C & O Pharmaceutical Technology (Holdings) Limitedenglish.changao.com/misc/ar2011.pdfPharmaceutical Technology (Holdings) Limited (Incorporated in Bermuda with limited liability) C

C & OPharmaceuticalTechnology (Holdings) Limited(Incorporated in Bermuda with limited liability)

C & O Pharmaceutical Technology (Holdings) Limited

www.changao.com

911-12, Silvercord Tower 2, 30 Canton Road, Tsim Sha Tsui, Kowloon, Hong Kong

Tel: (852) 2806 0109 Fax: (852) 2887 8445

C &

O Pharm

aceutical Technology (Holdings) Lim

itedA

nnual Report 2011

ANNUAL REPORT 2011

CONTENTS2 Corporate Profile

6 Our Presence in China

8 Chairman’s Statement

10 Operating and Financial Review

18 Corporate Structure

20 Corporate Information

21 Board of Directors and Senior Management

24 Directors’ Report

27 Statement by Directors

28 Independent Auditor’s Report

29 Financial Statements

95 Corporate Governance Report

107 Shareholdings Statistics

109 Notice of Annual General Meeting

Corporate Profile

C & O PharmaCeutiCal teChnOlOgy (hOldings) limited2

Vision“To be a market leader in the pharmaceutical industry in China through developing our core competencies in a fully integrated pharmaceutical platform, experienced and professional management, and efficient cost structure.”

annual rePOrt 2011 3

Corporate Profile


Listed on the Main Board of the Singapore Exchange in October 2005, C & O Pharmaceutical Technology (Holdings) Limited (“C&O” or “the Company”) is an established and integrated pharmaceutical group in The People’s Republic of China (“China” or “PRC”). Our business model spans the entire value chain in the pharmaceutical industry, from research and development (“R&D”), to manufacturing, as well as marketing and distribution of C&O Branded and third party pharmaceutical products via an extensive distribution network covering over 2,000 distributors and 300,000 clinics, pharmacies and hospitals across all parts of China.

Our product portfolio comprises C&O Branded products and Exclusive products, focusing primarily on anti-infection and gastrointestinal drugs, drugs for ageing adults, as well as other specialized drugs.

With a strong emphasis on R&D, we continually expand the range of our C&O Branded products with a deep pipeline of generic and patented drugs. At the same time, we relentlessly source for new pharmaceutical products to be carried under our extensive distribution network in China.

With an integrated business model, we offer one-stop solutions to other pharmaceutical companies both in China and outside of China with our contract research organisation (“CRO”) and contract manufacturing organisation (“CMO”) services, as well as product registration and distribution services.

sPANS tHE eNTIRE VALUE CHAIN

Research&

Development

Research&

Development

Marketing&

Distribution

Marketing&

DistributionX XManufacturingManufacturing


Expertise to provide CRO serv ices and strong R&D pipeline w i t h m o r e t h a n 5 0 p r o d u c t s a t va r ious s tages o f development

M o d e r n , G M P -certified facilities to manufacture a wide array of formulations f o r b o t h C & O Branded and CMO products

C o v e r a g e o f m o r e t h a n 2 , 0 0 0 d i s t r i b u t o r s a n d 300,000 hospitals, c l i n i c s a n d pha rmac ies i n a l l parts of China

Our Presence In China

Lanzhou

Kashi

Urumqi

Xian

Jining

Shijiazhuang

Tianjing

Tangshan Dalian

Yantai

Qingdao

Lianyungang

Zhangjiagang

Ningbo

Wenzhou

Fuzhou

Xiamen

Shantou Dongguan

Suzhou

MeizhouGuangzhou

Panjin

Jilin

Harbin

Jiamusi Qiqihar

Hulunbeier

Shenyang

Zhangjiakou

Changde

Haikou

Sanya

Nanchang Jinhua

Jingdezhen

Xining

Yinchuan

BaotouBeijing

Baoding

Taiyuan

Handan

Zhengzhou

Shiyan

Yichang

Zhangjiajie

Chenzhou

Changsha

WuhanHuangshi

Hangzhou

MaanshanHefei

Bengbu

Xuzhou

Jinan

Zaozhuang

Jiujiang

Huhhot

Changchun

Daqing

Zunyi

Guiyang

Guilin

Foshan

Zhuhai

Liuzhou

Nanning

Panzhihua

Xichang

Dali

Kunming

Yuxi

Banna

Lhasa

Chongqing

Hong KongMacau

Shenzhen

Shanghai

Nanjing

Chengdu

C & O PharmaCeutICal teChnOlOgy (hOldIngs) lImIted6

Lanzhou

Kashi

Urumqi

Xian

Jining

Shijiazhuang

Tianjing

Tangshan Dalian

Yantai

Qingdao

Lianyungang

Zhangjiagang

Ningbo

Wenzhou

Fuzhou

Xiamen

Shantou Dongguan

Suzhou

MeizhouGuangzhou

Panjin

Jilin

Harbin

Jiamusi Qiqihar

Hulunbeier

Shenyang

Zhangjiakou

Changde

Haikou

Sanya

Nanchang Jinhua

Jingdezhen

Xining

Yinchuan

BaotouBeijing

Baoding

Taiyuan

Handan

Zhengzhou

Shiyan

Yichang

Zhangjiajie

Chenzhou

Changsha

WuhanHuangshi

Hangzhou

MaanshanHefei

Bengbu

Xuzhou

Jinan

Zaozhuang

Jiujiang

Huhhot

Changchun

Daqing

Zunyi

Guiyang

Guilin

Foshan

Zhuhai

Liuzhou

Nanning

Panzhihua

Xichang

Dali

Kunming

Yuxi

Banna

Lhasa

Chongqing

Hong KongMacau

Shenzhen

Shanghai

Nanjing

Chengdu

Lanzhou

Kashi

Urumqi

Xian

Jining

Shijiazhuang

Tianjing

Tangshan Dalian

Yantai

Qingdao

Lianyungang

Zhangjiagang

Ningbo

Wenzhou

Fuzhou

Xiamen

Shantou Dongguan

Suzhou

MeizhouGuangzhou

Panjin

Jilin

Harbin

Jiamusi Qiqihar

Hulunbeier

Shenyang

Zhangjiakou

Changde

Haikou

Sanya

Nanchang Jinhua

Jingdezhen

Xining

Yinchuan

BaotouBeijing

Baoding

Taiyuan

Handan

Zhengzhou

Shiyan

Yichang

Zhangjiajie

Chenzhou

Changsha

WuhanHuangshi

Hangzhou

MaanshanHefei

Bengbu

Xuzhou

Jinan

Zaozhuang

Jiujiang

Huhhot

Changchun

Daqing

Zunyi

Guiyang

Guilin

Foshan

Zhuhai

Liuzhou

Nanning

Panzhihua

Xichang

Dali

Kunming

Yuxi

Banna

Lhasa

Chongqing

Hong KongMacau

Shenzhen

Shanghai

Nanjing

Chengdu

Our Presence In China

Lanzhou

Kashi

Urumqi

Xian

Jining

Shijiazhuang

Tianjing

Tangshan Dalian

Yantai

Qingdao

Lianyungang

Zhangjiagang

Ningbo

Wenzhou

Fuzhou

Xiamen

Shantou Dongguan

Suzhou

MeizhouGuangzhou

Panjin

Jilin

Harbin

Jiamusi Qiqihar

Hulunbeier

Shenyang

Zhangjiakou

Changde

Haikou

Sanya

Nanchang Jinhua

Jingdezhen

Xining

Yinchuan

BaotouBeijing

Baoding

Taiyuan

Handan

Zhengzhou

Shiyan

Yichang

Zhangjiajie

Chenzhou

Changsha

WuhanHuangshi

Hangzhou

MaanshanHefei

Bengbu

Xuzhou

Jinan

Zaozhuang

Jiujiang

Huhhot

Changchun

Daqing

Zunyi

Guiyang

Guilin

Foshan

Zhuhai

Liuzhou

Nanning

Panzhihua

Xichang

Dali

Kunming

Yuxi

Banna

Lhasa

Chongqing

Hong KongMacau

Shenzhen

Shanghai

Nanjing

Chengdu


Chairman's statement


Dear Shareholders,Our Group has crossed into an exciting era with the strategic entry of Japan’s Sumitomo Corporation as our substantial shareholder following its successful acquisition of a 29% stake in C&O in December 2010. We believe that this is a strong endorsement of the C&O’s integrated competencies and business prospects in China’s growing healthcare market.

