(Incorporated in the Cayman Islands with limited liability) (Stock Code: 0775) Enhancing Everyday Life Annual Report 2012 2 Dai Fu Street, Tai Po Industrial Estate, Hong Kong Tel: (852) 2126 1212 Fax: (852) 2126 1211 www.ck-lifesciences.com Annual Report 2012 About CK Life Sciences CK Life Sciences Int’l., (Holdings) Inc. is listed on The Stock Exchange of Hong Kong Limited. Bearing the mission of improving the quality of life, CK Life Sciences is engaged in the business of research and development, commercialisation, marketing and sale of health and agriculture-related products. Products developed by CK Life Sciences are categorised into the areas of human health and environmental sustainability. A number of inventions have been granted patents by the US Patent and Trademark Office. CK Life Sciences is a member of the Cheung Kong Group. Contents 2 Chairman’s Statement 6 Business Review Agriculture-related Business Nutraceutical Business Pharmaceutical Business 20 Long Term Development Strategy 21 Financial Summary 22 Financial Review 24 Directors and Key Personnel 31 Report of the Directors 44 Independent Auditor’s Report 46 Consolidated Income Statement 47 Consolidated Statement of Comprehensive Income 48 Consolidated Statement of Financial Position 50 Consolidated Statement of Changes in Equity 51 Consolidated Statement of Cash Flows 53 Notes to the Consolidated Financial Statements 114 Principal Subsidiaries 119 Principal Associate 120 Schedule of Investment Properties 121 Corporate Governance Report 155 Risk Factors 159 Corporate Information and Key Dates Chairman’s Statement 2 CK Life Sciences Int’l., (Holdings) Inc. HK$ Million 2012 2011 Variance Turnover 4,545.0 3,511.6 +29% Agriculture-related 1,645.4 1,214.0 +36% Health 2,888.6 2,287.5 +26% Investment 11.0 10.1 +9% Profit attributable to shareholders 176.3 125.8 +40% For the year ended 31 December 2012, GROWTH IN AGRICULTURE-RELATED CK Life Sciences Int’l., (Holdings) Inc. (“CK Life BUSINESS THROUGH ACQUISITION Sciences” or the “Company”) achieved a strong performance. Profit attributable to shareholders of the CK Life Sciences’ agriculture-related business recorded Company increased 40% as compared to last year, a solid growth of 36% compared with the previous amounting to HK$176.3 million. year and reported a turnover of HK$1,645.4 million. The Board of Directors has recommended a final In February 2012, the Company’s agriculture-related dividend of HK$0.006 per share for the year ended business achieved a major milestone with the 31 December 2012 (HK$0.005 per share in 2011), a A$32.28 million (approximately HK$265 million) 20% increase over the previous year. The proposed acquisition of Peaty Trading Group (“Peaty”), the dividend will be paid on 5 June 2013 following second largest supplier of products and services in approval at the 2013 Annual General Meeting to those the professional turf management industry and the shareholders whose names appear on the Register of pest management industry in Australia. Following the Members of the Company at the close of business on completion of the transaction, the businesses were 24 May 2013. consolidated under the Company’s Amgrow Pty Ltd. CK Life Sciences is now one of the largest suppliers of agricultural products and services in Australia, particularly in turf management, home garden products and pest management. Annual Report 2012 3 Chairman’s Statement (Cont’d) CK Life Sciences further expanded its vineyard portfolio The nutraceutical portfolio comprising Santé Naturelle in October 2012 through the acquisition of 3 vineyards A.G. Ltée (“Santé Naturelle”) in Canada, Vitaquest in Western Australia’s Margaret River for International Holdings LLC (“Vitaquest”) in the United A$10.04 million (approximately HK$81 million). States, and Lipa Pharmaceuticals Limited (“Lipa”) in Like our other vineyard investments, these premium Australia all performed well, recording sales and profit vineyards are backed by long-term tenancies, and are increases. poised to contribute a steady and recurrent income to CK Life Sciences. Altogether, CK Life Sciences’ vineyard During the year, Santé Naturelle introduced new portfolio now features total area amounting to about products, strengthening their market share in key 6,500 hectares (approximately 700 million sq. ft.). product segments; while both Vitaquest and Lipa It is currently the second largest vineyard owner in completed expanding their facilities to increase Australasia. production capabilities. In November 2012, CK Life Sciences entered into GOOD PROGRESS IN an agreement to acquire Cheetham Salt Limited PHARMACEUTICAL R&D (“Cheetham”), Australia’s largest domestic producer of salt, for A$150 million (approximately HK$1.2 billion). CK Life Sciences’ pharmaceutical R&D initiatives Cheetham’s salt fields and refineries are spread over continued to make good progress during the year about 9,300 hectares (approximately 1 billion sq. ft.) under review. of leasehold and freehold land in Australia and New Zealand, of which around 90% is in