Corporate Profile Founded in 2001, Sihuan Pharmaceutical Holdings Group Ltd. ( Sihuan Pharmaceutical or the Company, together with its subsidiaries, t

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2 Corporate Profile Founded in 2001, Sihuan Pharmaceutical Holdings Group Ltd. ( Sihuan Pharmaceutical or the Company, together with its subsidiaries, the Group ) achieved sound development in the past years and has now become a pharmaceutical corporation with leading capabilities in sales and marketing, production and research and development ( R&D ). Sihuan Pharmaceutical maintained its leadership in China s cardio-cerebral vascular ( CCV ) prescription drug market since Its major products such as Kelinao, Oudimei, Yuanzhijiu, Yeduojia, Chuanqing, Qu Ao and other products are widely used in the treatment of various CCV diseases. The successful listing on the Main Board of The Stock Exchange of Hong Kong Limited (the Stock Exchange ) on 28 October 2010 has fueled the Group s rapid development expansion with enhanced capital. Sihuan Pharmaceutical marked its fourteenth year in In the first half of 2014, the Group further expanded its market share in the CCV prescription drug market and has grown into the third biggest pharmaceutical company in China s hospital market in terms of hospital purchase. The Group s current products and R&D pipeline encompass the top five medical therapeutic areas in China: CCV system, control nervous system ( CNS ), metabolism, oncology and anti-infectives.

3 Contents 2 Corporate Information 5 Chairman s Statement 8 Management Discussion and Analysis 35 Other Information 45 Interim Consolidated Balance Sheet 48 Interim Consolidated Statement of Comprehensive Income 50 Interim Consolidated Statement of Changes in Equity 52 Interim Condensed Consolidated Statement of Cash Flows 53 Notes to the Condensed Interim Financial Information

4 Corporate Information BOARD OF DIRECTORS Executive Directors Dr. Che Fengsheng (Chairman and Chief Executive Officer) Dr. Guo Weicheng (Deputy Chairman) Mr. Meng Xianhui Non-Executive Directors Dr. Zhang Jionglong Mr. Homer Sun Independent Non-Executive Directors Mr. Patrick Sun Mr. Tsang Wah Kwong Mr. Zhu Xun JOINT COMPANY SECRETARIES Mr. Choi Yiau Chong Ms. Mok Ming Wai AUTHORISED REPRESENTATIVES Mr. Choi Yiau Chong Ms. Mok Ming Wai AUDIT COMMITTEE Mr. Patrick Sun (Chairman) Dr. Zhang Jionglong Mr. Tsang Wah Kwong Mr. Zhu Xun REMUNERATION COMMITTEE Mr. Zhu Xun (Chairman) Dr. Che Fengsheng Mr. Patrick Sun Mr. Tsang Wah Kwong 2 Sihuan Pharmaceutical Holdings Group Ltd. Interim Report 2014

5 Corporate Information 22 Clarendon House, 2 Church Street P.O. Box HM1022 Hamilton HM DX, Bermuda Codan Services Company Limited Clarendon House, PO Box HM 1022 Hamilton HM DX Bermuda NOMINATION COMMITTEE Mr. Tsang Wah Kwong (Chairman) Dr. Guo Weicheng Mr. Patrick Sun Mr. Zhu Xun INDEPENDENT AUDITOR PricewaterhouseCoopers 22/F., Prince s Building Central Hong Kong REGISTERED OFFICE Clarendon House, 2 Church Street P.O. Box HM1022 Hamilton HM DX, Bermuda HEADQUARTERS 21/F, Building 2, Zhubang 2000 Business Centre West Balizhuang, Chaoyang District Beijing 10025, P.R.C. PRINCIPAL PLACE OF BUSINESS IN HONG KONG Room 4905, Office Tower, Convention Plaza 1 Harbour Road Wanchai, Hong Kong PRINCIPAL SHARE REGISTRAR Codan Services Company Limited Clarendon House, PO Box HM 1022 Hamilton HM DX Bermuda

6 Corporate Information HONG KONG SHARE REGISTRAR Tricor Investor Services Limited Level 22, Hopewell Centre 183 Queen s Road East Hong Kong WEBSITE STOCK CODE Sihuan Pharmaceutical Holdings Group Ltd. Interim Report 2014

7 Chairman s Statement 34.4% 10.8% (FDA) Despite lingering challenges in China s pharmaceutical market, Sihuan Pharmaceutical continued its sound growth trajectory following a strong growth momentum in 2013 and entered a stage of steady development. Our clear development roadmap and commitment to innovation have laid a strong foundation for where we stand today. There is no doubt that the Group has demonstrated its capability to move in tandem with an ever-changing market, which attests to Sihuan Pharmaceutical s strong fundamentals built up over past years. In the first half of 2014, our core products, Oudimei and Kelinao, delivered sound sales volume growth, while our promising products Yuanzhijiu, Yeduojia, Danshen Chuanxiongqin and Yimaining saw their contribution to sales surge. The Group s profitability further improved as a result, with net profit jumping 34.4% year-on-year. In addition, the Group reinforced its leadership in the cardio-cerebral vascular ( CCV ) prescription drug market with its market share rising to 10.8%, according to IMS Health Incorporated ( IMS ). This made Sihuan Pharmaceutical the third-largest pharmaceutical enterprise in China s hospital market in terms of hospital purchases. In the first half of 2014, the Group made further development in research and development ( R&D ) for new drugs. The China Food and Drug Administration ( CFDA ) accepted the application for clinical trial approval of the Group s self-developed Category 1.1 patent anti-diabetic drug Janagliflozin, the eighth Category 1.1 innovative drug application submitted by Sihuan Pharmaceutical. Of all such drugs, Imigliptin Dihydrochloride, Anaprazole Sodium and Benapenem have entered phase I clinical trial, with Imigliptin Dihydrochloridede livered encouraging results from completed studies. The Investigational New Drug (IND) application of Pirotinib ( ) to the Food and Drug Administration ( FDA ) of United States has also been progressing as planned. On top of that, we have actively stepped up our collaboration with international innovative drug development companies. In terms of generic drugs, the number of applications filed has been increasing. As at 30 June 2014, we have filed applications for 27 drugs to be approved for production; we have over 70 generic drugs under development, among which 22 are Category 3 New Drugs

8 Chairman s Statement GMP After all the Group s production facilities were certified under the new Good Manufacturing Practice ( GMP ), the upgraded production lines have been operating smoothly. Meanwhile, the Group continued to strengthen its quality management system. Facing stronger market competition in the first half of 2014, the Group managed to maintain strong momentum in its overall business, thanks to its diversified product portfolio and timely adjustments to its marketing strategies. The Group s industry-leading sales and marketing capability spoke for itself by delivering above-market performance amid stronger competition and market instability. During the Period, we exercised a high degree of flexibility and adaptability in our sales and marketing strategies. Through the expansion of our market coverage and stepping up of academic promotion, we were able to accelerate sales growth for our promising products. Meanwhile, the Group increased its market penetration into the low-end market and achieved good results for our mature products. The remarkable achievements in 2013 and continuous growth in the first half of 2014 have tested Sihuan Pharmaceutical s business strategies and heralded a new chapter in the Group s sustainable development. In retrospect, Sihuan Pharmaceutical had built up powerful marketing capability and pioneered a ground breaking marketing model in its early years; following which we gradually enriched our product resources by means of generic drugs R&D and M&A. To date, our capabilities in innovative drug development has given us an unmatched product pipeline that is expected to sustain the Group s long-term growth and development. The hard work we put in for over a decade, secured the leadership position of Sihuan Pharmacentical in the Chinese pharmaceutical market and strengthened our foundation for future development. Moving forward, Sihuan Pharmaceutical will continue to commit itself to product diversification through R&D, product collaboration and M&A, focusing on proprietary drugs in major therapeutic areas. It will fully realize the potential of its product resources through its flexible sales and marketing strategies and the expansion of its national network. We expect to launch a number of innovative proprietary drugs and blockbuster generic drugs after three years, which are complementary to the existing product portfolio, and will continue the cycle of high growth to bring Sihuan Pharmaceutical to new heights. 6 Sihuan Pharmaceutical Holdings Group Ltd. Interim Report 2014

9 Chairman s Statement Looking ahead, I am fully optimistic on the market prospect for the Chinese pharmaceutical industry. Despite the pressure from the tightening of the medical insurance budget, lower tender prices and healthcare reforms, the domestic market will continue to grow on the back of inelastic demand. With further industry consolidation and integration, we hold our belief that only the companies with a market-leading position and unique competitive advantages can succeed in the long run. I am fully confident in Sihuan Pharmaceutical s capability to achieve its 2014 full-year target and stride towards its future development. It is my firm belief that we are entering a phase of stable and sustainable growth. Upon the launch of our innovative drugs, Sihuan Pharmaceutical will be one step closer to becoming the most competitive, globally-recognized Chinese pharmaceutical company. Dr. Che Fengsheng Chairman of the Board 27 August

10 Management Discussion and Analysis (I) 34.4% 14.0% 10.8% (I) BUSINESS REVIEW Following a year of strong growth in 2013, the Group sustained sound growth momentum in the first half of 2014, with profit attributable to owners of the Company increasing by 34.4% year-on-year. Sales volume of the Group s key products recorded impressive growth compared with the same period last year, while revenue decreased by 14.0% year-onyear, principally caused by a change in sales strategy which resulted in a downward adjustment in the ex-factory price of Yuanzhijiu starting from the second half of 2013 and of Kelinao, Anjieli, Yeduojia and Oudimei in the first half of 2014 compared to the same period last year. The Group s promising products continued to deliver remarkable growth of sales volume, while the Group s established products recorded steady sales growth. In addition, the Group s research and development of innovative and generic drugs achieved sound progress. During the Period, the Group continued to optimize its production systems. Overall, the Group has achieved all of its operational targets. According to IMS Heath Incorporated ( IMS ), the Group maintained its No. 1 position in the cardio-cerebral vascular ( CCV ) prescription drug market, with an increased market share of 10.8% in terms of hospital purchase during the Period. Moreover, the Group was ranked as the third largest pharmaceutical company in the Chinese hospital market during the Period. The Group s leading position in China s CCV prescription drug market and hospital market was further consolidated. 8 Sihuan Pharmaceutical Holdings Group Ltd. Interim Report 2014

11 Management Discussion and Analysis (i) (i) Sales of Key Products (a) (a) CCV products 94.0% For the six months ended 30 June 2014 ( Period ), sales of CCV products accounted for approximately 94.0% of the Group s total revenue. (1) (2) (3) 30% 50% 20% 16.1% GMP 3.8% GM1 7.0% 17.0% 79.0% During the Period, the sales volume of the Group s promising products such as Oudimei (1), Yuanzhijiu (2), Yeduojia, Danshen Chuanxiongqin, Yimaining (3) and Salivae Miltiorrhizae Liguspyragine Hydrochloride and Glucose Injection grew by over 30% as compared to the corresponding period last year. In particular, Yuanzhijiu, Danshen Chuanxiongqin and Salivae Miltiorrhizae Liguspyragine Hydrochloride and Glucose Injection recorded sales volume growth of over 50%. Meanwhile, the combined sales volume of established products Kelinao/ Anjieli recorded an increase of about 20% year-on-year, while sales of Qingtong rose by 16.1% year-on-year. Sales of Qu Ao increased slightly by 3.8%, while sales of GM1, Chuanqing and Guhong declined by 7.0%, 17.0% and 79.0% respectively, due to a shortage in product supply caused by the test runs of manufacturing facilities after passing the certification of the new Good Manufacturing Practices ( GMP ) standard. The strong growth of our CCV products reinforced the Group s market leading position in China s CCV prescription drug market

12 Management Discussion and Analysis Product Name Sales of key CCV products: For the six months ended 30 June Change in Sales Year-on-Year IMS Change in IMS Data (Sales in terms of hospital purchase) Year-on-Year (RMB 000) (RMB 000) * (1) *Oudimei (1) (Cerebroside-kinin injection) * 80 *Kelinao (Cinepazide maleate injection) (80 mg) * 320 *Anjieli (Cinepazide maleate injection) (320 mg) * (2) *Yuanzhijiu (2) (Troxerutin and cerebroproptein hydrolysate injection) * B(II) *Yeduojia (Compound trivitamin B for injection (II)) 687, , % 34.7% 582, , % 14.3% 67,969 88, % 202, , % 58.2% 129,435 79, % 53.0% * * Due to the change in sales strategy, there was a downward adjustment in the ex-factory price of the aforementioned products. Meanwhile, there was a significant decrease in distribution costs in conjunction with this change, resulting in their profit contributions being largely the same as their profit contributions had the change in sales strategy not taken place. 10 Sihuan Pharmaceutical Holdings Group Ltd. Interim Report 2014

