丽珠集团(000513)2005年年度报告摘要（英文版）

Abstract of 2005 Annual Report of Livzon Pharmaceutical Group Inc. Stock Code：000513、200513 Short form of the stock：Livzon Group, Livzon-B Announcement no,：2006-03 Abstract of 2005 Annual Report of Livzon Pharmaceutical Group Inc. 1. IMPORTANT NOTICE 1.1. The board of directors (“the Board”), the supervisory committee, all directors and supervisors and the senior management of Livzon Pharmaceutical Group Inc. (hereinafter referred to as “the Company”) confirm that there are no misleading statements or misrepresentation or material omissions contained in this report. The board of directors individually and collectively accepts responsibility 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 independent director An Chengxin were absent from the Board meeting and respectively appointed independent director Hua Yizheng to attend and vote on their behalves. 1.3 A standard unqualified auditors' report has been issued for the Company by BDO International Certified Public Accountants. 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. 2. COMPANY PROFILES 2.1 Basic information Short form of the Livzon Group, Livzon-B stock Stock code 000513、200513 Stock exchange Shenzhen Stock Exchange listing Registered address: No. 132, Guihua North Road, Gongbei, Zhuhai, Guangdong Registered address Office address: Livzon Bldg., No. 132 Guihua North Road, Gongbei, Zhuhai, and Office address Guangdong Registered address: 519020 Postal Code Office address: 519020 Company’s internet http://www.livzon.com.cn website Email zhlivzon@pub.zhuhai.gd.cn 1 Abstract of 2005 Annual Report of Livzon Pharmaceutical Group Inc. 2.2 Contact person and correspondence Secretary to the Board Representative of securities affairs Name Wang Wuping Hong Lu Livzon Building, Guihua Road North, Livzon Building, Guihua Road North, Address Gongbei, Zhuhai Gongbei, Zhuhai Telephone 0756-8135888 0756-8135888 Facsimile 0756-8886002 0756-8886002 Email wangwuping@livzon.com.cn honglu@livzon.com.cn 3. ABSTRACT OF ACCOUNTING DATA AND BUSINESS SUMMARY 3.1 Major accounting data (Unit: RMB ’000) Items 2005 2004 Revenue 1,626,146 1,554,788 Gross profit 715,797 761,193 Share of profit of associates 749 1,791 Profit before tax 132,763 154,938 Income tax expense (15,815) (19,945) Profit after tax 116,948 134,993 Minority interests (8,380) (10,687) Net profit for the year 108,568 124,306 Total share capital 306,035 306,035 Capital and reserves 1,190,709 1,125,364 Total assets 2,144,977 2,173,959 Net cash from operating activities 160,878 181,747 Net increase (decrease) in cash and (172,320) (120,464) cash equivalents Earnings per share RMB 0.35 RMB0.41 Yield on net asset 9.12% 11.05% Net cash flow per share from operating 0.53 0.59 activities 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 √ Applicable □ Not Applicable (Unit: RMB ’000) Domestic Accounting Standard International Accounting Standard Net profit 107,892 108,568 The Company's net profit realized for 2005 was 107,892 (RMB'000) and 108,568 (RMB'000), 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 676 Explanation (RMB'000) were mainly due to the corrections made to Depreciation of property, plant and of equipment which reduced profit by 535 (RMB'000), to Amortisation of negative goodwill differences which decreased profit by 39 (RMB'000), to Accruals which decreased profit by 8,599 (RMB'000), to Amortisation of goodwill which increased profit by 8,874 (RMB'000), to Share of profit of associates which increased profit by 508 (RMB'000), and to Deferred and prepaid expenses which increased profit by 467 (RMB'000) according to the International 2 Abstract of 2005 Annual Report of Livzon Pharmaceutical Group Inc. Accounting Standards. 4. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS 4.1 Change in share capital Increase/decreas Before change e during the year After change （+,-） Number Percentage Subtotal Number Percentage I. Non-circulating 0 shares 1. Promoters’ shares 29,138,670 9.52% 0 29,138,670 9.52% Including: 0 0.00% 0 0 0.00% State-owned shares Domestic legal 29,138,670 9.52% 0 29,138,670 9.52% person shares Overseas legal 0 0.00% 0 0 0.00% person shares Others 0 0.00% 0 0 0.00% 2. Corporate legal 38,917,518 12.72% 0 38,917,518 12.72% person shares 3. Staff shares 0 0.00% 0 0 0.00% 4. Preference shares or 0 0.00% 0 0 0.00% others II. Circulating shares 1. Ordinary shares 115,672,310 37.80% 0 115,672,310 37.80% denominated in RMB 2. Domestic listed 122,306,984 39.96% 122,306,984 39.96% foreign shares 3. Overseas listed 0 0.00% 0 0 0.00% foreign shares 4. Others 0 0.00% 0 0 0.00% III. Total shares 306,035,482 100.00% 0 306,035,482 100.00% Number of shares for fund placement shares, desk transaction company employee shares, strategic investor placement shares and ordinary legal placement shares shall be disclosed respectively. □ Applicable √ Not Applicable 4.2 Particulars of shares held by the top ten shareholders and the top ten shareholders of circulating shares 3 Abstract of 2005 Annual Report of Livzon Pharmaceutical Group Inc. (Unit: shares) Total number of 41,618（13,551 were holders of B Shares） shareholders Particulars of shares held by the top ten shareholders Percentage Number of Number of Full name of Nature of Number of to total share non-circulating shares pledged shareholders shareholders shares held capital shares or frozen 38,917,518 Xi’an Topsun Group （3,500,000 Other 12.72% 38,917,518 38,917,518 Company Limited were judicial refrozen） Joincare Pharmaceutical Other 10.55% 32,285,116 22,379,289 0 Industry (Group) Company Limited First Shanghai Foreign Securities Company 3.51% 10,756,560 0 0 shareholder Limited Tiancheng Industrial Foreign 3.00% 9,178,310 0 0 Company Limited shareholder Guangzhou Baokeli 1.98% 6,059,428 6,059,428 6,059,428 Trading Company China Construction Bank – Huabao Xingye Other 1.79% 5,487,854 0 0 Multi-strategies Growth Securities Investment Fund Shenzhen Haibin Pharmaceutical Other 1.75% 5,357,221 0 0 Company Limited SUN INTELLIGENT Foreign 1.63% 5,000,000 0 0 LIMITED shareholder DRACO EQUITY Foreign INVESTMENT 1.50% 4,580,000 0 0 shareholder LIMITED Bank of Communications－ Other 1.07% 3,268,360 0 0 Kerui Securities Investment Fund Agricultural Bank of China – Fuguo Tianrui Strength Region Prime Mix Other 1.00% 3,072,404 0 0 Open-ended Securities Investment Fund Tongyi Securities Other 0.96% 2,948,055 0 0 Investment Fund Particulars of shares held by the top ten shareholders of circulating shares Full name of shareholders Number of circulating shares Type of shares First Shanghai Securities 10,756,560Domestic listed foreign shares Company Limited Joincare Pharmaceutical Industry Ordinary shares denominated in 9,905,877 (Group) Company Limited RMB 4 Abstract of 2005 Annual Report of Livzon Pharmaceutical Group Inc. Tiancheng Industrial Company 9,178,310Domestic listed foreign shares Limited China Construction Bank – Huabao Xingye Multi-strategies Ordinary shares denominated in 5,487,854 Growth Securities Investment RMB Fund Shenzhen Haibin Pharmaceutical Ordinary shares denominated in 5,357,221 Company Limited RMB SUN INTELLIGENT LIMITED 5,000,000Domestic listed foreign shares DRACO EQUITY INVESTMENT 4,580,000Domestic listed foreign shares LIMITED Bank of Communications－Kerui Ordinary shares denominated in 3,268,360 Securities Investment Fund RMB Agricultural Bank of China – Fuguo Tianrui Strength Region Ordinary shares denominated in 3,072,404 Prime Mix Open-ended Securities RMB Investment Fund Tongyi Securities Investment Ordinary shares denominated in 2,948,055 Fund RMB (1) From 19 January to 3 February 2005, Joincare Pharmaceutical Industry (Group) Company Limited ("Joincare Group") disposed 8.6597% of the Company's shares by way of block trade and centralised price bidding on Shenzhen Stock Exchange, whereby Joincare and its subsidiaries held in total 52,880,075 shares in the Company as of 3 February 2005, representing 17.2791% of the Company's total issued share capital. Joincare Group and Xi’an Topsun Group Company Limited ("Topsun Group") entered into Share Transfer Agreement and Share Mortgage Agreement on 4 February 2005, pursuant to which Topsun Group agreed to directly transfer 38,917,518 domestic legal person shares in the Company, representing 12.7167% of the Company’s total issued share capital, to Joincare Group at a consideration of RMB170,000,000, and Topsun Group shall mortgage and place on custody such shares to Description of the connected Joincare Group prior