuredthevalueinuseandfairvaluelesscoststosellbydiscountingthefuture estimatedcashflowderivingfromCGU.ThesecalculationsrequiredtheGrouptoestimatethe expectedfuturecashflowsfromthecash-generatingunitandalsotoapplyasuitablediscountrate inordertocalculatethepresentvalueofthosecashflows.

		Fair value
		less cost
	Value in use	to sell
	HK$’000	HK$’000
CGU–intravenousinfusionsolutionsegment	667,000	1,264,000

TheGroupconsideredthattherecoverableamountwasthehigherofvalueinuseandfairvalueless coststosell.

Iftheestimatesinallforecastyearshadbeen5%lowerorhigherthanthemanagement’sestimates at31December2011,theGroupwouldhaverecognisedtheimpairmentasfollows:

	weightedaveragecostofcapital Discountforlackofmarketability Networkingcapital Growthrate Grossprofitmargin	2011 5% Lower 5% Higher HK$’000 HK$’000 127,339 308,664 190,247 258,090 219,851 228,486 228,486 219,851 377,740 69,364

AnnualReport2011

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)

(d) Net realisable value of inventories

Netrealisablevalueofinventoriesistheestimatedsellingpriceintheordinarycourseofbusiness, lessestimatedcostsofcompletionandsellingexpenses.Theseestimatesarebasedonthecurrent marketconditionandthehistoricalexperienceofmanufacturingandsellingproductsofsimilar nature.Itcouldchangesignificantlyasaresultoftechnicalinnovations,changesincustomertaste andcompetitoractionsinresponsetochangesinmarketconditions.TheGroup’smanagement reassessestheestimatesateachbalancesheetdate.

(e) Impairment of receivables

TheGroup’smanagementdeterminestheprovisionforimpairmentoftrade,billsandother receivablesbasedonanassessmentoftherecoverabilityofthereceivables.Theseestimatesare basedonthecredithistoryofitscustomersandotherdebtorsandcurrentmarketcondition.The Group’smanagementreassessestheprovisionateachbalancesheetdate.

(f) Post-employment benefits obligation

TheGroup’smanagementreassessestheamountofprovisionforpost-employmentbenefits obligationsateachbalancesheetdateusingtheprojectedunitcreditmethod.Underthis method,thedeterminationofthepresentvalueofpost-employmentbenefitsobligationdepends onanumberofkeyassumptionslikediscountrateandresignationrate.Anychangesinthese assumptionswillimpactthecarryingamountofpost-employmentbenefitsobligations.

(g) Current tax and deferred tax

TheGroupissubjecttoincometaxesinnumerousjurisdictions.Significantjudgmentisrequired indeterminingtheprovisionforincometaxes.Therearemanytransactionsandcalculationsfor whichtheultimatetaxdeterminationisuncertain.wherethefinaltaxoutcomeofthesemattersis differentfromtheamountsthatwereinitiallyrecorded,suchdifferenceswillimpactthecurrentand deferredincometaxassetsandliabilitiesintheperiodinwhichsuchdeterminationismade.

Deferredtaxassetsrelatingtocertaintemporarydifferencesandtaxlossesarerecognisedas managementconsidersitisprobablethatfuturetaxableprofitwillbeavailableagainstwhichthe temporarydifferencesortaxlossescanbeutilised.wheretheexpectationisdifferentfromthe originalestimate,suchdifferenceswillimpacttherecognitionofdeferredtaxassetsandtaxationin theperiodsinwhichsuchestimateischanged.

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)

(h) Impairment of the Group’s assets

TheGroupfollowstheguidanceofHKAS36todeterminewhethertheGroup’sassetsareimpaired. AsstatedinHKAS36,thenetassetvalueofanentitythatexceedsitsmarketcapitalisationisan impairmentindicatorwhichwouldrequireanestimateoftherecoverableamounttobeperformed. Asat31December2011,theGroup’smarketcapitalisationamountedtoHK$2,176million approximately,whichislowerthantheGroup’snetassetsvaluewhichisHK$2,296million.Thus, theGroupneedstoassesswhetheritsassetsareimpaired.Thisassessmentrequiressignificant judgmentsandestimations.Inmakingthesejudgmentsandestimations,theGroupevaluatesand considersbothqualitativeandquantitativefactorsthatwillaffectthevalue-in-useofanassetora cash-generatingunits(“CGU”)suchastheextentofdifferencebetweenthenetassetsvalueand marketcapitalisation,compositionoftheGroup’sassets,resultsandtimingofpreviousimpairment tests.

TheGrouphasperformedtheimpairmenttestaccordingtoHKAS36anddeterminesthatexceptfor thegoodwillandproperty,plantandequipment,nootherassetsorCGUshavebeenimpaired.The impairmentassessmentofgoodwillandproperty,plantandequipmentisanalysedinNote8and Note7respectively.

5. SEGMENT INFORMATION – GROUP

Thechiefoperatingdecision-makerhasbeenidentifiedastheexecutivedirectors.Thedecision-maker reviewstheGroup’sinternalreportinginordertoassessperformanceandallocateresources.Management hasdeterminedtheoperatingsegmentsbasedonthesereports.

Theboardconsidersthebusinessfromproductperspective.Fromaproductperspective,thedecision-maker assessestheperformanceoftwoproductsegments,namelyintravenousinfusionsolutionandantibiotics andothers.

Thechiefoperatingdecision-makerassessestheperformanceoftheoperatingsegmentsbasedona measureofrevenueandprofit.Thismeasurementisconsistentwiththatintheannualfinancialstatements.

Unallocatedoperatinglosswasmainlyattributabletocorporateexpenses.

Segmentassetsconsistprimarilyoflanduserights,property,plantandequipment,intangibleassets, inventories,tradeandbillreceivables,prepayments,depositsandotherreceivables,pledgedbankdeposits andcashandcashequivalents.Unallocatedassetsmainlycomprisecorporatecash.

Segmentliabilitiescomprisemainlyoperatingliabilities.Unallocatedliabilitiesmainlycomprisecorporate borrowings.

Therevenuefromexternalpartiesreportedtothemanagementismeasuredinamannerconsistentwith thatintheconsolidatedincomestatement.

AnnualReport2011 81

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

5. SEGMENT INFORMATION – GROUP (continued)

Thesegmentinformationprovidedtothedecision-makerforthereportablesegmentsfortheyearended 31December2011isasfollows:

	Intravenous
	infusion	Antibiotics
	solution	and others	Unallocated		Total
	HK$’000	HK$’000		HK$’000	HK$’000
Revenue	1,036,463	1,118,752		–	2,155,215
Operating profit/(loss) segment results	174,033	81,620		(242,507)	13,146
Financeincome	932	571		1,268	2,771
Financecosts	(10,097)	(7,796)		(218)	(18,111)
Profit/(loss) before income tax	164,868	74,395		(241,457)	(2,194)
Incometaxexpense	(25,428)	(13,154)		(601)	(39,183)
Profit/(loss) for the year	139,440	61,241		(242,058)	(41,377)

Othersegmentitemsincludedintheconsolidatedincomestatementfortheyearended31December2011 areasfollows:

	Intravenous
	infusion	Antibiotics
	solution	and others	Unallocated	Total
	HK$’000	HK$’000	HK$’000	HK$’000
Amortisationoflanduserights	1,840	3,848	–	5,688
Depreciationofproperty,plantandequipment	67,369	28,205	465	96,039
Amortisationofintangibleassets	17,774	1,253	–	19,027
Impairmentofgoodwill	–	–	223,552	223,552
Impairmentofinventories	–	280	–	280
Impairmentofproperty,plantandequipment	–	2,394	–	2,394
Provisionforimpairmentofreceivables	107	2,448	–	2,555
Researchanddevelopmentexpenses	6,094	10,426	–	16,520

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

5. SEGMENT INFORMATION – GROUP (continued)

Thesegmentinformationprovidedtothedecision-makerforthereportablesegmentsfortheyearended 31December2010isasfollows:

	Intravenous
	infusion	Antibiotics
	solution	and others	Unallocated		Total
	HK$’000	HK$’000		HK$’000	HK$’000
Revenue	788,904	1,182,753		–	1,971,657
Operating profit/(loss) segment results	202,319	143,940		(21,266)	324,993
Financeincome	562	3,049		929	4,540
Financecosts	(8,844)	(12,696)		(2,312)	(23,852)
Profit/(loss) before income tax	194,037	134,293		(22,649)	305,681
Incometaxexpense	(28,680)	(16,312)		–	(44,992)
Profit/(loss) for the year	165,357	117,981		(22,649)	260,689

Othersegmentitemsincludedintheconsolidatedincomestatementfortheyearended31December2010 areasfollows:

	Intravenous
	infusion	Antibiotics
	solution	and others	Unallocated	Total
	HK$’000	HK$’000	HK$’000	HK$’000
Amortisationoflanduserights	1,652	3,747	–	5,399
Depreciationofproperty,plantandequipment	55,566	23,758	748	80,072
Amortisationofintangibleassets	16,916	1,189	–	18,105
Impairmentofinventories	–	708	–	708
Impairmentofproperty,plantandequipment	–	2,169	–	2,169
Provisionfor/(reversalof)impairmentof
receivables	254	(1,341)	–	(1,087)
Researchanddevelopmentexpenses	3,709	9,513	–	13,222

