chapter 1 important notice and table of contents
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Chapter 1 Important Notice and Table of Contents
Important Notice: the Board of directors of our company guarantee that there is no false
record, misleading statement or important pretermission in this report, and the directors
have individual and joint liability for the truthfulness, accuracy and completeness to the
contents in this report. Director Han Huanguang didn’t attend the meeting adopting this
annual report.The report is published in Chinese and English. The Chinese version is set to
be accurate if any ambiguities occur in the understanding of such two versions.
2
LIST
Chapter 1: Important Notice and Table of Contents
1
Chapter 2: Brief Introduction to Company
3
Chapter3: Summary of Accounting Data and Business Data
4
Chapter4:Introduction to Capitalization Alteration and Shareholders
4
Chapter 5:Introduction to Directors, Supervisors, Senior Managers and Staffs
7
Chapter 6: Administration of the Company
8
Chapter 7:Brief Introduction to Shareholders’ Conference
10
Chapter 8: Report of the Board of Directors
10
Chapter 9: Report of the Supervisory Committee
17
Chapter 10: Important Matters
18
Chapter 11: Financial Report
20
Chapter 12: Contents of Reference Documents
20
3
Chapter 2 Brief Introduction to Company
1. Name of our Company: LIVZON PHARMACEUTICAL GROUP INC.
Abbreviation: LIVZON GROUP
2. Legal Representative: Yi Zhenqiu
President: Xu Xiaoxian
3. Secretary of the Board of Directors: Wang Wuping
Representative of securities work: Li Hao
Tel: (0756) 8135888 Fax: (0756) 8886002
E-mail: wangwuping@livzon.com.cn lihao@livaon.com.cn
Contact address: LIVZON Mansion, the North Guihua Road, Gongbei, Zhuhai City
4. Company registration address:No.132, the North Guihua Road, Gongbei, Zhuhai City,
Guangdong Province.
Company office address: LIVZON Mansion, the North Guihua Road, Gongbei,
Zhuhai City, Guangdong Province
Zip Code: 519020
Web-site: http://www.livzon.com
E-mail: zhlivzon@pub.zhuhai.gd.cn
5. Selected newspaper throw daylight on:
‘Stocks Times’, ‘Shanghai Securities Paper’, Hongkong ‘Wen wai Po’ (Chinese, English
language)
The annual report throw daylight on the web-site appointed by CSRC:
http://www.cninfo.com.cn
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Annual report prepared place: Secretariat of LIVZON Group Board of Directors
6. Stock listed Exchange: Shenzhen Exchange
Stock abbreviated and code: LIVZON GROUP (000513) LIVZON B (200513)
7. Other related information:
Date of first registration: January 26, 1985
Date of alteration registration: May 29, 2001
Company register place: Zhuhai Industry and Commerce Administrative Bureau
Company Business License Registered No.: QGYZZZi No.001111
Tax registered No.: 440401617488309
8. Name of invited domestic Accountant Office: Lianda Xinlong Accountant Office Co.,
Ltd.
Address: No.1 of Building 252, Huwan Road, Xiangzhou District, Zhuhai City.
Name of invited international Accountant Office: Ho and Ho & Company
Address: Arion Commercial Center, No.2-12, Queen’s Road West, Hong Kong.
Chapter 3 Summary of Accounting Data and Business Data
I. Main Accounting Data (Unit:
RMB’000)
Major Accounting Figures 2001 2000
Revenue 1,395,792 1,154,706
Gross Profit 651,195 516,655
Share of Results of Associates (841) 542
Profit Before Tax 110,532 3,325
Income tax expense (27,175) (9,352)
Profit after tax 83,357 (6,027)
Minority Interests (24,308) (16,083)
Net profit for the year 59,049 (22,110)
Earnings per Share RMB0.19 (RMB0.07)
Share capital 306,035 306,035
Capital and reserves 909,671 850,622
Total assets 1,641,717 1,516,276
Net cash inflow from operating activities 166,068 62,893
Net increase(decrease)in cash and cash equivalents 134,083 (53,806)
Notes: The indicators above was audited by Ho and Ho & Company according to
International Accounting Standard, which is given as reference for B shares investors.
II. Net profit audit difference
As examined and checked by Lianda Xinlong Accountant Company, Ltd. according to the
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Chinese accounting norms, our company reaped a net profit of 50,392,136.63 yuan in 2001;
and according to the examination and check by Ho and Ho & Company in accordance with
the international accounting norms, our company had a net profit of 59,049,000 yuan in
2001. The difference between the two is 8,656,863.37 yuan. The main reasons for the
difference are: According to the international accounting norms, 6,886,000 yuan, 6,817,000
yuan, and 915,000 yuan will be added to the profits respectively for bad debts preparation,
amortization of apportion expenses, and confirmation of investment returns. And 251,000
yuan, 3,524,000 yuan, 286,000 yuan and 1,900,000 yuan will be deducted respectively from
the profits for amortization of business reputation, expenses collected in advance, the
negative business reputation obtained when purchasing subcompanies and others.
Chapter 4 Introduction to Capitalization Alteration andShareholders
I. Capitalization Alteration Situationa.Capitalization Alteration list (up to December 31, 2001)
alterationbefore
Current alteration (plus & minus) Alterationafter
AllocatedStock
Presentedstock
AccumulationFund transferto stock
Appendedissue
Others
UncirculatedShareOrganizerShare:1.Domesticcorporationstock
68,056,188 68,056,188
2.ForeigncapitalCorporationstock
18,893,448 -18,893,448 0
TotaluncirculatedShares
86,949,636 -18,893,448 68,056,188
Circulatedshare1. Class Astock
115,672,310 115,672,310
Thereinto:SeniorManagerStock
80,798 80,798
2. Class Bstock
103,413,536 +18,893,448 122,306,984
TotalcirculatedShare
219,085,846 +18,893,448 237,979,294
Total shares 306,035,482 306,035,482
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b. Stock issue and market situation for recent 3 years
There is no change in the capitalization construction for the recent 3 years in our company,
the total capitalization is 306,035, 482 shares.
The foreign capital corporation stock (18,893,448 shares) of our company which hold by
Guangda Pharmaceutical Com. Ltd. of China (now rename as ‘Guangtai Pharmaceutical
Com. Ltd. of China’) was approved by CSRC to circulate on the market on July 18, 2001,
which has proclaim in Stocks Times, Shanghai Securities Paper and Hong Kong Wen Wai
Po on July 12, 2001.
//. Shareholders’ situation1. At the end of 2001: Total shareholders: including A-shair shareholders, class B
stock shareholders:
2. Stock holding situations of first ten shareholders (up to December 31, 2001)
Order Name Amount Alteration Proportion(%) Character1 Guangda (group)
Company ofChina
38,917,518 0 12.72 Domesticcorporationstock
2 Zhuhai LishiInvestment Co.Ltd.
22,379,239 +22,379,239 7.31 Domesticcorporationstock
3 GuangtaiPharmaceuticalCo. Ltd. of China
15,628,395 -3,265,053 5.11 Class Bcommonstock
4 GuangzhouBaokeli TradingCompany
6,059,428 -5,000,000 1.98 Domesticcorporationstock
5 JinshengSecuritiesInvestment Fund
2,671,039 +663,421 0.87 Class Acommonstock
6 ShanghaiSecurities Co.Ltd.
1,561,793 +1,561,793 0.51 Class Acommonstock
7 TianhuaSecuritiesInvestment Fund
1,150,000 +1,150,000 0.38 Class Acommonstock
8 JingyangSecuritiesInvestment Fund
1,144,252 +1,144,252 0.37 Class Acommonstock
9 Han Gui Yi 1,017,464 +1,017,464 0.33 Class Acommonstock
10 Xibu SecuritiesHoldings Co.Ltd.
899,232 +899,232 0.29 Class Acommonstock
(Note: the above shareholders not exist associated relation)
III. The principal shareholder of our Company:
Up to the end of the report period, the principal shareholder is Guangda (group)
Company of China. This Company was register on November 12, 1990. the Legal
representative is Wang Mingquan, the register capital is RMB 20,000,000.00, mainly engage
in bank, financial business, domestic stock exchange business,etc.
7
Chapter 5: Introduction to Directors, Supervisors, SeniorManagers and Staffs
1.Introduction of Directors, Supervisors and Senior Managers
(I.). Brief introductionName Sex Age Title Employment
PeriodSharesholding at thebeginning ofthis year
Sharesholding bythe end ofthis year
Yi Zhenqiu Male 58 Chairman From Dec.1998 to May2002
0 0
Xu Xiaoxian Male 65 DeputyChairmanPresident
Ditto 48476 48476
DongShaozhi
Male 61 DirectorExecutiveVicePresidents
Ditto 0 0
WuYanpeng Male 39 Director Ditto 0 0HanHuanguang
Male 41 Director Ditto 0 0
ChenDanglin
Male 52 Director Ditto 0 0
Cao Wenxia Female 57 Director Ditto 16158 16158Yang Chu Male 36 Chairman of
SupervisoryFrom Dec.1998 to May2002
0 0
Li Yufang Female 51 Supervisor From Dec.1998 to May2002
16158 16158
HuangBiran
Male 58 Supervisor From Dec.1998 to May2002
0 0
LiangJinlong
Male 41 Supervisor From Dec.2000 to May2002
0 0
ZhengWangong
Male 61 Supervisor From Dec.1998 to May2002
0 0
ShenWeijun
Male 56 DeputyChairmanPresident
From April2001
0 0
Liu Shuqing Female 38 AssistantPresident
From April2001
0 0
Zhao Rui Male 36 GeneralAccountant(responsible person incharge offinance)
From April2001
0 0
Wang Male 36 Secretary to From Dec. 0 0
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Wuping the board ofdirectors
1998 to May2002
(II) Information on annual remunerations
The board directors and the supervisory directors of the Inc. do not receive remunerations
from the Inc. The annual total of remunerations paid to the senior managerial staffs
amounts to RMB 2,030 thousand yuan Among them,5 persons are paid by a level of RMB
100-450 thousand, and 1 is by a level of RMB 450 thousand. The total remuneration for the
three senior managerial staff persons with the highest pay level amounts to RMB 1,280
thousand. The remuneration levels are determined on the basis of the importance of the job
posts, the personal responsibilities, the individual contributions, and the efficiency of the
Inc.
(III) Information on the quits and appointments
The 8th meeting of the 3rd session of the board of directors held in April of 22001 passed the
resolution to appoint Mr. Dong Shaozhi to be the Deputy Chairman of Board of Directors.
With the nomination by President Xu Xiaoxian, Mr. Shen Weijun and Mr. Dong Shaozhi were
appointed to be the executive Vice Presidents, Mr. Liu Shuqing to be the Assistant
President and Mr. Zhao Rui to be the General Accountant (responsible person in charge of
finance). The Inc. shall not appoint a general manager and the deputy general managers.
The persons who were originally appointed to take these posts shall not continue their job
assignments.
2. Information on employees of the Inc.
There are 2326 full-time employees in the Inc. at present (not including those in the
shareholding companies). The Inc. is also responsible for the payments of pensions for 71
retired employees (including 26 persons who were treated as retired by the corporation).
Among all the employees, 900 persons are engaged in production, 996 persons in
marketing and sales, 135 technicians, 50 financial staff persons, and 245 administrative
staff persons. Of all the employees, 1,203 persons have educational backgrounds above
college level, accounting for 51.72 % of the total workforce.
