Source - RNS
RNS Number : 5345I
Cathay International Holdings Ld
31 August 2016
 

 

 

Cathay International Holdings Limited

("Cathay", the "Company" or the "Group")

Interim Results for the Six Months Ended 30 June 2016

 

Hong Kong, 31 August 2016 - Cathay International Holdings Ltd. (LSE: CTI.L), a leading operator and investor in the growing healthcare sector in the People's Republic of China, today announces its interim results for the six months ended 30 June 2016.

Group Highlights

·     Revenue down 1.8% to USD 61.1 million (2015 H1: USD62.2 million)

·     Gross profit increased by 28.4% to USD31.4 million (2015 H1: USD24.5 million)

·     Operating profit increased by 127.7% to USD5.5 million (2015 H1: USD2.4 million)

·     Share of profits from Starry were approximately USD1.1 million (2015 H1: USD1.3 million)

·     Post tax profit before non-controlling interests was USD0.7 million (2015 H1: loss of USD1.3 million)

·     Loss attributable to owners of the parent was USD1.9 million (2015 H1: loss of USD4.3 million)

·     The Company and its subsidiaries (collectively the "Group") were impacted by the devaluation of the RMB by 6.6% over the period

Lansen

·     Lansen is a 50.56% owned pharmaceutical subsidiary

·     Revenue increased by 2.2% to USD49.3 million (2015 H1: USD48.2 million)

·     Gross profit increased by 20.8% to USD29 million (2015 H1: USD24.0 million)

·     Operating profit increased by 3.9% to USD7.9 million (2015 H1: USD7.6 million)

·     Pharmaceutical product sales increased by 5.6% to USD29.5 million (2015 H1: USD28.0 million), mainly due to growth in sales of Pafulin, MMF (Mycophenolate Mofetil Dispersible) tablets and of the leflunomide tablets branded "Hepai"

·     Cosmeceutical business increased by 244.1% to USD13.2 million (2015 H1: USD3.8 million) as a result of increased sales of Yuze skincare products, Comfy Collagen Dressing masks (Kefumei) and Botai's Fillderm Collagen Injectable Fillers, following increased marketing efforts last year

·     Concluded a subscription agreement in March 2016 for an equity interest of approximately 19.1% in Haotian, to make the healthcare and plant extract business totally independent of its pharmaceutical business. Under the terms of the subscription agreement, Lansen made a further subscription in Haotian in August 2016, owning in aggregate 30.0% of Haotian

Haizi

·     Haizi is a wholly owned subsidiary, manufacturing and selling inositol and di-calcium phosphate or DCP

·     Revenue down 30.2% to USD4.2 million (2015 H1: USD6.0 million) due to the low average market price of inositol

·     Improving quality of DCP and processing techniques to reduce production costs

·     Started modification works at phytin plants to improve phytin processing techniques, which are expected to complete at the end of 2016

·     Plans to build one or two phytin factories to increase the phytin supply, which scale effect is expected to lower further the company's inositol production costs and improve margins

Haotian

·     Haotian is an effectively 90.6% owned healthcare and plant extract business (including Yangling Dailyhealth); diluted to 85.2% in August 2016 upon Lansen's further subscription.

·     Revenue down by 26.7% to USD1.9 million (2015 H1: USD2.6 million)

·     Operating loss increased to USD0.6 million (2015 H1: loss of USD0.3 million)

·     With Lansen's capital injection in this company, Haotian has become the only platform for Lansen and Cathay to jointly develop healthcare and plant extract business, which is expected to realize business synergy

·     Yangling completed the capacity expansion for bilberry extracts and production capacity increased from 26 tons to 59 tons during Q2 2016

·     Yangling also completed modifications to its multifunctional production line and submitted the GMP filing for ginkgo products with the CFDA

Botai

·     Botai is a wholly owned subsidiary in cosmeceutical business

·     Revenue of USD2.4 million (2015 H1: nil)

·     Operating profit increased to USD1.4 million (2015 H1: loss of USD0.3 million)

·     Lansen, the exclusive distribution agent for Botai's Fillderm Collagen Injectable Fillers, has begun marketing and promoting Fillderm with initial stocking orders received ahead of market launch

·     To diversify its product range and create synergies in production, marketing and sales, Botai entered into an R&D agreement with Robustnique, a Tianjin-based Chinese company with strong R&D capabilities, who will carry out R&D for Botai on a series of collagen products

IPO of Starry (associated company)

·     Zhejiang Starry Pharmaceutical Co. Limited ("Starry"), Lansen's associated company engaged mainly in production and sales of iohexol for X-CT scan, successfully listed on the Shanghai Stock Exchange on 9 March 2016

·     Lansen's interest in Starry diluted to 16.1% upon Starry's IPO

·     Based on the Starry closing price (RMB52.98 per share) as at 30 June 2016, the market value of the Group's effective 8.1% interest in Starry was approximately USD78.2 million

Hotel

·     Revenue down by 6.6% to USD6.5 million (2015 H1: USD7.0 million) mainly due to the devaluation of RMB

·     Room occupancy went up to 72.0% (2015 H1: 68.5%) due to an increase in room sales to large multinational corporate clients at preferential corporate rates. As a result, average room rate decreased to USD115 (2015 H1: USD129).