AnnualReport2011 83

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

5. SEGMENT INFORMATION – GROUP (continued)

Thesegmentassetsandliabilitiesat31December2011areasfollows:

	Intravenous
	infusion	Antibiotics
	solution	and others	Unallocated		Total
	HK$’000	HK$’000		HK$’000	HK$’000
Total assets	2,074,263	1,254,941		115,336	3,444,540
Total liabilities	814,971	319,529		13,747	1,148,247

Thesegmentassetsandliabilitiesat31December2010areasfollows:

	Intravenous
	infusion	Antibiotics
	solution	and others	Unallocated		Total
	HK$’000	HK$’000		HK$’000	HK$’000
Total assets	1,843,768	1,209,169		319,774	3,372,711
Total liabilities	554,886	422,793		38,735	1,016,414

Thetotalofnon-currentassetswereasfollows:

Totalnon-currentassetsotherthandeferredtaxassets	2011 HK$’000	2010 HK$’000
–MainlandChina –HongKong	1,951,922 1,211	1,760,111 1,650
Deferredtaxassets	21,526	21,200
Totalnon-currentassets	1,974,659	1,782,961

Thechiefoperatingdecision-makerhasalsodeterminedthatnogeographicalsegmentinformationis presentedas100%oftheGroup’ssalesandoperatingprofitsarederivedwithinthePRCandover95% operatingassetsoftheGrouparelocatedinthePRC,whichisconsideredasonegeographiclocationwith similarrisksandreturns.

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

6. LAND USE RIGHTS – GROUP

LAND USE RIGHTS – GROUP
At 1 January	2011 HK$’000	2010 HK$’000
Cost Accumulatedamortisation	229,049 (13,484)	217,158 (7,911)
Netbookamount	215,565	209,247
Year ended 31 December
Openingnetbookamount	215,565	209,247
Additions Disposals	– –	8,452 (3,986)
Amortisation Exchangedifferences	(5,688) 10,556	(5,399) 7,251
Closingnetbookamount	220,433	215,565
At 31 December
Cost Accumulatedamortisation	240,416 (19,983)	229,049 (13,484)
Netbookamount	220,433	215,565

LanduserightsarelocatedinHebeiProvinceandShaanxiProvince,theMainlandChina,andareheldon leasesof37to50yearsfromthedatesofacquisition.

Asat31December2011,theGroup’slanduserightswithnetbookamountofHK$50,025,000(31 December2010:HK$65,449,000)werepledgedascollateralfortheGroup’sbankborrowings(Note19).

Amortisationoflanduserightshasbeenincludedingeneralandadministrativeexpenses.

AnnualReport2011 85

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

7. PROPERTY, PLANT AND EQUIPMENT

Group

			Furniture,
			fixtures
		Plant and	and office		Construction-
	Buildings	machinery	equipment	Vehicle		in-progress	Total
	HK$’000	HK$’000	HK$’000	HK$’000		HK$’000	HK$’000
At 1 January 2010
Cost	348,979	763,970	54,699	49,716		37,880	1,255,244
Accumulateddepreciation	(84,831)	(294,709)	(27,192)	(23,911)		–	(430,643)
Impairmentlosses	–	(1,427)	–	–		–	(1,427)
Netbookamount	264,148	467,834	27,507	25,805		37,880	823,174
Year ended 31 December 2010
Openingnetbookamount	264,148	467,834	27,507	25,805		37,880	823,174
Additions	14,791	56,635	7,434	5,179		144,569	228,608
Transfers	44,892	3,485	2,978	–		(51,355)	–
Transfertointangibleassets(Note8)	–	–	–	–		(803)	(803)
Disposals	(11)	(5,468)	(39)	(170)		–	(5,688)
Depreciation	(17,533)	(50,370)	(6,580)	(5,589)		–	(80,072)
Impairment	–	(2,169)	–	–		–	(2,169)
Exchangedifferences	9,905	16,284	1,024	883		2,921	31,017
Closingnetbookamount 316,192 486,231			32,324 26,108 133,212				994,067
At 31 December 2010
Cost	414,056	837,766	67,220	56,257		133,212	1,508,511
Accumulateddepreciation	(97,864)	(347,851)	(34,896)	(30,149)		–	(510,760)
Impairmentlosses	–	(3,684)	–	–		–	(3,684)
Netbookamount	316,192	486,231	32,324	26,108		133,212	994,067
Year ended 31 December 2011
Openingnetbookamount	316,192	486,231	32,324	26,108		133,212	994,067
Additions	35,116	259,841	26,091	6,633		176,735	504,416
Transfers	72,338	14,410	1,142	–		(87,890)	–
Deductionsresultingfromdisposalof
asubsidiary	–	–	(44)	–		–	(44)
Disposals	(189)	(9,028)	(2,452)	(2,497)		–	(14,166)
Depreciation	(17,806)	(65,011)	(7,489)	(5,733)		–	(96,039)
Impairment	–	(2,394)	–	–		–	(2,394)
Exchangedifferences	17,910	29,036	1,966	1,253		8,814	58,979
Closingnetbookamount	423,561	713,085	51,538	25,764		230,871	1,444,819
At 31 December 2011
Cost	542,896	1,115,021	90,873	54,950		230,871	2,034,611
Accumulateddepreciation	(119,335)	(396,137)	(39,335)	(29,186)		–	(583,993)
Impairmentlosses	–	(5,799)	–	–		–	(5,799)
Netbookamount	423,561	713,085	51,538	25,764		230,871	1,444,819

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

7. PROPERTY, PLANT AND EQUIPMENT (continued)

Group (continued)

ThebuildingsarelocatedinHebeiProvinceandShaanxiProvince,theMainlandChina.

Construction-in-progressrepresentsbuildingsunderconstructionandplantandmachinerypending installation.ThebuildingsunderconstructionarelocatedinHebeiProvinceandShaanxiProvince,the MainlandChina.

Depreciationexpenserecognisedintheconsolidatedincomestatementisanalysedasfollows:

	Costofsales Sellingandmarketingcosts	2011 HK$’000 65,134 1,570	2010 HK$’000 54,269 1,639
	Generalandadministrativeexpenses	29,335	24,164
		96,039	80,072

Asat31December2011,buildings,plantandmachinerywithnetbookamountofHK$246,470,000(31 December2010:HK$246,749,000)werepledgedascollateralfortheGroup’sbankborrowings(Note19).

AnnualReport2011

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

7. PROPERTY, PLANT AND EQUIPMENT (continued)

Company

	Furniture,
	fixtures
	and office
	equipment	Vehicles	Total
	HK$’000	HK$’000	HK$’000
At 1 January 2010
Cost	2,712	2,149	4,861
Accumulateddepreciation	(948)	(1,594)	(2,542)
Netbookamount	1,764	555	2,319
Openingnetbookamount	1,764	555	2,319
Addition	12	–	12
Depreciation	(299)	(449)	(748)
Exchangedifferences	60	7	67
Closingnetbookamount 1,537 113			1,650
At 31 December 2010
Cost	2,823	2,227	5,050
Accumulateddepreciation	(1,286)	(2,114)	(3,400)
Netbookamount	1,537	113	1,650
Year ended 31 December 2011
Openingnetbookamount	1,537	113	1,650
Addition	26	–	26
Depreciation	(377)	(88)	(465)
Closingnetbookamount	1,186	25	1,211
At 31 December 2011
Cost	2,849	2,227	5,076
Accumulateddepreciation	(1,663)	(2,202)	(3,865)
Netbookamount	1,186	25	1,211

88 LijunInternationalPharmaceutical(Holding)Co.,Ltd.

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

8. INTANGIBLE ASSETS – GROUP

		Trademark			Customer
	Goodwill	and patents		Softwares	relationships	Total
	HK$’000	HK$’000		HK$’000	HK$’000	HK$’000
At 1 January 2010
Cost	456,316	63,064		862	68,531	588,773
Accumulatedamortisation	–	(7,421)		(288)	(30,839)	(38,548)
Netbookamount	456,316	55,643		574	37,692	550,225
Year ended 31 December 2010
Openingnetbookamount	456,316	55,643		574	37,692	550,225
Addition	–	–		244	–	244
Transferfromconstruction-in-
progress(Note7)	–	–		803	–	803
Amortisation	–	(2,542)		(229)	(15,334)	(18,105)
Exchangedifferences	15,846	1,888		34	1,042	18,810
Closingnetbookamount 472,162 54,989			1,426 23,400 551,977
At 31 December 2010
Cost	472,162	65,254		1,957	70,910	610,283
Accumulatedamortisation	–	(10,265)		(531)	(47,510)	(58,306)
Netbookamount	472,162	54,989		1,426	23,400	551,977
Year ended 31 December 2011
Openingnetbookamount	472,162	54,989		1,426	23,400	551,977
Addition	–	3,731		215	–	3,946
Deductionsresultingfromdisposal
ofasubsidiary	–	(35)		–	–	(35)
Amortisation	–	(2,766)		(283)	(15,978)	(19,027)
Impairment	(223,552)	–		–	–	(223,552)
Exchangedifferences	–	2,754		68	765	3,587
Closingnetbookamount	248,610	58,673		1,426	8,187	316,896
At 31 December 2011
Cost	472,162	71,762		2,274	74,430	620,628
Accumulatedamortisation	–	(13,089)		(848)	(66,243)	(80,180)
Impairmentlosses	(223,552)	–		–	–	(223,552)
Netbookamount	248,610	58,673		1,426	8,187	316,896

AmortisationofHK$19,027,000(2010:HK$18,105,000)isincludedingeneralandadministrative expenses.

