[CONTENTS] Company Information ................................................................................................................................................................................... 2 Brief Introduction ........................................................................................................................................................................................ 3 Equity Structure of the Company .................................................................................................................................................................. 5 Structure of the Company ............................................................................................................................................................................. 6 Resumes of Directors, Supervisors and Senior Managers ............................................................................................................................ 7 Chairmans' Statement ................................................................................................................................................................................ 11 Financial Review ....................................................................................................................................................................................... 14 2006 Work Report of the Board of Supervisors ........................................................................................................................................... 17 Directors' Report ......................................................................................................................................................................................... 18 Auditors' Report .......................................................................................................................................................................................... 21 Financial Statements and Notes to the Financial Statements ........................................................................................................................ 23 Corporate Governance Statement ............................................................................................................................................................... 71 Resolution for Amending the Articles of Association of the Company ............................................................................................................ 77 Standing Order of the General Meeting of Shareholders .............................................................................................................................. 89 Standing Order of the Board of Directors ................................................................................................................................................... 104 Standing Order of the Board of Supervisors .............................................................................................................................................. 113 Notice of Annual General Meeting ............................................................................................................................................................. 118 Proxy Form ............................................................................................................................................................................................. 120 Information on Shareholding ...................................................................................................................................................................... 123
Global Reports LLC
ANNUAL REPORT
2006
Company Information Name of the Company: Registered address: Office address: Post code: Telephone: Bank of Deposit: Registry of S-shares and Singapore Share Transfer Office: Address of "S" Shares Registrar: Registry of A-shares: Address of "A" Shares Registrar: Auditors: PRC Auditors: International Auditors: Board of Directors: Chairman: Directors: Independent and Non-executive Directors: Secretary to the Board: Supervisory Committee: Chairman: Supervisors: Senior Executives: General Manager: Deputy General Managers: Chief Accountant: Chief Engineer: Audit Committee: Chairman: Members: Strategy Committee: Chairman: Members: Nomination Committee: Chairman: Members: Remuneration Committee: Chairman: Members:
Tianjin Zhong Xin Pharmaceutical Group Corporation Limited 17 Baidi Road, Nankai District, Tianjin, PRC Zhong Xin Mansion, 17# Baidi Road, Nankai District, Tianjin, PRC 300193 86-22-27020892 Chengdudao Sub-office, Tianjin Xinhua Sub-branch, the Industrial and Commercial Bank of China Lim Associates (Pte) Ltd 3 Church Street #08-01 Samsung Hub Singapore 049483 China Securities Depository & Clearing Co., Ltd Shanghai Branch. 36F China Insurance Mansion #166 Lujiazui East Road Pudong New District, Shang Hai, China, 200120 PricewaterhouseCoopers Zhong Tian CPAs Ltd.Co. PricewaterhouseCoopers (Partner-in-charge of audit since financial year 2006: Mr. Phillip Tan) Mr. Hao Fei-fei Mr. Zhang Jian-jin, Mr. Shao biao, Mr. Liu Wen-wei, Ms. Li Mei-yu, Ms. Han Lu-lan Mr. Teng Cheong Kwee, Mr. Zhang Hong-kui, Mr. Xu Qi-de Mr. Wong Gang (Singapore), Mr. Feng Hao Mr. Xu Shi-hui Mr. Ma Gui-zhong, Mr. Li Jia-sheng Mr. Liu Wen-wei Mr. Wang Zhi-qiang, Ms. Li Mei-yu, Mr. Zhang Bao-tong, Mr. Mo Hao, Mr. Zhang Ping Ms. Liang Xiu-qin Mr. Zhang Ping Mr. Teng Cheong Kwee Mr. Xu Qi-de, Mr. Zhang Hong-kui Mr. Hao Fei-fei Mr. Zhang Jian-jin, Mr. Shao Biao, Mr. Liu Wen-wei Mr. Zhang Hong-kui Mr. Teng Cheong Kwee, Mr. Shao Biao Mr. Xu Qi-de Mr. Zhang Hong-kui, Mr. Zhang Jian-jin
Disclaimer:The SGX-ST assumes no responsibility for the correctness of any of the statements made, reports contained or opinions expressed in this Annual Report.
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A Brief Introduction to the Company Tianjin Zhong Xin Pharmaceutical Group Corporation Limited is a company with S shares and A shares listed respectively on the Singapore Exchange and the Shanghai Stock Exchange. Boasting more than 50 branch companies and subsidiaries with controlling and minor stakes, it is a large inter-regional and inter-trade pharmaceutical group with investment holding functions. Its production and operation cover a wide range of fields including Chinese patent medicines, Chinese medicine tablets, Chinese medicinal materials, bio-medicines, chemical crude drugs and preparations, nutritious health-care products, etc., with over 800 product varieties in 20-odd preparation types. The Company possesses directly operated chain stores and logistics distribution systems of large scale, with its marketing network covering the whole nation and its products sold to more than 30 countries and regions around the world. Its main subordinate branches include Zhong Xin Pharmaceutical Tianjin Da Ren Tang Pharmaceutical Plant, Long Shun Rong Pharmaceutial Plant, No.6 Chinese Medicine Plant, Le Ren Tang Pharmaceutical Plant, Xin Xin Pharmaceutical Plant, Marketing Co., Medicinal Materials Branch, Domestic Marketing Center, etc., and its subsidiaries with controlling or minor stakes include Sino-American Tianjin SmithKline & French Lab., Ltd., Tianjin Hualida Biological Engineering Co., Ltd., Baxter Healthcare (Tianjin) Co.,Ltd., Tianjin Shin Poong Pharmaceutical Co., Ltd., Tianjin Central Pharmaceutical Co., Ltd., Tianjin Da Ren Tang No. 2 Pharmaceutical Co., Ltd., etc. Its main products such as Su Xiao Jiu Xin Pill (for treatment of cardio-vascular ailments), Niu Huang Jiang Ya Pill (for treatment of hypertension), Huo Xiang Zheng Qi Capsule (for treatment of heliosis and cold, vomitus and diarrhea), Wei Chang An (for treatment of diarrhea and enteritis caused by dyspepsia), Zi Long Jin Tablet (auxiliary medicine for chemotherapy of cancer sufferers), Jing Wan Hong (for treatment of scald), Ge Lie Qi Te (for treatment of diabetes-2), and Te Zi She Fu (for treatment of hematosepsis, pneumonia, etc.) have enjoyed high reputation in the medicine community. The Company has already established standardized systems in all aspects from R&D, planting, extracting and preparations to sale of Chinese medicines. It implements the GLP, GCP, GAP, GMP and GSP series of standards and carries out full-course quality control.
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Through adjusting and integrating its internal high-quality resources, the Company will build itself into a transnational pharmaceutical group that bases its core competitiveness on modern Chinese medicines, concurrently develops chemical drugs and biomedicines, possesses a complete industrial chain, product chain and human resources chain, and boasts international competitiveness. Thanks to the popularity of its brand strategy and development of information networks, the popular brand and good reputation of Zhong Xin Pharmaceutical are surely to attract the care of more and more people around the world. As a large pharmaceutical enterprise, Zhong Xin Pharmaceutical will strive to realize high economic and social benefits, maximize the interests of shareholders and contribute to the health and happiness of the mankind by relying on its good quality assets, rational product mix, complete marketing system, intensive and efficient management, good mechanisms for talents to play their advantages, and constant system innovations.
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Equity Structure of the Company State Shares with Limit on Sale
Legal Person Shares
Overseas Public
Domestic Public
（Tianjin Pharmaceutical Holdings）
with Limit on Sale
Shares
Shares
47.98%
3.17%
27.05%
21.8%
Tianjin Zhong Xin Pharmaceutical Group Corporation Limited
(22 branch companies)
(15 wholly owned, controlled subsidiaries)
Long Shun Rong Pharmaceutial Plant
Da Ren Tang No.2 Pharmaceutical (52%)
(9 companies with minor stake) Sino-American SmithKline (25%)
Le Ren Tang Pharmaceutical Plant
Tianjin Central Pharmaceutical (51%)
Da Ren Tang Pharmaceutical Plant
Tianjin Shin Poong Pharmaceutical (55%)
No.6 Chinese Medicine Plant
Tianjin Zhong Xin Keju Bio-Pharm (75%)
Xin Xin Pharmaceutical Plant
Tianin Cinorch Pharmaceutical (51%)
Zhongxin Pharmaceutical Plant
Chengdu Zhong Xin Pharmaceutical (51%)
Marketing Co.
Chengdu Zhong Xin Pharm Zigong (50.4%)
(35.2%)
Marketing Center
Dujiangyan Zhong Xin Pharm Chuanxiong (51%)
Tianjin Long Shun Rong Develop-
Tianjin Hualida Bio-Engineering (40%) Baxter Healthcare (Tianjin) (30%) Tianjin Yiyao Printing Co., Ltd. (35%) Tianjin Biological Chip Co., Ltd.
ment (40%) Pharmaceutical Branch
Zigong Zhong Xin Pharm Chain (50.4%)
Medicinal Materials Branch
Zhong Xin Pharm Guowei Medical (54.2%)
International Trade Branch
Zhong Xin Pharm Feiying Medical (55%)
Pharmaceutical Chain Branch
Binhai Zhong Xin Pharmaceutical (53.6%)
Eight Districts Branch
Beijing Zhong Xin Yaogu Medical (100%)
Storage & Transport Branch
Zhong Xin Bohai Rim Pharmaceutical (100%)
Xinxin Chemical Drug Branch
Zhong Xin Pharm Singapore Ltd. (100%)
Grandberg Tianjin Ginseng Farm (30%) Grandberg Tianjin Pharmaceutical (24%) TPH Technology Development (33%)
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Structure of the Company
Human resource Development Department Executive Deputy General Manager
Strategy Committee
General Manager's Office
Administration Department Nomination Committee
Remuneration Committee
Audit Committee
Shareholders Meeting
Board
Board Chairman
Strategy and Programming
Manager
Department
Deputy General
Operations and Management
Manager
Department
Audit Department
General Manager
Deputy General
International Trade
Manager
(Business)Department
Supervisory
Deputy General
Technology and Quality Control Department
Committee
Manager & Chief
Board Secretary
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Deputy General
Engineer
Research & Development Center
Chief Accountant
Finance Department
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Resumes of Directors, Supervisors and Senior Managers DIRECTORS The particulars of our Directors are as follows: Name Mr. Hao Fei-fei
Age 50
Address
Current Occupation
2-3-301 Tian Xin Bei Li, Xinxing Rd., Heping
Chairman of Board of Directors
District, Tianjin, PRC Mr. Zhang Jian-jin
50
86-401 Yu Xian li, Hexi District, Binshui Rd., Tianjin, PRC
Non-Executive Director
Mr. Shao Biao
57
2-11-201 Hui Yuan Li, Hebei District, Tianjin, PRC
Non-Executive Director
Mr. Liu Wen-wei
50
8-4-201 Kui Dian Ting Yuan, Sixth Avenue,
Executive Director and General Manager
Hedong District, Tianjin, PRC Ms. Li Mei-yu
52
Courtyard in Tianjin Medicine University Tianjin, PRC
Executive Director and vice General Manager
Ms. Han Lu-lan
50
11-1-302 Guang Tai Yuan, Nankai District, Tianjin, PRC
Executive Director
Mr. Teng Cheong Kwee
54
16B Margoliouth Road #06-03 Singapore
Independent and Non-Executive Director
Mr. Zhang Hong-kui
74
#17 Xingfu Road Chongwen District, Beijing, PRC
Independent and Non-Executive Director
Mr. Xu Qi-de
70
1-402 #89 JianShe Road, Heping District, Tianjin, PRC
Independent and Non-Executive Director
Information on the business and working experience of our Directors is set out below: Mr. Hao Fei-fei, senior engineer, and Chairman of the Board, with bachelor's degree in Pharmaceutical Course, Faculty of Chinese Medicine, Heilongjiang Business College. From July 1982 to May 1994, he was engaged by Tianjin Darentang No. 2 Pharmaceutical Plant, medicine laboratory as researcher, deputy division head of technical division and deputy factory head. From May 1994 to December 1994, he was sent to Gansu Longnan area for training and was appointed as deputy division head of economic department. From December 1994 to December 1997, he was engaged by Tianjin Shin Poong Pharmaceutical Co. Ltd as deputy general manager; from December 1997 to March 1999, he was the head of Tianjin No. 6 Pharmaceutical Plant; from March 1999 to April 2000, he was deputy general manager of Tianjin Medical Supplies Group Co. Ltd; he has been deputy general manager of Tianjin Pharmaceutical Group Co. Ltd since April 2000. Mr. Zhang Jian-jin, senior economist, postgraduate. From September 1974 to August 1981, he subsequently served as secretary of the Party's plant sub-division committee, secretary of the Party's sub-division committee and department head of Tianjin Lisheng Pharmaceutical Plant; from August 1981 to October 1992, he served as secretary of the Party's youth committee and head of the operation division of Tianjin Pharmaceutical Bureau; from October 1992 to November 1994, he served as manager and secretary of the Party's sub-committee of Tianjin Pharmaceutical Industrial Sales Co. Ltd; from November 1994 to May 1996, he was appointed as deputy head of Tianjin Pharmaceutical Bureau. During the period, he served concurrently as general manager of the Medical Supplies Group Co. Ltd; from May 1996 to March 1997, he was Tianjin Pharmaceutical Company's deputy general manager; from March 1997 to June 2000, he was appointed deputy general manager of Tianjin Pharmaceutical Group Co. Ltd; he has been the head and party secretary of Tianjin Foods and Medicines Supervision Bureau since June 2000; since September 2006, he is also serving concurrently as the chairman, general manager and deputy party secretary of Tianjin Pharmaceutical Group Co. Ltd. Mr. Shao Biao, holds a bachelor's degree in law. From April 1968 to January 1980, he served in the Liberation Army 38031 Unit; from January 1980 to August 1985, he served in various capacities in Tianjin Steel Casting Plant, Tianjin Secondary Light Machinery
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Industrial Co. Ltd and Tianjin Secondary Bureau; from August 1985 to October 1995, he served in various capacities in Working Committee of the CCP Tianjin Industry Committee; from October 1995 to May 1997, he was head of the party committee office of Tianjin Bohai Chemical Engineering Group; from May 1997 to June 2004, he served as deputy division head, division head, member of Working Committee and deputy party secretary of the Working Committee of the CCP Tianjin Industry Committee; from June 2004 to November 2005, he served as deputy party secretary of Tianjin State-owned Assets Supervision Bureau; since November 2005, he has been serving as the party secretary and vice-chairman of Tianjin Pharmaceutical Group Co. Ltd. Mr. Liu Wen-wei, senior engineer, graduated from Tianjin Finance College Business Management postgraduate course. He used to serve as deputy division head of Tianjin Medical Supplies Group Co. Ltd; from 1993 to 1999, he was the general manager of Tianjin Meilun Pharmaceutical Co. Ltd; from 1999 to 2000, he was the general manager of Tianjin Shin Poong Pharmaceutical Co. Ltd; from 2000 to May 2001, he was deputy head of Tianjin Chinese Medicine Pharmaceutical Plant; from May 2001 to November 2006, he was the head of Tianjin Zhong Xin Pharmaceutical LongShunrong Pharmaceutical Plant. In November 2006, he was appointed as the general manager of Tianjin Zhong Xin Pharmaceutical Group Corporation Limited. Ms. Li Mei-yu, associate technician, postgraduate. Ms. Li was appointed as Executive Director in 2002, and is currently deputy general manager of the Company, in charge of the Domestic Trade Department and International Trade Department. She has been engaged in the area of medical hygiene and healthcare for several years and worked in the capacities of doctor, doctor in charge, vice division head and division head. Ms. Han Lu-lan, senior politician, with a bachelor's degree from Tianjin Finance College Business Management postgraduate course. From November 1979 to September 2001, she was engaged by Tianjin Lerentang Pharmaceutical Plant as secretary of youth committee, head of the Party's office, deputy secretary of the Party's committee, deputy head, secretary of the Party's committee; from September 2001 to September 2003, she was the secretary of the Party's committee of Tianjin Zhong Xin No. 6 Pharmaceutical Plant; she has been as the secretary of the Party's committee and deputy head of Tianjin Zhong Xin No. 6 Pharmaceutical Plant since September 2003. Mr. Teng Cheong Kwee, an independent director and chairman of the Audit Committee. He holds double bachelor's degree in industrial engineering (first class honours) and commerce. He joined the Singapore Administrative Service as Administrative Assistant, and subsequently served as Secretary of the Singapore Securities Industry Council, and the posts of Assistant Director and Deputy Director in the Monetary Authority of Singapore. He joined the Stock Exchange of Singapore (now part of Singapore Exchange) in 1989 as executive vice president. He subsequently became executive vice president and Head of the Risk Management and Regulatory Division of the Singapore Exchange. Mr Teng also serves as an independent director in a number of other SGX listed companies. Mr. Zhang Hong-kui, senior economist, started his career in 1950. He had served as section chief in the State Drug Administration Bureau, general manager of China Herbal Material Company, vice head of the State TCM Administration Bureau and Chairman of the Association of China TCM Enterprise Management. Mr. Zhang Hong-kui has rich experience in TCM administration. Mr. Xu Qi-de, senior accountant, postgraduate, was appointed as our independent director in 2002. He was previously in charge of finance at the factory level, company level and bureau level of Tianjin Industrial System. He was assistant-supervisor of Tianjin Economic Committee in 1993 and general manager of Tianjin Jingwei Group Investment Company in 1998. He is currently a committee member and an arbitrator in Tianjin Arbitration Commission, vice-head of Tianjin Enterprise Legal Counsel Association and vice-head of Tianjin Accounting Society.
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SUPERVISOR The particulars of members of our Supervisory Committee are as follows: Name Mr. Xu Shi-hui Mr. Ma Gui-zhong Mr. Li Jia-sheng
Age Address 48 3-5-85 Yibinxili, Changjiang Road, Nankai District, Tianjin PRC
Current Occupation Chairman of the Supervisory
52 62
Committee Supervisor Supervisor
#3 YangFuNan Road, HePing District, Tianjin, PRC #14 FengPingDong Li, GuangRong Road, HongQiao District, Tianjin, PRC
The business and working experience of our supervisors are as follows:Mr. Xu Shi-hui, senior politician, graduated from CCP Central Party School, Faculty of Economic Management in December 1997, and obtained a postgraduate certificate from Tianjin Finance College, Faculty of Business Administration in April 2000. From March 1981 to September 1987, he was engaged by Tianjin Biological Pharmaceutical Plant as a safety and technological technician and deputy secretary of the Party's subdivision. From September 1987 to May 2003, he was engaged by the youth committee, the Party's committee office and promotions department of Tianjin Pharmaceutical Bureau as secretary of youth committee and Tianjin Pharmaceutical Group Co. Ltd. From July 1994 to May 2003, he was engaged by Tianjin Pharmaceutical Bureau and Tianjin Pharmaceutical Group Co. Ltd as deputy head of the Party's committee office, head of the Party's committee office and promotions head. He has been the director, deputy secretary of the Party's committee, secretary of the discipline committee and union chairman of Tianjin Zhong Xin Pharmaceutical Group Corporation Limited since June 2003. Mr. Ma Gui-zhong, senior accountant. He graduated from Tianjin Finance and Economics University in September 1983. He was subsequently a section member, supervisory section member, vice-head and head of the Finance Department of Tianjin Pharmaceutical Bureau. He is currently the Chief Accountant of Tianjin Pharmaceutical Holdings. Mr. Li Jia-sheng, chief Chinese pharmacist, currently the factory head of No.6 Pharmaceutical Factory. He graduated from Tianjin Chinese Medical School in 1964, majoring in Chinese medicine and later had further study at the Central Committee Party School Undergraduate Class. He has engaged in the maintenance and protection of storage of Chinese medicine, laboratory testing and enterprise management for many years and worked in the capacity of manager, factory head and secretary. In 1995, the state awarded him the title of "Titled Specialist", and enjoyed the special remuneration granted by the State Council. MANAGEMENT The particulars of our key management personnel are as follows: Name
Age
Mr. Liu Wen-wei
50
Mr. Wang Zhi-qiang
47
Address 8-4-201 Kui Dian Ting Yuan, Sixth Avenue, Hedong District,
Current Occupation General Manager
Tianjin, PRC 3-6-511 Huayu Li, Nanfeng Road, Nankai District, Tianjin, PRC
Executive Vice General Manager
Ms. Li Mei-yu
52
Courtyard in Tianjin Medicine University, Tianjin, PRC
Vice General Manager
Mr. Zhang Bao-tong
48
6-1105 Fulin Li, Shashi Road, Heping District, Tainjin, PRC
Vice General Manager
Mr. Mo Hao
55
9-1-401 Longdu Nanyuan, Jiefang South Road, Hexi District,
Vice General Manager
Tainjin PRC Mr. Zhang Ping
38
3-4-601,Yun Song Li, Yuquan Rd., Nankai District, Tianjin, PRC
Vice General Manager and Chief Engineer
Ms. Liang Xiu-qin
50
3-1-401 Hongkan Mansion, Shuangfeng Road, Nankai District,
Chief Financial Officer
Tainjin, PRC
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The business and working experience of our key management personnel are as follows:Mr. Wang Zhi-qiang, associate Chinese pharmacist, postgraduate. He is a vice general manager responsible for the manufacturing operations of the Company. He had previously held the positions of deputy manager and manager in Medical Group Heping Company and Yier Subsidiary and was appointed as deputy general manager of Medicine Group Company in 1998. He joined the Company as a standing vice general manager in 2000. Mr. Zhang Bao-tong, senior engineer, postgraduate in enterprise management. He is a vice general manager responsible for the subsidiary-Tianjin Lerentang Pharmaceutical Factory. He had been the head of the Pharmaceutical Packaging and Printing Factory. Mr. Mo Hao, senior economist, is vice general manager of the Company. He graduated from Nankai University in 1976, majoring in economics. He subsequently completed a Master degree in Market Economy at the same university. Prior to that, he was the Deputy Head cum lecturer at Tianjin Foreign Trade College. He has been with the Company since 1993 where he has held the positions of vice-director and director of the Securities Department. Mr. Zhang Ping, senior engineer, with bachelor's degree in Chemical Pharmaceuticals from Huadong Technological University, master's degreee in Business Management from Tianjin Finance University and PHD in Business Management from Male Open University. From August 1991 to August 1997, he was engaged by Tianjin Medicine Research Institute as technical researcher and deputy secretary of youth committee. He has been the section member of the organization department, deputy secretary of youth committee, head of Chinese Medicine Work Group, and supervisor of the supervisory committee of Tianjin Pharmaceutical Group Co. Ltd since August 1997. He has served as assistant to the general manager of Tianjin Zhong Xin Pharmaceutical Group Corporation Limited since March 2002. Ms. Liang Xiu-qin, holds a Bachelor's Degree in Economic Management. She entered the workforce in 1979 and has worked as a production statistician, marketing statistician, vice-section head of the human resource section and vice-section head of the finance and accounting section of Tianjin Medicines Packaging and Printing Factory. She was division head of audit division of Tianjin Medical Group Company in 1999, and was chief finance officer cum head of the finance department of the Company in 2000.
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Chairman's Statement On behalf of the Board of Directors, it is my pleasure to deliver the report for the year of 2006. Corporate Governance The Company was listed on the Singapore Exchange in 1997 and on the Shanghai Stock Exchange 2001. As a company listed both in Singapore and Shanghai, it abides by the laws and regulations of the two stock exchanges. The Company regularly updates its Articles of Association to comply with such new requirements and regulations as may be promulgated by the PRC and Singapore from time to time. In this regard, the Company is seeking to effect further changes in its Articles of Association this year in response to changes in the PRC regulations. The Company pays importance to the role played by its independent directors in the governance of the Company. The three independent directors respectively acted as the chairman or members in the audit, remunerations, nomination and other special committees under the Board of Directors. Financial Status and Operating Results 2006 saw extremely severe market competition in the pharmaceutical industry. In order to sharpen its own competitiveness, the Company made major adjustments to its strategies starting from the fourth quarter of 2006. These included, in particular, adjustments to its strategies on marketing of its key manufactured products. The Company has also rationalized and restructured its customer base to enhance the effectiveness of its distribution channels. These policy adjustments have resulted in significant reduction in the sale of our key manufactured products, resulting in substantial decline in gross profits. Together with the attendant increase in provisions for bad and doubtful debts and inventory write-down made necessary by these adjustments, and coupled with the sharp decline in contributions from our significant associated company, Sino-American Tianjin SmithKline, the Group incurred a loss of Rmb369 million in 2006. Scientific Research and Technology Development In t new product research and development, the Company obtained approval for producing seven products including Ya Tong Ting Di Wan (Drip Pill for Toothache), Run Chang Capsule(used for various types of constipation), Tou Bao Di Ni Fen San Tablet (an antibiotics) and Ge Lie Qi Te Huan Shi Tablet (used for treatment of diabetes). We achieved technology breakthrough and succeeded in application of new technologies in 19 items, made quality breakthroughs in 12 items, and accomplished QC achievements for 13 items. Two of the items won the First Prize awarded by the China Medicine Quality Management Association and five other items won the Excellence Prize awarded by the Tianjin Quality Management Association. The Company has applied for a total of 207 patents and has been awarded a total of 102 patents, of which 49 are patents for inventions. Patents for inventions have been obtained for all main products of the Company including Zi Long Jin Tablet, Long Qing Tablet, Jin Qi Jiang Tang Tablet, Shu Nao Xin Di Pill, and Wu Ji Bai Feng Tablet. In 2006, the Company submitted a total of 45 patents applications, including 23 new inventions, and 18 for external design for such products as Wei Chang An, Run Chang Capsuleand Alei Di Ping. Profit Distribution for 2006 The audited accumulated loss of the Company stated in the PRC financial statements as at 31 December 2006 is Rmb 244 million. Therefore, the Company will not distribute profits for the current year.
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Material Legal Disputes In November 2003, the Company received a lawsuit from Tianjin Jinyao Amino Acid Co., Ltd. claiming that a sum of Rmb315 million was due to it in connection with an equity transfer made during the course of restructuring of the Company in 1997 prior to the Company's listing in Singapore. In the current year, there has been no progress or development in the lawsuit. The Board of Directors of the Company is of the view that the lawsuit has no merit. Nevertheless, the Company's holding company, Tianjin Pharmaceutical Holdings, has pledged to compensate the Company for any loss incurred by it as a result of the lawsuit. Uses of the Proceeds Raised from Stock Issues (1)
(2)
The Company raised a net value of 527,980 thousand yuan from issuing S shares in June 1997. By December 31, 2001, the proceeds raised from the S share issue in 1997 had been used up. The said money was all invested according to the prospectus for the S share issue in 1997 and the altered purposes approved by the General Meeting of Shareholders. The Company raised a net value of 384,100 thousand yuan from issuing A shares on the Shanghai Stock Exchange in 2001. By December 31, 2005, all investments using the proceeds had been completed. The said money was all invested according to the prospectus for the A share issue in 2001 and the altered purposes approved by the General Meeting of Shareholders.
Implementation of Related Party Transaction Contracts During 2006, the Group sold commodities and services to the following related parties: Tianjin Taiping Group Co., Ltd., Tianjin Chinese Medicine Tablet Factory, Tianjin Hong Ren Tang Pharmaceutical Co., Ltd., Tianjin Medicinal Materials Group Jixian Company, Ninghe Company and Tianjin Tong Ren Tang Co., Ltd. It purchased commodities and services from the following related parties: Tianjin Tong Ren Tang Co., Ltd., Tianjin Hong Ren Tang Pharmaceutical Co., Ltd., Tianjin Yiyao Printing Co., Ltd., Tianjin Taiping Group Co., Ltd., Tianjin Chinese Medicine Tablet Factory, and Tianjin Li Sheng Pharmaceutical Co., Ltd. In 2006 the Group did not enter into any related party transaction each of which involved an amount in excess of S$100, 000 l. The aforesaid related party transactions were all done in the ordinary course of business on normal commercial terms. Outlook In 2007, the Company expects the market environment and operating situation to remain challenging. The Company will be taking various steps to improve the Group's business and profitability: 1) Taking advantage of the Group's extensive sales network to expand sales and turn product and technology advantages into market advantages and economic benefits. The Company has an extensive product range, having the approval to produce some 812 products; it also has a sales network covering 31 provinces, municipalities and autonomous regions of the country. The sales of the Company's key products including Su Xiao Jiu Xin Pill will see significant increase in 2007. Starting from 2007, the Company will each year select a few products that possess good market potential, for promotion and development into key products of the Group. Leveraging on the Group's sales network and distribution resources, the Company will strive to tap new markets, enhance market shares, expand sales and increase profits by extending the network of sales terminals to more urban communities and the vast township and rural markets. 2) Revamping trading business to improve operating efficiency. The Company will seek to improve operating efficiency of its trading business through consolidation of its resources and
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leveraging on its unique advantages of being an integrated manufacturer, distributor, wholesaler and retailer of pharmaceutical products. 3) reinvigorating its business as a key supplier of medicinal materials to create a new source of profit growth. Benefiting from its advantages of having storage and distribution facilities, the Company had in the past enjoyed a unique status as a key collection and distribution center for medicinal materials in north China. It plans to increase investment in human, financial and material resources to develop this business into a new engine for profit growth. 4) Strengthening internal management to enhance economic and operating efficiency. The Company will strengthen the management and control of accounts receivables and inventories. All subsidiaries of the Company will formulate related management and internal control systems and implementing measures aiming at reducing raw materials procurement cost, labor cost, management expenses and marketing expenditure. The Company will step up efforts to enhance control so as to increase economic efficiency. 5) Strengthening technological innovations and accelerating the pace of commercialization of new products and new technologies. In 2007, the Company will increase investment in science and technology, speed up the development and commercialization of new products. Meanwhile, steps will also be taken to improve the quality of existing products mainly by raising their quality, improving their production processes and lowering their production cost. It is the Group's aim to establish itself as premier manufacturer of pharmaceutical products in the area of cardiovascular and cranial vascular diseases, stomach and enterogastric diseases, hypoglycemic medicines and anti-cancer medicines. The Board of Directors and the management of the Company are confident and resolute to make 2007 an important turning point in the development of Zhong Xin Pharmaceutical through reform, readjustment and consolidation efforts. With the joint efforts of all staff, and the support of all parties, the Company is confident of riding out the difficult situation as quickly as possible and returning to the path of growth and profitability again.