On 17 August 2011, Shionogi & Co., Ltd. acquired a 24.17% stake in C&O from Leo Star Development Limited (“Leo Star”) and Mr Gao Bin and became our substantial shareholder. On the same date, Nomura Singapore Limited announced, for and on behalf of Shionogi & Co., Ltd. (the “Offeror”), the Offeror’s firm intention to make a mandatory unconditional cash offer (the “General Offer”) in accordance with Rule 14 of the Singapore Code on Takeovers and Mergers to acquire all the ordinary shares in the capital of the Company other than those already owned by the Offeror, its related corporations and their respective nominees (the “Offer Shares”). The Offeror acquired its 24.17% stake in C&O pursuant to an understanding and arrangement with Sumitomo Corporation (“Sumitomo”) to obtain and consolidate effective control of C&O. Sumitomo is therefore deemed to be a party acting in concert with the Offeror.

Chairman's Statement


In the aforesaid announcement, the Offeror made known its intention not to maintain the listing status of the Company on the Singapore Exchange Securities Trading Limited (“SGX-ST”) following the completion of the General Offer. As announced by Nomura Singapore Limited on 28 September 2011, for and on behalf of the Offeror, the Offeror has received such valid acceptances resulting in the Offeror and parties acting in concert with the Offeror owning, controlling, acquiring and/or agreeing to acquire an aggregate of 640,990,990 shares of the Company, representing approximately 96.63% of the shares of the Company in issue as at 27 September 2011. Accordingly, subject to the consent of Leo Star and Sumitomo, the Offeror intend to exercise its right to acquire the remaining Offer Shares under Section 103 of Bermuda Companies Act 1981 by issuing a notice in due course to the remaining shareholders to compulsorily acquire the remaining Offer Shares that have not been tendered in acceptance of the General Offer.

In view of the Offeror having made a mandatory unconditional cash offer for all the ordinary shares in the capital of the Company other than those already owned by the Offeror, its related corporations and their respective nominees and the Offeror’s intention to exercise its right to acquire the remaining Offer Shares that have not been tendered in acceptance of the General Offer, the Board would not be making any statement of prospects on the Company.

Dividends

We are pleased to reward shareholders with a first and final dividend of 0.47 Singapore cents which, if approved by shareholders in the upcoming annual general meeting, will be disbursed on 25 November 2011.

Appreciation

We would like to record our appreciation to our retired directors Mr Ma Lai Chi, Mr Li Zhan, Mr Wu Su Min, Ms Huang Haiyan, Mr Song Ming and Ms Ma Yue Yam for their contributions to the Board all these years.

On behalf of the new Board, we would like to express our appreciation to the management team and staff for their support of this transition, and look forward to their continued commitment in ensuring the future success of C&O as the Group moves into a higher plane - in China and beyond.

We would also like to thank all of our business partners and shareholders for their trust in the Group, and look forward to your continued support.

Tatsuya Suto Gao BinChairman Deputy Chairman

14 October 2011


Operating & Financial review

OPERATING REVIEW

In the financial year of 2011 (“FY2011”), C & O Pharmaceutical Technology (Holdings) Limited (“C&O”) entered into a new era of development following the acquisition of 29% stake in C&O by Sumitomo in December 2010. Our new substantial shareholder, Sumitomo, is a global Fortune 500 company. We will look to harness its global network and expertise in corporate management to strengthen C&O’s core competitiveness. During the year under review, we met tough challenges arising from policy uncertainties by the PRC government, but the Group has taken necessary measures to maintain its sales performance, and continue our effort in research and development (“R&D”) and expanding our product portfolio.

Challenges Arising from Policy Uncertainty

During FY2011, the PRC government announced two rounds of price adjustments. The price adjustment announced in November 2010 reduced the price ceiling of Amoxycillin while another price adjustment in March 2011 lowered the price ceilings of certain C&O Branded products. Despite the fact that our products were already priced below the new price ceilings set by the PRC government, market anxiety


Operating & Financial Review

for potential price adjustments throughout the year undoubtedly affected our sales performance as customers adopted a wait-and-see approach and kept low inventory levels.

Expanding Our Product Portfolio

In spite of the State Food and Drug Administration’s (“SFDA”) tight rein on drug approval, the Group managed to add two new products during FY2011, namely Edaravone Injection and Flumarin® injection. To date, C&O product portfolio includes 29 C&O Branded products and 8 exclusive products.

Sharpening Our Edge via Sumitomo

By tapping Sumitomo’s network, C&O secured the exclusive distribution of Flumarin® from leading Japanese pharmaceutical company, Shionogi & Co., Ltd. We will continue to leverage on our strategic shareholder’s network to explore opportunities with foreign pharmaceutical companies to expand our business in China.


Operating & Financial review

To become a leading

pharmaceutical enterprise in

china

To become a leading

pharmaceutical enterprise in

china

Business collaborations

with international players

Develop new proprietary drugs

Expand distribution

network

Expand CRO & CMO services

Strengthen R&D capabilities and

C&O brand name



Revenue by Product Segment (HKD'000)

Revenue by Product Segment (%)

FY07

Exclusive Products Exclusive Products

C&O Branded Products C&O Branded Products

Non-exclusive Products Non-exclusive Products

Others Others

FY08 FY09 FY10 FY11

679,9

59

564,7

76

548,5

66

650,9

26

634,9

06

66%

66%

31%

32%

2%

1%

0%

1%

FY10

FY11

FINANCIAL REVIEW

Revenue

Total revenue of the Group decreased by 3% from HK$651 million for the year ended 30 June 2010 (“FY2010”) to HK$635 million for FY2011. It was mainly attributable to (i) the decrease in sales of Exclusive products from HK$432 million in FY2010 to HK$418 million in FY2011; (ii) the decrease in sales of non-exclusive products from HK$12 million in FY2010 to HK$5 million in FY2011; and (iii) sales of C&O Branded products remained stable at HK$206 million in FY2011. The Group’s revenue growth was hindered by a cautious market sentiment caused by policy uncertainty on price adjustment during the year. Also, its performance was affected by its strategy to gradually withdraw from the generic drug market where price competition has intensified among industry players, especially those drugs under Essential Drug List and many commonly used drugs in the National Reimbursement Drug List. Approaching the end of this financial year, sales of C&O Branded products was hampered by intensified price competition. Revenue contributed from sales of non-exclusive products decreased by 60% as a result of the Group’s strategy to focus on high margin products.


Operating & Financial reviewGross Profit

The Group’s gross profit decreased by 3% from HK$412 million in FY2010 to HK$401 million in FY2011 which was in line with the decline in total revenue. The Group’s gross profit margin remained unchanged at 63% for both FY2011 and FY2010. Gross profit margin of Exclusive products was stable at 64% for both FY2011 and FY2010, and that of C&O Branded products decreased from 64% in FY2010 to 62% in FY2011. The Group has been maintaining a high gross profit margin of at least 60% for two consecutive financial years.

Other Revenue and Net Income

Other revenue and net income decreased by 64% from HK$37 million in FY2010 to HK$13 million in FY2011. It was mainly due to: (i) a one-off gain of HK$17.5 million recognsied in FY2010 on the disposal of a subsidiary, Nanjing Meizhanli Pharmaceutical Technology Co., Limited (“NJMZ”, 南京美展利医药科技有限公司), which owned a plot of vacant land in Nanjing; and (ii) the valuation gain of investment properties amounted to HK$11.4 million recognised in FY2010 in respect of the investment properties located in Hong Kong which were reclassified to “Non-current assets held for sale” in the fourth quarter of FY2010 and were subsequently disposed of in August 2010. There was no such similar transaction in FY2011.

Operating Expenses

Distribution expenses remained stable at HK$168 million for FY2011. The distribution expenses, as a percentage of revenue, remained unchanged at 26% for FY2011 (FY2010: 26%).

