丽珠集团(000513)丽珠Ｂ2004年年度报告摘要（英文版）

LIVZON PHARMACEUTICAL GROUP INC. 2004 Annual Report (Summary) LIVZON PHARMACEUTICAL GROUP INC. 2004 Annual Report (Summary) §1 IMPORTANT NOTICE 1.1 The board of directors (the "Board") of the Company confirms that there are no misleading statements, or misrepresentation, or material omissions contained in this report. The board accepts joint and several responsibilities for the truthfulness, accuracy and completeness of the contents of this report. This abstract is extracted from the text of the annual report of the Company. Investors should carefully read the whole text of the annual report for details of the contents. 1.2 Director Guo Jiaxue, director Zhang Yu, and director Wang Xiaobin were absent from the Board meeting and all appointed director Zhu Baoguo to attend and vote on their behalves; Director Wang Yisheng, director Gu Yueyue, and independent director Jiang Jian were absent from the Board meeting and respectively appointed director Yi Zhenqiu, director Xiao Siyang and independent director Qi Zhan to attend and vote on their behalves. 1.3 A standard audit report without qualification has been prepared by BDO International Certified Public Accountants for the Company. 1.4 Chairman of the Company Mr. Zhu Baoguo, Financial Controller Mr. An Ning and Chief Accountant Ms. Si Yanxia have declared that they are responsible for the truthfulness and completeness of the financial statements in this Annual Report. 1.5 Chinese version shall prevail over English version in case of any inconsistencies occur. §2 COMPANY PROFILES 2.1 Basic information Short form of the stock: Livzon Group, Livzon-B Stock Code 000513, 200513 Stock exchange listing Shenzhen Stock Exchange Registered address: No. 132, Guihua North Road, Gongbei, Zhuhai, Guangdong Office address: Livzon Bldg., No. 132 Guihua North Road, Gongbei, Zhuhai, Guangdong Post code Registered Address: 519020 Office Address: 519020 Company’s internet website http://www.livzon.com Email: zhlivzon@pub.zhuhai.gd.cn. 2.2 Contact person and correspondence Secretary to the Board Representative of securities affairs Name Wang Wuping Hong Lu Addres Livzon Building, Guihua Road North, Livzon Building, Guihua Road North, Gongbei, Zhuhai Gongbei, Zhuhai Telephone 0756-8135888 0756-8135888 Facsimile 0756-8886002 0756-8886002 Email wangwuping@livzon.com.cn honglu@livzon.com.cn LIVZON PHARMACEUTICAL GROUP INC. 2004 Annual Report (Summary) §3 ABSTRACT OF ACCOUNTING DATA AND INDEXES 3.1 Major accounting data (Unit:RMB’000) 2003 (after retrospective Indication items 2004 adjustment) Revenue 1,554,788 1,811,914 Gross profit 761,193 892,615 Share of profit of associates 1,791 1,484 Profit before tax 154,938 159,423 Income tax expense (19,945) (36,234) Profit after tax 134,993 123,189 Minority interests (10,687) (29,266) Net profit for the year 124,306 93,923 Total share capital 306,035 306,035 Capital and reserves 1,125,364 1,029,958 Total assets 2,173,959 2,101,070 Net cash from operating activities 181,747 297,067 Net increase (decrease) in cash and cash equivalents (120,464) 128,932 Earnings per share RMB0.41 RMB0.31 Rate of return on net asset 11.05% 9.12% Net cash flow per share raised from operating activities 0.59 0.97 Note: 1. The data were audited by BDO International Certified Public Accountants according to IAS, for reference to investors of B share only. 3.2 Difference between domestic and international accounting standards vApplicable ? Not Applicable (Unit:RMB’000) Domestic Accounting Standard International Accounting Standard Net profit 124,058 124,306 Explanation of The Company’s net profit for 2004 was 124,058(RMB’000) and 124,306(RMB’000), differences respectively, as audited by Reanda Certified Public Accountants according to PRC Accounting Rules and Regulations and BDO International Certified Public Accountants according to the International Accounting Standards. Such difference of 248(RMB’000) were mainly due to the corrections made to depreciation of property, plant and equipment which decreased profit by 535(RMB’000), to Amortisation of negative goodwill which increased profit by 295(RMB’000), and to long term deferred and prepaid expenses which increased profit by 488(RMB’000) according to the International Accounting Standards. §4 CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS 4.1 Change in share capital Unit: Share Increase/decrease during the year Before the change (+, - ) After the change Subtotal I. Non-circulating shares LIVZON PHARMACEUTICAL GROUP INC. 2004 Annual Report (Summary) 1. Promoters’shares 29,138,670 0 29,138,670 Including: 0 0 0 State-owned shares 0 0 0 Domestic legal person shares 29,138,670 0 29,138,670 Overseas legal person shares 0 0 0 Others 0 2. Legal shares 38,917,518 0 38,917,518 3. Staff shares 0 0 0 4. Preference share or others 0 0 0 Total non-circulating shares 68,056,188 0 68,056,188 II. Circulating shares 1. Ordinary shares 0 115,672,310 115,672,310 denominated in RMB 2. Domestic listed foreign 0 122,306,984 122,306,984 shares 3. Overseas listed foreign 0 0 0 shares 4. Others 0 0 0 Total circulating shares 237,979,294 0 237,979,294 III. Total shares 306,035,482 0 306,035,482 Number of shares for fund placement shares, desk transaction company staff shares, strategic investor placement shares and ordinary legal placement shares shall be disclosed respectively. ? Applicable v Not Applicable 4.2 Particulars of shares held by the top ten shareholders, including the top ten shareholders of circulating shares The total number of shareholders as at the end of the reporting period 42,142 (13,711 were holders of B shares) Particulars of shares held by the top ten shareholders Nature of Number of Percentage Number shareholder Increase / Class of shares Full name of shares held to total of shares (State-owned decrease in (Circulating or shareholders at the end share pledged/ shareholder the year Non-circulating) of the year capital frozen or foreign shareholder) Xi’an Topsun Group Other 38,917,518 38,917,518 12.72% Non-circulating 0 Company Limited Tiancheng Industrial Foreign 0 34,284,870 11.20% circulating 0 Company Limited sharesholder Joincare Non-circulating: 0 Other Pharmaceutical 22,379,239 0 32,285,116 10.55% Industry (Group) circulating: Company Limited 9,905,877 China Construction 0 Other Bank - Huabao Xingye Multi-strategies 7,045,652 7,045,652 2.30% circulating