Chairman Hao Feifei
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Financial Review (a)
Major operating results changes over FY2006:
The Group's turnover in FY2006 was Rmb2,151 million, a decrease of Rmb370 million, or 15%, from Rmb2,521 million in FY2005. Sales of manufactured products and trading sales both declined. The decrease in sales of manufactured products was principally due to: 1) the exclusion of the sales of Hualida and Hong RenTang as a consequence of the two companies ceasing to be subsidiaries of the Group, contributing to a Rmb128 million decline in sales; and 2) reduced sales of certain key manufactured products. In the fourth quarter of FY2006, the Group revised its sales strategy with regard to certain key manufactured products in response to excess inventories and declining prices in the market. In particular, the Group had substantially curtailed the sales of Su Xiao Jiu Xin Wan (速效救心丸), resulting in the sales of the product having declined by Rmb160 million in FY2006. In addition, the Group had taken step to restructure the distribution channel of a key product, Niu Huang Jiang Ya Wan (牛黄降压丸), and this had resulted in reduced sales in the transitional period. Trading sales decreased by Rmb73 million, or 8% as compared with FY2005, as a result of on-going measures to control sales of trading products that command low margins. The Group's gross profit in FY2006 decreased by Rmb390 million, or 37% to Rmb673 million from Rmb1,062 million in FY2005. Gross margin declined to 31% in FY2006 from 42% in FY2005. The decline was due mainly to lower sales, particularly sales of certain key manufactured products, as well as provision for diminution in the value of inventories amounting to Rmb79 million. Inventory write-down was made mainly in respect of other manufacturers' products which the Group had decided to cease selling, products which had slow sales, and raw material herbs which had suffered price drop. Other operating income in FY2006 was Rmb25 million, a decrease of Rmb11 million from FY2005. The decline was due mainly to lower relocation compensation received in FY2006 as compared to FY2005. In FY2006, the Group made gains amounting to Rmb18 million from disposal of the Group's interest in certain subsidiaries, mainly from the sale of shares in Hong Ren Tang. Distribution expenses decreased by Rmb20 million, or 3%, to Rmb635 million in FY2006. The decrease was due mainly to the exclusion of the distribution expenses incurred by Hualida and Hong RenTang upon their ceasing to be subsidiaries, and to lower sales. Despite lower sales, the Group had had to maintain sales and marketing expenditure in an intensely competitive business environment. Among other things, advertising expenses had increased by Rmb32 million, while product exhibition and sales promotion expenses had increased by Rmb26 million. Administration expenses increased by Rmb76 million or 21% to Rmb437 million in FY2006. The increase was attributed mainly to: 1) an amount of Rmb38 million being set aside as provision for trade receivables. Following a review of the Group's business strategy, the Group has rationalized and restructured its extensive customer base in order to focus on customers that are more established and financially stronger. As a result, the Group ceased to do business with many smaller
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customers. The Company considers it prudent to increase provisions for trade receivables due from many of these customers, particularly those which were incurring losses or were undergoing financial restructuring; 2) an amount of Rmb17 million being made for impairment in the value of certain long term investments. The Group had written off its investment in several loss-making subsidiaries. Finance cost in FY2006 amounted to Rmb58 million, no material change from the RMB61 million incurred in FY2005. The finance cost was net of Rmb20 million of interest subsidy received from the government in support of the Group's development of the Chinese Medicine Industrial Park in the Tianjin Economic Technological Development Area. The Group's share of results of associated companies in FY2006 declined by Rmb47 million to Rmb42 million. This was due mainly to lower contribution from our 25%-owned associated company, Sino-American Tianjin Smithkline & French Lab., Ltd and from Tianshili which had ceased to be an associated company. The Group incurred a loss before tax of Rmb374 million in FY2006 compared to a profit of Rmb110 million in FY2005. The decline was due mainly to lower gross profit and reduced contributions from the Group's associated companies. Income tax expense in FY2006 decreased by Rmb10 million to Rmb2 million due to tax refund received by a subsidiary, and exclusion of Hong Ren Tang from the Group. After accounting for minority interest, the loss attributable to the company's equity holders in FY2006 was Rmb369 million. (b)
Major balance sheet changes
As at 31 December 2006, the Group's cash and cash equivalents amounted to Rmb312 million, which is a decrease of Rmb89 million, or 22% lower than that as at 31 December 2005. Group borrowings amounted to Rmb1,235 million, which is a decrease of Rmb48 million from that as at 31 December 2005. In FY2006, the Group's short term borrowings declined from Rmb904 million to Rmb695 million, while long term borrowings increased from Rmb379 million to Rmb540 million. Trade receivables decreased by 18% or Rmb83 million to Rmb379 million as at 31 December 2006, largely attributable to the provision for bad and doubtful debts. Other receivables and prepayments amounted to Rmb125 million as at 31 December 2006, a decrease of Rmb75 million from that as at end 2005, due mainly to lesser prepayment for raw materials in FY2006, and receipt of the proceeds from the sale of real estate in 2006. Inventories decreased by 11% to Rmb491 million, due mainly to write down in the value of inventories, off-set partially by increased stock holding at a subsidiary. Investment in associates increased by 25% to Rmb297 million, mainly on account of Hualida ceasing to be a subsidiary and becoming an associate company, and the Group's share of profits of associated companies. Property, plant and equipment decreased by Rmb235 million to Rmb1,586 million due to deconsolidation of Hualida and Hong Ren Tang following their ceasing to be subsidiaries of the Group, and depreciation. (c)
In FY2006, net cash outflow from operating activities was Rmb20 million, due mainly to losses incurred.
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Risk Factors Competition in the sale of medicines in the geographical areas where the Group operates remains intense. The severe competition has led to consolidation in the industry, and this process is continuing. This, together with measures taken by the Chinese Government to strengthen regulation of the industry and to control the price of selective medicinal products, will continue to put pressure on product prices. The Group has had to, and expects to increase expenditure to promote the sales of its products and to maintain its market share. The adjustment of the Group's strategies on the marketing and distribution of certain key manufactured products, in particular Su Xiao Jiu Xin Wan and Niu Huang Jiang Ya Wan, had resulted in a significant reduction in the revenues from the sales of manufactured products, and consequently in the Group's gross profit. Following the implementation of the new strategy, the Company expects sales and price of the key products to improve. The Group will also be taking steps to expand the sales coverage of its key manufactured products into areas where the Company sees great potential, such as provincial towns and districts where the Group currently has little or no coverage. The Group has relied substantially on bank borrowings to finance its capital investment, in particular the Chinese Medicine Industrial Park. As at end FY2006, the Group had total borrowings of Rmb1235 million, of which Rmb695 million was short term borrowings. The Group's ability to continue its business as a going concern will be dependent on the continuing support of its principal bankers. The Group is making concerted efforts to divest of non-core assets and investments in order to improve the Group's working capital and reduce bank borrowings. The Board is confident that with the support of its holding company, the Group will continue to receive the support of its principal bankers, and that it will be able to renew its bank loans as and when they fall due.
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2006 Work Report of the Board of Supervisors Every shareholder, Following the PRC Company Law, the PRC Securities Law, related laws and regulations of Singapore and the Articles of Association of the Company, the Board of Supervisors of Tianjin Zhong Xin Pharmaceutical Group Corporation Limited earnestly performed its duties, wholeheartedly safeguarded the interests of shareholders and the Company, adhered to the principle of being sincere, tried to be reasonably prudent, and did work diligently and actively throughout 2006. In the year the Board of Supervisors attended the meetings of the Board of Directors and the General Meeting of Shareholders as nonvoting delegates and supervised according to law the operation of the Company. It holds: the Board of Directors of the Company was able to operate in a standardized manner, reasonably make operating strategies and strengthen internal control by strictly following the requirements of the Company Law, the Securities Law, the Stock Listing Rules of the Shanghai Stock Exchange, the Listing Manual of the Singapore Exchange, the Articles of Association of the Company and other laws and regulations. The directors, managers and other senior managerial personnel of the Company did not act against laws, regulations and the Articles of Association of the Company in carrying out their duties and did not have any act of doing harm to the interests of the Company. The Board of Directors of the Company gave full play to the functions of independent directors and paid importance to safeguarding the legitimate rights and interests of small and medium-sized shareholders. The prices for related party transactions between the Company and its related parties in current trade activities were fair and reasonable, the related party transaction contracts were made reasonably and lawfully, without doing harm to the interests of the listed company. The Board of Supervisors supervised and examined the financial system and financial status of the Company, and holds that the 2006 financial report of the Company truly and accurately reflects the financial status and operating results of the Company. The Board of Supervisors holds: Though the Company incurred a big amount of loss in 2006 because of adjustment of operating strategy and other reasons, it is believed that the Company will surely be able to get rid of the difficult situation and also lay a solid basis for future development of the Company in 2007 after implementation of significant reform and adjustment and under the leadership of the Company's new Board of Directors and the efforts of the management. Chairman of the Board of Supervisors Xu Shihui
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TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES DIRECTORS' REPORT For the financial year ended 31 December 2006 The directors present their report to the members together with the audited financial statements of the Group for the financial year ended 31 December 2006 and the balance sheet of the Company at 31 December 2006. Directors The directors of the Company in office at the date of this report are: Zhang Jian Jin
(appointed on 31 January 2007)
Shao Biao
(appointed on 31 January 2007)
Hao Fei Fei
(appointed on 31 January 2007)
Liu Wen Wei
(appointed on 31 January 2007)
Han Lu Lan
(appointed on 31 January 2007)
Li Mei Yu Teng Cheong Kwee Zhang Hong Kui Xu Qi De Arrangements to enable directors to acquire shares and debentures Neither at the end of nor at any time during the financial year was the Company a party to any arrangement whose object was to enable the directors of the Company to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate. Directors' interests in shares or debentures None of the directors have any interest in the shares or debentures of the Company or its related corporations except Mr. Zhang Hong Kui who holds 2000 ordinary A shares in the Company. Directors' contractual benefits Since the end of the previous financial year, no director has received or become entitled to receive a benefit by reason of a contract made by the Company or a related corporation with the director, or with a firm of which he is a member, or with a company in which he has a substantial financial interest, except as disclosed in the financial statements.
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TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES DIRECTORS' REPORT For the financial year ended 31 December 2006 Share options There were no options granted during the financial year to subscribe for unissued shares of the Company or its subsidiaries. No shares have been issued during the financial year by virtue of the exercise of options to take up unissued shares of the Company or its subsidiaries There were no unissued shares of the Company or its subsidiaries under option as at the end of the financial year.
On behalf of the directors
Hao Fei Fei
Liu Wen Wei
Director
Director
30 March 2007
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TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES DIRECTORS' REPORT For the financial year ended 31 December 2006 In the opinion of the directors, (a)
the balance sheet of the Company and the financial statements of the Group as set out on pages 23 to 69 are drawn up so as to give a true and fair view of the state of affairs of the Company and of the Group at 31 December 2006 and of the results of the business, changes in equity and cash flows of the Group for the financial year then ended; and
(b)
on the basis as described in Note 2(a) of the Group's financial statements, and at the date of this statement, there are reasonable grounds to believe that the Company and the Group will be able to pay its debts as and when they fall due.
On behalf of the directors
Hao Fei Fei
Liu Wen Wei
Director
Director
30 March 2007
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Independent Auditors' Report to the Members of Tianjin Zhong Xin Pharmaceutical Group Corporation Limited We have audited the accompanying financial statements of Tianjin Zhong Xin Pharmaceutical Group Corporation Limited (the "Company") and its subsidiaries (the "Group") set out on pages 23 to 69, which comprise the balance sheets of the Company and of the Group as at 31 December 2006, and the consolidated income statement, consolidated statement of changes in equity and consolidated cash flow statement of the Group for the year then ended, and a summary of significant accounting policies and other explanatory notes. Directors' Responsibility for the Financial Statements The Company's directors are responsible for the preparation and fair presentation of these financial statements in accordance with Singapore Financial Reporting Standards. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors' Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Singapore Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free from material misstatement. An audit includes performing procedures to obtain evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the balance sheet of the Company and the consolidated financial statements of the Group are properly drawn up in accordance with Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2006, and the results, changes in equity and cash flows of the Group for the financial year ended on that date.
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Emphasis of matter In forming our opinion, we have considered the adequacy of the disclosures made in Note 2(a) in the financial statements concerning the adoption of the going concern basis in the preparation of the financial statements, the validity of which depends upon the continuing financial support of the Company's bankers and its ultimate holding company. The consolidated financial statements do not include any adjustments that may result from the failure to obtain the afore-mentioned financial support. We consider that the fundamental uncertainty has been adequately disclosed in the consolidated financial statements and our opinion is not qualified in this respect.
PricewaterhouseCoopers Certified Public Accountants Singapore, 30 March 2007
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TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES CONSOLIDATED INCOME STATEMENT For the financial year ended 31 December 2006
The Group Note
2006 Rmb'000
2005 Rmb'000
Sales
4
2,150,906
2,520,601
Cost of sales
5
(1,478,335)
(1,458,358)
672,571
1,062,243
Gross profit Other gains - net
4
42,216
35,525
Distribution expenses
5
(634,602)
(655,353)
Administrative expenses
5
(437,137)
(360,718)
Finance expenses
6
(58,211)
(60,644)
Share of profit of associates
16
41,536
88,553
(373,627)
109,606
(1,833)
(11,760)
(375,460)
97,846
(369,310) (6,150) (375,460)
85,420 12,426 97,846
(1.00)
0.23
(Loss)/profit before income tax Income tax expense
8
Total (loss)/profit Attributable to : Equity holders of the Company Minority interests
(Loss)/earnings per share attributable to the equity holders of the Company (expressed in Rmb per share) - Basic / Diluted
9
The accompanying notes form an integral part of these financial statements.
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TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES BALANCE SHEETS As at 31 December 2006 The Group
The Company
Note
2006 Rmb'000
2005 Rmb'000
2006 Rmb'000
2005 Rmb'000
ASSETS Current assets Cash and cash equivalents Trade receivables Other receivables and prepayments Inventories Tax recoverable
10 11 12 13 8(b)
331,727 378,768 124,634 490,720 3,243 1,329,092
408,065 461,874 199,926 549,585 1,619,450
267,515 240,723 114,629 379,790 3,510 1,006,167
278,369 376,554 183,154 420,178 1,258,255
Assets classified as held for sale
14
1,329,092
69,250 1,688,700
1,006,167
1,258,255
Non-current assets Other receivables and prepayments Investment in subsidiaries Investment in associates Available-for-sale financial assets Property, plant and equipment Intangibles
12 15 16 17 18 19
14,279 296,553 309,600 1,586,449 19,255 2,226,136
14,279 236,556 252,338 1,821,137 18,927 2,343,237
14,279 176,397 379,308 99,254 1,322,777 10,189 2,002,204
14,279 284,214 282,694 69,021 1,377,887 5,233 2,033,328
3,555,228
4,031,937
3,008,371
3,291,583
Total assets LIABILITIES Current liabilities Trade and other payables Borrowings Current tax provision Dividend payable
20 21 8(b) 26
848,181 695,000 9,195 1,552,376
789,867 903,620 385 9,204 1,703,076
670,060 599,000 9,195 1,278,255
583,266 794,000 25 9,204 1,386,495
Liabilities classified as held for sale
14
1,552,376
19,846 1,722,922
1,278,255
1,386,495
Non-current liabilities Borrowings Deferred income
21 22
540,000 15,322 555,322
379,000 11,149 390,149
520,000 2,764 522,764
370,000 850 370,850
Total liabilities
2,107,698
2,113,071
1,801,019
1,757,345
Net assets
1,447,530
1,918,866
1,207,352
1,534,238
369,654 783,696 266,045 (203,225) 1,216,170 231,360 1,447,530
369,654 783,696 216,045 221,533 1,590,928 327,938 1,918,866
369,654 783,696 271,722 (217,720) 1,207,352 1,207,352
369,654 783,696 235,722 145,166 1,534,238 1,534,238
EQUITY Share capital and reserves attributable to the Company's equity holders Share capital Share premium Reserves (Accumulated losses)/retained earnings
23 24 25
Minority interests Total equity
The accompanying notes form an integral part of these financial statements.
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TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the financial year ended 31 December 2006 Attributable to equity holders of the Company
Note Balance at 1 January 2006 Payment of 2005 dividends
26
Minority interests
Total equity
Accumulated losses Share /retained Reserves earnings
capital
Share premium
Rmb'000
Rmb'000
Rmb'000
Rmb'000
Rmb'000 Rmb'000
369,654
783,696
216,045
221,533
327,938 1,918,866
-
-
-
(55,448)
(2,516) (57,964)
-
-
-
(369,310)
(6,150) (375,460)
Net loss Fair value gain on available-forsale financial assets Total recognised gains/(losses) for the financial year
-
-
50,000
-
-
-
50,000
(369,310)
Decrease in minority interest
-
-
-
-
-
-
-
-
(99,581) (99,581)
Balance at 31 December 2006
369,654
783,696
266,045
(203,225)
231,360 1,447,530
Balance at 1 January 2005
369,654
783,696
205,575
206,031
285,926 1,850,882
Disposal and dilution of interest in subsidiaries
10
13,431
63,431
7,281 (312,029) (1,762)
(1,762)
Fair value loss on available-forsale financial assets Net profit Total recognised gains for the financial year
-
-
(4,000) -
85,420
(1,921) 12,426
(5,921) 97,846
-
-
(4,000)
85,420
10,505
91,925
Transfers
-
-
14,470
(14,470)
-
-
Payment of 2004 dividends
-
-
-
(55,448)
- (55,448)
Capital contribution by minority shareholders in subsidiaries
-
-
-
-
20,516
20,516
Minority interests of a subsidiary acquired
-
-
-
-
10,991
10,991
369,654
783,696
216,045
221,533
Balance at 31 December 2005
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327,938 1,918,866
ANNUAL REPORT
2006
TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES CONSOLIDATED CASH FLOW STATEMENT For the financial year ended 31 December 2006 2006 Rmb'000
2005 Rmb'000
(415,163)
21,053
111,836 (7,490) 58,211 817 (2,865) (17,700) 10,670 6,168 17,000 (1,802) (240,318)
103,631 (3,138) 60,644 (18,156) (6,856) 5,600 470 (3,508) 159,740
Change in operating assets and liabilities Receivables Inventories Payables Cash (used)/generated from operations Income tax paid Net cash (outflow)/inflow from operating activities
122,030 45,877 58,126 (14,285) (5,461) (19,746)
72,053 38,842 (13,322) 257,313 (10,536) 246,777
Cash flows from investing activities Payments for property, plant and equipment Payments for intangible assets Interest received Dividends received from associates and available-for-sale financial assets Net cash inflow from disposal and dilution of subsidiaries Proceeds from disposal of property, plant and equipment Proceeds from disposal of available-for-sale financial assets Proceeds from disposal of intangible assets Repayment of fixed deposits and others Net cash inflow/(outflow) from investing activities
(77,087) (5,870) 7,490 83,504 28,018 25,644 5,275 3,104 70,078
(200,571) (10,282) 3,138 31,876 847 27,251 74,993 9,690 1,460 (61,598)
(1,762) 1,207,828 (1,233,448) (78,211) (55,457) (2,516) (16,078) 40,000 (139,644)
20,516 2,148,000 (2,084,044) (80,644) (55,646) (51,818)
(89,312) 401,525 312,213
133,361 273,748 (5,584) 401,525
Note Cash flows from operating activities (Loss)/profit before tax less share of profit of associates Adjustments for: Depreciation and amortisation Interest income Interest expense Loss on disposal of property, plant and equipment Gain on disposal of intangible assets Gain on disposal of a subsidiary Loss on disposal of available-for-sale financial assets Impairment of investment in associate Impairment of available-for-sale financial assets Impairment of property, plant and equipment Dividend income Operating cash flow before working capital change
10(b) 16 18
10(b)
Cash flows from financing activities Changes in capital contribution by minority shareholders in subsidiaries Proceeds from borrowings Repayment of borrowings Interest paid Dividend paid to shareholders Dividend paid to minority shareholders of subsidiaries Increase in restricted bank balance Government grant Net cash outflow from financing activities Net (decrease)/increase in cash and cash equivalents held Cash and cash equivalents at the beginning of the financial year Less: Reclassified to disposal group held for sale Cash and cash equivalents at the end of the financial year
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2006
ANNUAL REPORT
TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 These notes form an integral part of and should be read in conjunction with the accompanying financial statements.
1.
General Tianjin Zhong Xin Pharmaceutical Group Corporation Limited ("the Company"), domiciled in the People's Republic of China ("PRC"), was incorporated in 1996 as a joint stock limited company. The Company's registered office is 17, Baidi Road, Nankai District, Tianjin, PRC. The Company is listed on the Singapore Exchange and the Shanghai Stock Exchange. The principal activities of the Company are investment holding, production and sale of traditional Chinese medicine, western medicine and health products. The principal activities of the significant subsidiaries and associates are described in Note 33 to the financial statements.
2.
Significant accounting policies
(a)
Basis of preparation The financial statements have been prepared in accordance with Singapore Financial Reporting Standards ("FRS"). The financial statements have been prepared under the historical cost convention, except as disclosed in the accounting policies below. Notwithstanding that the Group incurred a net loss of approximately Rmb 375 million for the current financial year and as at 31 December 2006 the Company's and the Group's current liabilities exceeded its current assets by approximately Rmb 272 million and approximately Rmb 223 million respectively, the directors of the Company are of the opinion that the Company and the Group are able to continue on a going concern basis and to meet their obligations as and when they fall due having regard to the following: (i) In March 2007, certain of the Company's bankers have indicated their intention not to withdraw approximately RMB 470 million of long term loans and RMB 200 million of long term loan facility already provided to the Company as at 31 December 2006. These commitments were given by the banks, provided that the Group's consolidated net assets position is maintained at not less than RMB 1.2 billion and the Company keeps to the terms of the respective original loan contracts; and
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TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 2.
Significant accounting policies (continued)
(a)
Basis of preparation (continued) (ii) In March 2007, the Company's ultimate holding company, Tianjin Pharmaceutical Holdings, also confirmed its intention to make available RMB 500 million to enable the Company to meet its financial obligations as and when they fall due and to ensure that the Company will be able to continue its operations for a period no less than 12 months from date of directors' report of 30 March 2007. The directors believe that the Company and the Group will have sufficient cash resources to satisfy its future working capital and other financing requirements. Accordingly, it is appropriate that these financial statements should be prepared on a going concern basis and do not include any adjustments that would be required should the Company and the Group fail to continue as a going concern. In the event the continuing financial support from the Company's bankers and its ultimate holding company are not forthcoming, and as a result the Company and the Group are unable to continue as a going concern for the foreseeable future, adjustments would have to be made to reflect the situation that the assets may need to be realised other than in the normal course of business and at amounts which could differ significantly from the amounts stated in the balance sheet. In addition, the Company and the Group may have to provide for further liabilities which may arise, and to reclassify non-current assets and non-current liabilities as current assets and current liabilities respectively. The preparation of financial statements in conformity with FRS requires management to exercise its judgement in the process of applying the Group's accounting policies. It also requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the financial year. Although these estimates are based on management's best knowledge of current event and actions, actual results may ultimately differ from those estimates. Critical accounting estimates and assumptions used that are significant to the financial statements, and areas involving a higher degree of judgement or complexity, are disclosed in Note 3.
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TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 2.
Significant accounting policies (continued)
(b)
Basis of preparation (continued)
Interpretations and amendments to published standards effective in 2006 On 1 January 2006, the Group adopted the new or revised FRS and Interpretations to FRS (INT FRS) that are mandatory for application from that date. Changes to the Group's accounting policies have been made as required, in accordance with the relevant transitional provisions in the respective FRS and INT FRS. The following are the FRS and INT FRS that are relevant to the Group: FRS 19 (Amendment)
Employee Benefits
FRS 21 (Amendment)
The Effects of Changes in Foreign Exchange Rates
FRS 32 (Amendment)
Financial Instruments: Disclosures and Presentation
FRS 39 (Amendment)
Financial Instruments
INT FRS 104
Determining whether an Arrangement contains a Lease
The adoption of the above FRS or INT FRS did not result in any substantial changes to the Group's accounting policies.
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TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 2.
Significant accounting policies (continued)
(c)
Revenue recognition Revenue for the Group comprises the fair value of the consideration received or receivable for the sale of goods and services, net of goods and services tax, rebates and discounts, and after eliminating sales within the Group. Revenue from the sale of goods is recognised when a Group entity has delivered the products to the customer, the customer has accepted the products and the collectibility of the related receivable is reasonably assured. Rental income is recognised on an accrual basis in accordance with the substance of the relevant agreements. Interest income is recognised on a time proportion basis, taking account of the principal outstanding and the effective rate over the period of maturity, when it is determined such income will accrue to the Group. Dividend income is recognised when the right to receive payment is established.
(c)
Group accounting (i) Subsidiaries Subsidiaries are those entities over which the Group has power to govern the financial and operating policies, generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are presently exercisable or presently convertible are considered when assessing whether the Group controls another entity. The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued or liabilities incurred or assumed at the date of acquisition plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values on the date of acquisition, irrespective of the extent of any minority interest. Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. Balances, transactions and unrealised gains on transactions between group companies are eliminated; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Where necessary, adjustments are made to the financial statements of subsidiaries to ensure consistency of accounting policies with those of the Group.
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Global Reports LLC
2006
ANNUAL REPORT
TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 2.
Significant accounting policies (continued)
(c)
Group accounting (continued) (i) Subsidiaries (continued) Minority interest is that part of the net result of operations and of net assets of a subsidiary attributable to interests which are not owned directly or indirectly by the Group. It is measured at the minorities' share of the fair values of the subsidiaries' identifiable assets and liabilities at the date of acquisition by the Group and the minorities' share of changes in equity since the date of acquisition, except when the losses applicable to the minority in a subsidiary exceed the minority interest in the equity of that subsidiary. In such cases, the excess and further losses applicable to the minority are attributed to the equity holders of the Company, unless the minority has a binding obligation to, and is able to, make good the losses. When that subsidiary subsequently reports profits, the profits applicable to minority are attributed to the equity holders of the Company until the minorities' share of losses previously absorbed by the equity holders of the Company is fully recovered. Please refer to the paragraph "Investments in subsidiaries and associates" for the accounting policy on investments in subsidiaries in the separate financial statements of the Company. (ii) Transactions with minority interests The Group applies a policy of treating transactions with minority interests as transactions with parties external to the Group. Disposals to minority interests, which result in gains and losses for the Group, are recorded in the income statement. The difference between any consideration paid to minority interests for purchases of additional equity interest in a subsidiary and the incremental share of the carrying value of the net assets of the subsidiary is recognised as goodwill. (iii) Associates Associates are entities over which the Group has significant influence, but not control, generally accompanying a shareholding of between and including 20% and 50% of the voting rights. Investments in associates are accounted for in the consolidated financial statements using the equity method of accounting. Investments in associates in the consolidated balance sheet includes goodwill (net of accumulated amortisation) identified on acquisition, where applicable. Equity accounting involves recording investments in associates initially at cost, and recognising the Group's share of its associates' post-acquisition results and its share of post-acquisition movements in reserves against the carrying amount of the investments. When the Group's share of losses in an associate equals or exceeds its interest in the associates, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.
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Global Reports LLC
ANNUAL REPORT
2006
TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 2.
Significant accounting policies (continued)
(c)
Group accounting (continued) In applying the equity method of accounting, unrealised gains on transactions between the Group and its associate are eliminated to the extent of the Group's interest in the associate. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Where necessary, adjustments are made to the financial statements of associate to ensure consistency of accounting policies with those of the Group. The accounting policy on investments in associates in the separate financial statements of the Company is set out in paragraph (f), "Investments in subsidiaries and associates"
(d)
Property, plant and equipment Property, plant and equipment are stated at historical cost less accumulated depreciation and accumulated impairment losses, if any. The cost of property, plant and equipment includes expenditure that is directly attributable to the acquisition of the items. Depreciation in property, plant and equipment is calculated on a straight-line basis to write off the cost less residual value over their expected useful lives. The estimated useful lives and residual values are as follows: Useful Life 7 - 35 years 5 - 15 years 5 - 10 years
Buildings Plant and machinery Motor vehicles and other equipment
Residual Value 4% - 10% 4% - 10% 4% - 10%
Leasehold land is amortised evenly over the term of the lease. No depreciation is provided on construction in progress. The residual values and useful lives of property, plant and equipment are reviewed, and adjusted as appropriate, at each balance sheet date. Repairs and maintenance are taken to the income statement during the financial year in which they are incurred. The cost of major renovations and restorations is included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group, and the cost can be reliably measured. Interest on borrowings to finance the construction of property, plant and equipment is capitalised during the period of time that is required to complete and prepare each asset for its intended use. All other borrowing costs are recognised on a time-proportion basis in the income statement, using the effective interest method. On disposal of an item of property, plant and equipment, the difference between the net proceeds and its carrying amount is taken to the income statement.
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Global Reports LLC
2006
ANNUAL REPORT
TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 2.
Significant accounting policies (continued)
(e)
Intangibles (i) Goodwill Goodwill represents the excess of the cost of an acquisition of subsidiaries or associates over the fair value of the Group's share of their identifiable net assets at the date of acquisition. ・ Acquisitions pre - 1 January 2001: Goodwill on acquisitions was adjusted against retained earnings in the year of acquisition. On disposal of the subsidiaries and associates, such goodwill and negative goodwill previously adjusted against retained earnings are not recognised in the income statement. ・ Acquisitions post 1 January 2001: Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisition of associates is included in investments in associates. Goodwill for acquisitions post 1 January 2005 is determined after deducting the Group's share of their identifiable net assets and contingent liabilities. Goodwill recognised separately as intangible assets is tested at least annually for impairment and carried at cost less accumulated impairment losses. Gains and losses on the disposal of the subsidiaries and associates include the carrying amount of goodwill relating to the entity sold. (ii) Production technology Production technology and distribution network are stated at cost less accumulated amortisation and accumulated impairment losses, if any. Production technology represents purchased patents and is written off on a straight-line basis to income statement over 10 years, after the commencement of commercial operations.
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Global Reports LLC
ANNUAL REPORT
2006
TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 2.
Significant accounting policies (continued)
(f)
Investments in subsidiaries and associates Investments in subsidiaries and associates are stated at cost less accumulated impairment losses in the Company's balance sheet. On disposal of investment in subsidiaries and associates, the difference between net disposal proceeds and its carrying amount is taken to the income statement.
(g)
Impairment of non-financial assets Intangible assets, property, plant and equipment and investments in subsidiaries and associates are reviewed for impairment whenever there is any indication that these assets may be impaired. If any such indication exists, the recoverable amount (i.e. the higher of the fair value less cost to sell and value in use) of the asset is estimated to determine the amount of impairment loss. For the purpose of impairment testing of these assets, recoverable amount is determined on an individual asset basis unless the asset does not generate cash flows that are largely independent of those from other assets. If this is the case, recoverable amount is determined for the cash generating unit ("CGU") to which the asset belongs. If the recoverable amount of the asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to its recoverable amount. The impairment loss is recognised in the income statement unless the asset is carried at revalued amount, in which case, such impairment loss is treated as a revaluation decrease. An impairment loss for an asset is reversed if, and only if, there has been a change in the estimates used to determine the assets recoverable amount since the last impairment loss was recognised. The carrying amount of an asset, other than goodwill, is increased to its revised recoverable amount, provided that this amount does not exceed the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised for the asset in prior years. A reversal of impairment loss for an asset is recognised in the income statement.
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Global Reports LLC
2006
ANNUAL REPORT
TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 2.
Significant accounting policies (continued)
(h)
Financial assets (i) Classification The Group classifies its financial assets in the following categories: at fair value through profit or loss, held-to-maturity, loans and receivables and available-for-sale financial assets. The classification depends on the purpose for which the assets were acquired. Management determines the classification of its financial assets at initial recognition and re-evaluates this designation at every reporting date. The Group has financial assets only in the categories of loans and receivables and available for sale. ・ Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except those maturing more than 12 months after the balance sheet date. These are classified as non-current assets. Loans and receivables are classified within "trade and other receivables" and "cash and cash equivalents" on the balance sheet. ・ Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the assets within 12 months after the balance sheet date. (ii) Recognition and derecognition Purchases and sales of financial assets are recognised on trade-date - the date on which the Group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. On sale of a financial asset, the difference between the net sale proceeds and its carrying amount is taken to the income statement. Any amount in the fair value reserve relating to that asset is also taken to the income statement.
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Global Reports LLC
ANNUAL REPORT
2006
TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 2.
Significant accounting policies (continued)
(h)
Financial assets (continued) (iii) Initial measurement Financial assets are initially recognised at fair value plus transaction costs. (iv) Subsequent measurement Loans and receivables are carried at amortised cost using the effective interest method, less an allowance for impairment. Available-for-sale financial assets are subsequently carried at fair value. Unrealised gains and losses arising from changes in the fair value of investments classified as available-for-sale are recognised in the fair value reserve within equity. Interest on financial assets, available-for-sale, calculated using the effective interest method is recognised in the income statement. When investments classified as available-for-sale are sold or impaired, the accumulated fair value adjustments in the fair value reserve within equity are included in the income statement as "gains and losses from investment securities". (v) Determination of fair value The fair values of quoted financial assets are based on current bid prices. If the market for a financial asset is not active, the Group establishes fair value by using valuation techniques. These include the use of recent arm's length transactions, reference to other investments that are substantially the same and discounted cash flow analysis. If there is no impairment and the fair value of unquoted equity investments cannot be measured reliably because the range of possible fair value estimates is wide and the probabilities of the various estimates within the range cannot be reasonably assessed, the investment is stated at cost. The directors are of the view that under such circumstances, it is also not possible to disclose the range of estimates within which a fair value is highly likely to lie.