Administrative and other operating expenses were increased by 19% from HK$77 million in FY2010 to HK$91 million in FY2011. It was mainly due to the combined effects from: (i) increase in staff costs (including directors’ remuneration); (ii) increase in research and development (“R&D”) costs for more R&D projects were conducted during FY2011; (iii) increase in legal and professional fees; and (iv) decrease in amortisation of intangible assets because certain intangible assets were fully amortised during FY2011.

Gross Profit (HKD'000) Gross Profit Margin (%)

31%

49%

59%

63% 63%

FY07

FY08

FY09

FY10

FY11

FY07 FY08 FY09 FY10 FY11

411,770

321,974

275,020

212,413

401,050



Profit Before Tax (HKD'000) Profit Before Tax Margin (%)

12%

21% 22%

31%

24%

FY07

FY08

FY09

FY10

FY11

FY07 FY08 FY09 FY10 FY11

199,923

118,502

119,841

82,867

151,181

Finance Costs and Interest Income

Finance costs increased by 15% as a result of additional finance costs incurred for discounting bills receivable with recourse term during FY2011. Interest income decreased from HK$2 million in FY2010 to HK$1 million in FY2011 due to all fixed deposits made since the third quarter of financial year 2009 were matured in FY2010.

Share of Losses of Jointly Controlled Entities

During the year ended 30 June 2008, the Group established a joint venture with a United States incorporation to establish a United States Good Laboratory Practice compliant laboratory in Nanjing for the operation of a Contract Research Organisation (“CRO”) in Nanjing. The amount of losses shared by the Group based on the percentage of its interest in the joint venture during FY2011 was stable when compared to FY2010.

Income Tax Expenses

The Group’s effective taxation rate decreased from 22% in FY2010 to 12% in FY2011 mainly because of the provision of withholding tax made in FY2010 in relation to the declaration of the dividends (including two special interim dividends) throughout FY2010.

Earnings per Share

The Group’s profit attributable to the Company’s equity shareholders decreased by 16% from HK$158 million in FY2010 to HK$133 million in FY2011 as a result of a dip in total revenue, gross profit and other revenue and net income, and increase in operating expenses. Accordingly, the basic and diluted earnings per ordinary share of the Company decreased by 16% from 23.8 HK cents for FY2010 to 20.1 HK cents for FY2011.


Operating & Financial reviewFinancial Position and Cash Flows

Fixed assetsFixed assets (including investment properties) increased from HK$204 million as at 30 June 2010 to HK$219 million as at 30 June 2011 mainly because of the construction of the multi-purpose quality control building in Nanjing. For details of the movement in “Fixed assets”, please refer to Note 11 to the Financial Statements.

Land use rights and leasehold landLand use rights and leasehold land remained stable at HK$33 million as at 30 June 2011 when compared to HK$32 million as at 30 June 2010. For details of the movement in “Land use rights and leasehold land”, please refer to Note 12 to the Financial Statements.

Intangible assetsIntangible assets increased from HK$50 million as at 30 June 2010 to HK$52 million as at 30 June 2011. The increase was mainly due to the combined effects of (i) amortisation charged for intangible assets during FY2011; and (ii) the additional costs incurred for clinical stage projects. For details of the movement in “Intangible assets”, please refer to Note 13 to the Financial Statements.

GoodwillGoodwill increased from HK$43 million as at 30 June 2010 to HK$48 million as at 30 June 2011 due to translation difference.

Non-current assets held for saleFollowing the disposal of the investment properties situated in Hong Kong in August 2010, the non-current assets held for sale dropped to zero as at 30 June 2011.

InventoriesInventory turnover days increased from 126 days in FY2010 to 157 days in FY2011. This is because more C&O Branded products were produced before the end of FY2011 in anticipation of one month maintenance works on the production facilities in the first quarter of the year ending 30 June 2012.

Trade and bills receivablesThe Group’s trade and bills receivables increased from HK$234 million as at 30 June 2010 to HK$273 million as at 30 June 2011 for more customers settled their debts by bills, and thus prolonged the overall repayment period. As a result, trade and bills receivables turnover days were increased to 157 days in FY2011 (FY2010: 131 days).

Other receivables and prepaymentsThe Group’s other receivables and prepayments remained stable at HK$18 million as at 30 June 2011 when compared to HK$17 million as at 30 June 2010.

Trade and bills payablesTrade and bills payables increased from HK$39 million as at 30 June 2010 to HK$46 million as at 30 June 2011. The turnover days also increased from 60 days in FY2010 to 71 days in FY2011. It was mainly attributable to the Group ordering certain level of quantities of Exclusive products towards the end of FY2011 including new product from a new supplier which provides a longer credit period.

Current tax payableThe Group’s current tax payable remained stable at HK$47 million as at 30 June 2011 when compared to HK$45 million as at 30 June 2010.



Total cash and major cash flow itemsThe Group’s cash and cash equivalents decreased from HK$286 million as at 30 June 2010 to HK$129 million as at 30 June 2011.

The Group’s net cash generated from operating activities decreased from HK$164 million in FY2010 to HK$127 million in FY2011 due to the dip in profit before tax and increase in cash outflow from changes in working capital.

The Group’s net cash (excluded decrease in fixed bank deposits) generated from investing activities increased from HK$12 million during FY2010 to HK$23 million during FY2011. It was mainly contributed by the net cash received from disposal of non-current assets held for sale amounted to HK$54 million that was net off by the payments of purchase of property, plant and equipment and intangible assets amounted to HK$31 million.

The Group’s net cash used in financing activities increased from HK$85 million for FY2010 to HK$314 million for FY2011 due to the payment of interim and special interim dividends and final dividends for FY2010 amounted to HK$314 million in the first half year of FY2011.

Capital CommitmentsThe Group’s capital commitments are disclosed in Note 27 to the Financial Statements.

Treasury and Hedging PoliciesAs at 30 June 2011, approximately 64.3%, 2.9%, 31.4%, 0.3% and 1.1% of the Group’s cash balance were held in Renminbi, Hong Kong dollars, US dollars, Singapore dollars (“S$”) and Euro respectively (respective ratios in FY2010: 35.1%, 2.7%, 9.9%, 51.8% and 0.5%). The change in the Group’s cash balance mix was mainly attributable to the fact that in FY2010 the Group maintained a significant balance of S$ for the payment of dividends during the first half of FY2011.

For any unused cash balances, the Group is currently placing in term deposits with banks. The management of the Company will continue to seek for opportunities with low risk and good investment prospect to generate better returns for the investment of excess monetary resources.

As at 30 June 2011, the Group has no recourse discounted bills outstanding.

Change in Capital StructureThere was no change in the capital structure of the Company during FY2011.

DividendIn view of the performance of the Group, the Board of Directors recommended the payment of final dividend for FY2011 in the amount of S$0.0047 per ordinary share of the Company. The recommendation is subject to the passing of the resolution in the coming annual general meeting to be held on 31 October 2011. If this recommendation is approved, the Register of Shareholders of the Company will be closed on 9 November 2011 and the dividend will be paid on 25 November 2011. This gives a dividend yield of approximately 0.94% based on the share price of the Company as at 21 September 2011.

Asset ImpairmentsThere was no impairment of assets during FY2011 except for impairment loss recognised for trade and other receivables disclosed in Note 19 to the Financial Statements.

Accounting PolicyThere was no significant change in the accounting policy of the Group for FY2011, except for those mentioned in Note 3 to the Financial Statements.

Corporate structureAs at 21 September, 2011


C & O Pharmaceutical Technology (Holdings) Limited

Merryland Development Group Limited

Angel Zone Development

Group LimitedChangao (BVI) Ltd.

100%

100% 100%

100%

100%

100%

100%

深圳市聯誠医药有限公司(Shenzhen Liancheng

Medicine Company Limited)

南京新澳康医药有限公司(Nanjing Xinaokang

Pharmaceutical Limited)

四川長澳医药有限公司(Sichuan Changao Medicine

Company Limited)

Changao International

(Macao Commercial

Offshore) Limited

Corporate Structure


100% 100% 100%

100%

100%

100%

69.98%

100%

100%

37.5%

100%

100%

Ruby Spinel

Development Limited

Changao Investment

(BVI) Limited

Surrey International

Limited

OME (H.K.)