13 Management Discussion and Analysis Product Name For the six months ended 30 June (RMB 000) (RMB 000) Change in Sales Year-on-Year (3) Yimaining (3) (Alprostadil lipid emulsion injection) Danshen Chuanxiongqin injection (Salviae miltiorrhizae and ligustrazine hydrochloride injection) GM1 GM1 (Monosialotetrah exosylganglioside sodium injection) Qu Ao (Cerebroprotein hydrolysate) Chuanqing (Ligustrazine hydrochloride for injection) Qingtong (Edaravone injection) Guhong injection (Compound of aceglutamide and safflower extract) Salivae Miltiorrhizae Liguspyragine Hydrochloride and Glucose Injection 92, , % 57,121 91, % 96,790 90, % (Products supply shortage) 45,849 47, % (Products supply shortage) 48,240 40, % (Products supply shortage) 33,043 38, % 151,180 31, % (Products supply shortage) 5,296 8, %

14 Management Discussion and Analysis Notes: (1) (1) Names of the Group s cerebroside-kinin injection products in different dosages are Oudimei, Oufutai and Waitong, and are collectively known as Oudimei. (2) (2) Names of the Group s troxeratin and cerebroprotein hydrolysate injection products in different dosages are Yuanzhijiu and Xinwai, and are collectively known as Yuanzhijiu. (3) (3) Names of the Group s alprostadil lipid emulsion injection products in different dosages are Yimaining and Yikongning, and are collectively known as Yimaining. (b) (b) Non-cardio-cerebral vascular products ( Non-CCV products ) During the Period, the Group achieved strong performance with the sales of its non-ccv products. All of its major key products achieved sustainable growth. 41.1% 32.6% 6.5% 15.5% Sales of antiepileptic drug Ren Ao (Oxcarbazepine) rose 41.1% year-on-year, while sales of respiratory system drugs Zhuo Ao and Bi Ao (Ambroxol hydrochloride) increased by 32.6% and 6.5% year-on-year, respectively, and sales of Luoanming (Amino acid injection) rose 15.5% year-onyear. The market expansion of Roxatidine was hindered by further delay in the tender process during the Period, with tender wins in only 3 provinces and a supplementary tender submission in another province. Sales activities of Roxatidine have since started in these provinces. 12 Sihuan Pharmaceutical Holdings Group Ltd. Interim Report 2014

15 Management Discussion and Analysis Sales of key Non-CCV products: Therapeutic areas Product Name For the six months ended 30 June (RMB 000) (RMB 000) Change in Sales Year-on-Year 6,325 8, % Central nervous system drug Ren Ao (Oxcarbazepine) 34,792 40, % Metabolism drug Luoanming (Amino acid injection) 26,684 28, % Respiratory system drug Bi Ao (Ambroxol hydrochloride) 7,858 10, % Zhuo Ao (Ambroxol hydrochloride) 2,485 Digestive system drug Roxatidine 9,974 Anti-infective drug Clindamycin

16 Management Discussion and Analysis (ii) (ii) Sales and Marketing During the Period, the key focus of the sales and marketing team was to boost market expansion by making use of all available opportunities. The Group enhanced the market coverage of promising products through provincial tender wins and supplementary tender submissions; meanwhile, the Group furthered the penetration of its established products into low-end markets through their inclusion on provincial Essential Drug Lists ( EDL ) and provincial New Rural Cooperative Medical Scheme Lists ( NRCMSL ) Sales of the Group s promising products such as Oudimei, Yuanzhijiu, Yeduojia, Yimaining and Danshen Chuanxiongqin saw significant increases as the Group seized all opportunities for tender wins and supplementary tender submissions. Market coverage of Oudimei and Yuanzhijiu has now expanded to more than 20 provinces, while market coverage of Yeduojia, Yimaining and Guhong has reached over 15 provinces, and the market coverage of Danshen Chuanxiongqin expanded to 8 provinces. The expanded market coverage secured and accelerated the sustainable sales increase of these promising products. GM1 1,118 GM1 The Group s established products such as Kelinao, Qu Ao, Chuanqing and Qingtong further developed the low-end markets through their inclusion in provincial EDLs and provincial NRCMSLs. Kelinao and Chuanqing were included in the EDLs of Guangdong Province and the Xinjiang Uighur Autonomous Region. In addition, Kelinao, Chuanqing, Qingtong, GM1 and Yimaining were also included in the EDLs at public medical institutions in Anhui Province, which contain 1,118 essential drugs. Sales of Kelinao and Qingtong achieved solid growth during the Period. Unfortunately, Qu Ao, GM1 and Chuanqing did not meet their sales targets due to shortages in product supply, but are expected to see improvements in the second half of the year. 14 Sihuan Pharmaceutical Holdings Group Ltd. Interim Report 2014

17 Management Discussion and Analysis PC12 60% 2,745 2, During the Period, the Group continued to step up its marketing efforts by organizing various academic promotion activities. The Group conducted clinical studies on its two core products, Kelinao and Oudimei, to further enhance physicians understanding of the products. The study entitled Mechanism study of cinepazide maleate on brain ischemia injury ( ), led by Xijing Hospital (), explored the uniqueness of cinepazide maleate () as a calcium channel blocker. The paper Cinepazide maleate protects PC12 cells against oxygen glucose deprivation injury ( PC12 ) was published in the January 2014 issue of Neurological Sciences. The post-launch drug revaluation of Oudimei Clinical Research Studies for Cerebroside-Kinin for Treatment of Ischemic Stroke ( ) (led by The Third Hospital of Peking University ( )) and Clinical Research Studies for Cerebroside- Kinin for Treatment of Hypertensive Intracerebral Hemorrhage ( ) (led by The General Hospital of People s Liberation Army ( )), successfully recruited over 60% of patients. The Group also initiated the Research Studies on Cerebroside-Kinin for Treatment of Alzheimer s Disease ( ) (led by The General Hospital of People s Liberation Army ()). For newly launched products, the Group focused on providing product training to enhance doctors knowledge and recognition of these products. As for its established products, the Group stepped up its efforts in organizing major academic conferences and publishing papers in various academic journals (e.g., Chinese Journal of Neurosurgery, Chinese Journal of Neurology, Chinese Journal of Stroke, Chinese Journal of Neuroimmunology and Neurology) to enhance Sihuan Pharmaceutical s brand image so as to boost the clinical use of these established products. During the Period, the Group organized a total of 2,745 academic promotion activities, including 2,665 departmental seminars at hospitals, 73 regional academic conferences and 8 national medical conferences. The Group s brand image was further enhanced through organizing these seminars and conferences

18 Management Discussion and Analysis (iii) 1.1 CXHL CXHL SGLT2 2 II SGLT2 SGLT2 1.1 I 1.1 FDA ( IND ) (iii) Research and Development ( R&D ) The Group s innovative drug R&D division, Shandong Xuanzhu Pharmaceutical Technology Co., Ltd. ( Xuanzhu Pharma ), filed an application for Approval for Clinical Trial of Janagliflozin (), a Category 1.1 innovative drug, to the Food and Drug Administration ( CFDA ) of China in the first half of 2014, and has received the official acceptance of the application (acceptance number: CXHL and CXHL ). This is the eighth self-developed Category 1.1 innovative drug, for which an application has been successfully filed with the CFDA. Janagliflozin (), an SGLT2 (Sodium-glucose co-transporter 2) inhibitor, is an anti-diabetic drug for the treatment of type 2 diabetes. SGLT2 is the sought-after target in diabetes research, and SGLT2 inhibitor is the most internationally recognized new category of anti-diabetic drug and has huge market potential. Janagliflozin is also the second Category 1.1 innovative drug to be developed by the Group in the anti-diabetes category after Imigliptin Dihydrochloride ( ). Meanwhile, Phase I clinical trial of Imigliptin Dihydrochloride ( ) progressed as planned with encouraging results from the completed studies. Clinical trials of Anaprazole Sodium ( ) and Benapenem (), two other Category 1.1 innovative drugs, also commenced during the Period. Currently, the Group is actively preparing to file an investigational new drug ( IND ) application for Pirotinib () to the Food and Drug Administration ( FDA ) of the United States. 16 Sihuan Pharmaceutical Holdings Group Ltd. Interim Report 2014

19 Management Discussion and Analysis (BisoprololFumarate) (Losartan Potassium) (Lansoprazole) (Esomeprazole) (Fasudil Hydrochloride) (Octreotide Acetate) (Vinpocetine) (FlurbiprofenAxetil) (Oxiracetam) (Esomeprazole Sodium) (Caspofungin Acetate) 3 (Levetiracetam Injection) (Lacosamide) Ornithine Aspartate Injection Hepa-Merz (Rivastigmine Hydrogen Tartrate Capsules) (Caspofungin Acetate for Injection) (Flupirtine Maleate Capsules) (Divalproex Sodium Tablets) (Revaprazan Hydrochloride) ((R) Lansoprazole) Several new production license applications were filed by the Group s generic drug division, the Beijing Aohe Drug Research Institute, during the Period. By the end of June 2014, production license applications for a total of 27 generic drugs were filed, including Bisoprolol Fumarate ( ), Losartan Potassium (), Lansoprazole (), Esomeprazole (), Fasudil Hydrochloride ( ), Octreotide Acetate (), Vinpocetine ( ), Flurbiprofen Axetil (), Oxiracetam (), Esomeprazole Sodium ( ), Caspofungin Acetate ( ) etc.; these products are expected to be launched to the market in the next three years. Also, more than 20 new projects commenced development during the Period. In total, the Group has over 70 generic drug projects under development, including 22 Category 3 new drug projects such as Levetiracetam Injection ( ), Lacosamide (), Ornithine Aspartate Injection (Hepa-Merz) (), Rivastigmine Hydrogen Tartrate Capsules ( ), Caspofungin Acetate for Injection (), Flupirtine Maleate Capsules ( ), Divalproex sodium Tablets ( ), Revaprazan Hydrochloride ( ), (R)-Lansoprazole ( )

20 Management Discussion and Analysis 1.3 L-Phencynonate Hydrochloride III IV (Cinepazide Mesilate) II NeuroVive Pharmaceutical AB to-bbb technologies B.V. G20 (Imigliptin Dihydrochloride) (Anaprazole Sodium) 7.42 Phase III clinical trial of L-Phencynonate Hydrochloride ( ), a Category 1.3 innovative drug, is progressing as planned. Phase II clinical trial of Cinepazide Mesilate ( ), a Category IV exclusive new drug, is nearing completion. Collaboration on innovative drug development projects with NeuroVive Pharmaceutical AB of Sweden and to-bbb technologies B.V. of the Netherlands is also moving ahead as planned. In addition, Xuanzhu Pharma and Beijing Sihuan Pharmaceutical Co., Ltd. have co-applied for Beijing government s G20 Engineering Leading Enterprises Cultiration Project. Imigliptin Dihydrochloride ( ) and Anaprazole Sodium ( ) won the New Chemical Drug Research and Development Award, which included a technology grant of RMB7.42 million. (iv) GMP FDA FDA FDA Apotex Inc. Dr. Reddy s Laboratories Ltd. 1,000 Posaconazole ZaCh System S.p.A. Taro Pharmaceutical Industries Ltd. (iv) Production and Quality Management The new production system has been running smoothly since the main production facilities received the new GMP certification. As the standard of production and management has been improving steadily, the new production facilities, except Changchun Xiangtong Pharmaceutical Co., Ltd., have been able to meet market demand. All facilities have not encountered any qualityrelated incidents. The production facility of the Group s Active Pharmacentical Ingredients ( APIs ) business, Langfang Gaobo Jingband Pharmaceutical Co., Ltd ( Langfang Gaobo Jingband ), passed an on-site inspection by the US FDA in July 2013 and received an Establishment Inspection Report ( EIR ) from the FDA in the first half of The reputation of Langfang Gaobo Jingband has improved significantly since passing the on-site assessment. The Group has deepened its cooperation with Canada-based Apotex Inc. The Group has also signed a contract worth over RMB10 million with India s Dr. Reddy s Laboratories Ltd. involving the Posaconazole project. Moreover, the Group s collaboration with Italy-based company ZaCh System S.p.A. and Israel-owned company Taro Pharmaceutical Industries Ltd. also commenced as planned. 18 Sihuan Pharmaceutical Holdings Group Ltd. Interim Report 2014