AnnualReport2011 89

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

8. INTANGIBLE ASSETS – GROUP (continued)

Impairment test of goodwill:

GoodwillisallocatedtotheintravenousinfusionsolutionsegmentintheMainlandChina,thecashgeneratingunit(CGU)identified.

TherecoverableamountoftheCGUisdeterminedbasedonfairvaluelesscoststosellcalculations. Thesecalculationsusepre-taxcashflowprojectionsbasedonfinancialbudgetsapprovedbymanagement coveringafive-yearperiod.Cashflowsbeyondthefive-yearperiodareextrapolatedusingtheestimated growthratestatedbelow.Thegrowthratedoesnotexceedthelong-termaveragegrowthrateforthe businessinwhichtheCGUoperates.

Thekeyassumptionsusedforfairvaluelesscoststosellcalculationsareasfollows:

	Grossmargin	2011 35.0%	2010 45.0%
	Growthrate	3%	3%
	Pre-taxdiscountrate	12.6%	12.0%

Managementdeterminedbudgetedgrossmarginbasedonitsexpectationsforthemarketdevelopment. Thegrowthrateusedisconsistentwiththeforecastsincludedinindustryreports.Thediscountrateusedis pre-taxandreflectspecificrisksrelatingtotheoperatingsegment.

ManagementconcludedthatthegoodwillwasimpairedbyHK$223,552,000asat31December2011, basedontheimpairmenttestperformed.

9. INVESTMENTS IN SUBSIDIARIES AND ADVANCE TO A SUBSIDIARY – COMPANY

INVESTMENTS IN SUBSIDIARIES AND ADVANCE TO A SUBSIDIARY – COMPANY
2011 HK$’000 Investmentsinunlistedshares,atcost 1,248,788 Advancetoasubsidiary–non-current 16,060	2010 HK$’000 1,188,687 18,272
1,264,848	1,206,959

AdvancetoasubsidiaryrepresentsequityfundingprovidedbytheCompanyandismeasuredinaccordance withtheCompany’saccountingpolicyforinvestmentsinsubsidiaries.Itisunsecuredandnon-interest bearing.

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

9. INVESTMENTS IN SUBSIDIARIES AND ADVANCE TO A SUBSIDIARY – COMPANY (continued)

Thefollowingaredetailsofprincipalsubsidiaries,allofwhichareunlisted,at31December2011:

Name NewOrientInvestments Limited(“NewOrient”) ShijiazhuangNo.4 PharmaceuticalCo.,Ltd. (“No.4Pharm”) Xi’anLijunPharmaceutical Co.,Ltd.(“Xi’anLijun”) ShenzhenLijun PharmaceuticalCo.,Ltd. (“ShenzhenLijun”) HebeiJinmen PharmaceuticalImport& ExportCo.,Ltd. HebeiGuolong PharmaceuticalCo.,Ltd. HebeiGuangxiang PharmaceuticalTechnology Co.,Ltd. HebeiGuangxiangLogistics Co.,Ltd.	Place of incorporation and type of legal entity Limitedliabilitycompany incorporatedinSamoa Limitedliabilitycompany incorporatedin MainlandChina Limitedliabilitycompany incorporatedin MainlandChina Limitedliabilitycompany incorporatedin MainlandChina Limitedliabilitycompany incorporatedin MainlandChina Limitedliabilitycompany incorporatedin MainlandChina Limitedliabilitycompany incorporatedin MainlandChina Limitedliabilitycompany incorporatedin MainlandChina	Principal activities and place of operations Investmentholdingcompany inHongKong Manufacturingandsaleof pharmaceuticalproductsin HebeiProvince,Mainland China Manufacturingandsaleof pharmaceuticalproductsin ShaanxiProvince,Mainland China Saleofpharmaceutical productsinMainlandChina TradinginMainlandChina Manufacturingandsaleof pharmaceuticalproductsin HebeiProvince,Mainland China Pharmaceuticaltechnology researchanddevelopment andconsulting Logisticsofpharmaceutical productsinMainlandChina	Particulars of issued and fully paid share capital USD1 RMB160,000,000 RMB330,000,000 RMB5,000,000 RMB1,000,000 RMB2,000,000 RMB3,000,000 RMB3,000,000	Interest held
				2011 2010 100% (Directly held) 100% (Directlyheld) 100% (Indirectly held) 100% (Indirectlyheld) 100% (Directly held) 100% (Directlyheld) – 68% (Indirectlyheld) 100% (Indirectly held) – 100% (Indirectly held) – 100% (Indirectly held) – 83.33% (Indirectly held) –

Noneofthesubsidiarieshadanyloancapitalinissueatanytimeduringtheyearended31December2011 (2010:None).

Amounts due from subsidiaries – current

Thesebalancesareunsecured,non-interestbearingandwithoutpre-determinedrepaymentterms.

AnnualReport2011

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

10. DEFERRED INCOME TAX – GROUP

authority.Thenetamountsareasfollows:
	2011	2010
Deferredtaxassets:	HK$’000	HK$’000
–toberecoveredaftermorethan12months	2,940	3,539
–toberecoveredwithin12months	18,586	17,661
	21,526	21,200
Deferredtaxliabilities:
–tobesettledaftermorethan12months	22,872	23,225
–tobesettledwithin12months	2,472	3,025
	25,344	26,250
Deferredtaxliabilities–net 3,818 5,050
Thegrossmovementsinthedeferredincometaxaccountareasfollows:
	2011	2010
	HK$’000	HK$’000
Beginningoftheyear	5,050	11,437
Creditedtotheconsolidatedincomestatement(Note28)	(1,432)	(6,667)
Exchangedifferences	200	280
Endoftheyear	3,818	5,050

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

10. DEFERRED INCOME TAX – GROUP (continued)

Themovementsindeferredtaxassetsareasfollows:

			Post-
	Accrued of	Provision for	employment	Deductible
	expenses	impairments	benefits	losses	Total
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
At1January2010	9,446	3,878	3,713	–	17,037
Credited/(charged)tothe
consolidatedincomestatement	2,118	2,104	(712)	–	3,510
Exchangedifferences	366	171	116	–	653
At31December2010	11,930	6,153	3,117	–	21,200
(Charged)/creditedtothe
consolidatedincomestatement	(492)	658	(1,238)	363	(709)
Exchangedifferences	(72)	322	776	9	1,035
At31December2011	11,366	7,133	2,655	372	21,526

Deferredincometaxassetsarerecognisedfortaxlossescarriedforwardtotheextentthattherealisation oftherelatedtaxbenefitthroughthefuturetaxableprofitisprobable.Fortheyearended31December 2011,theGrouphasunrecognisedtaxlossesofapproximatelyHK$17,962,000in2011(2010: HK$22,649,000),whichcanbecarriedforwardagainstfuturetaxableincome.

Themovementsindeferredtaxliabilitiesareasfollows:

		Revaluation
		of assets	Withholding
	on acquisition		tax	Total
		HK$’000	HK$’000	HK$’000
At1January2010		28,474	–	28,474
Creditedtotheconsolidatedincomestatement		(3,157)	–	(3,157)
Exchangedifferences		933	–	933
At31December2010		26,250	–	26,250
(Credited)/chargedto
theconsolidatedincomestatement		(2,742)	601	(2,141)
Exchangedifferences		1,235	–	1,235
At31December2011		24,743	601	25,344

Asat31December2011,deferredincometaxliabilitiesofHK$58,750,000(31December2010: HK$50,316,000)havenotbeenrecognisedforthewithholdingtaxandothertaxesthatwouldbepayable ontheunremittedearningsofcertainsubsidiaries.Suchamountsarepermanentlyreinvested.Unremitted earningstotalledHK$773,434,000at31December2011(31December2010:HK$604,764,000).

AnnualReport2011 93

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

11. AVAILABLE-FOR-SALE FINANCIAL ASSETS – GROUP

AVAILABLE-FOR-SALE FINANCIAL ASSETS – GROUP
	2011	2010
	HK$’000	HK$’000
Beginningoftheyear	152	147
Exchangedifferences	7	5
Endoftheyear	159	152

Asat31December2011,available-for-salefinancialassetamountingtoHK$159,000(31December2010: HK$152,000)representsa14.37%equityinterestinXi’anLijunTransportationCo.,Ltd.,whichisan unlistedcompany.Sincetherangeofreasonablefairvalueestimateissignificantandtheprobabilitiesof variousestimatescannotbereasonablyassessed,theavailable-for-salefinancialassetiscarriedatcostless accumulatedimpairmentlosses.