 

Commenting on the annual results, Mr. Lee Jin-Yi, CEO of Cathay International Holdings Limited, said: "The strategy that the Group put in place to develop its core businesses and create a better platform for stable growth has started to come into fruition, as demonstrated by the significant increase in revenue from Lansen's pharmaceutical and cosmeceutical businesses. Other areas of the business are still working hard to improve their contribution and cost effectiveness by improving processing techniques, modifying and expanding production capacities and continuing to build marketing and distribution networks.

"I am encouraged by the performance of the Group in the first half of 2016 and had it not been for the devaluation of the RMB we would have seen a modest increase in revenue compared to last year. It is still clear that challenges lie ahead, but we believe the Group's operations are gradually recovering from the setbacks experienced over the past year and will enter into a new period of growth over the short-to-medium term."

 

- ENDS -

For further enquiries, please contact:

Cathay International Holdings Limited

Eric Siu (Finance Director)

Patrick Sung (Director and Controller)

 

Tel: +852 2828 9289

 

N+1 Singer

Aubrey Powell / Lauren Kettle - Corporate Finance      

Brough Ransom - Sales

 

Tel: +44 (0) 20 7496 3000

 

 

Consilium Strategic Communications

Mary-Jane Elliott / Matthew Neal / Lindsey Neville

 

 

Tel: +44 (0) 203 709 5702

 

About Cathay 

Cathay International Holdings Limited (LSE: CTI.L) is a Main Market, London-listed investment holding company and a leading operator and investor in the growing healthcare sector in the People's Republic of China (the "PRC").

The Company and its subsidiaries (collectively the "Group") aim to leverage on growth opportunities in the strong and growing domestic demand for high quality healthcare products in the PRC and build its portfolio companies into market sector leaders with competitive edge.  Cathay has already demonstrated a strong track record of identifying high-growth potential investment opportunities in this area including: Lansen, a leading specialty pharmaceutical company focused on rheumatology and dermatology in the PRC; Haizi, a company engaged in the manufacture, marketing and sale of inositol and its by-product, di-calcium phosphate; Yangling, a company engaged in production and sales of plant extracts for use as key active ingredients in healthcare products; and Botai, a company engaged in collagen products.

The Group employs approximately 2,000 people across the PRC, including over 30 specialist corporate and business development staff based at the holding company's offices in Hong Kong and Shenzhen.  Cathay also has a hotel investment.

For more information please visit the Company's website: www.cathay-intl.com.hk

 



 

MANAGEMENT DICUSSION AND ANALYSIS

 

BUSINESS REVIEW

 

During the first half of 2016, the Group continued its strategy to develop its core businesses (including pharmaceutical, plant extract and healthcare, and cosmeceutical) with a view to building a platform for stable growth. In the pharmaceutical business the Group focused on expanding sales of its existing products whilst also exploring markets for new products. In the plant extract and healthcare business, the Group has realigned production capacities and management structure to centralise the Group's resources for business development and management. It has also been exploring business opportunities in the downstream production and sales of health and nutrition supplements.  In the cosmeceutical business the Group has started to establish marketing and sales networks for new products.

 

Lansen

 

In the first half of the year, Lansen recorded sales of USD49.3million, representing an increase of 2.2% over the same period last year.  Pharmaceutical product sales increased by 5.6% to USD29.5 million, mainly derived from sales of Pafulin and MMF.  Sales of the leflunomide tablets branded "Hepai", the replacement for "Tuoshu" since 2015, also recorded an increase in sales over the same period last year. Other new products, such as Sicorten plus and Bio-Rad diagnosis kits, are in the marketing promotions phase.

 

Revenue from the cosmeceutical business increased by 244.1% to USD13.2 million over the same period last year, mainly derived from sales of Yuze skincare products, Comfy Collagen Dressing masks (Kefumei) and Botai's Fillderm Collagen Injectable Fillers. Fillderm also recorded initial stocking order sales from customers ahead of market launch.   Marketing efforts have been made to build awareness of the Fillderm brand name, including product and brand advertising, customer education and communications, organization of academic seminars, sales team training and product marketing.

 

Revenue from the health product business (including plant extract and healthcare products) amounted to USD6.56 million, a decrease of 60.0% over the same period last year, as a result of the strategic realignment in production capacity and management structure of the plant extract business within the Group. As the plant extract production capacity of Lansen was almost fully utilized producing intermediary raw material for its specialty and generic drugs, it did not have any capacity remaining to produce any other plant extracts. As a result, Lansen made a subscription in the Group's direct subsidiary Haotian and, through Haotian and its subsidiary, in Yangling Dailyhealth's production facilities. Lansen aims to build a healthcare and plant extract business with a business and management structure totally independent of its pharmaceutical business. The strategy to separate the plant extract business and the pharmaceutical business into two independent management structures will enable Lansen, and also the Group, to strengthen its regulatory risk management.

 

Haizi

 

During the first half of 2016, Haizi's revenue decreased by 30.2% to USD4.2 million. This was mainly due to the continued low average market price of inositol. Haizi continues to improve quality of DCP and processing techniques to reduce production costs. Haizi has started modification works at phytin plants to improve phytin processing techniques which are expected to complete at the end of 2016. In addition, Haizi is planning to build one or two phytin factories to increase its phytin supply, which scale effect will further lower the production costs of inositol.

 

Haotian/Yangling Dailyhealth

 

Revenue from Haotian/Yangling Dailyhealth dropped by 26.7% to USD1.91 million compared to the same period last year mainly due to the capacity expansion work during the period.