21 Management Discussion and Analysis (II) (i) In spite of rising raw material and labor costs, the Group maintained cost efficiency of its production system by expanding the scale of production and improving the manufacturing process and management. (II) FUTURE PROSPECTS (i) Industry Outlook Fueled by accelerated urbanization and the ageing of China s population, the rigid demand in the domestic pharmaceutical market will continue to grow. Also, the market potential brought by national medical insurance coverage is far from fully realized, which will sustain the growth momentum of the pharmaceutical industry in the long run. On the other hand, the country has been curbing excessive growth of medical expenditures, and the tightening of hospital medical budgets in first tier cities, the lowering of provincial tender prices, and the deepening reform of medical institutions will all exert pressure on pharmaceutical enterprises. Moreover, a rising industrial threshold, rising technical standards and stringent regulatory controls will speed up the polarization and consolidation of the pharmaceuticals industry, and quality resources will flow to leading enterprises. With further consolidation and integration in the industry, pharmaceutical companies with comprehensive operational advantages will have more opportunities for their development and for long-term success. Backed by its outstanding capabilities in sales and marketing, R&D and resource integration, Sihuan Pharmaceutical, a leading Chinese pharmaceutical corporation with a solid business foundation and economies of scale, is poised to capitalize on the trend of industry consolidation and to reap benefits and make progress from the strong governmental support for innovation

22 Management Discussion and Analysis (ii) (ii) Growth Strategies (a) (a) Tapping the potential of existing product resources The Group s promising products such as Oudimei, Yuanzhijiu, Yeduojia, Danshen Chuanxiongqin and Yimaining still have considerable market potential; newly launched products such as Salviae Miltiorrhizae Liguspyragine Hydrochloride and Glucose Injection ( ), Roxatidine (), Breviscapine Sodium Chloride Injection ( ), together with products such as Clindamycin () and Metronidzole ( ) that have been included in national EDLs, are products with good market potential. To support the rapid and sustainable growth in sales of these promising products, the Group will continue to enhance both horizontal expansion by seizing all opportunities for tender wins and supplementary tender submissions and vertical expansion in the more economically developed regions. For the abovementioned products that are either at the earlier stages of market development or were recently launched to the market, the Group will step up its efforts in both academic promotion and market expansion. Sales of the Group s established products such as Kelinao, Chuanqing, Qu Ao, and Qingtong is set to achieve sustainable growth from further expansion in the low-end markets through inclusion on more provincial EDLs and provincial NRCMSLs. Meanwhile, the clinical usage of established products has been further expanded by entering into various official medicine usage guidelines. 20 Sihuan Pharmaceutical Holdings Group Ltd. Interim Report 2014

23 Management Discussion and Analysis (b) (b) Maintaining outstanding sales and marketing capabilities The Group will maintain strong sales and marketing capabilities by making prompt adjustments to its marketing strategies and continuing to optimize its marketing network according to changes in the market. In addition, the Group will further step up and optimize its academic promotions. By organizing and participating in various kinds of academic conferences, and by strengthening post-marketing clinical research and proactively participating in relevant research studies by partnering with medical institutions on disease prevention and treatment, we will strive to enhance Sihuan Pharmaceuticals academic status and expand the market presence and clinical application of the Group s products. Meanwhile, we will enhance professional training and the quality of education of our marketing team and distributors so as to adapt to a changing and developing market. (c) (c) Enhancing the pathways for obtaining product resources While the Group s innovative and generic drug development platform is a vital source of new products, mergers and acquisitions is another channel for the acquisition of new product resources and collaboration with international companies will be a critical pathway for obtaining highstandard products in the future. The Group produces a steady stream of product resources through these three major channels, in which we will continue to exert unremitting efforts to carry forward the Group s long-term growth momentum

24 Management Discussion and Analysis (iii) (iii) Outlook A rich and diversified product portfolio has sustained and will continue to sustain the remarkable growth of Sihuan Pharmaceutical in 2014 and the next few years. More importantly, the Group has a proven capability of identifying and obtaining new product resources. The management is highly confident in the Group s future development. The management firmly projects a promising growth trajectory in the second half of 2014 and is confident that the Group will achieve satisfactory full-year results. With an outstanding product pipeline, strong R&D capabilities and proven sales and marketing capabilities, Sihuan Pharmaceutical will effectively navigate challenges, seize opportunities arising from the industry consolidation, further solidify its operational foundation and make strides into a stable stage of development. 22 Sihuan Pharmaceutical Holdings Group Ltd. Interim Report 2014

25 Management Discussion and Analysis PHARMACOLOGICAL CHARACTERISTICS AND CLINICAL APPLICATION OF SIHUAN PHARMACEUTICAL S KEY PRODUCTS Product * Product characteristics HSP70 Nestin Na-K-ATP Ca-Mg-ATP Oudimei * (Cattle encephalon glycoside and ignotin injection) A multiple ganglioside, polypeptide and amino compound preparation used to repair, protect and nurture nerves. Cattle encephalon glycoside and ignotin participates in the growth, split and regeneration process of neurons, and effectively increase the expression of Heat Shock Protein (HSP70 is critical to cells survival and restoration and maintenance of cell function) and Nestin (Nestin is vital to the formation of neurons and splitting nerve cells), thus helping the reparation of nerves; cattle encephalon glycoside and ignotin can protect the integrity of nerve cell membrane structure, maintain the activity of Na-K-ATP, Ca-Mg enzyme and ATP enzyme, prevent excessive release of excitatory amino acids, refrain pathologic lipid from peroxidation, reduce free radical generation and alleviate cerebral edema and neurons injury; the components in the cattle encephalon glycoside and ignotin such as polypeptide and free amino acid can activate and promote protein synthesis of nerve cells, provide and supplement specific nutrients required by nerve metabolism, and provide energy and nutrition support for tissue repair. Cattle encephalon glycoside and ignotin can significantly improve stroke patients neurologic impairment, reduce the morbidity rate of vascular diseases and craniocerebral injury, and improve the prognosis of patients. Cattle encephalon glycoside and ignotin injection is widely used in the treatment of cerebral apoplexy, Alzheimer disease, neonatal hypoxic-ischemic encephalopathy (HIE), craniocerebral injury, spinal cord injury and central nerve damage caused by other factors. It is also used to treat peripheral nerve injuries such as traumatic peripheral nerve injury, diabetic peripheral neuropathy and oppressive nerve lesions

26 Management Discussion and Analysis Product * * Kelinao * Anjieli * (Cinepazide maleate injection) Product characteristics Cinepazide maleate is a calcium channel blocker with endogenous adenosine synergistic effect. Through calcium ion antagonism, it dilates blood vessels, restore lesions blood circulation, and can change the hemorheology parameters to effectively improve the micro cycle; through endogenous adenosine (adenosine is an endogenous protective factor in the hypoxic ischemic brain damage) synergy, it blocks multiple links of stroke cerebral apoplexy in multiple ways and levels, thereby achieving the effect of protecting the nerve cells. TIA Clinically, Cinepazide maleate is widely used in the treatment of cerebral arteriosclerosis, cerebral insufficiency, TIA, cerebral infarction, subarachnoid hemorrhage, cerebral hemorrhage, microcirculation disturbance caused by craniocerebral injury, cardiovascular diseases and diabetes, as well as other peripheral vascular diseases. Chuanqing (Ligustrazine hydrochloride for injection) Also referred to as Tetramethylpyrazine, it is a single chemical entity derived from total synthesis. Ligustrazine hydrochloride is a typical calcium channel blocker, it also has the pharmacological characteristics of improving hemorheology, inhibiting platelet aggregation and fibrosis, which can achieve important biological effects such as expanding blood vessel, improving microcirculation, inhibiting thrombosis and dissolving formed thrombosis, blocking ischemia-reperfusion injury and protecting brain tissue and the myocardial tissue. Clinically, it is widely used to treat ischemic cerebrovascular disease, coronary heart disease, cerebral embolism, vasculitis, vascular dementia and hypercoagulabale state. 24 Sihuan Pharmaceutical Holdings Group Ltd. Interim Report 2014

27 Management Discussion and Analysis Product Qu Ao (Cerebroprotein hydrolysate) Product characteristics (85%) 10,000 (15%) Composed by a variety of free amino acids (85%) vital to human body and low molecular peptide with molecular weight below 10,000 (15%), it promotes neutral cell metabolism and differentiation and synthesis of brain protein. By enhancing the brain s capability of resisting hypoxia, strengthening the effect of high-density lipoprotein, and reducing plasma protein fiber and platelet aggregation rate, it can enhance brain metabolism and improve the cells blood supply state. Clinically, it is widely used to treat brain cell dysfunction caused by cerebrovascular disease, traumatic brain injuries and Alzheimer s disease. Qingtong (Edaravone injection) N Edaravone can directly remove hydroxy and oxygen free radicals, effectively inhibit the generation of lipid free radicals, and increase the amount of rapidly decreasing N-acetyl aspartic acid due to brain disease, effectively inhibit chain reaction caused by the cell membrane lipid peroxidation, bring down the irreversible damage of proteins and nucleic acids mediated by oxygen free radicals, and at the same time reduce the generation of inflammatory mediators. Clinically, it is widely used to treat cardiovascular diseases such as ischemic cerebral infarction, acute intracerebral hemorrhage, acute severe brain injury, dilated cardiomyopathy, as well as peripheral vascular disease (PDA) for people with diabetes and primary nephrotic syndrome. Yimaining (Alprostadil lipid emulsion injection) It is a kind of alprostadil preparation using lipid microspheres as drug carrier. By wrapping with lipid microspheres that prevent alprostadil from deactivation and promote the target distribution to damaged blood vessels, it can promote the targeted microcirculation and protect the organs and tissue cells. Clinically, it is widely used to treat limb ulcer caused by chronic arteriosclerosis obliterans, resting pain, cardio-cerebral vascular microcirculation disturbance and antithrombotic therapy after organ transplantation

28 Management Discussion and Analysis Product Yuanzhijiu (Troxerutin and cerebropropeinhydr olysate injection) Product characteristics camp It is a combo formulation of troxerutin, active peptide and a variety of amino acids and nucleic acids. It can act simultaneously on the nerves and blood vessel system to produce ion channel control effect and relax blood vessels, lower down the capillary permeability and ease cerebral edema, and increase camp in blood platelet to prevent thrombosis. Clinically, it is used to treat acute and chronic cardio-cerebral vascular diseases such as cerebral thrombosis, cerebral hemorrhage and cerebral vasospasm, as well as occlusive peripheral vascular diseases. Guhong Injection It is a combo formulation of aceglutamide and safflower extracts. The two components, through synergistic action, induce cerebral isehemic tolerance, reduce the number of apoptotic neurons and glial cells, protect neurons, and at the same time relax blood vessels and improve microcirculation. Clinically, it is used to treat cerebrovacular problems such as cerebral insufficiency, cerebral embolism and cerebral hemorrhage recovery period; dysfunctions caused by the awareness of neurological surgery; mental deterioration, and memory impairment. B(II) Yeduojia (Compound trivitamin B for injection (II)) B B1 B6 B12 Currently the only intravenous administration of a vitamin B compound formulation, which consists of B1, B2 and B12. Through synergistic action on peripheral nerves, the three components promote sugar aerobic metabolism and provide energy the damaged nerve need, enhance -aminobutyric acid generation and homocysteine metabolism, improve peripheral nerve blood vessels microcirculation, participate in methyl transfer, and maintain a complete myelin sheath, thus achieving the effect of promoting the damaged nerve recovery. Clinically, it is used for nerve injury, polyneuritis, trigeminal neuralgia, sciatica, radiation sickness, antieoplastic-induced vomiting, pernicious anemia and nutritional anemia. 26 Sihuan Pharmaceutical Holdings Group Ltd. Interim Report 2014