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Global Reports LLC
2006
ANNUAL REPORT
TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 2.
Significant accounting policies (continued)
(h)
Financial assets (continued) (vi) Impairment The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity investments classified as available for sale, a significant or prolonged decline in the fair value of the investment below its cost is considered an indicator that the investments are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss - is removed from the fair value reserve within equity and recognised in the income statement. Impairment losses recognised in the income statement on equity investments are not reversed through the income statement, until the equity investments are disposed of. An allowance for impairment of trade and other receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial organization, and default or delinquency in payments are considered indicators that the receivable is impaired The amount of the allowance is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The amount of the allowance is recognised in the income statement.
(i)
Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined on a weighted average basis and includes all costs in bringing the inventories to their present location and condition. Cost of finished goods nd work in progress includes materials, direct labour and an appropriate proportion of production overheads (based on normal operating capacity), but excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less the cost of completion and selling expenses.
(j)
Trade and other payables Trade and other payables are initially measured at fair value, and subsequently measured at amortised cost, using the effective interest method.
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Global Reports LLC
ANNUAL REPORT
2006
TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 2.
Significant accounting policies (continued)
(k)
Borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is taken to the income statement over the period of the borrowings using the effective interest method. Borrowings which are due to be settled within twelve months after the balance sheet date are included in current borrowings in the balance sheet even though the original term was for a period longer than twelve months and an agreement to refinance, or to reschedule payments, on a long-term basis is completed after the balance sheet date and before the financial statements are authorised for issue. Other borrowings due to be settled more than twelve months after the balance sheet date are included in non-current borrowings in the balance sheet. Borrowing costs are recognised on a time-proportion basis in the income statement using the effective interest method.
(l)
Fair value estimation The fair value of financial instruments traded in active markets (such as exchange- traded and over-the-counter securities and derivatives) is based on quoted market prices at the balance sheet date. The quoted market price used for financial assets held by the Group is the current bid price; the appropriate quoted market price for financial liabilities is the current ask price. The carrying amount of current financial assets and liabilities are assumed to approximate their fair values. The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. Quoted market prices or dealer quotes for similar instruments are used for long-term debt. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.
(m)
Research and development expenditure Research and development expenditure is written off to the income statement in the year in which it is incurred.
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Global Reports LLC
2006
ANNUAL REPORT
TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 2.
Significant accounting policies (continued)
(n)
Income taxes Current income tax liabilities (and assets) for current and prior periods are recognised at the amounts expected to be paid to (or recovered from) the tax authorities, using the tax rates (and tax laws) that have been enacted or substantially enacted by the balance sheet date. Deferred income tax assets/liabilities are recognised for all deductible taxable temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements except when the deferred income tax assets/liabilities arise from the initial recognition of an asset or liability in a transaction that is not a business combination and at the time of the transaction, affects neither accounting nor taxable profit or loss. Deferred income tax liability is recognised on temporary differences arising on investments in subsidiaries and associated companies, except where the Group is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax asset is recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax assets and liabilities are measured at: (i) The tax rates that are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled, based on tax rates (and tax laws) that have been enacted or substantially enacted by the balance sheet date; and (ii) The tax consequence that would follow from the manner in which the Group expects, at the balance sheet date, to recover or settle the carrying amounts of its assets and liabilities. (iii) Current and deferred income tax is recognised as income or expenses in the income statement for the period, except to the extent that the tax arises from a business combination or a transaction which is recognised directly in equity. Deferred tax on temporary differences arising from the fair value gains and losses on available-for-sale financial assets are charged or credited directly to equity in the same period the temporary differences arise. Deferred tax arising from a business combination is adjusted against goodwill on acquisition.
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Global Reports LLC
ANNUAL REPORT
2006
TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 2.
Significant accounting policies (continued)
(o)
Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Provisions are measured at the present value of the expenditure expected to be required to settle the obligation using a pre-tax discount rate that reflects the current market assessment of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognised in the income statement as interest expense.
(p)
Retirement benefits The Group contributes to a local pension scheme, under which the Group pays fixed contributions into a defined contribution retirement scheme organised by the local municipal government for its eligible employees, and will have no legal or constructive obligation to pay further contributions if any of the funds do not hold sufficient assets to pay all employee benefits relating to employee services in the current and preceding financial years. Contributions to the scheme are charged to the income statement in the year in which they are made.
(q)
Currency translations ・ Functional and presentation currency Items included in the financial statements of each entity in the Group are measured using the currency of the primary economic environment in which the entity operates (''the functional currency''). The consolidated financial statements are presented in Renminbi ("Rmb"), which is the Company's functional and presentation currency. ・ Transactions and balances Transactions in a currency other than the functional currency ("foreign currency") are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Currency translation gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at the closing rates at the balance sheet date are recognised in the income statement.
(r )
Segment reporting A business segment is a distinguishable component of the Group engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is a distinguishable component of the Group engaged in providing products or services within a particular economic environment that is subject to risks and returns that are different from those of segments operating in other economic environments.
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Global Reports LLC
2006
ANNUAL REPORT
TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 2.
Significant accounting policies (continued)
(s)
Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, and balances with banks and short-term (maturing within 3 months from the balance sheet date) deposits with banks and nonbank financial institutions.
(t)
Government grants Grants from the government are recognised at their fair value where there is reasonable assurance that the grant will be received and the Group will comply with attached conditions. Government grants relating to costs are deferred and taken to the income statement over the period necessary to match them with the costs they are intended to compensate. Government grants relating to assets are included in non-current liabilities as other liabilities and are taken to the income statement on a straight-line basis over the expected useful lives of the related assets.
(u)
Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of new ordinary shares are deducted against the share capital account.
(v)
Dividend Final dividends are recorded in the financial year in which the dividends are approved by the Company's shareholders.
(w)
Operating lease ・ When a Group Company is the lessee: Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are taken to the income statement on a straight-line basis over the period of the lease. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place. ・ When a Group Company is the lessor: Assets leased out under operating leases are included in property, plant and equipment and are stated at cost less accumulated depreciation and impairment losses. Rental income (net of any incentives given to lessees) is recognised on a straight-line basis over the lease term.
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Global Reports LLC
ANNUAL REPORT
2006
TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 2.
Significant accounting policies (continued)
(x)
Non-current assets (or disposal groups) held for sale Non-current assets (or disposal groups) are classified as assets held for sale and stated at the lower of carrying amount and fair value less costs to sell if their carrying amount is recovered principally through a sale transaction rather than through continuing use.
3.
Critical accounting estimates and judgements Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
(a)
Critical accounting estimates and assumptions The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. (i) Estimated impairment of property, plant and equipment Property, plant and equipment are reviewed for impairment whenever there is any indication that these assets may be impaired. The recoverable amounts of cash-generating units have been determined based on valuein-use calculations. These calculations require the use of estimates (Note 2(g)). If the management's estimated growth rate of revenue for the next five years had been lower by approximately 1 %, the carrying values of property, plant and equipment would be reduced by approximately Rmb 14 million. If the management's estimated gross margin had been lower by approximately 0.5 %, the carrying values of property, plant and equipment would be reduced by approximately Rmb 14 million. (ii) Estimated useful lives of property, plant and equipment The Group estimates the useful lives of property, plant and equipment based on the expected usage of the property, plant and equipment and the historical experience of the actual useful lives of the property, plant and equipment of similar nature and functions. The useful lives of property, plant and equipment are reviewed, and adjusted as appropriate, at each balance sheet date. If the actual useful live of property, plant and equipment is shorter or longer than management's estimation and results in a 10 % decrease or increase in depreciation charge, the Group's net loss will be reduced or increased by approximately Rmb 11 million.
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Global Reports LLC
2006
ANNUAL REPORT
TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 3.
Critical accounting estimates and judgements (continued)
(b)
Critical judgements in applying the entity's accounting policies (i) Impairment of available-for-sale financial assets The Group follows the guidance of FRS 39 (revised 2004) on determining when an investment is other-thantemporarily impaired. This determination requires significant judgement. The Group evaluates, among other factors, the duration and extent to which the fair value of an investment is less than its cost; and the financial health of and near-term business outlook for the investee, including factors such as industry and sector performance, changes in technology and operational and financing cash flow. (ii) Impairment of trade and other receivables Management has reviewed the Group's trade and other receivables at year end to determine whether there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Management believes that the allowance for impairment of trade and other receivables of Rmb 206 million as at 31 December 2006 is adequate. (iii) Inventories write down Management has reviewed the inventories at year end for slow moving and obsolete stocks and believes that the inventories write down for the financial year ended 31 December 2006 of Rmb 77 million is sufficient to cover all estimated losses for net realisable values of inventories on hand.
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Global Reports LLC
ANNUAL REPORT
2006
TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 4.
Revenue and other gains, net The Group
:
5.
Sale of goods Other gains: - Interest income from deposits with banks - Property rental income - Gain on disposal of intangible assets - Negative goodwill of investment on subsidiary - Subsidy income - Dividend income from available-for-sale financial assets - (Loss) / gain on disposal of property, plant and equipment - Loss on disposal of available-for-sale financial assets -Gains on disposal of subsidiary - Others
2006 Rmb'000
2005 Rmb'000
2,150,906
2,520,601
7,490 6,285 2,865 2,628 2,139 1,802 (817) 17,700 2,124 42,216 2,193,122
3,138 6,240 6,856 3,508 18,156 (5,600) 3,227 35,525 2,556,126
Expenses by nature The Group 2006 Rmb'000
2005 Rmb'000
1,194,322 (58,865) 325,410 314,763
1,167,581 (38,842) 372,830 318,886
Impairment of trade receivables (Note 11) Impairment of other receivables (Note 12) Impairment of associates (Note 16) Impairment of available-for-sale financial assets (Note 17) Depreciation of property, plant and equipment (Note 18) Impairment of property, plant and equipment (Note 18) Amortisation of intangible assets (Note 19)
67,424 11,944 10,670 6,168 109,043 17,000 2,793
29,568 1,519 470 99,302 4,329
Total depreciation, amortisation and impairment
225,042
135,188
Inventory write-down to net realisable value Advertising expense Transportation expense Office administration expense Research expense Rental on operating leases Professional service fees Other expenses Total cost of sales, distribution expenses and administrative expenses
76,885 97,551 22,901 13,577 18,743 7,000 5,185 307,560
13,160 74,001 21,428 21,335 15,916 10,680 9,914 352,352
2,550,074
2,474,429
Raw materials, finished goods and consumables Changes in inventories Employee benefits expense (Note 7) Promotion expenses
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Global Reports LLC
2006
ANNUAL REPORT
TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 6.
Finance expenses The Group
Interest expense - Bank borrowings - Government grant (Note 12)
2006 Rmb'000
2005 Rmb'000
78,211 (20,000) 58,211
80,644 (20,000) 60,644
As the Company had incurred significant capital expenditure on its factory in the Tianjin Economic Technological Development Area ("TEDA"), the TEDA Finance Bureau agreed to provide a grant to the Company. Based on a etter dated 12 December 2005, the TEDA Finance Bureau confirmed that the Company was entitled to grants, of Rmb 20 million for each of the three years to 2007, as partial reimbursement for interest expense of the respective year. The grants due for 2005 and 2006 were received during 2006. 7.
Employee benefits The Group
Wages and salaries Employer's contribution to pension, housing fund, unemployment insurance and general welfare
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Global Reports LLC
2005 Rmb'000
2004 Rmb'000
241,410
271,920
84,000 325,410
100,910 372,830
ANNUAL REPORT
2006
TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 8.
Tax (a) Income tax expense: The Group
Tax expense attributable to profit is made up of: Current income tax - PRC
2006 Rmb'000
2005 Rmb'000
1,833
11,760
As a qualified new and high technology enterprise, the Company enjoys the preferential income tax rate of 15% (2005:15%) whilst most of its subsidiaries are subject to the statutory rate of 33% (2005: 33%). The tax expense on the (loss)/profit differs from the amount that would arise using the preferential tax rate of 15% due to the following: The Group
(Loss)/profit before tax Tax calculated at 15% (2005: 15%) Effect of different tax rates of tax paying subsidiaries Expenses not deductible for tax purpose Income not subject to taxation Tax loss and deferred tax asset not recognized Tax calculated on the share of results of associates Tax charge
2006 Rmb'000
2005 Rmb'000
(373,627)
109,606
(56,044)
16,441
2,059 1,114 (1,027)
5,875 2,727 -
61,961
-
(6,230) 1,833
(13,283) 11,760
(b) Movements in provision for current tax/(tax recoverable) are as follows: The Group
At 1 January Income tax paid Tax expense for the financial year At 31 December
2006 Rmb'000
2005 Rmb'000
2006 Rmb'000
2005 Rmb'000
385 (5,461)
(839) (10,536)
25 (3,535)
(1,253) 85
1,833 (3,243)
11,760 385
(3,510)
1,193 25
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The Company
2006
ANNUAL REPORT
TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 9.
Earnings per share Basic earnings per share is calculated by dividing the consolidated net loss attributable to the equity holders of the Company of Rmb 369,310,000 (2005: profit Rmb 85,420,000) by the weighted average number of shares in issue of 369,654,000 (2005: 369,654,000) during the financial year. Diluted earnings per share for the financial year ended 31 December 2006 and 31 December 2005 are the same as basic earnings per share because there were no potential dilutive shares existing during the respective financial years.
10.
Cash and cash equivalents The Group
Cash at bank and on hand Fixed deposits with banks Restricted cash deposit for bank notes payable
The Company
2006 Rmb'000
2005 Rmb'000
2006 Rmb'000
2005 Rmb'000
312,213 3,436
401,525 6,540
254,015 -
278,369 -
16,078 331,727
408,065
13,500 267,515
278,369
The carrying amounts of cash and cash equivalents approximate their fair value. Cash and cash equivalents were denominated in Renminbi. Short-term bank deposits at the balance sheet date have maturity of three months (2005: three months) from the end of the financial year with weighted average effective interest rate of approximately 1.8% (2005: 2.1%) per annum. The exposure of cash and cash equivalents to interest rate risks is disclosed in Note 29. (a)
For the purposes of the consolidated cash flow statement, the financial year end consolidated cash and cash equivalents comprise the following: The Group
Cash and bank balances and deposits (as above) Less: Deposits maturing after 3 months Restricted cash deposit for bank notes payable Cash and cash equivalents in consolidated cash flow statement
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2006 Rmb'000
2005 Rmb'000
331,727 (3,436) (16,078) 312,213
408,065 (6,540) 401,525
ANNUAL REPORT
2006
TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 10.
Cash and cash equivalents (continued)
(b)
Disposal and dilution of interest in subsidiaries On 28 February 2006, the Group disposed its entire interest in Tianjin Hong Ren Tang Pharmaceutical Co., Ltd at a consideration of Rmb 38 million, the assets and liabilities of which was separately identified as held for sale as at 31 December 2005 (Note 14) . On 15 February 2006, the Group's interest in Tianjin Hualida Biological Engineering Co., Ltd was diluted from 55% to 40%. The aggregate effect of disposal and dilution of interest in subsidiaries on the cashflows of the Group were as follows: Carrying amounts Rmb'000
.
Net assets/(liabilities) disposed Cash and cash equivalents Trade and other receivables Inventories Property, plant and equipment (Note 14 and 18) Intangibles (Note 19) Total assets
10,285 55,247 18,692 179,665 4,613 268,502
Trade and other payables Borrowings Total liabilities
(5,485) (32,000) (37,485)
Identifiable net assets Less: Minority interests Net assets Gain on disposal and dilution
231,017 (99,581) 131,436 17,700 149,136
Represented: Cash consideration Transferred to investment in associates upon dilution
Analysis of net cash inflow in respect of disposal and dilution of interest in subsidiaries: Bank balances and cash disposed Cash consideration
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38,303 110,833 149,136
(10,285) 38,303 28,018
2006
ANNUAL REPORT
TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 11.
Trade receivables The Group
The Company
2006 Rmb'000
2005 Rmb'000
2006 Rmb'000
2005 Rmb'000
83,460 422,208 64,191 569,859
101,089 409,460 74,992 585,541
27,331 345,833 30,839 404,003
89,913 281,885 102,714 474,512
(191,091)
(123,667)
(163,280)
(97,958)
378,768
461,874
240,723
376,554
Trade receivables - Notes receivable - Other third parties - Related parties (Note 31) Less: Allowance for impairment of trade receivables
Concentrations of credit risk with respect to trade receivables are limited as the Group has a large number of customers who are nationally dispersed. Therefore, management believes that no additional credit risk beyond the amount of allowance for impairment made is inherent in the Group's and Company's trade receivables. The Group's allowance for impairment loss on trade receivables recognised as an expense under administrative expenses in 2006 amounted to Rmb 67,424,000 (2005: Rmb 29,568,000) (Note 5). Trade receivables were principally denominated in Renminbi and their carrying amounts approximate their fair values.
12.
Other receivables and prepayments
(a)
Current: The Group
Staff advances Advances to suppliers Other receivables Prepayments Government grant receivable (Note 6) Receivable from disposal of property, plant and equipment Receivable from disposal of available-for-sale financial assets Less: Allowance for impairment of other receivables
2006 Rmb'000
2005 Rmb'000
2006 Rmb'000
2005 Rmb'000
18,998 56,658 64,035 214 -
35,508 43,334 55,320 22,217 20,000
15,578 15,699 94,984 214 -
31,934 35,601 48,336 22,217 20,000
-
13,265
-
13,265
-
13,609
-
13,609
(15,271)
(3,327)
(11,846)
(1,808)
124,634
199,926
114,629
183,154
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The Company
ANNUAL REPORT
2006
TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 12.
Other receivables and prepayments (continued)
(a)
Current (continued): The Group's allowance for impairment loss on other receivables recognised as an expense under administrative expenses in 2006 amounted to Rmb 11,944,000 (2005: Rmb 1,519,000) (Note 5). The carrying amounts of other receivables approximate their fair values.
(b)
Non-current: The Group
Receivables from associates (non-trade)
The Company
2006 Rmb'000
2005 Rmb'000
2006 Rmb'000
2005 Rmb'000
14,279
14,279
14,279
14,279
The non-trade receivables from associates are unsecured and interest free. This amount is principally expected to be injected into the capital of an associate in due course. The exposure of current and non-current trade and other receivables to interest rate risks is disclosed in Note 29. Other receivables and prepayments were principally denominated in Renminbi.
13.
Inventories The Group
Work-in-progress Raw materials Finished goods
The Company
2006 Rmb'000
2005 Rmb'000
2006 Rmb'000
2005 Rmb'000
65,671 143,061 281,988 490,720
59,607 164,997 324,981 549,585
44,319 118,586 216,885 379,790
35,606 126,973 257,599 420,178
Group's cost of inventories recognised as expense under cost of sales in 2006 amounted to Rmb1,135,457,000 (2005: Rmb 1,128,739,000).
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2006
ANNUAL REPORT
TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 14.
Disposal group classified as held for sale On 30 December 2005, the directors resolved to dispose of its entire 52% equity in a subsidiary, Tianjin Hong Ren Tang Pharmaceutical Co., Ltd. ("Hong Ren Tang"). Subsequent to year-end, the Company entered into an agreement to dispose of Hong Ren Tang to TPH Group for a consideration of Rmb 38 million. The transaction was completed on 28 February 2006. Details of the assets and liabilities of the disposal group classified as held for sale are as follows:
Rmb'000 Assets of disposal group classified as held for sale: Cash and cash equivalents Trade receivables Other receivables and prepayments Inventories Property, plant and equipment (Note 10) Intangible asset - goodwill (Note 19(c))
5,584 23,307 9,987 5,704 20,394 4,274 69,250
Liabilities of disposal group classified as held for sale: Trade and other payables Borrowings
9,846 10,000 19,846
Net assets
15.
Net assets held for sale
49,404
Group's 52% share of net assets held for sale
25,690
Investment in subsidiaries The Company
Unquoted equity interests, at cost Details of significant subsidiaries are included in Note 33.
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2006 Rmb'000
2005 Rmb'000
176,397
284,214
ANNUAL REPORT
2006
TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 16.
Investment in associates The Group 2006 Rmb'000
2005 Rmb'000
Equity investment at cost, less impairment Balance at beginning of financial year Reclassified from /(to) investment in a subsidiary Reclassified to available-for-sale financial assets Share of profits Dividends received, net of tax Impairment for associates (Note 5) Others Balance at end of financial year The summarised financial information of associates is as follows: - Assets - Liabilities - Revenues - Net profit
236,556
344,969
110,833
(6,391)
41,536 (81,702) (10,670) 296,553
(160,130) 88,553 (28,368) (2,077) 236,556
1,815,034 (774,516) 1,256,031 173,617
1,446,116 (550,855) 1,355,924 324,429
Details of the significant associates are included in Note 33.
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The Company 2006 Rmb'000
2005 Rmb'000
379,308
282,694
2006
ANNUAL REPORT
TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2005 17.
Available-for-sale financial assets Available-for-sale financial assets include the following: The Group
Quoted equity investments
The Company
2006
2005
2006
2005
Rmb'000
Rmb'000
Rmb'000
Rmb'000
106,842
43,411
55,098
19,098
31,935
192,066
33,463
33,062
180,130
20,000
20,000
20,000
212,065
212,066
53,463
53,062
(9,307)
(3,139)
(9,307)
(3,139)
309,600
252,338
99,254
69,021
Unquoted equity investments - At fair value - At cost (Note (a))
Less: Allowance for impairment loss
(a) Investments at cost of Rmb180 million (2005: Rmb 20 million) comprises: -
Rmb 20 million (2005: Rmb 20 million) equity investment in an unlisted state owned enterprise, and
-
Rmb 160 million (2005: 160 million) equity interest in an unlisted company registered and operating in the PRC.
In 2005, this investment was accounted for at fair value as the Group was able to obtain the required information to establish its fair value with its marginal influence over the investee. Such influence was lost during 2006 after the Group diluted its interest in the investee and results in its fair value cannot be measured reliably. As the fair value of these investments cannot be measured reliably because the range of possible fair value estimates is wide and the probabilities of the various estimates within the range cannot be reasonably assessed, the investment is stated at cost less impairment. The directors are of the view that under such circumstances, it is also not possible to disclose the range of estimates within which a fair value is highly likely to lie.
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ANNUAL REPORT
2006
TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 18.
Property, plant and equipment Leasehold land and buildings Rmb'000
Plant and machinery Rmb'000
Motor vehicles and other equipment Rmb'000
1,262,149 2,619 141,133 (14,503)
633,775 12,236 24,351 (10,611)
144,034 4,384 24,278 (11,935)
188,273 57,848 (189,762) (4,800)
2,228,231 77,087 (41,849)
(79,701) 1,311,697
(76,785) 582,966
(7,328) 153,433
(33,750) 17,809
(197,564) 2,065,905
Construction in progress Rmb'000
Total Rmb'000
The Group Cost At 1 January 2006 Additions Transfers Disposals Disposal/dilution of interest in subsidiaries (Note 10) At 31 December 2006 Accumulated depreciation and impairment At 1 January 2006 Depreciation charge Disposals Impairment Disposal/dilution of interest in subsidiaries (Note 10) At 31 December 2006
(160,471) (48,901) 4,137 -
(177,405) (43,377) 7,597 (17,000)
(69,218) (16,765) 3,654 -
-
(407,094) (109,043) 15,388 (17,000)
8,630 (196,605)
26,277 (203,908)
3,386 (78,943)
-
38,293 (479,456)
Net book value At 31 December 2006
1,115,092
379,058
74,490
17,809
1,586,449
1,229,005 15,072 43,612 (12,721)
610,139 28,276 13,444 (8,317)
133,355 24,958 848 (13,013)
114,219 132,265 (57,904) (307)
2,086,718 200,571 (34,358)
(12,819) 1,262,149
(9,767) 633,775
(2,114) 144,034
188,273
(24,700) 2,228,231
Cost At 1 January 2005 Additions Transfers Disposals Reclassified to disposal group At 31 December 2005 Accumulated depreciation At 1 January 2005 Depreciation charge Disposals Reclassified to disposal group At 31 December 2005
(122,030) (41,068) 1,460
(147,681) (37,383) 5,509
(54,385) (20,851) 5,029
-
(324,096) (99,302) 11,998
1,167 (160,471)
2,150 (177,405)
989 (69,218)
-
4,306 (407,094)
Net book value At 31 December 2005
1,101,678
456,370
74,816
188,273
1,821,137
The Group is in the process of applying to obtain title to certain land use rights and buildings with carrying value of approximately Rmb 137 million and Rmb 283 million, respectively. The directors of the Company believe that these title documents will be obtained in due course without significant additional costs, if any.
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2006
ANNUAL REPORT
TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 18.
Property, plant and equipment (continued) Leasehold land and buildings Rmb'000
Plant and machinery Rmb'000
Motor vehicles and other Construction equipment in progress Rmb'000 Rmb'000
Total Rmb'000
The Company Cost At 1 January 2006 Additions Transfers Disposals At 31 December 2006
987,345 795 135,300 (10,503) 1,112,937
472,430 7,708 20,638 (9,787) 490,989
103,871 1,626 7,897 (9,862) 103,532
129,461 51,321 (163,835) 16,947
1,693,107 61,450 (30,152) 1,724,405
At 1 January 2006 Depreciation charge Disposals Impairment charge At 31 December 2006
(127,325) (41,835) 4,159 (165,001)
(134,725) (28,623) 6,958 (17,000) (173,390)
(53,170) (12,763) 2,696 (63,237)
-
(315,220) (83,221) 13,813 (17,000) (401,628)
Net book value At 31 December 2006
947,936
317,599
40,295
16,947
1,322,777
990,137 1,981 4,980 (9,753) 987,345
464,312 4,621 9,239 (5,742) 472,430
102,562 11,185 660 (10,536) 103,871
79,665 64,776 (14,879) (101) 129,461
1,636,676 82,563 (26,132) 1,693,107
At 1 January 2005 Depreciation charge Disposals At 31 December 2005
(96,864) (31,506) 1,045 (127,325)
(115,323) (23,452) 4,050 (134,725)
(43,026) (14,840) 4,696 (53,170)
-
(255,213) (69,798) 9,791 (315,220)
Net book value At 31 December 2005
860,020
337,705
50,701
129,461
1,377,887
Accumulated depreciation
Cost At 1 January 2005 Additions Transfers Disposals At 31 December 2005 Accumulated depreciation
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ANNUAL REPORT
2006
TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 18.
Property, plant and equipment (continued) Impairment test of property, plant and equipment Property, plant and equipment are allocated to the Group's cash generating unit ("CGU") identified according to product line. The recoverable amount of a CGU is determined based on value-in-use calculations. The value-in-use calculations use cash flow projections based on financial forecast prepared by management covering a 2 to 15 years operation period, with key assumptions on revenue growth and gross margin. Management determined these key assumptions based on past performance and its expectations on market development. Management expected that there will be net cash flows to be received for the disposal of property and plant at the end of the assets' useful lives. The present value of cash flow projections is calculated by using a discount rate of approximately 11%, which is the estimated weighted average cost of capital of the pharmaceutical industry in the PRC. Based on the impairment test, an impairment charge of Rmb 17 million is recognised to the income statement for the year ended 31 December 2006. This potential loss arose principally due to the currently lower than budgeted usage of certain property and plant.
19.
Intangibles 2006 Rmb'000
The Group 2005 Rmb'000
The Company 2006 2005 Rmb'000 Rmb'000
Balance at 1 January Acquisition Disposals Dilution of a subsidiary Amortisation (Note 5) Balance at 31 December
18,927 5,870 (2,410) (339) (2,793) 19,255
14,275 10,282 (2,834) (2,796) 18,927
5,233 5,346 (390) 10,189
4,681 810 (258) 5,233
Cost Accumulated amortisation Net book value
44,984 (25,729) 19,255
41,863 (22,936) 18,927
14,095 (3,906) 10,189
8,749 (3,516) 5,233
-
1,533 (1,533) -
-
1,533 (1,533) -
9,658 (9,658) -
9,658 (9,658) -
9,658 (9,658) -
9,658 (9,658) -
At net book value: (a)
(b)
Production technology
Distribution network: Balance at 1 January Amortisation Balance at 31 December Cost Accumulated amortisation Net book value
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2006
ANNUAL REPORT
TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 19.
Intangibles (continued)
(c)
Goodwill arising on consolidation: The Group
Balance at beginning of financial year - Disposals - Reclassified to disposal group (Note 14) Balance at end of financial year
20.
2005 Rmb'000
-
5,441 (1,167) (4,274) -
Trade and other payables The Group
Trade creditors - Notes payable - Other third parties - Related parties (Note 31) Retirement benefits (Note 31(b)) Accruals for operating expenses Advances from customers Other payables
2005 Rmb'000
2006 Rmb'000
2005 Rmb'000
324,152 269,585 31,869 56,539 45,693 21,454 98,889 848,181
310,000 260,180 15,978 59,458 23,653 24,532 96,066 789,867
295,000 210,380 28,672 40,020 27,620 4,012 64,356 670,060
290,000 172,199 4,324 41,696 13,901 6,478 54,668 583,266
Trade and other payables were principally denominated in Renminbi.
57
The Company
2006 Rmb'000
The carrying amounts of trade and other payables approximate their fair values.
Global Reports LLC
2006 Rmb'000
ANNUAL REPORT
2006
TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 21.
Borrowings The Group
The Company
2006 Rmb'000
2005 Rmb'000
2006 Rmb'000
2005 Rmb'000
695,000
894,620
599,000
794,000
695,000
9,000 903,620
599,000
794,000
540,000 540,000
388,000 (9,000) 379,000
520,000 520,000
370,000 370,000
1,235,000
1,282,620
1,119,000
1,164,000
Current borrowings: Short-term bank loans Current portion of long-term bank loans Non-current borrowings: Long-term bank loans Less: Current portion Total borrowings (a)
Maturity of borrowings: The current borrowings have an average maturity of 10 months (2005: 7 months) from the end of the financial year. The non-current borrowings have the following maturity: The Group
Later than one year and not later than five years
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The Company
2006 Rmb'000
2005 Rmb'000
2006 Rmb'000
2005 Rmb'000
540,000
379,000
520,000
370,000
2006
ANNUAL REPORT
TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 21. (b)
Borrowings (continued) Effective interest rates: Long-term bank loans are all interest bearing. The weighted average effective interest rates at the balance sheet date were as follows: The Group
Short-term bank loans Long- term bank loans, excluding the interest-free amounts
The Company
2006 Rmb'000
2005 Rmb'000
2006 Rmb'000
2005 Rmb'000
5.2%
5.1%
5.1%
5.0%
5.3%
5.2%
5.2%
5.2%
The exposure of current and non-current borrowings to interest rate risks is disclosed in Note 29. (c)
Carrying amounts and fair value: The carrying amounts of current borrowings approximate their fair values. The carrying amounts and fair value of non-current borrowings are as follows: Carrying amounts
Fair value
2006 Rmb'000
2005 Rmb'000
2006 Rmb'000
2005 Rmb'000
The Group
540,000
388,000
540,000
388,000
The Company
520,000
370,000
520,000
370,000
All the loans are denominated in Renminbi. The fair values are determined from the discounted cash flows analysis, using a discount rate based upon the borrowing rate which the directors expect would be available to the Group at the balance sheet date.
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ANNUAL REPORT
2006
TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 22.
Deferred income The Group 2006 Rmb'000
2005 Rmb'000
2006 Rmb'000
2005 Rmb'000
15,322
11,149
2,764
850
Government grants
23.