Growth Securities Investment Fund Shenzhen Haibin 0 Other Pharmaceutical 0 6,752,435 2.21% circulating Company Limited Guangzhou Baokeli 6,059,428 Other 0 6,059,428 1.98% Non-circulating Trading Company LIVZON PHARMACEUTICAL GROUP INC. 2004 Annual Report (Summary) China Industrial and 0 Other Commercial Bank – Shenyin-Wanguo Paris 3,481,196 3,481,196 1.14% circulating Shengli Premium Securities Investment Fund China Industrial and 0 Other Commercial Bank - 3,000,000 3,000,000 0.98% circulating Tianyuan Securities Investment Fund China Industrial and 0 Other Commercial Bank - 779,244 2,612,278 0.85% circulating Pufeng Securities Investment Fund China Industrial and 0 Other Commercial Bank – Guolianan Desheng 2,454,523 2,454,523 0.80% circulating Small Caps Prime Securities Investment Fund Particulars of shares held by the top ten shareholders Full name of shareholders Number of Type of shares held at shares (A, B, the end of the H Shares or reporting period others) Tiancheng Industrial Company Limited 34,284,870 B Shares Joincare Pharmaceutical Industry (Group) Company Limited 9,905,877 A Shares China Construction Bank - Huabao Xingye Multi-strategies Growth A Shares 7,045,652 Securities Investment Fund Shenzhen Haibin Pharmaceutical Company Limited 6,752,435 A Shares China Industrial and Commercial Bank – Shenyin-Wanguo Paris Shengli A Shares 3,481.196 Premium Securities Investment Fund China Industrial and Commercial Bank - Tianyuan Securities Investment A Shares 3,000,000 Fund China Industrial and Commercial Bank - Pufeng Securities Investment A Shares 2,612,278 Fund China Industrial and Commercial Bank – Guolianan Desheng Small Caps A Shares 2,454,523 Prime Securities Investment Fund Yuan Lanxiang 2,161,983 B Shares Tai He Securities Investment Fund 1,802,400 A Shares Explanations 1) On 26 November 2004, China China Everbright (Group) Corp. (“China Everbright”) of the entered into a Share Transferral Agreement with Xi’an Topsun Group Company Limited connected (“Xi’an Topsun”), pursuant to which China Everbright agreed to transfer 38,917,518 relations or designated legal person shares in the Company held by it (representing 12.72% of the concerted Company’s total share capital) to Xi’an Topsun. The nature of shares was changed to actions of the designated domestic legal person share. On 2 December 2004, the Company published the aforementioned said transferral on the designated information disclosure newspaper. shareholders 2) Both Tiancheng Industrial Company Limited and Shenzhen Haibin Pharmaceutical Company Limited are subsidiaries of Joincare Pharmaceutical Industry (Group) Company Limited, which directly and indirectly holds 100% equity interests therein. 3) On 2 January 2004, Joincare Pharmaceutical Industry (Group) Company Limited, Guangzhou Baokeli Trading Company and Zhuhai Lishi Investment Company Limited entered into a Share Transfer, Custody and Mortgage Agreement, and Joincare LIVZON PHARMACEUTICAL GROUP INC. 2004 Annual Report (Summary) Pharmaceutical Industry (Group) Company Limited and Guangzhou Baokeli Trading Company entered into a Share Transfer and Custody Agreement as well as the Share Mortgage Agreement, pursuant to which Guangzhou Baokeli Trading Company agreed to directly transfer, place on custody and mortgage its 6,059,428 domestic legal person shares in the Company, representing 1.98% of the Company’s total share capital, to Joincare Pharmaceutical Industry (Group) Company Limited. As at 31 December 2003, Joincare Pharmaceutical Industry (Group) Company Limited and its subsidiaries held and controlled 79,381,849 shares of the Company in aggregation, representing 25.94% of the Company total issued share capital, and became the Company’s ultimate shareholder. 4) As of 31 December 2004, among the top ten circulating shareholders, apart from Joincare Pharmaceutical Industry (Group) Company Limited and its connected enterprises, the Company is not aware of any connected relations among them, nor aware of any persons acting in concert belonging to as stipulated in the Information Disclosure Management Method of Shareholder Changes of Listed Companies. 4.3 Information on the controlling shareholder and ultimate shareholder of the Company 4.3.1 Changes in controlling shareholder or ultimate shareholder of the Company ? Applicable v Not applicable 4.3.2 Controlling shareholder and other ultimate shareholders of the Company Joincare Pharmaceutical Industry (Group) Co., Ltd. Legal Representative: Zhu Baoguo Date of establishment: December 18, 1992 Business scope: R&D, manufacturing and operation of nutritious and healthcare essence, healthcare soluble table and granule (not including canned and Tetra-pak goods or under administration of export license), Chinese patent medicine, oral liquid, tablet, capsule, granule, hormonal troche, food, nutrition-added and healthcare foods; import and export activities (under SMJZ Zi [2001] No.1231 Qualification Certificate); investment in pharmaceutical industries and projects, high-tech projects and industrial projects (subject to approval for specific project); operations in domestic industries, supply and marketing of materials (not including goods under exclusive operation, control or distribution). Registered capital: RMB609.93 million Equity structure: Total share capital of 609,930,000 shares, including 452,430,000 legal person shares and 157,500,000 A shares in circulation. Details of Joincare Pharmaceutical Industry (Group) Company Limited’ s controlling shareholder Name of the controlling shareholder: Shenzhen Beiyeyuan Investment Company Limited Legal representative: Liu Guangli Date of establishment: 21 January 1999 Principal businesses: investment and setting up industrial projectss, domestic trading and supply and marketing of materials Registered capital: RMB80,000,000 Equity structure: Zhu Baoguo’ s capital contribution: RMB72,000,000, constituting 90% of the total capital amount; Liu Guangxia’ s capital contribution: RMB8,000,000, constituting 10% of the total capital amount. Mr.Zhu Baoguo:Chinese nationality, does not have the residentship in any other country or region. LIVZON PHARMACEUTICAL GROUP INC. 2004 Annual Report (Summary) 4.3.3 Illustration of Shareholdings and Controlling Relations among the Company and the Ultimate Shareholder Liu Gangxia Zhu Baoguo Liu Miao 100% 10% 90% Taitai Pharmaceutical Industry