29 Management Discussion and Analysis Product Danshen Chuanxiongqin (Salviaemiltiorrhizae and ligustrazine hydrochloride injection) Product characteristics The compound preparation of ligustrazine hydrochloride and dihydroxyphenyl. Through its pharmacological effects of anti-platelet aggregation, vasodilation, microcirculation promotion, and capillary expansion, it can be used to treat occlusive cardio-cerebral vascular diseases such as coronary heart disease, angina pectoris and myocardial infarction. * (1) (J) 2008, 1: 1-5 (2) (J) 2008, 6, 26-3: (3) (J) 2009, 10, 11-10: (4) (J) 2010, 10(9): * (1) (J) 2008, 18-4: (2) (J) 2006, 27-3: (3) 2006, 9: (4) S100B 2007, 7, 87-25: * Kelinao (Cinepazide maleate injection) clinical research bibliography: (1) ZHUANG Jian-hua, ZHAO Zhong-xin, ZENG Li-li, LIU Jian-rong, DONG You-rong, LI Wei, GENG Zhi, SUN Xiao-jiang, LIU Ming-yuan, DING Su-ju, Effects of Cinepazide on Vertigo induced by Verebral-basilar Insufficiency, Chin J New Drugs Clin Rem, 2008, 1: 1-5 (2) XU Er-he, CHU Hang-biao, ZANG Ting-zhen, MA Xin, WU Jian, JIA Jian-ping, XU Siping, The Clinical Efficacy and Safety Profile of Cinepazide Maleate for the Treatment of Hypertensive Hamorrhage, J A poplexy and Nervous Diseases, 2008, 6, 26-3: (3) ZHANG Tong, ZHAO Xing-hui, TIAN Shao-hua, HE Mao-lin, Efficacy of Cinepazide Maleate in Treatment of Patients with Acute Cartid System Stroke, Chin J Geriatr Heart Brain Vessel Dis, 2009, 10, 11-10: (4) YI Zhan-miao, LIU Fang, ZHAI Suo-di, Cinepazide Maleate Injection for Cerebral Infarction: A Systematic Review, Chin J Evid-based Med 2010, 10(9): ; * Oudimei (Cattle encephalon glycoside and ignotin injection) clinical research bibliography: (1) ZHANG Yuqiu, LI Huiqiang, ZHAI Suodi, Systematic Review of Cerebroside Carnosine for Acute Ischemic Stroke, Chin J Pharmacoepidemiol, 2008, 18-4: (2) SHAO Guijun, LIU Xueyuan, Clinical Efficacy Evaluation of Cattle Encephalon Glycoside and Ignotin Injection in Treatment of Acute Cerebral Hemorrhage, Shanghai Medical & Pharmaceutical Journal, 2006, 27-3: (3) WANG Yong-jun, SONG Xue-qin, LIU Qing-rui, LI Xiaogang, LU Hui, ZHANG Guohua, SHI Zhenghong, LIU Jianrong, Multicenter and Randomized Clinical Study of Cerebroside Carnosin Treatment in Acute Ischemic Stroke Patients, Chin J Stroke, 2006, 9: (4) YANG Da-xuan, YANG Jing, LI Li-huan, Effects of Cattle Encephalon Glycoside and Ignotin Injection on Serum Level of S100B Protein and Neuron Specific Evolase in Patients Undergoing Cardiac Valve Replacement with Cardiopulmonary Bypass, Natl Med J China, 2007, 7, 87-25:

30 Management Discussion and Analysis 2, , , % % % 16.7% % % 1, , % 79.8% FINANCIAL REVIEW Turnover During the Period, the Group continued to strengthen its CCV drugs business while promoting sales of its products of other therapeutic areas. A stable growth trend was shown in the sales operations of the Group, but due to adjustment in sales strategies resulting in downward adjustment in ex-factory price of certain products, total revenue for the Period was approximately RMB2,000.0 million, representing a decrease of approximately RMB324.7 million when compared with RMB2,324.7 million for the six months ended 30 June During the Period, a stable growth trend was shown in the sales of CCV drugs by the Group, but due to adjustment in sales strategies, sales of CCV drugs for the Period amounted to approximately RMB1,880.8 million, representing a decrease of approximately RMB334.0 million when compared with the six months ended 30 June 2013, which accounted for approximately 94.0% of the Group s total revenue. Sales of anti-infective drugs decreased by approximately 18.8% from RMB18.5 million for the six months ended 30 June 2013 to RMB15.0 million for the Period, due to stricter restrictions on their clinical use and accounting for approximately 0.8% of the Group s total revenue. In view of that, the Group focused on stepping up its efforts in the promotion of other drugs, such as central nervous system, respiratory and metabolism drugs. Sales of other drugs grew by approximately 16.7% to RMB99.1 million, accounting for approximately 5.0% of the Group s total revenue. Cost of sales The Group s cost of sales for the Period amounted to approximately RMB404.0 million, accounting for approximately 20.2% of the total revenue. Gross profit Gross profit of RMB1,596.0 million was recorded for the Period, representing a decrease of RMB251.1 million when compared with RMB1,847.1 million for the six months ended 30 June The main reason was the adjustment in sales strategy resulting in a lower sales amount when compared with the corresponding period of the previous year. Overall gross profit margin increased from 79.5% for the six months ended 30 June 2013 to 79.8% for the Period, which was mainly due to higher contribution from the products with higher gross profit margins. 28 Sihuan Pharmaceutical Holdings Group Ltd. Interim Report 2014

31 Management Discussion and Analysis % % % 1, % Other net gains Other net gains increased from RMB147.2 million for the six months ended 30 June 2013 to RMB226.0 million for the Period. This was mainly due to an increase in government grants received by the Group. Distribution costs Distribution costs for the Period decreased by RMB534.7 million to RMB694.3 million when compared with the corresponding period of the previous year. The decrease was mainly due to the adjustment in sales strategies by the Group. Administrative expenses Administrative expenses increased by 42.5% from RMB128.4 million for the six months ended 30 June 2013 to RMB183.0 million for the Period. The increase was primarily due to an expansion in the Group s operations and development, resulting in an increase in the relevant administrative expenses and investment in research and development. Net finance income Net finance income decreased by 13.1% from RMB58.4 million for the six months ended 30 June 2013 to RMB50.7 million for the Period. The decrease was mainly due to the decrease in interest income received by the Group. Profit before income tax Based on the above factors, the Group s profit before income tax increased by 44.1% from RMB699.5 million for the six months ended 30 June 2013 to RMB1,007.7 million for the Period. Income tax expenses The Group s income tax expenses for the Period were approximately RMB175.2 million. Profit for the Period Based on the above factors, the Group s net profit increased by 34.3% from RMB620.2 million for the six months ended 30 June 2013 to RMB832.5 million for the Period

32 Management Discussion and Analysis % , , Profit attributable to owners of the Company Profit or net profit attributable to equity holders of the Company increased by 34.4% from RMB617.5 million for the six months ended 30 June 2013 to RMB830.1 million for the Period. Liquidity and financial resources As at 30 June 2014, the Group s cash and cash equivalents amounted to RMB1,425.3 million (as at 31 December 2013: RMB1,508.1 million); no term deposits with maturities of over three months (at as 31 December 2013: RMB233.7 million); available-for-sale financial assets amounted to RMB902.7 million (as at 31 December 2013: RMB776.1 million). The Group generally deposits its excess cash in interest-bearing bank accounts and current accounts. The Group may use extra cash for short-term investments in order to obtain better returns. Therefore, the members of the Group entered into agreements with certain PRC state-owned banking institutions and reputable international financial institutions outside of PRC to invest the extra cash. According to such agreements, during the Period, the total amount of investment of the members of the Group amounted to RMB897.5 million. The investments made by the Group according to these agreements were categorized as short-term investments, which mainly consisted of financial planning products purchased from certain state-owned banks and reputable international financial institutions outside of PRC. For the said financial planning products, the issuing banks of such financial planning products may invest the Group s funds at their discretion into financial instruments such as treasury bonds, discounted bank acceptances, commercial acceptance bills and bank deposits. The investment principal of RMB897.5 million plus interest of approximately RMB5.2 million in aggregate amounted to approximately RMB902.7 million, which was recognized as available-for-sale financial assets in the consolidated balance sheet of the Group as at 30 June As at the date of this announcement, total amount of sold/repaid investment principal amounted to RMB454.5 million. 30 Sihuan Pharmaceutical Holdings Group Ltd. Interim Report 2014

33 Management Discussion and Analysis Save as disclosed below, the Group did not have other liabilities and bank loans. The Group has sufficient cash as at 30 June The Directors are of the opinion that the Group does not have any significant capital risk. 30 June 2014 RMB 000 Unaudited 31 December 2013 RMB 000 Audited Cash and cash equivalents 1,425,347 1,508,076 Less: Borrowings (186,680) 1,425,347 1,321,396 1, , Trade and other receivables The Group s trade receivables consist of the credit sales of its products to be paid by its distributors and bank acceptance bills due within half a year. Other receivables of the Group consist of prepayments to suppliers, deposits and other receivables. The Group s trade and other receivables were RMB1,477.0 million as at 30 June 2014, representing an increase of RMB79.0 million when compared with trade and other receivables of RMB1,398.0 million as at 31 December 2013, the increase was mainly due to the increase in prepayments to suppliers and other receivables. Inventory Inventory as at 30 June 2014 amounted to RMB129.3 million (as at 31 December 2013: RMB101.3 million). Inventory turnover days were 51 days for the Period (for the six months ended 30 June of 2013: 42 days). We had no inventory impairments during the Period

34 Management Discussion and Analysis 1, % 2, , , Property, plant and equipment The Group s property, plant and equipment consist of buildings, production and electronic equipment, motor vehicles and construction in progress. As at 30 June 2014, the net book value of property, plant and equipment amounted to RMB1,540.1 million, representing an increase of RMB98.4 million, or approximately 6.8%, when compared with the net book value of property, plant and equipment as at 31 December The increase was mainly attributable to the expansion or construction of existing and new production facilities, and the purchase of equipment. Intangible assets The Group s intangible assets mainly consist of goodwill, customer relationships, patents, deferred development costs and product development in progress. The Group s goodwill arose from the acquisitions of our subsidiaries. The deferred development costs and product development in progress mainly represented the acquisitions of certain pharmaceutical R&D projects from external research institutions and its self-developed R&D projects. As at 30 June 2014, net intangible assets amounted to RMB2,844.1 million (as at 31 December 2013: RMB2,880.6 million). Trade and other payables The Group s trade and other payables primarily consist of trade payables, advances from customers, other payables, accrued expenses and amounts due to Directors. As at 30 June 2014, trade and other payables amounted to RMB1,020.0 million, representing a decrease of RMB233.1 million when compared with the trade and other payables as at 31 December The decrease was mainly due to the payment of payables for the previous year during the Period. Contingent liabilities and guarantees As at 30 June 2014, the Group had no material contingent liabilities or guarantees (31 December 2013: nil). 32 Sihuan Pharmaceutical Holdings Group Ltd. Interim Report 2014

35 Management Discussion and Analysis Off-balance sheet commitments and arrangements As at 30 June 2014, apart from the contingent liabilities disclosed, the Group has not entered into any off-balance sheet arrangements or commitments to provide guarantees for any payment liabilities of any third parties. The Group did not have any variable interests in any unconsolidated entities that provide financing or liquidity, create market risk or offer credit support to us or engage in the provision of leasing, hedging or research and development services to the Group. Credit risk Credit risk refers to the risk of a counterparty defaulting on its contractual obligations resulting in a financial loss for us. We have no significant concentrations of credit risk. Credit risk arises mainly from cash and cash equivalents, trade and other receivables and available-for-sale financial assets. The carrying amounts of cash equivalents, short-term bank deposits, trade and other receivables and available-for-sale financial assets represent our maximum exposure to credit risk in relation to our financial assets. With respect to cash and cash equivalents, we manage the credit risk of cash in the PRC by placing it as bank deposits in large PRC state-owned banks without significant credit risks. We manage the credit risk of cash outside the PRC by placing it as bank deposits in financial institutions that have high credit quality. With respect to trade and other receivables, we have policies in place to ensure certain cash advances are paid by customers upon the agreement of the related sales orders. We assess the credit quality of the counterparties by taking into account their financial positions, credit histories and other factors. We also undertake certain monitoring procedures to ensure that proper follow-up action is taken to recover overdue debts. We regularly perform ageing analysis, assess credit risks and estimate the recoverability of groups of trade receivables bearing similar credit risks based on historical data and cash collection history. With respect to available-for-sale financial assets, the Group invests in shortterm investment products with maturities of six months and non-determinable return rate placed in certain PRC state-owned banking institutions and reputable international financial institutions outside of PRC. No other financial assets bear a significant exposure to credit risk