to completion of the transfer under the name of relations or concerted actions of Joincare Group. On 4 February 2005, Topsun Group completed the the aforementioned shareholders mortgage registration for such 38,917,518 domestic legal person shares in the Company to Joincare Group. (The said transactions were published on the newspaper designated for information disclosure on 5 February 2005, Announcement No.: 2005-02). (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 Pharmaceutical Industry (Group) Company Limited and Guangzhou Baokeli Trading Company entered into a Share Transfer and Custody Agreement 5 Abstract of 2005 Annual Report of Livzon Pharmaceutical Group Inc. and a 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 2005, Joincare Pharmaceutical Industry (Group) Company Limited and its subsidiaries held and controlled 91,797,593 shares in the Company in aggregation, representing 29.9957% of the Company's total issued share capital, and became the Company’s ultimate controlling shareholder. (4) During the judicial execution of the loan and guaranty litigation between Xi'an Commercial Bank, Gaoxin Road Branch as a party and Julang Juice Beverage Company Limited, Yangling Qinfeng Agricultural Science and Technology Co., Ltd. ("Yangling Qinfeng") and Topsun Group as another party, as Topsun Group failed to fulfil its guaranty obligation for the loans granted to Yangling Qinfeng and its subsidiaries, Shaanxi Provincial Higher People's Court awarded a civil ruling ((2005) SZEGZ No.25-10) on 9 May 2005, pursuant to which the 3,500,000 domestic legal person shares in the Company held by Topsun Group were judicial frozen with effect from 10 May 2005 to 9 May 2006. (5) As of 31 December 2005, 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 belong to as stipulated in the Management Method of Information Disclosure of Changes in Shareholding of Listed Companies’ Shareholders. 4.3 Particulars of the controlling shareholder and ultimate controlling shareholders 4.3.1 Changes in controlling shareholder and ultimate controlling shareholders □ Applicable √ Not Applicable 4.3.2 Details of controlling shareholder and ultimate controlling shareholders Name：Joincare Pharmaceutical Industry (Group) Company Limited Legal Representative: Zhu Baoguo Date of establishment: 18 December 1992 Business scope: research and development and wholesale of Chinese herbs (procurement), Chinese medicines, antibiotic raw medicines and preparations, chemical preparations, foods, healthcare foods and cosmetics (not including Chinese herbs under the State's protection and R&D of Chinese secret recipe medicines); wholesale, import/export and ancillary services of traditional Chinese soluble tablets (subject to the State's regulations on relevant quota licensing and separate administration) Registered capital: RMB609,930,000 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 controlling shareholder of Joincare Pharmaceutical Industry (Group) Company Limited: Name of the controlling shareholder: Shenzhen Beiyeyuan Investment Company Limited 6 Abstract of 2005 Annual Report of Livzon Pharmaceutical Group Inc. Legal representative: Liu Guangli Date of establishment: 21 January 1999 Principal businesses: Investment and setting up industrial projects, 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, has no right of residence in any other country or region. 4.3.3 Illustration of Shareholdings and Controlling Relations among the Company and the Ultimate Controlling Shareholder Liu Guangxia Zhu Baoguo Liu Miao 100% 10% 90% Taitai Pharmaceutical Industry Group Limited 0.1% 99.9% Shenzhen Beiyeyuan Investment Company Hongxin Limited Limited 55.63% 18.54% Joincare Pharmaceutical Industry (Group) Company Limited 100% Held 10.55% 100% Under mortgage and on custody: 14 7% Shenzhen Haibin Pharmaceutical Company Limited Tiancheng Industrial Company Limited 1.75% 3.00% Livzon Pharmaceutical Group Inc. 5. Particulars of Directors, Supervisors and Senior Management 5.1 Changes in shareholding of Directors, Supervisors and Senior Management Total remuneration Whether Number of Number of received from receiving from shares held Reasons shares held the Company shareholders Name Title Gender Age Term of appointment at