Chapter 6 Administration of the Company
1.State of AdministrationAt the end of 2000 the supervision and control office of Guangzhou Stock Company made a
routine inspection of our Company, pointed out some problems in our work and put
forward many valuable suggestions on improving the administration structure of the legal
person of our Company. In the following year our Company implemented measures for
reform and consolidation item by item, amended some parts of the Company’s regulations,
and basically completed the reform and consolidation as required in the notice of reform
and consolidation. In accordance with the requirements of the Governing Principles of
Listed Companies jointly issued by China Securities Regulatory Commission (CSRC) and
State Economic and Trade Commission and Guide to the Regulations of Listed Companies
9
issued by CSRC, and in the light of the actual conditions of the Company, our Company will
make great amendments about the company’s regulations this year. A new chapter on
independent directors will be added to the regulations. We plan to further improve the
election process of the directors, independent directors and supervisors, and to regulate
the authority and process of such major fund operations as investment guarantee. We are
also planning to formulate a series of rules and regulations, such as rules of procedures
for the shareholders’ conference, so as to make clearer the responsibilities and rights and
work process.
2.Duty performance of the independent directorsAt present there are no independent directors in the Company. In 2002, in accordance with
the requirements as stated in On the Guiding Principles for the Establishment of
Independent Directors System in Listed Companies issued by CSRC, our Company will
make active efforts to introduce independent directors and to further regulate the legal
person structure of the Company, so as to embody really the Company’s operation
principle: being fair, just and open.
3.The Company is totally independent of its largest shareholder in business, personnel,
assets, organizational setup and finance. In business, the Company is totally independent,
having its own independent purchasing and marketing systems. The Company and its
biggest shareholder do not engage in the production and operation of the same products,
so there is nothing like competition within the same trade. In personnel, the Company is
totally independent of the biggest shareholder in the management of labour, personnel and
pay. In assets, the Company possesses its whole assets and has independent production,
supply and marketing systems. The company has independent and complete
organizational setup, which is strictly separated from that of its biggest shareholder. As for
finance, the Company has its own independent financial department and has set up a
standard and independent financial and accounting system and a system for the
management of the finance of the enterprises affiliated to it.
4.The establishment and implementation of a system for the assessment, evaluation and
encouragement of the senior managerial personnel of the Company
In 2001 an annual salary system linked with objectives was carried out for the Company’s
senior managerial personnel , with rewards floating based on the personal achievements
linked with the target fulfillment of the Company’s business profits.
Chapter 7 Brief Introduction to Shareholders’ Conference
I. The Company’s shareholders’ conference for the year 2001 (i.e. the Thirteenth
Shareholders’ Conference of Livzon Pharmaceutical Group Inc.) was held at the
Company’s office building on May 26, 2001. The notice for the meeting was announced in
10
Stocks Times, Shanghai Securities Paper and Wen Wai Po on April 26, 2001. Present at the
conference were 21 shareholders, representing 94,798,523 shares, accounting for 30.98%
of the total shares of the Company (including 19,410,148 class B stock, accounting for
6.34% of the Company’s total). The conference adopted the following resolutions:
1. The President’s Work Report for 2000 of Livzon Pharmaceutical Group Inc.
2. The Work Report of the Board of Directors for 2000 of Livzon Pharmaceutical Group
Inc.
3. Proposal on the Amendment of the Company’s Regulations by Livzon
Pharmaceutical Group Inc.
4. Work Report of the Supervisory Committee for 2000 of Livzon Pharmaceutical Group
Inc.
5. Report on the Execution of the Finance for 2000 of Livzon Pharmaceutical Group Inc.
6. Allocation plan of the Profits for 2000 of Livzon Pharmaceutical Group Inc.
7. Proposal on Authorizing the Management of the Company to Select Accounting
Firms outside China
8. Proposal on Straightening out the Property Right of the Twelve Second-class
Enterprises of the Group Including Livzon Pharmaceutical Factory
The resolutions of the Thirteenth Shareholders’ Conference were published on May 29,
2001 in Stocks Times, Shanghai Securities Paper and Wen Wai Po (Hong Kong). No
replacements of directors or supervisors were made at the Thirteenth Shareholders’
Conference.
II. The provisional Shareholders’ Conference for 2001 was held at the conference room on
the second floor of the Company’s office building on July 13, 2001. The notice for the
meeting was announced in Stocks Times, Shanghai Securities Paper and Wen Wai Po
(Hong Kong) on June 12, 2001. Present at the conference were 8 shareholders,
representing 87,014,267 shares, accounting for 28.43% of the total shares of the Company
(including 18,893,448 B-shair, accounting for 6.17% of the Company’s total). The Proposal
on the Amendment of the Company’s Regulations by Livzon Pharmaceutical Group Inc.
was adopted at the conference by a vote in written form. And the resolution was published
on July 16, 2001 in Stocks Times, Shanghai Securities Paper and Wen Wai Po (Hong Kong).
Chapter 8 Report of the Board of Directors
I. The operation of the Company1. Main scope of business and the business state:
a. The Company is chiefly engaged in the production, marketing and research of
pharmaceutical products, the main products being Lizhu dele, Lizhu changle, Lizhu
Huisanlian, Lizhuwei, Lizhufeng, etc. The Company produces about 100 varieties of
medicines and drugs, including chemical reagents, biochemical medicines,
bioengineering medicines, antibiotic, and prepared Chinese medicine, etc.
b. The Company’s business income for 2001 was 1,395,792 thousand yuan, an increase of
11
18.43% over the previous year, with a net profit at 50,392 thousand yuan, an increase of
385.67% over the previous year. In view of the increasingly fierce competition in China’s
domestic medical market, the big increase in the Company’s revenue is an important
outcome of the Company’s reform in marketing as well as the great efforts of all the staff
and workers of the Company.
In 2001 the Company proceeded with its all-out reform in marketing. On the basis of the
previous two marketing systems (System I and System II), the marketing system was
further integrated, to achieve a combination of the market, business and finance in the
marketing system of new drugs and common drugs, so that the resources were shared,
the cost lowered, and the operational efficiency of the whole marketing system greatly
enhanced. At the end of the year the Company put forward a new thinking—a new
concept in the establishment of the circulation of Livzon drugs. The new circulation
concept embodies a totally new ideal – to provide services to all the forces competing in
the market. Its purpose is to combine all the forces in the research, production and
marketing and, through reasonable distribution of interests, make fullest use of the
resources that have been previously widely dispersed, so as to develop together and to
enhance the capability to meet any emergencies. This new circulation concept is now
only in the initial stage and the Company will accordingly consolidate and enlarge the
current advantages in resources, in the hope that the enterprise will develop rapidly to
become a leading enterprise in the trade.
In 2001 several factories under the Company passed the GMP attestation by the state,
including the diagnosing reagent production line of the Lizhu Reagent Factory, the
infusion production line of the Limin pharmaceutical Factory and the newly-built
production lines for frozen powder injection, solid preparation and paste of Hubei Keyi
Pharmaceutical Com. Ltd. By the end of 2001, as many as 18 production lines of the
companies either funded wholly or controlled by our Company had passed the GMP
attestation of the state. There are no workshops or production lines of the companies
either funded wholly or controlled by our Company whose GMP attestation time-limit is
overdue and that have not passed the GMP attestation of the state.
c. The composition of main business income and the classified marketing
Unit: (RMB’000)
2001 2000 1999Salesvolme
Percentage(%)
Salesvolme
Percentage
Salesvolme
Percentage
Self-produceddrugs
1,314,209 94.16 1,002,268 85.04 1,024,093 90.32
Anti-infectiousdrugs
534,323 38.28 376,369 31.93 635,271 56.03
Digestant 289,625 20.75 257,477 21.85 135,889 11.99Cardio-cerebrovascular drugs
188,678 13.52 74,395 6.31 104,475 9.21
Others 301,582 21.61 294,027 24.95 148,459 13.09Agent drugs 81,584 5.84 176,285 14.96 109,726 9.68
Total 1,395,792 100% 1,178,553 100% 1,133,820 100%
2. Business state of the main controlled companies of Livzon Group
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a. Hubei Keyi Pharmaceutical Com. Ltd.: Its registered capital is 22 million yuan (RMB). It
mainly engages in the production of preparation products and compound materials for
drugs, the principal product being Likewei, a drug of which the company is the only
producer in China. Our Company has 46% of the shares of the limited company. Up to
December 31, 2001, the company’s total asset amounted to 110,916 thousand yuan, its
main business income in 2001 was 111,876 thousand yuan, with a net profit of 23,476
thousand yuan.
b. Sichuan Guangda Pharmaceutical Com. Ltd. of Livzon Pharmaceutical Group, Inc: Its
registered capital is 59.89 million yuan (RMB). It mainly engages in the production and
marketing of prepared Chinese medicine and the development of new drugs. Its
principal products include antivirotic granules and nine-flavour beneficial-to-the-brain
granules. Our Company has 52% of the shares of the limited company. Up to December
31, 2001, the company’s total asset amounted to 164,544 thousand yuan; its main
business income in 2001 was 100,476 thousand yuan, with a net profit of 8,861
thousand yuan.
c. Shanghai Livzon Pharmaceutical Com. Ltd.: Its registered capital is 45 million yuan
(RMB). It mainly engages in the production and marketing of preparation products and
biochemical materials for drugs. Its principal products are Yitaimei and keluoqu. Our
Company has 85% of the shares of the limited company. Up to December 31, 2001, the
company’s total asset amounted to 142,079 thousand yuan; its main business income
in 2001 was 35,781 thousand yuan. Since it was set up not long ago, and the
investment in the early stage was great, it has a deficit of 2,111 thousand yuan.
d. Hubei Liyi Pharmaceutical Technological Co. Ltd.: Its registered capital is 10 million yuan
(RMB). It mainly engages in research and development as well as technological
consultation. Our Company has 50% of the shares of the limited company. Up to
December 31, 2001, the company’s total asset amounted to 31.626 thousand yuan; its
main business income in 2001 was 18,277 thousand yuan, with a net profit of 7,265
thousand yuan.
e. Livzon Group Libao biochemical pharmaceutical Co.,Ltd.: Its registered capital is 50
million yuan (RMB). It mainly engages in manufacturing biochemical medicine such as
“Lizhu Saile”. Our Company has 76.99% of the shares of the limited company. Up to
December 31, 2001, the company’s total asset amounted to 64,284 thousand yuan; its
main business income in 2001 was 109,521 thousand yuan, with a net profit of 14,323
thousand yuan
3. Customers and Suppliers
The sales volume to the five biggest customers this year amounts to 204,869 thousand
yuan, accounting for 14.68% of the total sales volume of the company; and the amount of
purchase from the five biggest suppliers reaches 114,070 thousand yuan, accounting for
30.47% of the total purchase of the company.
4. Business difficulties and their solutions
13
In 2001 the state government made further adjustment of the pharmaceutical market; in
various places the purchase of drugs was made though public bidding; the prices of drugs
were lowered as prescribed by the state Planning Commission—all this had some impact
on the company’s profit. In 2001, in conforming to the reforms in medical system carried
out by the state, the Company began to develop the ERP system in marketing, by which to
do instant management, process management and links management, so as to optimize
the resources inside and outside the Company to achieve high efficiency and to gain the
upper hand in the competition.