36 Management Discussion and Analysis Foreign exchange risk RMB is the functional currency of the Group and its major subsidiaries. All of the revenues of the Group are derived from operations in the PRC. Financial instruments of the Group are denominated in RMB. The Group is not subject to material currency risk as the Group has no major cash and cash equivalents denominated in foreign currency. For the Period, the Group did not purchase any foreign exchange, interest rate derivative products or relevant hedging tools , Treasury Policies The Group finances its ordinary operations with internally generated resources. Capital expenditure Our capital expenditure primarily consists of purchase of property, plant and equipment, land use rights and intangible assets. For the Period, our capital expenditure amounted to RMB431.5 million, of which RMB107.3 million was spent on property, plant and equipment. Purchasing and self-developed intangible assets increased by RMB77.5 million, and expenditure on land use rights was RMB246.7 million. Human Resources and Remuneration of Employees Human resources are indispensable assets to the success of the Group in a competitive environment. The Group provides competitive remuneration package to all employees. The Group reviews its own human resources and remuneration policy regularly, to encourage employees to work towards enhancing the value of the Company and promoting the long-term growth of the Company. As at 30 June 2014, the Group had 2,726 employees. For the Period, total salaries and related costs of the Group were approximately RMB127.3 million (for the six months ended 30 June 2013: RMB76.7 million). 34 Sihuan Pharmaceutical Holdings Group Ltd. Interim Report 2014

37 Other Information XV 352 DIRECTORS AND CHIEF EXECUTIVE S INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES As at 30 June 2014, the Directors and chief executive of the Company had the following interests and short positions in the Shares, underlying Shares and debentures of the Company or any associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance ( SFO )) as recorded in the register required to be kept by the Company under section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers ( Model Code ): (i) (i) Directors interests in Shares Approximate Total Number percentage of Name of Director Nature of Interest/Capacity of Shares Shareholding 1 5,925,335, % 4 Dr. Che Fengsheng 5,242,042,038 () 5,925,335,368 (L) (Note 4) Interest in a controlled corporation (Note 1) 44,399, % 5,242,042,038 Shares (L) 44,399,330 (S) ( 2) 47,499,330 ( ) 44,399,330 ( ) Settlor of a trust (Note 2) 47,499,330 Shares (L) 44,399,330 Shares (S) 800,000 ( ) Interest of spouse 800,000 Shares (L) ( 3) 917,574,000 ( ) Other interest (Note 3) 917,574,000 Shares (L)

38 Other Information Approximate Total Number percentage of Name of Director Nature of Interest/Capacity of Shares Shareholding 5,925,335,368 ( ) 57.17% ( 6) Dr. Guo Weicheng 11,350,000 ( ) 5,925,335,368 (L) Beneficial owner (Note 6) 11,350,000 Shares (L) 312,024,000 ( ) Settlor of a trust 312,024,000 Shares (L) ( 5) 5,837,761,368 ( ) Other interest (Note 5) 5,837,761,368 Shares (L) ( 7) 5,925,335,368 ( ) 57.17% ( 9) Mr. Meng Xianhui Interest in a controlled corporation (Note 7) 5,925,335,368 (L) 113,180,000 ( ) (Note 9) 113,180,000 Shares (L) ( 8) 5,925,335,368 ( ) Other interest (Note 8) 5,925,335,368 Shares (L) ( 10) 5,925,335,368 ( ) 57.17% ( 12) Dr. Zhang Jionglong Interest in a controlled corporation (Note 10) 5,925,335,368 (L) 198,440,000 ( ) (Note 12) 198,440,000 Shares (L) ( 11) 5,925,335,368 ( ) Other interest (Note 11) 5,925,335,368 Shares (L) 36 Sihuan Pharmaceutical Holdings Group Ltd. Interim Report 2014

39 Other Information (1) Plenty Gold Enterprises LimitedPlenty Gold 60%Network Victory Limited Plenty Gold Network Victory Limited 4,754,594, ,448,000 (2) ( S i h u a n Management (PTC) Limited 47,499,330 44,399,330 (3) ,580, ,374,000113,180, ,440,000 (4) 5,925,335, ,580,000 (5) ,290,341, ,800,000113,180, ,440,000 (6) 5,925,335, ,800,000 (7) Smart Top Overseas Limited Smart Top Overseas Limited 113,180,000 Notes: (1) Dr. Che Fengsheng is the beneficial owner of approximately 60% of the issued share capital of Plenty Gold Enterprises Limited ( Plenty Gold ) as well as the entire issued share capital of Network Victory Limited. As such, Dr. Che Fengsheng is deemed to be interested in the 4,754,594,038 Shares and 487,448,000 Shares held by Plenty Gold and Network Victory Limited in the Company, respectively. (2) Since Dr. Che Fengsheng is one of the settlors of the trust for which Sihuan Management (PTC) Limited ( Trustee Co ) is a trustee, Dr. Che Fengsheng is deemed to be interested in the long position in 47,499,330 Shares and the short position in 44,399,330 Shares held by Trustee Co. (3) Under sections 317 and 318 of the SFO, Dr. Che Fengsheng is deemed to be interested in the 282,580,000 Shares, 323,374,000 Shares, 113,180,000 Shares and 198,440,000 Shares which Dr. Che Fengsheng, Dr. Guo Weicheng, Mr. Meng Xianhui and Dr. Zhang Jionglong are interested in or are deemed to be interested in, respectively. (4) Among the long position in 5,925,335,368 Shares, Dr. Che Fengsheng is interested in or deemed to be interested in the long position in 282,580,000 Shares through both the nature of interest in a controlled corporation and other interest. (5) Under sections 317 and 318 of the SFO, Dr. Guo Weicheng is deemed to be interested in the 5,290,341,368 Shares, 235,800,000 Shares, 113,180,000 Shares and 198,440,000 Shares which Dr. Che Fengsheng, Dr. Guo Weicheng, Mr. Meng Xianhui and Dr. Zhang Jionglong are interested in or are deemed to be interested in, respectively. (6) Among the long position in 5,925,335,368 Shares, Dr. Guo Weicheng is interested in or deemed to be interested in the long position in 235,800,000 Shares through both the nature of settlor of the trust and other interest. (7) Mr. Meng Xianhui is the beneficial owner of the entire issued share capital of Smart Top Overseas Limited and is deemed to be interested in the 113,180,000 Shares held by Smart Top Overseas Limited

40 Other Information (8) ,290,341, ,374,000113,180, ,440,000 (9) 5,925,335, ,180,000 (10) Keen Mate Limited Keen Mate Limited 198,440,000 (11) ,290,341, ,374,000113,180, ,440,000 (12) 5,925,335, ,440,000 (13) L S (8) Under sections 317 and 318 of the SFO, Mr. Meng Xianhui is deemed to be interested in the 5,290,341,368 Shares, 323,374,000 Shares, 113,180,000 Shares and 198,440,000 Shares which Dr. Che Fengsheng, Dr. Guo Weicheng, Mr. Meng Xianhui and Dr. Zhang Jionglong are interested in or are deemed to be interested in, respectively. (9) Among the long position in 5,925,335,368 Shares, Mr. Meng Xianhui is interested in or deemed to be interested in the long position in 113,180,000 Shares through both the nature of interest in a controlled corporation and other interest. (10) Dr. Zhang Jionglong is the beneficial owner of the entire issued share capital of Keen Mate Limited and is deemed to be interested in the 198,440,000 Shares held by Keen Mate Limited. (11) Under sections 317 and 318 of the SFO, Dr. Zhang Jionglong is deemed to be interested in the 5,290,341,368 Shares, 323,374,000 Shares, 113,180,000 Shares and 198,440,000 Shares which Dr. Che Fengsheng, Dr. Guo Weicheng, Mr. Meng Xianhui and Dr. Zhang Jionglong are interested in or are deemed to be interested in, respectively. (12) Among the long position in 5,925,335,368 Shares, Dr. Zhang Jionglong is interested in or deemed to be interested in the long position in 198,440,000 Shares through both the nature of interest in a controlled corporation and other interest. (13) The letter L denotes the Director s long position in such Shares and the letter S denotes the Director s short position in such Shares. 38 Sihuan Pharmaceutical Holdings Group Ltd. Interim Report 2014

41 Other Information (ii) (ii) Directors interest in the shares of associated corporations Approximate Name of Nature of Number of percentage of Associated Corporation Name of Director Interest/Capacity Shares Shareholding Plenty Gold 4,511, % Dr. Che Fengsheng Beneficial interest Plenty Gold 1,989, % Dr. Guo Weicheng Beneficial interest Plenty Gold 595, % Mr. Meng Xianhui Beneficial interest Plenty Gold 403, % Dr. Zhang Jionglong Beneficial interest XV XV Save as disclosed above, as at 30 June 2014, none of the Directors, chief executive and their associates had any interests or short positions in the Shares, underlying Shares or debentures of the Company or any of its associated corporations, within the meaning of Part XV of the SFO, which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which he/she/it was deemed or taken to have under such provisions of the SFO) or which were recorded in the register required to be kept by the Company under Section 352 of the SFO, or as otherwise which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code. DIRECTORS RIGHT TO ACQUIRE SHARES OR DEBENTURES During the Period, the Company did not grant any rights to any Directors, chief executive or their respective spouse or children under the age of 18 to acquire beneficial interests by means of the acquisition of Shares in, or debentures of, the Company, and none of the above persons have exercised the said rights during the Period. The Company, its holding company or any of its subsidiaries were not a party to any arrangements to enable the Directors to acquire such rights in any other body corporate

42 Other Information 336 5% SUBSTANTIAL SHAREHOLDERS INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES As at 30 June 2014, the following shareholders, other than the Directors or chief executive of the Company, which were recorded in the register required to be kept by the Company under Section 336 of the SFO, had interests of 5% or more (including short positions) in the issued share capital, underlying Shares or debentures of the Company: Approximate Total Number percentage of Name of Shareholder Nature of Interest/Capacity of Shares Shareholding Plenty Gold ( 1) 4,802,093, % Plenty Gold (Note 1) 4,754,594,038 4,802,093,368 (L) Beneficial owner 4,754,594,038 Shares (L) 47,499,330 44,399, % 44,399,330 44,399,330 (S) Settlor of a trust 47,499,330 Shares (L) 44,399,330 Shares (S) (1) Plenty Gold4,754,594,038 47,499,330 44,399,330 Plenty Gold 47,499,330 44,399,330 (2) L S Notes: (1) Plenty Gold directly holds 4,754,594,038 Shares in the Company. It is also the sole shareholder of Trustee Co which is interested in long position in 47,499,330 Shares and short position in 44,399,330 Shares in the Company. Accordingly, Plenty Gold is deemed to be interested in long position in 47,499,330 Shares and short position in 44,399,330 Shares held by Trustee Co. (2) The letter L denotes the shareholder s long position in such Shares and the letter S denotes the shareholder s short position in such Shares. Save as disclosed above, according to the records in the register required to be kept by the Company under section 336 of the SFO, no other parties had an interest or a short position in the Shares or underlying Shares or debentures of the Company recorded under section 336 of the SFO as at 30 June Sihuan Pharmaceutical Holdings Group Ltd. Interim Report 2014

43 Other Information Plenty Gold MSPEA Pharma Holdings B.V. Plenty Gold Plenty Gold 33,750,000 MSPEA Pharma Holdings B.V. 3,750, ,950, B(1) EMPLOYEE SHARE AWARD SCHEME An award scheme for the purpose of incentivizing the management of the Group (the Employee Share Award Scheme ) has been adopted by certain shareholders of the Company (namely, Plenty Gold, Dr. Che Fengsheng and Dr. Guo Weicheng) on 25 October On 25 January 2013, another shareholder of the Company (namely, MSPEA Pharma Holdings B.V.) also participated in the Employee Share Award Scheme. Trustee Co (a private trust company established in the British Virgin Islands and wholly-owned by Plenty Gold) has been appointed as the trustee to hold the reserved Shares under the Employee Share Award Scheme. Plenty Gold, Dr. Che Fengsheng and Dr. Guo Weicheng, as settlers of a trust, have reserved and set aside a total of 33,750,000 Shares; and MSPEA Pharma Holdings B.V. has reserved and set aside an additional 3,750,000 Shares, all of which are being held by the Trustee Co as trustee for the Employee Share Award Scheme. The Employee Share Award Scheme involves granting of existing Shares held by the Trustee Co and no new shares will be issued pursuant to the Employee Share Award Scheme. As disclosed in the Company s announcement dated 16 June 2014, a bonus issue (the Bonus Issue ) was made on the basis of 1 bonus Share (the Bonus Share ) for every 1 Share held on 13 June 2014 (the Bonus Issue Record Date ). As a result of the Bonus Issue, adjustments have been made to the number of outstanding share options granted under the Employee Share Award Scheme. As of six months ended 30 June 2014, a total of 95 employees have exercised their Awards granted under the Employee Share Award Scheme involving 4,950,337 Shares (after taking into account the adjustments made pursuant to the Bonus Issue mentioned above). CHANGES IN INFORMATION OF DIRECTORS Pursuant to Rule 13.51B(1) of the Rules Governing the Listing of Securities on the Stock Exchange (the Listing Rules ), changes in information of Directors since the Company s 2013 Annual Report and up to 27 August 2014, being the approval date of this interim report, are set out below: Director Change Patrick SUN Being an independent non-executive director of China CNR Corporation Limited (a listed company in Shanghai, PRC) which listed in Hong Kong in May 2014 Ceased to be independent non-executive director of China Railway Group Limited, a company listed in Hong Kong, in June