Group Limited 0.1% 99.9% Shenzhen Beiyeyuan Investment Ｈｏｎｇｘｉｎ Ｌｉｍｉｔｅｄ Company Limited 55.63% 18.54% Joincare Pharmaceutical Industry (Group) Company Limited 100% Hold: 10.55% 100% Place on custody: 1.98% Shenzhen Haibin Pharmaceutical Tiancheng Industrial Company Limited Company Limited 2.21% 11.20% Livzon Pharmaceutical Group Inc. §5. DETAILS OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT 5.1 Changs in shares held by Directors, Supervisors and Senior Management Number Number of shares of shares Reasons Name Title Gender Age Term of appointment held at the held at the for the beginning end of the changes of the year year Chairman of the Male Zhu Baoguo 42 2002.06.26-2005.06.30 0 0 - Board Vice Chairman of Male Yi Zhenqiu 60 2002.06.26-2005.06.30 0 0 - the Board Vice Chairman of Male Guo Jiaxue 38 2002.06.26-2005.06.30 0 0 - the Board Gu Yueyue Director Female 54 2002.06.26-2005.06.30 0 0 - Xiao Siyang Director Male 42 2003.01.27-2005.06.30 0 0 - Wang Male Director 50 2002.06.26-2005.06.30 0 0 - Xiaobin Zhang Yu Director Male 44 2002.06.262005.06.30 0 0 - Wang Male Director 53 2003.05.23-2005.06.30 0 0 - Yisheng An Ning Director Male 32 2003.05.23-2005.06.30 0 0 - Dong Male Director 63 2003.05.23-2005.06.30 0 0 - Shaozhi Hua Independent Male 59 2003.05.23-2005.06.30 0 0 - LIVZON PHARMACEUTICAL GROUP INC. 2004 Annual Report (Summary) Yizheng Director An Independent Male 65 2002.06.26-2005.06.30 0 0 - Chengxin Director Independent Male Jiang Jian 34 2002.06.26-2005.06.30 0 0 - Director Independent Male Gao Dianhe 61 2002.06.26-2005.06.30 0 0 - Director Independent Male Qi Zhan 39 2002.06.26-2005.06.30 0 0 - Director Chairman of the Male - Yuan Supervisory 58 2002.06.26-2005.06.30 0 0 Guoliu Committee Wang Bo Supervisor Male 38 2002.06.26-2005.06.30 0 0 - Cao Supervisor Male 45 2003.01.27-2005.06.30 0 0 - Pingwei Wang Male Supervisor 44 2002.06.26-2005.06.30 0 0 - Congxin Qiu Male Supervisor 33 2002.06.26-2005.06.30 0 0 - Qingfeng Xiao Siyang President Male 42 2002.12.26-2005.06.30 0 0 - An Ning Vice President Male 32 2003.01.27-2005.06.30 0 0 - Liu Shuqing Vice President Female 41 2002.06.26-2005.06.30 0 0 - Fu Gang Vice President Male 34 2004.02.13-2005.06.30 0 0 - Wang Secretary to the Male 38 2002.06.26-2005.06.30 0 300 Increase Wuping Board Note: In August 2004, Mr. Dong Shaozhi resigned as Vice Chairman of the Company. He is currently the Chief Executive of Dawnrays Pharmaceutical (Holding) Company Limited. On 20 January 2005, he resigned as Director of the Company for reason of busy work in existing work. On 13 February 2004, the Twelfth Meeting of the Fourth Board was held which considered and approved the Resolution in relation to the appointment of Mr. Fu Gang as the Vice Chairman of Sales Division of Livzon Pharmaceutical Group Inc. and appointed Mr. Fu Gang as the Vice Chairman of Sales Division of Livzon Pharmaceutical Group Inc.. 5.2 Particulars of directors and supervisors holding position as shareholders of the Company Position held Whether as shareholders receiving Name of holders of the Company's Term of Name of the allowance or shares appointment Company not (Yes / No) Joincare Pharmaceutical Industry From November Zhu Baoguo Chairman Yes (Group) Company Limited 1999 Xi’an Topsun Group Company Guo Jiaxue Chairman From March 2000 Yes Limited Deputy Joincare Pharmaceutical Industry From October Gu Yueyue General Yes (Group) Company Limited 1997 Manager LIVZON PHARMACEUTICAL GROUP INC. 2004 Annual Report (Summary) Deputy Joincare Pharmaceutical Industry From January Cao Pingwei General Yes (Group) Company Limited 1993 Manager Secretary to the Qiu Joincare Pharmaceutical Industry From November board of Yes Qingfeng (Group) Company Limited 1999 directors Wang Xi’an Topsun Group Company Director From March 2003 Yes Congxin Limited 5.3 Remunerations of directors, supervisors and senior management for the year Unit: RMB’000 Total remunerations in the year 6,636.57 The top three directors in terms of remuneration in total 270.0 The top three senior management staff in terms of remuneration in total 4,209.86 Allowance of independent directors 72.00 RMB’000/person/year Other benefits of independent directors Nil Name of directors and supervisors not receiving remunerations or allowance from Nil the Company Range of remuneration Number of person 90 RMB’000（for directors or supervisors） 3 36 –72 RMB’000（for directors or supervisors） 17 400 RMB’000（senior management members） 4 150 - 400 RMB’000（senior management members） 2 §6. REPORT OF DIREC TORS 6.1 Discussions and analysis of business operation as a whole during the reporting period Year 2004 witnessed the further in-depth reform of Livzon Group. Following its practical, innovative and efficient operating philosophy, we overcame adverse impacts from a series of factors including price decrease of antibiotic raw medicines and preparations, expiry of agency distribution of D-Cal and Dages, and decline in sales of anti-cold granule and Roxithromycin due to aftermath of SARS. We made achievements in fields such as overall implementation of planned management, management restructuring, optimisation of resource allocation, improvements in investment and asset operation and promotion of key products, product restructuring, implementation of share placement plan, standardized and efficient production and operation, etc. Net profit for 2004 amounted to RMB124.31 million, a year-on-year growth of 32.35%. Earnings per share amounted to RMB0.41, while the net cash flow per share from operating activities amounted to RMB0.59. Return on net asset amounted to 11.05%. In 2004, the revenue of major products such as Shenqi Fuzheng for Injection, Ceftriaxone and Livzon Deles series increased 81.15%, 29.58% and 15.36% respectively compared with 2003. Despite the average price decrease of more than 20% of antibiotic preparations including Cefurorime sodium , the Company minimized its adverse impact through scale sales, with an increase of 83.89% in sales revenue over 2003. In addition, the LIVZON PHARMACEUTICAL GROUP INC. 2004 Annual Report (Summary) Company improved its control on operating expenses and administrative expenses, both recording a year-on-year decrease. 