12. INVENTORIES – GROUP

INVENTORIES – GROUP
Rawmaterials workinprogress	2011 HK$’000 178,578 33,993	2010 HK$’000 144,283 17,944
Finishedgoods	129,747	136,380
	342,318	298,607

TheGrouprecordedaninventorywrite-downofHK$280,000duringtheyearended31December2011 (2010:reversalofinventorywrite-downofHK$708,000).Theprovisionhasbeenincludedincostofsales.

ThecostofinventoriesrecognisedasexpenseandincludedincostofsalesamountedtoHK$904,848,000 (2010:HK$715,233,000).

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

13. TRADE AND BILLS RECEIVABLES – GROUP

	Tradereceivables Billsreceivable Less:Provisionforimpairment	2011 HK$’000 390,520 334,491 (20,345)	2010 HK$’000 314,604 187,820 (17,456)	2010 HK$’000 314,604 187,820 (17,456)
		704,666	484,968

Thefairvaluesoftradeandbillsreceivablesapproximatetheircarryingamounts.

TheGroupgenerallyrequiresitscustomerstosettlesalesinvoiceswithin3months.Ageinganalysisoftrade andbillsreceivablesisasfollows:

within3months 4to6months 7to12months 1to2years	2011 HK$’000 627,850 29,746 34,451 15,380	2010 HK$’000 441,976 28,462 9,000 9,212
2to3years	3,900	9,808
Morethan3years	13,684	3,966
725,011 502,424

Asat31December2011,past-duetradeandbillsreceivablesamountingtoapproximatelyHK$97,161,000 (31December2010:HK$60,448,000)wereassessedforimpairmentandprovisionofHK$20,345,000(31 December2010:HK$17,456,000)forimpairedreceivableswasrecorded,coveringindividuallyimpaired receivablesandgroupsofreceivablessubjecttocollectivereview.Thoseindividuallyimpairedreceivables mainlyrelatetocustomersinunexpecteddifficulteconomicsituationsanditemsagedoveroneyear. CollateralorothercreditenhancementheldbytheGrouphavebeenconsideredwhendeterminingthe impairmentprovision.

AnnualReport2011

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

13. TRADE AND BILLS RECEIVABLES – GROUP (continued)

Theageingofindividuallyimpairedreceivablesandanestimateofthefairvalueofthecollateralandother creditenhancementareasfollows:

creditenhancementareasfollows:
4to6months	2011 HK$’000 –	2010 HK$’000 –
7to12months	–	–
1to2years	15,380	9,212
2to3years	3,900	9,808
Morethan3years	13,684	3,966
Less:Expectedrecovery	32,964 (12,619)	22,986 (8,695)
Impairment 20,345 14,291

Movementsofprovisionforimpairmentoftradereceivablesareasfollows:

2011 HK$’000 Beginningoftheyear 17,456 Provisionfor/(Reversalof)impairment 1,974 Exchangedifferences 915	2010 HK$’000 18,338 (1,493) 611
Endoftheyear 20,345	17,456

Thecreationandreleaseofprovisionforimpairedreceivableshavebeenincludedingeneraland administrativeexpenses.Amountschargedtotheallowanceaccountaregenerallywrittenoffwhenthereis noexpectationofrecoveringadditionalcash.

TheGroup’stradereceivablesweredenominatedinthefollowingcurrencies:

2011 HK$’000 RMB 709,343 USD 15,668	2010 HK$’000 487,249 15,175
725,011	502,424

Themaximumexposuretocreditriskatthereportingdateisthefairvalueofthereceivablesmentioned above.TheGroupdoesnotholdanycollateralassecurity.

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

14. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS – GROUP

FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS	– GROUP
	2011	2010
Listedsecurities:	HK$’000	HK$’000
–Equitysecurities–theMainlandChina	2,367	–

Thefairvaluesofequitysecuritiesarebasedontheirclosingbidprices.

Changesinfairvalueoffinancialassetsatfairvaluethroughprofitorlossarerecordedin‘othergains– net’.

15. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

	Group	Group	Company
	2011	2010	2011	2010
Amountsduefromtheagent	HK$’000	HK$’000	HK$’000	HK$’000
companies(Note23)	84,234	94,429	–	–
Prepaymentsforpurchasesof
inventories Prepaymentsforpurchasesof	19,861	30,108	–	–
machineries Prepaidadvertisingcosts	606 9,859	16,461 10,855	– –	– –
Amountsduefromrelatedparties
(Note35(c))	288	11,430	–	–
Staffadvances Prepaidinsurancecosts	4,922 1,029	6,348 980	– –	– –
Deposits	3,315	1,662	1,396	1,436
Otherreceivables	4,819	4,460	–	–
	128,933	176,733	1,396	1,436

AccordingtotherelevantPRCtaxlawsandregulations,thePRCsubsidiariesoftheGroupareresponsible forwithholdingindividualincometaxfordirectorsandemployees’gainfromtheirsharedisposal(through theagentcompanies).Inthisregard,HK$84,234,000(31December2010:HK$94,429,000)receivablesand thesameamountofpayables(Note23)relatingtoPRCindividualincometaxesintotalhavebeenrecorded intheconsolidatedfinancialstatements.

AnnualReport2011 97

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

16. PLEDGED BANK DEPOSITS AND CASH AND CASH EQUIVALENTS

	Group	Group	Company
	2011	2010	2011	2010
	HK$’000	HK$’000	HK$’000	HK$’000
Pledgedbankdeposits	4,443	30,531	–	–
Cashatbankandinhand	257,980	598,911	112,729	316,688
	262,423	629,442	112,729	316,688

Pledgedbankdepositsarepledgedfor:

	Group	Group	Company
	2011	2010	2011	2010
Payableforproperty,plantand	HK$’000	HK$’000	HK$’000	HK$’000
equipment(Note23)	740	–	–	–
Billspayable	3,703	30,531	–	–
	4,443	30,531	–	–

Themaximumexposuretocreditriskatthereportingdateapproximatesthecarryingvalueofthepledged bankdepositsandcashatbank.

Pledgedbankdepositsandcashatbankandinhandweredenominatedinthefollowingcurrencies:

	Group	Group	Company
	2011	2010	2011	2010
	HK$’000	HK$’000	HK$’000	HK$’000
RMB HK$	208,861 50,688	311,518 316,387	61,769 50,649	10 316,368
USD	2,874	1,537	311	310
	262,423	629,442	112,729	316,688

Theinterestbearingbankdeposits(includedinpledgedbankdepositsandcashatbank)carriedaweighted averageinterestrateof0.6%(2010:1.2%)perannumfortheyearended31December2011.These depositshadmaturityofonemonthatinception(31December2010:sixmonths),otherthanthose withoutpre-determinedmaturityterms.

TheGroup’spledgedbankdepositsandcashatbankdenominatedinRMBweredepositedwithbanksin theMainlandChina.TheconversionoftheseRMBdenominatedbalancesintoforeigncurrenciesandthe remittanceoffundsoutoftheMainlandChinaaresubjecttotherulesandregulationsofforeignexchange controlpromulgatedbytheMainlandChinaGovernment.

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

17. SHARE CAPITAL

	Number of shares	Ordinary shares
	’000	HK$’000
Authorised
At31December2011and2010
(ordinarysharesofHK$0.02each)	10,000,000	200,000
Issued and fully paid up
At1January2010(ordinarysharesofHK$0.02each)	2,119,904	48,894
Issuanceofshares–placingofshares	235,000	4,700
Issuanceofshares–exerciseofshareoptions	100,000	2,000
Currencytranslationdifferences	–	311
At31December2010(ordinarysharesofHK$0.02each)	2,454,904	55,905
Cancellationofshares	(10,090)	(202)
At31December2011(ordinarysharesofHK$0.02each)	2,444,814	55,703

TheCompanyacquired6,040,000ofitsownsharesthroughtheStockExchangeinaperiodfrom 28December2010to31December2010.Theconsiderationfortheacquisitionofthoseshareswas HK$13,786,000andhasbeendeductedfromretainedearningswithinreserve(Note18).Thesharesare heldas‘treasuryshares’.AllsharesissuedbytheCompanywerefullypaid.TheCompanysubsequently cancelledthose6,040,000treasuryshareson14January2011.

TheCompanyacquired4,050,000ofitsownsharesthroughtheStockExchangeinaperiodfrom30May 2011to9June2011.TheconsiderationfortheacquisitionofthoseshareswasHK$6,764,000.Allshares issuedbytheCompanywerefullypaid.TheCompanycancelled4,050,000shareson30June2011.