II.Investment during the period of report1. Use of the fund raised:
During the period of report, the Company did not raise fund though thestock market.
2. Investments:
a.On March 31, 2001, our Company signed an agreement of transferring shareholder’s right
with Chendu Yaoyou Scientific and Technological Development Com. Ltd. and bought
from it 20% of the shareholder’s right of the Livzon Fine Scientific and Technological
Investment Com. Ltd., with a transferring price of 2.3 million yuan. After the agreement
goes into effect, our Company will own 80% of the shareholder’s right of the Livzon
Fine Scientific and Technological Investment Com. Ltd. The company mainly engages
in the research and development of the drugs and medical technology, scientific and
technological consultation and investment in projects.
b. On June 7, 2001, our Company and Antao Development Com. Ltd. (wholly funded by our
Company) signed an agreement of transferring shareholder’s right with Xinli
Pharmaceutical Import and Export Com. Ltd. and bought respectively from it 28% and
13%of the shareholder’s right of the Likang Pharmaceutical Com. Ltd. of Zhuhai
Special Economic Zone, with a transferring price of 18.676 million yuan and 8.671
million yuan respectively. On June 15, 2001, our Company signed an agreement of
transferring shareholder’s right with China Pharmaceutical (Group) Shanghai
Company, and bought from it 6% of the shareholder’s right of the Likang
Pharmaceutical Com. Ltd. of Zhuhai Special Economic Zone, with a transferring price
of 4.002 million yuan. After the agreement goes into effect, our Company and Antao
Development Com. Ltd. (wholly funded by our Company) will own 59% and 13% of the
shareholder’s right of Likang Pharmaceutical Com. Ltd. of Zhuhai Special Economic
Zone. The company mainly engages in the production and marketing of cephalosporin
powder injection.
c. On June 1, 2001, our Company made an investment of 1.0254 million yuan (in cash) in
Chendu Kailekai Industrial Com. Ltd. which was jointly funded by Chendu Organic
Chemistry Institute of the Academy of Sciences of China, Technological Development
General Corporation of Chendu Organic Chemistry Institute of the Academy of
Sciences of China, and Miaiqiao, with a registered capital of 600000 yuan, later
increased to 1.23 million yuan when its name was changed to Chendu Likai Dry
14
Technological Com. Ltd. Our Company owns 40% of the shareholder’s right of the
company. It mainly engages in the research and manufacturing of dry drugs.
d. In May 2001, our Company and Guangzhou Chinese Medicine University jointly funded
and set up Zhuhai Modern Chinese Medicine High-tech Com. Ltd. The company has a
registered capital of 6 million yuan, of which 4.5 million was provided by our Company.
Our Company owns 75% of the shareholder’s right. It mainly engages in the research
and development of the Chinese medicine and Chinese medicine engineering
technology and equipment, as well as in technical services and consultation.
e. On October 18, 2001, our Company signed an agreement on the establishment of Zhuhai
Li’ao Microecological Products Com. Ltd. with a registered capital of 1 million yuan, of
which our Company provided 900000 yuan and owns 90% of the shareholder’s right
The company mainly engages in the research and development of the new projects,
new products and new technology as well as the transfer of results in the
microecological field.
f. Adopted by the 9th meeting of the Third Board of Directors, our Company made an
investment of 3,703,700 yuan in the stocks of Beijing Xin hao Modern Pharmaceutical
Development Com. Ltd., and owns 10% of the company’s shares. The original
registered capital of the company was 20 million yuan (RMB). It mainly engages in the
research and development of pharmaceutical products and chemical intermediate, as
well as technical consultation and technical transfer. The registration of changes with
the industrial and commercial administration is under way.
III. An analysis of financial stateFor the year the main business income will be 1,395,792 thousand yuan, an increase of
217,239 thousand yuan (18.43%) from the previous year’s 1,178,553 thousand yuan. That’s
because Lizhudele instant herbal mixture, Lizhudele capsules, Lizhu changle, and Lizhu
Huisanlian, etc. sold well, because the sales of materials for drugs of the compound
factories increased, and also because the likewei, a product of Hubei Keyi Pharmaceutical
Com. Ltd., .saw a big increase in its sales volume. For the year the main business profit will
be 651,215 thousand yuan, an increase of 108,743 thousand yuan (20.05 %) from the
previous year’s 542,473 thousand yuan. That’s because the main business income and
hence the gross profit increased. For the year the net profit is 50,392 thousand yuan, an
increase of 40,040 thousand yuan (386.77%) from the previous year’s 10,352 thousand
yuan.; that’s mainly because of the increase in sales and gross profit and also because of
the lowering of cost and the increase of profits in other businesses.
The total assets at the end of the year were 1,676,191 thousand yuan, an increase of
127,909 thousand yuan (8.26%) from the previous year’s 1,548,283 thousand yuan. The
reasons for the increase are: More loans were paid back to us by our debtors and we could
borrow more money from the banks at the end of the year. Our total debt at the end of the
year was 639,371 thousand yuan, of which 550 thousand yuan was long-term debt ,49,970
thousand yuan less than that at the beginning of the year’s 50,520 thousand yuan. The
reason for its decrease is that the long-term debts which were due within one year were
transferred to the floating debts. The rights and interests of the shareholders were 918,972
15
thousand yuan, an increase of 42,445 thousand yuan (4.84%) from the previous year’s
876,527 thousand yuan. That’s because the profits that had not been allocated and the
surplus accumulation fund had increased.
IV. Business plan for the new year
In 2002 the Company will continue to increase its superiority in the digestive , anti-
infectious and cardio-cerebro vascular fields, and, centering around the strategic
objective of “becoming large and powerful”, will renew the business concept,
management concept and system concept, strengthen the core competitive power .
1. Vigorously promote overall budget and the regulation of the process to avoid business
risks
Further tighten the planning management and process regulation of the Company’s
operation and vigorously promote the implementation of the overall financial budgetary
system, strengthen the control of financial affairs, strictly control various budgetary
items, supervise and monitor every link in the process of operation and every factor that
will affect the realization of the business target, and improve the checking system within
the Company to prevent business risks.
2. Strive to bring the core business into full play and become big and powerful in the main
business
Stress the core resources of the main business and exercise direct management of the
market, research and flow of materials in the digestive, anti-infectious and cardio-
cerebro vascular fields in the form of business management, and consolidate and
enlarge the share of the market in those fields. As to other advantageous resources, the
Company will gradually combine them into several groupings, such as biochemical,
prepared Chinese medicine, antiviral, compound drugs, ferment and biotechnology and
exercise management of them in the form of strategic control management, so as to
make each grouping a market mainstay and profit center. In the meanwhile, in 2002 the
Company will gradually implement the new concept of medical circulation, accelerate
the ideological reform in the medical circulation field, and adopt the business concept
of rendering services to the people in competition, to carry out the great changes in the
marketing system, and to accelerate the process of the Group in realizing its objective
of being big and powerful.
The Livzon chain drugstores which the Company had intended to expand will maintain
their present scope and will not for the moment be expanded.
3. Strengthen research and development and accelerate the market orientation of the new
products
Adhere to the market orientation of the research work, and, centering aroundthe main business of the Company, improve the exchange andcommunication among various links of research, marketing and production,accelerate the transfer of research results into productivity, and promote theresearch and development of the new products that are highly technological
16
and of which our Company has property right. At the same time the companywill pay more attention to scientific and technological innovation and to theestablishment of a scientific base, so as to enable the Company to havemore stamina in its development.
4. Recreate corporate culture to bring about the realization of the new strategy
Corporate culture is a great cohesive force for the Company, and at a time when the
Company is starting an undertaking for the second time, it is of vital importance to
recreate corporate culture. In 2002 the Company will strengthen the building of
corporate culture, arouse the enthusiasm and sense of responsibility of the staff and
workers in their participation in the renewed undertaking of the Company, to create a
good environment for competition and development. In the meanwhile promote the
implementation of the Company’s new strategy by the recreation of the corporate
culture, strengthen the integration of the Company’s resources, make clear as soon as
possible the organizational framework and the position of each grouping, strive to do
some things by leaving other things undone, so as to make new breakthrough for the
Company in the near future.
V. Routine work of the Board of DirectorsDuring the period of the report, we held three meetings (the 7th, 8th, and 9th) of the Third
Board of Directors.
On February 9, 2001, the 7th meeting of the Third Board of Directors was held at the
conference room on the third floor of the Company’s office building. The meeting adopted
Explanations on Making Joint Investment to Set up Hubei Liyi Pharmaceutical
Technological Com. Ltd., Proposal on the Transfer of Shareholder’s Right of Liyi Company
and Turning it into a Limited Company, Proposal on the Cooperation of Property Right with
Chendu Organic Chemistry Institute, Proposal on the Implementation of the the Regulation
and Reform Plan of the Group (draft), and Proposal on Authorizing the Right of Approving
Investment Projects to the Top Managerial Level of the Group.
On April 24, 2001, the 8th meeting of the Third Board of Directors was held at the
conference room on the third floor of the Company’s office building. The meeting adopted
Annual Report for 2000 of Livzon Group, President’s Annual Report for 2000 of Livzon
Group, Annual Report of the Board for 2000 of Livzon Group, Proposal on the Amendment
of the Company’s Regulations by Livzon Pharmaceutical Group Inc., Proposal on the
Adjustment of the Organizational Framework and Senior Managerial Personnel of Livzon
Group, Report on the Execution of the Finance for 2000 of Livzon Pharmaceutical Group
Inc., Allocation Plan of the Profits for 2000 of Livzon Pharmaceutical Group Inc.,
Allocation Policy of the Profits for 2001 of Livzon Pharmaceutical Group Inc., Proposal on
the Purchase of the Shareholder’s Right of the Likang Pharmaceutical Com. Ltd., Proposal
on the Authorization of Raising Fund, Proposal on Authorizing the Management of the
Company to Select Accounting Firms outside China, Proposal on Straightening out the
Property Right of the Twelve Second-class Enterprises of the Group Including Livzon
Pharmaceutical Factory, and Proposal on the Convening of the Thirteenth Shareholders’
17
Conference.
On August 17, 2001, the 9th meeting of the Third Board of Directors was held at the
conference room on the third floor of the Company’s office building. The meeting adopted
Mid-term Report for 2001 of Livzon Group, Proposal on Not Making Mid-term allocation of
Profits and Transfer of Accumulation Fund to Capital Stock, Report on the Execution of the
Finance for the First Half of 2000 of Livzon Pharmaceutical Group Inc., Proposal on the
Amendment of the Internal Control System of the Devaluation of the Various Assets of the
Livzon Group, Being Prepared to Withdraw and Losses Management, and Proposal on the
Engagement of Accountant’s Office outside China by Livzon Group.
VI. Profit Allocation PlanAccording to the principle of allocating the lowest distributable profits to the
shareholders, and on the basis of 10,851,000 yuan as the distributable profits to the
shareholders according to the foreign accounting (the merged reported figure), 0.3 yuan in
cash will be distributed to every ten shares, but there will be no dividends on shares, nor is
there an increase of capital stock from the accumulation fund.