6.2 Principal operations by industries or products (Unit:RMB’000) Principal operations by industries By industries or Revenue Cost from Profit Changes in Changes in Changes in profit products from principle Margin(%) revenue cost compared margin compared principal operations compared with the with the operations with the corresponding corresponding corresponding period last year (%) period last year (%) year (%) Manufacture of Decrease 3.17 chemical crude 404,446 348,183 13.91% 2.59% 6.52% percentage points medicine Manufacture of Decrease 2.23 chemical 851,137 328,332 61.42% -16.24% -11.12% percentage points preparations Chinese medicine & Increase 4.62 261,734 99,716 61.90% -11.86% -21.40% Chinese patent percentage points medicine Other Increase 46.74 37,470 15,277 59.23% -64.15% -83.30% Industries percentage points Including: connected 32,957 14,558 55.83% transaction Principle operations by products Livzon Dele 148,867 15.36% Series Ceftriaxone 140,894 29.58% raw medicine Anti-cold 100,341 -36.12% granules Shenqi Fuzheng for 61,966 81.15% Injection Cefoperazone 60,020 17.12% Sodium Ampicillin trihydrate raw 59,531 -18.75% medicines 6-APA raw 54,866 -18.82% medicine Mevastatin raw 44,793 4.32% medicine Bifidobiogen 42,550 -4.38% cap. valaciclovir hydrochloride 39,775 -12.01% tab. Including: connected 31,096 46.21% transactions LIVZON PHARMACEUTICAL GROUP INC. 2004 Annual Report (Summary) Pricing principles in Prices of connected transactions are negotiated and entered into with reference connected transaction to market prices and on an arm’s length and fair basis Necessity of ongoing Connected transaction is necessary for the normal business activities of the connected transaction Company. Including: During the reporting period, the amount of connected transactions in relation to the selling of products or provision of services to controlling shareholder and its subsidiaries by the Company is 6,316.9(RMB'000). 6.3 Principle operations by geographical areas: Unit: (RMB’000) Revenue from principle Changes compared with the corresponding period Geographical areas operations last year Northeast region 110,320.80 3.33% Northern region 256,417.83 -9.82% Central region 177,623.47 0.44% Eastern region 202,846.57 -35.10% Southern region 450,078.91 -8.00% Southwestern region 206,311.00 -16.58% Northwestern region 67,228.35 -18.56% Export 67,321.22 43.60% 6.4 Suppliers and customers Unit: (RMB’000) Total purchase from the top five suppliers 196,763.14 Percentage of total purchase 24.11% Total sales to the top five customers 156,053.95 Percentage of total sales 10.04% 6.5 Operating performance of investee companies ? Applicable v Not applicable 6.6 Reasons of material changes in principal operations and structure thereof ? Applicable v Not applicable 6.7 Reasons of material changes in profitability (profit margin) of principal operations as compared with those of last year ? Applicable v Not applicable 6.8 Reasons of material changes in results and profit structure as compared with those of last year v Applicable ? Not applicable Net profit RMB124.31 million as compared with RMB93.92 million last year had increased by RMB30.38 million (32.35%), mainly due to the increase in the investment income, decrease in losses of minority and lowering of income tax. Reasons of material changes in overall financial position as compared with those of last year ? Applicable v Not applicable 6.9 Material changes in operating environment, macro policies or laws which had, have or will have any material impact on the Company's financial position or operating results ? Applicable v Not applicable 6.10 Completion of the estimated profit ? Applicable v Not applicable 6.11 Completion of business plan LIVZON PHARMACEUTICAL GROUP INC. 2004 Annual Report (Summary) ? Applicable v Not applicable 6.12 Use of raised funds ? Applicable v Not applicable Alteration of project ? Applicable v Not applicable 6.13 Projects not financed by raised funds v Applicable ?Not applicable Unit: (RMB’000) Projects Amounts Project in progress Profits Cooperation with Tongyi Chaoshang (Taiwan) Currently the registration procedures 17,500.00 - Company Limited to found a joint venture company c were completed Acquisition of equity interest in Shanghai Livzon Currently the registration procedures 6,000.00 - dongfeng Biotechnical Company Limited were completed Acquisition of equity interest in Zhuhai Livzon Currently the registration procedures 640.00 - Meidaxin Technology Development Company Limited were completed Acquisition of shanghai Lijin Bio-chemical Product Currently the registration procedures 1,535.70 - Company Limited were completed Acquisition of Equity Interest in Zhuhai Free Trade Zone Livzon Integrated Pharmacy Manufacturing Currently the registration procedures Company Limited and in Zhuhai Free Trade Zone Lida 17,099.50 - were completed Pharmaceutical Company Limited held by Kang Jian Investment Company Limited Acquisition of Additional Equity Interest in Sichuan Currently the registration procedures 58,349.00 - Everbright Pharmaceutical Company Limited were completed Subscription of 2004 China Petroleum & Chemical The subscription of bonds was Corporation's corporate bonds at fixed interest rate in a 140,000.00 - completed. term of 10 years Total 241,124.20 - - 6.14 Explanation of the Board to ‘non-standard opinion’of the accountant ? Applicable v Not applicable 6.15 Business plan of the Board for the next year (if any) v Applicable ? Not applicable In 2005, the Company will focus on the following aspects: 1. Comprehensive implementation of its planned management system and reasonable utilisation of resources. In 2005 the Company will continue to fully carry out its planned management. Based on the business plan of 2005 and the breakdown of business planning indices for sales, profit and expense carefully prepared by its departments and subsidiaries, the Group will follow such indices to monitor and manage its subsidiaries and department, so as to optimize its resource allocation for better completion of the sales indices and maximisation of its benefits. 