SSY Group Limited — Earnings Release 2005

Mar 20, 2006

Listed Company Information

Listed Company Information
LIJUN INT'L<02005> - Results Announcement Lijun International Pharmaceutical (Holding) Co., Ltd. announced on 20/03/2006: (stock code: 02005 ) Year end date: 31/12/2005 Currency: RMB Auditors' Report: Unqualified (Audited ) (Audited ) Last Current Corresponding Period Period from 01/01/2005 from 01/01/2004 to 31/12/2005 to 31/12/2004 Note ('000 ) ('000 ) Turnover : 884,709 903,006 Profit/(Loss) from Operations : 138,737 138,503 Finance cost : (7,069) (7,111) Share of Profit/(Loss) of Associates : N/A N/A Share of Profit/(Loss) of Jointly Controlled Entities : N/A N/A Profit/(Loss) after Tax & MI : 116,546 109,061 % Change over Last Period : +6.9 % EPS/(LPS)-Basic (in dollars) : 0.44 0.42 -Diluted (in dollars) : N/A N/A Extraordinary (ETD) Gain/(Loss) : N/A N/A Profit/(Loss) after ETD Items : 116,546 109,061 Final Dividend : HK$0.16 N/A per Share (Specify if with other : N/A N/A options) B/C Dates for Final Dividend : 10/04/2006 to 13/04/2006 bdi. Payable Date : 28/04/2006 B/C Dates for Annual General Meeting : 10/04/2006 to 13/04/2006 bdi. Other Distribution for : N/A Current Period B/C Dates for Other Distribution : N/A Remarks: 1. Group Reorganisation and Basis of Presentation 1.1 Reorganisation Lijun International Pharmaceutical (Holding) Co., Ltd. ("Company") and its subsidiaries (together the "Group") undertook a group reorganisation ("the Reorganisation"), mainly comprised the following: (i) Pursuant to agreements dated 28 December 2004 entered into between the Company and certain former shareholders of Xi'an Lijun Pharmaceutical Co., Ltd. ("Xi'an Lijun"), the Company acquired an aggregate of 51.49% equity interest in Xi'an Lijun for an aggregate cash consideration of RMB 152,040,000, which was financed by shareholders' loans. On the same date, the shareholders waived their entitlement to these shareholders' loans. (ii) Pursuant to an agreement dated 28 December 2004 entered into between the Company and a former shareholder of Xi'an Lijun, the Company acquired 28.51% equity interest in Xi'an Lijun, by the allotment and issue of 3,564 shares of the Company to the former shareholder. Upon completion of the Reorganisation, Xi'an Lijun had 51% equity interest in Shaanxi Rejoy Heng Xin Tang Pharmaceutical Co., Ltd., which was acquired by Xi'an Lijun in July 2003. After the above group reorganisation, the Company became the holding company of the Group. (iii) The Company's shares have been listed on The Stock Exchange of Hong Kong Limited since 20 December 2005. 1.2 Basis of presentation The Group resulting from the Reorganisation is regarded as a continuing entity. Accordingly, the consolidated financial statements have been prepared on the merger basis as if the Company had been the holding company of the companies comprising the Group throughout the years, or from their respective dates of incorporation/establishment of effective acquisition by the Group, where this is a shorter period. 2. Summary of significant accounting policies The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. 2.1 Basis of preparation The consolidated financial statements of the Group have been prepared in accordance with Hong Kong Financial Reporting Standards (the "HKFRS"). The consolidated financial statements have been prepared under the historical cost convention, except for fair value adjustments on available-for-sale investments. The preparation of financial statements in conformity with HKFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in Note 5 of the Consolidated Financial Statement in the 2005 Annual Report. In 2005, the Group adopted the new/revised standards and interpretations of HKFRS below, which are relevant to its operations. The comparatives of prior years have been amended as required, in accordance with the relevant requirements. HKAS 1 Presentation of Financial Statements HKAS 2 Inventories HKAS 7 Cash Flow Statements HKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors HKAS 10 Events after the Balance Sheet Date HKAS 16 Property, Plant and Equipment HKAS 17 Leases HKAS 21 The Effects of Changes in Foreign Exchange Rates HKAS 23 Borrowing Costs HKAS 24 Related Party Disclosures HKAS 27 Consolidated and Separate Financial Statements HKAS 28 Investments in Associates HKAS 32 Financial Instruments: Disclosures and Presentation HKAS 33 Earnings per Share HKAS 36 Impairment of Assets HKAS 38 Intangible Assets HKAS 39 Financial Instruments: Recognition and Measurement HKAS 39 (Amendment) Transaction and Initial Recognition of Financial Assets and Financial Liabilities HKAS-Int 15 Operating Leases - Incentives HKFRS 3 Business Combinations The adoption of new/revised HKASs 1, 2, 7, 8, 10, 16, 21, 23, 24, 27, 28, 33 and HKAS-Int 15 did not result in substantial changes to the Group's accounting policies. In summary: - HKAS 1 has affected the presentation of minority interest, share of net results of associates and other disclosures. - HKASs 2, 7, 8, 10, 16, 23, 27, 28, 33 and HKAS-Int 15 had no material effect on the Group's policies. - HKAS 21 had no material effect on the Group's policy. The functional currency of each of the consolidated entities has been re-evaluated based on the guidance to the