 

Lansen made a capital injection into Haotian representing the Group's strategy to realign the product development and production capacity of its healthcare and plant extract business. Haotian has now become the only platform in which Lansen and Cathay are jointly developing the healthcare and plant extract business to create further synergies across the business.

 

Yangling Dailyhealth completed the capacity expansion for one of its core products, bilberry extracts, in the second quarter of the year and the annual production capacity for bilberry extracts has increased from 26 tons to 59 tons. Yangling also completed modification in its multifunctional production line and submitted the GMP filing for ginkgo products at CFDA. Yangling Dailyhealth is planning to produce a variety of plant extract products and is exploring business opportunities in the downstream production and sales of health and nutrition supplements.

 

Botai

 

Fillderm Collagen Injectable Fillers, the first cosmeceutical product owned and produced by the Group, is manufactured by Botai and exclusively distributed by Lansen. In the first half of the year, Lansen continued to build a sales network for Fillderm and promote marketing initiatives and achieve sales.

 

In order to prepare for the development of products for its cosmeceutical business, the Group has put more efforts into product research and development. Botai has entered into an entrusting R&D agreement with Robustnique, a company with strong R&D capabilities in Tianjin. Under the agreement, Robustnique was entrusted to carry out R&D for a series of collagen products for Botai, including the development of three collagen facial mask products, the feasibility studies and preliminary biochemical experiments for new types of injectable fillers, new types of artificial blood vessel stents and styptic sponges. The R&D effort is expected to enable the Group to diversify its product range, enrich its product portfolio and fully utilise the Group's vertical business chain structure in production, marketing and sales.

 

Hotel Operations

 

During the period, room occupancy of the Hotel increased to 72.0% (2015 H1:68.5%) due to an increase in room sales to large multinational corporate clients at preferential corporate rates and average room rate was USD115 (2015 H1:USD129), resulting in a 6.3% decrease in revenue per available room (RevPar) to USD82.8 (2015 H1:USD88.4).

 

Shenzhen Fuyuan Landmark Hotel will continue to promote its food and beverage business and conduct staff training to increase revenue and room occupancy rate.

 

Starry's IPO

 

On 9 March 2016, Starry successfully listed on the Shanghai Stock Exchange (Stock Code603520).  Based on the closing price (RMB52.98 per share) as at 30 June 2016, the market value of the 8.1% equity shares in Starry, effectively held by the Group through its interest in Lansen, amounted to USD78.2 million.

 

Other Items

 

Both the litigation initiated by Shenzhen Neptunus Pharmaceutical Company Limited against Ningbo Liwah and the legal proceedings initiated by Lansen against the insurance company to speed up the recovery of the flood damage are still in progress for the time being.

 

Outlook

 

With the completion of marketing and distribution network building for new products, the completion of processing technique improvements and the commencement of modified and expanded production capacities, it is expected that the business of the Group's operations will gradually recover from the last year's setbacks and enter into a new period of growth over the short-to-medium term.

 

FINANCIAL REVIEW

 


Healthcare

Hotel

Operations

Corporate

Office

Inter-segment

Elimination

Total


Lansen

Haizi

Yangling

Botai





Stated in USD'000


















For the six months ended

30 June 2016









REVENUE









External sales

49,269

4,041

1,234

-

6,506

-

-

61,050

Inter-segment sales

-

138

673

2,447

-

-

(3,258)

-

Segment revenue

49,269

4,179

1,907

2,447

6,506

-

(3,258)

61,050

Segment gross profit/(loss)

28,991

(948)

397

1,875

997

-

95

31,407

Segment operating profit/(loss)

7,934

(2,255)

(588)

1,400

935

(2,219)

255

5,462

Segment finance costs

(1,592)

(296)

-

-

(270)

(1,941)

-

(4,099)

Segment share of post-tax profit of associate

1,062

-

-

-

-

-

61

1,123

Segment profit/(loss) before income tax

7,404

(2,551)

(588)

1,400

665

(4,160)

316

2,486

Segment income tax expense

(1,762)

(9)

(9)

-

-

-

-

(1,780)

Segment profit/(loss) for the period before non-controlling interests

5,642

(2,560)

(597)

1,400

665

(4,160)

316

706

Segment profit/(loss) for the period attributable to owners of the parent

2,987

(2,558)

(536)

1,419

665

(4,160)

255

(1,928)










For the six months ended

30 June 2015









REVENUE









External sales

48,199

5,634

1,354

-

6,969

-

-

62,156

Inter-segment sales

-

351

1,248

-

-

-

(1,599)

-

Segment revenue

48,199

5,985

2,602

-

6,969

-

(1,599)

62,156

Segment gross profit/(loss)

24,007

(990)

579

-

1,143

-

(279)

24,460

Segment operating profit/(loss)

7,635

(2,489)

(285)

(318)

1,072

(2,937)

(279)

2,399

Segment finance costs

(1,648)

(492)

(6)

-

(356)

(1,671)

-

(4,173)

Segment share of post-tax profit of associate

1,342

-

-

-

-

-

-

1,342

Segment profit/(loss) before income tax

7,329

(2,981)

(291)

(318)

716

(4,608)

(279)

(432)

Segment income tax expense

(896)

82

(10)

-

-

-

-

(824)

Segment profit/(loss) for the period before non-controlling interests

6,433

(2,899)

(301)

(318)

716

(4,608)

(279)

(1,256)