Laboratories LimitedXBL (BVI) LimitedBillion Moral

Investments Limited

南京長澳制藥有限公司(Nanjing Chang AoPharmaceuticalCo., Limited)

XBL (HK) Limited江蘇長澳生物技術發展有限公司(Changao Bio-techDevelopment Co., Limited)

南京長澳醫藥科技有限公司(Nanjing ChangaoPharmaceutical Science andTechnology Co., Limited)

南京美新諾醫藥科技有限公司

上海陽帆醫藥科技有限公司(Shanghai Sun-sailPharmaceutical Science &Technology Co., Limited)


Corporate informationBoard of DirectorsNon-Executive Directors

Tatsuya Suto (Chairman)Michiharu MurakamiYasuhiro Mino

Executive Directors

Gao Bin (Deputy Chairman)Katsuya OkuyamaMasaki Tomiyama

Independent Non-Executive Directors

Shin Yick, FabianTan Tew HanWilliam Sumarli

Audit CommitteeShin Yick, Fabian (Chairman)Tan Tew HanWilliam Sumarli

Remuneration CommitteeTan Tew Han (Chairman)Shin Yick, FabianWilliam Sumarli

Nominating CommitteeWilliam Sumarli (Chairman)Shin Yick, FabianGao Bin

Company SecretaryLim Lan Sim, Joanna

AuditorsKPMGCertified Public Accountants8th Floor, Prince’s Building10 Chater RoadCentral, Hong KongAudit Partner-in-charge: Wing Fong(appointed in May 2011)

Registered OfficeClarendon House2 Church StreetHamilton HM 11BermudaTel: (1 441) 295 1422Fax: (1 441) 292 4720

Principal OfficesHong Kong

911-12 Silvercord Tower 230 Canton RoadTsim Sha TsuiHong Kong

Tel: (852) 2806 0109Fax: (852) 2887 8445Corporate website: www.changao.com

Nanjing

No. 2 Ba Bai RoadLuhe DistrictNanjingPRC

No. 1 Heng Fei RoadNanjing Economic Technology Development ZoneNanjingPRC

Shenzhen

5th Floor, Honorlux TowerNo. 1080 Shennan East RoadLuohu DistrictShenzhenPRC

Shanghai

5th Floor, Building No. 71690 Cai Lun RoadZhangjiang High Technology ParkShanghaiPRC

Bermuda Principal Share RegistrarButterfield Fulcrum Group (Bermuda) LimitedRosebank Centre11 Bermudiana RoadPembroke HM08Bermuda

Singapore Share Transfer AgentTricor Barbinder Share Registration Services(A division of Tricor Singapore Pte. Ltd.)8 Cross Street#11-00 PWC BuildingSingapore 048424


BOARD OF DIRECTORS AND SENIOR MANAGEMENT

Board of Directors

TATSUYA SUTO

Non-executive Director (Chairman)

Mr Suto is a non-executive Director appointed to our Board on 9 December 2010. He joined Sumitomo Corporation in 1980 right after his graduation at Waseda University with a degree in international marketing in the same year. Having served Sumitomo Corporation for more than 30 years in different departments at head office in Japan and regional offices in USA, he is now the Corporate Officer, Deputy General Manager of Life Science Department, Sumitomo Corporation Tokyo Japan. At present, he is also a director of The Hartz Mountain Corporation, Summit Pharmaceutical Europe Ltd, Summit Agro International Ltd, and the Chairman of Summit Pharmaceutical China Ltd.

YASUHIRO MINO

Non-executive Director

Mr Mino is a non-executive Director appointed to our Board on 12 October 2011. He has joined Shionogi & Co., Ltd. since 1970. Having served Shionogi & Co., Ltd. for more than 40 years, Mr Mino has broad exposure in international business, manufacturing and corporate planning, and is now the Executive Vice President and a board member of Shionogi & Co., Ltd.

GAO BIN

Executive Director (Deputy Chairman)

Mr Gao is an executive Director appointed to our Board on 2 September 2003 and one of the founders of our Group. He is responsible for the overall strategic planning and business development of our Group. Mr Gao graduated from Nanjing Technical Training Institute in 1979 and obtained the professional qualification of senior economist in 1999.

Mr Gao has over 29 years’ experience in sales and marketing of pharmaceutical products in the PRC, from which he has created a vast network in the pharmaceutical sector and has gained a good knowledge of the developments in the industry.

Prior to the establishment of the Group, Mr Gao had worked in Nanjing Yangtze Development Corporation Co., Ltd. (“Yangtze”) as a manager in charge of the company’s pharmaceutical business. Before joining Yangtze, Mr Gao had been employed by Jinling Pharmaceutical Co., Ltd. for about 10 years, his last position was Associate Director in charge of sales and distribution.



KATSUYA OKUYAMA

Executive Director

Mr Katsuya Okuyama is an executive Director appointed to our Board on 9 December 2010. He graduated from the University of Tokyo in 1987 and joined Sumitomo Corporation in the same year. He has more than 20 years’ global experience in medical science, and is now the Business Development Team Leader of Medical Science Department, Sumitomo Corporation Tokyo Japan.

MASAKI TOMIYAMA

Executive Director

Mr Tomiyama is an executive Director appointed to our Board on 12 October 2011. He joined Shionogi & Co., Ltd. in 1992, and has been engaged in hospital sales and corporate planning. He is now the Deputy General Manager of Corporate Planning Department of Shionogi & Co., Ltd.

MICHIHARU MURAKAMI

Non-executive Director

Mr Michiharu Murakami is a non-executive Director appointed to our Board on 9 December 2010. He graduated from Kobe University of Commerce in 1976. Joined Sumitomo Corporation in 1976, he has more than 30 years’ experience in chemicals business. He has rich China experience. He worked in Beijing office and Guangzhou office of Sumitomo Corporation, and is now the General Manager of China Chemicals & Electronics Business Unit of Sumitomo Corporation (Shanghai) Ltd. At present, he is also a director of Sumitronics Hong Kong Ltd., Sumitronics Shanghai Ltd. and Summit Pharmaceutical China Ltd.

SHIN YICK FABIAN

Independent non-executive Director

Mr Shin is one of our independent non-executive Directors appointed to our Board on 12 August 2005. He is currently the Deputy Chief Executive Officer of CMB International Capital Corporation Limited, a wholly owned subsidiary of China Merchants Bank. He also serves as an independent non-executive director of Little Sheep Group Limited. Mr Shin has over 20 years of experience in auditing, accounting, corporate planning and investment banking. Mr Shin graduated from the University of Birmingham in England with a bachelor’s degree in Commerce. After graduation, he worked in the audit department of Deloitte Touche Tohmatsu. Between 1999 and 2005, he worked in several investment banks and joined CMB International Capital Corporation Limited in February 2010. Between 1998 and 1999, he worked in Lee Kum Kee Company Limited as the Financial Controller responsible for financial management and accounting. Between 1996 to 1998, he worked in Victory City International Holdings Limited, a listed company in Hong Kong as Financial Controller and Company Secretary responsible for accounting and financial management. He is a fellow member of Hong Kong Institute of Certified Public Accountants, Association of Chartered Certified Accountants, Institute of Chartered Secretaries and Administrators and the Hong Kong Institute of Company Secretaries.



TAN TEW HAN


Mr Tan is one of our independent non-executive Directors appointed to our Board on 12 August 2005. Mr Tan is currently a director of Full Apex (Holdings) Limited and Luxking Group Holdings Limited. Mr Tan started his banking career 31 years ago and had since held a number of senior posts in various foreign banks. Before his career in the banking industry, he was with the Administrative Service of the Singapore Civil Service. He joined the Overseas Union Bank (“OUB”) in 1987 and was seconded to International Bank of Singapore Limited (a then wholly-owned subsidiary of OUB) as Head of Corporate Banking and the Overseas Department. He was subsequently appointed as Senior Vice President of Investment Banking and Corporate Finance Division in 1992. In 1999, Mr Tan was promoted to the position of Executive Vice President, in charge of fund management, corporate finance/syndications and trustee & custodian services. Mr Tan retired from OUB in 2001. Mr Tan obtained his Bachelor of Science (Honours) degree from University of Singapore in 1971 and his Master of Business Administration degree from University of British Columbia, Canada in 1979.