AnnualReport2011 99

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

18. RESERVES

Group

				Share-based
	Share	Capital	Statutory	payment	Retained
	premium	reserve	reserve	reserve	earnings	Total
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
At1January2010	842,176	175,547	139,555	15,308	403,296	1,575,882
Issueofshares
–placingofshares	439,330	–	–	–	–	439,330
Exerciseofshareoptions	83,346	–	–	(15,346)	–	68,000
Purchaseoftreasuryshares	–	–	–	–	(13,786)	(13,786)
Profitfortheyear	–	–	–	–	260,592	260,592
Dividendspaidtoequityholdersof
theCompany	–	–	–	–	(94,196)	(94,196)
Transfertostatutoryreserve	–	–	28,792	–	(28,792)	–
Currencytranslationdifferences	7,021	1,123	4,894	38	50,316	63,392
At31December2010	1,371,873	176,670	173,241	–	577,430	2,299,214
Cancellationofshares	(20,348)	–	–	–	20,550	202
Purchaseoftreasuryshares	–	–	–	–	(6,764)	(6,764)
Lossfortheyear	–	–	–	–	(41,401)	(41,401)
Dividendspaidtoequityholdersof
theCompany	–	–	–	–	(97,873)	(97,873)
Transfertostatutoryreserve	–	–	20,608	–	(20,608)	–
Currencytranslationdifferences	–	149	8,598	–	77,849	86,596
At31December2011	1,351,525	176,819	202,447	–	509,183	2,239,974

100 LijunInternationalPharmaceutical(Holding)Co.,Ltd.

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

18. RESERVES (continued)

Group (continued)

AsstipulatedbyregulationsintheMainlandChinaandtheArticlesofAssociationoftheCompany’s subsidiariesestablishedintheMainlandChina,thesubsidiariesestablishedintheMainlandChinaare requiredtoappropriate10%oftheirafter-taxprofit(afteroffsettingprioryears’losses)tostatutorysurplus reservefundbeforedistributingtheirprofit.whenthebalanceofsuchreservereaches50%ofeach subsidiary’ssharecapital,anyfurtherappropriationisoptional.Thestatutorysurplusreservefundcanbe utilisedtooffsetprioryears’lossesortoissuebonusshares.

Company

			Share-based
	Share	Capital	payment	Retained
	premium	reserve	reserve	earnings	Total
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
At1January2010	842,176	172,678	15,308	47,497	1,077,659
Issueofshares
–placingofshares	439,330	–	–	–	439,330
Exerciseofshareoptions	83,346	–	(15,346)	–	68,000
Purchaseoftreasuryshares	–	–	–	(13,786)	(13,786)
Profitfortheyear	–	–	–	121,192	121,192
DividendspaidtoequityholdersoftheCompany	–	–	–	(94,196)	(94,196)
Currencytranslationdifferences	7,021	1,025	38	279	8,363
At31December2010	1,371,873	173,703	–	60,986	1,606,562
Cancellationofshares	(20,348)	–	–	20,550	202
Purchaseofshares	–	–	–	(6,764)	(6,764)
Profitfortheyear	–	–	–	30,563	30,563
DividendspaidtoequityholdersoftheCompany	–	–	–	(97,873)	(97,873)
At31December2011	1,351,525	173,703	–	7,462	1,532,690

AnnualReport2011 101

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

19. BORROWINGS

Group 2011 2010 HK$’000 HK$’000 Non-current Non-currentportionoflong-term bankborrowings 86,822 66,594	Group 2011 2010 HK$’000 HK$’000 Non-current Non-currentportionoflong-term bankborrowings 86,822 66,594	Company 2011 2010 HK$’000 HK$’000 – –
Current Currentportionoflong-term bankborrowings 76,760 Short-termbankborrowings 253,033	35,256 331,296	– – 12,500 37,500
329,793	366,552	12,500 37,500
Total borrowings 416,615	433,146	12,500 37,500
Representing: Unsecured 129,683 Secured(i) 264,842 Guaranteed(ii) 22,090	213,777 176,278 43,091	12,500 37,500 – – – –
416,615	433,146	12,500 37,500

(i) Asat31December2011,certainoftheGroup’sborrowingsweresecuredbytheGroup’slanduserightswitha netbookamountofHK$50,025,000(31December2010:HK$65,449,000),andtheGroup’sbuildings,plantand machinerywithanetbookamountofHK$246,470,000(31December2010:HK$246,749,000).

(ii) Asat31December2011and2010,certainoftheGroup’sbankborrowingswereguaranteedbyXi’anLijun PharmaceuticalCo.,Ltd.,awhollyownedsubsidiaryoftheCompany.

102 LijunInternationalPharmaceutical(Holding)Co.,Ltd.

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

19. BORROWINGS (continued)

Asat31December2011,theGroup’sborrowingswererepayableasfollows:

Group 2011 2010 HK$’000 HK$’000 within1year 329,793 366,552 Between1and2years 60,000 66,594 Between2and5years 26,822 –	Group 2011 2010 HK$’000 HK$’000 within1year 329,793 366,552 Between1and2years 60,000 66,594 Between2and5years 26,822 –	Company 2011 2010 HK$’000 HK$’000 12,500 37,500 – – – –
416,615	433,146	12,500 37,500

Theborrowingsweredenominatedinthefollowingcurrencies:

	Group	Group	Company
	2011	2010	2011	2010
	HK$’000	HK$’000	HK$’000	HK$’000
RMB HK$	265,203 151,412	352,556 80,590	– 12,500	– 37,500
	416,615	433,146	12,500	37,500

Theeffectiveinterestrates(perannum)atthebalancesheetdatewereasfollows:

		2011	2011	2010	2010
		HK$	RMB	HK$		RMB
	Bankborrowings	3.4%	5.4%	3.3%		5.5%

Thefairvaluesofshort-termborrowingsapproximatetheircarryingamounts.Thecarryingamountsand fairvaluesofnon-currentborrowingsareasfollows:

		Group	Group			Company	Company
	Carrying	amount	Fair value		Carrying	amount	Fair value
	2011	2010	2011	2010	2011	2010	2011	2010
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Bankborrowings	86,822	66,594	81,746	64,802	–	–	–	–

AnnualReport2011 103

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

20. DEFERRED REVENUE – GROUP

GovernmentgrantreceivedfromamunicipalgovernmentinconnectionwiththeGroup’sdevelopment ofahightechnologypharmaceuticallaboratoryandplantisdeferredandwillberecognisedinincome statementinduecoursewhenthedevelopmentprogresses.

Movementsofdeferredrevenueareasfollows:

Beginningoftheyear	2011 HK$’000 4,818	2010 HK$’000 4,657
Currentyearadditions	5,416	–
Exchangedifferences	374	161
Endoftheyear	10,608	4,818

21. LONG-TERM PAYABLES – GROUP

Long-termpayablesrepresentthepresentvalueoftheGroup’sobligationsforpost-employmentbenefits. Thematurityprofileofthelong-termpayablesisasfollows:

within1year	2011 HK$’000 673	2010 HK$’000 1,435
Between1to2years	561	1,050
Between2to5years	1,323	2,606
Morethan5years	8,664	11,402
Less:Currentportionincludedincurrentliabilities(Note23)	11,221 (673)	16,493 (1,435)
	10,548	15,058

104

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

21. LONG-TERM PAYABLES – GROUP (continued)

Themovementsofpost-employmentbenefitsrecognisedinthebalancesheetisasfollows:

Beginningoftheyear	2011 HK$’000 16,493	2010 HK$’000 17,186
Totalexpense,includedinstaffcost
–Currentservicecost –Curtailments(Note(a))	124 (6,769)	1,157 –
–Interestcost	956	659
–Actuarialgain	2,910	(109)
Contributionpaid	(3,311)	(3,377)
Exchangedifferences	818	977
Endoftheyear 11,221 16,493

TheaboveobligationsweredeterminedbytheGroup’smanagementusingtheprojectedunitcredit method.Discountrateandresignationrateadoptedareasfollows:

	method.Discountrateandresignationrateadoptedareasfollows:
	Discountrate	2011 4.0%	2010 4.2%
	Annualresignationrate	2.7%	2.7%

(a) CompensationforterminationbenefitisrecognisedintheearlieroftheperiodsinwhichtheGroupestablished aconstructiveobligationandcreatedavalidexpectationbytheemployee,enteredintoanagreementwiththe employeespecifyingtheterms,andadvisedtheindividualemployeeofthespecificterms.InOctober2011,the Grouprevisedthetermsandrecalculatedtheconstructiveobligation.Asaresult,HK$6,769,000iscreditedinto theconsolidatedincomestatement.

DetailoftheretirementbenefitsoftheGrouparedisclosedinNote30.

AnnualReport2011 105

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

22. TRADE AND BILLS PAYABLES – GROUP

TRADE AND BILLS PAYABLES – GROUP
	2011	2010
	HK$’000	HK$’000
Tradepayables	222,981	175,791
Billspayable	37,005	30,531
	259,986	206,322

Credittermsfortradeandbillspayablesrangefrom90to180days.Theageinganalysisofthetradeand billspayablesisasfollows:

	within3months 4to6months 7to12months 1to3years	2011 HK$’000 195,371 25,817 23,163 14,474	2010 HK$’000 170,213 21,521 9,723 3,556
	Morethan3years	1,161	1,309
		259,986	206,322

TheGroup’stradeandbillspayablesweredenominatedinRMB.