44 Other Information PURCHASE, REDEMPTION OR SALE OF LISTED SECURITIES OF THE COMPANY The Company or any of its subsidiaries did not purchase, sell or redeem any listed securities of the Company during the Period A.2.1 DIVIDENDS An interim dividend of RMB1.3 cents per share (equivalent to HK$1.7 cents per share) (2013: RMB4.3 cents) was declared by the Board on 27 August It is payable on or around 24 September 2014 to shareholders whose names appear on the register of members of the Company at the close of business on 16 September CORPORATE GOVERNANCE CODE The Company has complied with all the applicable code provisions of the Corporate Governance Code (the Code ), as set out in Appendix 14 of the Listing Rules throughout the Period save and except from the deviation from code provision A.2.1 of the Code, namely, the roles of the chairman and chief executive officer have not been separated. Dr. Che Fengsheng held the roles of both Chairman and chief executive officer of the Company. The Board considers that Dr. Che Fengsheng, as one of the main founders of the Company and possessing extensive medical and pharmaceutical industry knowledge together with unique strategic perspective is suitably qualified to lead the Company and formulate effective strategies to react promptly to market changes and new challenges. His continual service in both roles would be beneficial to the stable and healthy development of the Company. However, the Board will review and make appropriate changes when necessary in order to enhance the level of corporate governance. MODEL CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS OF LISTED ISSUERS The Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers (the Model Code ) as set out in Appendix 10 of the Listing Rules. All Directors have confirmed, following specific enquiries by the Company, that they have complied with the required standard set out in the Model Code throughout the Period. 42 Sihuan Pharmaceutical Holdings Group Ltd. Interim Report 2014

45 Other Information ,437,500,000 6, , ,765.9 USE OF PROCEEDS FROM THE GLOBAL OFFERING In October 2010, the Company allotted 1,437,500,000 ordinary Shares at a price of HK$4.60 through international placing and public offer. Save as disclosed below, the net proceeds raised from such international placing and public offer, being approximately HK$6,365.7 million (equivalent to approximately RMB5,407.6 million), are used in accordance with the purpose disclosed in the prospectus of the Company dated 15 October During the Period, approximately RMB4,765.9 million raised from the global offering of the Company was used for the purposes and approximately in the amounts set out below: , Approximately RMB295.4 million was used for our product development and research; Approximately RMB144.4 million was used for the development of our existing products; Approximately RMB74.5 million was used for acquisition of products; Approximately RMB551.1 million was used for funding the construction of our two new production facilities located in Beijing and Langfang; Approximately RMB300.3 million was used for funding the construction of production facilities in Jilin province and Liaoning province; Approximately RMB3,351.8 million was used for mergers and acquisitions; and Approximately RMB48.4 million was used for enhancement of our sales and distribution efforts Approximately RMB641.7 million raised from the international placing and public offer of the Company remained unused as at 30 June 2014, which is deposited in the special bank account of the Company

46 Other Information AUDIT COMMITTEE The Audit Committee has reviewed the accounting principles and practices adopted by the Company and the unaudited consolidated results for the six months ended 30 June 2014 of the Group. As at the date of this interim report, the Audit Committee consists of one non-executive Director (Dr. Zhang Jionglong) and three independent non-executive Directors (Mr. Patrick Sun, Mr. Tsang Wah Kwong and Mr. Zhu Xun), and is chaired by Mr. Patrick Sun who has a professional qualification in accountancy. The chairman of the Audit Committee has the appropriate professional qualification and experience in financial matters. By Order of the Board Dr. Che Fengsheng Chairman of the Board 27 August Sihuan Pharmaceutical Holdings Group Ltd. Interim Report 2014

47 Interim Consolidated Balance Sheet Assets Non-current assets Note 30 June 31 December RMB 000 RMB 000 Unaudited Audited Property, plant and equipment 7 1,540,108 1,441,677 Investment properties 7 33,548 34,437 Intangible assets 7 2,844,067 2,880,622 Land use rights 7 347, ,998 Investment accounted for using the equity method 11 33,280 34,069 Deferred income tax assets 9 103, ,939 Other non-current assets 8 367,042 Current assets 5,269,146 4,848,742 Inventories 129, ,283 Trade and other receivables 10 1,477,014 1,398,041 Available-for-sale financial assets 902, ,074 Term deposits with initial term of over three months 233,651 Cash and cash equivalents 1,425,347 1,508,076 3,934,384 4,017,125 Asset of disposal group classified as held for sale 19 1,229,241 1,145,781 5,163,625 5,162,906 Total assets 10,432,771 10,011,

48 Interim Consolidated Balance Sheet Equity Equity attributable to owners of the Company Note 30 June 31 December RMB 000 RMB 000 Unaudited Audited Share capital 12 85,610 44,419 Share premium 12 5,574,848 5,573,951 Other reserves 70,060 89,329 Retained earnings Proposed dividends 134, ,824 Others 2,758,620 2,065,782 8,623,872 7,882,305 Non-controlling interests 103, ,485 Total equity 8,727,012 7,997,790 Liabilities Non-current liabilities Deferred income tax liabilities 9 135, ,862 Other non-current liabilities 57,385 63,227 Borrowings 5,880 Current liabilities 193, ,969 Trade and other payables 14 1,020,010 1,253,107 Borrowings 180,800 Current income tax liabilities 182, ,770 Other current liabilities 22,146 1,224,825 1,563, Sihuan Pharmaceutical Holdings Group Ltd. Interim Report 2014

49 Interim Consolidated Balance Sheet Note 30 June 31 December RMB 000 RMB 000 Unaudited Audited Liabilities of disposal group classified as held for sale , ,212 1,512,748 1,803,889 Total liabilities 1,705,759 2,013,858 Total equity and liabilities 10,432,771 10,011,648 Net current assets 3,650,877 3,359,017 Total assets less current liabilities 8,920,023 8,207, The notes on pages 53 to 80 are an integral part of these condensed interim financial information. On behalf of the board of directors of the Company Director Director

50 Interim Consolidated Statement of Comprehensive Income Six months ended 30 June Note RMB 000 RMB 000 Unaudited Unaudited Revenue 6 2,000,038 2,324,747 Cost of sales (404,015) (477,631) Gross profit 1,596,023 1,847,116 Other income 15 13,010 7,873 Other gains net , ,245 Distribution costs (694,278) (1,229,015) Administrative expenses (183,005) (128,402) Operating profit , ,817 Finance income 59,358 63,821 Finance costs (8,642) (5,439) Finance income net 50,716 58,382 Share of loss of investment accounted for using the equity method 11 (789) (3,620) Loss on dilution of interest in an associate 11 (63) Profit before income tax 1,007, ,516 Income tax expense 16 (175,184) (79,364) Profit for the period 832, ,152 Profit attributable to: Owners of the Company 830, ,535 Non-controlling interests 2,404 2, , , Sihuan Pharmaceutical Holdings Group Ltd. Interim Report 2014

51 Interim Consolidated Statement of Comprehensive Income Six months ended 30 June Note RMB 000 RMB 000 Unaudited Unaudited Earnings per share attributable to owners of the Company Basic and diluted earnings per share (RMB cents) Profit for the period 832, ,152 Other comprehensive income: Items that may be reclassified to profit or loss Disposal of available-for-sale financial assets (2,074) (1,021) Changes in value of available-for-sale financial assets, net of tax 5,219 2,512 Other comprehensive income for the period, net of tax 3,145 1,491 Total comprehensive income for the period 835, ,643 Total comprehensive income attributable to: Owners of the Company 833, ,026 Non-controlling interests 2,404 2, , ,643 Dividends , , The notes on pages 53 to 80 are an integral part of these condensed interim financial information

52 Interim Consolidated Statement of Changes in Equity Attributable to owners of the Company Share capital Share premium Other reserves Retained earnings Total Noncontrolling interests Total equity RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 Unaudited Balance as at 1 January ,419 5,573,951 89,329 2,174,606 7,882, ,485 7,997,790 Comprehensive income Profit for the period 830, ,133 2, ,537 Other comprehensive income Disposal of available-for -sale financial assets (2,074) (2,074) (2,074) Changes in value of available-for -sale financial assets, net of tax 5,219 5,219 5,219 Total other comprehensive income, net of tax 3,145 3,145 3,145 Total comprehensive income for the period ended 30 June , , ,278 2, ,682 Transactions with owners 12 Issuance of ordinary shares (Note 12) 56 42,032 42,088 42, Bonus issue of ordinary shares (Note 12) 41,135 (41,135) 20 Changes in ownership interests in subsidiaries without change of control (Note 20) (38,823) (38,823) (14,749) (53,572) Dividends (108,824) (108,824) (108,824) Employees share award scheme: value of employee services 13,848 13,848 13,848 Transfer to PRC statutory reserve fund 2,561 (2,561) Balance as at 30 June ,610 5,574,848 70,060 2,893,354 8,623, ,140 8,727, Sihuan Pharmaceutical Holdings Group Ltd. Interim Report 2014

53 Interim Consolidated Statement of Changes in Equity Unaudited Attributable to owners of the Company Share capital Share premium Other reserves Retained earnings Total Noncontrolling interests Total equity RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 Balance as at 1 January ,419 5,573,951 65,256 1,400,702 7,084, ,927 7,187,255 Comprehensive income Profit for the period 617, ,535 2, ,152 Other comprehensive income Disposal of available-for -sale financial assets (1,021) (1,021) (1,021) Changes in value of available-for -sale financial assets, net of tax 2,512 2,512 2,512 Total other comprehensive income, net of tax 1,491 1,491 1,491 Total comprehensive income for the period ended 30 June , , ,026 2, ,643 Transactions with owners Non-controlling interests arising on a newly established subsidiary 4,547 4,547 Dividends (300,151) (300,151) (300,151) Employees share award scheme: value of employee services 1,129 1,129 1,129 Balance as at 30 June ,419 5,573,951 67,876 1,718,086 7,404, ,091 7,514, The notes on pages 53 to 80 are an integral part of these condensed interim financial information

54 Interim Condensed Consolidated Statement of Cash Flows Six months ended 30 June Note RMB 000 RMB 000 Unaudited Unaudited Net cash generated from operating activities 514, ,823 Net cash used in investing activities (265,102) (199,013) Net cash used in financing activities (306,828) (541,812) Net decrease in cash and cash equivalents (57,825) (184,002) Cash and cash equivalents * at beginning of period* 1,515,427 1,543,907 * Cash and cash equivalents at end of period* 1,457,602 1,359,905 * * Comprise cash and cash equivalents in assets of the disposal group. The notes on pages 53 to 80 are an integral part of these condensed interim financial information. 52 Sihuan Pharmaceutical Holdings Group Ltd. Interim Report 2014

55 Notes to the Condensed Interim Financial Information For the six months end 30 June Plenty Gold Enterprises LimitedPlenty Gold Clarendon House, 2 Church Street, P.O. Box HM 1022, Hamilton HM DX, Bermuda GENERAL INFORMATION Sihuan Pharmaceutical Holdings Group Ltd. (the Company ) is incorporated in Bermuda under the Bermuda Companies Act as an exempted company. The Company is an investment holding company. The principal activities of the Company and its subsidiaries (together, the Group ) are manufacturing and sale of pharmaceutical products in the People s Republic of China (the PRC ). The ultimate holding company of the Company is Plenty Gold Enterprises Limited ( Plenty Gold ), a limited liability company incorporated under the laws of the British Virgin Islands. The address of the Company s registered office is Clarendon House, 2 Church Street, P.O. Box HM 1022, Hamilton HM DX, Bermuda. The address of the principal place of business of the Group is 21 Floor, Building 2, Zhubang 2000 Business Centre, West Balizhuang, Chaoyang District, Beijing, 10025, PRC. The Company had its primary listing on The Stock Exchange of Hong Kong Limited on 28 October This interim condensed financial information is presented in Renminbi ( RMB ) thousand Yuan, unless otherwise stated. This condensed interim financial information was approved for issue on 27 August This condensed interim financial information has not been reviewed and audited BASIS OF PREPARATION This condensed interim financial information for the Period has been prepared in accordance with International Accounting Standard ( IAS ) 34, Interim financial reporting. The condensed interim financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2013, which have been prepared in accordance with International Financial Reporting Standard ( IFRS )