the for the at the end of during the or other beginning of changes the year reporting connected the year period parties (’000) Zhu Baoguo Chairman Male 432005.06.26-2008.06.30 0 0 － 90Yes Yi Zhenqiu Vice Chairman Male 612005.06.26-2008.06.30 0 0 － 555.48 Gu Yueyue Director Female 552005.06.26-2008.06.30 0 0 － 72Yes Xiao Siyang Director, President Male 432005.06.26-2008.06.30 0 0 － 3,805.48 7 Abstract of 2005 Annual Report of Livzon Pharmaceutical Group Inc. Wang Director Male 542005.06.26-2008.06.30 0 0 － 444.33 Yisheng An Ning Director,Vice President Male 332005.06.26-2008.06.30 0 0 － 575.69 Hua Yizheng Independent Director Male 602005.06.26-2008.06.30 0 0 － 72 An Independent Director Male 662005.06.26-2008.06.30 0 0 － 72 Chengxin Gao Dianhe Independent Director Male 622005.06.26-2008.06.30 0 0 － 72 Qiu Chairman of the Male 342005.06.26-2008.06.30 0 0 － 42Yes Qingfeng Supervisory Committee Yuan Guoliu Supervisor Male 592005.06.26-2008.06.30 0 0 － 275.71 Cao Pingwei Supervisor Male 462005.06.26-2008.06.30 0 0 － 36Yes Liu Shuqing Vice President Female 422005.06.26-2008.06.30 0 0 － 503.69 Tao Vice President Male 412005.06.26-2008.06.30 0 0 － 511.96 Desheng Wang Secretary to the Board Male 392005.06.26-2008.06.30 300 300 － 418.75 Wuping Total - - - - 300 300 - 7,547.09 - Note: Under the Resolution on Appointment of Vice President Responsible for Research and Technology considered and approved by the 21st meeting of the fourth Board, Mr. Tao Desheng was decided to be engaged as Vice President of Livzon Group. In May 2005, the Company's marketing Vice President Mr. Fu Gang tendered a resignation due to private needs. 6. Report of Directors 6.1 Discussions and analysis of overall business operation during the reporting period Following our operation philosophy of practical, innovative and high performance, we furthered the in-depth reform of Livzon Group in marketing and other aspects and optimised the resource allocation in face of the considerable decrease in price of antibiotics in 2005. As a result, the competitiveness of the Company was improved and innovation and breakthrough were seen in many aspects. Net profit for 2005 amounted to RMB107.89 million. Earnings per share amounted to RMB0.35 while the net cash flow per share from operating activities amounted to RMB0.53. Yield on net assets amounted to 8.96%. Revenue of major products such as anti-cold granule, Ceftriaxone, Shenqi Fuzheng for Injection, Menotrophin, Cefurorime sodium and Compound Cinnarizine Cap. increased by 46.07%, 19.29%,12.00%,23.59%,19.32% and 45.71% respectively from last year. Furthermore, the Company proactively increased the sales volume and cut down the cost to overcome the adverse impact from the substantial price cut of antibiotic preparations. The growth of sales volume of Cefurorime sodium was especially rapid. At the same time, the Company strengthened its control over operating expenses and administrative expenses, which recorded a year-on-year decrease of 10.57% and 2.58% respectively. 8 Abstract of 2005 Annual Report of Livzon Pharmaceutical Group Inc. 6.2 Principal operations by categories or products (Unit: RMB ’000) Principal operations by categories Increase Increase (+)/decrease (-) in (+)/decrease (-) in Revenue from Cost incurred by revenue from Increase (+)/decrease (-) Profit cost incurred by By categories or products principal principal principal in profit margin as margin principal operations operations operations operations as compared with last year compared with last compared with last year year Manufacture of chemical crude Decreased by 5.02 828,270 361,116 56.40% -2.69% 9.98% medicin percentage points Manufacture of chemical Decreased by 3.39 500,873 448,175 10.52% 23.84% 28.72% preparations percentage points Chinese raw medicine & Increased by 5.53 296,472 96,544 67.44% 13.27% -3.18% Chinese patent medicine percentage points Decreased by 33.34 Other categories 533 395 25.89% -98.58% -97.41% percentage points Including: connected Decreased by 49.24 5,327 4,976 6.59% -83.84% -65.82% transactions percentage points Principal operations by products Ceftriaxone 168,077 19.29% Anti-cold granules 146,564 46.07% Livzon Dele series 116,221 -21.93% Shenqi Fuzheng for Injection 69,402 12.00% Colistin