Chapter 9 Report of the Supervisory Committee
I. The work of the Supervisory Committee
On April 24, 2001, the 4th meeting of the Third Supervisory Committee was held at the
conference room on the third floor of the Company’s office building. The meeting adopted
Work Report of the Supervisory Committee for 2000 of Livzon Pharmaceutical Group Inc.,
Proposal on the Amendment of the Regulations of Supervisory Committee.
II. Independent opinions of the Supervisory Committee1. The Company operates in accordance with the law
The Supervisory Committee conscientiously performed its duties as prescribed by
Corporate Law and Corporate Regulations, and exercised its rights as the Supervisory
Committee, examine and check the operation of the Company in the light of law. After
examination and check, it found that the Board of Directors has carried the resolutions
adopted by the shareholders conference to the letter, its decision-making procedure
conforms to the stipulations of the Corporate Regulations, and also it has established
the Internal Control System of the Devaluation of the Various Assets of the Livzon
Group, Being Prepared to Withdraw and Losses Management. When carrying out their
duties, the Directors and senior managerial personnel have not violated the law, rules
and regulations, nor have they jeopardized the interests of the shareholders and the
Company.
2. Lianda Xinlong Accountant Office Com. Ltd. and Ho and Ho & Company respectively
audited the financial statement for 2001 of the Company according to the domestic
and international accounting norms and presented auditing reports in which they
18
stated they had no reservations. The Supervisory Committee holds that the
auditing reports reflect the actual financial state of the Company and its production
and business results.
3. The changing procedure of the actual invested project for the funds which the
Company raised last time is in conformity with the regulations of the Shenzhen
Stock Exchange and the CSRC.
4. The trading prices for the purchase and selling of assets by the Company are
reasonable. There is no behind-the-scenes deal, no conduct that damages the right
and interests of some of the shareholders, and that causes the loss of the
Company’s assets.
5. The related deals the Company made are in conformity with the market economic
principle: fair deal, and reasonable price. There is no infringement on the interests
of the Company and shareholders.
Chapter 10 Important MattersI. This year no major lawsuits or arbitration happened to the Company.
II. Other important matters:
1. Shanghai Livzon Pharmaceutical Com. Ltd. (Shanghai Livzon for short) and Shanghai
Livzon Dongfeng Biotechnology Com. Ltd. (Shanghai Livzon Dongfeng for short),
both affiliated to the Company, are planning to reorganize their assets. The matter
was examined and agreed to by the Company’s Board of Directors. Shanghai Livzon
is to absorb and annex Shanghai Livzon Dongfeng with its own registered capital as
the basis. Upon completion of the reorganization of assets, the registered capital of
Shanghai Livzon will be increased from 45 million yuan to 57.6711 million yuan, the
shareholders being Livzon Pharmaceutical Com. Ltd., Shanghai Jinqiao Company,
and Shanghai Shenglongda Company, respectively with 80.09%, 11.7% and 8.21% of
the shareholder’s rights. The reorganization of the assets is still under way.
2. The Company plans to buy 5% right of the Hubei Keyi Pharmaceutical Com. Ltd., of which
our Company is the holding company, from Shenzhen Guangzhu Investment Com.
Ltd., thus enabling our Company to become holding 51% shareholder’s right of Hubei
Keyi Pharmaceutical Com. having, a 5% increase from 46%.
3. The Company decided to reorganize the shareholder’s rights of Hubei Keyi
Pharmaceutical Com. Ltd. (Keyi Company for short) and Hubei Liyi Pharmaceutical
Technological Com. Ltd. (Liyi Company for short), so as to guarantee a steady
development of the two companies and to establish a link between research and
production. The Company and Hubei Pharmaceutical Industrial Research Institute
decided to increase investments in their shares of Liyi Company (each having 25.5%).
After that Liyi Company will hold 51% of the shares of Keyi Company, making it the
19
holding company of Keyi Company. Our Company will increase our investment in the
shares of Liyi Company once more, and our Company will hold 59% of the
stockholder’s right of Liyi Company and Hubei Pharmaceutical Industrial Research
Institute will hold 41% of its stockholder’s right. Liyi Company will gradually become a
scientific and technological center of the Livzon Group.
4. The Board meeting of the Livzon (Hong Kong) Company, Ltd., a subcompany wholly
funded by our Group, passed the following resolution: Livzon (Hong Kong) Company
is to transfer the 45% stockholder’s right of Geneharbor Technologies Inc. which it
owns directly or indirectly to Being Base Investments Limited at a price of 2.5 million
HK dollars
III. Connective deals1. Purchasing of commodities
Name of the related party 2001 2000
Suzhou Xinbao Pharmaceutical Factory 6,426,622.83 6,034,352.56
Changzhou Kangli Pharmaceutical
Com. Ltd. of Livzon Group 16,279,107.60 17,259,360.68
For the purchases of pharmaceutical products from the associated suppliers, the accountsof the purchase prices are settled in accordance with the market prices for the similarproducts.
(2) Balance of receivables of the associated suppliers 2001/12/31 2000/12/31Zhuhai Livzon Medical-Purpose Electronic Equipment Co. Ltd 4,739,344.31 4,388,823.36
(3) Balance of payables of the associated suppliers 2001/12/31 2000/12/31Suzhou Xinbao Pharmaceutical Factory 2,631,969.344,284,173.50Livzon Group Inc. Changzhou Kangli Pharmaceutical Co. Ltd — — 4,406,786.33
(4) During the time period covered by the report, Livzon Group Inc. did not enter anyassociated transactions related with the transfers of assets or equities.
IV. Surety Terms1. Shanghai Livzon Pharmaceutical Co. Ltd, a shareholding subsidiary company under this
Inc., signed a loan contract with a borrowing value of RMB 49.97 million from ShanghaiBank in the year of 1998. This Inc. provided the guarantee of joint liabilities for this loan,which will be mature by the year of 2002.
2. Shanghai Livzon Pharmaceutical Co. Ltd, a shareholding subsidiary company under thisInc., signed a loan contract of flowing capital with a borrowing value of RMB 15 millionfrom Shanghai Pudong Development Bank on December 8 of 2001. This Inc. providedthe surety for this loan.
3. By the date of December 31 of 2001, the total value of loans that this Inc. has borrowed
20
RMB 20 million from China Agricultural Bank Zhuhai Branch 2nd Business Office. LivzonSynthetic Pharmaceutical Factory, provides surety for all the loans.
4. This Inc. made a borrowing of RMB 10 million from Construction Bank Zhuhai GongbeiBranch in January of 2001. Livzon Synthetic Pharmaceutical Factory, provides suretyfor the loan.
5. This Inc. made a borrowing of RMB 30 million from Shenzhen Merchants Bank inNovember of 2001. Livzon Synthetic Pharmaceutical Factory, provides surety for theloan.
6. Livzon Synthetic Pharmaceutical Factory, made a borrowing of RMB 25 million fromChina Agricultural Bank Zhuhai Branch in November of 2001. This Inc. provided suretyfor the loan.
V. By the date of the presentation of this report, there has been no significant issue of
commitments for this Inc. to release.
VI. Information concerning the appointment of overseas certified public accountants firmsWith the authorization by the shareholders meeting, the 9th conference of the 3rd session ofboard of directors passed the resolution of the Motion Concerning the Appointment ofOverseas Certified Public Accountants Firms by Livzon Inc., appointing Lianda XinlongCertified Public Accountants Limited Liability Co. and Hongkong He Xilin Certified PublicAccountants to be the accountants firms for this Inc. to undertake related issues at homeand aboard in the year of 2001. The validity term for the appointment was one year. Theremunerations paid to the domestic accountants firm in the fiscal year covered by thisreport were RMB 330 thousand yuan , and the remunerations paid to the overseasaccountants firm were RMB 400 thousand yuan
VII. Miscellaneous China Everbright (Group) General Corp., the biggest shareholder of this Inc. proposedto transfer its stock rights that it holds in this Inc. The Board of Directors of this Inc. hasmade public announcements concerning this issue in Stocks Times, ShanghaiSecurities Paper and Wen Wai Po (Hong Kong) on the respective dates of January 4 of2001, March 14 of 2001 and January 16 of 2002.
Section 11 Financial Report(attached)
Section 12 Contents of Reference Documents
I. Contents of reference documents:1. Original copy of the auditing report that was signed by and stamped with the seals of
the legal representative, the responsible person in charge of accounting, and thechief director of accounting;
2. Original copy of the auditing report that was stamped with the seals of the certifiedpublic accountants firms and signed by the certified public accountants;
3. Original scripts of all the documents and announcements of this Inc. publiclyreleased in the newspapers designated by China Securities SupervisionCommission during the time period covered by the report.
21
LIVZON PHARMACEUTICAL GROUP
INC.
Chairman: Yi Zhenqiu
22
LIVZON PHARMACEUTICAL GROUP INC.麗珠醫藥集團股份有限公司
REPORT AND CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED 31ST DECEMBER 2001
CONTENTSPAGES
Report of the auditors 1
Consolidated income statement 2
Consolidated balance sheet 3
Consolidated statement of changes in equity 4
Consolidated cash flow statement 5
Notes to the consolidated financial statements 6 – 38
1
REPORT OF THE AUDITORS
To the shareholders of B shares ofLivzon Pharmaceutical Group Inc.麗珠醫藥集團股份有限公司(incorporated in the People’s Republic of China
with limited liability)
We have audited the accompanying consolidated balance sheet of Livzon Pharmaceutical Group Inc., (“theGroup”) as of 31st December 2001 and the related consolidated statements of income, cash flows and changesin equity for the year then ended. These financial statements are the responsibility of the Group’smanagement. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with International Standards on Auditing. Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by the management, as well as evaluating the overall financial statementspresentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements presents fairly, in all material aspects, the financial position of theGroup as of 31st December 2001 and the results of its operations and its cash flows for the year then ended, inaccordance with International Accounting Standards.