WILLIAM SUMARLI


Mr Sumarli was appointed as an independent non-executive Director to C&O’s Board on 2 November 2009, and brings with him more than 29 years of experience in international banking, finance and direct investments. He has been the Managing Director at Milkiway Capital Investment Private Limited, Singapore from 2004 onwards, where he advised and managed clients’ funds in US futures.

From 2003 to 2004, Mr Sumarli was the Marketing Manager of New Pacific Marketing Pte Ltd, Singapore, a family business. In 2002, he was with HSBC Republic Suisse, Singapore as First Vice President in Private Banking.

Mr Sumarli was with Prudential-Bache Securities Hong Kong and Singapore from 1998 to 1999 with professional qualifications such as US Series 3, and 7, and Hong Kong Stocks, Commodities, and Futures broker dealers and investment advisors licenses. In 1994-1998 he founded and managed P.T. Pacific 2000, a full service underwriting securities firm in Jakarta. Prior to that he was with Swiss Bank Corporation, Lehman Brothers and Paribas South East Asia. Mr Sumarli obtained a Bachelor of Science degree from McGill University, Montreal, Canada in 1981.

TREVOR CHOI

Chief Financial Officer

Mr Choi was appointed as the Group’s Chief Financial Officer on 5 February 2009. With 14 years of working experience in auditing, accounting and finance, Mr Choi is responsible for the Group’s financial activities. From June 2005 to May 2008, he served as Chief Financial Officer for Noah Education Holdings Ltd. which is a US listed company. From April 2004 to June 2005, he served as financial controller for Sichuan Kelun Pharmaceutical Company Limited. Mr Choi was trained as an accountant with PricewaterhouseCoopers, where he worked from December 1996 to December 2003 and progressed from an associate to manager. He is an Australia Certified Public Accountant and an associate member of the Hong Kong Institute of Certified Public Accountants. He has a bachelor’s degree in business and economics (accounting) from Monash University, Australia.


DIRECTORS’ REPORT

The directors (“Directors”) of C & O Pharmaceutical Technology (Holdings) Limited (the “Company”) are pleased to present their report to the members together with the audited financial statements of the Company and its subsidiaries (the “Group”) for the financial year ended 30 June 2011.

Directors

The Directors in office during the financial year ended 30 June 2011 and up to the date of this report are:

Executive Directors Date of initial appointment Date of last re-election

Gao Bin (Deputy Chairman1) 2 September 2003 23 October 2009Ma Lai Chi2 2 September 2003 24 October 2008Song Ming 12 August 2005 22 October 2010Ma Yue Yam 9 December 2010 –Wu Su Min3 12 August 2005 22 October 2010Li Zhan4 12 August 2005 22 October 2010Huang Haiyan5 2 November 2009 22 October 2010Katsuya Okuyama 9 December 2010 –

Non-executive Directors Date of initial appointment Date of last re-election

Tatsuya Suto (Chairman) 9 December 2010 –Michiharu Murakami 9 December 2010 –

Independent non-executiveDirectors Date of initial appointment Date of last re-election

Shin Yick, Fabian 12 August 2005 23 October 2009Tan Tew Han 12 August 2005 24 October 2008William Sumarli 2 November 2009 22 October 2010

In accordance with the Company’s bye-laws (“Bye-Laws”), Mr Tan Tew Han shall retire at the forthcoming annual general meeting and, being eligible, offer himself for re-election.

Pursuant to the share purchase agreement (“Agreement”) between Shionogi & Co., Ltd. (“Shionogi” or the “Offeror”) and Mr Gao Bin together with Leo Star Development Limited (“Leo Star”) completed on 17 August 2011, two of the existing executive Directors, Ms Ma Yue Yam and Mr Song Ming, will resign, and two new executive/non-executive directors, namely Mr Yasuhiro Mino and Mr Masaki Tomiyama, nominated by Shionogi will be appointed, with effect on and from the close of the mandatory unconditional cash offer (“General Offer”) by Nomura Singapore Limited for and on behalf of Shionogi or such earlier date as maybe approved by the Securities Industry Council of Singapore (“SIC”). As announced by Nomura Singapore Limited on 28 September 2011, for and on behalf of the Offeror, the close of the General Offer will be extended from 28 September 2011 to 12 October 2011 and the Offeror has no intention to extend the General Offer beyond 12 October 2011. Subject to Mr Yasuhiro Mino and Mr Masaki Tomiyama’s appointment has taken effect before the date of the forthcoming annual general meeting, Mr Tatsuya Suto, Mr Michiharu Murakami, Mr Katsuya Okuyama, Mr Yasuhiro Mino and Mr Masaki Tomiyama will retire for re-election pursuant to the Bye-Laws 85(6) of the Company.

1 Redesignated from “Chairman” to “Deputy Chairman” with effect from 9 December 20102 Resigned with effect from 9 December 20103 Resigned with effect from 9 December 20104 Resigned with effect from 9 December 20105 Resigned with effect from 9 December 2010


DIRECTORS’ REPORT

Arrangements to Enable Directors to Acquire Shares and Debentures

Neither at the end of nor at any time during the financial year was the Company or any of its subsidiaries a party to any arrangement whose object was to enable the Directors to acquire benefits by means of the acquisition of shares or debenture of the Company or any other body corporate.

Directors’ Interests in Shares and Debentures

According to the register of directors’ shareholdings, the following Directors, who held office at the end of the financial year, had an interest in shares of the Company as stated below:

Ordinary shares of the Company Direct interest Deemed interest At 1 July 2010 At 1 July 2010 or date of or date of appointment appointment if later At 30 June 2011 At 21 July 2011 if later At 30 June 2011 At 21 July 2011

Gao Bin (Note 1) 449,000 449,000 449,000 385,405,000 193,031,000 193,031,000Song Ming (Note 2) 11,865,000 11,865,000 11,865,000 – – –

Saved as disclosed above, no Director who held office at the end of the financial year had interests in shares, debentures, warrants or share options of the Company, or of related corporations, either at the beginning of the financial year or date of appointment if later, at the end of the financial year or at 21 July 2011.

Note 1:

Mr Gao Bin owned 100% of the shareholding interest in Screen Power Enterprises Limited, which in turn owned approximately 89% of the shareholding interest in Leo Star Development Limited. Mr Gao Bin was thus deemed to be interested in the shares of the Company held by Leo Star Development Limited.

Pursuant to the Agreement, Shionogi acquired 159,863,000 shares from Leo Star and 449,000 shares from Mr Gao Bin. As a result, as at 17 August 2011, Mr Gao Bin indirectly owned 33,168,000 shares, representing 5% of total issued shares of the Company.

Note 2:

Mr Song Ming accepted the General Offer on 15 September 2011. Since then, Mr Song Ming does not hold any shares of the Company.

Directors’ Contractual Benefits

The Company has entered into new service agreements with Mr Gao Bin and Mr Katsuya Okuyama during the year. The service agreement between the Company and Mr Song Ming was automatically renewed for successive terms of one year unless terminated by not less than three months’ notice in writing served by either party to the service agreements.

Apart from the foregoing, since the end of the previous financial year, no Director of the Company has received or become entitled to receive a benefit (other than a benefit or any fixed salary of a full-time employee of the Company included in the aggregate amount of emoluments shown in the financial statements, or any emoluments received from related corporations) by reason of a contract made by the Company or a related corporation with the Director, or with a firm of which the Director is a member, or with a company in which the Director has a substantial financial interest.


DIRECTORS’ REPORT

Share Options

On 17 August 2005, the shareholders of the Company adopted a share option scheme known as the C&O Share Option Scheme.

No share options were issued by the Company or its subsidiaries during the financial year. As at 30 June 2011, there were no options on the unissued shares of the Company or its subsidiaries which were outstanding.

Audit Committee

Details of the Audit Committee of the Company are set out in the Corporate Governance Report of this annual report of the Company.

Independent Auditor

The independent auditor, KPMG, has expressed their willingness to accept re-appointment as auditor of the Company.

On behalf of the Board


21 September 2011


statement by DIRECTORS

We, Tatsuya Suto and Gao Bin, being two of the Directors of the Company, do hereby state that, in the opinion of the Directors:

(i) the financial statements set out on pages 29 to 94 are drawn up so as to give a true and fair view of the financial position of the Company and of the Group as at 30 June 2011, and of the financial performance and cash flows of the Group for the year ended on that date; and

(ii) at the date of this statement, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due.