Segment profit/(loss) for the period attributable to owners of the parent

3,396

(2,897)

(301)

(293)

716

(4,608)

(279)

(4,266)

 

Group revenue was up by 4.8% in RMB terms when compared to last year, however, taking into account the devaluation of the RMB by 6.6%, Group revenue decreased by USD1,106,000 (1.8%) to USD61,050,000, of which Lansen sales increased by USD1,070,000 and Haizi and Yangling's sales reduced by USD1,593,000 and USD120,000 respectively. Botai's sales of USD2,447,000 were included in Lansen sales. The increase in Lansen's revenue was mainly due to growth in Pafulin and the launch of the Collagen Injectable Fillers. Haizi's lower sales resulted from the continued low market price of inositol and Yangling's lower sales were mainly due to decreased sales in inositol and bilberry products. The Hotel's revenue decreased slightly during the period.

 

The Group's gross profit increased by USD6,947,000 (28.4%) to USD31,407,000, of which Lansen's gross profit was up by USD4,984,000 (20.8%).  Haizi's gross loss was down USD42,000 and Yangling's gross profit dropped by USD182,000 but Botai's gross profit contributed USD1,875,000. The rise in gross profit was primarily due to stocking orders of the Collagen Injectable Fillers partly offset by the low market price of inositol at Haizi.

 

The Group's operating profit increased by USD3,063,000 (127.7%) to USD5,462,000. Lansen's operating profit increased by USD299,000 (3.9%) to USD7,934,000; Haizi suffered an operating loss of USD2,255,000 and Yangling increased its operating loss by USD303,000 to USD588,000. Botai launched the Collagen Injectable Fillers this year and recorded an operating profit of USD1,400,000. Corporate overheads decreased by USD718,000 to USD2,219,000 mainly due to the reversal of USD450,000 on share options lapsed in the current period.

 

The Group's finance costs decreased by USD74,000 (1.8%) to USD4,099,000, resulting from the reduced average interest rate at 4.2% p.a. (2015 H1: 4.3% p.a.), which was offset by the net increase in the Group's bank borrowings described more fully below.

 

The Group's after tax profit before non-controlling interests for the period was USD706,000 (2015 H1: loss of USD1,256,000). The Group's loss attributable to owners of the parent for the period was USD1,928,000 (2015 H1: loss of USD4,266,000).

 

Gearing

 

The Group's net borrowings increased to USD155,508,000 compared to USD149,083,000 as at 31 December 2015 for working capital purposes. Net gearing increased to 84.8% (31 December 2015: 79.3%). Out of the Group's net borrowings, Lansen's net borrowings was USD69,515,000 compared to USD66,139,000 as at 31 December 2015.

 

Lansen's associated company, Zhejiang Starry Pharmaceutical Co. Limited ("Starry") successfully listed on the Shanghai Stock Exchange on 9 March 2016. Upon listing, the equity interest of Lansen in Starry was diluted from 21.5% to 16.1%. Based on Starry's closing price of RMB52.98 as at 30 June 2016, the market value of Lansen's 16.1% share in Starry was approximately USD154.6 million. Lansen's investment in Starry as at 30 June 2016 was recorded at USD33.0 million under equity accounting on the balance sheet. In the absence of equity accounting treatment, the increase in book value of the investment in Starry to the Group would be approximately USD61.5 million after minority interests.

 

Lansen

 

Lansen recorded a 2.2% (USD1,070,000) increase in revenue to USD49,269,000 mainly due to the organic growth of Pafulin and the launch of the Collagen Injectable Fillers under the name "Fillderm". The product replacement process for leflunomide tablets is still ongoing.

 

Sales of pharmaceutical products were up by 5.6% to USD29,525,000, of which, Pafulin's sales grew by 6.4% to USD20,943,000 and sales of MMF tablets  were up by 35.3% to USD2,552,000 (2015 H1USD1,886,000). Bio-Rad's sales were USD343,000.  The imported drug licence for Sicorten Plus cream was obtained in November 2015 so Lansen has ceased recording Sicorten Plus cream as other income and will record such sales as revenue when it is sold under the Lansen brand in late 2016. Generic drugs' sales decreased by 9.6% to USD4,493,000, of which sales of Bazhenkeli (for women's healthcare), included in the Chinese essential drug list, decreased by 12.5% to USD2,576,000 (2015 H1: USD2,944,000)

 

Sales of cosmeceutical products went up by 244.1% to USD13,184,000 (2015 H1: USD3,830,000). This significant increase was mainly due to the commencement of sales of Collagen Injectable Fillers. At the same time, revenue from Comfy Collagen Dressing mask (Kefumei) and Yuze brand skincare products also increased significantly.

 

Sales of health products (including plant extract and healthcare products) were USD6,559,000 (2015 H1: USD16,400,000). This decrease was due to the strategic realignment in production capacity and management structure of the plant extract business within the Group.

 

In total, Lansen's gross profit increased by 20.8% to USD28,991,000 (2015 H1: USD24,007,000). There was an increase in overall gross margin to 58.8% (2015 H1: 49.8%) due to the improvement in gross margin of pharmaceutical drugs to 68.9% (2015 H1: 66.1%) and cosmeceutical products to 55.9% (2015 H1: 42.7%). Although the selling price of Pafulin has been decreasing in certain territories, the decrease in production costs was more than enough to offset the price drop. Gross margin of healthcare products dropped to 19.2% (2015 H1: 23.8%). The overall increase in gross margin was due to higher proportion of sales from the higher margin pharmaceutical and cosmeceutical products, while the sales proportion of healthcare products, which have a lower gross profit margin, decreased to 13.3 % (2015 H1: 34.0%).