Australia. The Research on the cancer vaccine for the treatment of transaction was completed in February 2013. The melanoma by the Company’s U.S. subsidiary Polynoma acquisition of Cheetham would bring to CK Life LLC (“Polynoma”) achieved a new milestone. In Sciences the opportunity to enter another stable January 2012, the U.S. Food and Drug Administration industry, expand land ownership profile and obtain (FDA) accepted Polynoma’s Investigational New Drug access to a new flow of steady and immediate returns. application for Phase III clinical testing of its melanoma vaccine in the United States, making CK Life Sciences Other operations in Australia, Mainland China and Asia one of the few Asian companies to obtain clearance continued to achieve a steady performance in 2012. from the FDA to commence Phase III clinical testing of a new drug. Patient enrollment for the adaptive NUTRACEUTICAL BUSINESS Phase III clinical trial has already commenced and is MAINTAINS GOOD PERFORMANCE progressing well. The Company’s nutraceutical business reported turnover of HK$2,888.6 million in 2012, an increase of 26% compared to last year. 4 CK Life Sciences Int’l., (Holdings) Inc. CK Life Sciences has been studying a number of With cash on hand of HK$572 million and a net debt options to recognise and enhance the value of the to net total capital ratio of 25.02%, we will continue melanoma vaccine via a number of avenues including to advance our existing businesses by seeking new the possibility of issuing an Initial Public Offering. opportunities that can bring secure and steady income to the Company. In 2012, the Phase III clinical trial of WEX Pharmaceuticals Inc.’s tetrodotoxin (“TTX”)-based pain CK Life Sciences has progressed well during 2012, and management product for the treatment of cancer we will continue to build on this successful platform to pain continued in Canada. At the same time, patient deliver further growth in the coming year. enrollment has commenced in the United States for a Phase II clinical trial to evaluate TTX for chemotherapy- I would like to take this opportunity to thank our induced neuropathic pain. shareholders, Board of Directors and staff for their on-going support. PROSPECTS We are confident about the future prospects of CK Life Sciences. Li Tzar Kuoi, Victor Through the acquisitions of Peaty, 3 vineyards and Chairman Cheetham in Australia, the scope of our existing investment portfolio has been strengthened, and Hong Kong, 6 March 2013 the profitability of our agriculture-related business enhanced. Organic growth of our existing businesses is also poised to continue to contribute to our revenue stream. Annual Report 2012 5 Business Review 6 CK Life Sciences Int’l., (Holdings) Inc. Agriculture- related Business 2012 has been an exciting year for CK Life Sciences’ agriculture- related business. 3 new acquisitions were made during the year: (i) the A$32.28 million (approximately HK$265 million) Peaty Trading Group; (ii) 3 vineyards in Margaret River for a consideration of A$10.04 million (approximately HK$81 million); and (iii) the A$150 million (approximately HK$1.2 billion) Cheetham Salt Limited. Annual Report 2012 7 Business Review (Cont’d) A majority of the vineyards in CK Life Sciences’ portfolios are committed to long-term leases with major Australasian wine companies, generating steady cashflows for the Company. VINEYARD BUSINESSES In 2012, Belvino extended the terms of existing leases on a number of vineyards held by a major tenant to further CK Life Sciences has two vineyard portfolios: secure its income streams. BELVINO PORTFOLIO NON-BELVINO PORTFOLIO CK Life Sciences acquired a 72.26% interest in Challenger 100% CK Life Sciences owned vineyards are held in a Wine Trust (“CWT”), a listed Australian unit trust, in number of vehicles outside of Belvino, including the 2011. Following the acquisition, CWT was de-listed and Qualco West vineyard purchased in 2011, and 3 vineyards renamed Belvino Investments Trust (“Belvino”). There are in Margaret River acquired in October 2012. 15 vineyards in Belvino’s portfolio, along with irrigation water entitlements. Together, these cover around 4,838 Spanning some 510 hectares (approximately 55 million hectares (approximately 521 million sq. ft.) of land in sq. ft.) of land, the Qualco West vineyard is located in the Australasia. Riverland Wine Region in South Australia. The Riverland wine region is Australia’s largest wine grape producing region. 8 CK Life Sciences Int’l., (Holdings) Inc. The 3 vineyards in Margaret River comprise the Old With a history dating back to 1888, Cheetham is Land Vineyard, the Rowe Road Vineyard and the Lionel Australasia’s largest producer of salt for domestic Vineyard. Located in a premium wine-growing region consumption. It has a production capacity of 3 hours south of Perth in Western Australia, these approximately 800,000 tonnes of crude salt and the 3 vineyards cover a total area of approximately 300 ability to convert up to 600,000 tonnes of this into hectares (approximately 32 million sq.