TIDMCMSH
RNS Number : 7211J
China Medical Systems Holdings Ltd
06 April 2010
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| For Immediate Release | 6 April 2010 |
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NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE
OR IN PART, IN, INTO OR FROM THE UNITED STATES OF AMERICA, AUSTRALIA, CANADA OR
JAPAN OR ANY OTHER JURISDICTION WHERE TO DO SO MIGHT CONSTITUTE A VIOLATION OF
THE RELEVANT LAWS OR REGULATION.
China Medical System Holdings Ltd.
(CMS or the Company)
Preliminary Results
For the year ended 31 December 2009
China Medical System Holdings Ltd. (AIM: CMSH), a marketing and promotional
service provider in China for prescription pharmaceutical products, is pleased
to announce its preliminary results for the year ended 31 December 2009.
Results are reported in US dollar currency unless otherwise stated.
Financial Highlights:
l Sales up 32.9% to $96.5M (2008: $72.6M)
l Gross Profit up 35.9% to $60.9M (2008: $44.8M)
l Net Profit up 38.4% to $20.8 million (2008: $15 .0 million)
l Basic EPS and Diluted EPS up 38.3% and 37.7% to $0.437 and $0.435
respectively
(2008: $0.316 for both)
l Total dividend per share for the year up 33.3%, to $0.20 per share (2008:
$0.15 per
share)
Operational Highlights
l Exceptional sales increase of our in-licensed products:
Deanxit $44.5M 21.1%
increase (2008:$36.7M)
Ursofalk $28.3M 34.4%
increase (2008:$21.1M)
Stulln $6.1M39.9% increase (2008:$4.4M)
GanFuLe $4.8M22.3% increase (2008:$3.9M)
XinHuoSu $7.3M 155.5% increase (2008:$2.8M)
Salofalk $1.8M 1,271.4% increase
(2008: $0.1M)
Cystistat $0.5M680.3% increase
(2008:$0.1M)
l The Imported Drug License of Cystistat was renewed in March 2009
l Expanded sales & marketing network by employing over 250 new staff
(total sales and marketing team of over 750)
l Forbes Magazine accreditation for 2010 Forbes China Up & Comers
Commenting on the results, Mr Kong Lam, Chairman & CEO said:
2009 was another exciting and successful year for CMS. During the year we
delivered strong organic growth from our existing product portfolio. We have
rich experience in cooperating with overseas pharmaceutical companies and have a
proven track record and devoted management team. We intend to continue to grow
our existing products¡¯ market share, as well as expand our product portfolio to
add at least two additional products each year to increase our revenue.
For further information, please contact:
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| China Medical System Holdings Ltd | + (852) 2369 3889 |
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| Vincent Hui | |
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| Seymour Pierce | + 44 (0)20 7107 8344 |
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| Chris Howard | |
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The information contained in this document is not for release, publication or
distribution, directly or indirectly, in whole or in part, in, into or from in
the United States of America (including its territories and possessions, any
state of the United States and the District of Columbia). These materials do not
contain, constitute or form part of an offer to sell or the solicitation of an
offer to purchase securities in the United States. The securities referred to
herein (the "Securities") have not been and will not be registered under the US
Securities Act of 1933, as amended (the "Securities Act"), and may not be
offered or sold in the United States absent registration under the Securities
Act except pursuant to an available exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act. There will be
no public offer of the Securities in the United States.
CHAIRMAN & CEO'S STATEMENT
2009 was another exciting and successful year for CMS. We reached record sales
of $96.5M, representing an increase of32.9% from 2008 ($72.6M), and nearly
doubled the sales of 2007 ($51.7M), which is the year of our AIM listing. In
addition, net profit and net cash from operating activities also reached record
levels in 2009 amounting to $20.8M and $15.5M respectively.
Having established our Group15 years ago with the aim of introducing quality
products to patients and healthcare practitioners in China, CMS has continued to
look for in-licensing opportunities for prescription drugs with large market
potential or unmet medical needs in China. We primarily target overseas and
domestic pharmaceutical companies with limited promotion capability in China,
and seek to promote and sell their products on an exclusive basis using our
extensive professional marketing network.