2. Implementation of innovative reform in marketing system In light of its fundamental R&D and innovation strategy focusing on four major fields including chemical medicine, Chinese medicine, biological medicine and raw medicine, the Company will futher promote innovations and reforms in its marketing system. For medicine preparations, the Company will continue its marketing strategy of brand highlighting and cohesion. Taking efforts in market planning and promotion for its major brands such as Livzon Dele series (including Weisanlian, Xindele), anti-cold granule, Shenqi Fuzheng for Injection, Compound Cinnarizine Cap. , Valaciclovir Hydrochloride Tab. , etc . the Company will also attach importance to market exploration of key products including Bifidobiogen Cap., Prostant Suppository, cerebroprotein hydrolysate for injection, Pancreatic Kininogenase Enteric -coated tab. and Compoud sodium ferulate Cap.. By reasonably utilizing resources, elaborating brand advantages and expanding key products, the Company will optimize its product LIVZON PHARMACEUTICAL GROUP INC. 2004 Annual Report (Summary) mix, aiming at a rapid growth in sales revenue and improvement in product competitiveness and profitabilities. For antibiotics, Lovastatin category medicines and aminoglycoside raw medicines, the Company will capture opportunies in reform of marketing system and take full use of its overall advantages in talents and technologies. By virtue of acquisition of production license, purchasing strains and more investment, the Company strives to enhance its products' core competitive edges, so as to foster its scale and low-cost advantages in commercial production of raw medicines, aiming at a fast expanding market share. 3. In-depth adoption of supply chain management and comprehensive integration of human resources In 2005, the Company will further promote the supply chain management with emerging effects, as well as the ongoing comprehensive integration of human resources. Such two task, being part of our innovative reform, will contribute to the improvement in our core competitiveness and its effect which will in turn lead to our improving daily decision-making efficiency and high morale of the staff, laying a foundation for the Group to achieve exellent performance. 4. Actively upgrading the level of quality and production technology and implementation the requirements in safety, environmental protection and healthcare Through integration internal technological workforce and experiences, production technology and quality were actively upgrade to reach an advance level within the Industry. Acting as a leader, the requirements for national and internal safety, environmental protection and healthcare were fully implemented so as to build up a strong and competitive workforce for the future. 5. Further enhance the pace of placing as to develop capital for reserve of the Group In 2005, we will complete the placing financing for raising development capital of the Group. In support of sufficient capital, large projects can proceed speedily, resulting in the growth of new profit point. Estimated profit for the next year ? Applicable v Not applicable 6.16 Directors. Proposal for Profit Distribution or capitalisation of public reserve for the Period vApplicable ? Not applicable Pursuant to the PRC’s relevant accounting rules and based on the parent company’ s net profit of RMB141,071,615.11 for 2004 as audited by Reanda Certified Public Accountants (“Reanda”), the Company intends to respectively appropriate 10% of the net profit (RMB14,107,161.51) as statutory public reserve and statutory welfare fund. Subsidiaries intend to appropriate profits of RMB10,852,548.72 in aggregation into their statutory public reserves, statutory welfare funds and corporate development funds. A total of RMB39,066,871.74 of profits will be appropriated into surplus reserves. Net profit for 2004 as audited by the domestic auditor amounted to RMB124,058,279.08, pursuant to which undistributed profit attributable to shareholders for 2004, after including the said appropriation of surplus reserve of RMB39,066,871.74 and based on the undistributed profit of RMB70,825,772.41 at the beginning of the year, net of other in-transferral of RMB6,694,695.96 and payable dividends of RMB30,603,548.20 for ordinary shares, amounted to RMB118,518,935.59. Net profit for 2004 as audited by the overseas auditor amounted to 124,306(RMB’000), pursuant to which undistributed profit attributable to shareholders for 2004, after including appropriation of surplus reserve of 45,761(RMB’000) (including 39,067(RMB’000) of new surplus reserve and 6,694(RMB'000) of negative adjustment thereto) and based on the undistributed profit of 59,586(RMB’000) at the beginning of the year and after deducting 30,603(RMB’000) of dividend for 2003, amounted to 107,528(RMB’000). In accordance with the principle of a lower amount of profit attributable to shareholders, profit attributable to LIVZON PHARMACEUTICAL GROUP INC. 2004 Annual Report (Summary) shareholders of 107,528(RMB’000) as audited by the overseas auditor is adopted as a basis. As a result, the Company will distribute cash RMB1.5 (before tax) for every 10 shares, pursuant to which profit to be distributed amounts to RMB45,905,322.3. The balance of retained earnings of RMB72,613,613.29 as audited by the domestic auditor (retained earnings as audited by the overseas auditor: 61,623(RMB’000)) will be carried forward to the next year. Neither bonus shares nor transfer of any public reserve to capital is recommended for 2004. Profit of the Company during the period which has not yet put forth dividend and profit distribution proposal. ? Applicablev Not applicable §7. SIGNIFICANT EVENTS 7.1 Acquisition of assets v Applicable ? Not applicable Unit: (RMB’000) Net Profit Whether contributed to Whether involved Consideratithe Company Whether a Assets creditor’s Parties of Assets Date of on of from the date connected Pricing Principle Transfer Transaction acquired Acquisition right Acquisition of acquisition transaction Procedures debt had to the end of completed transferred this year Base on the result audited and evaluated by Fuzhou 100% equity Fuyuan Pharmaceuti interests of Accountant cal andFuzhou Company 19 October Chemical Fuxing 102,000.00 0.00No Limited) as on 29 Yes Yes 2004 Industry Pharmaceutic February 2004, Administrati al Company Fuzhou Finance on Office Limited Bureau approved the net asset value as pricing principle 7.2 Disposal of assets vApplicable Not applicable Unit: (RMB’000) Net Profit contributed Whether to the Income Whether involved Company and loss Whether a Assets creditor’ Parties of Assets Date of Consideration from the arising Pricing connected Transfer s right Transaction Disposed Disposal of Disposal date of Principle from transaction