revised standard. All the Group entities have the same functional currency as the presentation currency for respective entity financial statements. - HKAS 24 has affected the identification of related parties and some other related-party disclosures. The adoption of revised HKAS 17 has resulted in a change in the accounting policy relating to the reclassification of land use rights from property, plant and equipment to operating leases. The up-front prepayments made for the land use rights are expensed in the income statement on a straight- line basis over the period of the lease or when there is impairment, the impairment is expensed in the income statement. In prior years, the land use rights was treated as property, plant and equipment and therefore accounted for at cost less accumulated depreciation and accumulated impairment. The adoption of HKASs 32 and 39 has resulted in a change in the accounting policy relating to the classification of available-for-sale financial assets. The adoption of HKFRS 3, HKAS 36 and HKAS 38 results in a change in the accounting policy for goodwill. Until 31 December 2004, goodwill was: - Amortised on a straight line basis over a period of 10 years; and - Assessed for an indication of impairment at each balance sheet date. In accordance with the provision of HKFRS 3 (see Note 2.5 of this section ): - The Group ceased amortisation of goodwill from 1 January 2005; - Accumulated amortisation as at 31 December 2004 has been eliminated with a corresponding decrease in the cost of goodwill; - From the period ended 30 June 2005 onwards, goodwill is tested annually for impairment, as well as when there is indication of impairment. The Group has reassessed the useful lives of its intangible assets in accordance with the provisions of HKAS 38. No adjustment resulted from this reassessment. All changes in the accounting policies have been retrospectively made in accordance with the respective transitional provisions, wherever required or allowed. The accounting policies set out below have been consistently applied throughout the Relevant Periods, other than: HKAS 39 - generally does not permit to recognise, derecognise and measure financial assets and liabilities in accordance with this standard on a retrospective basis. HKFRS 3 - prospectively after 1 January 2005. Certain new standards, amendments and interpretations to existing standards have been published that are mandatory for the Group's accounting periods beginning on or after 1 January 2006 or later periods but which the Group has not early adopted, as follows: HKAS 19 (Amendment), Employee Benefits (effective from 1 January 2006). This amendment introduces the option of an alternative recognition approach for actuarial gains and losses. It may impose additional recognition requirements for multi-employer plans where insufficient information is available to apply defined benefit accounting. It also adds new disclosure requirements. As the Group does not intend to change the accounting policy adopted for recognition of actuarial gains and looses and does not participate in any multi-employer plans, adoption of this amendment will only impact the format and extent of disclosures presented in the accounts. The Group will apply this amendment from annual periods beginning 1 January 2006. HKAS 39 (Amendment), Cash Flow Hedge Accounting of Forecast Intragroup Transactions (effective from 1 January 2006). The amendment allows the foreign currency risk of a highly probable forecast intragroup transaction to qualify as a hedged item in the consolidated financial statements, provided that: (a) the transaction is denominated in a currency other than the functional currency of the entity entering into that transaction; and (b) the foreign currency risk will affect consolidated profit or loss. This amendment is not relevant to the Group's operations, as the Group does not have any intragroup transactions that would qualify as a hedged item in the consolidated financial statements as of 31 December 2005 and 2004. HKAS 39 (Amendment), The Fair Value Option (effective from 1 January 2006 ). This amendment changes the definition of financial instruments classified at fair value through profit or loss and restricts the ability to designate financial instruments as part of this category. The Group believes that this amendment should not have a significant impact on the classification of financial instruments, as the Group should be able to comply with the amended criteria for the designation of financial instruments at fair value through profit and loss. The Group will apply this amendment from annual periods beginning 1 January 2006. HKAS 39 and HKFRS 4 (Amendment), Financial Guarantee Contracts (effective from 1 January 2006). This amendment requires issued financial guarantees, other than those previously asserted by the entity to be insurance contracts, to be initially recognized at their fair value, and subsequently measured at the higher of (a) the unamortized balance of the related fees received and deferred, and (b) the expenditure required to settle the commitment at the balance sheet date. Management considered this amendment to HKAS 39 and concluded that it is not relevant to the Group. HKFRS 1 (Amendment), First-time Adoption of International