The Company
Share capital "A" shares
At 1 January2006 Reclassification At 31 December 2006 At 1 January 2005 and 31 December 2005
Noncirculating shares Rmb'000
"S" shares
Circulating shares Rmb'000
Restricted circulating shares Rmb'000
Subtotal Rmb'000
Rmb'000
Total Rmb'000
206,704 (206,704)
62,950 17,626
189,078
269,654 -
100,000 -
369,654 -
-
80,576
189,078
269,654
100,000
369,654
206,704
62,950
-
269,654
100,000
369,654
In 1997, the Company issued 100 million "S" shares for listing on the Singapore Exchange and on 9 May 2002, the Company issued 40 million "A" shares for listing on the Shanghai Stock Exchange. Pursuant to a share reform exercise approved by the Company's shareholders on 10 July 2006, TPH and the other holders of non-circulating shares collectively offered 2.8 shares held by them amounting to 17,626,000 shares for every 10 circulating "A" shares held by the circulating "A" shareholders registered at 19 July 2006. Thereafter, the remaining 189,078,000 non-circulating shares became restricted circulating shares. These shares cannot be sold in the market for a restricted period of one to three years from 19 July 2006. All "S" and "A" shares rank pari passu in all aspects.
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2006
ANNUAL REPORT
TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 24.
Reserves The Group
Capital reserve Goodwill arising on consolidation Statutory common reserve (Note (a)) Statutory welfare reserve (Note (b)) Fair value reserve (Note (c))
(a)
The Company
2006 Rmb'000
2005 Rmb'000
2006 Rmb'000
2005 Rmb'000
78,646 (78,646) 120,646 71,399 74,000 266,045
78,646 (78,646) 120,646 71,399 24,000 216,045
78,646 93,087 50,989 49,000 271,722
78,646 93,087 50,989 13,000 235,722
Statutory common reserve: The Group
At 1 January Transfer from retained earnings At 31 December
The Company
2006 Rmb'000
2005 Rmb'000
2006 Rmb'000
2005 Rmb'000
120,646 120,646
111,230 9,416 120,646
93,087 93,087
85,008 8,079 93,087
The Company and certain subsidiaries are required to transfer a portion of its net profit to the statutory common reserve until the reserve reaches 50% of the registered capital in accordance with their Articles of Association. The transfer to this reserve must be made before the payment of dividends to shareholders. The statutory common reserve can only be used to set off against losses, to expand the entities' production operations or to increase its share capital. The entities may convert its statutory common reserve into share capital provided that the remaining balance of such reserve is not less than 25% of the share capital. (b)
Statutory welfare reserve: The Group
At 1 January Transfer from retained earnings At 31 December
The Company
2006 Rmb'000
2005 Rmb'000
2006 Rmb'000
2005 Rmb'000
71,399 71,399
66,345 5,054 71,399
50,989 50,989
46,950 4,039 50,989
The Company and certain subsidiaries may transfer a portion of its net profit to the statutory welfare reserve in accordance with their Articles of Association, as recommended by directors and approved by shareholders. The statutory welfare reserve can only be used for the collective welfare of the entities' employees.
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2006
TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 24.
Reserves (continued)
(c)
Fair value reserve: The Group
Balance at beginning of financial year Fair value gains/(losses) on availablefor-sale financial assets Balance at end of financial year
The Company
2006 Rmb'000
2005 Rmb'000
2006 Rmb'000
2005 Rmb'000
24,000
28,000
13,000
15,000
50,000 74,000
(4,000) 24,000
36,000 49,000
(2,000) 13,000
25.
Accumulated losses/ retained earnings
(a)
Movements in retained earnings for the Company are as follows: The Company
Balance at beginning of financial year Net (loss)/profit Transfer to reserves Dividend paid Balance at end of financial year (b)
2006 Rmb'000
2005 Rmb'000
145,166 (307,438) (55,448) (217,720)
199,289 13,443 (12,118) (55,448) 145,166
These consolidated financial statements of the Group and the balance sheet of the Company have been prepared in accordance with the Singapore Financial Reporting Standards ("FRS"), which differ in certain respects from accounting regulations in the PRC used in preparing the PRC statutory financial statements of the companies within the Group. As a result, the retained earnings of the Group and of the Company determined under FRS differ from that determined under PRC accounting regulations. The directors of the Company do not recommend a payment of dividend for the year ended 31 December 2006 because of accumulated losses. The accumulated losses of the Company stated in the PRC statutory financial statements as at 31 December 2006 amounted to Rmb 244 million. In 2006, there is no profit available for distribution to shareholders of the Company. (2005: Rmb 188 million distributable retained earnings in the PRC statutory financial statements.)
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TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 26.
Dividend declared / payable The Group
Final dividend for 2005(2005 : 2004) Rmb 0.15 per share (net of tax) declared
The Company
2006 Rmb'000
2005 Rmb'000
2006 Rmb'000
2005 Rmb'000
55,448
55,448
55,448
55,448
Movements in dividend payable are as follows: The Group and The Company
At 1 January Dividend declared Dividend paid At 31 December 27.
2006 Rmb'000
2005 Rmb'000
9,204 55,448 (55,457) 9,195
9,402 55,448 (55,646) 9,204
Contingent liabilities Details and estimates of maximum amounts of contingent liabilities are as follows:
(a)
Guarantees: The Group
Unsecured guarantees by the Company in respect of banking facilities used by subsidiaries (b)
The Company
2006 Rmb'000
2005 Rmb'000
2006 Rmb'000
2005 Rmb'000
-
-
56,160
41,376
Outstanding writ: In November 2003, the Company received a writ of summons from a third party for compensation of Rmb 315 million in relation to certain interests in assets transferred by TPH to the Company upon its formation in 1997. As at the date of issuance of these financial statements, this claim has yet to enter the stage of substantive hearing. TPH has guaranteed to underwrite any loss that may be suffered by the Group of a result of this law suit. The directors are of the view that this law suit will not have any material impact on the Company.
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TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 28.
Commitments
(a)
Capital commitments: Capital commitments not provided for in the financial statements are mainly in relation to purchase of property, plant and equipment as follows: The Group
Contracted for (b)
The Company
2006 Rmb'000
2005 Rmb'000
2006 Rmb'000
2005 Rmb'000
-
10,000
-
10,000
Operating lease commitments: The future minimum lease payments under non-cancellable operating leases contracted for at the reporting date but not recognised as liabilities are as follows: The Group
Not later than one financial year Later than one financial year but not later than five financial years Later than five financial years 29.
The Company
2006 Rmb'000
2005 Rmb'000
2006 Rmb'000
2005 Rmb'000
191
182
191
182
764 8,185 9,140
957 8,184 9,323
764 8,185 9,140
957 8,184 9,323
Financial risk management Financial risk factors: The Group's activities expose it to a variety of financial risks. The Group's overall risk management seeks to minimise potential adverse effects on the financial performance of the Group. Foreign currency risk: The Group has no significant foreign currency risk. Interest rate risk: The Group's income and operating cash flows are substantially independent of changes in market interest rates. The Group's interest rate risks mainly arise from bank borrowings. The Group's policy is to obtain the most favourable interest rates available.
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TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 29.
Financial risk management (continued) Interest rate risk (continued): The tables below set out the Group's exposure to interest rate risks. Included in the tables are the assets and liabilities at carrying amounts, categorised by the maturity dates. The Group Variable rates (Rmb '000) At 31 December 2006 Assets Cash and bank balances Liabilities Borrowings
Less 1 to 5 than years 6 months
6 to 12 months
326,215
-
-
436
3,000
-
-
2,076 331,727
-
695,000
320,000
-
-
220,000
-
- 1,235,000
At 31 December 2005 Assets Cash and bank balances Liabilities Borrowings
Less than 6 months
6 to 12 months
Less 1 to 5 than years 6 months
399,823
-
-
-
903,620
179,000
-
6 to 12 months
1 to 5 Over years 5 years
Noninterest bearing
Less than 6 months
Variable rates (Rmb '000)
Fixed rates
Fixed rates 6 to 12 months 6,540
1 to 5 Over years 5 years
Noninterest bearing
Total
Total
-
-
1,702 408,065
- 200,000
-
-1,282,620
The Company Variable rates (Rmb '000) At 31 December 2006 Assets Cash and bank balances Liabilities Borrowings At 31 December 2005 Assets Cash and bank balances Liabilities Borrowings
Fixed rates
Less than 6 months
6 to 12 months
Less 1 to 5 than years 6 months
267,167
-
-
-
-
-
348 267,515
-
599,000
-
- 200,000
-
-1,119,000
277,967
-
-
-
-
-
402 278,369
-
794,000
-
- 200,000
-
-1,164,000
320,000
170,000
6 to 12 months
1 to 5 Over years 5 years
Noninterest bearing
Total
Credit risk: The Group has no significant concentration of credit risk. The Group performs periodic credit evaluations of its customers and the Directors are of the opinion that adequate provision for uncollectible accounts receivables has been made in the financial statements.
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TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 29.
Financial risk management (continued) Liquidity risk: The Group manages its liquidity risk management by maintaining sufficient cash for its normal operations. The Group is highly dependent upon the financial support of its bankers (Note 2(a)) with whom they have established long and good relationship.
30.
Immediate and ultimate holding corporation The Company's immediate and ultimate holding corporation is Tianjin Pharmaceutical Holdings ("TPH"), incorporated in the PRC.
31.
Related party transactions Related parties include corporations in which TPH has direct or indirect shareholding interest or in which it is able to exercise significant influence. In addition to the related party information shown elsewhere in the financial statements, the following significant transactions between the Group and related parties were carried out during the year. In the opinion of the directors, the terms of these transactions with related parties follow normal commercial terms arranged in the ordinary course of the Group's business. The Group
(a)
2006 Rmb'000
2005 Rmb'000
98,426 151,011
102,075 97,651
Trade transactions: Sales to related parties Purchase from related parties
Outstanding balances at 31 December 2006, arising from sale and purchase of goods and services, are set out in Note11 and 20 respectively. (b)
Retirement benefits of retired employees (Note 20): According to agreements between the Company and TPH in respect of acquisition of certain businesses from the latter, TPH is responsible for all retirement benefits payable to the retirees of the respective businesses, as at 30 June 1999, in excess of the amount covered by the local pension scheme (Note 2(p)). For administrative expediency, the Group has undertaken to pay these benefits on behalf of TPH for which the Company and one of its subsidiaries were given advances of Rmb 72,702,000 and Rmb 31,878,000 respectively by TPH. TPH has guaranteed to make good any actual amount paid in excess of these advances, valid up to the demise of the last surviving retiree.
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TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 31.
Related party transactions (continued)
(c)
Key management's remuneration: The key management's remuneration includes fees, salary, bonus, commission and other emoluments (including benefits-in-kind) computed based on the cost incurred by the Group and the Company, and where the Group or Company did not incur any costs, the value of the benefit. The key management's remuneration is as follows: The Company
Key management of the Group: - directors of the Company - directors of subsidiaries - others
32.
2006 Rmb'000
2005 Rmb'000
1,232 900 1,460 3,592
1,183 2,010 1,932 5,125
Segment information The Group is principally engaged in the manufacture, sale and distribution of medicine in the PRC. Other marginal activities are not significant to the financial statements of the Group. Therefore, the directors consider that the Group operates within a single business segment within a single geographical segment in the PRC.
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TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 33.
Significant companies in the Group
(a)
Significant subsidiaries held by the Company: Principal activities 2006 %
2005 %
Tianjin Central Pharmaceutical Co., Ltd. ("Tianjin Central")
Manufacture and sale of Western pharmaceutical products
51
51
Tianjin Shin Poong Pharmaceutical Co., Ltd.
Manufacture and sale of Western pharmaceutical products
55
55
Cheng Du Zhong Xin Pharmaceutical Co., Ltd.
Sale of Chinese pharmaceutical products and biological products
51
51
Bin Hai Zhong Xin Pharmaceutical Co., Ltd.
Sale of Chinese pharmaceutical products and biological products
54
54
Tianjin Da Ren Tang No. 2 Pharmaceutical Co., Ltd.
Manufacture and sale of Chinese pharmaceutical products and biological products
52
52
Tianjin Zhong Xin Keju Biological Pharmaceutical Co.,Ltd.
Manufacture and sale of biological medicine
75
75
Tianjin Zhong Xin Pharmaceutical Group Guowei Medical Co.,Ltd.
Wholesale and retail sale of medicine
54.2
54.2
Beijing Zhong Xin Yaogu Medical Co.,Ltd.
Wholesale of medicine
100
75
Tianjin Cinorch Pharmaceutical Co.,Ltd.
Manufacture and sale of biochemical pharmaceutical products
51
51
Tianjin Hualida Biological Engineering Co., Ltd. (a)
Manufacture and sale of Western biochemical products and genes-related biological products
Note 33(b)
55
Tianjin Hong Ren Tang Pharmaceutical Co., Ltd
Manufacture and sale of Chinese products and biological products
Note (14)
52
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TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the financial year ended 31 December 2006 33.
Significant companies in the Group (continued)
(b)
Significant associates held by the Company: Principal activities
Equity holding 2006 %
2005 %
Sino-AmericanTianjin SmithKline & French Lab., Ltd. (i)
Manufacture and sale of Western medicine and biochemical products
25
25
Baxter Healthcare (Tianjin) Co.,Ltd.
Manufacture and sale of Western chemical products
30
30
Tianjin Yiyao Printing Co., Ltd.
Packing of medical and other products and printing of paper for packaging purposes
35
35
Grandberg Tianjing Pharmaceutical Co., Ltd
Manufacture and sale of Ginseng
24
24
Tianjin Hualida Biological Engineering Co., Ltd. (i)
Manufacture and sale of Western biochemical products and genesrelated biological products
40
Note 33(a)
All of the Group's significant subsidiaries and associates are incorporated and operating in the PRC. (i) PricewaterhouseCoopers Zhong Tian CPAs Ltd. Co. ( "PwC") are the statutory auditors of these entities. Statutory auditors of all other entities listed above are firms in the PRC other than PwC.
34.
Authorisation of financial statements The financial statements were authorised for issue in accordance with the directors' resolution on 30 March 2007.
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TIANJIN ZHONG XIN PHARMACEUTICAL GROUP CORPORATION LIMITED (Incorporated in the People's Republic of China) AND ITS SUBSIDIARIES Significant differences between the financial statements prepared in accordance with the FRS and the PRC accounting regulations in respect of net profit for the year ended 31 December 2006 and net assets at 31 December 2006 are as follows:
Net profit Rmb'000
The Group Net assets* Rmb'000
(377,764)
1,200,873
(377,764)
1,200,873
Reversal of net profit of subsidiaries and associates equity accounted for at Company level under PRC accounting regulations
-
-
(34,174)
(705,009)
Dividends from subsidiaries and associates under FRS
-
-
90,541
706,625
Amortisation of goodwill on consolidation and goodwill on acquisition of subsidiaries and associates under PRC accounting regulations
2,937
(57,258)
3,430
(44,303)
Negative goodwill recognised under FRS103
2,628
10,727
2,628
-
-
74,000
-
49,000
2,889
(9,130)
-
-
Gain on dilution of interest in an associate's subsidiary
-
-
7,901
4,104
Others
-
(3,042)
-
(3,938)
(369,310)
1,216,170
(307,438)
1,207,352
As reported in the statutory financial statements prepared under PRC accounting regulations
The Company Net profit Net assets Rmb'000 Rmb'000
Adjustments to conform with FRS:
Fair value for available-for-sale financial assets Difference in share of an associate's profit due to the differences between FRS and PRC accounting regulations
As reported in the financial statements prepared under FRS
* Net assets refer to the interests attributable to equity holders of the Company.
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CORPORATE GOVERNANCE STATEMENT The Board of Directors and management subscribe fully to the importance of practising high standards of corporate governance and recognize that the principles and guidelines contained in the Code of Corporate Governance represent best practices the pursuit of which would enhance the standard of corporate governance. This statement outlines the main corporate governance practices that were in place during the financial year. Board Matters Role of the Board of Directors The Board's primary role is to protect and enhance long-term shareholder value. It sets the overall strategy for the Group and supervises executive management. To fulfill this role, the Board is responsible for the overall corporate governance of the Group including setting its strategic direction, establishing goals for management and monitoring the achievement of these goals. Board Processes To facilitate the execution of its responsibilities, the Board has established a number of Board Committees including a Strategy Committee, an Audit Committee, a Nominating Committee and a Remuneration Committee. These committees function within clearly defined terms of reference and operating procedures, which are reviewed as and when necessary. The full Board holds 4 scheduled quarterly meetings each year. In addition, it holds such additional meetings as are necessary to consider any matters that require the Board's attention. To facilitate efficient discharge of the Board's business, the Company's Articles provide for the Board and its Committees to decide on matters by way of circular resolution. The Articles also provid e for Board members to participate in meetings via telephone or video conferencing. Matters Requiring Board Approval The directors have identified a number of areas for which the Board has direct responsibility for decision-making. The Board meets to consider the following matters, among others: ・ ・ ・ ・ ・ ・
Review and approval of quarterly and annual results and earnings announcements; Review and approval of the annual report and audited accounts; declaration of dividends; convening of shareholders' meetings; review and approval of corporate strategies; and review and approval of material acquisitions and disposals, and material investments and borrowings.
All other matters are delegated to committees or to the executive management whose actions are reported to and monitored by the Board. Access to Information Directors are furnished with information concerning the Group to keep them informed of the operations and performance of the Group and the decisions and actions of the executive management. All directors have unrestricted access to the Company's management and records. Board papers containing information on matters to be discussed are prepared for each meeting of the Board and are normally circulated a week in advance of each meeting. All the independent directors have access to all levels of senior executives in the Group, and are at liberty to speak to other employees to seek additional information if they so require.
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The Company Secretary attends all Board meetings and is responsible to ensure that established procedures and all relevant statutes and regulations which are applicable to the Company are complied with. Each director has the right to seek independent legal and other professional advice, at the Company's expense, concerning any aspect of the Group's operations or undertakings in order to fulfill their duties and responsibilities as directors. Directors' Meetings held in 2006 During the year, the Board had had thirteen meetings, and attendance is as follows: Name of director Number of Board Meetings held Zhan Yuan-jing 13 Liu Zhen-wu 13 Wu Shu-min 13 Yao Pei-chun 13 Li Mei-yu 13 Xu Shi-hui 13 Teng Cheong Kwee 13 Xu Qi-de 13 Zhang Hong-kui 13
Attendance 13 7 13 8 10 13 13 13 13
Training of Directors Our new directors are invited to visit the Group's operational facilities and to meet with management to gain a better understanding of the Group's business and operations. Board Composition and Balance Presently, the Board comprises three executive directors, three non-executive directors and three independent directors. The composition of the Board is determined in accordance with the following principles:・ at least one-third of the Board members shall be independent non-executive directors; ・ the Board should have enough directors to serve on the various committees of the Board so that each member will be able to fully discharge his responsibilities; ・ the Board should comprise members with varied core competencies and experience needed for effective Board performance. The composition of the Board is reviewed on an annual basis by the Nominating Committee to ensure that the Board has the appropriate mix of expertise and experience. Independent Members of the Board of Directors The Board of Directors has three independent members, representing one third of the Board: Mr. Teng Cheong Kwee, Mr. Xu Qi-de, Mr. Zhang Hong-kui. The criterion of independence is based on the definition given in the Code of Corporate Governance. The Board considers an "independent" director as one who has no relationship with the Company, its related companies or its officers that could interfere, or be reasonably perceived to interfere, with the exercise of the director's independent judgement of the Group's affairs. Chairman and Chief Executive Officer Our Group's Executive Chairman during the financial year ended 31 December 2006 was Mr Zhan Yuan Jing. Mr Zhan retired on 31 January 2007, and on that day, Mr. Hao Fei-fei took over as Executive Chairman. Our Board is of the view that at the current stage of our Company's development, having a Chairman who also exercises executive functions would facilitate the
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decision-making process of the Group. The Executive Chairman is assisted by a General Manager. In the financial year ended 31 December 2006, Mr Yao Pei-chun served as the Company's General Manager until 22 November 2006 when he resigned, and on that day, Mr. Liu Wen-wei took over as General Manager. The General Manager is responsible for the day-to-day running of the Group as well as the exercise of control over the quality, quantity and timeliness of information flow between the Board and management. All major decisions made by the Executive Chairman are reported to and subject to review by the Board. His performance and appointment to the Board is reviewed by the Nominating Committee and his remuneration package is reviewed by the Remuneration Committee. Having regard to the fact that a majority of the members of the Audit Committee, the Nominating Committee and the Remuneration Committee are independent directors, and that each of these Committees is chaired by an independent director, The Board believes that the existing governance structure involving the delegation of certain functions and authority to several Board Committees, and the fact that these Committees comprised a majority of independent directors and that each of them is chaired by an independent director, would provide for a balance of power and authority within the Board. Board Committees To assist the Board in the execution of its duties, the Board has delegated specific functions to the following committees: Strategy Committee The Strategy Committee was chaired by Mr. Liu Zhen-wu and its other members are Mr. Wu Shu-min, Mr. Zhan Yuan-jing, Mr. Xu Shi-hui and Ms. Li Mei-yu in FY2006. Mr Liu passed away in September 2006, and the Chairmanship was subsequently assumed by Mr Hao Fei-fei on 31 January 2007 when he became a director. The Strategy Committee was entrusted with the conduct of the Group's business and affairs, in line with the overall strategy set by the Board. The Committee meets periodically and on such other times where necessary. The number of meetings held and attendance during the last financial year were as follows: Name of director/executive Appointment Number of meetings held Liu Zhen-wu Non-executive Director 2 Wu Shu-min Non-executive Director 2 Zhan Yuan-jing Executive Chairman 2 Xu Shi-hui Executive Director 2 Li Mei-yu Executive Director 2
Attendance 2 2 2 2 2
Audit Committee The Audit Committee is chaired by Mr. Teng Cheong Kwee and its other members are Mr. Xu Qi-de and Mr. Zhang Hong-kui. Mr. Teng, Mr. Xu and Mr. Zhang are independent directors of the Company. Mr Zhang joined the Audit Committee on 25 March 2005 to fill the vacancy created by Mr Zhan Yuan-jing's resignation from the Committee. During the year, the Audit Committee carried out the following functions: ・ reviewed the audit plans and scope of audit examination of the external auditors; ・ reviewed with the external auditors their findings arising from the audit; ・ reviewed internal audit findings and internal audit plan; ・ reviewed the annual and quarterly financial statements and the draft earnings announcements before their submission to the Board for approval; and ・ reviewed interested person transactions
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The Audit Committee had had two meetings with the external auditors, without the presence of management, to discuss any issues or observations arising from the audit, including the level of cooperation rendered by the Management to the auditors. The number of Audit Committee meetings held and attendance during the year were as follows: Name of director Appointment Number of meetings held Teng Cheong Kwee Independent Director 4 Zhan Yuan-jing Executive Chairman 4 Xu Qi-de Independent Director 4 Zhang Hong-kui Independent Director 4
Attendance 4 4 4 2
Nominating Committee This committee comprises two independent directors and one non-executive director. The chairman of the Nominating Committee is Mr. Zhang Hong-kui. The responsibilities of the Nominating Committee are to determine the criteria for identifying candidates and reviewing nominations for the appointment of directors to the Board. The Nominating Committee is also charged with the function of recommending a framework for evaluating the effectiveness of the Board and the contribution of each individual director to the effectiveness of the Board. The Nominating Committee will also carry out such evaluation and present its findings and recommendations to the Board. In addition, the Nominating Committee also performs the following functions: ・ determine on an annual basis whether a director is independent; and ・ identify gaps in the mix of skills, experience and other qualities required for an effective board, and where appropriate, nominate or recommend suitable candidates to fill the gaps. During the year, the Nominating Committee reviewed the re-nomination of the following directors whose three-year term of service is expiring: Mr. Qin Zu-hui, Mr. Xu Shi-hui, Mr. Zhang Hong-kui. The number of meetings held and attendance during the year were as follows: Name of director Appointment Number of meetings held Zhang Hong-kui Independent Director 2 Teng Cheong kwee Independent Director 2 Wu Shu-min Non-executive Director 2
Attendance 2 2 2
Remuneration Committee This committee comprises two independent directors and one non-executive director and is chaired by Mr. Xu Qi-de. The Remuneration Committee reviews and approves recommendations on remuneration policies and packages for key executives. The review covers all aspects of remuneration, including but not limited to directors' fees, salaries, allowances, bonuses, share options, and benefits-in-kind. The committee's recommendations are made in consultation with the chairman of the Board and submitted for endorsement by the entire Board. Annual reviews of the compensation of directors and key executives are carried out by the Remuneration Committee to ensure that the remuneration of the executive directors and senior management are commensurate with their performance and value-add to the Group, giving due regard to the financial and commercial health and business needs of the Group.
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The number of meetings held and attendance during the last financial year were as follows: Name of director Appointment Number of meetings held Xu Qi-de Independent Director 1 Zhang Hong-kui Independent Director 1 Liu Zhen-wu Non-executive Director 1
Attendance 1 1 1
Remuneration Matters The Group's remuneration policy is to provide compensation packages at market rates which reward good performance and attract, retain and motivate managers and directors, within the constraints that a State-owned enterprise like the Company is subject to. The Remuneration Committee determines the remuneration packages for the Executive Chairman and the executive directors based on the performance of the Group, and the Independent directors are paid directors' fees, determined by the full Board based on the effort, time spent and responsibilities of the independent directors. The payment is subject to approval of the Company at each AGM. Details of remuneration paid to the directors of the Company for the year ended 31 December 2006 are set out below: Name of director Zhan Yuan-jing Liu Zhen-wu Wu Shu-min Yao Pei-chun Li Mei-yu Xu Shi-hui Teng Cheong Kwee Zhang Hong-kui Xu Qi-de
*Salary Rmb300,000 0 0 Rmb220,000 Rmb220,000 Rmb160,000 0 0 0
*Bonus 0 0 0 0 0 0 0 0 0
Directors' fees 0 0 0 0 0 0 S$50,000 Rmb40,800 Rmb40,800
Total Rmb 300,000 0 0 Rmb220,000 Rmb220,000 Rmb160,000 S$50,000 Rmb40,800 Rmb40,800
Details of remuneration paid to the top five executives (who are not directors of the Company) of the Group for the year ended 31 December 2006 are set out below: Unit: Rmb Name of executive *Total Remuneration Guo Nai-qin 220,000 Zhang Bao-tong 160,000 Wang Zhi-qiang 160,000 Liang Xiu-qin 160,000 Mo Hao 160,000 Accountability and Audit In presenting the quarterly and annual financial statements and earnings announcements to shareholders, it is the aim of the Board to provide the shareholders with sufficient information that would enable shareholders to have a proper understanding of the Group's financial position and prospects. Internal Controls The Board is responsible for the overall internal control framework. The Board recognizes that no cost effective internal control
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system will preclude all errors and irregularities, as a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can provide only reasonable and not absolute assurance against material misstatement or loss. Through the review of the findings of the internal audit and of the external auditors, and such other reviews and examinations as are considered necessary from time to time, the Board seeks to ascertain the effectiveness of the internal controls, including operational and risk management controls. Internal Audit The effectiveness of the internal control systems and procedures is monitored by management and reviewed by the Audit Committee. The internal audit function is carried out by the Group's internal audit department which reports both to the Executive Chairman and the Audit Committee. Internal audit reports are submitted at regular intervals to the Audit Committee for review. Communication with Shareholders The Company does not practice selective disclosure. In line with continuous disclosure obligations of the Company pursuant to the SGX-ST's Listing Rules, the Board's policy is that all shareholders should have equal and timely access to all major developments that can reasonably be expected to have a material impact on the Group. Information is communicated to shareholders on a timely basis through SGXNET: ・ quarterly and annual results, and annual report; ・ notices of and explanatory memoranda for annual general meetings and extraordinary general meetings; ・ press releases on major developments of the Group; ・ other disclosures as are required under the SGX-ST Listing Rules and listing rules of the Shanghai Securities Exchange; and Shareholders are encouraged to attend the Company's AGM. The AGM is the principal forum for dialogue with shareholders. The notice of the AGM is dispatched to shareholders at least 45 days before the meeting, in accordance with the requirements of the Shanghai Securities Exchange. Additional information will be provided in explanatory notes or in a circular on items of special business. The Board welcomes questions from shareholders on performance and operations of the Group. The Chairmen of the Audit, Remuneration and Nominating Committees are normally available at the meeting to answer those questions relating to the work of the respective Committees. Dealing in Securities The Group has procedures in place prohibiting dealings in the Company's shares by its officers while in possession of price sensitive information and during the period commencing one month prior to the announcement of the Company's quarterly, halfyearly and full year results. Directors and executives are also expected to observe insider trading laws at all times. Compliance with Existing Best Practices Guide of the Singapore Exchange The Board of Directors confirms that for the financial year ended 31 December 2006, the Company has complied with the principal corporate governance recommendations set out in the Best Practices Guide issued by the SGX-ST.