56 Notes to the Condensed Interim Financial Information For the six months end 30 June BASIS OF PREPARATION (Continued) 2.1 Going-concern basis The Group meets its day-to-day working capital requirements through its operating activities, the executive directors of the Board of the Company considers that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group therefore adopts the going concern basis in preparing this condensed consolidated interim financial information. 3. ACCOUNTING POLICIES Except as described below, the accounting policies and method of computation used in the preparation of the interim financial information are consistent with those used in the 2013 financial statements, which have been prepared in accordance with IFRS under the historical cost convention, as modified by the revaluation of assets and liabilities stated at fair value, such as available-for-sale financial assets. Taxes on income for the interim period are accrued using the tax rates that would be applicable to expected total annual assessable profits. The following amendments to standards and interpretation adopted by the Group, which are mandatory for the financial year of the Group beginning from 1 January 2014, have no material impact on the Group s interim financial information. Amendment to IAS 32, Financial instruments: Presentation on asset and liability offsetting. This amendment relates to the application guidance in IAS 32, Financial Instruments: Presentation, and clarify some of the requirements for offsetting financial assets and financial liabilities on the balance sheet. Amendment to IAS 39, Financial Instruments: Recognition and Measurement on novation of derivatives. This amendment provides relief from discontinuing hedge accounting when novation of a hedging instrument to a central counterparty meets specified criteria. Amendment to IAS 36, Impairment of assets on recoverable amount disclosures. This amendment addresses the disclosure of information about the recoverable amount of impaired assets if that amount is based on fair value less costs of disposal. 54 Sihuan Pharmaceutical Holdings Group Ltd. Interim Report 2014

57 Notes to the Condensed Interim Financial Information For the six months end 30 June ACCOUNTING POLICIES (Continued) Amendments to IFRS 10, 12 and IAS 27, on consolidation for investment entities. These amendments mean that many funds and similar entities will be exempt from consolidating most of their subsidiaries. Instead, they will measure them at fair value through profit or loss. The amendments give an exception to entities that meet the definition of an investment entity and which display particular characteristics. Changes have also been made in accordance with provisions under IFRS 12 for disclosures that an investment entity needs to make. IFRIC 21, Levies, sets out the accounting for an obligation to pay a levy that is not income tax. The interpretation addresses what the obligating event is that gives rise to payment of a levy and when should a liability be recognised ESTIMATES The preparation of condensed interim financial information requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. In preparing these condensed interim financial information, management made significant judgments in applying the Group s accounting policies. The key sources of estimation uncertainty were the same as those that applied to the consolidated financial information for the year ended 31 December

58 Notes to the Condensed Interim Financial Information For the six months end 30 June FINANCIAL RISK MANAGEMENT 5.1 Financial risk factors The Group s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The condensed interim financial information do not include all financial risk management information and disclosures required in the annual financial statements, and should be read in conjunction with the Group s annual financial statements as at 31 December There have been no changes in the risk management department or in any risk management policies since the year end. 5.2 Liquidity risk Compared to the year end, there were no material changes in the contractual undiscounted cash outflows for financial liabilities. 5.3 Fair value estimation The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows: Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1). Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2). Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3). 56 Sihuan Pharmaceutical Holdings Group Ltd. Interim Report 2014

59 Notes to the Condensed Interim Financial Information For the six months end 30 June FINANCIAL RISK MANAGEMENT (Continued) 5.3 Fair value estimation (Continued) The following table presents the Group s assets and liabilities that are measured at fair value as at 30 June Level 2 As at 30 June December 2013 RMB 000 RMB 000 Unaudited Audited Available-for-sale financial assets 902, ,074 2 The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to calculate the fair value of an instrument are observable, the instrument is included in level 2. Specific valuation techniques used to value financial instruments include: Quoted market prices or dealer quotes for similar instruments. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves. The fair value of forward foreign exchange contracts is determined using forward exchange rates as at the balance sheet date, with the resulting value discounted back to present value. Other techniques, such as discounted cash flow analysis, are used to determine fair value for the remaining financial instruments. There were no other changes in valuation techniques during the Period

60 Notes to the Condensed Interim Financial Information For the six months end 30 June SEGMENT INFORMATION The chief operating decision-maker has been identified as the executive directors of the Board of the Company. The executive directors of the Board of the Company reviews the Group s internal reports in order to assess performance and allocate resources. Management has determined the operating segments based on these reports. The executive directors of the Board of the Company consider the business from a product perspective. The Group has only one business segment, namely the manufacturing and sale of pharmaceutical products in the PRC. As the executive directors of the Board of the Company review the financial position of the Group as a whole, no segment assets/liabilities were disclosed. 58 Sihuan Pharmaceutical Holdings Group Ltd. Interim Report 2014

61 Notes to the Condensed Interim Financial Information For the six months end 30 June P R O P E R T Y, P L A N T A N D E Q U I P M E N T, INVESTMENT PROPERTIES, INTANGIBLE ASSETS AND LAND USE RIGHTS Property, plant and equipment Investment properties Other intangible assets Goodwill Land use rights RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 Unaudited Unaudited Unaudited Unaudited Unaudited Six months ended 30 June 2014 Opening net book amount as at 1 January ,441,677 34, ,686 2,226, ,998 Additions 135,051 17,493 17,672 Depreciation and amortisation (36,620) (889) (54,048) (7,784) Closing net book amount as at 30 June ,540,108 33, ,131 2,226, ,886 Six months ended 30 June 2013 Opening net book amount as at 1 January ,052 30,894 1,027,595 2,707, ,637 Additions 435,744 35,404 42,519 Depreciation and amortisation (20,707) (828) (72,578) (2,943) Closing net book amount as at 30 June ,339,089 30, ,421 2,707, , The land use rights represent land use rights in the PRC with a lease period of 50 years. 8. OTHER NON-CURRENT ASSETS The amount represented prepayment for purchase of intangible assets, land use rights property plant and equipment and other long-term assets which was due in more than one year

62 Notes to the Condensed Interim Financial Information For the six months end 30 June ) 9. DEFERRED INCOME TAX The movement in deferred income tax assets and liabilities during the Period, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows: 1) Deferred income tax assets Six months ended 30 June RMB 000 RMB 000 Unaudited Unaudited Opening balance at 1 January 119, ,176 Charged to profit (16,724) (85,757) Closing balance at 30 June 103, ,419 2) 2) Deferred income tax liabilities Six months ended 30 June RMB 000 RMB 000 Unaudited Unaudited Opening balance at 1 January 140, ,532 Credited to profit (5,236) (5,240) Payment of withholding tax (25,000) Closing balance at 30 June 135, , Sihuan Pharmaceutical Holdings Group Ltd. Interim Report 2014

63 Notes to the Condensed Interim Financial Information For the six months end 30 June TRADE AND OTHER RECEIVABLES 30 June 2014 RMB 000 Unaudited As at 31 December 2013 RMB 000 Audited Trade receivables third parties 726, ,716 Prepaid value added tax 289, ,554 (a) Amount receivable from partial disposal of Jilin Sichang Pharmaceutical Co., Ltd ( Jilin Sichang ) (a) 171, ,572 Prepayments to suppliers 161,281 96,544 Prepaid income tax 27,970 91,944 Other receivables 99,581 72,711 1,477,014 1,398,041 (a) 8% 8% (a) Amount receivable from partial disposal of a subsidiary represents the consideration not yet received relevant to the partial disposal of Jilin Sichang, which bears an effective interest rate of 8% as at 30 June 2014 (31 December 2013: 8%). (a) Trade and other receivables do not contain impaired assets and have no fixed repayment term. Except for the amount mentioned above in Note (a), trade and other receivables bear no interest

64 Notes to the Condensed Interim Financial Information For the six months end 30 June TRADE AND OTHER RECEIVABLES (Continued) The Group s credit terms granted to customers range from one month to one year. As at 30 June 2014, the ageing analysis of the trade receivables based on invoice date was as follows: 30 June 2014 RMB 000 Unaudited As at 31 December 2013 RMB 000 Audited Trade Receivables 3 Within 3 months 438, , to 6 months 129, , to 12 months 149, , More than 12 months 9, , , Sihuan Pharmaceutical Holdings Group Ltd. Interim Report 2014

65 Notes to the Condensed Interim Financial Information For the six months end 30 June INVESTMENT ACCOUNTED FOR USING THE EQUITY METHOD RMB 000 Unaudited RMB 000 Unaudited Opening balance at 1 January 34,069 40,962 Share of post-tax operating loss of an associate (789) (3,620) Loss on dilution of interest in an associate (63) Closing balance at 30 June 33,280 37, SHARE CAPITAL AND SHARE PREMIUM Number of shares Share Capital Share Premium Total (thousands) RMB 000 RMB 000 RMB 000 Unaudited Unaudited Unaudited Unaudited At 1 January 2013, 30 June 2013 and 1 January ,175,024 44,419 5,573,951 5,618,370 Movement during 1 January 2014 to 30 June 2014: (a) Issuance of ordinary shares (a) 7, ,032 42, (ii)(a) Bonus issue of ordinary shares (Note 13 (ii) (a)) 5,182,091 41,135 (41,135) At 30 June ,364,182 85,610 5,574,848 5,660,458 (a) 7,067,103 (a) In January 2014, the Group issued 7,067,103 ordinary shares to two personal shareholders. The ordinary shares issued have the same rights as the other shares in issue

66 Notes to the Condensed Interim Financial Information For the six months end 30 June (i) Plenty Gold MSPEA Pharma Holdings B.V. Plenty Gold Plenty Gold 33,750,000 MSPEA Pharma Holdings B.V. 3,750, SHARE-BASED PAYMENT (i) Share award scheme An award scheme for the purpose of incentivising the management of the Group (the Employee Share Award Scheme ) has been adopted by certain shareholders of the Company (namely, Plenty Gold, Dr. Che Fengsheng and Dr. Guo Weicheng) on 25 October On 25 January 2013, another shareholder of the Company (namely, MSPEA Pharma Holdings B.V.) also participated in the Employee Share Award Scheme. Trustee Co (a private trust company established in the British Virgin Islands and whollyowned by Plenty Gold) has been appointed as the trustee to hold the reserved Shares under the Employee Share Award Scheme. Plenty Gold, Dr. Che Fengsheng and Dr. Guo Weicheng, as settlors of a trust, have reserved and set aside a total of 33,750,000 shares; and MSPEA Pharma Holdings B.V. has reserved and set aside an additional 3,750,000 shares, all of which are being held by the Trustee Co as trustee for the Employee Share Award Scheme. The Employee Share Award Scheme involves granting of existing shares held by the Trustee Co and no new shares will be issued pursuant to the Employee Share Award Scheme. As disclosed in the Company s announcement dated 16 June 2014, the Bonus Issue was made on the basis of 1 Bonus Share for every 1 Share held on the Bonus Issue Record Date. As a result of the Bonus Issue, adjustments has been made to the exercise price and the number of outstanding share options granted under the Employee Share Award Scheme. 95 4,950,337 As of six months ended 30 June 2014, a total of 95 employees have exercised their Awards granted under the Employee Share Award Scheme involving 4,950,337 Shares (after taking into account the adjustments made pursuant to the Bonus Issue mentioned above). 64 Sihuan Pharmaceutical Holdings Group Ltd. Interim Report 2014

67 Notes to the Condensed Interim Financial Information For the six months end 30 June (ii) 13. SHARE-BASED PAYMENT (Continued) (ii) Share awards movement Summary of the share awards which have been granted to certain employees of the Group is as follows: Grant date Exercise price in HK$ per share award Number of awards granted (in thousands) 20 March , September , October ,050 35,950 Movements in the number of share awards outstanding and their related weighted average exercise prices are as follows: Average exercise price in HK$ per share award Awards (in thousands) Employees At 1 January ,100 7,484 At 1 January ,050 Exercised 3.19 (4,950) (1,134) Exercised 0.70 Bonus issue ,150 Bonus issue ,050 At 30 June 44,400 6,