106 LijunInternationalPharmaceutical(Holding)Co.,Ltd.

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

23. ACCRUALS AND OTHER PAYABLES

Group 2011 2010 HK$’000 HK$’000 withholdingindividualincometax payables(Note15) 84,234 94,429 Payablesforpurchaseofproperty, plantandequipment 178,495 74,339 Accruedsalescommission 52,453 57,689 Payablesforadvertisingexpense 7,811 14,250 Valueaddedtaxpayable 10,593 10,609 Othertaxespayables 10,672 9,362 welfarepayables 10,006 9,029 Accruedsalariesandwages 18,804 5,844 Professionalfeepayables 3,040 1,520 Currentportionoflong-term payables(Note21) 673 1,435 Others 16,557 11,326	Group 2011 2010 HK$’000 HK$’000 withholdingindividualincometax payables(Note15) 84,234 94,429 Payablesforpurchaseofproperty, plantandequipment 178,495 74,339 Accruedsalescommission 52,453 57,689 Payablesforadvertisingexpense 7,811 14,250 Valueaddedtaxpayable 10,593 10,609 Othertaxespayables 10,672 9,362 welfarepayables 10,006 9,029 Accruedsalariesandwages 18,804 5,844 Professionalfeepayables 3,040 1,520 Currentportionoflong-term payables(Note21) 673 1,435 Others 16,557 11,326	Company 2011 2010 HK$’000 HK$’000 – – – – – – – – – – – – – – 1,170 1,170 – – – – 77 65
393,338	289,832	1,247 1,235

Asat31December2011,theGroup’sbankdepositswithamountofHK$740,000(31December2010:Nil) werepledgedascollateralforthepayablesforpurchaseofproperty,plantandequipment.

24. REVENUE – GROUP

TheGroupisprincipallyengagedinthemanufacturingandsaleofpharmaceuticalproducts.

Revenuerecognisedisasfollows:

Revenue:	2011 HK$’000	2010 HK$’000
–Salesofpharmaceuticalproducts	2,137,748	1,963,614
–Salesofrawmaterialsandbyproducts	4,421	993
–Processingincome	7,359	5,055
–Rentalincome –Royaltyincome(Note35(b))	2,076 3,611	1,995 –
	2,155,215	1,971,657

AnnualReport2011 107

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

25. OTHER GAINS – NET – GROUP

OTHER GAINS – NET – GROUP
(Loss)/gainondisposaloffinancialassetsatfairvaluethrough	2011 HK$’000	2010 HK$’000
profitorloss	(3,580)	1,321
Lossondisposalofasubsidiary	(449)	–
Subsidyincome	12,131	8,745
Changeinfairvalueoffinancialassetsatfairvalue
throughprofitorloss	(521)	–
	7,581	10,066
EXPENSE BY NATURE – GROUP
Rawmaterialsandconsumablesused Changesininventoriesoffinishedgoodsandworkinprogress	2011 HK$’000 907,855 (3,007)	2010 HK$’000 749,899 (34,666)
Staffcosts
–wagesandsalaries	220,318	202,892
–Pensioncosts –welfareexpenses	24,772 35,765	18,120 37,979
Provisionforimpairmentofgoodwill	223,552	–
Salescommission Utilityexpenses	150,382 124,060	183,512 91,604
Advertisingexpenses	63,175	67,493
Travelling,meetingandentertainmentexpenses	56,193	58,583
Operatingleasesrentalexpenses	3,894	3,689
Researchanddevelopmentexpenses	16,520	13,222
Depreciationofproperty,plantandequipment	96,039	80,072
write-downofinventoriestotheir
netrealisablevalue	280	708
write-down/(reversalof)impairmentofreceivables	2,555	(1,087)
Provisionforimpairmentofproperty,plantandequipment	2,394	2,169
Amortisationoflanduserights	5,688	5,399
Amortisationofintangibleassets	19,027	18,105
Auditors’remuneration Gainonsalesoflanduserights	3,600 –	3,000 (190)
Gainondisposalsofproperty,plantandequipment	–	(1,063)
Transportationexpenses	102,702	74,619
Taxexpenses	28,129	9,306
Others	65,757	73,365
Totalcostofsales,sellingandmarketingcostsand
generalandadministrativeexpenses	2,149,650	1,656,730

26. EXPENSE BY NATURE – GROUP

108 LijunInternationalPharmaceutical(Holding)Co.,Ltd.

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

27. FINANCE INCOME AND COSTS – GROUP

Financeincome–Interestincomeonbankdeposits	2011 HK$’000 2,771	2010 HK$’000 4,540
Financecosts
–Interestexpenseofbankborrowingswhollyrepayable
withinfiveyears	22,072	23,476
–Discountofbillsreceivable 343 1,596 –Netexchangegain (4,304) (1,220)
	18,111	23,852

28. INCOME TAX EXPENSE – GROUP

TheCompanyisincorporatedinCaymanIslandsasanexemptedcompanyand,accordingly,isexempted frompaymentofCaymanIslandsincometax.

TheGrouphadnoassessableprofitsinHongKongand,accordingly,noHongKongprofitstaxwas provided.

Xi’anLijunPharmaceuticalCo.,Ltd.andShijiazhuangNo.4PharmaceuticalCo.,Ltd.,thewhollyowned subsidiariesoftheCompany,establishedandoperateinMainlandChinaaresubjecttoMainlandChina CorporateIncomeTax(“CIT”)atanapplicablerateof25%.

Fortheyearended31December2011and2010,bothsubsidiariesarequalifiedashighnewtech enterprisesandentitledtoa15%preferentialCITrate.

Theamountsoftaxationchargedtotheconsolidatedincomestatement:

	Currentincometaxation–MainlandChinaCIT Deferredtaxation(Note10)	2011 HK$’000 40,615 (1,432)	2010 HK$’000 51,659 (6,667)	2010 HK$’000 51,659 (6,667)
		39,183	44,992

AnnualReport2011 109

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

28. INCOME TAX EXPENSE – GROUP (continued)

ThetaxationontheGroup’sprofitbeforetaxationdiffersfromthetheoreticalamountthatwouldarise usingtheapplicableCITrateasfollows:

usingtheapplicableCITrateasfollows:
	2011	2010
	HK$’000	HK$’000
(Loss)/profitbeforeincometax	(2,194)	305,681
Taxcalculatedatthedomestictaxrateof15%(2010:15%)
applicabletothesubsidiaries	(329)	45,852
Impairmentlossongoodwillforwhichnodeferredtaxassets
wasrecognised	33,533	–
Unrecognisedtaxlosses	3,286	3,398
Taxexemptionandreduction	(687)	(2,911)
Remeasurementofdeferredtax–changeinincometaxrate	1,157	(1,874)
Expensesnotdeductible	2,223	527
Taxexpense	39,183	44,992
Effectivetaxrate – 14.7%

29. PROFIT ATTRIBUTABLE TO THE COMPANY’S EQUITY HOLDERS

TheprofitattributabletoequityholdersoftheCompanyisdealtwithinthefinancialstatementsofthe CompanytotheextentofHK$30,563,000(2010:HK$121,192,000).

30. RETIREMENT BENEFITS – GROUP

TheGrouphasarrangedforitsHongKongemployeestojointheHongKongMandatoryProvidentFund Scheme(the“MPFScheme”),adefinedcontributionschememanagedbyanindependenttrustee.Under theMPFScheme,theGroupanditsHongKongemployeesmakemonthlycontributionstotheschemeat 5%oftheemployees’earningsasdefinedundertheMandatoryProvidentFundlegislation,subjecttoacap ofHK$1,000perpersonpermonthandanyexcesscontributionsarevoluntary.TheGrouphasnofurther obligationsforpost-retirementbenefitbeyondthecontributions.

AsstipulatedbytherulesandregulationsintheMainlandChina,theGrouphasparticipatedinstatesponsoreddefinedcontributionretirementschemesforitsemployeesinMainlandChina.TheGroup’s employeesmakemonthlycontributionstotheschemesatapproximately8%oftherelevantincome (comprisingwages,salaries,allowancesandbonus,andsubjecttoacap),whiletheGroupcontributes 20%ofsuchincomeandhasnofurtherobligationsfortheactualpaymentofpost-retirementbenefits beyondthecontributions.Thestate-sponsoredretirementplansareresponsiblefortheentirepension obligationspayabletoretiredemployees.Furthermore,theGrouppaysmonthlyallowancetocertainold retiredpersons.