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Resolution for Amending the Articles of Association of the Company Amendments are made hereby to related articles and clauses of the Articles of Association of the Company as follows, pursuant to the requirements of the Company Law and the Securities Law amended and promulgated in 2006, the circular of the China Securities Regulatory Commission (CSRC Company Document No.38 [2006]) on printing and issuing the Guide to the Articles of Association of Listed Companies (amended in 2006) 《上市公司章程指引（2006 年修订）》, and other related regulations (collectively the "Relevant Regulations"): The original Article 1 (concerning the establishment of the Company) The Company is a stock limited company established according to the Company Law of the People's Republic of China ("Company Law"), the Special Stipulations of the State Council on Equity Raising and Listing outside the Territory of Stock Limited Companies ("Special Stipulations"), and other related laws and administrative regulations of the State. The Company was established in the form of directional placement after approval by the Tianjin Municipal Economic Restructuring Commission (TMERC Document No.27 [1992]), and was registered with the Tianjin Municipal Administration for Industry and Commerce on December 20, 1992 and got the Business License for Corporate Entity. The number of the Business License of the Company is: Jin Shi Zi 10310078. is required under the Relevant Regulations to be revised as: Article 1 The Articles of Association are made pursuant to the Company Law of the People's Republic of China ("Company Law"), the Securities Law of the People's Republic of China ("Securities Law"), the Obligatory Articles and Clauses in the Articles of Association of Companies Listed outside the Territory, and other related regulations, for the purposes of safeguarding the legitimate rights and interests of the Company and its shareholders and creditors and standardizing the organization and behavior of the Company. The Company is a stock limited company established according to the Company Law, the Special Stipulations of the State Council on Equity Raising and Listing outside the Territory of Stock Limited Companies ("Special Stipulations"), and other related laws and administrative regulations of the State. The Company was established in the form of directional placement after approval by the Tianjin Municipal Economic Restructuring Commission (TMERC Document No.27 [1992]), and was registered with the Tianjin Municipal Administration for Industry and Commerce on December 20, 1992 and got the Business License for Corporate Entity. The number of the Business License of the Company is: Jin Shi Zi 10310078. The original Article 8 (concerning permitted investments by the Company) The Company is permitted to invest in other limited liability companies and stock limited companies, and also shoulder liabilities to the invested companies within the bounds of the amounts of the said investments. With the approval of the company examining and approving department authorized by the State Council, the Company is, in the light of its need for operation and management, permitted to control the operation of the companies as stated in the second paragraph of Article 12 of the Company. is required under the Relevant Regulations to be revised as: Article 8 The Company is permitted to invest in other limited liability companies and stock limited companies, and also shoulder liabilities to the invested companies within the bounds of the amounts of the said investments. One paragraph is required under the Relevant Regulations to be added to the original Article 17 (concerning the different categories of shares) After capital enlargement following the issuance of domestically listed domestic capital shares as stated in the preceding article, the share capital structure of the Company is: 369,654,360 ordinary shares, comprising 194,654,360
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state shares that represent 52.66% of the Company's total issued ordinary shares; 40,000,000 domestic public shares (Ashares) that represent 10.82% of the Company's total issued ordinary shares; 100,000,000 overseas public shares (S-shares) that represent 27.05% of the Company's total issued ordinary shares; 12,050,000 directionally placed legal person shares that represent 3.26% of the Company's total issued ordinary shares; and 22,950,000 staff-held shares that represent 6.21% of the Company's total issued ordinary shares. as follows: …… After the listing of the staff-held shares in May 2004 and the execution of the split equity structure reform in July 2006, the share capital structure of the Company is temporarily as follows: 369,654,360 ordinary shares, comprising 177,377,119 state shares (tradable shares with limiting conditions for sale) that represent 47.98% of the Company's total issued ordinary shares; 80,576,000 domestic public shares (tradable shares without limiting conditions for sale) (A-shares) that represent 21.8% of the Company's total issued ordinary shares; 100,000,000 overseas public shares (S-shares) that represent 27.05% of the Company's total issued ordinary shares; and 11,701,241 directionally placed legal person shares (tradable shares with limiting conditions for sale) that represent 3.17% of the Company's total issued ordinary shares. The original Article 27(concerning share buy-back by the Company) In the following circumstances, the Company may, after passing the procedures as stipulated by its Articles of Association and making a report to the competent organ in charge of the State, buy back its issued shares: (1) to cancel shares for the purpose of reducing the capital of the Company; (2) to amalgamate with other companies that hold shares of the Company; and (3) other circumstances as permitted by laws and administrative regulations. is required under the Relevant Regulations to be revised as: Article 27 In the following circumstances, the Company may, after passing the procedures as stipulated by its Articles of Association and making a report to the competent organ in charge of the State, buy back its issued shares: (1) To cancel shares for the purpose of reducing the capital of the Company; (2) To amalgamate with other companies that hold shares of the Company; (3) To award shares to staff members of the Company; (4) Shareholders ask the Company to buy back its shares for opposing the resolutions for amalgamation or spin-off of the Company adopted by the General Meeting of Shareholders; and (5) Other circumstances as permitted by laws and administrative regulations. Except for the aforesaid circumstances, the Company shall not conduct any activity of buying or selling its shares. The original Article 30 (concerning matters following a share buy-back ) After the Company buys back its shares according to law, it shall cancel the said shares within ten days, and also apply to the original company registration organ for handling the registered capital alteration registration and make an announcement in newspapers (including a local Englishlanguage daily newspaper in Singapore). The total face value of the cancelled shares shall be subtracted from the registered capital of the Company. is required under the Relevant Regulations to be revised as: Article 30 If the Company is to buy back its shares for the causes as stated in the items (1) to (3) of Article 27 of the Articles of Association, it shall have the General Meeting of Shareholders pass a related resolution. After the Company buys back its shares according to provisions of Article 27, if the circumstance of item (1) is available, it shall cancel the shares within ten days starting from the date of the buyback; if the circumstances of items (2) and (4) are available, it shall transfer or cancel
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the shares within six months. For cancellation of shares, the Company shall apply to the original company registration organ for handling the registered capital alteration registration and also make an announcement in newspapers (including a local Englishlanguage daily newspaper in Singapore). The total face value of the cancelled shares shall be subtracted from the registered capital of the Company. The sum of shares of the Company bought back by the Company according to provisions of item (3) of Article 27 will not exceed 5% of the total issued shares of the Company; the capital for the buyback shall come from the after-tax profit of the Company; the shares bought back shall be transferred to staff members within one year. The new Chapter Six
Share Transfer is added, and the following chapters shall be renumbered accordingly.
Chapter Six Share Transfer Article 35 The shares of the Company may be transferred according to law. Article 36 The Company does not accept the use of its shares as the target of pledges. Article 37 The shares of the Company held by its initiators may not be transferred within one year starting from the date of establishment of the Company. The shares already issued before the Company made the initial public offering may not be transferred within one year starting from the day when the shares of the Company were listed for trading on the stock exchange. The directors, supervisors and senior managerial personnel of the Company shall report to the Company the number of shares of the Company they hold and related changes, and the number of shares they transfer every year during their term of office shall not exceed 25% of the total number of shares of the Company they hold; shares of the Company they hold may not be transferred within one year starting from the day when shares of the Company are listed for trading. Within half a year after the aforesaid personnel quit office, they may not transfer the shares of the Company they hold. Article 38 If the directors, supervisors and senior managerial personnel of the Company and the shareholders each holding more than 5% of the total shares of the Company sell the shares of the Company they hold within six months after the shares are bought, or buy in the shares of the Company again within six months after sale, the gains thereof shall be attributed to the Company and be recalled by the Board of Directors of the Company. However, the securities companies that hold more than 5% shares of the Company as a result of buying the remaining shares in underwriting are not bound by the six-month limit in selling the said shares. If the Board of Directors of the Company fails to implement the stipulations of the preceding paragraph, the shareholders are entitled to ask for implementation by the Board of Directors within 30 days. If the Board of Directors of the Company fails to make implementation within the aforesaid time limit, the shareholders are, for the interest of the Company, entitled to file a suit directly with the people's court in their own names. If the Board of Directors of the Company fails to implement according to the stipulations of the first paragraph, the directors who hold responsibilities shall according to law shoulder joint liabilities. The original Article 46 (concerning the loss of any domestic capital shares) …… If a holder of domestic capital shares loses his shares and applies for reissuance, it shall be handled according to the provisions of Article 150 of the Company Law. …… is required under the Relevant Regulations to be revised as: …… If a holder of domestic capital shares loses his shares and applies for reissuance, it shall be handled according to the provisions of Article 144 of the Company Law. …… The original items (2), (4), (5) and (8) of Article 50 (concerning certain rights of sharesholders), read as: (2) Attend or appoint a shareholder proxy to attend the shareholder meeting and also exercise the voting right; (4) Transfer shares according to the provisions of laws, administrative regulations and the Articles of Association of the Company;
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(5) Obtain related information according to the provisions of the Articles of Association of the Company, including: …… (8) Entitled to protect their legitimate rights through civil action or other legal means according to the provisions of laws and administrative regulations. If resolutions of the General Meeting of Shareholders and the Board of Directors act against the provisions of laws and administrative regulations and encroach up the legitimate rights and interests of shareholders, the shareholders are entitled to file according to law a suit asking for stoppage of the aforesaid unlawful act or encroaching act. If directors, supervisors and managers act against the provisions of laws, administrative regulations or the Articles of Association when performing their duties, and thus cause harm to the Company, they are liable for making compensations and the shareholders are entitled to request the Company to file according to law a suit asking for compensation. are required under the Relevant Regulations to be revised as: The items (2), (4), (5) and (8) of Article 54, read as follows: (2) Request, call, chair, attend or appoint a shareholder proxy to attend the shareholder meeting according to law and also exercise the voting right; (4) Transfer, donate and pledge the shares held according to the provisions of laws, administrative regulations and the Articles of Association of the Company; (5) Obtain related information according to the provisions of the Articles of Association of the Company. If shareholders request to read related information or get materials, they shall present to the Company a written document that is able to prove the type and quantity of shares of the Company they hold, and the Company shall provide according to the requests of the shareholders after verifying their shareholder identity, including: …… (8) Entitled to protect their legitimate rights through civil action or other legal means according to the provisions of laws and administrative regulations. If the contents of resolutions of the General Meeting of Shareholders and the Board of Directors act against the provisions of laws and administrative regulations, the shareholders are entitled to request the people's court to find them as being invalid. If the procedures for calling meetings of the General Meeting of Shareholders and the voting form act against the provisions of laws and administrative regulations or the Articles of Association, or the contents of the resolution run counter to the Articles of Association, the shareholders are entitled to make a request to the people's court for cancellation within 60 days starting from the day when the resolution is made. If directors and senior managerial personnel act against the provisions of laws, administrative regulations or the Articles of Association when performing their duties, and thus cause loss to the Company, the shareholders who separately or jointly hold more than 1% of the shares of the Company for more than 180 days running are entitled to make a written request to the Board of Supervisors to file a suit with the people's court. If the Board of Supervisors acts against the provisions of laws, administrative regulations or the Articles of Association when performing its duties, and thus causes loss to the Company, the shareholders are entitled to make a written request to the Board of Directors to file a suit with the people's court. If the Board of Supervisors or the Board of Directors refuses to file a suit after receiving the written request from the shareholders as stated in the preceding paragraph, or fails to file a suit within 30 days starting from the day of receiving the request, or if the circumstance is urgent and harm that is difficult to be made up may be caused to the interest of the Company if a suit is not filed immediately, the shareholders as stated in the preceding paragraph are, for the sake of the interest of the Company, entitled to directly file a suit with the people's court in their own names. If a third party encroaches up the legitimate rights and interests of the Company and thus causes loss to the Company, the shareholders as stated in the fourth paragraph of this clause may file a suit with the people's court according to the stipulations of the preceding two paragraphs. If directors, supervisors and managers act against the provisions of laws, administrative regulations or the Articles of Association when performing their duties, and thus cause harm to the Company, they are liable for making compensations and the shareholders are entitled to request the Company to file according to law a suit asking for compensation.
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Two clauses are added to the original Article 51 (concerning certain duties and obligations of shareholders) and are required under the Relevant Regulations to be revised as follows: Article 55 Holders of ordinary shares of the Company shall shoulder the following obligations: (1) Abide by the Articles of Association of the Company; (2) Pay share capital according to their subscribed shares and the form of equity admission; (3) Not withdraw shares except for the circumstances as stipulated by laws and regulations; (4) Not abuse the rights of shareholders to do harm to the interests of the Company or other shareholders; not abuse the independent status of corporate entity and limited liabilities of shareholders to do harm to the interests of the creditors of the Company; If any shareholder of the Company abuses the rights of shareholders and causes loss to the Company or other shareholders thereof, it shall according to law shoulder the liability for making compensation. If any shareholder of the Company abuses the independent status of corporate entity and limited liabilities of shareholders to dodge debts and causes serious harm to the interests of the creditors of the Company thereof, it shall shoulder joint liabilities to the debts of the Company. (5) Other obligations that shall be shouldered as stipulated by laws, administrative regulations and the Articles of Association of the Company. Except for the terms and conditions agreed by the subscribers of shares at the time of subscription, a shareholder shall not shoulder any liability for adding any share capital later. Article 58 and Article 59 (concerning the duties and obligations of controlling shareholders) are required under the Relevant Regulations to be newly added, and the following chapters and sections shall be renumbered accordingly: Article 58 If any shareholder holding more than 5% of the shares with voting power of the Company mortgages the shares it holds, it shall make a written report to the Company on the day when the said fact occurs. Article 59 The controlling shareholder and actual controller of the Company shall not do harm to the interests of the Company by taking advantage of their related party relationship. In case they act against the stipulation and cause loss to the Company thereof, they are liable for making compensation. The original items (2) and (3) of Article 57 (concerning general meetings) are merged, items (12), (13), (14) and (15) are added, and the original Article 57 is required under the Relevant Regulations to be revised as follows: Article 63 The General Meeting of Shareholders exercises the following functions and powers: (1) Determine the business principles and investment schemes of the Company; (2) Elect and replace directors and supervisors not served by representatives of the staff, and determine the matters concerning remuneration to directors and supervisors; (3) Examine and approve reports submitted by the Board of Directors; (4) Examine and approve reports submitted by the Board of Supervisors; (5) Examine and approve the annual financial budget and final account programs of the Company; (6) Examine and approve the profit distribution programs and loss compensation programs of the Company; (7) Make resolutions on increasing or decreasing the registered capital of the Company; (8) Make resolutions on amalgamation, spin-off, dissolution, liquidation and other matters of the Company; (9) Make resolutions on bond issues of the Company; (10) Make resolutions on appointment, dismissal or termination of continuous appointment of the accounting firm of the Company; (11) Amend the Articles of Association of the Company;
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(12) (13) (14) (15)
Examine and approve the guarantee matters as stipulated by Article 64; Examine and approve matters related to change of the purposes of raised capital; Examine equity incentive schemes; Examine matters related to the Company's purchase or sale within one year of significant assets that are in excess of 30% of the Company's audited gross assets in the latest period; (16) Examine motions put forward by shareholders that hold 5% or more shares with voting power of the Company; and (17) Other matters subject to resolution of the General Meeting of Shareholders as stipulated by laws, administrative regulations and the Articles of Association of the Company. Article 64 concerning external guarantees subject to examination by the General Meeting of Shareholders is required under the Relevant Regulations to be newly added, and the following chapters and sections shall be renumbered accordingly. Article 64 The following external guarantee acts of the Company shall be examined and approved by the General Meeting of Shareholders: (1) any guarantee provided after the sum of external guarantees of the Company and its controlled subsidiaries reaches or exceeds 50% of their audited net assets for the latest period; (2) any guarantee provided after the sum of external guarantees of the Company reaches or exceeds 30% of its audited gross assets for the latest period; (3) guarantees provided to the guaranteed whose asset-liability ratio exceeds 70%; (4) guarantees in which the amount of a single guarantee exceeds 10% of the audited net assets for the latest period; and (5) guarantees provided to shareholders, the actual controller and their related parties. The original Article 58 (concerning contracts for managing the business of the Company) Without approval in advance by the General Meeting of Shareholders, the Company shall not make any contract for managing all or significant business of the Company with any person other than its directors, supervisors, general manager and other senior managerial personnel. is required under the Relevant Regulations to be revised as: Article 65 Without approval by a special resolution of the General Meeting of Shareholders, the Company shall not make any contract for managing all or significant business of the Company with any person other than its directors, supervisors, general manager and other senior managerial personnel. The original Article 60 (concerning notice period and shareholders' acknowledgments for general meetings) is revised as: Article 67 To convene a shareholders' meeting, the Company shall issue 45 days in advance a written notice, informing all registered shareholders and the stock exchanges on which the Company's shares are listed of the matters to be examined at the meeting and the date and venue of the meeting. The holders of tradable shares with limiting conditions for sale who are to attend the shareholders' meeting shall send a written reply of attending the meeting to the Company 20 days prior to the convening of the meeting. All shareholders are eligible to attend any shareholders' meeting (excluding categorized shareholders' meetings) and speak and vote at the meeting given the name of the shareholder is registered with the shareholders register of the Company on the equity record day. A-share holders to attend a shareholders' meeting shall send a written reply of attending the meeting to the Company at 12:00 of one day prior to the convening of the meeting. One clause is required under the Relevant Regulations to be added to the original Article 62 (concerning the postponement or cancellation of general meetings), and the revision is as follows:
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Article 69 …… After the notice on shareholders' meeting is issued, if without good causes, the shareholders' meeting shall not be postponed or cancelled, and the motions listed in the notice on shareholders' meeting shall not be cancelled. Once the circumstance of postponement or cancellation occurs, the convener shall make an announcement and also state the causes at least two working days prior to the originally set date of convening. …… Article 70 (concerning legal opinion at the general meeting) is required under the Relevant Regulations to be added, and the following chapters and sections shall be renumbered accordingly. Article 70 When convening a shareholders' meeting, the Company will appoint a lawyer to give legal opinions and also make an announcement on the following issues: (1) Whether or not the convening of the meeting and the convening procedures accord with laws, administrative regulations and the Articles of Association; (2) Whether or not the qualifications of the attendants and the convener are lawful and effective; (3) Whether or not the voting procedures and voting results of the meeting are lawful and effective; and (4) Legal opinions on other related issues given at the request of the Company. Article 81 (concerning election of directors or supervisors) is required under the Relevant Regulations to be added, and the following chapters and sections shall be renumbered accordingly. Article 81 If the General Meeting of Shareholders is to deliberate matters concerning election of directors and supervisors, the shareholders' meeting notice shall give full exposure of detailed information about the director and supervisor candidates, at least including the following contents: (1) The educational background, work experiences, concurrent posts and other personal information; (2) Whether or not there is any association relationship with the Company or the controlling shareholder and actual controller of the Company; (3) Disclosure of the number of shares of the Company he or she holds; (4) Whether or not he or she received any punishment imposed by the China Securities Regulatory Commission and other related departments and the stock exchanges. Except for the adoption of cumulative voting system in electing directors and supervisors, each director and supervisor candidate shall be put forward in a separate motion. The original items (3) and (4) of Article 82 (concerning certain ordinary matters to be resolved at general meetings) : (3) the dismissal and the remuneration and payment methods of the members of the Board of Directors an the Board of Supervisors; (4) the annual budget and final account reports, balance sheet, profit statement and other financial statements of the Company; are required under the Relevant Regulations to be revised as: Article 91 … … . (3) the appointment and dismissal and the remuneration and payment methods of the members of the Board of Directors an the Board of Supervisors; (4) the annual budget and final account reports, annual report, balance sheet, profit statement and other financial statements of the Company; Items (5) and (6) are required under the Relevant Regulations to be added to the original Article 83 (concerning certain special business to be resolved at general meetings), and the original item (5) is renumbered to item (7). The
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revisions are as follows: Article 92 …… (5) if the amount of the Company's purchase or sale of significant assets or guarantees within one year exceeds 30% of its audited gross assets for the latest period; (6) equity incentive scheme; (7) other matters which the General Meeting of Shareholders affirms through ordinary resolutions will have significant influence on the Company and need to be adopted through special resolutions. Article 93 and Article 94 (concerning effective date of office for directors or supervisors) are required under the Relevant Regulations to be added, and the following chapters and sections shall be renumbered accordingly. Article 93 If the General Meeting of Shareholders adopts a motion on election of directors and supervisors, the time for the newly elected directors and supervisors to take office is the day when the related resolution is adopted by the General Meeting of Shareholders. Article 94 If the General Meeting of Shareholders adopts a motion on cash dividend distribution, bonus shares or conversion of capital reserve into share capital, the Company shall carry out the specific scheme within two months after the conclusion of the shareholders' meeting. Articles 97 to 102 (concerning proposals by independent directors) are required under the Relevant Regulations to be added, and the following chapters and sections shall be renumbered accordingly. Article 97 Independent directors are entitled to make proposals to the Board of Directors to convene extraordinary shareholders' meetings. In response to the proposal of independent directors calling for convening of an extraordinary shareholders' meeting, the Board of Directors shall, pursuant to the stipulations of laws, administrative regulations and the Articles of Association, give written feedback opinions on whether or not agreeing to the convening of the extraordinary shareholders' meeting within ten days after receiving the proposal. If the Board of Directors agrees to the convening of the extraordinary shareholders' meeting, it shall issue a notice of convening the shareholders' meeting within five days after making the resolution of the Board of Directors; if it disagrees to the convening of the extraordinary shareholders' meeting, it shall state the causes and also make an announcement. Article 98 The Board of Supervisors is entitled to make proposals to the Board of Directors to convene extraordinary shareholders' meetings, and such a proposal shall be made to the Board of Directors in writing. The Board of Directors shall, pursuant to the stipulations of laws, administrative regulations and the Articles of Association, give written feedback opinions on whether or not agreeing to the convening of the extraordinary shareholders' meeting within ten days after receiving the motion. If the Board of Directors agrees to the convening of the extraordinary shareholders' meeting, it shall issue a notice of convening the shareholders' meeting within five days after making the resolution of the Board of Directors. Where there is any change to the original motion in the notice, the consent of the Board of Supervisors is necessary. If the Board of Directors disagrees to the convening of the extraordinary shareholders' meeting or fails to give a feedback within ten days after receiving the motion, this shall be regarded that the Board of Directors is unable to perform or does not perform its function of calling shareholders' meetings, and the Board of Supervisors may call and chair the meeting by itself. Article 99 If the Board of Supervisors or shareholders decide to call a shareholders' meeting by themselves, they shall inform the Board of Directors in writing, and at the same time report to the local agency of the China Securities Regulatory Commission and the stock exchanges for record. Before the announcement of the resolution of the General Meeting of Shareholders, the equity holdings of the shareholders calling the meeting shall not be less than 10%. When issuing the notice on the shareholders' meeting and the announcement of the resolution of the General Meeting of Shareholders, the shareholders calling the meeting shall submit related certification materials to the local agency of the China Securities Regulatory Commission and the stock exchanges.
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Article 100 The Board of Directors and its board secretary shall collaborate with the Board of Supervisors or shareholders in calling shareholders' meetings by themselves. The Board of Directors shall provide the shareholders register of the equity record day. Article 101 The costs necessary for the shareholders' meetings called by the Board of Supervisors or shareholders themselves are borne on the Company. Article 102 When a shareholders' meeting is convened, all directors, supervisors and the board secretary of the Company shall attend, and the general manager and other senior managers shall attend as nonvoting delegates. Three clauses are required under the Relevant Regulations to be added to the original Article 86 (concerning general meetings convened by supervisors), and the revisions are as follows: Article 103 …… A shareholders' meeting called by the Board of Supervisors itself shall be chaired by the chairman of the Board of Supervisors. If the chairman of the Board of Supervisors is unable to perform his or her duty or does not perform his or her duty, it shall be chaired by the vice-chairman of the Board of Supervisors; if the vice-chairman of the Board of Supervisors is unable to perform his or her duty or does not perform his or her duty, it shall be chaired by a supervisor elected by more than half of all supervisors. A shareholders' meeting called by shareholders themselves shall be chaired by a representative chosen by the convener. If when a shareholders' meeting is convened, the meeting is unable to continue as the presiding person of the meeting acts against the standing order, the General Meeting of Shareholders may, with the consent of shareholders holding more than half of the voting rights present at the meeting, elect one person to chair the meeting and further the meeting. Some contents are required under the Relevant Regulations to be added to the original Article 89 (concerning minutes of general meetings), and the revisions are as follows: Article 106 If votes are counted at a shareholders' meeting, the results of the vote counting shall be written into the minutes of the meeting. The minutes of the meeting shall cover the following contents: (1) the time, venue, agenda, and name of the convener of the meeting; (2) the names of the person chairing the meeting, and the directors, supervisors, managers and other senior managerial personnel who attend or attend as nonvoting delegates; (3) the number of shareholders and their proxies attending the meeting, the total number of shares with voting power they hold, and their proportions in total shares of the Company; (4) the deliberation course, main points of speeches and voting results for each motion; (5) inquiry opinions or suggestions of shareholders and related replies or explanations; (6) the names of the lawyer, and the vote counter and scrutineer; and (7) other contents that shall be carried into the minutes of the meeting as stipulated by the Articles of Association. The minutes of such a meeting shall be kept together with the signature register of shareholders attending the meeting and the letters of proxy for attending on agency, and the effective materials about online and other forms of voting, for a period of not less than ten years. Item (2) is required under the Relevant Regulations to be added to the original Article 103 (concerning directors who are concurrently management members), and the following clauses are renumbered accordingly: Article 120 …… (2) Directors may be served concurrently by managers or other senior managerial personnel, one director may be served by a staff representative, but the total number of directors served concurrently by managers or other senior managerial
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personnel and the director served by a staff representative shall not exceed 1/2 of all directors of the Company. …… The original Article 108 (concerning voting for the election of directors or supervisors) In the circumstance of competitive election, the Company carries out a cumulative voting system in electing directors. The said system has been written into the Standing Order of the General Meeting of Shareholders of the Company, and its specific provisions are: …… is required under the Relevant Regulations to be revised as: Article 125 In the circumstance of competitive election, the Company carries out a cumulative voting system in electing directors and supervisors. The said system has been written into the Standing Order of the General Meeting of Shareholders of the Company, and taking the election of directors as an example, its specific provisions are: …… Some contents of the original Article 109 (concerning obligations of directors) are required under the Relevant Regulations to be as follows: Article 126 The Board of Directors holds itself responsible to the General Meeting of Shareholders and carries out the following functions and powers: (1) Be responsible for calling shareholders' meetings, and also report its work to the meetings; (2) Carry forward the resolutions of the General Meeting of Shareholders; (3) Determine the business plans and investment schemes of the Company; (4) Determine within the scope of authorization by the General Meeting of Shareholders such matters of the Company as external investment, acquisition and sale of assets, asset mortgage, external guarantees, asset management on trust, and associated transactions; (5) Determine within the scope of authorization by the General Meeting of Shareholders external guarantee matters of the Company; (6) Make annual financial budget programs and final account programs of the Company; (7) Make profit distribution programs and loss compensation programs of the Company; (8) Make registered capital increase or decrease programs and programs for issuance of corporate bonds and other securities of the Company; (9) Draft programs for amalgamation, spin-off and dissolution of the Company; (10) Determine the setup of internal management organization of the Company; (11) Appoint or dismiss the general manager of the Company, and upon nomination by the general manager, appoint or dismiss deputy general managers and other senior managerial personnel (including chief financial officer) of the Company, and determine the matters concerning their remuneration; (12) Formulate the basic management system of the Company; (13) Formulate the program for revision of the Company's Articles of Association; (14) Manage information exposure matters of the Company; (15) Submit to the General Meeting of Shareholders motions for appointment or replacement of the accounting firm serving as the auditor of the Company; (16) Hear the work reports of the general manager and also examine the work of the general manager; and (17) Other functions and powers authorized by laws, administrative regulations, rules of departments or the Articles of Association. In making resolutions on matters as stated in the preceding paragraph, the Board of Directors shall get votes for from more than half of all directors except for the items (5), (8), (9) and (13) on which the votes for from more than two-thirds of all directors are necessary.
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Article 127 (concerning unusual audit opinions) is required under the Relevant Regulations to be newly added, and the following chapters and sections shall be renumbered accordingly. Article 127 The Board of Directors of the Company shall explain to the General Meeting of Shareholders any unusual audit opinions given by the certified public accountants on the Company's financial reports. The original Article 116(concerning board of directors standing order) The Board of Directors of the Company shall formulate the Standing Order of the Board of Directors. The formulation and revision of the Standing Order of the Board of Directors shall take effect after approval by the Board of Directors of the Company. is required under the Relevant Regulations to be revised as: Article 134 The Standing Order of the Board of Directors formulated and revised by the Board of Directors of the Company shall take effect after approval by the General Meeting of Shareholders of the Company. Article 136 (concerning general meetings convened by shareholders or supervisors) is required under the Relevant Regulations to be newly added, and the following chapters and sections shall be renumbered accordingly. Article 136 Shareholders representing more than 1/10 voting power or the Board of Supervisors may raise a motion for convening an extraordinary meeting of the Board of Directors. The chairman of the Board of Directors shall call and chair the meeting of the Board of Directors within ten days after receiving the motion.
The original Article 151(concerning the role of supervisors) The directors, general manager and chief financial officer of the Company shall not concurrently serve as supervisors. is required under the Relevant Regulations to be revised as: Article 170 The directors, general manager and other senior managerial personnel of the Company shall not concurrently serve as supervisors. The original Article 153(concerning the standing orders of supervisors) The Board of Supervisors of the Company shall formulate the Standing Order of the Board of Supervisors. The formulation and revision of the Standing Order of the Board of Supervisors shall take effect after approval by the Board of Supervisors of the Company. is required under the Relevant Regulations to be revised as: Article 172 The Standing Order of the Board of Supervisors formulated and revised by the Board of Supervisors of the Company shall take effect after approval by the General Meeting of Shareholders of the Company. Some contents of the original Article 154 (concerning the duties of supervisors) are required under the Relevant Regulations to be revised as follows: Article 173 The Board of Supervisors holds itself responsible to the General Meeting of Shareholders, and also carries out according to law the following functions and powers: (1 ) Examine the regular reports of the Company prepared by the Board of Directors, and also give written opinions of examination;
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(2) Check financial affairs of the Company; (3 ) Supervise the acts of directors and senior managerial personnel in performing their duties of the Company, and put forward proposals of dismissing the directors and senior managerial personnel who act against laws, administrative regulations, the Articles of Association or resolutions of the General Meeting of Shareholders; (4) Ask directors and senior managerial personnel to make corrections when their acts do harm to the interests of the Company; (5) Submit motions on convening extraordinary shareholders' meetings, and call and chair shareholders' meetings when the Board of Directors does not perform its duty of calling and chairing shareholders' meetings as stipulated by the Company Law; (6) Submit motions to the General Meeting of Shareholders; (7) File lawsuits against directors and senior managerial personnel as stipulated by Article 152 of the Company Law; (8) Conduct investigations in case of finding abnormal circumstances in the Company's operations; if necessary, appoint accounting firms, law firms and other specialized organizations to assist its work, and the costs thereof are borne on the Company; (9) Other functions and powers as authorized by the General Meeting of Shareholders. Items (10) and (11) are required under the Relevant Regulations to be newly added to the original Article 169 (concerning persons prohibited from acting as directors/supervisors/management), and the revisions are as follows: Article 188 …… (10) Be given the punishment of being banned from entering the securities market by the China Securities Regulatory Commission, and the term of the punishment has not yet expired; (11) Other contents as stipulated by laws, administrative regulations or rules of departments. Items (13) and (14) are required under the Relevant Regulations to be added to the original Article 173 (concerning the duties of directors/supervisors/management), and the revisions are as follows: Article 192 …… (13) Banned from doing harm to the interest of the Company by taking advantage of its related party relationship; (14) Other obligations as stipulated by laws, administrative regulations, rules of departments and the Articles of Association. The stipulations of the original Article 182 and Article 183 concerning external guarantee of the Company are required under the Relevant Regulations to be deleted, and the following chapters and sections are renumbered accordingly. The original Chapter 19 Financial Accounting System and Profit Distribution is revised as: Chapter 19 Financial Accounting System, Profit Distribution and Audit Article 221 and Article 222 (concerning internal audit system) are required under the Relevant Regulations to be added, and the following articles and clauses are renumbered accordingly: Article 221 The Company implements an internal audit system, in which full-time auditing personnel are arranged to conduct internal audit and supervision of the Company's financial payments and economic activities. Article 222 The person in charge of audit holds himself responsible and also reports work to the Board of Directors.