 

Lansen's operating profit rose by 3.9% to USD7,934,000 (2015 H1: USD7,635,000). Operating profit margin was 16.1% (2015 H1: 15.8%). The increase in the operating margin was less than that of the gross profit margin as Lansen incurred higher selling and distribution expenses to develop new products such as the Bio-rad diagnostic kits and Collagen Injectable Fillers. As a result, it rose to 29.3% of revenue (2015 H1: 26.1%).

 

Lansen's 16.1% owned associate, Zhejiang Starry Pharmaceutical Co. Limited ("Starry"), decreased its profit contribution to USD1,062,000 (2015 H1: USD1,342,000).

 

Lansen's profit before non-controlling interests decreased by 12.3% to USD5,642,000 (2015 H1: USD6,433,000) was due to a one-off tax reversal adjustment in last interim for overpaid tax in 2014 at its subsidiary, Ningbo Liwah Plant Extraction Technology Limited. No such adjustment occurred in 2016 H1.

 

The insurance claim relating to Lansen's inventories of USD4,272,000, written off due to flood damage, is still ongoing. Lansen will record the claim proceeds as other income when the amount is finalized with the insurance company.

 

In March 2016, Lansen entered into a subscription agreement to subscribe for an equity interest of approximately 19.1% in Haotian Holdings Limited ("Haotian"), a wholly owned subsidiary of the Company, at a consideration of RMB33,000,000 (approximately USD4,950,000). The amount was settled in June 2016. Lansen also made a further subscription under the terms of the agreement in Haotian in August 2016, owning in aggregate 30.0% of Haotian. Under the agreement, at any time during the period of three months commencing immediately after the second anniversary of signing of the subscription agreement, Lansen is entitled to exercise a put option to require Haotian to purchase all (but not part) of the subscription shares then held by Lansen at the subscription price paid by Lansen plus interest calculated at one year Hong Kong fixed deposit interest rate.

 

No provision was made during the period for the potential litigation claim faced by Ningbo Liwah, which was announced after the interim results date on 6 July 2015. For the reasons given in note 6 to these interim financial statements, no subsequent provision has been made.

 

Haizi

 

During the period, Haizi recorded revenue of USD4,179,000 (2015 H1: USD5,985,000) from sales of inositol and DCP. Haizi produced 626 tonnes (2015 H1: 592 tonnes) and 3,268 tonnes (2015 H1: 3,445 tonnes) of inositol and feed grade DCP, respectively, and sold a total of 617 tonnes (2015 H1: 611 tonnes) of inositol and 2,325 tonnes (2015 H1: 5,597 tonnes) of feed grade DCP, respectively. The average selling price of inositol was approximately USD6.8 per kg (2015 H1: USD8.6 per kg) during the period as a result of the low market price of inositol and devaluation of RMB.

 

Haizi's gross loss was USD948,000 (2015 H1: gross loss of USD990,000) and its gross margin was -22.7% (2015 H1: -16.5%), primarily due to the low production and sales volume and low inositol market selling price. Haizi's operating loss was USD2,255,000 (2015 H1: loss of USD2,489,000) and its net loss was USD2,560,000 (2015 H1: loss of USD2,899,000).

 

In order to reduce the unit production cost of inositol, Haizi is working on improving its output efficiency of phytin, decreasing its consumption of ancillary raw materials and modifying its processes to produce higher quality DCP. In addition, Haizi is planning to build one or two phytin factories to increase its phytin supply and inositol production volume, which scale effect will further lower the production costs of inositol.

 

Yangling

 

Yangling's revenue, primarily consisting of agency sales of part of Haizi's inositol, bilberry extracts and ginseng extracts, decreased by 26.7% to USD1,907,000 (2015 H1: USD2,602,000) mainly due to lower selling prices of inositol. It achieved a gross profit of USD397,000 (2015 H1: USD579,000).

 

In the first half of 2016, Yangling and Lansen entered into a subscription agreement. As a result, it is expected that certain, non-GMP, plant extract products will be produced at Yangling's facilities commencing during the second half of 2016. The key products include bilberry, Choline Glycerophosphate (which helps brain development), and Gingko extracts.

 

Botai

 

Botai signed an exclusive distribution agreement with Lansen in June 2015 to sell its Collagen Injectable Fillers via Lansen. Botai's revenue in the first half was USD2,447,000 (2015 H1: nil).

 

Botai's gross profit was USD1,875,000 and its margin was 76.6%. The operating profit was USD1,400,000 (2015 H1: loss of USD318,000).

 

Botai aims to develop "Fillderm" into a leading and reliable anti-aging cosmetic collagen injection brand in the PRC. Lansen will continue to hold campaigns to promote the product and make it known to cosmetic consumers, beauty consultants and doctors and Botai and Lansen are exploring marketing alternatives for the Collagen Injectable Fillers.

 

Hotel Operations

 

Hotel revenue dropped by 6.6% to USD6,506,000 (2015 H1: USD6,969,000) mainly due to the devaluation of RMB. There was no significant change in the Lowu market during the period. The Hotel's average room rate decreased to USD115 (2015 H1: USD129) because of an increase in room sales to large multinational corporate clients at preferential corporate rates.  Room occupancy went up to 72.0% (2015 H1: 68.5%).