The Board of Directors authorised these financial statements for issue on 21 September 2011.

On behalf of the Board


21 September 2011


Independent Auditor’s Report

Independent auditor’s report to the shareholders ofC & O Pharmaceutical Technology (Holdings) Limited(Incorporated in Bermuda with limited liability)

We have audited the accompanying consolidated financial statements of C & O Pharmaceutical Technology (Holdings) Limited (“the Company”) and its subsidiaries (together “the Group”) set out on pages 29 to 94, which comprise the consolidated and company balance sheets as at 30 June 2011, and the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.

Directors’ responsibility for the financial statementsThe directors of the Company are responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as the directors determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibilityOur responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

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

OpinionIn our opinion, the consolidated financial statements give a true and fair view of the financial position of the Company and of the Group as at 30 June 2011, and of the consolidated financial performance and consolidated cash flows of the Group for the year then ended in accordance with International Financial Reporting Standards.

KPMGCertified Public Accountants8th Floor, Prince’s Building10 Chater RoadCentral, Hong Kong

21 September 2011

for the year ended 30 June 2011 (Expressed in Hong Kong dollars)


Consolidated income statement

2011 2010 Note $’000 $’000

Revenue 4 634,906 650,926Cost of goods sold (233,856) (239,156)

Gross profit 401,050 411,770

Other revenue and net income 4 13,052 36,575Distribution expenses (168,069) (169,245)Administrative expenses (91,098) (76,642)Other operating expenses (283) (268)

Operating profit 5 154,652 202,190

Finance costs 6 (897) (782)Interest income 1,088 2,220Share of losses of jointly controlled entities 16 (3,662) (3,705)

Profit before tax 151,181 199,923

Income tax expenses 7 (18,311) (43,536)

Profit for the year 132,870 156,387

Attributable to:

Equity shareholders of the Company 133,129 157,662Non-controlling interests (259) (1,275)


Earnings per share (HK$) 8

Basic and diluted 0.201 0.238

The notes on pages 35 to 94 form part of these financial statements.



Consolidated statement of comprehensive income

2011 2010 $’000 $’000


Other comprehensive income for the year

Foreign currency translation differences of foreign operations 24,037 8,487Share of foreign currency translation differences of jointly controlled entities 633 –

24,670 8,487

Total comprehensive income for the year 157,540 164,874

Attributable to:

Equity shareholders of the Company 157,860 166,161Non-controlling interests (320) (1,287)

Total comprehensive income for the year 157,540 164,874


As at 30 June 2011 (Expressed in Hong Kong dollars)


Balance sheets

The Group The Company

2011 2010 2011 2010 Note $’000 $’000 $’000 $’000

ASSETS

Non-current assets

Fixed assets 11– Investment properties 7,752 5,969 – –– Property, plant and equipment 211,651 198,104 – –

219,403 204,073 – –Land use rights and leasehold land 12 32,650 32,116 – –Intangible assets 13 52,066 49,754 – –Goodwill 14 48,401 43,217 – –Interest in subsidiaries 15 – – 364,739 635,776Interest in jointly controlled entities 16 29,969 32,998 – –Deferred tax assets 24(a) 15,391 14,196 – –

397,880 376,354 364,739 635,776

Current assets

Non-current assets held for sale 17 – 53,855 – –Inventories 18 100,528 82,640 – –Trade and bills receivables 19 272,575 233,893 – –Other receivables and prepayments 20 18,170 16,725 – –Cash and cash equivalents 21(a) 129,125 285,867 729 768

520,398 672,980 729 768

Total assets 918,278 1,049,334 365,468 636,544

EQUITY

Share capital 23(c) 165,840 165,840 165,840 165,840Reserves 600,585 496,278 195,904 218,750

Equity attributable to equity shareholders of the Company 766,425 662,118 361,744 384,590

Non-controlling interests (1,607) (1,287) – –

Total equity 764,818 660,831 361,744 384,590


As at 30 June 2011 (Expressed in Hong Kong dollars)


Balance sheets

The Group The Company

2011 2010 2011 2010 Note $’000 $’000 $’000 $’000

LIABILITIES

Non-current liabilities

Deferred income on government grants 370 463 – –Deferred tax liabilities 24(a) 11,971 8,820 – –

12,341 9,283 – –

Current liabilities

Trade and bills payables 25 45,535 39,114 – –Other payables and accrued expenses 26 48,989 44,579 3,724 1,061Current tax payable 46,595 44,634 – –Dividend payable 23(b)(i) – 250,893 – 250,893

141,119 379,220 3,724 251,954

Total liabilities 153,460 388,503 3,724 251,954

Total equity and liabilities 918,278 1,049,334 365,468 636,544

Approved and authorised for issue by the board of directors on 21 September 2011.





Consolidated statement of changes in equity

Attributable to equity shareholders of the Company

Property Enterprise Non- Share Share Capital Merger revaluation Translation Reserve expansion Retained controlling Total capital premium reserve reserve reserve reserve fund fund profits Total interests equity $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Note Note Note Note Note Note Note Note 23(d)(i) 23(d)(ii) 23(d)(iv) 23(d)(iii) 23(d)(v) 23(d)(vi) 23(d)(vii)

Balance at 1 July 2009 165,840 165,421 4,221 (100,996) 1,277 52,573 8,616 5,851 484,087 786,890 – 786,890

Changes in equity for the year:

Profit for the year – – – – – – – – 157,662 157,662 (1,275) 156,387 Other comprehensive income – Foreign currency translation differences of foreign operations – – – – – 8,278 139 82 – 8,499 (12) 8,487

Total comprehensive income – – – – – 8,278 139 82 157,662 166,161 (1,287) 164,874

Dividend declared in respect of the current year 23(b)(i) – – – – – – – – (253,669) (253,669) – (253,669)Dividend approved in respect of the previous year 23(b)(ii) – – – – – – – – (37,264) (37,264) – (37,264)Appropriation to reserve fund – – – – – – 446 – (446) – – –

Balance at 30 June 2010 and 1 July 2010 165,840 165,421 4,221 (100,996) 1,277 60,851 9,201 5,933 350,370 662,118 (1,287) 660,831

Changes in equity for the year:

Profit for the year – – – – – – – – 133,129 133,129 (259) 132,870 Other comprehensive income – Foreign currency translation differences of foreign operations – – – – – 24,098 – – – 24,098 (61) 24,037 – Share of foreign currency translation differences of jointly controlled entities – – – – – 633 – – – 633 – 633

Total comprehensive income – – – – – 24,731 – – 133,129 157,860 (320) 157,540

Transfer to retained earnings upon disposal of properties – – – – (1,277) – – – 1,277 – – –Dividend approved in respect of the previous year 23(b)(ii) – – – – – – – – (53,553) (53,553) – (53,553)Appropriation to reserve fund – – – – – – 26,259 – (26,259) – – –

Balance at 30 June 2011 165,840 165,421 4,221 (100,996) – 85,582 35,460 5,933 404,964 766,425 (1,607) 764,818




Consolidated cash flow statement

2011 2010 Note $’000 $’000

Operating activities

Cash generated from operations 21(b) 141,865 171,707PRC Corporate Income Tax paid, net (14,994) (8,048)

Net cash generated from operating activities 126,871 163,659

Cash flows from investing activities

Proceeds from disposal of property, plant and equipment 45 84Proceeds from disposal of non-current assets held for sale 17 53,855 –Purchase of property, plant and equipment (20,680) (17,046)Purchase of intangible assets (9,886) (11,846)Disposal of a subsidiary, net of cash disposed of 22 – 41,011Decrease in fixed deposits – 79,387

Net cash generated from investing activities 23,334 91,590

Cash flows from financing activities

Repayment of short-term borrowings – (48,936)Dividends paid (313,882) (37,264)Interest paid (897) (782)Interest received 1,088 2,220

Net cash used in financing activities (313,691) (84,762)

Net (decrease)/increase in cash and cash equivalents (163,486) 170,487

Cash and cash equivalents at beginning of the year 285,867 113,785

Effect of foreign exchange rate changes 6,744 1,595

Cash and cash equivalents at end of the year 21(a) 129,125 285,867


(Expressed in Hong Kong dollars unless otherwise indicated)


NOTES TO THEFINANCIAL STATEMENTS

1 Reporting entity

C & O Pharmaceutical Technology (Holdings) Limited (“the Company”) was incorporated on 28 July 2003 in Bermuda as an exempted company with limited liability under the Bermuda Companies Act 1981. The principal place of business of the Company is at 911-12 Silvercord Tower 2, 30 Canton Road, Tsim Sha Tsui, Kowloon, Hong Kong. The Company was listed on the Main Board of Singapore Exchange Securities Trading Limited on 17 October 2005.