Sulfate 67,437 140.22% Sulbactam Sodium/Cefoperazone Sodium 48,023 -19.99% for Injection Cefuroxime sodium for 42,018 19.32% injection Valaciclovir hydrochloride tab. 40,891 2.80% Bifidobiogen Cap. 40,212 -5.49% Menotrophin 35,116 23.59% Including: connected 5,327 -82.87% transactions Pricing principles in connected Negotiated and entered into with reference to market prices on an arm’s length and on fair and reasonable basis. transactions Necessity and continuity of Connected transaction is necessary in the normal business activities of the Company. connected transactions Including: During the reporting period, the amount of connected transactions in relation to the sale of products or provision of services to controlling shareholder and its subsidiaries by the Company is 5,327 (RMB ‘000). 6.3 Principal operations by geographical areas (Unit: RMB ’000) Increase (+)/decrease (-) in revenue from Geographical Revenue from principal operations principal operation as compared with last areas year (%) North-eastern 11.53% region 123,045.37 Northern region 236,788.17 -7.66% Central region 139,612.17 -21.40% Eastern region 283,495.34 39.76% Southern region 436,881.14 -2.93% South-western -1.76% region 202,689.02 North-western -7.76% region 62,013.61 Export 131,721.80 95.66% 6.4 Use of proceeds 9 Abstract of 2005 Annual Report of Livzon Pharmaceutical Group Inc. □ Applicable √ Not Applicable Alteration of projects □ Applicable √ Not Applicable 6.5 Projects of non-raised funds √ Applicable □ Not Applicable (Unit: RMB ’000) Project Amount Progress Profit Increase of capital contribution from Zhuhai Livzon Industrial and commercial 57,000 － Pharmaceutical Trading Company Limited renovations had completed Reported to Ministry of Increase of capital contribution to Livzon Group 5,100 Commerce pending － Reagent Factory approval Transferred the land use right of the land at A contract of transfer on Shuanglin Area, Liangang Industrial District, Zhuhai 17,934 the right of use of national － City land was executed Establishment of the joint venture of Datong Livzon Industry and business 700 － Qiyuan Medicine Materials Company Limited registration had completed Registration for the establishment of Livzon (Group) Suspension of registration 82,000 － Fuzhou Fuxing Pharmaceutical Company Limited of new factory Total 162,734 － － 6.6 Explanation of the Board to “non-standard views” of the accountant □ Applicable √ Not Applicable 6.7 Directors’ proposal of profit distribution or capitalization of capital reserve for the reporting period √ Applicable □ Not Applicable Pursuant to the PRC’s relevant accounting rules and based on the parent company’s net profit of RMB82,697,396.52 for 2005 as audited by Reanda Certified Public Accountants (“Reanda”), the Company intends to respectively appropriate 10% of the net profit (RMB8,269,739.65) as statutory public reserve and statutory welfare fund. Subsidiaries intend to appropriate profits of RMB10,692,160.41 in aggregation into their statutory public reserves, statutory welfare funds and corporate development funds. A total of RMB27,231,639.71 of profits will be appropriated into surplus reserves. Net profit for 2005 as audited by the domestic auditor amounted to RMB107,891,938.59, pursuant to which undistributed profit attributable to shareholders for 2005, after including the said appropriation of surplus reserve of RMB27,231,639.71 and based on the undistributed profit of RMB118,518,935.59 at the beginning of the year and other in-transferral of RMB248,603.80, net of payable dividends of RMB45,905,322.30 for ordinary shares, amounted to RMB153,522,515.97. Net profit for 2005 as audited by the overseas auditor amounted to RMB108,568,000 pursuant to which undistributed profit attributable to shareholders for 2005, after including appropriation of surplus reserve of RMB26,983,000 and based on the undistributed profit of RMB107,528,000 at the beginning of the year and after deducting RMB45,906,000 of dividend for 2004, amounted to RMB143,207,000.. As i) the Company has distributed a dividend of RMB107,112,418.70 in aggregation for 2002, 2003 and 2004; and ii) the Group invested in 2005 and will increase its investment in 2006 in the two key projects including the raw