 

The Hotel's food and beverage sales decreased by 9.1% to USD1,828,000 (2015 H1: USD2,010,000), mainly due to a decrease in its banqueting business. 

 

The Hotel's operating profit was USD935,000 (2015 H1: USD1,072,000) mainly because of lower food and beverage operating sales.

 

The Hotel is currently ranked seventh amongst 2,328 hotels in Shenzhen by Tripadvisor, reflecting customer satisfaction of the Hotel's high quality service. The Hotel will continue its strategy of maintaining high quality service through extensive staff training and aims to grow in both the business and transient segments.

 

PRINCIPAL RISKS AND UNCERTAINTIES

 

The Directors do not consider that the principal risks and uncertainties, as set out on pages [13] to [18] of the annual report for the year ended 31 December 2015, have changed materially since its publication.

 



STATEMENT OF DIRECTORS' RESPONSIBILITIES

 

The directors confirm that, to the best of his knowledge:

i      the condensed set of financial statements, which has been prepared in accordance with the International Financial Reporting Standards and IAS 34 Interim Financial Reporting, gives a true and fair view of the assets, liabilities, financial position and profit or loss of the issuer, or the undertakings included in the consolidation as a whole;

ii      the interim management report includes a fair review of the information required by the Disclosure and Transparency Rules 4.2.7R; and

iii     the interim management report includes a fair review of the information required by the Disclosure and Transparency Rules 4.2.8R.

 

 

On behalf of the Board                             By order of the Board

Patrick Sung                                                 Yip Pui Ling Rebecca

Director                                                  Secretary

 

 

31 August 2016                                        31 August 2016

 

 



 

1.1      Condensed Consolidated Statement of Profit or Loss

 



Six months

Six months



ended 30 June

ended 30 June



2016

2015



USD'000

USD'000


Note

(Unaudited)

(Unaudited)





Revenue

3

61,050

62,156

Cost of sales


(29,643)

(37,696)

Gross profit


31,407

24,460

Other income


1,633

2,266

Selling and distribution expenses


(15,013)

(13,249)

Administrative expenses


(12,565)

(11,078)

Profit from operations


5,462

2,399

Finance costs


(4,099)

(4,173)

Share of post-tax profit of associate


1,123

1,342

Profit/(Loss) before income tax

3

2,486

(432)

Income tax expense

4

(1,780)

(824)

Profit/(Loss) for the period


706

(1,256)





Profit/(Loss) for the period attributable to:




Owners of the parent


(1,928)

(4,266)

Non-controlling interests


2,634

3,010


706

(1,256)





Loss per share

5



Basic and diluted


(0.51 cents)

(1.13 cents)

 

 

 



 

1.2      Condensed Consolidated Statement of Comprehensive Income

 



Six months

Six months



ended 30 June

ended 30 June



2016

2015



USD'000

USD'000



(Unaudited)

(Unaudited)





Profit/(Loss) for the period


706

(1,256)





Other comprehensive income




Item that may be reclassified subsequently to profit or loss:




Exchange differences on translating foreign operations


(3,356)

198

Other comprehensive income, net of tax


(3,356)

198





Total comprehensive income for the period


(2,650)

(1,058)





Total comprehensive income attributable to:




Owners of the parent


(3,633)

(4,149)

Non-controlling interests


983

3,091



(2,650)

(1,058)





 

 

 



 

1.3      Condensed Consolidated Statement of Financial Position



As at

As at



30 June

31 December



2016

2015



USD'000

USD'000

 


(Unaudited)

(Audited)

ASSETS




NON-CURRENT ASSETS




Property, plant and equipment


232,686

235,404

Prepaid land lease payment


4,624

4,783

Intangible assets


24,074

23,797

Goodwill


19,505

19,501

Interest in associate


33,015

33,690

Available-for-sale financial assets


385

385



314,289

317,560





CURRENT ASSETS




Inventories


24,303

22,870

Trade and other receivables


64,259

54,693

Prepaid land lease payment


115

118

Tax recoverable


128

224

Pledged bank deposits


37,933

26,675

Cash and cash equivalents


22,177

22,285



148,915

126,865





TOTAL ASSETS


463,204

444,425





EQUITY AND LIABILITIES








EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT


121,470

126,750





NON-CONTROLLING INTERESTS


51,309

50,446

TOTAL EQUITY


172,779

177,196





NON-CURRENT LIABILITIES




Borrowings


71,157

69,753

Deferred tax liabilities


40,287

40,148



111,444

109,901





CURRENT LIABILITIES




Borrowings


122,284

106,005

Current tax liabilities


1,260

1,474

Trade and other payables


54,239

48,679

Other financial liabilities


1,198

1,170



178,981

157,328

TOTAL LIABILITIES


290,425

267,229

TOTAL EQUITY AND LIABILITIES


463,204

444,425

 

 

 

 


 

1.4      Consolidated Statement of Changes in Equity

 


Attributable to owners of the parent


 

 

 

Non-

controlling

Interests

Total

Equity


Share

Capital

Share

Premium

Share

Option

Reserve

Treasury

Shares

Capital and

Special

Reserve

Revaluation

Reserve

Foreign

Exchange

Reserve

Statutory

Reserve

Profit

and Loss

Account

Total




USD'000

USD'000

USD'000

USD'000

USD'000

USD'000

USD'000

USD'000

USD'000

USD'000

USD'000

USD'000














Balance at 1 January 2015 (audited)