Procedures debt had disposal to disposal completed transfe the rred beginning of this year Shangha 100% equity Sansheng interests Base on of Hongye the net Suzhou Xinbao 2 Dec. (group) 7,480.00 0.00 -2,435.00No assets of Yes Yes Pharmaceutical 2004 Co.,Ltd. Factory Suzhou of and Xinbao Livzon Group ShanghaiS LIVZON PHARMACEUTICAL GROUP INC. 2004 Annual Report (Summary) ansheng House PropertyCo .,Ltd. 100% equity interests of Primary Beijing Bejing investme Lianhe Xinghao 20 Dec. nt Weihua 3,711.1 0.00 0.00No amount No No Modern 2004 Technology Pharmaceutical as pricing Co.,Ltd. Company base Limited Subscription of 2004 China Petroleum & Chemical Between Base on Corporation's 2004.11.2 —— 135,159.80 0.00 -4,840.21No Market Yes Yes corporate to value bonds at fixed2005.1.27 interest rate in a term of 10 years The matters involved in 7.1, 7.2 had no influence on the continuity of the Company’s business and stability of management. The above mentioned related matters of acquisition and the disposal of assets had no influence on continuity of the Company's business and stability of management. 7.3 Guaranty of material importance v Applicable ? Not applicable (Unit: RMB’000) The guaranty of the Company granted to outside companies (excluding those to controlling subsidiaries) Whether Guaranty guaranty Period Date(the by Guaranty Type of of Whether Guaranty granted to signing connecte Amount Guaranty Guarant expired date of d parties y agreement) (Yes/No ) Fuzou Yihua Chemical Company Under joint 2001.12.20 3,000.0 3 No No Limited liabilities Fuzou Yihua Chemical Company Under joint 2001.12.20 3,000.0 4 No No Limited liabilities Fuzou Yihua Chemical Company Under joint 2001.12.20 6,000.0 5 No No Limited liabilities Fujian Yatong New Material Under joint 2004.4.29 5,710.0 1 No No Technology Company Limited liabilities Fujian Yatong New Material Under joint 2004.5.26 5,000.0 1 No No Technology Company Limited liabilities Fujian Yatong New Material Under joint 2004.5.28 5,000.0 1 No No Technology Company Limited liabilities Fujian Yatong New Material 2004.8.27 3,740.0 Under joint 1 No No Technology Company Limited liabilities LIVZON PHARMACEUTICAL GROUP INC. 2004 Annual Report (Summary) Technology Company Limited liabilities Fujian Yatong New Material 2004.9.14 Under joint 1,260.0 1 No No Technology Company Limited liabilities 2003.12.15 Under joint Fuzhou Boiler Factory 1,000.0 1 No No liabilities Total guaranty amount involved during reporting period 20,710.0 Guaranty balance as at the end of reporting period 33,710.0 Guaranty granted to controlling subsidiaries by the Company Amount granted to controlling subsidiaries during reporting period 77,498.0 Amount granted to controlling subsidiaries as at the end of reporting period 39,898.0 The total amount of guaranty granted by the Company Total Amount of Guaranty 73,608.0 The ratio of guaranty amount representing the net asset of the Company 6.46% Guaranty granted to controlling shareholders and other connected parties in which 0.00 below 50% of equities are held by the Company Directly or indirectly provide debt guaranty to those guaranteed parties whose gearing 12,000.0 ratio are over 70% Whether Guaranty Amount more than 50% of net assets(Yes or No) No 7.4 Material connected transaction 7.4.1 Connected sale and purchase v Applicable ? Not applicable Unit (RMB’000) Selling products and providingPurchase products and accept services services to connected parties from connected parties Connected Parties Proportion to the same Proportion to the same Transaction Transaction type of transactions in type of transactions in Amount Amount terms of amount terms of amount Guangdong Lanbao 29,343.56 1.89% 1,206.38 0.15% Pharmaceutical Company Limited Shenzhen Haibin Pharmaceutical 6,316.90 0.41% 7,385.24 0.90% Company Limited Livzon(Group) Suzhou Xinbao 648.25 0.04% 1,203.56 0.15% Pharmaceutical Factory Livzon(Group) Changzhou Kangli 16,960.21 2.08% Pharmaceutical Company Limited Total 36,308.71 2.34% 26,755.39 3.28% 7.4.2 Connected creditor’s right and debt v Applicable ? Not applicable Unit (RMB’000) Connected parties Providing capital to provided capital to the connected parties Connected parties Companies Amount Amount Balance Balance involved involved LIVZON PHARMACEUTICAL GROUP INC. 2004 Annual Report (Summary) Guangdong Lanbao Pharmaceutical Company Limited ３，９２１．４９ ２９．８６ ０．００ ０．００ Shanghai Livzon Dongfeng Biotechnical Company Limited ０．００ ６０４．３１ ０．００ ０．００ Suzhou Xinbao Pharmaceutical Factory of Livzon Group ６７８．２７ ０．００ ５，７０４．７３ ０．００ Total ４，５９９．７６ ６３４．１７ ５，７０４．７３ ０．００ Inculding: The Company provided to controlling shareholders and its subsidiaries with capital of RMB0.00 and balance of RMB0.00 during the reporting period. 7.5 Asset management in trust ? Applicable v Not applicable 7.6 Implementation of undertakings v Applicable ? Not applicable 1. The Company entered into a Patent License Agreement with Korea Yiyang Medicine Company Limited (“Yiyang”), pursuant to which both parties agreed that the Company was granted an exclusive and irrevocable patent use right of PPI compound and an exclusive use of Yiyang’s patent in PRC (including Hong Kong and Macau) for the relevant production, manufacture and sales. Under the agreement, a transferral fee of US$2.5 million is payable by the Company, of which US$1.575 million have been paid and US$0.925 million (equivalent to RMB7,655,762.50) remain outstanding. The Company agreed to pay Yiyang 10% of sales in respect of this tablet product in the first three years since the commencing date of its sales, 8% of its sales within the five years following the aforesaid three years, and afterward 6% of its sales until 22 July 2014 (expiring date of the agreement). 2. Pursuant to the Notice of Certain Issues in Capital Transactions between Listed Companies and Associates thereof and Guaranties granted to Outside Companies (ZJF (2003) Circular No.56, "Circular No.56") promulgated by CSRC, the Company undertook on 27 September 2004 that: (1) as at the date of filing applications for share placement, no violation of Circular No.56 occurred for the Company as an issuer; (2) after the filing date for the proposed placement, no violation of any provision set out in Circular No.56 will occur for the Company; (3) in event of any violation of Circular No.56 during the approval time for the proposed placement, the Company will revoke the placement application on its own initiative. 