During the year we delivered strong organic growth from our existing product
portfolio. We benefit from economies of scale in relation to sales and
promotional expenses for new products by leveraging our well-established sales
and promotion network to add new products to our existing portfolio. At the time
of releasing our 2009 interim results, we reported that we had put strong
efforts into identifying potential products and were having ongoing discussions
with potential suppliers. Although we did not bring in new products in the
fiscal year of 2009, we were delighted to add Bioflor and Exacin to our
portfolio in early 2010, and look forward to cooperating with Biocodex and Asahi
Kasei Pharma Corporation, being the suppliers of Bioflor and Exacin
respectively. The strong growth in sales and the addition of these products
validate the strength of our business model and growth strategy.
In 2009, following a strategic review of our businesses, we decided to dispose
both of our R&D operations (Healthlink Inc. and its subsidiaries) and medical
devices business to focus solely on providing sales, marketing and promotional
services to overseas or domestic specialty pharmaceutical companies. Both
disposals were completed in December of 2009. We believe we will benefit further
by focusing our resources on the sale and promotion of prescription
pharmaceutical products.
The rate of growth we have achieved in the past year was helped by our dedicated
and capable employees as well as our devoted and competent management team. We
appreciate the efforts of our staff, and understand the importance of attracting
and retaining high caliber employees. Therefore during the year we implemented
the Key Employee Benefit Scheme, being a long term incentive plan under which
awards may be granted to key employees of the Company and its subsidiaries, who
have been actively involved in the business development of the Group.
Dividend Declaration
The Company paid an interim dividend of $0.1 per ordinary share for the first
six months ended 30 June 2009. The Board is delighted to recommend a final
dividend for the year of $0.1 per ordinary share, giving a total of $0.2 per
ordinary share for the year. This represents a growth in dividends year-on-year
of 33.3%. Payment of the final dividend is subject to the shareholder¡¯s
approval at the Annual General Meeting (¡ AGM¡±) on 4 May 2010.
The final dividend will be paid on 14 May 2010 to shareholders whose names
appear on the Company¡¯s register of members on 16 April 2010, with an
ex-dividend date of14 April 2010.
The AGM is scheduled to be held on 4 May 2010 at 10:00am (Macau time) at
Ballroom 3, Wynn Macau, rua cidade de sintra, Nape, Macau.
Operational Review
Marketing & Promotion
Pharmaceutical marketing and promotion is an important component of informing
and educating healthcare practitioners about our pharmaceutical products,
updating and raising their awareness of available treatments, and hence
generating demand for such treatments.
Over the past 15 years, CMS has established a nationwide sales, marketing and
promotion network that comprises more than 750 staff covering over 5,000
hospitals (including about 150 Military hospitals) in over 1,100 PRC cities
(including municipal and county - level cities) across 30 provinces. More than
78% of our sales team graduated from medical schools or have pharmaceutical
backgrounds. Our hospital network (excluding military hospitals) covers 80% of
the class-three hospitals and 35% of the class-two hospitals in China. Our
sales, marketing and promotion network gives our suppliers direct access to more
than 38,000 physicians. Our professional medical representatives strengthen
product recognition by targeting physicians on our network and through them
generate demand for our products.
CMS maintains a centralised product training program to ensure that all our
medical representatives are adequately informed and educated about each
product¡¯s clinical use, benefits, side effects and other clinical aspects, so
that they can employ an academic approach to promote the products to the
targeted physicians and build up brand awareness.
In order to further expand our sales network¡¯s coverage, we recruited more than
250 new staff to our sales team in 2009. The new addition of our medical
representatives will further add to our established sales team, and allow us to
expand our sales network¡¯s geographic reachand broaden our therapeutic
specialties.
For the full year ended 31 December 2009, total sales were $96.5M, representing
an increase of 32.9% from 2008 (2008: $72.6M). We applied our experience from
Deanxit and Ursofalk, our two best sellers, to our introductory stage products,
and in 2009 we saw outstanding progress in sales of these introductory stage
products. Sales of Stulln, GanFuLe, XinHuoSu, Cystistat and Salofalk amounted to
$20.5M, representing an increase of 80.9% from 2008 (2008: $11.3M). Sales
derived from our growth stage products (Deanxit and Ursofalk) amounted to $72.8M
from $57.8M in 2008, representing an increase of 26.0%. This healthy development
in the overall sales trend is in-line with our goal to diversify our revenue
source and reduce dependence on a few products.
In 2009, we sponsored various medical conferences and medical symposia across
the nation to enhance brand awareness of our products, which, we believe, is
instrumental in helping us to further expand the market share of our products.