19,062

51,035

967

(1,737)

97,502

8,323

(16,663)

9,181

(37,279)

130,391

57,457

187,848

Dividends to non-controlling interests

-

-

-

-

-

-

-

-

-

-

(2,312)

(2,312)

Recognition of share-based payments

-

-

319

-

-

-

-

-

-

319

-

319

Buy-back of shares

-

-

-

(28)

-

-

-

-

-

(28)

-

(28)

Transactions with owners

-

-

319

(28)

-

-

-

-

-

291

(2,312)

(2,021)

(Loss)/Profit for the period

-

-

-

-

-

-

-

-

(4,266)

(4,266)

3,010

(1,256)

Other comprehensive income

-

-

-

-

-

-

117

-

-

117

81

198

Total comprehensive income for the period

-

-

-

-

-

-

117

-

(4,266)

(4,149)

3,091

(1,058)

Balance at 30 June 2015 (unaudited)

19,062

51,035

1,286

(1,765)

97,502

8,323

(16,546)

9,181

(41,545)

126,533

58,236

184,769

Balance at 1 January 2016 (audited)

19,062

51,035

1,596

(1,765)

96,850

23,255

(21,587)

9,651

(51,347)

126,750

50,446

177,196

Dividends to non-controlling interests

-

-

-

-

-

-

-

-

-

-

(1,587)

(1,587)

Disposal of partial interest in subsidiary

-

-

-

-

-

-

-

-

(1,467)

(1,467)

1,467

-

Recognition of share-based payments

-

-

(180)

-

-

-

-

-

-

(180)

-

(180)

Transactions with owners

-

-

(180)

-

-

-

-

-

(1,467)

(1,647)

(120)

(1,767)

(Loss)/Profit for the period

-

-

-

-

-

-

-

-

(1,928)

(1,928)

2,634

706

Other comprehensive income

-

-

-

-

-

-

(1,705)

-

-

(1,705)

(1,651)

(3,356)

Total comprehensive income for the period

-

-

-

-

-

-

(1,705)

-

(1,928)

(3,633)

983

(2,650)

Balance at 30 June 2016 (unaudited)

19,062

51,035

1,416

(1,765)

96,850

23,255

(23,292)

9,651

(54,742)

121,470

51,309

172,779

 

 


 

1.5      Condensed Consolidated Statement of Cash Flows

 



Six months

Six months



ended 30 June

ended 30 June



2016

2015



USD'000

USD'000



(Unaudited)

(Unaudited)





Net cash (used in)/generated from operating activities


(3,697)

1,958

Net cash used in investing activities


(14,700)

(9,391)

Net cash generated from financing activities


18,513

17,089

Net increase in cash and cash equivalents


116

9,656

Cash and cash equivalents at beginning of the period


22,285

19,360

Effects of exchange rate changes


(224)

100

Cash and cash equivalents at end of the period


22,177

29,116





 

 

 



 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1.  BASIS OF PREPARATION

 

The unaudited condensed consolidated interim financial statements (the "Interim Financial Statements") of Cathay International Holdings Limited (the "Company") and its subsidiaries (hereafter collectively known as the "Group") for the six months ended 30 June 2016 have been prepared in accordance with International Accounting Standard ("IAS") 34 "Interim Financial Reporting" issued by the International Accounting Standards Board (the "IASB").

 

The Interim Financial Statements do not include all of the information required in annual financial statements in accordance with International Financial Reporting Standards ("IFRSs") (which collective term includes all applicable individual International Financial Reporting Standards and Interpretations as approved by the IASB, and all applicable individual International Accounting Standards and Interpretations as originated by the Board of the International Accounting Standards Committee and adopted by the IASB), and should be read in conjunction with the annual financial statements of the Group for the year ended 31 December 2015. The Interim Financial Statements are neither audited nor reviewed by the Group's auditor.

 

Save as described in note 2 "Adoption of new and revised IFRSs", which are effective for the Group's financial year beginning on 1 January 2016, the accounting policies adopted in the Interim Financial Statements are consistent with those used in the preparation of the Group's annual financial statements for the year ended 31 December 2015.

 

The Interim Financial Statements have been prepared under the historical cost basis except for the hotel properties and certain financial liabilities that are measured at fair values.

 

During the reporting period, the Group has incurred a profit of USD706,000 and at the end of reporting period, its current liabilities exceeded its current assets by USD30,066,000. The Interim Financial Statements have been prepared based on the assumption that the Group can be operated as a going concern and will have sufficient working capital to finance its operation in the next twelve months from 30 June 2016.

 

As in the past, the Group will start negotiation with the relevant banks on extension or renewal of the bank borrowings a few months prior to their respective maturities and obtain the approvals from the relevant banks before their respective maturities. Notwithstanding the operating cash flow from certain of its subsidiaries, as at the end of the reporting period, the Group has commenced discussions with a few banks and received indicative term sheets for the purpose of working capital. The Group does not foresee that the bank borrowings will not be renewed or extended before maturity. The Group is also exploring options to secure long term funding, including debt and/or equity, to refinance part of the bank borrowings. Accordingly, the Group should be able to meet in full its financial obligations as and when they fall due for the next twelve months from 30 June 2016 without significant curtailment of operations and the Directors are satisfied that it is appropriate to prepare the Interim Financial Statements on a going concern basis.