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Standing Order of the General Meeting of Shareholders of Tianjin Zhong Xin Pharmaceutical Group Corporation Limited Chapter One General Provisions Article 1 The Standing Order has been formulated pursuant to the provisions of the Company Law of the People's Republic of China ("Company Law") and the Securities Law of the People's Republic of China ("Securities Law"), with a view to standardizing the behaviors of the Company and ensuring the General Meeting of Shareholders' exercise according to law of its functions and powers. Article 2 The Company shall convene shareholders' meetings strictly according to related stipulations of laws, administrative regulations, the Standing Order and the Articles of Association of the Company to ensure that shareholders are able to exercise according to law their rights. The Board of Directors of the Company shall earnestly perform its duties, and conscientiously and timely organize shareholders' meetings. All directors of the Company shall be diligent and perform their duties to ensure that the General Meeting of Shareholders convenes meetings normally and exercises according to law its functions and powers. Article 3 The General Meeting of Shareholders shall exercise its functions and powers within the scope as stipulated by the Company Law and the Articles of Association of the Company. Article 4 Shareholders' meetings are divided into annual shareholders' meetings and extraordinary shareholders' meetings. Annual shareholders' meetings shall be convened once every year and held within six months after the end of the preceding financial year. Extraordinary shareholders' meetings are convened irregularly. Once any circumstance under which an extraordinary shareholders' meeting shall be convened as stipulated by Article 101 of the Company Law occurs, an extraordinary shareholders' meeting shall be convened within two months. If the Company is unable to convene a shareholders' meeting within the aforesaid time limit, it shall make a report to the local agency of the China Securities Regulatory Commission and the stock exchanges on which the Company's shares are listed for trading ("stock exchanges"), in which the causes shall be stated and also made public. Article 5 When convening a shareholders' meeting, the Company will appoint a lawyer to give legal opinions and also make an announcement on the following issues: (1) Whether or not the convening of the meeting and the convening procedures accord with laws, administrative regulations, the Standing Order and the Articles of Association of the Company; (2) Whether or not the qualifications of the attendants and the convener are lawful and effective; (3) Whether or not the voting procedures and voting results of the meeting are lawful and effective; and (4) Legal opinions on other related issues given at the request of the Company. Chapter Two Nature and Functions and Powers of the General Meeting of Shareholders Article 6 The General Meeting of Shareholders is the organ of power of the Company, and exercises according to law the following functions and powers: (1) Determine the business principles and investment schemes of the Company; (2) Elect and replace directors and supervisors not served by representatives of the staff, and determine the matters concerning remuneration to directors and supervisors; (3) Examine and approve reports submitted by the Board of Directors; (4) Examine and approve reports submitted by the Board of Supervisors; (5) Examine and approve the annual financial budget and final account programs of the Company; (6) Examine and approve the profit distribution programs and loss compensation programs of the Company;
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(7) Make resolutions on increasing or decreasing the registered capital of the Company; (8) Make resolutions on amalgamation, spin-off, dissolution, liquidation and other matters of the Company; (9) Make resolutions on bond issues of the Company; (10) Make resolutions on appointment, dismissal or termination of continuous appointment of the accounting firm of the Company; (11) Amend the Articles of Association of the Company; (12) Examine and approve the guarantee matters as stipulated by Article 64; (13) Examine and approve matters related to change of the purposes of raised capital; (14) Examine equity incentive schemes; (15) Examine matters related to the Company's purchase or sale within one year of significant assets that are in excess of 30% of the Company's audited gross assets in the latest period; (16) Examine motions put forward by shareholders that hold 5% or more shares with voting power of the Company; and (17) Other matters subject to resolution of the General Meeting of Shareholders as stipulated by laws, administrative regulations and the Articles of Association of the Company. Chapter Three Convening of Shareholders' Meetings Article 7 The Board of Directors shall convene shareholders' meetings on time within the time limit as stipulated by Article 4 of the Standing Order. Article 8 Independent directors are entitled to make proposals to the Board of Directors to convene extraordinary shareholders' meetings. In response to the proposal of independent directors calling for convening of an extraordinary shareholders' meeting, the Board of Directors shall, pursuant to the stipulations of laws, administrative regulations and the Articles of Association of the Company, give written feedback opinions on whether or not agreeing to the convening of the extraordinary shareholders' meeting within ten days after receiving the proposal. If the Board of Directors agrees to the convening of the extraordinary shareholders' meeting, it shall issue a notice on convening the shareholders' meeting within five days after making the resolution of the Board of Directors; if it disagrees to the convening of the extraordinary shareholders' meeting, it shall state the causes and also make an announcement. Article 9 The Board of Supervisors is entitled to make proposals to the Board of Directors to convene extraordinary shareholders' meetings, and such a proposal shall be made to the Board of Directors in writing. The Board of Directors shall, pursuant to the stipulations of laws, administrative regulations and the Articles of Association of the Company, give written feedback opinions on whether or not agreeing to the convening of the extraordinary shareholders' meeting within ten days after receiving the motion. If the Board of Directors agrees to the convening of the extraordinary shareholders' meeting, it shall issue a notice on convening the shareholders' meeting within five days after making the resolution of the Board of Directors. Where there is any change to the original motion in the notice, the consent of the Board of Supervisors is necessary. If the Board of Directors disagrees to the convening of the extraordinary shareholders' meeting or fails to give a written feedback within ten days after receiving the motion, this shall be regarded that the Board of Directors is unable to perform or does not perform its function of calling shareholders' meetings, and the Board of Supervisors may call and chair the meeting by itself. Article 10 The shareholders who separately or jointly hold more than 10% of the shares of the Company are entitled to request the Board of Directors to convene extraordinary shareholders' meetings, and such a request shall be made to the Board of Directors in writing. If the Board of Directors fails to issue a notice on convening the meeting within 30 days after receiving the request, the shareholders who put forward the request may convene a shareholders' meeting by themselves within four months after the Board of Directors receives the said request, and the convening procedures shall be identical as possible to that of shareholders' meetings called by the Board of Directors. Article 11 If the number of members of the Board of Directors fails to reach the statutory minimum number of members as stipulated by the Company Law, or is less than two-thirds of the number stipulated by the Articles of Association, or the amount of
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loss of the Company not compensated reaches one-third of its total share capital, and the Board of Directors fails to convene an extraordinary shareholders' meeting within the prescribed time limit, the Board of Supervisors or shareholders may convene an extraordinary shareholders' meeting by themselves according to the related procedures as stipulated by the Standing Order. Article 12 If the Board of Supervisors or shareholders decide to call a shareholders' meeting by themselves, they shall inform the Board of Directors in writing, and at the same time report to the local agency of the China Securities Regulatory Commission and the stock exchanges for record. Before the announcement of the resolution of the General Meeting of Shareholders, the equity holdings of the shareholders calling the meeting shall not be less than 10%. When issuing the notice on the shareholders' meeting and making the announcement of the resolution of the General Meeting of Shareholders, the Board of Supervisors or the shareholders calling the meeting shall submit related certification materials to the local agency of the China Securities Regulatory Commission and the stock exchanges. Article 13 The Board of Directors and its board secretary shall collaborate with the Board of Supervisors or shareholders in calling shareholders' meetings by themselves. The Board of Directors shall provide the shareholders register of the equity record day. If the Board of Directors fails to provide the shareholders register, the convener may apply to the securities registration and clearing organization for obtaining it by presenting the related announcement in the notice on convening the shareholders' meeting. The shareholders register obtained by the convener shall not be used for any purpose other than convening the shareholders' meeting. Article 14 The costs necessary for the shareholders' meetings called by the Board of Supervisors or shareholders themselves are borne on the listed company. Chapter Four Motions, Notices and Shareholder Registration for Shareholders' Meeting Article 15 Motions for a shareholders' meeting are specific proposals put forward in response to matters that should be deliberated by the General Meeting of Shareholders, and the General Meeting of Shareholders shall make resolutions on the specific motions. Article 16 The contents of a motion shall be within the scope of functions and powers of the General Meeting of Shareholders, with definite topics and specific matters for resolution, and also accord with related stipulations of laws, administrative regulations and the Articles of Association of the Company. Article 17 The Board of Directors of the Company shall take the maximum interests of the Company and its shareholders as the standard of its conduct, and examine the motions for shareholders' meetings according to the Articles of Association of the Company and Article 16 of the Standing Order. Article 18 If the Board of Directors decides not to put a motion for a shareholders' meeting on the agenda, it shall explain at the said shareholders' meeting, and also announce the contents of the motion and its explanation together with the resolution of the General Meeting of Shareholders after the conclusion of the shareholders' meeting. Article 19 At an annual shareholders' meeting, shareholders separately or jointly holding more than 5% shares with voting power of the Company may put forward extraordinary motions. The person who puts forward a motion shall submit the motion to the Board of Directors ten days prior to the convening of the shareholders' meeting, and also have the Board of Directors make an announcement after examination. Article 20 Regarding an extraordinary motion for the annual shareholders' meeting as stated in the preceding article, the Board of Directors shall examine the motion according to the following principles: (1)The nature of relationship. The Board of Directors shall examine the motions of shareholders, and if the matters involved in the motions of shareholders have direct relationship with the Company and also do not go beyond the scope of the functions and powers of the General Meeting of Shareholders as stipulated by laws, regulations and the Articles of Association of the Company, it shall present them to the General Meeting of Shareholders for deliberation. If the motions do not meet the aforesaid requirements, they shall not be presented to the General Meeting of Shareholders for deliberation. If the Board of Directors decides not to present a motion of shareholders to a shareholder's meeting for voting, it shall explain at the said shareholders' meeting.
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(2)The nature of procedures. The Board of Directors may make decisions on the issues concerning procedures involved in motions of shareholders. If motions are split up or merged for voting, the consent of the persons who put forward the motions is necessary; if the persons who put forward the motions do not agree to any change, the person chairing the shareholders' meeting may request the General Meeting of Shareholders to make decisions on the issues concerning procedures, and have them deliberated according to the procedures determined by the General Meeting of Shareholders. Article 21 If shareholders who put forward motions object the decision of the Board of Directors not to include their motions in the agenda of a shareholders' meeting, they may request to convene an extraordinary shareholders' meeting according to the procedures stipulated by the Articles of Association of the Company and the Standing Order. Article 22 If motions concerning investment, property disposals, mergers and acquisitions, are put forward, the details of the said matters shall be explained, including the amount involved, the price (or the pricing method), the book value of the property, the influence on the Company, the conditions of examination and approval, and others. If according to related stipulations, asset evaluation and audit shall be done or an independent financial advisor's report shall be provided, the Board of Directors shall make public the results of the asset evaluation and the audit or the independent financial advisor's report at least five working days prior to the convening of the shareholders' meeting. Article 23 If the Board of Directors proposes to change the purposes of the capital raised from a share offering, it shall state in the notice on shareholders' meeting the causes for the change, an introduction of the projects for the new purposes, and their influences on the Company's future. Article 24 The matters subject to ratification by the China Securities Regulatory Commission including public offering of shares shall be put forward in separate motions. Article 25 After the Board of Directors examines and approves the annual report, it shall make a resolution on the profit distribution program, which shall be regarded as a motion for the annual shareholders' meeting. When the Board of Directors puts forward a program on conversion of capital reserve into share capital, it shall state in details the cause for the conversion and also expose in an announcement. When the Board of Directors announces a program for distribution of bonus shares or conversion of capital reserve into share capital, it shall expose the earnings per share and net assets per share before and after the distribution of bonus shares or the conversion of capital reserve into share capital, as well as the influences on the Company's future development. Article 26 The motion for appointing the accounting firm shall be put forward by the Board of Directors and approved by the General Meeting of Shareholders through voting. When the Board of Directors puts forward a motion to dismiss or no longer to further engage an accounting firm, it shall inform the said accounting firm in advance and also explain the causes to the General Meeting of Shareholders. The accounting firm is entitled to state its opinions to the General Meeting of Shareholders. If the Board of Directors dismisses the accounting firm for good cause not in the period of meeting of the General Meeting of Shareholders, it may temporarily engage another accounting firm, but the approval procedure shall be made up during the next shareholders' meeting. If the accounting firm requests for discharge of the appointment, the Board of Directors shall state the causes at the next shareholders' meeting. The accounting firm discharged is liable to attend the shareholders' meeting in the written format or by sending a person to explain to the General Meeting of Shareholders whether or not the Company has any improper act. Article 27 The date and venue for a shareholders' meeting shall be determined by the Board of Directors. The Company shall adopt multiple forms and channels, including full use of modern information technology means, to expand the proportion of shareholders attending the shareholders' meeting. The selection of the time and venue for a shareholders' meeting shall be conducive to enable the biggest number of shareholders as possible to attend the meeting. Article 28 To convene a shareholders' meeting, the Company shall issue 45 days in advance a written notice, informing all registered shareholders and the stock exchanges on which the Company's shares are listed of the matters to be examined at the meeting and the date and venue of the meeting. The holders of shares with limiting conditions for sale who are to attend the shareholders' meeting shall send a written reply of attending the meeting to the Company 20 days prior to the convening of the meeting. Non-local shareholders may register in the form of letter or fax, and the contents of registration shall comply with the related provisions of the Standing Order.
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Article 29 The notice on a shareholders' meeting shall contain the following contents: (1) The date, venue and duration of the meeting; (2) The matters to be examined at the meeting; (3) The materials and explanations provided to shareholders for their wise decisions on the matters to be deliberated; this principle includes (but is not limited to) necessary provision of the specific conditions and contract (if available) of the transaction negotiated, as well as conscientious explanation on its causes and consequences when the Company proposes to merge, buy back shares, and undergo share restructuring or other restructuring. (4) If any director, supervisor, general manager or other senior managerial personnel has the relationship of material interest with the matters to be deliberated, the nature and degree of the relationship of interest shall be exposed; if the matters to be deliberated have influences on the said director, supervisor, general manager or other senior managerial personnel as shareholder different from the influences on other shareholders of the same category, the differences shall be stated; (5) Statement in explicit words: all shareholders are entitled to attend the shareholders' meeting and also entrust a proxy to attend the meeting and take part in the voting, and the said proxy may not necessarily be a shareholder of the Company; (6) The date of equity record for shareholders entitled to attend the shareholders' meeting. The interval between the date of equity record and the date of the meeting shall not be longer than seven working days. No change is permitted once the date of equity record is set; (7) The time and place for delivery of the letter of proxy for voting; and (8) The name and telephone number of the standing contact person for the meeting. Article 30 The Board of Directors shall list in the notice on a shareholders' meeting the matters to be deliberated at the shareholders' meeting, and also make full exposure of the contents of all motions it put forward, including all materials or explanations necessary for reasonable judgment of the shareholders on the matters to be deliberated. If the opinions of independent directors on the matters to be deliberated are necessary, the notice of the shareholders' meeting shall also expose the opinions of the independent directors and the reasons. If any change to the matters involved in the resolutions of the previous shareholders' meeting is to be made, the contents of the motion shall be complete, rather than the contents to be changed only. "Other matters" without definite specific contents shall not be regarded as motions, and shall thereof not be voted at the shareholders' meeting. Article 31 If the General Meeting of Shareholders is to deliberate matters concerning election of directors and supervisors, the notice on the shareholders' meeting shall give full exposure of detailed information about the director and supervisor candidates, at least including the following contents: (1) The educational background, work experiences, concurrent posts and other personal information; (2) Whether or not there is any association relationship with the listed Company or its controlling shareholder and actual controller; (3) Disclosure of the number of shares of the listed Company he or she holds; (4) Whether or not he or she received any punishment imposed by the China Securities Regulatory Commission and other related departments and the stock exchanges. Except for the adoption of cumulative voting system in electing directors and supervisors, each director and supervisor candidate shall be put forward in a separate motion. Article 32 The notice on a shareholders' meeting shall be sent to the holders of "S" shares (whether they have voting power at the shareholders' meeting or not) by a special person or by a letter with postal charges paid according to the addresses registered at the shareholders' register. For holders of domestic capital shares, the notice on a shareholders' meeting may also be made in the form of public announcement. The aforesaid public announcement shall be carried on one or multiple newspapers designated by the organ of the State Council in charge of securities within 45 to 50 days prior to the convening of the meeting. Once such announcement is made, it is regarded that all holders of domestic capital shares receive the related notice on the shareholders' meeting.
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Article 33 If for unexpected omission, the notice on the shareholders' meeting fails to be sent to a person entitled to be informed of the notice, or the said person fails to receive the notice on the meeting, the meeting and the resolutions of the meeting shall not be invalid for this. Article 34 The Company shall compute the number of shares with voting power represented by the shareholders to attend a shareholders' meeting in accordance with the written replies received 20 days prior to the convening of the meeting. It may convene the shareholders' meeting only when the number of shares with voting power represented by the shareholders to attend a shareholders' meeting reaches over 1/2 of the total number of shares of the Company with voting power and at the same time the number of shareholders or their proxies to attend the meeting reaches two or more; if not, the Company shall inform the shareholders again of the matters to be examined at the meeting and the date and venue of the meeting in the form of announcement within five days. After the notice through announcement, the Company may convene the shareholders' meeting. Article 35 After the notice on a shareholders' meeting is issued, if without good causes, the shareholders' meeting shall not be postponed or cancelled, and the motions listed in the notice on shareholders' meeting shall not be cancelled. Once the circumstance of postponement or cancellation occurs, the convener shall make an announcement and also state the causes at least two working days prior to the originally set date of convening. Article 36 Shareholders may attend a shareholders' meeting by themselves or entrust proxies to attend and vote. Shareholders shall entrust their proxies in a written format, which shall be signed by the consignor or by the agent entrusted in writing, and if the consignor is a legal person, be affixed with the seal of the legal person, or be signed by its director or entrusted agent or an official authorized by the company. The said entrustment in writing shall state the number of shares of the consignor that are represented by the proxy. Article 37 The document for designation of a proxy must be left at the place as stated in the notice on the shareholders' meeting (if available) or the residential place of the Company at least 48 hours prior to the election of the person presiding over the meeting or the start of the election procedure of the shareholders' meeting. Otherwise, it shall be deemed as being invalid. Except for the availability of opposite statement, the said document shall continue to be valid in any circumstance of postponement of the meeting. If a letter of authorization for proxy is made for more than one meeting (including postponed meeting), a new letter of authorization shall not be necessary for the following related meetings. If the document to authorize a proxy is signed by the lawyer representing the consignor, the letter or the letter of authorization by the lawyer shall be notarized. The notarized letter or letter of authorization by the lawyer together with the letter of proxy shall be kept at the residential place of the Company or the place designated by the notice on the shareholders' meeting. Article 38 If a shareholder is a legal person, its legal representative or a person authorized by its board of directors may serve as the representative of the shareholder to attend shareholders' meetings of the Company. Article 39 For any shareholder of "S" shares who is entitled to attend shareholders' meetings and has voting power, it may entrust one or several persons (who may not necessarily be a shareholder or shareholders) as its shareholder proxy (proxies) to attend and vote, and the Company shall have the following rights and obligations: (a) Reject any presented letter of proxy if it is unable to be proved and also confirmed by the central custodial company that the custodial register carries any share under the name of the said shareholder 48 hours prior to the convening of the related shareholders' meeting; (b) Accept after confirmation by the central custodial company the number of shares under the name of the said shareholder carried in the custodial register 48 hours prior to the convening of the related shareholders' meeting as the total number of shares for voting able to be executed cumulatively by the proxy entrusted by the said shareholder in the voting. Article 40 In case prior to voting the consignor has died, lost capacity of conduct, withdrawn the proxy or withdrawn the authorization for signing the proxy, or the related shares have been transferred, only if the Company does not receive any written notice on such matter at the statutory address one hour prior to the start of the related meeting, the voting made by the proxy of the shareholder according to the letter of proxy shall still be valid. Article 41 If an individual shareholder personally attends a shareholders' meeting, he or she shall show his or her identification certificate and the certificate for share holding; if he or she entrusts a proxy to attend the meeting, the proxy shall show his or her identification certificate, the letter of proxy and the certificate for share holding.
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Article 42 A legal person shareholder shall have its legal representative or a proxy entrusted by its legal representative attend the meeting. If the legal representative attends the meeting, he or she shall show his or her identification certificate, a valid certificate able to prove his or her qualification as the legal representative, and the certificate for share holding; if a proxy is entrusted to attend the meeting, the proxy shall show his or her identification certificate, the written letter of proxy signed according to law by the legal representative of the legal person shareholder, and the certificate for share holding. Article 43 The letter of proxy entrusted by a shareholder to a third party to attend a shareholders' meeting shall carry the following contents: (1) The name of the proxy; (2) Whether or not there is voting power; (3) Respective instructions of voting for, against or abstention on each matter for deliberation listed on the agenda of the shareholders' meeting; (4) Whether or not there is voting power on extraordinary motions possibly to be included in the agenda of the shareholders' meeting; if yes, the specific instructions of executing which kind of voting power; (5) The date of issuance and validity of the letter of proxy; and (6) The signature (or seal) of the consignor, or the seal of the corporate entity if the consignor is a legal person shareholder. It shall be noted in the letter of proxy that if the shareholder fails to give specific instructions, the shareholder proxy shall be able to vote according to his or her own will. Chapter Five Convening and Rules of Procedure of the General Meeting of Shareholders Article 44 The Company shall convene shareholders' meetings at its residential place or the place stipulated by its Articles of Association. The General Meeting of Shareholders shall arrange a meeting place and convene meetings in the form of on-the-spot meeting. The Company may provide conveniences for shareholders to attend shareholders' meetings through adopting safe, economic and convenient online or other forms. If shareholders attend a shareholders' meeting in the aforesaid forms, they are regarded as attending the meeting. A shareholder may personally attend a shareholders' meeting and also execute his or her voting power, and may also entrust a third party to attend the meeting on his or her agency and also execute the voting power within the scope of authorization. Article 45 The Company is responsible for making a book of signatures signed by the persons attending the meeting, in which the names (or the names of the units) of the persons attending the meeting, their identification certificate numbers, their residential addresses, the number of shares with voting power they hold or represent, the names of the persons (or units) they represent, and other matters shall be carried. Article 46 If online or other forms are adopted for a shareholders' meeting of the listed company, the time of voting and the procedure of voting for online and other forms shall be made clear in the notice on the shareholders' meeting. The beginning time of online or other forms of voting for a shareholders' meeting shall not be earlier than 3:00 p.m. of the day prior to the on-the-spot shareholders' meeting and also not later than 9:30 a.m. of the day when the on-the-spot shareholders' meeting is convened, and its ending time shall not be earlier than 3:00 p.m. of the day when the on-the-spot shareholders' meeting ends. Article 47 The Company shall conform to the principle of plainness and simplicity in convening shareholders' meetings, and shall not give extra economic benefits to the shareholders (or their proxies) attending the meetings. Article 48 When the Company convenes a shareholders' meeting, all of its directors, supervisors and the board secretary shall attend, and its general manager and other senior managers shall attend as nonvoting delegates. Article 49 The Company's Board of Directors, Board of Supervisors and other conveners shall take necessary measures to ensure the soberness and normal order of shareholders' meetings. The Company is entitled to reject according to law the entrance of any other person except for the shareholders (or their proxies), the directors, the supervisors, the board
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secretary, the senior managers, the engaged lawyer and the persons invited by the Board of Directors. The Company shall take measures to stop any act to disturb the order of a shareholders' meeting, pick quarrels and make trouble, and encroach upon the legitimate rights and interests of other shareholders. Article 50 In attending a shareholders' meeting, shareholders shall present their stock account cards, identification certificates or other effective credentials or certificates able to demonstrate their identification. For proxies, they shall also present the letter of authorization for proxy signed by the shareholders and their personally effective identification certificates. Article 51 The convener and the lawyer shall jointly check the legality of the shareholders' qualification in accordance with the shareholders register provided by the securities registration and clearing organization, and also register the names of the shareholders and the number of shares with voting power they hold. The registration for a shareholders' meeting shall end before the person chairing the meeting declares the number of shareholders and shareholder proxies attending the on-the-spot meeting and the total number of shares with voting power they hold. Article 52 A shareholders' meeting shall be chaired by the chairman of the Board of Directors. If the chairman of the Board of Directors is unable to perform his or her duty or does not perform his or her duty, it shall be chaired by the vice-chairman of the Board of Directors (if available); if the vice-chairman of the Board of Directors is unable to perform his or her duty or does not perform his or her duty, it shall be chaired by a director elected by more than half of all directors. A shareholders' meeting called by the Board of Supervisors itself shall be chaired by the chairman of the Board of Supervisors. If the chairman of the Board of Supervisors is unable to perform his or her duty or does not perform his or her duty, it shall be chaired by a supervisor elected by more than half of all supervisors. A shareholders' meeting called by shareholders themselves shall be chaired by a representative chosen by the convener. If when a shareholders' meeting is convened, the meeting is unable to continue as the person presiding over the meeting acts against the standing order, the General Meeting of Shareholders may, with the consent of shareholders holding more than half of the voting rights present at the meeting, elect one person to chair the meeting and further the meeting. Article 53 The person chairing a shareholders' meeting shall declare convening of the meeting according to the scheduled time. But in any of the following circumstances, the meeting may be convened after the scheduled time: (1) The directors and supervisors are not present; and/or (2) Other material causes are available. Article 54 After a meeting commences, the person chairing the meeting shall arrange one by one according to the order of the items and motions put on the agenda. With regard to the contents on the agenda of the meeting, the chairing person may in line with the actual circumstances adopt the form of reporting first, collective examination and collective voting, and with regard to complicated items, may adopt the form of reporting one by one and examination and voting one by one. The meeting shall give reasonable time for discussion of every item on the agenda. Article 55 In examining a motion, only shareholders or their proxies have the right to speak, and other persons present at the meeting may not raise questions or speak (except for those approved by the chairing person). A shareholder to speak shall first of all raise his or her hand and may speak only after permission by the chairing person. If two or more shareholders raise hands at the same time, the speaker shall be chosen by the chairing person. The person chairing the meeting is entitled to stipulate the time and times for each person to speak in line with the actual circumstances. The person chairing the meeting is entitled to reject or stop any speech of shareholders in violation of the aforesaid provisions. Article 56 Shareholders may raise questions and proposals on the contents of motions, and the chairing person shall reply or explain by him or herself or designate the directors, supervisors or other related senior managerial personnel present at the meeting to reply or explain. In any of the following circumstances, the chairing person is entitled to refuse to answer questions but shall explain the causes to the persons who raise the questions: (1) Commercial secrets of the Company that can not be made public are involved; (2) The question has no relation to the discussed item; (3) The matter questioned still needs to be investigated;
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(4) Answering the question will apparently do harm to the common interest of shareholders; and/or (5) Other material causes. Article 57 At an annual shareholders' meeting, the Board of Directors and the Board of Supervisors shall report their work over the past year to the General Meeting of Shareholders, and each independent director shall also deliver a report on his or her work. Article 58 At an annual shareholders' meeting, the Board of Supervisors shall read a special report on supervision of the Company over the past year, which shall contain the following contents: (1) The conditions on examination of the Company's financial affairs; (2) The conditions on duty fulfillment of the directors and senior managerial personnel in performing their duties related to the Company and the conditions on their implementation of related laws, regulations, the Articles of Association of the Company and resolutions of the General Meeting of Shareholders; and (3) Other significant events that, as the Board of Supervisors holds, shall be reported to the General Meeting of Shareholders. If it deems as being necessary, the Board of Supervisors may also give opinions on the motions examined by the General Meeting of Shareholders and also submit independent reports. Article 59 If the certified public accountants issue an auditor's report with explanatory notes, qualified opinions, opinions unable to be expressed or negative opinions on the Company's financial report, the Board of Directors of the Company shall explain to the General Meeting of Shareholders the related matters that lead to the aforesaid opinions of the certified public accountants and the influences on the financial status and operating conditions of the Company. If the said matters have direct influences on the profits of the current period, the Board of Directors shall determine a profit distribution proposal or a proposal on conversion of capital reserve into share capital according to the principle of the lower the better. Chapter Six Voting Procedures of the General Meeting of Shareholders Article 60 Shareholders (including proxies of shareholders) shall execute the power of voting pursuant to the number of shares with voting power they represent, with one ballot of voting power for each share. Article 61 The person chairing a shareholders' meeting shall declare before voting the number of the shareholders and proxies of shareholders present at the on-the-spot meeting and the total number of shares with voting power they hold. The number of the shareholders and proxies of shareholders present at the on-the-spot meeting and the total number of shares with voting power they hold shall take the register for the meeting as the criterion. Article 62 The quantity of shares held by a holder of "S" shares or the custodian on which the determination of the quantity of shares with voting power of the "S" share holder or its proxy at any shareholders' meeting is based shall be the number of shares under the name of the said person and registered in the shareholders' register 48 hours prior to the convening of the related shareholders' meeting, and if the said shareholder has its shares under custody, the number of shares registered in the custodial register and also confirmed to the Company via the custodian. In the circumstance of joint share holding, the voting (either by the shareholder or by his or her proxy) of the shareholder coming out in front shall be accepted, while the voting of other joint holders shall not be considered. In this article, the order of shareholder names shall be determined according to the order of the shareholder register or (if circumstances are available) the custodial register of the said shares. Article 63 If a shareholder has related party relationship with the matters examined at a shareholders' meeting, it shall challenge in voting, and the shares with voting power it holds shall not be computed into the total number of shares with voting power present at the shareholders' meeting. The shares of the Company held by the Company has no voting power, and the said part of shares shall not be computed into the total number of shares with voting power present at the shareholders' meeting. The announcements on resolutions of the General Meeting of Shareholders shall make full exposure of the information about voting by non-related party shareholders. Article 64 When motions are voted at a shareholders' meeting, the lawyer, representatives of shareholders and repre-
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sentatives of supervisors shall jointly take responsibility for counting and scrutinizing votes. If there is any related party relationship between the matters examined and a shareholder, the involved shareholder and its proxy shall not take part in counting and scrutinizing votes. Shareholders of the Company or their proxies who vote via online or other forms are entitled to verify their own voting results through the related voting system. Article 65 The ending time of the on-the-spot meeting of the General Meeting of Shareholders shall not be earlier than that of online and other forms. The person chairing the meeting shall declare at the on-the-spot meeting the voting information and results of every motion, and also declare whether or not a motion has been adopted pursuant to the voting results. Before formal announcement of voting results, all related parties including the Company, the person counting votes, the scrutineer, the principal shareholders and the network service provider involved in the on-the-spot, online and other forms of voting at the shareholders' meeting shall be liable for keeping secret of the voting information. Article 66 The person presiding over the meeting shall determine whether or not a resolution of the General Meeting of Shareholders is adopted according to the voting results, and also declare the voting results at the meeting. The voting results shall be written into the minutes of the meeting. Article 67 If the person chairing the meeting has any doubt over the results of a resolution voted, he or she may count the votes; if the person chairing the meeting does not count the votes, the shareholders or proxies of shareholders present at the meeting who raise an objection to the results declared by the person chairing the meeting are entitled to ask for counting of the votes immediately after the voting results are declared, and the person chairing the meeting shall count the votes immediately. Article 68 The General Meeting of Shareholders shall vote one by one all motions put on the agenda. If there are different motions on the same matter at the annual shareholders' meeting, voting shall be done according to the order of time when the motions are put forward, and resolutions shall be made on the matter. The General Meeting of Shareholders shall not lay aside motions or have them not voted except for force majeure and other special causes that lead to termination of the shareholders' meeting or impossibility to make resolutions. Article 69 The General Meeting of Shareholders shall not vote the matters not listed in the notice on the shareholders' meeting, and shall also not make changes to the contents of the motions. Otherwise, any change shall be regarded as new motion that shall not be voted at the current shareholders' meeting. Article 70 Only one of the on-the-spot, online or other voting forms may be chosen for a single voting power. In case of repeated voting by a single voting power, the results of the first vote shall prevail. Article 71 Shareholders attending a shareholders' meeting shall express one of the following opinions on the motions submitted for voting: for, against or abstention. Voting ballots that are not filled, wrongly filled or shown in illegible handwriting, or not cast shall be regarded as the voter gives up the voting right, and the voting results of the shares held shall be counted as "abstention". Article 72 In voting on election of directors and supervisors, the General Meeting of Shareholders may, pursuant to stipulations of the Articles of Association of the Company or the resolution of the General Meeting of Shareholders, adopt the system of cumulative voting. The system of cumulative voting as said in the preceding paragraph means, when the General Meeting of Shareholders elects directors or supervisors, each share owns the voting power identical to the number of directors or supervisors to be elected, and the voting power owned by shareholders may be used collectively. If a motion to reelect directors and supervisors is adopted, the newly elected directors and supervisors shall take office immediately after the meeting ends. Article 73 Taking the election of directors as an example, the system of cumulative voting shall be voted according to the following methods: (1) If the number of candidates is bigger than the number of directors to be elected, the form of cumulative voting must be adopted. (2) When the form of cumulative voting is adopted, each share held by shareholders has the voting power identical to the number of director candidates; if the Board of Directors and qualified shareholders respectively propose director
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andidates, the voting power of each share shall be counted according to the number of director candidates not repeated. (3) Before the General Meeting of Shareholders votes on the director candidates, the person presiding over the meeting shall make clear that the shareholders present at the meeting shall adopt the form of cumulative voting on the director candidate motion, the Board of Directors shall make ready ballots suitable for the cumulative voting form, and the board secretary shall explain the cumulative voting form and the method to fill in ballots. (4) When the General Meeting of Shareholders vote on director candidates, shareholders may execute their voting power separately and cast for each director candidate the voting power identical to the number of shares they hold; they may also execute their voting power collectively and cast for a certain director candidate all voting power that is represented by each share they hold and identical to the number of director candidates, or cast for some director candidates part of the voting power that is represented by each share they hold and identical to the number of director candidates. (5) After shareholders execute all voting power that is represented by each share they hold and identical to the number of director candidates for a certain director candidate or some director candidates, they shall no longer own the power of voting for other director candidates. (6) If the total voting power executed collectively by shareholders for a certain director candidate or some director candidates exceeds the voting power owned by all shares they hold, the votes of the shareholders shall be invalid and regarded as abstention of the voting power; if the total voting power executed collectively by shareholders for a certain director candidate or some director candidates is less than the voting power owned by all shares they hold, the votes of the shareholders shall be valid and the inadequate part shall be regarded as abstention of the voting power. (7) The director candidates who have the bigger number of voting power represented by the votes won shall be elected as directors. Article 74 The following matters may be implemented or applied only after adoption by the voting of the General Meeting of Shareholders and also by more than half of the voting power held by holders of social public shares taking part in voting: 1. The Company issues additional new shares to the public (including issuing foreign capital shares and warrants of share nature for listing outside the territory), floats convertible corporate bonds, and places shares to existing shareholders (excluding the case that the shareholder with actual controlling power commits to subscribe in cash in full amount before convening the shareholders' meeting); 2. The Company undergoes significant asset restructuring, in which the total price of assets purchased has a premium of 20% or more over the audited net book value of the assets purchased; 3. A shareholder repays its debts owed to the Company with equities of the Company it holds; 4. A subsidiary with material influence on the Company is to be listed outside the territory; 5. Related matters in the development of the Company that have material influence on the interest of the holders of social public shares. When the Company convenes a shareholders' meeting to examine the matters as listed in this article, it shall provide shareholders with a platform for online voting. When the Company adopts online voting for a shareholders' meeting, it shall handle according to the related stipulations of the (Provisional) Guide to the Work of Online Voting for Shareholders' Meetings of Listed Companies and the Implementing Rules of the Shanghai Stock Exchange on Online Voting for Shareholders' Meetings of Listed Companies. Online voting is not open to holders of "S" shares. Chapter Seven
Special Procedures for Voting of Categorized Shareholders
Article 75 Shareholders holding different types of shares are categorized shareholders. Categorized shareholders enjoy rights and shoulder obligations according to stipulations of laws, administrative regulations and the Articles of Association of the Company. Article 76 If the Company plans to change or abolish the rights of categorized shareholders, it shall get approval by a
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special resolution of the General Meeting of Shareholders and by shareholders' meetings convened by influenced categorized shareholders respectively according to articles 77 to 82. Article 77 The following circumstances shall be regarded as change or abolishment of the rights of shareholders of a certain category: (1) Increasing or reducing the number of shares of the said category, or increasing or reducing the number of categorized shares that enjoy identical or more voting power, distribution right and other special rights with the shares of the said category; (2) Swapping all or part of the shares of the said category into other categories, or swapping all or part of the shares of another category into shares of the said category or awarding such swapping right; (3) Canceling or reducing the rights of the shares of the said category to possess and get the produced dividends or cumulated dividends; (4) Reducing or canceling the rights of the shares of the said category to get dividends with preference or to get property distribution with preference if the Company is liquidated; (5) Increasing, canceling or reducing the rights of the shares of the said category for share swap, choice, voting, transfer, preferred placement and getting securities of the Company; (6) Canceling or reducing the rights of the shares of the said category to take payables of the Company in prescribed currencies; (7) Setting up new categories that enjoy identical or more voting power, distribution right or other special rights with the shares of the said category; (8) Setting limits on the transfer or ownership of the shares of the said category or increasing such limits; (9) Issuing warrants for subscribing shares of the said category or another category or the right for share swap; (10) Increasing the rights and special rights of shares of other categories; (11) Restructuring programs of the Company may constitute the circumstance in which shareholders of different categories shoulder liabilities not according to the proportions in the restructuring; and (12) Amending or abolishing the clauses stipulated in this chapter. Article 78 Influenced categorized shareholders, whether or not they originally have voting power at the General Meeting of Shareholders, shall have voting power at the meetings of categorized shareholders if the matters as stated in items (2) to (8) and items (11) to (12) of Article 77 are involved. However, interested shareholders shall not have voting power at meetings of categorized shareholders. The meanings of the interested shareholders as said in this article are as follows: (1) In the circumstance when the Company issues a tender offer for buying back shares according to the same proportion to all shareholders pursuant to related stipulations of its Articles of Association, or buys back its shares at the stock exchanges through the open trading form, "interested shareholders" refer to the controlling shareholder as defined by the Articles of Association of the Company; (2) In the circumstance when the Company buys back its shares through the form of agreement outside the stock exchanges pursuant to related stipulations of its Articles of Association, "interested shareholders" refer to the other party signing the said agreement; (3) In a restructuring program of the Company, "interested shareholders" refer to shareholders that shoulder liabilities according to a proportion lower than shareholders of the same category, or shareholders that possess different interests from other shareholders of the same category. Article 79 Resolutions of a categorized shareholders' meeting may be made only after being voted for by more than twothirds of the equities with voting power present at the categorized shareholders' meeting pursuant to Article 78. Article 80 To convene a categorized shareholders' meeting, the Company shall issue 45 days in advance a written notice, informing all registered shareholders of the said category of the matters to be examined at the meeting and the date and venue of the meeting. The shareholders who are to attend the meeting shall send a written reply of attending the meeting to the Company 20 days prior to the convening of the meeting.