110

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

31. DIRECTORS AND SENIOR MANAGEMENT’S EMOLUMENTS – GROUP

(a) Directors’ emoluments

TheremunerationofeachdirectoroftheCompanyissetoutbelow:

2011

Name Executive directors Mr.wuqin Mr.quJiguang Mr.XieYunfeng Mr.HuangChao Ms.SunXinglai Mr.wangXianjun Mr.Duanwei Ms.ZhangGuifu Mr.BaoLeyuan Ms.GaoShuping	Fees HK$’000 – – – – – – – – – –	Salaries HK$’000 3,000 2,684 600 600 1,014 1,020 600 300 300 500	Other benefits HK$’000 39 19 39 39 39 480 16 16 39 16	Pension HK$’000 24 35 12 12 7 12 23 23 11 23	Total HK$’000 3,063 2,738 651 651 1,060 1,512 639 339 350 539
	–	10,618	742	182	11,542
Non-executive director Mr.LiuZhiyong	50	–	–	–	50
Independent non-executive directors Mr.wangYibing Mr.LeungChongShun Mr.ChowKwokwai	180 180 180	– – –	– – –	– – –	180 180 180
	540	–	–	–	540
	590	10,618	742	182	12,132

AnnualReport2011 111

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

30. DIRECTORS AND SENIOR MANAGEMENT’S EMOLUMENTS – GROUP (continued)

(a) Directors’ emoluments (continued)

2010
			Other
Name	Fees	Salaries	benefits	Pension	Total
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Executive directors
Mr.wuqin	–	3,000	33	37	3,070
Mr.quJiguang	–	2,600	14	32	2,646
Mr.XieYunfeng	–	600	34	13	647
Mr.HuangChao	–	600	33	24	657
Ms.SunXinglai	–	764	76	12	852
Mr.wangXianjun	–	1,102	698	12	1,812
Mr.Duanwei	–	600	12	20	632
Ms.ZhangGuifu	–	300	12	20	332
Mr.BaoLeyuan	–	300	33	13	346
Ms.GaoShuping	–	500	11	20	531
	–	10,366	956	203	11,525
Non-executive director
Mr.LiuZhiyong	60	–	–	–	60
Independent
non-executive directors
Mr.wangYibing	180	–	–	–	180
Mr.LeungChongShun	180	–	–	–	180
Mr.ChowKwokwai	180	–	–	–	180
	540	–	–	–	540
	600	10,366	956	203	12,125

Nodirectorswaivedanyemolumentsduringtheyearended31December2011(2010:Nil).

112

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

31. DIRECTORS AND SENIOR MANAGEMENT’S EMOLUMENTS – GROUP (continued)

(b) Five highest paid individuals

ThefiveindividualswhoseemolumentswerethehighestintheGroupfortheyearincludefive (2010:four)directorswhoseemolumentsarereflectedintheanalysispresentedabove.

32. (LOSSES)/EARNINGS PER SHARE – GROUP

(a) Basic

Basic(losses)/earningspersharearecalculatedbydividingthe(loss)/profitattributabletoequity holdersoftheCompanybytheweightedaveragenumberofordinarysharesinissueduringthe year.

2011 HK$’000 (Loss)/profitattributabletoequityholdersoftheCompany (41,401)	2010 HK$’000 260,592
weightedaveragenumberofordinaryshares inissue(thousands) 2,446,490	2,312,006
Basic(losses)/earningspershare(HK$pershare) (0.017)	0.113

AnnualReport2011 113

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

32. (LOSSES)/EARNINGS PER SHARE – GROUP (continued)

(b) Diluted

Dilutedearningspershareiscalculatedafteradjustingtheweightedaveragenumberofordinary sharesoutstandingtoassumeconversionofalldilutivepotentialordinaryshares.SincetheCompany hasnocategoryofdilutivepotentialordinarysharesat31December2011and2010,thediluted earningspershareisthesameasbasicearningspershare.

(Loss)/profitusedtodeterminedilutedearningspershare	2011 HK$’000 (41,401)	2010 HK$’000 260,592
weightedaveragenumberofordinarysharesfordiluted
earningspershare(thousands)	2,446,490	2,312,006
Diluted(losses)/earningspershare(HK$pershare)	(0.017)	0.113

33. DIVIDENDS

DIVIDENDS
	2011	2010
	HK$’000	HK$’000
InterimdividendofHK$0.02(2010:HK$0.02)perordinaryshare	48,896	47,098
ProposedfinaldividendofHK$0.02(2010:HK$0.02)
perordinaryshare	48,896	48,977
	97,792	96,075

Theproposedfinaldividendinrespectoftheyearended31December2011ofHK$0.02(2010: HK$0.02)perordinaryshare,amountingtoatotaldividendofHK$48,896,000calculatedbasedonthe 2,444,814,000ordinaryshares(2010:2,448,864,000ordinarysharesafterissuanceofplacingshare) issubjecttotheapprovaloftheforthcomingAnnualGeneralMeetingoftheCompany.Theproposed dividendhasnotbeenreflectedasadividendpayableinthesefinancialstatements,butwillbereflectedas anappropriationofretainedearningsandsharepremiumfortheyearending31December2012.

114 LijunInternationalPharmaceutical(Holding)Co.,Ltd.

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

34. CONSOLIDATED CASH FLOW STATEMENT

(a) Reconciliation of cash generated from operations

Reconciliation of cash generated from operations
(Loss)/profitbeforeincometax	2011 HK$’000 (2,194)	2010 HK$’000 305,681
Provisionforloss/(reversalofimpairment)ofreceivables	2,555	(1,087)
write-downofinventoriestotheirnetrealisablevalue	280	708
Provisionforimpairmentofproperty,plantandequipment	2,394	2,169
Depreciationofproperty,plantandequipment	96,039	80,072
Provisionforimpairmentofgoodwill	223,552	–
Gainonsaleoflanduserights	–	(190)
Gainondisposalofproperty,plantandequipment	–	(1,063)
Lossondisposalofasubsidiary	449	–
Amortisationoflanduserights	5,688	5,399
Amortisationofintangibleassets	19,027	18,105
Loss/(gain)ondisposaloffinancialassets
atfairvaluethroughprofit	3,580	(1,321)
Changeinfairvalueoffinancialassetsatfairvaluethrough
profitorloss	521	–
Interestincome Interestexpenses	(2,771) 18,111	(4,540) 23,852
Operatingprofitbeforeworkingcapitalchanges	370,042	427,785
Changesinworkingcapital:
Increaseininventories	(30,519)	(60,929)
Increaseintradeandbillsreceivables Decrease/(Increase)inprepayments,depositsand	(194,085)	(60,079)
otherreceivables Increaseintradeandbillspayables (Decrease)/Increaseinadvancereceiptsfromcustomers (Decrease)/Increaseinaccrualsandotherpayables	99,528 42,817 (6,986) (90,500)	(103,757) 56,402 6,537 94,644
Netcashinflowgeneratedfromoperations	190,297	360,603

AnnualReport2011 115

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

34. CONSOLIDATED CASH FLOW STATEMENT (continued)

(b) Proceeds from disposals of property, plant and equipment

	2011	2010
	HK$’000	HK$’000
Netbookamountdisposed(Note7)	14,166	5,688
Gainondisposalofproperty,plantandequipment	–	1,063
Proceedsfromdisposalsofproperty,plantandequipment,
netoftransactioncosts	14,166	6,751

35. RELATED PARTY TRANSACTIONS AND BALANCES – GROUP

Partiesareconsideredtoberelatedifonepartyhastheability,directlyorindirectly,tocontroltheother partyorexercisesignificantinfluenceovertheotherpartyinmakingfinancialandoperatingdecisions. Partiesarealsoconsideredtoberelatediftheyaresubjecttocommoncontrol.

(a) ThedirectorsareoftheviewthatthefollowingcompaniesarerelatedpartiesoftheGroup:

Name

Relationship

RejoyGroupLimitedLiabilityCompany (“RejoyGroup”)

Anentitysignificantlyinfluencedbycertainkey managementpersonneloftheGroup

Xi’anRejoyTechnologyInvestment Co.,Ltd.(“RejoyTechnology”)

MajorityownedbyshareholdersofPrimeUnited IndustriesLimited(“PUI”),whichowns approximately26.25%interestintheCompany asat31December2011

Xi’anRejoyPackagingMaterials Co.,Ltd.(“RejoyPackaging”)

SubsidiaryofRejoyTechnology

ShaanxiXi’anPharmaceuticalFactory (“Xi’anPharmacyFactory”)

wholly-ownedsubsidiaryofRejoyGroup

Xi’anRejoyMedicineCo.,Ltd. (“RejoyMedicine”)

SubsidiaryofRejoyGroup

Xi’anRejoyRealEstateCo.,Ltd. (“RejoyRealEstate”)

Anentitysignificantlyinfluencedbycertainkey managementpersonneloftheGroup

116

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

35. RELATED PARTY TRANSACTIONS AND BALANCES – GROUP (continued)

(b) Savedasdisclosedelsewhereintheseconsolidatedfinancialstatements,theGrouphadthe followingsignificanttransactionswithrelatedparties:

Nature of transactions Purchasingofrawmaterialsand	Name of related party	2011 HK$’000	2010 HK$’000
packagingmaterialsfrom	RejoyPackaging	2,977	–
Salesoffinishedgoodsto	RejoyMedicine	8,599	13,935
Provisionofutilitiesfrom	Xi’anPharmacyFactory	–	47,347
Paymentofadministrativecoststo Xi’anPharmacyFactory		–	3,453
Royaltyincome	RejoyRealEstate	3,611	–
Purchasingofproperty,plantand
equipment	Xi’anPharmacyFactory	25,451	–
Leaseofofficepremisesto	RejoyGroup RejoyPackaging	241 72	231 69
		313	300

IntheopinionoftheCompany’sdirectorsandtheGroup’smanagement,theaboverelatedparty transactionswerecarriedoutintheordinarycourseofbusiness,andinaccordancewiththetermsof theunderlyingagreementsand/ortheinvoicesissuedbytherespectiveparties.