Ho and Ho & CompanyCertified Public Accountants
Hong Kong16th April 2002
2
LIVZON PHARMACEUTICAL GROUP INC.麗珠醫藥集團股份有限公司
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31ST DECEMBER 2001
NOTES 2001 2000RMB’000 RMB’000
(Restated)
Revenue (5) 1,395,792 1,154,706Cost of sales (744,597) (638,051)
Gross profit 651,195 516,655Other operating income 22,817 8,225Distribution costs (374,511) (306,156)Administrative expenses (161,480) (203,906)Other operating expenses (11,515) (4,006)
Profit from operations (7) 126,506 10,812Finance costs (8) (14,112) (13,114)(Loss)/income from investments (9) (1,021) 5,085Share of results of associates (841) 542
Profit before tax 110,532 3,325Income tax expense (10) (27,175) (9,352)
Profit/(loss) after tax 83,357 (6,027)Minority interest (24,308) (16,083)
Net profit/(loss) for the year 59,049 (22,110)
Dividend (11) 9,181 -
Earnings/(loss) per share – basic (12) RMB0.19 (RMB0.07)
3
LIVZON PHARMACEUTICAL GROUP INC.麗珠醫藥集團股份有限公司
CONSOLIDATED BALANCE SHEET AT31ST DECEMBER 2001NOTES 2001 2000
RMB’000 RMB’000(Restated)
Assets
Non-current assetsProperty, plant and equipment (13) 590,481 565,938Construction in progress (14) 76,372 46,660Goodwill (15) 12,493 7,190Negative goodwill (16) (6,338) (9,480)Intangible assets (17) 20,458 36,234Investments in a subsidiary not consolidated - 810Investments in associates (19) 9,153 38,806Other investments (20) 33,976 36,040
736,595 722,198
Current assetsInventories (21) 197,571 205,400Trade and other receivables (22) 458,560 463,870Amounts due from associates 233 4,388Other investments (20) 15,955 10,700Bank balances and cash (22) 232,803 109,720
905,122 794,078
Total assets 1,641,717 1,516,276
Equity and liabilities
Capital and reservesShare capital (23) 306,035 306,035Reserves (24) 603,636 544,587
909,671 850,622
Minority interest 117,836 90,424
1,027,507 941,046
Non-current liabilitiesBank loans – due after one year (25) 550 50,520
Current liabilitiesTrade and other payables (27) 286,033 339,893Amounts due to associates 81 4,698Tax liabilities 25,926 6,629Bank loans – due within one year (25) 301,620 173,490
613,660 524,710
4
Total equity and liabilities 1,641,717 1,516,276
The financial statements on pages 2 to 38 were approved by the Board of Directors and authorized for issueon 16th April 2002 and are signed on its behalf by :
Director Director
5
LIVZON PHARMACEUTICAL GROUP INC.麗珠醫藥集團股份有限公司
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31ST DECEMBER 2001
Share capitalShare
premium
Statutorysurplusreserve
Discretionarysurplusreserve
Propertiesrevaluation
reserve
Publicwelfare
fundAccumulated
profits/(losses) TotalRMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Balance at 1st January 2000 306,035 417,689 23,586 76,685 9,609 28,023 11,105 872,732Proposed transfer to statutory surplus reserve
and public welfare fund from accumulatedprofits - - 1,037 - - 1,037 (2,074) -
Profit/(loss) for the year - As previously stated - - - - - - 14,931 14,931
- Prior year adjustment (note 28) - - - - - - (37,041) (37,041)- As restated - - - - - - (22,110) (22,110)
Balance at 1st January 2001 (As restated) 306,035 417,689 24,623 76,685 9,609 29,060 (13,079) 850,622Profit for the year - - - - - - 59,049 59,049Transfer to statutory surplus reserve and
public welfare fund from accumulatedprofits
- Proposed transfer for the year - - 10,584 - - 10,193 (20,777) - - Understatement of transfer for prior year - - 10,269 - - 4,073 (14,342) -
- - 20,853 - - 14,266 (35,119) -
Balance at 31st December 2001 306,035 417,689 45,476 76,685 9,609 43,326 10,851 909,671
6
LIVZON PHARMACEUTICAL GROUP INC.麗珠醫藥集團股份有限公司
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31ST DECEMBER 2001
NOTES 2001 2000
RMB’000 RMB’000
(Restated)
Operating activities
Cash generated from operations (29) 189,938 86,618
Income taxes paid (7,878) (8,981)
Interest paid (15,992) (14,744)
Net cash inflow from operating activities 166,068 62,893
Investing activities
Interest received 9,546 6,080
Disposal of subsidiary - 8,687
Proceeds on disposal of property, plant and equipment 2,565 49
Acquisition of subsidiaries (30) 870 1,875
Dividends received from an associate 966 -
Dividends received from other investments 388 -
Proceeds on disposal of a subsidiary not consolidated 2,661 -
Proceeds on disposal of long-term other investments 173 -
Proceeds on disposal of short-term other investments 14,378 -
Purchases of property, plant and equipment and construction in
progress (90,199) (66,143)
Purchases of intangible assets (13,442) (44,862)
Acquisition of a subsidiary not consolidated - (810)
Acquisition of investment in associates (1,026) (19,694)
Purchases of current investments (21,234) (10,700)
Purchases of non-current investments (1,960) (8,970)
Further acquisition of investments in a subsidiary not consolidated (1,326) -
Further acquisition of investments in a subsidiary (9,205) -
Decrease/(increase) in fixed deposits – mature over 3 months 11,000 (11,000)
Net cash used in investing activities (95,845) (145,488)
Financing activities
Capital injection from minority shareholders 1,600 -
Dividend paid to minority shareholders (15,900) (1,656)
New bank loans raised 327,550 199,040
Repayments of bank loans (249,390) (168,595)
Net cash from financing activities 63,860 28,789
Net increase/(decrease) in cash and cash equivalents 134,083 (53,806)
Cash and cash equivalents at the beginning of year 98,720 152,526
7
Cash and cash equivalents at end of year
Bank balances and cash 232,803 98,720
8
LIVZON PHARMACEUTICAL GROUP INC.麗珠醫藥集團股份有限公司
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 2001
1. CORPORATE INFORMATION
Livzon Pharmaceutical Group Inc. (the “Company”) is a joint stock company registered in thePeople’s Republic of China (the “PRC”) and its A shares and B shares are listed on the ShenzhenStock Exchange. The Company and its subsidiaries (together referred to as the “Group”) areprincipally engaged in the production and sales of medical products and the trading of importedmedical products in the PRC.
The largest shareholder of the Company is China Everbright Group Limited, a limited companyincorporated in Beijing, PRC.
2. PRESENTATION OF FINANCIAL STATEMENTS
The consolidated financial statements have been prepared in Renminbi (“RMB”), the currencyin which the majority of the Group’s transactions are denominated.
The Group maintains its accounting records and prepares its statutory financial statements inaccordance with the accounting principles and the relevant financial regulations applicable to foreigninvestment enterprises in the PRC.
The consolidated financial statements have been prepared in accordance with InternationalAccounting Standards (”IAS”). The accounting policies and basis adopted to the preparation of thestatutory financial statements differ in certain respects from IAS. The differences arising from therestatement of the results of operations and the net assets for compliance with IAS are adjusted infinancial statements but will not be taken up in the accounting records of the Group.
3. ADOPTION OF INTERNATIONAL ACCOUNTING STANDARDS
In the current year, the Group has adopted the following IAS for the first time :
IAS 39 Financial Instruments : Recognition and Measurement
IAS 40 Investment Property
Revisions to a number of other IAS also took effect in 2001. Those revisions concernedmatters of detailed application which have no significant effect on amounts reported for the current orprior accounting periods.
9
LIVZON PHARMACEUTICAL GROUP INC.麗珠醫藥集團股份有限公司
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 2001
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been prepared on the historical basis, except for therevaluation of land and building and certain financial instruments. The principalaccounting policies adopted are set out below :
(a) Basis of consolidation
The consolidated financial statements incorporate the financial statements ofthe Company and enterprises controlled by the Company (“its subsidiaries”) madeup to 31st December each year. Control is achieved where the Company has thepower to govern its financial and operating policies of an investee enterprise so asto obtain benefits from its activities.
On acquisition, the assets and liabilities of the relevant subsidiaries aremeasured at their fair values at the date of acquisition. The interest of minorityshareholders is stated at the minority’s proportion of the fair values of the assets andliabilities recognised.
The results of subsidiaries acquired or disposed of during the year are includedin the consolidated income statement from the effective date of acquisition or up tothe effective date of disposal, as appropriate.
Where necessary, adjustments are made to the financial statements ofsubsidiaries to bring the accounting policies used into line with those used by othermembers of the Group.
All significant intercompany transactions and balances between groupenterprises are eliminated on consolidation.
10
LIVZON PHARMACEUTICAL GROUP INC.麗珠醫藥集團股份有限公司
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 2001
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(b) Interests in associates
An associate is an enterprise over which the Group is in a position to exercise significantinfluence, through participation in financial and operating policy decisions of the investee.
The results and assets and liabilities of associates are incorporated in these financialstatements using the equity method of accounting. The carrying amount of such interest isreduced to recognise any decline, other than a temporary decline, in the value of individualinvestments.
Where a group enterprise transacts with an associate of the Group, unrealised profits andlosses are eliminated to the extent of the Group’s interest in the relevant associate, except whereunrealised losses provide evidence of an impairment of the asset transferred.
(c) Goodwill
Goodwill arising on consolidation represents the excess of the cost of acquisition over theGroup’s interest in the fair value of the identifiable assets and liabilities of a subsidiary orassociate at the date of acquisition. Goodwill is recognised as an asset and amortised on astraight-line basis following an assessment of its useful life.
Goodwill arising on the acquisition of subsidiaries and associates is presented separatelyin the balance sheet.
On disposal of a subsidiary or an associate, the attributable amount of unamortisedgoodwill or negative goodwill is included in the determination of the profit or loss on disposalof the subsidiary.
11
LIVZON PHARMACEUTICAL GROUP INC.麗珠醫藥集團股份有限公司
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 2001
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(d) Negative goodwill
Negative goodwill represents the excess of the Group’s interest in the fair value of theidentifiable assets and liabilities of a subsidiary or associate at the date of acquisition over thecost of acquisition. Negative goodwill is released to income based on an analysis of thecircumstances from which the balance resulted. To the extent that the negative goodwill isattributable to losses or expenses anticipated at the date of acquisition, it is released to incomein the period in which those losses or expenses arise. The remaining negative goodwill isrecognised as income on a straight-line basis over the remaining average useful life of theidentifiable acquired depreciable assets. To the extent that such negative goodwill exceeds theaggregate fair value of the acquired identifiable non-monetary assets, it is recognised in incomeimmediately.
Negative goodwill arising on the acquisition of subsidiaries or associates is presentedseparately in the balance sheet as a deduction from assets.
(e) Revenue recognition
Sale of goods is recognised when goods are delivered and title has passed.
Interest income is accrued on a time basis, by reference to the principal outstanding andat the interest rate applicable.
(f) Foreign currencies
Transactions in currencies other than RMB are initially recorded at the rates of exchangeprevailing on the dates of the transactions. Monetary assets and liabilities denominated in suchcurrencies are re-translated at the rates prevailing on the balance sheet date. Profits and lossesarising on exchange are included in net profit or loss for the period.
On consolidation, the assets and liabilities of the Group’s overseas operations aretranslated at exchange rates prevailing on the balance sheet date. Income and expense itemsare translated at the average exchange rates for the period. Exchange differences arising, ifany, are classified as equity and transferred to the Group’s translation reserve. Such translationdifferences are recognised as income or as expenses in the period in which the operation isdisposed of.
12
LIVZON PHARMACEUTICAL GROUP INC.麗珠醫藥集團股份有限公司
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 2001
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The financial statements of foreign subsidiaries and associates that report in the currencyof a hyperinflationary economy are restated in terms of the measuring unit currency at thebalance sheet date before they are translated into RMB.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity aretreated as assets and liabilities of the foreign entity and translated at the closing rate.
(g) Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production ofqualifying assets, which are assets that necessarily take a substantial period of time to get readyfor their intended use or sale, are added to the cost of those assets, until such time as the assetsare substantially ready for their intended use or sale. Investment income earned on thetemporary investment of specific borrowings pending their expenditure on qualifying asset isdeducted from borrowing costs capitalised.
All other borrowing costs are expensed in the period in which they are incurred.
(h) Taxation
The charge for current tax is based on the results for the year as adjusted for items whichare non-assessable or disallowed. It is calculated using tax rates that have been enacted orsubstantively enacted by the balance sheet date.