Financial Reporting Standards and HKFRS 6 (Amendment), Exploration for and Evaluation of Mineral Resources (effective from 1 January 2006). These amendments are not relevant to the Group's operations, as the Group is not a first-time adopter and does not carry out exploration for and evaluation of mineral resources. HKFRS 6, Exploration for and Evaluation of Mineral Resources (effective from 1 January 2006). IFRS 6 is not relevant to the Group's operations HKFRS 7, Financial Instruments: Disclosures, and a complementary Amendment to HKAS 1, Presentation of Financial Statements - Capital Disclosures ( effective from 1 January 2007). HKFRS 7 introduces new disclosures to improve the information about financial instruments. It requires the disclosure of qualitative and quantitative information about exposure to risks arising from financial instruments, including specified minimum disclosures about credit risk, liquidity risk and market risk, including sensitivity analysis to market risk. It replaces HKAS 30, Disclosures in the Financial Statements of Banks and Similar Financial Institutions, and disclosure requirements in HKAS 32, Financial Instruments: Disclosure and Presentation. It is applicable to all entities that report under HKFRS. The amendment to HKAS 1 introduces disclosures about the level of an entity's capital and how it manages capital. The Group assessed the impact of HKFRS 7 and the amendment to HKAS 1 and concluded that the main additional disclosures will be the sensitivity analysis to market risk and the capital disclosures required by the amendment of HKAS 1. The Group will apply HKFRS 7 and the amendment to HKAS 1 from annual periods beginning 1 January 2007. HKFRS-Int 4, Determining whether an Arrangement contains a Lease ( effective from 1 January 2006). HKFRS-Int 4 requires the determination of whether an arrangement is or contains a lease to be based on the substance of the arrangement. It requires an assessment of whether: (a) fulfillment of the arrangement is dependent on the use of a specific asset or assets (the asset); and (b) the arrangement conveys a right to use the asset. Management is currently assessing the impact of HKFRS-Int 4 on the Group's operations. HKFRS-Int 5, Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds (effective from 1 January 2006). HKFRS-Int 5 is not relevant to the Group's operations. HK(IFRIC)-Int 6, Liabilities arising from Participating in a Specific Market - Waste Electrical and Electronic Equipment (effective from 1 December 2005). HK(IFRIC)-Int 6 is not relevant to the Group's operations. 2.2 Consolidation The consolidated financial statements include the financial statements of the Company and all its subsidiaries made up to 31 December. (i) Subsidiaries Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Except for the merger accounting for group reorganisation as mentioned in Note 2(b), the purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. In the Company's balance sheet, the investment in a subsidiary is stated at cost less accumulated impairment losses, if any. The results of subsidiary are accounted by the Company on the basis of dividend received and receivable. All significant intra-group transactions and balances within the Group have been eliminated upon consolidation. (ii) Associates Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investment in associated company is accounted for using the equity method of accounting and are initially recognised at cost. The Group's share of its associates' post-acquisition profits or losses is recognised in the income statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post- acquisition movements are adjusted against the carrying amount of the investment. When the Group's share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group's interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group. 2.3 Segment reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments. In accordance with the Group's internal financial reporting, the Group has determined that business segment be presented as the primary reporting format and geographical as the secondary reporting format. 2.4 Translation of foreign currencies (i) Functional and presentation currency Items included in the account of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the "functional currency"). The Financial Information are presented in Chinese Renminbi ("RMB"), which is the Company's functional and presentation currency. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. 2.5 Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Effective from 1 January 2005, goodwill is tested annually for impairment and carried at cost less accumulated impairment losses, if any. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. 2.6 Property, plant and equipment Property, plant and equipment are stated at historical cost less accumulated depreciation and accumulated impairment losses, if any. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the period in which they are incurred. Depreciation is calculated using the straight-line method to allocate the cost less accumulated impairment loss of each asset to its residual value over its estimated useful life, as follows: Buildings 20 - 40 years Plant and machinery 8 - 18 years Furniture and fixtures 8 - 10 years Vehicles 5 - 10 years The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in the income statement. Construction-in-progress represents buildings, plant and machinery under construction or pending installation and is stated at cost less accumulated impairment losses, if any. Cost includes the costs of construction and acquisition. No provision for depreciation is made on construction-in-progress until such time as the relevant assets are completed and ready for intended use. When the assets concerned are brought into use, the costs are transferred to property, plant and equipment and depreciated in accordance with the policy as stated above. 2.7 Land use rights All land in the PRC is state-owned or collectively-owned and no individual land ownership right exists. The Group acquired the right to use certain land. The premiums paid for such right are treated as prepayment for operating lease and recorded as land use rights, which are amortised over the use terms of 50 years using the straight-line method. 2.8 Available-for-sale financial assets Effective from 1 January 2005, available-for-sale financial assets are non-derivatives that are designated in this category upon initial recognition and reassessment at every reporting date. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date. They are initially recognised at fair value plus transaction costs and subsequently carried at fair value. Unrealised gains and losses arising from changes in the fair value of non-monetary securities classified as available-for-sale are recognised in equity. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the income statement as gains or losses from investment securities. The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered an indicator that whether the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in the income statement - is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on equity instruments are not reversed through the income statement. 2.9 Impairment of non-financial assets Assets that have an indefinite useful life are not subject to amortisation, which are at least tested annually for impairment and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. 2.10 Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined using the weighted average method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity). It excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and selling expenses. 2.11 Trade and other receivables Trade and other receivables are recognised initially at fair value to the original invoice amounts, and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade and other receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy financial reorganisation, and default or delinquency in payments are considered indicators that trade receivables are impaired. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the income statement. 2.12 Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less and bank overdrafts. 2.13 Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or financial liability, including fees and commissions paid to agents, advisers, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Borrowing costs are expensed as incurred. 2.14 Deferred income tax Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the accounts. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference can be controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. 2.15 Employee benefits (i) Employee leave entitlements Employee entitlements to annual leave are recognised when they are accrued to employees. A provision is made for the estimated liability for annual leave and long-service leave as a result of service rendered by employees up to the balance sheet date. Employee entitlements to sick leave and maternity leave are not recognised until the time of leave. (ii) Pension obligations The Group contributes on a monthly basis to defined contribution plans organised by provincial government in the PRC based on a percentage of the relevant employee's monthly salaries. The Group's contributions to defined contributions plans are expensed as incurred. The Group has no legal or constructive obligations to pay further contributions even if the schemes do not hold sufficient assets to pay all employees the benefits relating to employee in the current and prior periods. Compensations for employee termination and early retirement are recognised in the earlier of the periods in which the Group established a constructive obligation and created a valid expectation on the employee, entered into an agreement with the employee specifying the terms, or after the individual employee has been advised of the specific terms. 2.16 Provisions Provisions recognised when the Group has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one items included in the same class of obligations may be small. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessment of the time value of money and the risk specific to the obligation. The increase in the provision due to the passage of time is recognised as interest expense. 