medicine production base of Livzon (Group) Fuzhou Fuxing Pharmaceutical Company Limited in Jiangyin and establishment of a new production base for Livzon Group by Livzon (Group) Pharmaceutical Factory, no cash dividend or bonus shares or transfer of any public reserve to 10 Abstract of 2005 Annual Report of Livzon Pharmaceutical Group Inc. the capital is recommended for 2005 so as to ensure the fund arrangement for key projects and the sustainable development of the Company. The undistributed profit for the reporting period is retained to next year. Profit of the Company during the reporting period which has not yet put forth dividend and profit distribution proposal □ Applicable √ Not Applicable 7. Significant Events 7.1 Acquisition of assets □ Applicable √ Not Applicable 7.2 Disposal of assets √ Applicable □ Not Applicable (Unit: RMB ’000) Net profit contributed by Whether the assets Whether the transfer of disposed to Loss or profit Whether it is a rights of amount due to Parties of Assets Consideration the Company Pricing Date of disposal arising from connected assets had and from the transaction disposed of disposal from the principle the disposal transaction been parties of beginning of transferred transaction this year to the taken place date of acquisition 42.9% equity Heyuan interest of Huiying Fuzhou Based on Bio-engineerin Rongqing 8 June 2005 878.7 0.00 128.6No the net Yes Yes g Company Bio-engineeri assets Limited ng Company Limited 100% Mr Wu equity interest Qingshi and of Shanghai Based on other natural Lijin Biology & 31 August 2005 1690 -174.2 -172.9No the net Yes Yes persons Chemistry assets designated by Company him Limited 70% equity Mr. Ke Yiping interest of and other Guangdong Based on natural Central South 5 December 2005 3380 65.8 38.9No the net No No persons Pharmacy assets designated by Company him Limited The influence of the matters involved in 7.1, 7.2 to 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 √ Applicable □ Not Applicable 11 Abstract of 2005 Annual Report of Livzon Pharmaceutical Group Inc. (Unit: RMB ’000) Guaranty granted by the Company to outsider companies (excluding those granted to controlling subsidiaries) Balance of Whether it is a Date of guaranty (the guaranties Type of Term of Whether guaranty granted Guaranty granted to signing date of as at the guaranty guaranty expired to connected agreement) end of the parties (Yes/No) period 2001.12.2 Under joint and 0－ Fuzhou Yihua Chemical Company Limited 2001-12-20 3,000 No No several liabilities 2005.11.1 5 2001.12.2 Under joint and 0－ Fuzhou Yihua Chemical Company Limited 2001-12-20 6,000 No No several liabilities 2006.11.1 5 Total guaranty granted during the reporting period Balance of guaranty as at the end of the reporting period 9,000 Guaranty granted to controlling subsidiaries by the Company Guaranty granted to controlling subsidiaries during the reporting period Balance of guaranty granted to controlling subsidiaries as at the end of the reporting period 25,000 Total guaranty granted by the Company (including those granted to controlling subsidiaries) Total guaranty granted 34,000 The percentage of guaranty to the net asset of the Company 2.82% Guaranty granted to shareholders, ultimate controlling shareholders and other connected parties Loan under guaranty directly or indirectly granted to the parties with gearing ratio over 70% 9,000 Guaranty amount over 50% of net assets Total amount of the said guarantees 9,000 7.4 Material connected transaction 7.4.1 Connected sale and purchase √ Applicable □ Not Applicable (Unit: RMB ’000) Sale of products and supply of services to connected Purchase of products and acceptance of services from person connected person Connected person Percentage to the amount of Percentage to the amount of the Transaction amount Transaction amount the similar type of transactions similar type of transactions Guangdong Lanbao Pharmaceutical 3,261.84 0.201% Company Limited Shenzhen Haibin Pharmaceutical 5,326.59 0.328% 8,455.79 1.08% Company Limited Livzon(Group) Changzhou Kangli 8,806.38 1.12% Pharmaceutical Company Limited Joincare Pharmaceutical Industry 696.00 0.09% (Group) Company Limited New Bei Jiang Pharmaceutical Limited 474.35 0.06% (Hong Kong) Total 