Deferred tax is accounted for using the liability method in respect of timing differencesarising from differences between the carrying amount of assets and liabilities in the financialstatements and the corresponding tax basis used in the computation of taxable profit. Inprinciple, deferred tax liabilities are recognised for all taxable temporary differences anddeferred tax assets are recognised to the extent that it is probable that taxable profit will beavailable against which deductible temporary differences can be utilised. Such assets andliabilities are not recognised if the temporary difference arises from goodwill (or negativegoodwill) or from the initial recognition (other than in a business combination) of other assetsand liabilities in a transaction which affects neither the taxable profit nor the accounting profit.
13
LIVZON PHARMACEUTICAL GROUP INC.麗珠醫藥集團股份有限公司
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 2001
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Deferred tax liabilities are recognised for taxable temporary differences arising oninvestments in subsidiaries and associates except where the Group is able to control the reversalof the temporary difference and it is probable that the temporary difference will not reverse inthe foreseeable future.
Deferred tax is calculated at the tax rates that are expected to apply to the period when theasset is realised or the liability is settled. Deferred tax is charged or credited in the incomestatement, except when it relates to items credited or charged directly to equity, in which casethe deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when they relate to income taxes levied by thesame taxation authority and the Group intends to settle its current tax assets and liabilities on anet basis.
(i) Property, plant and equipment
Land and buildings held for use in the production or supply of goods or services, or foradministrative purpose, are stated in the balance sheet at their revalued amounts, being the fairvalue on the basis of their existing use at the date of revaluation, less any subsequentaccumulated depreciation. Revaluations are performed with sufficient regularity such that thecarrying amount does not differ materially for that which would be determined using fair valuesat the balance sheet date.
Any revaluation increase arising on the revaluation of such land and buildings is creditedto the properties revaluation reserve, except to the extent that it reverses a revaluation decreasefor the same asset previously recognised as an expense, in which case the increase is credited tothe income statement to the extent of the decrease previously charged. A decrease in carryingamount arising on the revaluation of land and buildings is charged as an expense to the extentthat it exceeds the balance, if any, held in the properties revaluation reserve relating to aprevious revaluation of that asset.
14
LIVZON PHARMACEUTICAL GROUP INC.麗珠醫藥集團股份有限公司
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 2001
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Properties in the course of construction for production, rental or administrative purposes,or for purposes not yet determined, are carried at cost, less any identified impairment loss.Cost includes professional fees and, for qualifying assets, borrowing costs capitalised inaccordance with the Group’s accounting policy. Depreciation of these assets, on the samebasis as other property assets, commences when the assets are ready for their intended use.
Fixtures and equipment are stated at cost less accumulated depreciation.
Depreciation is charged so as to write off the cost or valuation of assets, other than landand properties under construction, over their estimated useful lives, using the straight-linemethod, on the following bases :
Land and buildings 5%Machinery 10%Electronic equipment 20%Transport equipment 20%Other equipment 20%
The gain or loss arising from disposal or retirement of an asset is determined asthe difference between the sales proceeds and the carrying amount of the asset and isrecognised in the income statement.
(j) Construction in progress
Construction in progress represents properties under construction andequipment purchased prior to installation and is stated at cost. Cost comprisesdirect costs and, where applicable, finance costs arising from borrowings usedspecifically to finance the construction of the properties and the acquisition of theequipment until the construction and installation, respectively, are complete. Costson completed construction works are transferred to the appropriate asset category.Costs incurred on construction in progress are recognised as an expenseimmediately when the work is terminated.
No depreciation is provided on construction in progress until it is completedand put into commercial operation.
15
LIVZON PHARMACEUTICAL GROUP INC.麗珠醫藥集團股份有限公司
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 2001
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(k) Impairment
At each balance sheet date, the Group reviews the carrying amounts of itstangible and intangible assets to determine whether there is any indication that thoseassets have suffered an impairment loss. If any such indication exists, therecoverable amount of the asset is estimated in order to determine the extent of theimpairment loss (if any). Where it is not possible to estimate the recoverableamount of an individual asset, the Group estimates the recoverable amount of thecash-generating unit to which the asset belongs.
If the recoverable amount of an asset (or cash-generating unit) is estimated tobe less than its carrying amount, the carrying amount of the asset (cash-generatingunit) is reduced to its recoverable amount. Impairment losses are recognised as anexpense immediately, unless the relevant asset is land or buildings at a revaluedamount, in which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of theasset (cash-generating unit) is increased to the revised estimate of its recoverableamount, but so that the increased carrying amount does not exceed the carryingamount that would have been determined had no impairment loss been recognisedfor the asset (cash-generating unit) in prior years. A reversal of an impairment lossis recognised as income immediately, unless the relevant asset is carried at arevalued amount, in which case the reversal of the impairment loss is treated as arevaluation increase.
(l) Inventories
Inventories are stated at the lower of cost and net realisable value. Cost comprises directmaterial and, where applicable, direct labour costs and those overheads that have been incurredin bringing the inventories to their present location and condition. Cost is calculated using theweighted average method. Net realisable value is determined by reference to the sale proceedsof items sold in the ordinary course of business subsequent to the balance sheet date orestimated selling prices less estimated costs to completion and costs to be incurred in marketing,selling and distribution.
16
LIVZON PHARMACEUTICAL GROUP INC.麗珠醫藥集團股份有限公司
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 2001
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(m) Financial instruments
Financial assets and financial liabilities are recognised on the Group’s balance sheet whenthe Group has become a party to the contractual provisions of the instrument.
(i) Trade receivables
Trade receivables are stated at their nominal value as reduced by appropriateallowances for estimated irrecoverable amounts.
(ii) Investments in securities
Investments in securities are recognised on a trade-date basis and are initiallymeasured at cost.
(iii) Bank borrowings
Interest-bearing bank loans and overdrafts are recorded at the proceeds received, netof direct issue costs. Finance charges, including premiums payable on settlement orredemption, are accounted for on an accrual basis and are added to the carrying amount ofthe instrument to the extent that they are not settled in the period in which they arise.
(iv) Trade payables
Trade payables are stated at their nominal value.
(n) Provisions
Provisions are recognised when the Group has a present obligation as a result of a pastevent which it is probable will result in an outflow of economic benefits that can be reasonablyestimated.
(o) Cash equivalents
Cash equivalents represent short-term, highly liquid investments that arereadily convertible to a known amount of cash and subject to an insignificant risk ofchanges in value.
17
LIVZON PHARMACEUTICAL GROUP INC.麗珠醫藥集團股份有限公司
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 2001
5. REVENUE2001 2000
RMB’000 RMB’000
Sales of medical products 1,395,792 1,154,706
6. BUSINESS AND GEOGRAPHICAL SEGMENTS
As the Group is engaged only in the production and sales of medical products andthe trading of imported medical products in the PRC, no segment information ispresented.
7. PROFIT FROM OPERATIONS
Profit from operations has been arrived at after charging / (crediting) :-
2001 2000RMB’000 RMB’000
(Restated)
Depreciation of property, plant and equipment 54,824 50,148Amortisation of intangible assets 5,548 20,301Amortisation of goodwill 1,444 -Written-off of intangible assets 23,670 25,569(Profit)/loss on disposal of property, plant and
equipment (2,556) 360Revaluation deficit of property, plant and equipment
(note 28) - 37,041Release of negative goodwill to income (1,005) (1,220)Staff costs 71,621 77,731
18
LIVZON PHARMACEUTICAL GROUP INC.麗珠醫藥集團股份有限公司
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 2001
8. FINANCE COSTS2001 2000
RMB’000 RMB’000
Interest on bank loans 14,643 16,765Less : Amounts included in the cost of qualifying assets
(531) (3,651)
14,112 13,114
Borrowing cost included in the cost of qualifying assets during the year arose on the generalborrowing pool and are calculated by applying a capitalization rate of 7% to expenditure on suchassets.
9. (LOSS)/INCOME FROM INVESTMENTS2001 2000
RMB’000 RMB’000
Interests on bank deposits 9,546 6,080Dividends from other investments 388 -Provision for diminution in value of investments in associates
(6,028) -Provision for diminution in value of long-term other
investments (3,924) (5,109)Provision for diminution in value of short-term other
investments (5,279) -Profit on disposal of a subsidiary not consolidated 525 -Profit on disposal of a subsidiary - 8,263Profit/(loss) on disposal of other investments 3,751 (4,149)
(1,021) 5,085
19
LIVZON PHARMACEUTICAL GROUP INC.麗珠醫藥集團股份有限公司
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 2001
10. INCOME TAX EXPENSE2001 2000
RMB’000 RMB’000PRC income tax
- The Company and its subsidiaries 27,175 9,352
PRC income tax is calculated at the rates of 10% to 33% on the estimated assessable profits forthe respective years.
No deferred tax has been provided for in the financial statements as the directors are of theopinion that no such liability is expected to crystallise in the foreseeable future.
There was no material unprovided deferred tax for the year.
11. DIVIDEND
A dividend of RMB0.03 per share, resulting in a total dividend payment of RMB9,181,000, inrespect of the year ended 31st December 2001 is to be proposed at the Company’s forthcomingannual general meeting. The dividends have not been provided for in the financial statements.
12. EARNINGS/(LOSS) PER SHARE
The calculation of earnings per share is based on the Group’s profit attributable to shareholdersof RMB59,049,000 (2000: loss of RMB22,110,000) and 306,035,482 shares (2000: 306,035,482shares) in issue during the year.
2000RMB
Earnings per share as previously reported 0.05Prior year adjustment (note 28) (0.12)Loss per share as restated (0.07)
20
LIVZON PHARMACEUTICAL GROUP INC.麗珠醫藥集團股份有限公司
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 2001
13. PROPERTY, PLANT AND EQUIPMENTLand and buildings Machinery Electronic equipment Transport equipment Other equipment Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
COST OR VALUATION
At 1st January 2001 (As restated) 499,177 248,748 27,607 24,833 13,579 813,944
Additions 19,430 9,079 3,854 2,226 3,071 37,660
Transfer from construction in progress 14,990 6,574 1,318 314 192 23,388
Acquired on acquisition of subsidiaries 21,301 29,320 592 845 1,471 53,529
Disposals (19,875) (6,627) (1,079) (7,821) (2,371) (37,773)
Reclassification - (7,006) 921 - 6,085 -
At 31st December 2001 535,023 280,088 33,213 20,397 22,027 890,748
Comprising :
At cost 504,337 258,621 33,213 20,397 22,027 838,595
At valuation 2000 30,686 21,467 - - - 52,153
535,023 280,088 33,213 20,397 22,027 890,748
ACCUMULATED DEPRECIATION
At 1st January 2001 112,643 93,491 14,478 19,215 8,179 248,006
Charge for the year 23,312 21,573 4,441 1,790 3,708 54,824
Acquired on acquisition of subsidiaries 5,848 7,331 216 555 855 14,805
Eliminated on disposals (3,903) (4,236) (887) (6,568) (1,774) (17,368)
Reclassification - (1,874) 65 - 1,809 -
At 31st December 2001 137,900 116,285 18,313 14,992 12,777 300,267
CARRYING AMOUNT
At 31st December 2001 397,123 163,803 14,900 5,405 9,250 590,481
At 31st December 2000 386,534 155,257 13,129 5,618 5,400 565,938
21
LIVZON PHARMACEUTICAL GROUP INC.麗珠醫藥集團股份有限公司
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 2001
13. PROPERTY, PLANT AND EQUIPMENT (Continued)
The land and buildings are situated in the PRC.