3. Joincare Pharmaceutical Industry (Group) Company Limited (“Joincare Pharmaceutical Industry”), the shareholder of the Company, undertook and guaranteed on 27 September 2004 as follows: 1) As at the date of this undertaking, among the products manufactured and sold by Joincare Pharmaceutical Industry and other shareholding subsidiaries excluding Livzon Group ("other shareholding subsidiaries"), save for Ampicillin sodium/Sulbactam and Quanying being same (in terms of their chemical structure) as Sulbactam Sodium/ Cefoperazone Sodium for Injection / New Sulbactam Sodium/New Cefoperazone Sodium for Injection which were produced and manufactured by Livzon Group, Joincare Pharmaceutical Industry and other shareholding subsidiaries were not engaged in production and manufacturing of any product as same as or capable of substituting the products of Livzon Group. Joincare Pharmaceutical Industry operated no business which were competitive with and had material impact on Livzon Group's profitability. In event of any material impact by the said products on the profitability of Livzon Group at any time following the date of this undertaking, Joincare Pharmaceutical Industry and other shareholding subsidiaries will adopt measures (including but not limited to paid transferal of relevant assets/business/interest to Livzon Group and other independent third parties), so as to avoid the competitive situation occurred to the production and manufacturing of Livzon Group as a result of the production and sale for such products. 2) From the date of this undertaking, Joincare Pharmaceutical Industry and other shareholding subsidiaries will not directly or indirectly engaged or involve in development or investment in any product as same (in terms of chemical structure) as those produced or sold by Livzon Group, so as to avoid business competition with Livzon Group either directly or indirectly. Joincare Pharmaceutical Industry and its shareholding subsidiaries will grant Livzon Group the pre-emptive right of development or investment should there be any form of development or investment in those products capable of substituting the products produced and sold by Livzon Group. LIVZON PHARMACEUTICAL GROUP INC. 2004 Annual Report (Summary) Approvals from half of the members or more of the independent directors shall be obtained prior to a decision of Livzon Group as to whether the said pre-emptive right shall be exercised. Joincare Pharmaceutical Industry and its related persons as the connected parties of Livzon Group shall abstain from voting. Joincare Pharmaceutical Industry shall not use its controlling power or any other relationship over Livzon Group to run any business which was harmful to benefits of Livzon Group and other shareholders of Livzon Group. 3) From the date of this undertaking: (1) In case of that Joincare Pharmaceutical Industry or other shareholding subsidiaries conduct proprietary researches / introduce from overseas / cooperate with others new pharmaceutical technologies which are connected to products with major contribution to profit of Livzon Group, Livzon Group shall be entitled to paid permission on using such technology exclusively. (2) In case of that Joincare Pharmaceutical Industry or other shareholding subsidiaries intend to dispose assets, business or interests which have material impact on Livzon Group's business, Livzon Group shall have the right of first refusal. Joincare Pharmaceutical Industry guarantees to grant Livzon Group the conditions which are not less favourable to those granted to any independent third parties at any time. In event of the above circumstances, Joincare Pharmaceutical Industry will give written notice to Livzon Group as soon as possible and provide Livzon Group information at its reasonable request. Livzon Group may decide whether it will exercise its right within 45 days upon receipt of the notice. 4) Joincare Pharmaceutical Industry confirms that: (1) From the date of signature and chopping, this undertaking will bind for Joincare Pharmaceutical Industry and other shareholding subsidiaries; (2) Each undertaking stated in this undertaking is independently practicable. Invalidation or termination of any of the undertakings shall not affect the effectiveness of any other undertakings. 4. Joincare Pharmaceutical Industry (Group) Company Limited, the controlling shareholder of the Company, undertook on 16 September 2004 that: (1) it will subscribe by cash all the placing shares in Livzon Group in 2004 based on the underlying shares directly or indirectly held or controlled by Joincare Pharmaceutical Industry. As at 31 December 2003, Joincare Pharmaceutical Industry directly or indirectly held or controlled 79,381,849 shares in the Company, representing 25.94% of total share of the Company. (2) prior to completion of the share placement and within 12 months following the completion, it will remain as the ultimate controlling shareholder of the Company. 5. On 27 September 2004, the Company undertook to the CSRC that: (1) within the application period for the issuance, the Company will not offer any capital, goods or other benefits to the Approval Committee directly or indirectly and that the Company will not affect the judgment of Approval Committee towards the issuers by means of illegal methods; (2) the Company will not disturb the approval work of Approval Committee by any way; (3) With response to the enquiry at the meetings with Approval Committee, the statement and representation are true, objective, accurate and concise without any irrelevant matters for the proposed issuance subject to approval; (4) Should the Company violate any regulation mentioned above, the Company will accept all legal responsibilities incurred therefrom. 