(c) TheGrouphadthefollowingsignificantbalanceswithrelatedparties:

	Amountsduefromrelatedparties,	2011 HK$’000	2010 HK$’000
	includedintradereceivables
	–RejoyMedicine	6,788	6,636

AnnualReport2011 117

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

35. RELATED PARTY TRANSACTIONS AND BALANCES – GROUP (continued)

(c) TheGrouphadthefollowingsignificantbalanceswithrelatedparties:(continued)

	2011	2010
Amountsduefromrelatedparties,includedin	HK$’000	HK$’000
otherreceivables
–Xi’anPharmacyFactory	–	11,418
–RejoyPackaging	17	12
–RejoyGroup	271	–
	288	11,430

	2011	2010
Amountsduetorelatedparties,includedintradepayables	HK$’000	HK$’000
–RejoyGroup	797	–
–RejoyPackaging	244	–
	1,041	–

Therelatedpartybalancesareunsecured,interest-freeandhavenopre-determinedtermsof repayment.

(d) Key management compensation

Key management compensation
	2011	2010
	HK$’000	HK$’000
Salaries,bonusandallowances	12,638	12,747
Pension	194	215
	12,832	12,962

118

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

Fortheyearended31December2011 (AllamountsinHK$unlessotherwisestated)

36. COMMITMENTS – GROUP

(a) Capital commitments

Capitalexpenditureatthebalancesheetdatescontractedbutnotyetprovidedforisasfollows:

		2011	2010
		HK$’000	HK$’000
	–Plantandmachineries	5,935	49,055

(b) Operating lease commitments

ThefutureaggregateminimumleaserentalexpenseinrespectofofficepremisesinMainlandChina andHongKongundernon-cancellableoperatingleasesarepayableasfollows:

	Notlaterthanoneyear Laterthanoneyearandnotlaterthanfiveyears Morethanfiveyears	2011 HK$’000 2,882 1,730 7,751	2010 HK$’000 494 1,454 7,385
		12,363	9,333

AnnualReport2011 119

FIVEYEARSFINANCIALSUMMARY

		Year ended 31 December	Year ended 31 December	Year ended 31 December
	2007	2008	2009	2010	2011
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
RESULTS	(Audited)	(Audited)	(Audited)	(Audited)	(Audited)
Turnover	1,139,431	1,591,028	1,739,628	1,971,657	2,155,215
(Loss)/profitbeforeincometax	132,002	93,282	240,997	305,681	(2,194)
Incometaxexpense	(12,442)	8,914	(24,803)	(44,992)	(39,183)
(Loss)/profitfortheyear	119,560	102,196	216,194	260,689	(41,377)
Attributeto:
EquityholdersoftheCompany	119,530	102,106	216,095	260,592	(41,401)
Minorityinterest	30	90	99	97	24
		As at 31 December
	2007	2008	2009	2010	2011
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
ASSETS AND LIABILITIES	(Audited)	(Audited)	(Audited)	(Audited)	(Audited)
Totalassets	2,072,843	2,511,447	2,500,259	3,372,711	3,444,540
Totalliabilities	(876,747)	(1,141,658)	(874,439)	(1,016,414)	(1,148,247)
Minorityinterest	(800)	(945)	(1,044)	(1,178)	(616)
Shareholder’sequity 1,195,296 1,368,844			1,624,776	2,355,119	2,295,677

120

LijunInternationalPharmaceutical(Holding)Co.,Ltd.

AI assistant

SSY Group Limited — Annual Report 2011

50335_rns_2012-04-02_e620ec11-0351-400f-b748-f1923ef04b45.pdf

CONTENTS

CORPORATE﻿INFORMATION

STOCK CODE

NOMINATION COMMITTEE

EXECUTIVE DIRECTORS

INDEPENDENT NON-EXECUTIVE DIRECTORS

COMPANY SECRETARY

REGISTERED OFFICE

HEAD OFFICE AND PRINCIPAL PLACE OF BUSINESS IN HONG KONG

AUTHORISED REPRESENTATIVES

PRINCIPAL SHARE REGISTRAR AND TRANSFER OFFICE

HONG KONG BRANCH SHARE REGISTRAR AND TRANSFER OFFICE

PRINCIPAL BANKERS

LEGAL ADVISER TO THE COMPANY AS TO HONG KONG LAW

AUDIT COMMITTEE

AUDITOR

WEBSITE

REMUNERATION COMMITTEE

CHAIRMAN’S﻿STATEMENT

1. RESULTS AND DIVIDEND DISTRIBUTION

2. REVIEW OF OPERATING RESULTS

(1) Product marketing

1. Doubling production scale and further optimizing the structure of intravenous infusion solutions

CHAIRMAN’S﻿STATEMENT

2. REVIEW OF OPERATING RESULTS (continued)

2. Antibiotics business was severely affected by national price reduction policy

3. Steady development of key brand preparation and general medicines

CHAIRMAN’S﻿STATEMENT

2. REVIEW OF OPERATING RESULTS (continued)

(2) New projects establishment and new products development

1. Infusion solution capacity expansion project was completed and commenced operation

2. New product research and development was making progress

(3) Impairment of goodwill

CHAIRMAN’S﻿STATEMENT

3. DEVELOPMENT OUTLOOK

(1) Product marketing

1. Expanding the scale of production and market share of infusion solution products

2. Ensuring a steady growth for the sales of antibiotics categories

CHAIRMAN’S﻿STATEMENT

3. DEVELOPMENT OUTLOOK (continued)

3. Strive for rapid growth in the sales of advantageous featured categories and general medicines

(2) New Products Development

CHAIRMAN’S﻿STATEMENT

3. DEVELOPMENT OUTLOOK (continued)

(2) New Products Development (continued)

MANAGEMENT﻿DISCUSSION﻿AND﻿ANALYSIS

REVENUE

INTRAVENOUS INFUSION SOLUTION

MANAGEMENT﻿DISCUSSION﻿AND﻿ANALYSIS

ANTIBIOTICS

NON-ANTIBIOTICS FINISHED PRODUCTS

SALES OF BULK PHARMACEUTICALS

COST OF SALES

MANAGEMENT﻿DISCUSSION﻿AND﻿ANALYSIS

GROSS PROFIT MARGIN

SELLING AND MARKETING COSTS

GENERAL AND ADMINISTRATIVE EXPENSES

OPERATING PROFIT

FINANCE COSTS

MANAGEMENT﻿DISCUSSION﻿AND﻿ANALYSIS

INCOME TAX EXPENSE

LOSS ATTRIBUTABLE TO EQUITY HOLDERS FOR THE YEAR

LIQUIDITY AND FINANCIAL RESOURCES

FOREIGN EXCHANGE RISK

MANAGEMENT﻿DISCUSSION﻿AND﻿ANALYSIS

PLEDGE OF ASSETS

CONTINGENT LIABILITIES

EXCHANGE RATE

BIOGRAPHICAL﻿DETAILS﻿OF﻿DIRECTORS﻿AND﻿SENIOR﻿MANAGEMENT

DIRECTORS

Executive directors

BIOGRAPHICAL﻿DETAILS﻿OF﻿DIRECTORS﻿AND﻿SENIOR﻿MANAGEMENT

DIRECTORS (Continued)

Executive directors (Continued)

BIOGRAPHICAL﻿DETAILS﻿OF﻿DIRECTORS﻿AND﻿SENIOR﻿MANAGEMENT

DIRECTORS (Continued)

Executive directors (Continued)

SSY Group Limited Annual Report 2011

CORPORATEINFORMATION

CHAIRMAN’SSTATEMENT

CHAIRMAN’SSTATEMENT

CHAIRMAN’SSTATEMENT

CHAIRMAN’SSTATEMENT

CHAIRMAN’SSTATEMENT

CHAIRMAN’SSTATEMENT

MANAGEMENTDISCUSSIONANDANALYSIS

MANAGEMENTDISCUSSIONANDANALYSIS

MANAGEMENTDISCUSSIONANDANALYSIS

MANAGEMENTDISCUSSIONANDANALYSIS

MANAGEMENTDISCUSSIONANDANALYSIS

BIOGRAPHICALDETAILSOFDIRECTORSANDSENIORMANAGEMENT

BIOGRAPHICALDETAILSOFDIRECTORSANDSENIORMANAGEMENT

BIOGRAPHICALDETAILSOFDIRECTORSANDSENIORMANAGEMENT

BIOGRAPHICALDETAILSOFDIRECTORSANDSENIORMANAGEMENT

REPORTOFTHEDIRECTORS

REPORTOFTHEDIRECTORS

REPORTOFTHEDIRECTORS

REPORTOFTHEDIRECTORS

REPORTOFTHEDIRECTORS

REPORTOFTHEDIRECTORS

REPORTOFTHEDIRECTORS

REPORTOFTHEDIRECTORS

REPORTOFTHEDIRECTORS

REPORTOFTHEDIRECTORS

CORPORATEGOVERNANCEREPORT

CORPORATEGOVERNANCEREPORT

CORPORATEGOVERNANCEREPORT

CORPORATEGOVERNANCEREPORT