Certain land and buildings and machinery were revalued by Reanda Xinlong Certified PublicAccountants Company Limited on 31st December 2000 on an open market existing use basis. Therevalued carrying value of these assets was RMB25,949,000 at 31st December 2000. ReandaXinlong Certified Public Accountants Company Limited is the domestic statutory auditors of theGroup. At 31st December 2001, had the land and buildings and machinery for the Group beencarried at historical cost less accumulated depreciation, their carrying values would have beenapproximately RMB34,483,000 (2000: RMB46,605,000) and RMB13,669,000 (2000:RMB16,385,000) respectively.
14. CONSTRUCTION IN PROGRESS
The construction in progress represents properties under construction and equipment purchasedprior to installation. Included in the amount is interest capitalised of approximately RMB764,000(2000: RMB 1,704,000).
2001 2000RMB’000 RMB’000
At 1st January 2001 46,660 141,859Acquisition of subsidiaries 30 -Additions 52,539 59,045Interest capitalized 531 3,651Transfer to property, plant and equipment (23,388) (152,152)Written off - (5,743)
At 31st December 2001 76,372 46,660
22
LIVZON PHARMACEUTICAL GROUP INC.麗珠醫藥集團股份有限公司
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 2001
15. GOODWILL
Fromacquisitions of
subsidiaries
Fromacquisitions of
associates TotalRMB’000 RMB’000 RMB’000
COSTAt 1st January 2001 - 7,690 7,690Arising from further acquisition of
investments in associates (note 15b) 14,149 (7,690) 6,459
Acquisition of an associate - 288 288
At 31st December 2001 14,149 288 14,437
AMORTISATIONAt 1st January 2001 - 500 500Reclassification 500 (500) -Charge for the year 1,415 29 1,444
At 31st December 2001 1,915 29 1,944
CARRYING AMOUNTAt 31st December 2001 12,234 259 12,493
At 31st December 2000 - 7,190 7,190
(a) Goodwill is amortised over its estimated useful life. The estimated foreseeable life of thegoodwill arising on acquisitions is ten years.
(b) The goodwill was arising from further acquisition of investments in associates which becomesubsidiaries of the Group.
23
LIVZON PHARMACEUTICAL GROUP INC.麗珠醫藥集團股份有限公司
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 2001
16. NEGATIVE GOODWILL
Fromacquisitions of
subsidiaries
Fromacquisitions of
associates TotalRMB’000 RMB’000 RMB’000
GROSS AMOUNTAt 1st January 2001 10,697 1,495 12,192Decrease from further acquisition of
investments in a subsidiary (2,137) - (2,137)
At 31st December 2001 8,560 1,495 10,055
RELEASED TO INCOMEAt 1st January 2001 2,562 150 2,712Released in the year 856 149 1,005
At 31st December 2001 3,418 299 3,717
CARRYING AMOUNTAt 31st December 2001 5,142 1,196 6,338
At 31st December 2000 8,135 1,345 9,480
The negative goodwill is released to income on a straight-line basis over the remainingestimated weighted average useful life of the depreciable assets acquired of ten years.
24
LIVZON PHARMACEUTICAL GROUP INC.麗珠醫藥集團股份有限公司
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 2001
17. INTANGIBLE ASSETS
Developmentcosts
Deferredexpenditure Total
RMB’000 RMB’000 RMB’000COST
At 1st January 2001 19,531 20,835 40,366Additions 10,607 2,835 13,442Written off - (23,670) (23,670)
At 31st December 2001 30,138 - 30,138
AMORTISATIONAt 1st January 2001 4,132 - 4,132Charge for the year 5,548 - 5,548
At 31st December 2001 9,680 - 9,680
CARRYING AMOUNTAt 31st December 2001 20,458 - 20,458
At 31st December 2000 15,399 20,835 36,234
At 31st December 2001, intangible assets represent development costs whichcomprise costs for acquisition of technical knowhow and other expenses incurred in developingnew pharmaceutical products.
25
LIVZON PHARMACEUTICAL GROUP INC.麗珠醫藥集團股份有限公司
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 2001
18. SUBSIDIARIES
Details of the Company’s subsidiaries at 31st December 2001 are as follows :-
Name of subsidiary
Place ofincorporationand operation
Proportion ofownership
interestPrincipalActivity
Livzon (Group) PharmaceuticalFactory
Zhuhai, PRC 100% Production of biologicaltablets, hard capsules andpowder
Livzon (Group) HealthcareProduct Factory
Zhuhai, PRC 100% Production of Chinesepatent medicines andhealth tonics
Livzon (Group) ReagentFactory
Zhuhai, PRC 100% Production ofbiochemical reagent andenzyme linked immunereagent
Livzon (Group) Livzon MedicalBiomaterials Factory
Zhuhai, PRC 100% Production of sanitarymaterials and medicalcosmetics
Livzon (Group) PharmaceuticalTrading Co., Ltd.
Zhuhai, PRC 100% Sale of the Group’spharmaceutical products
Livzon (Group) SyntpharmFactory
Zhuhai, PRC 100% Production of chemicalmedicinal materials andmedical reagent
Livzon (Group) LimanChemical PharmaceuticalFactory
Shaoguan,PRC
100% Production and sale ofbiochemical reagent
26
LIVZON PHARMACEUTICAL GROUP INC.麗珠醫藥集團股份有限公司
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 2001
18. SUBSIDIARIES (Continued)
Name of subsidiary
Place ofincorporationand operation
Proportionof ownership
interestPrincipalActivity
Livzon (Group) BiotechnologyPharmaceutical Factory
Zhuhai, PRC 100% Manufacture and sale ofproducts made frommicrobio fermentation,blood products,recombinant DNAproducts andbiochemical reagent
Livzon (Group) Livzon TraditionalChinese Medicine Factory
Zhuhai, PRC 100% Production of Chinesemedicines and healthtonics
Livzon (Group) Livzon-bamBiomaterials Co., Ltd.
Zhuhai, PRC 82% Manufacture and sale ofhydroxyapatite productsand coated titaniumdental implant
Hubei Keyi PharmaceuticalHoldings Company Limited *
Hubei, PRC 46% Manufacture and sale ofChinese and foreignpatent medicines,biochemical reagent andhealth tonics
Hubei Liyi PharmaceuticalTechnology Company Limited *
Hubei, PRC 50% Research anddevelopment ofmedicine anddevelopment of medicaland pharmaceuticaltechnology,technological consultingand project investment
* The Company has consolidated the financial statements of Hubei Keyi Pharmaceutical HoldingsCompany Limited and Hubei Liyi Pharmaceutical Technology Company Limited as theCompany exercises control over the management of both companies.
27
LIVZON PHARMACEUTICAL GROUP INC.麗珠醫藥集團股份有限公司
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 2001
18. SUBSIDIARIES (Continued)
Name of subsidiary
Place ofincorporationand operation
Proportion ofownership
interestPrincipalactivity
Livzon (Group) LibaoBiochemical &Pharmaceutical Co., Ltd.
Zhuhai, PRC 70% Manufacture and sale ofpharmaceutical products
Shanghai LivzonPharmaceutical Co., Ltd.
Shanghai, PRC 85% Manufacture and sale ofpharmaceutical products
Sichuan EverbrightPharmaceutical Co., Ltd.
Pangzhou,PRC
52% Manufacture and sale ofpharmaceutical products
Zhuhai Livzon WonderfulTechnology Investment Co.,Ltd.
Zhuhai, PRC 80% Research anddevelopment of medicineand pharmaceuticaltechnology, technologicalconsulting and projectinvestment
Zhuhai Livzon PharmaceuticalTrading Co., Ltd.
Zhuhai, PRC 100% Import and exportbusiness ofpharmaceutical reagent,raw material
Livzon Chainstore OperationCo., Ltd.
Zhuhai, PRC 90% Investment, chain storeoperation, economic andtechnological operation,consulting andtechnological service
Ando Development Limited Hong Kong 100% General trading
Lizhu (Hong Kong) Co.,Limited
Hong Kong 100% General trading
Guangdong Central SouthPharmacy Co., Ltd.
Shenzhen,PRC
70% Retail and wholesale ofmedicines
28
LIVZON PHARMACEUTICAL GROUP INC.麗珠醫藥集團股份有限公司
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 2001
18. SUBSIDIARIES (Continued)
Name of subsidiary
Place ofincorporationand operation
Proportion ofownership
interestPrincipalactivity
Zhuhai Medicine TechnologyDevelopment Co., Ltd.
Zhuhai, PRC 80% Research anddevelopment of medicineand pharmaceuticaltechnology, technologicalconsulting and projectinvestment
Zhuhai S.E.Z. LikangPharmaceutical Co., Ltd.
Zhuhai, PRC 72% Manufacture and sale ofpharmaceutical products
Livzon (Group) PharmaceuticalResearch Institute
Zhuhai, PRC 100% Research anddevelopment ofbiochemical reagent andpharmaceutical materials
Livzon (Group) AdvertisingCo., Ltd.
Zhuhai, PRC 100% Operation in advertisingbusiness
Livzon (Group) InvestmentConsultant Co., Ltd.
Zhuhai, PRC 100% Economic andinformation consultantservice
Zhuhai Modern ChineseMedicine High TechnologyCo., Ltd.
Zhuhai, PRC 75% Research anddevelopment ofpharmaceuticaltechnology
Zhuhai Li Ao Wei Sheng TaiProducts Co., Ltd.
Zhuhai, PRC 90% Research ofpharmaceutical product
29
LIVZON PHARMACEUTICAL GROUP INC.麗珠醫藥集團股份有限公司
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 2001
19. INVESTMENTS IN ASSOCIATES2001 2000
RMB’000 RMB’000
Cost of investment less goodwill and negative goodwill9,398 35,813
Share of post-acquisition (loss)/profit, net of dividendsreceived (245) 2,993
Share of net assets 9,153 38,806
Details of the Group’s associates at 31st December 2001 are as follows :-
Name of associate
Place ofincorporationand operation
Proportion ofownership
interestPrincipalactivity
Shanghai Lizhu-DongfengBiotechnology Co., Ltd.
Shanghai,PRC
50% Manufacture and sale ofbiochemical products
Livzon Group Changzhou KangliPharmaceutical Co., Ltd.
Changzhou,PRC
30% Manufacture and sale ofpharmaceutical products
Livzon Electomedical InstrumentCo., Ltd.
Zhuhai, PRC 28% Manufacture and sale ofelectromedicalinstrument
Chengdu Li Hai Shou XinTechnology Co., Ltd.
Chengdu,PRC
40% Manufacture and sale ofchemical products
MolecularTaq Limited Hong Kong 30% Research ofpharmaceutical products
30
LIVZON PHARMACEUTICAL GROUP INC.麗珠醫藥集團股份有限公司
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 2001
20. OTHER INVESTMENTS
Non-current investments2001 2000
RMB’000 RMB’000
Unlisted investment, at cost less provision for diminutionin value 33,976 36,040
Current investments2001 2000
RMB’000 RMB’000
Listed investment, at fair value 15,955 10,700
The other investments included above represent both unlisted investments and investments inlisted equity securities which present the Group with opportunity for return through dividend incomeand trading gains. The fair values of listed equity securities are based on quoted market prices.