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The Company may convene a categorized shareholders' meeting if the number of shares with voting power represented by the shareholders to attend a shareholders' meeting reaches over 1/2 of the total number of shares of the said category with voting power at the meeting; if not, the Company shall inform the shareholders again of the matters to be examined at the meeting and the date and venue of the meeting in the form of announcement within five days. After the notice through announcement, the Company may convene the categorized shareholders' meeting. Article 81 The notice on a meeting of categorized shareholders needs to be sent only to the shareholders eligible to vote at the said meeting. Meetings of categorized shareholders shall be convened according to the same procedures as shareholders' meetings as possible. The articles and clauses on the procedures for convening of shareholders' meetings in the Articles of Association of the Company are applicable to categorized shareholders' meetings. Article 82 Aside from other categorized shareholders, domestic capital shareholders and overseas listed foreign capital shareholders are regarded as shareholders of different categories. The following circumstances shall not be applicable to the special procedures for voting by categorized shareholders: (1) With the approval by the General Meeting of Shareholders through a special resolution, the Company separately or simultaneously issues domestic capital shares and overseas listed foreign capital shares every 12 months, and also the quantity of the domestic capital shares and overseas listed foreign capital shares to be issued respectively does not exceed 20% of the issued shares of the said category; (2) The Company's plan to issue domestic capital shares and overseas listed foreign capital shares at the time of establishment is completed within 15 months starting from the date of approval by the Securities Committee of the State Council. Chapter Eight Resolutions, Minutes and Announcements of the General Meeting of Shareholders Article 83 Resolutions of the General Meeting of Shareholders are divided into ordinary resolutions and special resolutions. An ordinary resolution of the General Meeting of Shareholders shall be adopted by more than 1/2 of the voting power of the shareholders (including proxies of shareholders) attending the shareholders' meeting. A special resolution of the General Meeting of Shareholders shall be adopted by more than 2/3 of the voting power of the shareholders (including proxies of shareholders) attending the shareholders' meeting. Article 84 The following matters shall be adopted by the General Meeting of Shareholders through ordinary resolutions: (1) The reports on the work of the Board of Directors and the Board of Supervisors; (2) The profit distribution programs and loss compensation programs drafted by the Board of Directors; (3) The appointment and dismissal and the remuneration and payment methods of the members of the Board of Directors and the Board of Supervisors; (4) The annual budget and final account reports, annual report, balance sheet, profit statement and other financial statements of the Company; and (5) Other matters other than those subject to adoption through special resolutions as stipulated by laws, administrative regulations or the Articles of Association of the Company. Article 85 The following matters shall be adopted by the General Meeting of Shareholders through special resolutions: (1) Issuing shares of any type, warrants and other similar securities that are to increase or reduce the share capital of the Company; (2) Issuing corporate bonds; (3) Spin-off, amalgamation, dissolution and liquidation of the Company; (4) Amendment of the Articles of Association of the Company; (5) The amount of the Company's purchase or sale of significant assets or guarantees within one year exceeds 30% of its audited gross assets for the latest period; (6) Equity incentive schemes; and (7) Other matters which the General Meeting of Shareholders affirms through ordinary resolution will have significant
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influences on the Company and need to be adopted through special resolutions. Article 86 Without approval by a special resolution of the General Meeting of Shareholders, the Company shall not make any contract for managing all or significant business of the Company with any person other than its directors, managers and other senior managerial personnel. Article 87 Trading of the A shares of the Company shall be suspended when a shareholders' meeting is held, and whether or not such suspension shall apply to the S shares shall be implemented according to related stipulations of the Singapore Exchange. The Board of Directors shall ensure that a shareholders' meeting is held continuously within a reasonable working time until the final resolution is made. If for force majeure or other abnormal causes a shareholders' meeting is unable to be convened normally or no resolution is able to be made, the Board of Directors of the Company shall explain the reasons to the stock exchanges and also make an announcement. It is obliged to take necessary measures to resume the convening of the shareholders' meeting as quickly as possible. In the meantime, the convener shall make a report to the local agency of the China Securities Regulatory Commission and the stock exchanges. Article 88 The contents of all resolutions of a shareholders' meeting shall accord with the stipulations of laws and the Articles of Association of the Company. The directors attending the meeting shall honestly perform their duties to ensure the genuineness, accuracy and completeness of the contents of resolutions, and shall not use expressions prone to cause divergences. The contents of resolutions of the General Meeting of Shareholders of the Company shall be invalid if they act against laws and administrative regulations. If the procedures for convening meetings or the voting methods of the General Meeting of Shareholders act against laws, administrative regulations or the Articles of Association of the Company, or the contents of the resolutions act against the Articles of Association of the Company, shareholders are entitled to request the people's court to cancel them within 60 days starting from the day when the resolutions are made. Article 89 Resolutions of a shareholders' meeting shall be announced to the public in time. The announcement shall state the number of shareholders and proxies attending the meeting, the total number of shares with voting power they hold and the proportion in the total number of shares with voting power of the Company, the voting methods, the voting results of each motion, and the details of all resolutions adopted. Article 90 If a motion fails to be adopted, or a resolution of the preceding shareholders' meeting is altered at the current shareholders' meeting, special mention shall be made in the announcement of resolutions of the shareholders' meeting. Article 91 If the General Meeting of Shareholders adopts a program for profit distribution or a program for conversion of capital reserve into share capital, the Board of Directors of the Company shall complete the matter for dividend (or share) distribution (or conversion) within two months after the conclusion of the shareholders' meeting. Article 92 The board secretary is responsible for making minutes of the meetings of the General Meeting of Shareholders. The minutes of such a meeting shall carry the following contents: (1) the time, venue, agenda, and name of the convener of the meeting; (2) the names of the person chairing the meeting, and the directors, supervisors, board secretary, managers and other senior managerial personnel who attend or attend as nonvoting delegates; (3) the number of shareholders and proxies attending the meeting, the total number of shares with voting power they hold, and their proportions in total shares of the Company; (4) the deliberation course, main points of speeches and voting results for each motion; (5) inquiry opinions or suggestions of shareholders and related replies or explanations; (6) the names of the lawyer, and the vote counter and scrutineer; and (7) other contents that shall be carried into the minutes of the meeting as stipulated by the Articles of Association. The directors, the board secretary, the convener or his or her representative, and the chairing person attending the meeting shall sign their names on the minutes of the meeting, and also ensure the genuineness, accuracy and completeness of the minutes of the meeting. The minutes of such a meeting shall be kept together with the signature register of shareholders attending the meeting and the letters of proxy for attending on agency, and the effective materials about online and other forms of voting, for a period of not less than ten years.
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Supplementary Provisions
Article 93 The Standing Order shall be implemented after examination and approval by the General Meeting of Shareholders. Article 94 Where the Standing Order goes against the Company Law of the People's Republic of China, the Securities Law of the People's Republic of China, the Listing Rules of the Shanghai Stock Exchange, the Listing Manual of the Singapore Exchange, the Procedures for General Meetings of Shareholders of Listed Companies, the Codes for Governance of Listed Companies and other laws and regulations, and the Articles of Association of the Company, the aforesaid laws, regulations and the Articles of Association of the Company shall be implemented. Article 95 Any revision to the Standing Order shall be determined by the General Meeting of Shareholders, which shall authorize the Board of Directors to draft an amendment that shall take effect after approval by the General Meeting of Shareholders. Article 96 The Board of Directors of the Company is responsible for the interpretation of the Standing Order.
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Standing Order of the Board of Directors of Tianjin Zhong Xin Pharmaceutical Group Corporation Limited Chapter One General Provisions Article 1 The Standing Order has been formulated pursuant to the Company Law, the Securities Law, the Codes for Governance of Listed Companies, the Stock Listing Rules of the Shanghai Stock Exchange and other related regulations, and the Articles of Association of the Company with a view to safeguarding the legitimate rights and interests of the Company and its shareholders, further standardizing the rules of debate and decision-making procedures of the Board of Directors of the Company, urging directors and the Board of Directors to effectively perform their duties and raising the level of standardized operation and scientific decision-making of the Board of Directors. Article 2 The Company establishes the Board of Directors, which holds itself responsible to the General Meeting of Shareholders and carries out its decision-making power within the scope of functions and powers as granted by the Company Law, the Articles of Association of the Company and the General Meeting of Shareholders. Article 3 The Board of Directors is composed of nine directors, with one serving as the chairman. Independent directors shall make up 1/3 of all members of the Board of Directors. Chapter Two Functions and Powers of the Board of Directors Article 4 Pursuant to related provisions of the Articles of Association of the Company, the Board of Directors mainly carries out the following functions and powers: (1) Be responsible for calling shareholders' meetings, and also report its work to the meetings; (2) Carry forward the resolutions of the General Meeting of Shareholders; (3) Determine the business plans and investment schemes of the Company; (4) Determine within the scope of authorization by the General Meeting of Shareholders such matters of the Company as external investment, acquisition and sale of assets, asset mortgage, external guarantees, asset management on trust, and related party transactions; (5) Determine within the scope of authorization by the General Meeting of Shareholders external guarantee matters of the Company; (6) Make annual financial budget programs and final account programs of the Company; (7) Make profit distribution programs and loss compensation programs of the Company; (8) Make registered capital increase or decrease programs and programs for issuance of corporate bonds and other securities of the Company; (9) Draft programs for amalgamation, spin-off and dissolution of the Company; (10) Determine the setup of internal management organization of the Company; (11) Appoint or dismiss the general manager of the Company, and upon nomination by the general manager, appoint or dismiss deputy general managers and other senior managerial personnel (including chief financial officer) of the Company, and determine the matters concerning their remuneration; (12) Formulate the basic management system of the Company; (13) Formulate the program for revision of the Company's Articles of Association; (14) Manage information exposure matters of the Company; (15) Submit to the General Meeting of Shareholders motions for appointment or replacement of the accounting firm serving as the auditor of the Company; (16) Hear the work reports of the general manager and also examine the work of the general manager; and (17) Other functions and powers authorized by laws, administrative regulations, rules of departments or the Articles of Association.
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In making resolutions on matters as stated in the preceding paragraph, the Board of Directors shall get votes for from more than half of all directors except for the items (5), (8), (9) and (13) on which the votes for from more than two-thirds of all directors are necessary. Article 5 The Board of Directors of the Company shall explain to the General Meeting of Shareholders if the auditor appointed by the Company issues a qualified audit report on the Company's financial report. Article 6 The Board of Directors shall set its scope of power for deciding venture capital investment using assets of the Company, and establish strict examination and decision-making procedures; with regard to significant investment projects, it shall organize related experts or professionals to appraise and also make a report to the General Meeting of Shareholders for approval. Article 7 The Secretarial Office of the Board of Directors is placed under the Board of Directors to handle routine affairs of the Board of Directors. The board secretary shall concurrently be the chief of the Secretarial Office. The seals of the Board of Directors and the Secretarial Office are kept at the Secretarial Office of the Board of Directors. Chapter Three
Functions and Powers of the Chairman of the Board of Directors
Article 8 The chairman of the Board of Directors shall be served by a director of the Company and shall be elected and recalled by more than half of all directors. Article 9 The chairman of the Board of Directors exercises the following functions and powers: (1) Chair shareholders' meetings and call and chair meetings of the Board of Directors; (2) Examine the implementation of resolutions of the Board of Directors; (3) Sign the shares, bonds and other securities issued by the Company; (4) Sign important documents of the Board of Directors and other documents that shall be signed by the legal representative of a company; (5) Exercise the functions and powers of the legal representative; (6) In emergency circumstances when extremely serious natural disasters or other force majeure occur, exercise the power of special treatment complying with stipulations of laws and the interests of the Company over matters of the Company, and also make reports to the Board of Directors and the General Meeting of Shareholders of the Company after the event; and (7) Other functions and powers as stipulated by the Articles of Association of the Company or the Board of Directors. Article 10 When the chairman of the Board of Directors is unable to exercise his or her functions and powers, he or she shall designate through written authorization a director to act on his or her functions and powers. Chapter Four Procedures for Calling and Noticing Meetings of the Board of Directors Article 11 Meetings of the Board of Directors are divided into regular meetings and extraordinary meetings. The Board of Directors shall convene at least two regular meetings every year, respectively in the first and second half of the year. Article 12 Before the notice on convening a regular meeting of the Board of Directors is issued, the Secretarial Office of the Board of Directors shall solicit the opinions of all directors, and after preliminarily forming the motions for the regular meeting, hand them over to the chairman of the Board of Directors for determination. Before determining the motions, the chairman of the Board of Directors shall in line with the necessities solicit the opinions of managers and other senior managerial personnel. Article 13 In any of the following circumstances, the Board of Directors shall convene an extraordinary meeting: (1) Shareholders representing more than one-tenth of the voting power propose; (2) More than one-third of the directors jointly propose; (3) The Board of Directors proposes; (4) The chairman of the Board of Directors holds that such a meeting is necessary; (5) The managers propose;
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(6) The securities regulatory authority requires the convening of such a meeting; and/or (7) Other circumstances as stipulated by the Articles of Association of the Company. Article 14 If an extraordinary meeting of the Board of Directors is proposed according to the stipulations in the preceding article, a written proposal signed by the person(s) making the proposal shall be submitted to the chairman of the Board of Directors directly or via the Secretarial Office of the Board of Directors. The written proposal shall carry the following matters: (1) The name(s) of the person(s) making the proposal; (2) The reasons for making the proposal or the objective particulars on which the proposal is based; (3) The time or time limit, venue and method for convening the proposed meeting; (4) Definite and specific motions; and (5) The contacts of the person(s) making the proposal and the date when the proposal is made. Contents of the motions shall belong the matters within the scope of functions and powers of the Board of Directors as stipulated by the Articles of Association of the Company, and the materials related to the motions shall be submitted together with the proposal. After receiving the aforesaid written proposal and related materials, the Secretary Office of the Board of Directors shall pass them on to the chairman of the Board of Directors on the same day. If the chairman of the Board of Directors holds that the contents of the motions are not definite and specific or the related materials are inadequate, he or she may request the person(s) making the proposal to revise or supplement. The chairman of the Board of Directors shall call and also chair a meeting of the Board of Directors within ten days after receiving the proposal or the requirement of the securities regulatory authority. Article 15 A meeting of the Board of Directors shall be called and chaired by its chairman. If the chairman is unable to perform or does not perform his or her duty, a director shall be elected by more than half of the directors to call and chair the meeting. Article 16 To convene a regular and extraordinary meeting of the Board of Directors, the Secretarial Office of the Board of Directors shall send a written notice on the meeting via direct delivery, fax, e-mail or other forms to all directors and supervisors, the general manager and the board secretary respectively ten days and five days in advance. If a form of non-direct delivery is adopted, confirmation via telephone as well as related records is necessary. In case of emergency circumstances in which an extraordinary meeting of the Board of Directors shall be convened as early as possible, the form of telephone or oral notice may be adopted to send the notice on the meeting, but the convener shall explain this at the meeting. Article 17 The written notice on a meeting of the Board of Directors shall contain at least the following contents: (1) The time and venue of the meeting; (2) The form for convening the meeting; (3) The matters to be examined (motions for the meeting); (4) The convener and chairing person of the meeting, the person(s) making the proposal on an extraordinary meeting and the written proposal; (5) Conference materials necessary for voting by the directors; (6) The requirements that the directors shall attend the meeting personally or may entrust other directors to attend on agency; and (7) The person to contact and the contact details. An oral notice on a meeting shall contain at least the contents as stated in the aforesaid items (1) and (2), and an explanation for convening the extraordinary meeting of the Board of Directors as early as possible for emergency circumstances. The notice on a meeting shall be drafted by the board secretary of the Company according to topics of the meeting, and shall also be sent to all directors and supervisors by the board secretary after approval by the chairman of the Board of Directors. Article 18 After the written notice on a regular meeting of the Board of Directors is issued, if the time, venue and other matters of the meeting need to be changed or the motions for the meeting are to be added, changed or cancelled, a written notice on the change shall be issued three days prior to the original set date of the meeting, in which the reasons, the contents of the new
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motions and related materials shall be stated. If the time limit is less than three days, the date of the meeting shall be postponed accordingly, but the meeting may be convened at the set date after acceptance by all directors to attend the meeting. After the written notice on an extraordinary meeting of the Board of Directors is issued, if the time, venue and other matters of the meeting need to be changed or the motions for the meeting are to be added, changed or cancelled, acceptance by all directors to attend the meeting shall be obtained in advance, and related records shall also be made. Article 19 A meeting of the Board of Directors may be held only if more than half of all directors attend. If directors refuse to or are reluctant to attend the meeting and this leads to the failure to meet the requirement on the minimum number of attendants for convening such a meeting, the chairman and secretary of the Board of Directors shall make a report in time to the regulatory authority. Supervisors may attend meetings of the Board of Directors as nonvoting delegates; the general manager and board secretary who are not concurrently directors shall attend meetings of the Board of Directors as nonvoting delegates. If the person chairing a meeting of the Board of Directors holds it as necessary, he or she may inform other related persons to attend the meeting as nonvoting delegates. Article 20 Directors shall in principle personally attend meetings of the Board of Directors. If for good reason a director is unable to attend such a meeting, he or she shall read the conference materials in advance, produce definite opinions and entrust in writing another director to attend on agency. The certificate of entrustment shall carry the following: (1) The names of the consignor and the consignee; (2) Brief opinions of the consignor on each motion; (3) The scope of authorization by the consignor and his or her instructions on the intention of voting on the motions; and (4) The signature of the consignor, the date, etc. If a director entrusts another director to sign on agency the written confirmation opinion on a regular report, he or she shall give special authorization in the certificate of entrustment. The entrusted director shall present the written certificate of entrustment to the person chairing the meeting, and explain the conditions about attendance on trust at the register for the meeting. Article 21 The following principles shall be followed in entrusting and being entrusted to attend a meeting of the Board of Directors: (1) When examining related party transaction matters, directors of non-related parties shall not entrust directors of related parties to attend on agency; directors of related parties shall also not accept the entrustment of directors of non-related parties; (2) Independent directors shall not entrust non-independent directors to attend on agency, and non-independent directors shall also not accept the entrustment of independent directors; (3) Directors shall not entrust other directors to attend on agency with full power in the circumstance that they fail to give their personal opinions and intentions on voting on the motions, and related directors shall also not accept entrustment with full power and entrustment without definite authorization; and (4) One director shall not accept entrustment by more than two directors, and directors shall also not entrust directors already accepting the entrustment by two other directors to attend on agency. Article 22 If a director neither attends a meeting of the Board of Directors nor entrusts a consignee to attend, he or she is regarded as giving up the voting power at the said meeting. Article 23 The board secretary is responsible for making the documents of the Board of Directors. Documents of the Board of Directors shall be delivered to all directors and supervisors before the convening of a board meeting. Directors shall earnestly read the documents of the Board of Directors and fully think over and prepare opinions on all motions to be examined. Article 24 Directors and supervisors attending a board meeting shall properly keep the conference documents. Before formal exposure to the public of related resolutions of the meeting, the directors, supervisors and other persons attending as nonvoting delegates are liable for keeping secret of the conference documents and all contents examined at the meeting.
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Chapter Five Procedures for Discussions and Voting at Meetings of the Board of Directors Article 25 The principle of on-the-spot convening shall be followed for meetings of the Board of Directors. If necessary, the meetings may also be convened in video, telephone, fax, e-mail and other voting forms under the precondition of ensuring directors' full expression of their opinions and with the consent of the convener (chairing person) and the person(s) making the proposal. They may also be convened through a combination of the on-the-spot and other forms. If a meeting is convened in a non-spot form, the number of directors attending the meeting shall be counted through showing video display of the directors on the spot, the directors expressing opinions at the teleconference, the valid votes of actually received faxes or e-mails within the prescribed time, or the written letters of confirmation for attending the meeting submitted by the directors after the event. Article 26 The person chairing a meeting of the Board of Directors shall request the directors attending the meeting to express definite opinions on all motions. As to motions that need to be accepted in advance by independent directors according to provisions, the person chairing the meeting shall designate an independent director to declare the written opinions of acceptance reached by independent directors before the related motion is discussed. If directors hinder normal progress of the meeting or affect other directors to speak, the person chairing the meeting shall stop them in time. Except for the circumstance of unanimous consent by all directors present at the meeting, a meeting of the Board of Directors shall not vote on any motion not contained in the notice on the meeting. If directors attend the meeting of the Board of Directors on entrustment by other directors, they shall not vote on any motion not contained in the notice on the meeting on behalf of the said other directors. Article 27 Directors shall earnestly read related conference materials and express opinions independently and prudently on the basis of full learning of the circumstances. Before a meeting of the Board of Directors, directors may learn information necessary for their decision making from the board secretary, the convener, the managers and other senior managerial personnel, the special committees, the accounting firm, the law firm and other related persons and organizations. They may also make proposals during the meeting to the person chairing the meeting of requesting representatives of the aforesaid persons and organizations to explain related information at the meeting. Article 28 After each motion is fully discussed, the person chairing the meeting shall request at a proper time the directors present at the meeting to vote. For voting at the meeting, the system of one person one vote and the named and written forms are adopted. The voting intentions of directors are divided into for, against and abstention. The directors present at the meeting shall choose one of the aforesaid intentions. If choice is not made or two or more intentions are chosen, the person chairing the meeting shall ask the related directors to make choice again. If they refuse to make choice, this shall be regarded as abstention. If any director leaves before the meeting is over and does not return to make choice, this shall be regarded as abstention. Article 29 After the directors present at the meeting complete their voting, the securities affairs representative and related working personnel of the Secretarial Office of the Board of Directors shall timely collect the votes of the directors and hand them over to the board secretary for counting under the supervision of one supervisor or independent director. If the meeting is convened on the spot, the person chairing the meeting shall declare the results of counting on the spot; in other circumstances, the person chairing the meeting shall ask the board secretary to inform directors of the voting results before the next working day after the prescribed time limit for voting. If directors vote after the person chairing the meeting declares the voting results or after end of the prescribed time limit for voting, their votes shall not be counted. Article 30 The Board of Directors may, pursuant to the agenda of a meeting, call other persons related to topics of the meeting to introduce related information or hear related opinions. Non-members of the Board of Directors attending the meeting as nonvoting delegates shall not involve in discussions of directors and shall not affect voting and resolutions of the meeting.
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Article 31 The Board of Directors shall fully ensure independent directors to exercise their functions and powers according to provisions of related laws, regulations and regulatory documents. Chapter Six Resolutions and Minutes of Meetings of the Board of Directors Article 32 Except for the circumstance as stipulated in Article 33 of the Standing Order, the votes for from more than half of all directors of the Company are necessary for the Board of Directors to adopt a motion and also form related solution. Where laws, administrative regulations and the Articles of Association of the Company provide that the consent of more directors is necessary for the Board of Directors to form a resolution, the said provisions shall prevail. If there is any contradiction in the contents and meanings of different resolutions, the resolution formed in later time shall prevail. Article 33 In case of the following circumstances, directors shall challenge in voting on related motions: (1) the circumstances in which directors shall challenge as stipulated by the Stock Listing Rules of the Shanghai Stock Exchange; (2) the circumstances in which the director personally holds that challenge is necessary; and (3) other circumstances in which challenge is necessary for the existence of related party relationship between the director and the enterprise involved in the motion for the meeting as stipulated by the Articles of Association of the Company. In the circumstance that directors are challenged in voting, the related meeting of the Board of Directors may be convened only if more than half of the directors without related party relationship attend, and the resolutions formed need to be adopted by more than half of the directors without related party relationship. If the number of directors without related party relationship attending the meeting is less than three, voting on related motions shall not be conducted, and instead the said matters shall be submitted to the General Meeting of Shareholders for examination. Article 34 The Board of Directors shall practice strictly according to the authorization by the General Meeting of Shareholders and the Articles of Association of the Company, and shall not form resolutions in excess of the authorization. Article 35 If the Board of Directors is to make a resolution on profit distribution matter of the Company at a meeting, it may first inform the certified public accountants of the proposal for distribution to be examined and also request them to issue a draft audit report according to this (all other financial data except for the distribution have been made clear). After the Board of Directors make a resolution on distribution, it shall ask the certified public accountants to issue a formal audit report, and pursuant to the formal audit report issued by the certified public accountants, it shall make resolutions on other related matters of the regular report. Article 36 If a motion fails to be adopted, the Board of Directors shall not examine any motion with the same contents within one month given that material change happens to the related conditions and factors. Article 37 If more than half of the directors present at a meeting or more than two independent directors are unable to make judgment on related matters because the motion is not clear or specific, or the conference materials are not full, or for other causes, the person chairing the meeting shall request the meeting to postpone voting on the said motion. The directors who propose postponement of voting shall raise clear requirements on the conditions to be met for examination of the motion again. Article 38 Meetings of the Board of Directors convened on the spot or in video, telephone or other forms may be recorded full course if necessary. Article 39 The board secretary shall arrange working personnel of the Secretarial Office of the Board of Directors to make minutes of the meetings of the Board of Directors. Directors attending the meetings and the persons making the minutes shall sign at the minutes of the meetings. The directors attending the meetings are entitled to request the carrying of explanations of their speeches at the meetings on the minutes. Article 40 Minutes of a meeting of the Board of Directors shall contain the following contents: (1) the serial number of the meeting, and the time, venue and form of its convening; (2) the information about the issuance of the notice on the meeting; (3) the convener and chairing person of the meeting (4) the information about attendance of the directors personally or entrusted;
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(5) the motions examined at the meeting, main points of speeches and main opinions of each director on related matters, and the intentions of voting on motions; (6) the forms and results of voting on each motion (the specific number of votes for, against and abstention shall be stated); and (7) other matters which the Board of Directors holds shall be recorded. Article 41 Aside from the minutes of the meetings, the board secretary may in line with the necessity arrange working personnel of the Secretarial Office of the Board of Directors to make brief summaries of the meetings. Article 42 Related resolutions formed at a meeting of the Board of Directors shall be recorded in a written document on which the directors attending the meeting shall sign. Article 43 Extraordinary meetings of the Board of Directors may, under the precondition that directors are ensured to fully express their opinions, be convened and make resolutions in fax, signing after reading, telephone conference, audio, video and other forms. Directors attending the meetings shall also sign. Article 44 Directors attending a meeting personally or entrusted shall sign to confirm the minutes and resolutions of the meeting and also shoulder liabilities. Where a resolution of the Board of Directors acts against laws, regulations or the Articles of Association and thereof causes loss to the Company, the directors making the resolution are liable for making compensation to the Company. But the directors who are proved to have expressed opposition at the time of voting that is also recorded at the minutes of the meeting may be exempted from the liabilities. Article 45 Matters related to public announcement of resolutions of the Board of Directors shall be handled by the board secretary according to the Stock Listing Rules of the Shanghai Stock Exchange, the Listing Manual of the Singapore Exchange and other related regulations. Before the announcement of resolutions is exposed, the directors attending the meeting and the persons present at the meeting as nonvoting delegates and the persons making the records and doing services are liable for keeping secret of the contents of the resolutions. Article 46 Files of a meeting of the Board of Directors shall contain the notice on the meeting and the conference materials, the register for attending the meeting, the certificates of entrustment for directors to attend on agency, the sound records of the meeting, the votes, the minutes of the meeting signed for confirmation by the directors attending the meeting, the summary of minutes of the meeting, the records of resolutions, the announcement of resolutions, etc. The board secretary is responsible for keeping them for a period of ten years. Chapter Seven Implementation of Resolutions of the Board of Directors Article 47 The chairman of the Board of Directors shall urge related persons to implement resolutions of the Board of Directors, examine the conditions about implementation of the resolutions, and also report the conditions about implementation of the resolutions already made in the following meetings of the Board of Directors. Article 48 Once the Board of Directors makes a resolution on a motion, the general manager of the Company shall immediately organize the whole management to implement it, and also report the conditions about the implementation to the chairman of the Board of Directors. Article 49 The Board of Directors is entitled to order the management of the Company to supervise and examine the conditions about implementation of resolutions of its meetings. Chapter Eight
Special Provisions on Independent Directors
Article 50 Independent directors shall, aside from the functions and powers granted to directors by the Company Law and other laws and regulations, also have the following special functions and powers: (1) Any material related party transaction (referring to transaction to be made between the Company and its related parties whose transaction value is higher than 0.5% of the latest audited net value of tangible assets of the Company) shall be submitted to the Board of Directors for discussion after acceptance by independent directors; (2) Making proposals to the Board of Directors in appointing or dismissing the accounting firm; (3) Requesting the Board of Directors to convene extraordinary shareholders' meetings;
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(4) Proposing the convening of meetings of the Board of Directors; (5) Independently engaging external audit organization and consulting organization; and (6) Openly collecting voting rights from shareholders before the convening of shareholders' meetings. Article 51 Aside from enjoying the aforesaid functions and powers, independent directors are entitled to express independent opinions to the Board of Directors or the General Meeting of Shareholders on the following matters: (1) Nomination, appointment and dismissal of directors; (2) Appointment and dismissal of senior managerial personnel; (3) Rewards to directors and senior managerial personnel of the Company; (4) Borrowings by or other capital flows to shareholders and the actual controller of the Company and their associated enterprises whose total existing or newly occurred amount exceeds 0.5% of the latest audited net value of tangible assets of the Company, and whether or not the Company takes effective measures to recoup them; (5) Matters that independent directors hold may do harm to the rights and interests of small shareholders; and (6) Other matters as stipulated by the Articles of Association of the Company. Article 52 Independent directors are entitled to express any of the following categories of opinions on the aforesaid matters: agreeing to; having reservations and the related reasons; opposing to and the related reasons; and unable to express opinions and the related obstacles. Article 53 If related matters belong to matters necessary for exposure, the Company shall announce in public the opinions of independent directors. If independent directors have different opinions and cannot reach a compromise, the Board of Directors shall disclose the opinions of all independent directors separately. Article 54 Independent directors may apply for resignation before expiration of their term of office. To do so, they shall submit a written report for resignation to the Board of Directors, in which any circumstance that relates to their resignation or is regarded as being necessary to arise the attention of the shareholders and creditors of the Company shall be stated. If for the resignation of independent directors the proportion of independent directors in the Board of Directors of the Company is lower than the minimum requirement set by related regulations, the resignation reports of the said independent directors shall take effect after the successive independent directors are available to fill up the vacancies. Article 55 The Company shall ensure that independent directors have the same right of being informed as other directors. For every matter that is subject to decision-making by the Board of Directors, the Company shall inform independent directors in advance within the statutory time, and also provide adequate materials. If independent directors hold that the materials are not full, they may ask for supplementation. If two or more independent directors hold that the materials for a certain matter are not full or the argument is incorrect, they may jointly propose to the Board of Directors for postponing the meeting of the Board of Directors or postponing the examination of the said matter. Article 56 The Company shall provide the work conditions necessary for independent directors to perform their duties. The board secretary of the Company shall give active assistances to independent directors in performing their duties, such as introducing information, providing materials, etc. If the independent opinions, motions and written explanations of independent directors shall be announced in public, the board secretary shall timely handle the announcement affairs with the stock exchanges. Chapter Nine Supplementary Provisions Article 57 Directors of the Company shall abide by the Articles of Association of the Company, honestly perform their duties, safeguard the interests of the Company, and not seek personal interests by taking advantage of their positions and functions and powers at the Company. Article 58 Matters not covered in the Standing Order shall be handled according to related stipulations of related laws and regulations of the state, the Stock Listing Rules of the Shanghai Stock Exchange, the Listing Manual of the Singapore Exchange and the Articles of Association of the Company.