The Company’s registered address is Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda.

2 Significant accounting policies

(a) Statement of compliance

These financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”) promulgated by the International Accounting Standards Board (“IASB”). IFRSs include International Accounting Standards (“IASs”) and related interpretations. These financial statements also comply with the applicable disclosure provisions of the Listing Manual of Singapore Exchange Securities Trading Limited. A summary of the significant accounting policies adopted by the Company and its subsidiaries (together referred to as “the Group”) is set out below.

The IASB has issued certain new and revised IFRSs that are first effective or available for early adoption for the current accounting period of the Group and the Company. Note 3 provides information on any changes in accounting policies resulting from initial application of these developments to the extent that they are relevant to the Group and the Company for the current and prior accounting periods reflected in these financial statements.

(b) Basis of preparation of the financial statements

The consolidated financial statements for the year ended 30 June 2011 comprise the Group and the Group’s interest in jointly controlled entities.

The measurement basis used in the preparation of the financial statements is the historical cost basis except that investment properties are stated at their fair values as explained in note 2(f).

Non-current assets held for sale are stated at the lower of carrying amount and fair value less costs to sell (see note 2(y)).

The preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.




2 Significant accounting policies (continued)

(b) Basis of preparation of the financial statements (continued)

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Judgements made by management in the application of IFRSs that have significant effect on the financial statements and major sources of estimation uncertainty are discussed in note 31.

(c) Subsidiaries and non-controlling interests

Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account.

An investment in a subsidiary is consolidated into the consolidated financial statements from the date that control commences until the date that control ceases. Intra-group balances and transactions and any unrealised profits arising from intra-group transactions are eliminated in full in preparing the consolidated financial statements. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment.

Non-controlling interests represent the equity in a subsidiary not attributable directly or indirectly to the Company, and in respect of which the Group has not agreed any additional terms with the holders of those interests which would result in the Group as a whole having a contractual obligation in respect of those interests that meets the definition of a financial liability. For each business combination, the Group can elect to measure any non-controlling interests either at fair value or at their proportionate share of the subsidiary’s net identifiable assets.

Non-controlling interests are presented in the consolidated balance sheet within equity, separately from equity attributable to the equity holders of the Company. Non-controlling interests in the results of the Group are presented on the face of the consolidated income statement and the consolidated statement of comprehensive income as an allocation of the total profit or loss and total comprehensive income for the year between non-controlling interests and the equity holders of the Company.

Changes in the Group’s interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions, whereby adjustments are made to the amounts of controlling and non-controlling interests within consolidated equity to reflect the change in relative interests, but no adjustments are made to goodwill and no gain or loss is recognised.





(c) Subsidiaries and non-controlling interests (continued)

When the Group loses control of a subsidiary, it is accounted for as a disposal of the entire interest in that subsidiary, with a resulting gain or loss being recognised in profit or loss. Any interest retained in that former subsidiary at the date when control is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset or, when appropriate, the cost on initial recognition of an investment in an associate or jointly controlled entity.

In the Company’s balance sheet, an investment in a subsidiary is stated at cost less any impairment losses (see note 2(l)).

(d) Jointly controlled entities

A jointly controlled entity is an entity which operates under a contractual arrangement between the Group or the Company and other parties, where the contractual arrangement establishes that the Group or the Company and one or more of the other parties share joint control over the economic activity of the entity.

An investment in a jointly controlled entity is accounted for in the consolidated financial statements under the equity method. Under the equity method, the investment is initially recorded at cost, adjusted for any excess of the Group’s share of the acquisition-date fair values of the investee’s identifiable net assets over the cost of the investment (if any). Thereafter, the investment is adjusted for the post acquisition change in the Group’s share of the investee’s net assets and any impairment loss relating to the investment (see notes 2(e) and (l)). Any acquisition-date excess over cost, the Group’s share of the post-acquisition, post-tax results of the investees and any impairment losses for the year are recognised in the consolidated income statement, whereas the Group’s share of the post-acquisition post-tax items of the investees’ other comprehensive income is recognised in the consolidated statement of comprehensive income.

When the Group’s share of losses exceeds its interest in the jointly controlled entity, the Group’s interest is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the investee. For this purpose, the Group’s interest is the carrying amount of the investment under the equity method together with the Group’s long-term interests that in substance form part of the Group’s net investment in the jointly controlled entity.

Unrealised profits and losses resulting from transactions between the Group and its jointly controlled entities are eliminated to the extent of the Group’s interest in the investee, except where unrealised losses provide evidence of an impairment of the asset transferred, in which case they are recognised immediately in profit or loss.

When the Group ceases to have joint control over a jointly controlled entity, it is accounted for as a disposal of the entire interest in that investee, with a resulting gain or loss being recognised in profit or loss. Any interest retained in that former investee at the date when joint control is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset or, when appropriate, the cost on initial recognition of an investment in an associate.





(e) Goodwill

Goodwill represents the excess of

(i) the aggregate of the fair value of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the Group’s previously held equity interest in the acquiree; over

(ii) the net fair value of the acquiree’s identifiable assets and liabilities measured as at the acquisition date.

When (ii) is greater than (i), then this excess is recognised immediately in profit or loss as a gain on a bargain purchase.

Goodwill is stated at cost less accumulated impairment losses. Goodwill arising on a business combination is allocated to each cash-generating unit, or groups of cash-generating units, that is expected to benefit from the synergies of the combination and is tested annually for impairment (see note 2(l)).

In respect of jointly controlled entities, the carrying amount of goodwill is included in the carrying amount of the interest in the jointly controlled entity and the investment as a whole is tested for impairment whenever there is objective evidence of impairment (see note 2(l)).

On disposal of a cash-generating unit or a jointly controlled entity during the year, any attributable amount of purchased goodwill is included in the calculation of the profit or loss on disposal.

(f) Investment properties

Investment properties are land and buildings which are owned to earn rental income and/or for capital appreciation. These include land held for a currently undetermined future use and property that is being constructed or developed for future use as investment property.

Investment properties are stated at fair value, unless they are still in the course of construction or development at the balance sheet date and their fair value cannot be reliably determined at that time. Any gain or loss arising from a change in fair value or from the retirement or disposal of an investment property is recognised in profit or loss. Rental income from investment properties is accounted for as described in note 2(w).

When the Group holds a property interest under an operating lease to earn rental income and/or for capital appreciation, the interest is classified and accounted for as an investment property on a property-by-property basis. Any such property interest which has been classified as an investment property is accounted for as if it were held under a finance lease (see note 2(k)), and the same accounting policies are applied to that interest as are applied to other investment properties leased under finance leases. Lease payments are accounted for as described in note 2(k).





(g) Other property, plant and equipment (excluding construction-in-progress)

Other items of property, plant and equipment (excluding construction-in-progress) are stated at cost less accumulated depreciation and impairment losses (see note 2(l)). Cost includes the purchase price of the asset and any directly attributable costs of bringing the asset to its working condition for its intended use. The cost of self-constructed items of property, plant and equipment includes the cost of materials, direct labour, the initial estimate, where relevant, of the costs of dismantling and removing the items and restoring the site on which they are located and an appropriate proportion of production overheads.

Gains or losses arising from the retirement or disposal of an item of property, plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognised in profit or loss on the date of retirement or disposal. Any related revaluation surplus is transferred from the revaluation reserve to retained profits and is not reclassified to profit or loss.

Depreciation is calculated to write off the cost of items of property, plant and equipment, less their estimated residual value, if any, using the straight line method over their estimated useful lives as follows:

Buildings 20 to 50 yearsLeasehold improvements 3 to 20 yearsPlant and machinery 5 to 10 yearsFurniture, fixtures and equipment 5 yearsMotor vehicles 5 years

Where parts of an item of property, plant and equipment have different useful lives, the cost of the item is allocated on a reasonable basis between the parts and each part is depreciated separately. Both the useful life of an item of property, plant and equipment and its residual value, if any, are reviewed annually.