 

Should the Group be unable to continue in business as going concern, adjustments would have to be made to the Interim Financial Statements accordingly.



 

2.  ADOPTION OF NEW OR REVISED IFRSs

 

In the current interim period, the Group has applied, for the first time, the following new interpretations and amendments to IFRSs issued by the IASB that are relevant for the preparation of the Group's Interim Financial Statements.

 

- IFRSs (Amendments), Annual Improvements 2012-2014 Cycle

- Amendments to IAS 1, Presentation of financial statements: Disclosure Initiative

 

The application of the above new or revised IFRSs in the current interim period has no material effect on the amounts reported in these Interim Financial Statements and/or disclosures set out in these Interim Financial Statements.

 

3.  SEGMENT INFORMATION

 


 

 

 

 

Hotel

 

 


Healthcare

Operations

Elimination

Total


Lansen

Haizi

Yangling

Botai





USD'000

USD'000

USD'000

USD'000

USD'000

USD'000

USD'000


(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Six months ended 30 June 2016








REVENUE








External sales

49,269

4,041

1,234

-

6,506

-

61,050

Inter-segment sales

-

138

673

2,447

-

(3,258)

-

Segment revenue

49,269

4,179

1,907

2,447

6,506

(3,258)

61,050

Segment profit/(loss) before income tax

7,404

(2,551)

(588)

1,400

665

316

6,646









Six months ended 30 June 2015








REVENUE








External sales

48,199

5,634

1,354

-

6,969

-

62,156

Inter-segment sales

-

351

1,248

-

-

(1,599)

-

Segment revenue

48,199

5,985

2,602

-

6,969

(1,599)

62,156

Segment profit/(loss) before income tax

7,329

(2,981)

(291)

(318)

716

(279)

4,176









 

The totals presented for the Group's operating segments reconcile to the entity's key financial figures as presented in its Interim Financial Statements as follows:

 


Six months

Six months


ended 30 June

ended 30 June


2016

2015


USD'000

USD'000


(Unaudited)

(Unaudited)

Reportable segment profit

6,646

4,176

Unallocated corporate income

48

88

Unallocated corporate expenses

(4,208)

(4,696)

Profit/(Loss) before income tax

2,486

(432)

 

4.  INCOME TAX EXPENSE

 

The provision for current tax has been made in respect of the assessable profits arising in the People's Republic of China (the "PRC") during the period.

 

5.  LOSS PER SHARE ATTRIBUTABLE TO OWNERS OF THE PARENT

 

The calculation of the basic and diluted loss per share attributable to the owners of the Company are based on the following data:

 


Six months

Six months


ended 30 June

ended 30 June


2016

2015


USD'000

USD'000


(Unaudited)

(Unaudited)

Loss



Loss for the period attributable to the owners of the Company for the purpose of basic and diluted loss per share

(1,928)

(4,266)

 

 


Six months

Six months


ended 30 June

ended 30 June


2016

2015


Thousands

Thousands


(Unaudited)

(Unaudited)

Number of shares






Common Shares



Weighted average number of Common Shares for the purpose of basic and diluted loss per share

368,866

368,715




A Shares



Weighted average number of A Shares for the purpose of basic and diluted loss per share

9,092

9,286

 

For the period ended 30 June 2016, the computation of diluted loss per share does not include the 4,523,842 Common Shares (six months ended 30 June 2015: 3,184,706 Common Shares) contingently issuable to Mr. Lee Jin-Yi, as the conditions for their issue were not met throughout the period.

 

For the period ended 30 June 2016, the computation of diluted loss per share did not assume the incremental shares from outstanding share options because the share options have anti-dilutive effect.

 



 

6.  CONTINGENT LIABILITIES

 

On 6 July 2015, the Company announced that its subsidiary, Lansen Pharmaceutical Holdings Limited ("Lansen"), made a regulatory announcement regarding the legal proceedings (the "Litigation") initiated by Shenzhen Neptunus Biological Engineering Company Limited (the "Claimant") against Lansen's subsidiary, Ningbo Liwah Pharmaceutical Company Limited ("Ningbo Liwah"). On 24 August 2015, Ningbo Liwah has received the writ in relation to the Litigation. In the Litigation, the Claimant alleged that it had suffered several losses due to the use of ginkgo extract supplied by Ningbo Liwah in the Claimant's products. The Claimant is therefore seeking damages of approximately RMB70 million (approximately USD10.7 million as of 30 June 2016) from Ningbo Liwah, as well as relevant legal fees. Lansen has sought a preliminary opinion on the Litigation from its legal counsel in the PRC, who, based on the information available, is of the opinion that the amount claimed by the Claimant is highly disputable. As Lansen and, therefore, the Group are not able to assess reliably the amount of provision, the Group has not made any provision against this Litigation. Lansen will, in accordance with the applicable laws, make every effort to protect its interests and its shareholders' interests, actively respond to the case and defend its position vigorously. The Company will inform shareholders of any material developments or notify the market when Lansen makes an announcement relevant to the Litigation.

 

7.  PUBLICATION OF NON-STATUTORY ACCOUNTS

 

Copies of this report have been sent to shareholders and are available to the public from the Company's registrars and transfer office at Capita Asset Services, The Registry, 34 Beckenham Road, Beckenham, BR3 4ZF, United Kingdom.

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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