8,588.43 0.529% 18,432.52 2.35% Including: RMB5,326,590 of connected transactions for products sold or services provided by the Company to its controlling shareholder and subsidiaries during the reporting period 7.4.2 Amounts due to and from connected persons √ Applicable □ Not Applicable (Unit: RMB ’000) 12 Abstract of 2005 Annual Report of Livzon Pharmaceutical Group Inc. Connected person provided capital to listed Capital provided to connected person Connected Person companies Amount in total Balance Amount in total Balance Guangdong Lanbao Pharmaceutical 5,953.38 0.00 0.00 0.00 Company Limited Jiaozuo Joincare Bio-products 2,099.82 0.00 0.00 0.00 Company Limited Livzon (Group) Guangzhou Livzon 2,710.00 1,150.00 0.00 0.00 Building Company Limited Total 10,763.20 1,150.00 0.00 0.00 Including: RMB2,099,820 of capital provided by the Company to its controlling shareholder and subsidiaries during the reporting period (closing balance: nil). 7.5 Asset management in trust □ Applicable √ Not Applicable 7.6 Implementation of undertakings √ Applicable □ Not Applicable 7.6.1 Expected schedule for State Shares Reform Undertaking on State Shares Reform: The Company undertakes that it will embark on the State Shares Reform not later than 30 June 2006. 7.6.2 Other undertakings 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 the exclusive use of Yiyang’s patent in PRC (including Hong Kong and Macau) for the relevant production, manufacture and sales. Under the agreement, a Transfer 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 RMB 7,464,935) 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 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 13 Abstract of 2005 Annual Report of Livzon Pharmaceutical Group Inc. Pharmaceutical Industry and other controlling subsidiaries excluding Livzon Group ("other controlling 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 controlling 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 did not operate any businesses 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 controlling 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 controlling 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 controlling 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. 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 controlling 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 controlling 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. 14 Abstract of 2005 Annual Report of Livzon Pharmaceutical Group Inc. (4) Joincare Pharmaceutical Industry confirms that: 1) From the date of signature and chopping, this undertaking will bind for Joincare Pharmaceutical Industry and other controlling 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) In the event that the Company violates any regulation mentioned above, the Company will accept all legal responsibilities incurred therefrom. 6. Livzon Pharmaceutical Group Inc. maintained favourable performance as from its incorporation; the fully diluted returns on net assets for 2002, 2003 and 2004 are 6.40%, 8.83% and 10.89% respectively. On the basis of current condition of production, operation and the market, all members of the Board of Directors of the Company undertook on 22 February 2005 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 22 February 2005 that: there are no misleading statements or misrepresentation or material omissions contained in the application files, and the Directors individually and collectively accept responsibility for the truthfulness, accuracy and completeness of the application files. 7.7 Arbitration of material importance □ Applicable √ Not Applicable 8. Report of Supervisory Committee □ Applicable √ Not Applicable 9. Financial Report 9.1 Auditing opinion 15 Abstract of 2005 Annual Report of Livzon Pharmaceutical Group Inc. Auditing opinion: Standard unqualified auditing opinion 9.2 Financial Statement LIVZON PHARMACEUTICAL GROUP INC. CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31ST DECEMBER 2005 2005 2004 RMB’000 RMB’000 Revenue 1,626,146 1,554,788 Cost of sales (910,349) (793,595) Gross profit 715,797 761,193 Other operating income 7,007 10,042 Selling expenses (354,250) (417,779) Administrative expenses (235,656) (213,339) Other operating