(h) Construction-in-progress

Construction-in-progress represents buildings, plant and machinery and equipment on which construction work has not been completed and which, upon completion, management intend to hold for production purposes. Construction-in-progress is carried at cost which includes development and construction expenditure incurred and interest and other direct costs attributable to the development less any impairment losses (see note 2(l)). Construction-in-progress is transferred to property, plant and equipment when the asset is substantially ready for its intended use and stated at cost less impairment losses and depreciated in accordance with the policy as stated in note 2(g) above. No depreciation is provided against construction-in-progress.

(i) Land use rights and leasehold land

Prepayments are made for the rights to use land in the People’s Republic of China (“the PRC”) on which various plants and buildings of the Group are situated. Land use rights and leasehold land are carried at cost less accumulated amortisation and impairment losses (see note 2(l)). Amortisation is charged to profit or loss on a straight-line basis over the lease term of the land use rights/leasehold land.





(j) Intangible assets (other than goodwill)

(i) Research and development

Expenditure on research activities is recognised as an expense in the period in which it is incurred. Costs incurred on development projects relating to the design and testing of new or improved pharmaceutical products are recognised as intangible assets when it is probable that the project will be a success considering its commercial and technological feasibility, and only if the costs can be measured reliably which is normally when the products under development have obtained the Approval for Medicine Clinical Research from the relevant authorities in the PRC. Other development expenditure is recognised as an expense in the period in which it is incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.

Capitalised development expenditure with a finite useful life is stated at cost less accumulated amortisation and impairment losses (see note 2(l)) and is amortised from the commencement of the commercial production of the product on a straight-line basis over the period of its expected benefit, not exceeding 10 years.

The net carrying amount of development projects that are designated for trading purposes is recorded as inventories and recognised as cost of goods sold upon sales.

(ii) Technical know-how

Technical know-how that is acquired by the Group is stated at cost less accumulated amortisation and impairment losses (see note 2(l)).

Expenditure on acquired technical know-how is capitalised and amortised on a straight-line basis over the period of its expected benefit, not exceeding 10 years.

(iii) Club memberships

Club memberships with indefinite useful life are stated at cost less impairment losses (see note 2(l)).

(iv) Customer lists

Customer lists that are acquired by the Group are stated at cost less accumulated amortisation and impairment losses (see note 2(l)).

Amortisation of customer lists is charged to profit or loss on a straight-line basis over the period of its expected benefit of 3 to 5 years.

(v) Good supply practice certificate

Good supply practice certificate is stated at cost less accumulated amortisation and impairment losses (see note 2(l)).

Amortisation of good supply practice certificate is charged to profit or loss on a straight-line basis over its remaining period of grant.





(j) Intangible assets (other than goodwill) (continued)

(vi) Non-compete covenant

Non-compete covenant is stated at cost less accumulated amortisation and impairment losses (see note 2(l)).

Amortisation of non-compete covenant is charged to profit or loss on a straight-line basis over the terms of the agreement of 2 years.

Both the period and method of amortisation of intangible assets are reviewed annually.

Intangible assets are not amortised while their useful lives are assessed to be indefinite. Any conclusion that the useful life of an intangible asset is indefinite is reviewed annually to determine whether events and circumstances continue to support the indefinite useful life assessment for that asset. If they do not, the change in the useful life assessment from indefinite to finite is accounted for prospectively from the date of change and in accordance with the policy for amortisation of intangible assets with finite lives as set out above.

(k) Leased assets

An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Group determines that the arrangement conveys a right to use a specific asset or assets for an agreed period of time in return for a payment or a series of payments. Such a determination is made based on an evaluation of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease.

(i) Classification of assets leased to the Group

Assets that are held by the Group under leases which transfer to the Group substantially all the risks and rewards of ownership are classified as being held under finance leases. Leases which do not transfer substantially all the risks and rewards of ownership to the Group are classified as operating leases.

(ii) Operating lease charges

Where the Group has the use of assets held under operating leases, payments made under the leases are charged to profit or loss in equal instalments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset. Lease incentives received are recognised in profit or loss as an integral part of the aggregate net lease payments made. Contingent rentals are charged to profit or loss in the accounting period in which they are incurred.





(l) Impairment of assets

(i) Impairment of investments in debt and equity securities and other receivables

Investments in debt and equity securities and other current and non-current receivables that are stated at cost or amortised cost are reviewed at each balance sheet date to determine whether there is objective evidence of impairment. Objective evidence of impairment includes observable data that comes to the attention of the Group about one or more of the following loss events:

– significant financial difficulty of the debtor;

– a breach of contract, such as a default or delinquency in interest or principal payments;

– it becoming probable that the debtor will enter bankruptcy or other financial reorganisation;

– significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor; and

– a significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.

If any such evidence exists, any impairment loss is determined and recognised as follows:

– For investments in subsidiaries and jointly controlled entities recognised using the equity method (see note 2(d)), the impairment loss is measured by comparing the recoverable amount of the investment with its carrying amount in accordance with note 2(l)(ii). The impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount in accordance with note 2(l)(ii).

– For trade and other receivables, the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition of these assets), where the effect of discounting is material. This assessment is made collectively where financial assets carried at cost or amortised cost share similar risk characteristics, such as similar past due status, and have not been individually assessed as impaired. Future cash flows for financial assets which are assessed for impairment collectively are based on historical loss experience for assets with credit risk characteristics similar to the collective group.

If in a subsequent period the amount of an impairment loss decreases and the decrease can be linked objectively to an event occurring after the impairment loss was recognised, the impairment loss is reversed through profit or loss. A reversal of an impairment loss shall not result in the asset’s carrying amount exceeding that which would have been determined had no impairment loss been recognised in prior years.





(l) Impairment of assets (continued)

(i) Impairment of investments in debt and equity securities and other receivables (continued)

Impairment losses are written off against the corresponding assets directly, except for impairment losses recognised in respect of trade and bills receivables, whose recovery is considered doubtful but not remote. In this case, the impairment losses for doubtful debts are recorded using an allowance account. When the Group is satisfied that recovery is remote, the amount considered irrecoverable is written off against trade and bills receivables directly and any amounts held in the allowance account relating to that debt are reversed. Subsequent recoveries of amounts previously charged to the allowance account are reversed against the allowance account. Other changes in the allowance account and subsequent recoveries of amounts previously written off directly are recognised in profit or loss.

(ii) Impairment of other assets

Internal and external sources of information are reviewed at each balance sheet date to identify indications that the following assets may be impaired or, except in the case of goodwill, an impairment loss previously recognised no longer exists or may have decreased:

– property, plant and equipment (including construction-in-progress);

– land use rights and leasehold land;

– intangible assets; and

– goodwill.

If any such indication exists, the asset’s recoverable amount is estimated. In addition, for goodwill, intangible assets that are not yet available for use and intangible assets that have indefinite useful lives, the recoverable amount is estimated annually whether or not there is any indication of impairment.

– Calculation of recoverable amount

The recoverable amount of an asset is the greater of its fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit).





(l) Impairment of assets (continued)

(ii) Impairment of other assets (continued)

– Recognition of impairment losses

An impairment loss is recognised in profit or loss if the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit (or group of units) and then, to reduce the carrying amount of the other assets in the unit (or group of units) on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs to sell, or value in use, if determinable.

– Reversals of impairment losses

In respect of assets other than goodwill, an impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount. An impairment loss in respect of goodwill is not reversed.

A reversal of an impairment loss is limited to the asset’s carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals of impairment losses are credited to profit or loss in the year in which the reversals are recognised.

(m) Inventories

Inventories are carried at the lower of cost and net realisable value.

Cost is calculated using the weighted average cost method and comprises all costs of purchase, costs of production or conversion and other costs incurred in bringing the inventories to their present location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of overheads based on normal operating capacity.

Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale.

When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.





(n) Trade and other receivables

Trade and other receivables are initially recognised at fair value and thereafter stated at amortised cost less allowance for impairment of doubtful debts (see note 2(l)), except where the effect of discounting would be immaterial. In such cases, the receivables are stated at cost less allowance for impairment of dou

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