68 Notes to the Condensed Interim Financial Information For the six months end 30 June (ii) (a) 1 1 Plenty Gold Enterprises Limited SHARE-BASED PAYMENT (Continued) (ii) Share awards movement (Continued) (a) With the approval of the Company s shareholders at the annual general meeting of the Company held on 30 May 2014, the Bonus Issue was made on the basis of 1 bonus share (the Bonus Share ) for every 1 share held by the shareholders whose names appeared on the register of members of the Company on the Bonus Issue Record Date. Under the rules of the Scheme of the Company adopted by Plenty Gold Enterprises Limited, Dr. Che Fengsheng and Dr. Guo Weicheng on 25 October 2010, as a result of the Bonus Issue, adjustment was made to the number of Shares subject to the share option (the Outstanding Options ) granted by the Company pursuant to the Employee Share Award Scheme which remained outstanding as at 20 June 2014, the date of completion of the Bonus Issue. In accordance with the rules of the Employee Share Award Scheme, the Board approved, a bonus issue of 1 share award for every 1 Outstanding Option which remained outstanding as at 20 June The related weighted average market price at the time of exercise was HK$8.37 per share. 66 Sihuan Pharmaceutical Holdings Group Ltd. Interim Report 2014

69 Notes to the Condensed Interim Financial Information For the six months end 30 June (ii) 13. SHARE-BASED PAYMENT (Continued) (ii) Share awards movement (Continued) Share awards outstanding as at 30 June 2014 have the following expiry dates and exercise prices: Exercise price in HK$ per Number of awards vested Expiry date share award (thousands) March ,168 6, September , September ,132 44,400 6,

70 Notes to the Condensed Interim Financial Information For the six months end 30 June TRADE AND OTHER PAYABLES As at 30 June 31 December RMB 000 RMB 000 Unaudited Audited Trade payables 69,939 36,555 Accrued marketing service fee 233, ,335 Deferred gain on partial disposal of Jilin Sichang 193, ,590 Advances from customers 158, ,969 Deposit payables 100,235 74,664 Amount payable regarding land use right 47,970 47,970 Accrued performance bonus to directors 24,800 51,200 Advance of compensation from government for demolition of existing premise 23,424 36,638 Value added tax payables 9,653 34,594 Other payables 158, ,592 1,020,010 1,253, Sihuan Pharmaceutical Holdings Group Ltd. Interim Report 2014

71 Notes to the Condensed Interim Financial Information For the six months end 30 June TRADE AND OTHER PAYABLES (Continued) At 30 June 2014, the ageing analysis of the trade payables based on invoice date were as follows: Trade Payables As at 30 June 31 December RMB 000 RMB 000 Unaudited Audited 6 Within 6 months 52,409 29, to 12 months 10,262 1,203 1 More than 1 year 7,268 6,065 69,939 36,

72 Notes to the Condensed Interim Financial Information For the six months end 30 June OPERATING PROFIT An analysis of the amounts presented as operating items in the financial information is given below. Six months ended 30 June RMB 000 RMB 000 Unaudited Unaudited Sale of distribution right 11,073 6,542 Rental income 1,937 1,331 Other income 13,010 7,873 Government grants 224, ,333 Gain on disposal of available-for-sale financial assets 2,074 1,021 Processing fee income 1,297 Others (184) (6,406) Other gains - net 226, ,245 Marketing expense 637,078 1,161,706 Depreciation and amortization 99,341 97,056 Research and development expense 43,496 31, Sihuan Pharmaceutical Holdings Group Ltd. Interim Report 2014

73 Notes to the Condensed Interim Financial Information For the six months end 30 June INCOME TAX EXPENSE The income tax expense of the Group for the Period is analysed as follows: Current tax: Six months ended 30 June RMB 000 RMB 000 Unaudited Unaudited Current tax on profits for the period 163, ,598 (a) Reversal of over provision (a) (122,751) Total current tax 163,696 (1,153) Deferred tax: Origination and reversal of temporary 11,488 (1,080) differences (a) Effect on tax rate change (a) 81,597 Total deferred tax 11,488 80,517 Income tax expense 175,184 79,364 Income tax expense is recognised based on management s estimate of weighted average annual income tax rate expected for the full financial year. (a) 15% (a) The amounts represent the impact of change in PRC corporate income tax for one of the Group s subsidiaries, Tonghua Jida Pharmaceutical Co., Ltd., after the completion of the registration of high-tech enterprises preference tax rate at 15% with the tax bureau in May 2013 before the PRC 2012 annual tax filing due date

74 Notes to the Condensed Interim Financial Information For the six months end 30 June (b) (i) 16. INCOME TAX EXPENSE (Continued) (b) Income tax expense (i) Bermuda profits tax The Group has not been subject to any taxation in Bermuda for the Period (2013: nil). (ii) (ii) Hong Kong profits tax The Company has not been subject to Hong Kong profits tax as the Group had no assessable profit arising in Hong Kong for the Period (2013: nil). (iii) (iii) PRC corporate income tax ( PRC CIT ) PRC CIT is payable on the assessable income of the companies in the PRC now comprising the Group, adjusted for those items, which are not assessable or deductible for PRC CIT purposes. 25% The PRC subsidiaries of the Group have determined and paid corporate income tax in accordance with the Corporate Income Tax Law of the PRC at a tax rate of 25%. 15% Certain PRC subsidiaries of the Group were qualified as high-tech enterprises. Accordingly, those subsidiaries corporate income tax for 2014 was provided at a preferential tax rate of 15%. (iv) (iv) PRC withholding tax on retained profits 10% 10% 5% According to applicable PRC tax regulations, dividends distributed by a company established in the PRC to a foreign investor with respect to profits derived after 1 January 2008 are subject to a 10% withholding tax. If a foreign investor is incorporated in Hong Kong and meets the conditions or requirements under the double taxation arrangement entered into between the PRC and Hong Kong, the relevant withholding tax rate will be reduced to 5% from 10%. 72 Sihuan Pharmaceutical Holdings Group Ltd. Interim Report 2014

75 Notes to the Condensed Interim Financial Information For the six months end 30 June (a) 17. EARNINGS PER SHARE (a) Basic Basic earnings per share is calculated by dividing the profit attributable to owners of the Company by the weighted average number of ordinary shares in issue for the Period. Six months ended 30 June Unaudited Unaudited * Profit attributable to owners of the Company (RMB 000) 830, ,535 Weighted average number of ordinary shares in issue for basic earnings per share ( 000)* 10,362,542 10,350,048 Basic earnings per share (RMB cents per share) * * The weighted average number of ordinary shares for the purpose of calculating basic earnings per share for the six months ended 30 June 2013 and 2014 have been retrospectively adjusted for the effect of the bonus issue of the Company on 20 June (b) (b) Diluted There is no dilution to earnings per share for the Period because there was no potential dilutive ordinary shares issuance existing for the Period. The diluted earnings per share equal the basic earnings per share

76 Notes to the Condensed Interim Financial Information For the six months end 30 June ,824, ,734, DIVIDENDS Final dividend of RMB108,824,000 in respect of the year ended 31 December 2013 with a bonus issue of one bonus ordinary share at par value of HK$0.01 each of every 1 ordinary share held on the Bonus Issue Record Date were paid in June An interim dividend of RMB1.3 cents per share (for the six months ended 30 June 2013: RMB4.3 cents) was declared by the Board on 27 August It is payable on or around 24 September 2014 to shareholders who are on the register of members on 16 September The interim dividend which amounted to RMB134,734,000 has not been recognised as a liability in this interim financial information. It will be recognised in the consolidated financial statements for the year ending 31 December Sihuan Pharmaceutical Holdings Group Ltd. Interim Report 2014

77 Notes to the Condensed Interim Financial Information For the six months end 30 June ,500,000 50% 19% 31% 50% 19% 242,250, ,000,000 19% 193,590, DISPOSAL GROUP HELD-FOR-SALE In July 2011, the Group entered into an agreement with an independent third party, Shandong Buchang Pharmaceutical Co., Ltd. ( Shandong Buchang ) (the Agreement ). Pursuant to the Agreement, Shandong Buchang will conditionally purchase 50% equity interest in Jilin Sichang for a cash consideration of RMB637,500,000. The transfer of equity interest will be completed by 2 steps, which represent 19% ( First Disposal ) and 31% ( Second Disposal ) equity interest of Jilin Sichang respectively. After completion of the 50% transfer of equity interest, Jilin Sichang will be jointly controlled by the Group and Shandong Buchang. In November 2011, a 19% equity interest of Jilin Sichang had been transferred at a cash consideration of RMB242,250,000, of which an amount of RMB100,000,000 has been received in The difference between the consideration of the 19% equity interest and value of the equity interest amounting to RMB193,590,000 was recorded as deferred gain. The Group and Shandong Buchang mutually agreed in 2013 to extend the Second Disposal to an earlier date between 31 December 2014 and the 60th business day after Shandong Buchang consummate the initial public offering in the PRC. The executive directors of the Board of the Company are of the opinion that the Second Disposal will be completed within 6 months as at 30 June Accordingly, the deferred gain was reclassified as current liability and the assets and liabilities of Jilin Sichang were presented as held for sale at 30 June

78 Notes to the Condensed Interim Financial Information For the six months end 30 June DISPOSAL GROUP HELD-FOR-SALE (Continued) The major classes of assets and liabilities of the disposal group held-forsale are as follows: As at 30 June 2014 RMB 000 Unaudited Assets classified as held for sale: Intangible assets 752,233 Property, plant and equipment 314,840 Inventories 8,546 Land use rights 77,170 Cash and cash equivalents 32,255 Other assets 44,197 Total assets of the disposal group held-for-sale 1,229,241 Liabilities directly associated with assets classified as held for sale: Trade and other payables (222,732) Deferred income tax liabilities (65,191) Total liabilities of the disposal group held-for-sale (287,923) Total net assets of the disposal group held-for-sale 941, Sihuan Pharmaceutical Holdings Group Ltd. Interim Report 2014

79 Notes to the Condensed Interim Financial Information For the six months end 30 June % 53,572,000 14,749,000 14,749,000 38,823, C H A N G E S I N O WNERSHIP INTERESTS I N SUBSIDIARIES WITHOUT CHANGE OF CONTROL During the Period, the Company acquired an additional 49% of equity interest of Langfang Gaobo Jingband Pharmaceutical Co., Ltd. ( Langfang Gaobo Jingband ) for a purchase consideration of RMB53,572,000. The carrying amount of the non-controlling interests in Langfang Gaobo Jingband on the date of acquisition was RMB14,749,000. The Group recognised a decrease in non-controlling interests of RMB14,749,000 and a decrease in equity attributable to owners of the Company of RMB38,823,000. The effect of changes in the ownership interest of Langfang Gaobo Jingband on the equity attributable to owners of the Company during the Period is summarised as follows: Six months ended 30 June 2014 RMB 000 Unaudited Carrying amount of non-controlling interests acquired 14,749 Consideration paid to non-controlling interests 53,572 Excess of consideration paid recognised within equity 38,

80 Notes to the Condensed Interim Financial Information For the six months end 30 June (a) 21. COMMITMENTS (a) Capital commitments Capital expenditure contracted for at the end of the reporting period but not yet incurred is as follows: As at 30 June 31 December RMB 000 Unaudited RMB 000 Audited Property, plant and equipment 278, ,748 Intangible assets - product development in progress 67,767 20, , , Sihuan Pharmaceutical Holdings Group Ltd. Interim Report 2014

81 Notes to the Condensed Interim Financial Information For the six months end 30 June (b) 21. COMMITMENTS (Continued) (b) Operating lease commitments The Group leases various office premises under non-cancellable operating lease agreements. The lease terms are between 1 and 5 years and the majority of lease agreements are renewable at the end of the lease period at market rate. The future aggregate minimum lease payments under noncancellable operating leases are as follows: As at 30 June 31 December RMB 000 Unaudited RMB 000 Audited No later than 1 year 900 5,333 Later than 1 year and no later than 2 years Later than 2 years 750 1,200 2,550 7,

82 Notes to the Condensed Interim Financial Information For the six months end 30 June RELATED-PARTY TRANSACTIONS Except for the information as disclosed in Note 14 (accrued performance bonus to directors), directors and senior management s emoluments disclosed as follow, the Group had no other material transactions with related parties for the six months ended 30 June (a) (a) Directors and senior management s emoluments Six months ended 30 June RMB 000 RMB 000 Unaudited Unaudited Fees Salary 1,050 1,050 Performance bonuses 24,800 24,000 26,212 25, EVENTS OCCURRING AFTER THE BALANCE SHEET DATE (a) 18 (a) Details of the interim dividend proposed are given in Note 18. (b) (b) The Group had no significant events after the balance sheet date up to the date this Interim Report. 80 Sihuan Pharmaceutical Holdings Group Ltd. Interim Report 2014

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