2.17 Government grants A government grant in the form of subsidy or financial refund is recognised when there is a reasonable assurance that the Group will comply with the conditions attached to the grant and that the grant will be received. Grants relating to income are deferred and recognised in the income statement over the period necessary to match them with the costs they are intended to compensate. Grants relating to the purchase of property, plant and equipment are deducted from the carrying amount of the asset. The grant is recognised as income over the life of a depreciable asset by way of a reduced depreciation charge. 2.18 Revenue recognition Revenue comprises the fair value of consideration received or receivable for the sale of goods, net of value-added tax, returns, rebates and discounts. Revenue from the sale of goods is recognised on the transfer of risks and rewards of ownership, which generally coincides with the time when the Group entity has delivered products to the customer, the customer has accepted the products and collectibility of the related receivables is reasonably assured. Processing income is recognised in the accounting period in which the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided. Interest income is recognised on a time-proportion basis using the original effective interest rate. 2.19 Operating leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged in the income statement on a straight-line basis over the lease periods. 2.20 Research and development costs Research expenditure is expensed as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the project will be a success considering its commercial and technological feasibility, and costs can be measured reliably. Other development expenditures are expensed as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Development costs with a finite useful life that have been capitalised are amortised from the commencement of the commercial production of the product on a straight-line basis over the period of its expected benefit. 2.21 Dividend distribution Dividend distribution to the Group's shareholders is recognised as a liability in the Group's financial statements in the period in which the dividends are approved by the Group's shareholders. 3. Sales, other gains and segment information - Group (a) Sales and other gains The Group is principally engaged in the manufacturing and sale of pharmaceutical products. Revenue recognised is as follows: Year ended 31 December 2005 2004 RMB'000 RMB'000 Sales: - Sales of pharmaceutical products 880,452 897,029 - Sales of raw materials and by products 847 1,473 - Processing income 3,410 4,504 �w�w�w�w �w�w�w�w 884,709 903,006 -------- -------- Other gains - net: - Interest income 1,569 1,735 - Subsidy income* - 100 - Gain of investment disposal** - 265 - Gain on disposal of a land use right*** 508 - �w�w�w �w�w�w 2,077 2,100 ------- ------- 886,786 905,106 �������� �������� * Subsidy was received from local government. ** Gain of investment disposal represents the net income relates to the disposal of the interest in an associated company in 2004. *** Gain on disposal of a land use right represents the net income relates to the disposal of a land use right of a subsidiary in 2005. (b) Segment information The Group primarily operates in one business segment - manufacturing and sale of pharmaceutical products. It operates principally in one geographical segment - the PRC. 4. Analysis of Sales 2005 2004 RMB'000 % RMB'000 % Antibiotics - Lijunsha 422,341 47.7 489,825 54.2 - Paiqi 89,083 10.1 72,224 8.0 - Erythromycin tablets 54,002 6.1 52,761 5.8 - Cephalosporin 52,927 6.0 53,663 5.9 - Limaixian 16,119 1.8 12,688 1.4 - Other antibiotics 32,692 3.7 21,365 2.4 ---------------------------------------- Total sales of antibiotics 667,164 75.4 702,526 77.7 ---------------------------------------- Other finished medicines 130,222 14.7 126,061 14.0 Sales of bulk pharmaceuticals 72,825 8.2 60,842 6.8 Sales of Chinese medicines 10,241 1.2 7,600 0.8 Others 4,257 0.5 5,977 0.7 ---------------------------------------- Group's total sales 884,709 100 903,006 100 -------- -------- Unallocated COGS (436,842) (449,318) --------- --------- 447,867 453,688 --------- --------- Other gains 2,077 2,100 Selling and marketing costs (202,793) (220,599) General and administrative expense (108,414) (96,686) ---------- -------- Operating profit 138,737 138,503 ---------- -------- Finance costs (7,069) (7,111) ---------- -------- Profit before income tax 131,668 131,392 ---------- -------- Income tax expense (15,122) (22,331) ---------- -------- Profit for the year 116,546 109,061 Minority interest (23,235) (20,429) ---------- -------- Profit attributable to equity holders of the Company 93,311 88,632 ====== ====== 5 Earning s Per Share Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company of RMB93,311,000 by the weighted average number of 212,426,000 ordinary shares in issue during the year. The comparative basic earnings per share for the year ended 2004 is calculated by dividing the profit attributable to equity shareholders of the Company of RMB 88,632,000 by an aggregate of 210,000,000 shares, comprising 1 share issued after incorporation of the Company and 209,999, 999 shares issued after the Capitalisation Issue completed, which were deemed to have been in issue since 1 January 2004. No diluted earnings per share is presented, as the Company has no dilutive potential shares.