21. INVENTORIES2001 2000
RMB’000 RMB’000
Raw materials 60,142 46,060Work in progress 21,649 26,561Finished goods 115,780 132,779
197,571 205,400
Included above are finished goods of RMB19,555,000 (2000: RMB25,471,000) carried at netrealisable value.
31
LIVZON PHARMACEUTICAL GROUP INC.麗珠醫藥集團股份有限公司
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 2001
22. OTHER FINANCIAL ASSETS
Trade and other receivables comprise gross amounts receivable from the sale of goods ofRMB342 million (2000: RMB369 million).
An allowance has been made for estimated irrecoverable amounts from the sale of goods ofRMB89.5 million (2000: RMB85.1 million). This allowance has been determined by reference topast default experience.
The directors consider that the carrying amount of trade and other receivables approximatestheir fair value.
Bank balances and cash comprise cash and short-term deposits held by the group treasuryfunction. The carrying amount of these assets approximates their fair value.
The Group’s credit risk is primarily attributable to its trade receivables. The amountspresented in the balance sheet are net of allowances for doubtful receivables, estimated by theGroup’s management based on prior experience and the current economic environment.
The Group has no significant concentration of credit risk, with exposure spread over a largenumber of counterparties and customers.
23. SHARE CAPITAL2001 2000
No. ofshares
No. ofshares
’000 RMB’000 ’000 RMB’000Registered, issued and fully
paid :A shares of RMB1 each 183,728 183,728 183,728 183,728B shares of RMB1 each 122,307 122,307 122,307 122,307
306,035 306,035 306,035 306,035
There were no movements in the share capital of the Company in either the 2001 or 2000reporting periods.
32
LIVZON PHARMACEUTICAL GROUP INC.麗珠醫藥集團股份有限公司
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 2001
24. RESERVES
Notes 2001 2000RMB’000 RMB’000
(Restated)
Share premium (a) 417,689 417,689Statutory surplus reserve (a) 45,476 24,623Discretionary surplus reserve (b) 76,685 76,685Properties revaluation reserve 9,609 9,609Public welfare fund (c) 43,326 29,060Accumulated profits/(losses) 10,851 (13,079)
603,636 544,587
According to the PRC company law, the reserve available for distribution is the lower of theamount determined under PRC Accounting Regulations and the amount determined under IAS. As31st December 2001, the reserve available for distribution was RMB1,670,000, after taking intoaccount the current year’s proposed dividend.
Notes:
(a) Statutory reserves
As a company limited by shares, the Company is required under the laws and regulations of thePRC to transfer an amount of not less than 10% of its profit for the year, determined under PRCaccounting regulations for companies limited by shares, to a statutory reserve, namely the statutorysurplus reserve, until the aggregate of the statutory surplus reserves is equal to 50% of the Company’sissued share capital.
The share premium and the statutory surplus reserve constitute statutory reserves for theCompany, the usage of which is governed by PRC laws and regulations. In accordance with thelaws and regulations, the statutory reserves can be utilised as follows :
(i) to make up losses of the Company (the losses must be charged firstly against the statutorysurplus reserve); and
33
LIVZON PHARMACEUTICAL GROUP INC.麗珠醫藥集團股份有限公司
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 2001
24. RESERVES (Continued)
(ii) to distribute to shareholders in the form of a bonus issue. The balance of the statutory surplusreserve in excess of 50% of issued share capital of the Company can be distributed to existingshareholders by means of a bonus issue, provided that the balance of the statutory surplusreserve after such distribution is not less than 25% of the issued share capital of the Company.
(b) Discretionary surplus reserve
The Company may transfer an amount from its profit for the year calculated under PRCaccounting regulations to the discretionary surplus reserve in accordance with the Company’s Articlesof Association or Resolutions of shareholders in the general meeting. The discretionary surplusreserve can be utilised to make up losses of the Company and to distribute to shareholders in the formof dividend. The resolution for the appropriation of profit for the year calculated under PRCaccounting regulations to the statutory and the discretionary surplus reserves for the year ended 31stDecember 2001 will be considered and approved by the shareholders in the general meeting to beheld in 2001.
(c) Public welfare fund
According to the Company’s Articles of Association, the Company is required to transfer10% of its profit after taxation to the public welfare fund. The public welfare fund can only be usedfor the collective benefits of the Group’s employees such as the construction of dormitories, canteenand other staff welfare facilities. Individual employees can only use these facilities, the titles ofwhich will remain with the Group. The public welfare fund forms part of the shareholders’ equityand is non-distributable other than in liquidation. The transfer to the public welfare fund must bemade before distribution of dividend to shareholders.
34
LIVZON PHARMACEUTICAL GROUP INC.麗珠醫藥集團股份有限公司
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 2001
25. BANK LOANS
2001 2000RMB’000 RMB’000
Bank loans 302,170 224,010
The borrowings are all denominated in RMB andrepayable as follows :
On demand or within one year 301,620 173,490In the second year 550 49,970In the third to fifth years inclusive - 550
302,170 224,010Less : Amount due from settlement within one year
(shown under current liabilities) (301,620) (173,490)
Amount due for settlement after one year 550 50,520
The average interest rates paid were as follows :2001 2000
Bank loans 6.0% 4.9%
At 31st December 2001, bank loans of approximately RMB302 million (2000 : RMB224million) were arranged at fixed interest rates.
The directors estimate the fair value of the Group’s borrowings as follows :
2001 2000RMB’000 RMB’000
Bank loans 302,510 223,933
At 31st December 2001, bank loans of approximately RMB117 million (2000 : RMB92 million)were secured by a charge over certain of the Group’s properties.
35
LIVZON PHARMACEUTICAL GROUP INC.麗珠醫藥集團股份有限公司
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 2001
26. PLEDGE OF ASSETS
At the balance sheet date, the Group had land and buildings with a carrying amount ofapproximately RMB79,224,000 (2000 : RMB71,920,000) was pledged to banks as security for bankloans granted to the Group.
27. OTHER FINANCIAL LIABILITIES
Trade and other payables principally comprise amounts outstanding for trade purchases andongoing costs. The directors consider that the carrying amount of trade payables approximates totheir fair value.
28. PRIOR YEAR ADJUSTMENT
Certain land and buildings and machinery were revalued by Reanda Xinlong Certified PublicAccountants Company Limited on 31st December 2000. There was an understatement ofrevaluation deficit on property, plant and equipment totalling RMB37,041,000 for the year ended 31stDecember 2000. Therefore, during the year, the Group made a related prior year adjustment toreduce each of the carry value of property, plant and equipment at 31st December 2000, results for theyear ended 31st December 2000 and the accumulated profits as at 1st January 2001 byRMB37,041,000.
36
LIVZON PHARMACEUTICAL GROUP INC.麗珠醫藥集團股份有限公司
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 2001
29. RECONCILIATION OF PROFIT FROM OPERATIONS TO NET CASH FROMOPERATING ACTIVITIES
2001 2000RMB’000 RMB’000
(Restated)
Profit from operations 126,506 10,812
Adjustments for:Negative goodwill released to income (1,005) (1,220)Written-off of intangible assets 23,670 25,569Amortisation of intangible assets 5,548 20,301Depreciation of property, plant and equipment 54,824 50,148Amortisation of goodwill 1,444 -Revaluation deficit on property, plant and equipment
- 37,041(Profit)/loss on disposal of property, plant and
equipment (2,556) 360
Operating cash flows before movements in workingcapital 208,431 143,011
Decrease/(increase) in inventories 11,707 (2,418)Decrease in trade and other receivables and amounts
due from associates 16,777 33,563Decrease in trade and other payables and amounts due
to associates (46,977) (87,538)
Cash generated from operations 189,938 86,618
37
LIVZON PHARMACEUTICAL GROUP INC.麗珠醫藥集團股份有限公司
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 2001
30. ACQUISITION OF SUBSIDIARIES
Net assets acquired :2001
RMB’000
Property, plant and equipment 38,724Construction in progress 30Inventories 3,878Trade and other receivables 7,312Bank balances and cash 32,219Trade and other payables (10,245)Minority interests (24,472)
47,446Goodwill 6,459
53,905Investments in associates previously acquired (22,556)
Total consideration satisfied by cash 31,349
Net cash inflow arising on acquisition :
Cash consideration (31,349)Bank balances and cash acquired 32,219
870
The subsidiaries acquired during the year contributed RMB24.8 million of revenue andRMB8.1 million of profit before tax for the period between the date of acquisition and the balancesheet date.
38
LIVZON PHARMACEUTICAL GROUP INC.麗珠醫藥集團股份有限公司
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 2001
31. CAPITAL COMMITMENTS2001 2000
Capital expenditure contracted for but not provided RMB’000 RMB’000in respect of :
Purchase of property, plant and equipment andconstruction in progress 5,661 233
Purchase of intangible assets 5,495 -Acquisition of investment in a subsidiary 17,550 1,328
28,706 1,561
32. OPERATING LEASE COMMITMENTS
2001 2000RMB’000 RMB’000
Minimum lease payments under operating leases recognisedas expenses for the year 3,430 521
At the balance sheet date, the Group had outstanding commitments under non-cancellableoperating leases, which fall due as follows :-
2001 2000RMB’000 RMB’000
Within one year 1,155 1,025In the second to fifth year inclusive 1,463 1,163
2,618 2,188
Operating lease payments represent rentals payable by the Group for certain of its officeproperties.
33. CONTINGENT LIABILITIES
The Group had no significant contingent liabilities at the balance sheet date.
39
LIVZON PHARMACEUTICAL GROUP INC.麗珠醫藥集團股份有限公司
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 2001
34. RELATED PARTY TRANSACTIONS
Trading transactions
During the year, group companies entered into the following transactions with related parties who are not members of the Group :
Purchase of goodsAmounts owed by
associatesAmounts owed to associates
2001 2000 2001 2000 2001 2000RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
AssociatesShanghai Lizhu-Dongfeng Biogtechnology Co.,
Ltd. - - 233 4,388 81 -
Livzon Group Changzhou Kangli PharmaceuticalCo., Ltd. 14,267 17,259 - - - -
Livzon Group Suzhou Xinbao PharmaceuticalFactory 5,166 6,034 - - - 4,698
In the opinion of the directors, the above transactions were carried out at estimated fair market price or, where no market price was available, at cost plus apercentage profit mark-up.
40
LIVZON PHARMACEUTICAL GROUP INC.麗珠醫藥集團股份有限公司
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 2001
35. ACCOUNTING TREATMENT
The Group has prepared a separate set of accounts for the year ended 31st December 2001 in accordancewith the PRC accounting standards. The major differences between the accounts prepared under the PRCAccounting Standards and those under IAS are summarized as follows:
Net profitfor the year
NetassetsRMB’000 RMB’000
Under PRC accounting standards 50,392 928,153Adjustments:
Elimination of interest capitalised for property, plant andequipment - (25,568)
Provision for bad and doubtful debts 6,886 (14,784)Written off of deferred expenditure 6,817 (1,952)Amortisation of goodwill (251) (251)Recognition of investment income 915 -Goodwill arising from acquisition of associates - 2,690Accrual of expenses (3,524) 15,886Negative goodwill arising from acquisition of a
subsidiary (286) (1,638)Gain on disposal of a subsidiary - 8,262Others (1,900) (1,127)
Under IAS 59,049 909,671
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