6. The Company undertook on 28 September 2004 that: if the Company completes the proposed share placement in 2005, the return on net assets (fully diluted in the issuance year) will not lower than the bank deposit rate for the same period of time. 7. All members of the Board of Directors have read the full set of application files for the proposed share placement and undertook on 26 September 2004 that: there are no misleading statements or misrepresentation or material omissions contained in the applic ation files, and the Directors individually and collectively accept responsibility for the truthfulness, accuracy and completeness of the application files. LIVZON PHARMACEUTICAL GROUP INC. 2004 Annual Report (Summary) 7.7 Material litigation and arbitration ? Applicable v Not applicable 7.8 Duties performed by independent directors Attendance of independent directors to board meeting Name of No. of Board Meeting to Present by Independent Present in person Absence Remark be attended this year Proxy Director Mr. An Chengxin 7 7 Mr. Qi Zhan 7 7 Mr. Jiang Jian 7 6 1 Mr. Gao Dianhe 7 7 Mr. Hua Yizheng 7 7 Objection by the independent directors to the related matters of the company v Applicable ? Not applicable Name of Independent Objection Matter Specific Content of objection Remark Director At the 17th meeting of the 4th Board, he abstainedThe business and profit growth of that from voting regarding Resolution in Relation toCompany is ordinary. He is of the Jiang Jian the Authorization of the management of theopinion that the upper limit of Company to fully acquire Fuzhou Fuxingpremium 50% is too high. It is more Pharmaceutical Company Limited suitable to be not higher than 30%. §8 REPORT OF SUPERVISORY COMMITTEE ? Applicable v Not Applicable LIVZON PHARMACEUTICAL GROUP INC. 2004 Annual Report (Summary) §9 FINANCIAL REPORT 9.1 Auditing Opinion Auditing opinion: Standard unqualified auditing opinion 9.2 Financial Statement LIVZON PHARMACEUTICAL GROUP INC. 麗珠醫藥集團股份有限公司 CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31ST DECEMBER 2004 2004 2003 RMB’000 RMB’000 Revenue 1,554,788 1,811,914 Cost of sales (793,595) (919,299) Gross profit 761,193 892,615 Other operating income 10,042 11,479 Selling expenses (417,779) (515,908) Administrative expenses (213,339) (234,383) Other operating expenses (7,090) (6,871) Profit from operations 133,027 146,932 Finance costs (9,048) (2,925) Profit from investments 29,168 13,932 Share of profit of associates 1,791 1,484 Profit before tax 154,938 159,423 Income tax expense (19,945) (36,234) Profit after tax 134,993 123,189 Minority interests (10,687) (29,266) Net profit for the year 124,306 93,923 Dividend - - Earnings per share –basic RMB0.41 RMB0.31 LIVZON PHARMACEUTICAL GROUP INC. 2004 Annual Report (Summary) LIVZON PHARMACEUTICAL GROUP INC. 麗珠醫藥集團股份有限公司 CONSOLIDATED BALANCE SHEET AT 31ST DECEMBER 2004 2004 2003 RMB’000 RMB’000 Assets Non-current assets Property, plant and equipment 761,970 717,559 Construction in progress 209,254 61,450 Goodwill 85,016 25,796 Negative goodwill - (1,292) Intangible assets 30,342 26,877 Investments in associates 18,087 17,080 Other investments 23,981 190,973 1,128,650 1,038,443 Current assets Inventories 212,618 188,001 Trade and other receivables 403,007 373,223 Amounts due from associates 11,101 16,867 Other investments 115,108 60,464 Bank balances and cash 303,475 424,072 1,045,309 1,062,627 Total assets 2,173,959 2,101,070 Equity and liabilities Capital and reserves Share capital 306,035 306,035 Reserves 819,329 723,923 1,125,364 1,029,958 Minority interests 31,710 129,497 1,157,074 1,159,455 Non-current liabilities Bank loans –due after one year 90,180 25,000 Current liabilities Trade and other payables 476,027 395,038 Amounts due to assoc iates 818 4,335 Tax liabilities 1,634 24,742 Bank loans –due within one year 448,226 492,500 926,705 916,615 Total equity and liabilities 2,173,959 2,101,070 LIVZON PHARMACEUTICAL GROUP INC. 2004 Annual Report (Summary) LIVZON PHARMACEUTICAL GROUP INC. 麗珠醫藥集團股份有限公司 CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST DECEMBER 2004 2004 2003 RMB’000 RMB’000 Operating activities: Profit from operations 133,027 146,932 Adjustments for: Negative goodwill released to income (295) (934) Construction in progress written-off 934 3,567 Amortization of intangible assets 13,110 15,017 Depreciation of property, plant and equipment 145,086 78,550 Amortization of goodwill - 2,936 Loss/(profit) on disposal of property, plant and equipment 420 (86) Operating cash flows before movements in working capital 292,282 245,982 Movements in working capital (99,853) 78,773 Cash generated from operations 192,429 324,755 Income tax paid (1,634) (24,742) Interest paid (9,048) (2,946) Net cash from operating activities 181,747 297,067 Investing activities Movements in profit and loss from investments 9,883 3,927 Disposal of investments 241,425 92,565 Proceeds on disposal of property, plant and equipment, intangible assets and other assets 11,755 8,020 Purchases of property, plant and equipment, intangible assets and other assets (146,481) (104,125) Purchases of investments (281,579) (268,430) Net cash used in investing activities (164,997) (268,043) Financing activities Dividend and interests paid (53,843) (73,828) New bank loans raised 941,129 693,675 Repayments of bank loans (1,024,500) (519,939) Net cash (used in) / from financing activities (137,214) 99,908 Net (decrease)/ increase in cash and cash equivalents (120,464) 128,932 Effect of exchange differences (133) (137) Cash and cash equivalents at beginning of year 424,072 295,277 Cash and cash equivalents at end of year Bank balances and cash 303,475 424,072 LIVZON PHARMACEUTICAL GROUP INC. 2004 Annual Report (Summary) 9.3 Specific explanation with respect to the changes occurred in relation to accounting policy, accounting estimation and auditing methods as compared with the latest reporting year. ? Applicable v Not Applicable 9.4 Material accounting errors in terms of contents, corrected amounts, reasons and its impact ? Applicable v Not Applicable 9.5 Specific explanation in respect of the changes occurred in consolidated scope as compared with latest reporting year. ? Applicable v Not Applicable Company names Contents of changes Reasons Hubei Keyi Pharmaceutical Company Limited Decrease Equity transfer Hubei Liyi Pharmaceutical Tech Company Limited ("Liyi") Decrease Equity transfer Zhu Hai Mei Hao Technology Investment Company Limited Decrease Liquidation Zhu Hai Li Ao Microzoology Product Company Limited Decrease Liquidation Livzon (Group) Advertising Co., Ltd. Decrease Liquidation Zhuhai Free Trade Zone Lida Pharmaceutical Company Limited Increase Newly established Livzon Group Fuzhou Fuxin Pharmaceutical Company Limited Increase Acquisition of equity Shanghai Lijin Bio-chemical Product Company Limited Increase Increase in shareholdings Livzon Pharmaceutical Group Inc. Chairman: Zhu Baoguo 22 February 2005