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Article 59 The Standing Order shall take effect after being formulated by the Board of Directors and approved by the General Meeting of Shareholders, and this is also the case with its amendment. Article 60 The Board of Directors of the Company is responsible for the interpretation of the Standing Order.
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Standing Order of the Board of Supervisors of Tianjin Zhong Xin Pharmaceutical Group Corporation Limited Article 1 Aim The Standing Order has been formulated pursuant to the Company Law, the Securities Law, the Codes for Governance of Listed Companies, the Stock Listing Rules of the Shanghai Stock Exchange and other related regulations, with a view to safeguarding the legitimate rights and interests of the Company and its shareholders, further standardizing the rules of debate and voting procedures of the Board of Supervisors of the Company, urging supervisors and the Board of Supervisors to effectively perform their supervision duties and improving the corporate governance structure of the Company. Article 2 Supervisors The Board of Supervisors is composed of three supervisors who are served by representatives of shareholders and the staff of the Company, with one to serve as the chairman of the Board of Supervisors. Supervisors served by representatives of the staff of the Company shall not be less than 1/3 of all supervisors. Supervisors shall abide by laws, administrative regulations and the provisions of the Articles of Association of the Company, and carry out the obligations of being honest and diligent. The term of office for supervisors in each session is three years. The supervisors served by shareholders shall be elected or replaced by the General Meeting of Shareholders, and the supervisors served by staff members shall be produced or replaced through democratic election by the staff of the Company. Supervisors may be re-elected. Directors, the general manager and other senior managerial personnel of the Company may not concurrently serve as supervisors. Persons in the circumstances as stipulated by Article 147 of the Company Law and those determined as persons prohibited from entering the market by the China Securities Regulatory Commission and on which the prohibition has not been removed may not serve as supervisors of the Company. Article 3 Functions and Powers of the Board of Supervisors The Board of Supervisors shall hold itself responsible to all shareholders and carry out the following functions and powers: (1) Examine the regular reports of the Company prepared by the Board of Directors, and also give written opinions of examination; (2) Check financial affairs of the Company; (3) Supervise the acts of directors and senior managerial personnel in performing their duties of the Company, and put forward proposals of dismissing the directors and senior managerial personnel who act against laws, administrative regulations, the Articles of Association or resolutions of the General Meeting of Shareholders; (4) Ask directors and senior managerial personnel to make corrections when their acts do harm to the interests of the Company; (5) Submit motions on convening extraordinary shareholders' meetings, and call and chair shareholders' meetings when the Board of Directors does not perform its duty of calling and chairing shareholders' meetings as stipulated by the Company Law; (6) Submit motions to the General Meeting of Shareholders; (7) File lawsuits against directors and senior managerial personnel as stipulated by Article 152 of the Company Law; (8) Conduct investigations in case of finding abnormal circumstances in the Company's operations; if necessary, appoint accounting firms, law firms and other specialized organizations to assist its work, and the costs thereof are borne on the Company; and (9) Other functions and powers as authorized by the General Meeting of Shareholders. Article 4 Office of the Board of Supervisors The Board of Supervisors establishes the Office of the Board of Supervisors, which shares the same office place with the
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Secretarial Office of the Board of Directors to handle routine affairs of the Board of Supervisors. The chairman of the Board of Supervisors is concurrently the chief of the Office of the Board of Supervisors, and the seal of the Board of Supervisors is kept at the Office of the Board of Supervisors. The chairman of the Board of Supervisors may require the Company's securities affairs representative or other persons to assist him or her in handling routine affairs of the Board of Supervisors. Article 5 Regular and Extraordinary Meetings of the Board of Supervisors Meetings of the Board of Supervisors are divided into regular meetings and extraordinary meetings. The Board of Supervisors shall convene a regular meeting every six months. In any of the following circumstances, it shall convene an extraordinary meeting within ten days: (1) Any supervisor proposes for convening such a meeting; (2) Meetings of the General Meeting of Shareholders or the Board of Directors adopt any resolution that acts against laws, regulations, rules, provisions and requirements of the regulatory authority, the Articles of Association of the Company, resolutions of the General Meeting of Shareholders and other related regulations; (3) Improper acts of directors or senior managers may cause material harm to the Company or lead to bad impression in the market; (4) Shareholders file lawsuits against the Company, directors, supervisors or senior managerial personnel; (5) The securities regulatory authority punishes or the Shanghai Stock Exchange criticizes in public the Company, directors, supervisors or senior managerial personnel; (6) The securities regulatory authority requires the convening of such a meeting; (7) Other circumstances as stipulated by the Articles of Association of the Company. Article 6 Motions for Regular Meetings Before issuing the notice on a regular meeting of the Board of Supervisors, the Office of the Board of Supervisors shall collect motions for the meeting from all supervisors. When collecting motions, it shall state that the Board of Supervisors stresses supervision over standardized operation of the Company and the duty acts of directors and senior managerial personnel, rather than making decisions on operation and management of the Company. Article 7 Procedures for Proposing Extraordinary Meetings If a supervisor proposes the convening of an extraordinary meeting of the Board of Supervisors, a written proposal signed by the supervisor making the proposal shall be submitted to the chairman of the Board of Supervisors directly or via the Office of the Board of Supervisors. The written proposal shall carry the following matters: (1) The name of the supervisor making the proposal; (2) The reasons for making the proposal or the objective particulars on which the proposal is based; (3) The time or time limit, venue and method for convening of the proposed meeting; (4) Definite and specific motions; and (5) The contacts of the supervisor making the proposal and the date when the proposal is made. After the Office of the Board of Supervisors or the chairman of the Board of Supervisors receives the written proposal from the supervisor, the Office of the Board of Supervisors shall issue a notice on convening an extraordinary meeting of the Board of Supervisors within three days. If the Office of the Board of Supervisors is reluctant to issue the notice on the meeting, the supervisor making the proposal shall make a report in time to the regulatory authority. Article 8 Calling and Chairing Meetings A meeting of the Board of Supervisors shall be called and chaired by its chairman. If the chairman is unable to perform or does not perform his or her duty, a supervisor shall be elected by more than half of the supervisors to call and chair the meeting. Article 9 Notice on Meetings To convene a regular and extraordinary meeting of the Board of Supervisors, the Office of the Board of Supervisors shall
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send a written notice on the meeting via direct delivery, fax, e-mail or other forms to all supervisors respectively ten days and five days in advance. If a form of non-direct delivery is adopted, confirmation via telephone as well as related records is necessary. In case of emergency circumstance in which an extraordinary meeting of the Board of Supervisors shall be convened as early as possible, the form of oral or telephone notice may be adopted to send the notice on the meeting, but the convener shall explain this at the meeting. Article 10 Contents of Notice on Meetings The written notice on a meeting of the Board of Supervisors shall contain at least the following contents: (1) The time and venue of the meeting; (2) The matters to be examined (motions for the meeting); (3) The convener and chairing person of the meeting, the person making the proposal on an extraordinary meeting and the written proposal; (4) Conference materials necessary for voting by the supervisors; (5) The requirements that the supervisors shall attend the meeting personally; and (6) The person to contact and the contact details. An oral notice on a meeting shall contain at least the contents as stated in the aforesaid items (1) and (2), and an explanation for convening the extraordinary meeting of the Board of Supervisors as early as possible for emergency circumstances. Article 11 Forms for Convening Meetings The principle of on-the-spot convening shall be followed for meetings of the Board of Supervisors. In emergency circumstances, a meeting of the Board of Supervisors may vote in the form of communication, but the convener (chairing person) of the meeting shall explain the specific emergency circumstances to the supervisors attending the meeting. In the form of voting by communication, the supervisors shall fax their written opinions on the examined matters and the voting intentions to the Office of the Board of Supervisors after signing for confirmation. Article 12 Convening Meetings A meeting of the Board of Supervisors may be held only if more than half of all supervisors attend. If related supervisors refuse to or are reluctant to attend the meeting and this leads to the failure to meet the requirement on the minimum number of attendants for convening such a meeting, other supervisors shall make a report in time to the regulatory authority. If for good reason a supervisor is unable to attend a meeting of the Board of Supervisors, he or she shall entrust in writing another supervisor to attend on agency, and the certificate of entrustment shall carry the name of the agent, the matters on agency, the limit of power and the term of validity, and also be signed or sealed by the consignor. If a supervisor neither attends a meeting of the Board of Supervisors nor entrusts a consignee to attend, he or she is regarded as giving up the voting power at the said meeting. If a supervisor fails to personally attend meetings of the Board of Supervisors for two consecutive times, he or she is regarded as failing to perform his or her duties and shall be dismissed and replaced by the General Meeting of Shareholders or the Conference of Staff Representatives. The board secretary and the securities affairs representative shall attend meetings of the Board of Supervisors as nonvoting delegates. Article 13 Procedures for Discussions of Meetings The person chairing a meeting of the Board of Supervisors shall request the supervisors attending the meeting to express their definite opinions on all motions. The person chairing the meeting shall pursuant to proposals by supervisors ask directors, senior managerial personnel or other employees of the Company or persons of related intermediary organizations to receive inquiries. Article 14 Resolutions of the Board of Supervisors For voting at a meeting of the Board of Supervisors, the system of one person one vote and the named and written forms are adopted. Supervisors involving material interest relationship with the matters voted shall not take part in the voting.
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The voting intentions of supervisors are divided into for, against and abstention. The supervisors present at the meeting shall choose one of the aforesaid intentions. If choice is not made or two or more intentions are chosen, the person chairing the meeting shall ask the said supervisors to make choice again. If they refuse to make choice, this shall be regarded as abstention. If any supervisor leaves before the meeting is over and does not return to make choice, this shall be regarded as abstention. A resolution of the Board of Supervisors shall be adopted by more than half of all supervisors. Article 15 Sound Recording of Meetings If necessary full course sound recording may be made for meetings of the Board of Supervisors. Article 16 Minutes of Meetings The working personnel of the Office of the Board of Supervisors shall make minutes of the on-the-spot meetings of the Board of Supervisors. Minutes of a meeting of the Board of Supervisors shall contain the following contents: (1) the serial number of the meeting, and the time, venue and form of its convening; (2) the information about the issuance of the notice on the meeting; (3) the convener and chairing person of the meeting (4) the information about attendance; (5) the motions examined at the meeting, main points of speeches and main opinions of each supervisor on related matters, and the intentions of voting on motions; (6) the forms and results of voting on each motion (the specific number of votes for, against and abstention shall be stated); and (7) other matters which the Board of Supervisors holds shall be recorded. For meetings of the Board of Supervisors convened in the form of communication, the Office of the Board of Supervisors shall sort out minutes of the meetings with reference to the aforesaid stipulations if this is necessary as held by the Board of Supervisors. Article 17 Signing of Supervisors The supervisors attending a meeting of the Board of Supervisors shall sign on the minutes of the meeting for confirmation. If any supervisor has different opinions on the minutes of the meeting, he or she may state in writing at the time of signing. If necessary, he or she may make a report in time to the regulatory authority or make a declaration in public. If the supervisors neither sign for confirmation as stipulated in the preceding paragraph nor state in writing their different opinions or make a report to the regulatory authority or make a declaration in public, they are regarded as fully agreeing to the contents of the minutes of the meeting. Article 18 Public Announcement of Resolutions The Board of Supervisors shall form a written resolution on the matters adopted at the meeting within one working day after the conclusion of the meeting. A resolution of the Board of Supervisors shall contain the following contents: (1) The date and venue of the meeting convened and the name of the convener; (2) The information about attendance; (3) The matters adopted and on which resolutions are formed at the meeting, and their contents; (4) Signatures of the supervisors attending the meeting and the recordist; (5) The date of the resolution of the meeting and the seal of the Board of Supervisors. The matters related to announcement of the resolutions of the Board of Supervisors shall be handled by the board secretary pursuant to the Stock Listing Rules of the Shanghai Stock Exchange and other related regulations. Article 19 Implementation of Resolutions Supervisors shall urge related persons to implement the resolutions of the Board of Supervisors. The chairman of the Board of Supervisors shall report the conditions about implementation of the resolutions already made in the following meetings of the Board of Supervisors.
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Article 20 Keeping Files of Meetings Files of a meeting of the Board of Supervisors shall contain the notice on the meeting and the conference materials, the register for attending the meeting, the sound records of the meeting, the votes, the minutes of the meeting signed for confirmation by the supervisors attending the meeting, the announcement of resolutions, etc. The chairman of the Board of Supervisors shall designate a special person to keep them for a period of ten years. Article 21 Supplementary Provisions The Standing Order shall take effect after being formulated by the Board of Supervisors and approved by the General Meeting of Shareholders, and this is also the case with its amendment. The Board of Supervisors is responsible for the interpretation of the Standing Order.
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Tianjin Zhong Xin Pharmaceutical Group Corporation Limited Notice of Annual General Meeting Tianjin Zhong Xin Pharmaceutical Group Corporation Limited will hold its annual general meeting for the financial year ended 31 December 2006 ("FY2006") at the703 meeting room, on 7th Floor in Zhong Xin Mansion, #17 Baiti Road, Nankai District, Tianjin, PRC on 15 May 2006, 9.00 a.m. The agenda for the meeting shall be as follows: 1.
To receive and consider the Chairman's Report for FY2006.
(Resolution 1)
2.
To receive and consider the Board of Directors' Report for FY2006.
(Resolution 2)
3.
To receive and consider the Supervisory Committee's Report for FY2006.
(Resolution 3)
4.
To receive and consider the Financial Report and Audit Report for FY2006 audited by PricewaterhouseCoopers and
(Resolution 4)
5.
To consider and approve the scheme of profit distribution and the dividend distribution policy of the Company for FY2006.
(Resolution 5)
6.
To consider and approve the appointment of PricewaterhouseCoopers Zhong Tian CPAs Co., Ltd as the international and PRC
(Resolution 6)
PricewaterhouseCoopers Zhong Tian CPAs Co., Ltd.
auditors of the Company and to authorise the Board of Directors to determine their fees. 7.
To approve the remuneration of S$50,000 for the independent director, Mr Teng Cheong Kwee, for FY2006.
(Resolution 7)
8.
To approve the remuneration of RMB40,800 for the independent director, Mr Zhang Hong-kui, for FY2006.
(Resolution 8)
9.
To approve the remuneration of RMB40,800 for the independent director, Mr Xu Qi-de, for FY2006.
(Resolution 9)
10.
To approve the remuneration of RMB300,000 for the director, Mr Zhan Yuan-jing, for FY2006.
(Resolution 10)
11.
To approve the remuneration of RMB220,000 for the director, Mr Yao Peichun for FY2006.
(Resolution 11)
12.
To approve the remuneration of RMB220,000 for the director, Ms Li Meiyu, for FY2005.
(Resolution 12)
13.
To approve the remuneration of RMB160,000 for the director Mr Xu Shihui for FY2006.
(Resolution 13)
14.
To approve the remuneration of RMB220,000 for the supervisor, Mr Guo Nai-qin, for FY2006.
(Resolution 14)
15.
To approve the remuneration of RMB220,000 for the supervisor, Mr Li Jia-sheng, for FY2006.
(Resolution 15)
16.
To appoint Mr. Timothy Chen as independent director of the Company, and to authorize the Board of Director to determine his
(Resolution 16)
remuneration. 17
To appoint Mr. Zhang Qiang as supervisor of the Company.
(Resolution 17)
18
To renew and approve the mandate for the interested person transactions (previously approved by shareholders on 16
(Resolution 18)
December 2003) in accordance with the guidelines set out in the Group's circular to shareholders dated 24 November 2003 subject to the following: (a) such approval given in the ``Shareholders' Mandate'' shall, unless revoked or varied by the Company in a General Meeting, continue in force until the next Annual General Meeting of the Company; and (b) the Directors and/or any of them be and are hereby authorised to complete and do all such acts and things (including executing all such documents as may be required) as they and/or he/she may consider expedient or necessary or in the interests of the Company to give effect to the transactions contemplated and/or authorised by the Shareholders' Mandate and/or this Resolution. 19.
To approve the proposed amendments to the Articles of Association of the Company
(Resolution 19)
20.
To approve the proposed amendments to the procedure for conducting general meetings
(Resolution 20)
21.
To approve the proposed amendments to the procedure for conducting board of directors' meetings
(Resolution 21)
22.
To approve the proposed amendments to the procedure for conducting supervisory committee meetings
(Resolution 22)
23.
To approve loan facilities aggregating to a limit of RMB300 million
(Resolution 23)
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Other agenda to be resolved in the General Meeting shall, include any agenda proposed by a shareholder in accordance with Article 61 of the Articles of Association, which states: "When the Company is to hold an annual General Meeting, shareholders holding 5% or more of the voting shares of the Company shall be entitled to propose new motions in writing to the Company. The Company shall include in the agenda of the General Meeting those motions, the subject matter of which, are required to be decided by shareholders in General Meeting." Notes: 1.
A holder of shares entitled to attend and vote at the Annual General Meeting is entitled to appoint a proxy to attend and vote in his or her stead. Such proxy need not be a shareholder of the Company. If the appointor is a corporation, the proxy must be executed under seal or the hand of its duly authorised officer or attorney. The instrument appointing such proxy must be deposited at the Company's "S" Shares Registrar and Singapore Transfer Office at 10 Collyer Quay #19-08 Singapore 049315 (in the case of a holder of "S" shares) and at the office of the Company at level 7, Zhongxin Building, 17 Baiti Road, Nankai District, Tianjin, PRC (in the case of a holder of domestic shares), in both cases not less than forty-eight (48) hours before the time for holding the Shareholders' Meeting.
2.
Pursuant to Article 60 of the Company's Articles of Association, a holder of domestic shares shall notify the Company in writing not less than 20 days prior to the Annual General Meeting of his or her intention to attend the Annual General Meeting. A holder of "S" share shall be registered in the shareholder namelist or in the Depository Register 48 hours before the appointed time for holding the Annual General Meeting.
3.
The Annual General Meeting is expected to last for half a day and all accomodation and other expenses incurred by a shareholder or his/her proxy in connection with his attendance at the Annual General Meeting shall be borne by that shareholder.
By order of the Board of Directors
Feng Hao Company Secretary
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PROXY FORM TIANJIN ZHONGXIN PHARMACEUTICAL GROUP CORPORATION LTD (Incorporated in the People's Republic of China) Annual GENERAL MEETING PROXY FORM (You are advised to read the notes below before completing this form) I/We, of being a member/members of Tianjin Zhongxin Pharmaceutical Group Corporation Ltd (the "Company"), hereby appoint: Name
Address
NRIC/Passport No.
Proportion of Shareholding (%)
and/or (delete as appropriate) Name
Address
NRIC/Passport No.
Proportion of Shareholding (%)
as my/our proxy to vote for me/us and on my/our behalf and, if necessary to demand a poll, at an Annual General Meeting of the Company to be held at Conference Room 2, Level 7, Zhongxin Mansion, 17 Baiti Road, Nankai District, Tianjin PRC on 15 May 2007 at 9.00a.m. and at any adjournment thereof. I/We have indicated with an "X" in the appropriate box below how I/we wish my/our proxy to vote. If no specific direction as to voting is given, my/our proxy may vote or abstain at his discretion as he will on any other matters arising at the Annual General Meeting.
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Date: 15 May 2007 For
No. No. Items on the Agenda 1
To receive and consider the Chairman's Report for FY2006.
2
To receive and consider the Board of Directors' Report for FY2006.
3
To receive and consider the Supervisory Committee's Report for FY2006.
4
To receive and consider the Financial Report and Audit Report for FY2006 audited by PricewaterhouseCoopers and PricewaterhouseCoopers Zhong Tian CPAs Co., Ltd.
5
To consider and approve the scheme of profit distribution and the dividend distribution policy of the
6
To consider and approve the appointment of PricewaterhouseCoopers Zhong Tian CPAs Co., Ltd as
Company for FY2006.
the international and PRC auditors of the Company and to authorise the Board of Directors to determine their fees. 7
To approve the remuneration of S$50,000 for the independent director, Mr Teng Cheong Kwee, for FY2006.
8
To approve the remuneration of RMB40,800 for the independent director, Mr Zhang Hong-kui, for FY2006.
9
To approve the remuneration of RMB40,800 for the independent director, Mr Xu Qi-de, for FY2006.
10
To approve the remuneration of RMB300,000 for the director, Mr Zhan Yuan-jing, for FY2006.
11
To approve the remuneration of RMB220,000 for the director, Mr Yao Peichun for FY2006.
12
To approve the remuneration of RMB220,000 for the director, Ms Li Meiyu, for FY2005.
13
To approve the remuneration of RMB160,000 for the director Mr Xu Shihui for FY2006.
14
To approve the remuneration of RMB220,000 for the supervisor, Mr Guo Nai-qin, for FY2006.
15
To approve the remuneration of RMB220,000 for the supervisor, Mr Li Jia-sheng, for FY2006.
16
To appoint Mr. Timothy Chen as independent director of the Company, and to authorize the Board of
17
To appoint Mr. Zhang Qiang as supervisor of the Company.
18
To renew and approve the mandate for the interested person transactions (previously approved by
Director to determine his remuneration.
shareholders on 16 December 2003) in accordance with the guidelines set out in the Group's circular to shareholders dated 24 November 2003 subject to the following: (a) such approval given in the ``Shareholders' Mandate'' shall, unless revoked or varied by the Company in a General Meeting, continue in force until the next Annual General Meeting of the Company; and (b) the Directors and/or any of them be and are hereby authorised to complete and do all such acts and things (including executing all such documents as may be required) as they and/or he/she may consider expedient or necessary or in the interests of the Company to give effect to the transactions contemplated and/or authorised by the Shareholders' Mandate and/or this Resolution. 19
To approve the proposed amendments to the Articles of Association of the Company
20
To approve the proposed amendments to the procedure for conducting general meetings
21
To approve the proposed amendments to the procedure for conducting board of directors' meetings
22
To approve the proposed amendments to the procedure for conducting supervisory committee meetings
23
To approve loan facilities aggregating to a limit of RMB300 million Other agenda to be resolved in the General Meeting shall, include any agenda proposed by a shareholder in accordance with Article 61 of the Articles of Association, which states: "When the Company is to hold an annual General Meeting, shareholders holding 5% or more of the voting shares of the Company shall be entitled to propose new motions in writing to the Company. The Company shall include in the agenda of the General Meeting those motions, the subject matter of which, are required to be decided by shareholders in General Meeting."
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Against
ANNUAL REPORT
2006
Total Number of Shares Held in: (a) CDP Register (b) Register of Members
Signature(s) of Members/Corporation's Common Seal NOTES a. Please insert the total number of Shares held by you. If you have Shares entered against your name in the Depository Register (as defined in Section 130A of the Companies Act, Chapter 50 of Singapore), you should insert that number of Shares. If you have Shares registered in your name in the Register of Members of the Company, you should insert that number of Shares. If you have Shares entered against your name in the Depository Register and Shares registered in your name in the Register of Members, you should insert the aggregate number of Shares entered against your name in the Depository Register and registered in your name in the Register of Members. If no number is inserted, this instrument of proxy will be deemed to relate to all the Shares held by you. b. A member entitled to attend and vote at the Annual General Meeting is entitled to appoint no more than two proxies to attend and vote on his behalf and such proxy need not be a member of the Company. Where a member appoints two proxies, the appointment shall be deemed to be alternative unless he specifies the proportion of his shareholding (expressed as a percentage of the whole) to be represented by each proxy. c. A member of the Company which is a corporation is entitled to appoint its authorised representative or proxy by resolution of its directors or other governing body such person as it thinks fit to vote on its behalf. d. The instrument appointing a proxy or proxies must be deposited at the registered office of the Company at 3 Church Street #0801 Samsung Hub Singapore 049483 not later than forty-eight (48) hours before the time appointed for the Extraordinary General Meeting. e. The Company shall be entitled to reject the instrument appointing a proxy or proxies if it is incomplete, improperly completed or illegible or where the true intentions of the appointor are not ascertainable from the instructions of the appointor specified in the instrument appointing a proxy or proxies. f. In the case of members whose Shares are deposited with The Central Depository (Pte) Limited ("CDP"), the Company shall be entitled to reject any instrument appointing a proxy or proxies lodged if such members are not shown to have Shares entered against their names in the Depository Register as at forty-eight (48) hours before the time appointed for holding the Extraordinary General Meeting as certified by the Central Depository (Pte) Limited to the Company. g. The instrument appointing a proxy or proxies must be under the hand of the appointor or his attorney duly authorised in writing. Where the instrument appointing a proxy or proxies is executed by a corporation, it must be executed either under its common seal or under the hand of its attorney or a duly authorised officer. h. Where an instrument appointing a proxy or proxies is signed on behalf of the appointor by an attorney, the letter or power of attorney or a duly certified copy thereof must (failing previous registration with the Company) be lodged with the instrument of proxy, failing which the instrument may be treated as invalid.
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Information on Shareholding Registered Capital: Rmb 369,654,360 Class of Shares: Ordinary shares of Rmb1.00 each (of which 269,654,360 shares are Domestic Investment Shares and 100,000,000 shares are Foreign Investment Shares) Voting Rights: one vote per share Foreign Shareholder's Information as at 30 March 2007 Range of Shareholdings
No. Of Shareholders
%
No. Of Shares
%
0
0.00
0
0.00
1,000-10,000
3,901
74.12
17,867,000
17.87
10,001-1,000,000
1.352
25.69
62,457,000
62.45
10
0.19
19,676,000
19.68
5,263
100.00
100,000,000
100.00
1-999
1,000,001 and above Total
Foreign Substantial Shareholders as at 30 March 2007 The Company has not received any notice of change of substantial shareholding of the "S" shares. Domestic Substantial Shareholders as at 30 March 2007 Name Tianjin Pharmaceutical Holdings
Direct Interests
%
Deemed Interests
%
177,377,119
47.98
-
-
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Major Foreign Shareholder's List as at 30 March 2007 Name
No. Of Shares
%
1
UOB KAY HIAN PTE LTD
4,592,000
4.59
2
OCBC SECURITIES PRIVATE LTD
2,713,000
2.71
3
TAN SWEE TECK MICHAEL OR TAN TOH HEAH
2,680,000
2.68
4
KIM ENG SECURITIES PTE. LTD.
2,070,000
2.07
5
TAN AH CHYE
1,400,000
1.40
6
CIMB-GK SECURITIES PTE. LTD.
1,365,000
1.37
7
UNITED OVERSEAS BANK NOMINEES
1,340,000
1.34
8
CHAN WAI MAN
1,300,000
1.30
9
HONG LEONG FINANCE NOMINEES PL
1,166,000
1.17
10
PEH CHIN CHIONG
1,050,000
1.05
11
PHILLIP SECURITIES PTE LTD
853,000
0.85
12
KUEK SIAW KIA @ QUEK SHIEW POH
825,000
0.83
13
ANG SOH BOEY
745,000
0.75
14
OCN (S) PTE LTD
740,000
0.74
15
CITIBANK CONSUMER NOMINEES PTE LTD
698,000
0.70
16
ONG HWEE NAI
576,000
0.58
17
MAYBAN NOMINEES (S) PTE LTD
531,000
0.53
18
HL BANK NOMINEES (S) PTE LTD
517,000
0.52
19
LEE WUI KUEN
465,000
0.47
20
HUASHIN INVESTMENTS PTE LTD
460,000
0.46
26,086,000
26.09
Total
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