expenses (3,935) (7,090) Profit from operations 128,963 133,027 Finance costs (16,201) (9,048) Profit from investments 19,252 29,168 Share of profit of associates 749 1,791 Profit before tax 132,763 154,938 Income tax expense (15,815) (19,945) Profit after tax 116,948 134,993 Minority interests (8,380) (10,687) Net profit for the year 108,568 124,306 Dividend - - Earnings per share – basic RMB0.35 RMB0.41 16 Abstract of 2005 Annual Report of Livzon Pharmaceutical Group Inc. LIVZON PHARMACEUTICAL GROUP INC. CONSOLIDATED BALANCE SHEET AT 31ST DECEMBER 2005 2005 2004 RMB’000 RMB’000 Assets Non-current assets Property, plant and equipment 771,753 761,970 Construction in progress 357,757 209,254 Goodwill 85,203 85,016 Intangible assets 27,493 30,342 Investments in associates 33,792 18,087 Other investments 24,758 23,981 1,300,756 1,128,650 Current assets Inventories 238,911 212,618 Trade and other receivables 404,905 403,007 Amounts due from associates 406 11,101 Other investments 70,500 115,108 Bank balances and cash 129,499 303,475 844,221 1,045,309 Total assets 2,144,977 2,173,959 Equity and liabilities Capital and reserves Share capital 306,035 306,035 Reserves 884,674 819,329 1,190,709 1,125,364 Minority interests 33,548 31,710 1,224,257 1,157,074 Non-current liabilities Bank loans – due after one year 700 90,180 Current liabilities Trade and other payables 309,825 476,027 Amounts due to associates 16,775 818 Tax liabilities (679) 1,634 Bank loans – due within one year 594,099 448,226 920,020 926,705 Total equity and liabilities 2,144,977 2,173,959 17 Abstract of 2005 Annual Report of Livzon Pharmaceutical Group Inc. LIVZON PHARMACEUTICAL GROUP INC. CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST DECEMBER 2005 2005 2004 RMB’000 RMB’000 Operating activities: Profit from operations 128,963 133,027 Adjustments for: Negative goodwill released to income 39 (295) Construction in progress written-off - 934 Amortization of intangible assets 9,812 13,110 Depreciation of property, plant and equipment 121,095 145,086 Loss/(profit) on disposal of property, plant and equipment (393) 420 Operating cash flows before movements in working capital 259,516 292,282 Movements in working capital (64,309) (99,853) Cash generated from operations 195,207 192,429 Income tax paid (18,128) (1,634) Interest paid (16,201) (9,048) Net cash from operating activities 160,878 181,747 18 Abstract of 2005 Annual Report of Livzon Pharmaceutical Group Inc. LIVZON PHARMACEUTICAL GROUP INC. CONSOLIDATED CASH FLOW STATEMENT (CONTINUED) FOR THE YEAR ENDED 31ST DECEMBER 2005 2005 2004 RMB’000 RMB’000 Investing activities Movements in profit and loss from investments 9,047 9,883 Disposal of investments 164,611 241,425 Proceeds on disposal of subsidiary 4,562 - Proceeds on disposal of property, plant and equipment, intangible assets and other assets 10,001 11,755 Purchases of property, plant and equipment, intangible assets and other assets (256,717) (146,481) Purchases of investments (152,498) (281,579) Net cash used in investing activities (220,994) (164,997) Financing activities Dividend and interests paid (70,136) (53,843) New bank loans raised 779,596 941,129 Repayments of bank loans (821,664) (1,024,500) Net cash used in financing activities (112,204) (137,214) Net decrease in cash and cash equivalents (172,320) (120,464) Effect of exchange differences (1,656) (133) Cash and cash equivalents at beginning of year 303,475 424,072 Cash and cash equivalents at end of year Bank balances and cash 129,499 303,475 19 Abstract of 2005 Annual Report of Livzon Pharmaceutical Group Inc. 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 √ Not Applicable 9.4 Material accounting errors in terms of contents, corrected amounts, reasons and its impact □ Applicable √ Not Applicable 9.5 Specific explanation in respect of the changes occurred in the scope of consolidation as compared with latest reporting year √ Applicable □ Not Applicable Company Changes Reasons Zhuhai Livzon -- Baiameng Biological Materials Co Ltd Decrease Termination of principal operations Zhuhai Livzon Meidaxin Technology Investment Co. Ltd Decrease Termination of principal operations Livzon Pharmaceutical Group Inc. Chairman: Zhu Baoguo 11 February 2006 20