A brief review of the major products in our portfolio is as follows:
Growth Stage Products
Our proven track record in successfully promoting and selling prescription
pharmaceutical products in China has led to the growth of our business. In
particular, Deanxit and Ursofalk are two products which we have promoted
exclusively in China for over 10 years. Sales of both of these products have
been growing steadily, reaching an annual turnover of $44.5M and $28.3M
respectively in 2009, which represent CAGRs (2007-2009) of 30.4% and 38.6%
respectively. The success of these two products demonstrates our ability and
proficiency in positioning and promoting pharmaceutical products to healthcare
practitioners, and our ability to generate further demand for the products in
the Chinese pharmaceutical market. During 2009, the total sales of these two
products accounted for 75.5% of total revenue, representing a decrease of 4.1%
from 2008 (2008: 79.6%).
Deanxit Tablet (Flupentixol and Melitracen Tablets)
Sales of Deanxit, our largest revenue contributor, increased by 21.1% to $44.5M
in 2009 (2008:$36.7M) as we continued to expand our promotion activities in
China. Deanxit is used for treatment of mild to moderate depression and anxiety.
As of December 31, 2009, we sold Deanxit to over 4,100 hospitals (including
Military hospitals) across 28 provinces in China. Deanxit has been included in
the Class B Drug Catalogue of National Basic Medical Insurance since 2009, which
significantly reduced the costs to patients.
Launched in 1997, Deanxit is currently one of the leading antidepressants in
China. According to the Frost Report, Deanxit was ranked No.2 in terms of
revenue in China in 2009. In 1997, Mr. Lam obtained an exclusive right to
distribute Deanxit in China (excl. Hong Kong and Macau) and in 1999, we entered
into a five-year exclusive agreement with A/S Lundbeck Overseas Ltd. of Denmark
to promote and sell Deanxit in China. In 2008, we successfully renewed the
agreement for another five years.
Sales of Deanxit have increased at a CAGR of 30.4% from 2007 to 2009, and we
attributed the strong growth to our extensive promotion network and our focus on
promoting the use of Deanxit for treatment of psychosomatic diseases.
Ursofalk Capsules (Ursodesoxycholic Acid or UCDA)
Sales of Ursofalk, our second largest revenue contributor, increased by 34.4% to
$28.3M in 2009 (2008: $21.1M). Ursofalk is primarily used in the dissolution of
cholesterol gallstones, cholestatic liver disease and gastritis. As of December
31, 2009, we sold Ursofalk to over 2,200 hospitals (including Military
hospitals) across 29 provinces in China. UCDA has been included in the Drug
Catalogue of National Basic Medical Insurance, and added in the new National
Essential Drug List in China released in 2009, which further increased customer
demand.
We introduced Ursofalk to the Chinese market in 1998. According to the Frost
Report, Ursofalk was the No.1 drug in China¡¯s Cholagogue market in 2009
accounting for 55.9% of market share. We entered into an exclusive agreement
with Dr. Falk Pharma of Germany for the sales and marketing of Ursofalk in China
in 1998. The contract was automatically renewed in 2009 and will expire in 2014
after fulfilling the annual minimum order quantities we agreed with Dr. Falk
Pharma.
During the year, CMS hosted the meeting of clinical research on the treatment of
Drug Induced Liver Injury to introduce the efficacy and safety of Ursofalk.
Additionally, Ursofalk continued to take part in different academic activities,
such as ¡ Seminar of expert consensus on the diagnosis and treatment of
cholestatic liver disease¡± and ¡ Summit Forum of Fatty Liver Disease¡±. With
the continuous efforts from Dr. Falk and CMS, we believe Ursofalk will continue
its healthy sales growth and maintain its market leading position.
Main Introductory Stage Products
CMS has held the exclusive rights in China to promote and sell Stulln since 2006
and GanFuLe since 2007, and further obtained the exclusive promotion and selling
rights for XinHuoSu, Salofalk and Cystistat in 2008. We are able to leverage
our established sales network and promotion expertise to enhance the sales of
our newly introduced products. Sales of Stulln increased at a CAGR of 42.9% from
2007-2009, while sales of GanFuLe increased at at a CAGR of 35.6 % from 2007 to
2009. Compared with 2008, sales of XinHuoSu, Salofalk and Cystistat increased
by 155.5%, 1,271.4% and 680.3% in 2009, respectively. Total revenue contributed
from these five new products increased from 15.6% in 2008 to 21.3% in 2009.
Augentropfen Stulln Mono Eye-drops
Augentropfen Stulln Mono (ASM) is an imported eye-drop approved by SFDA for the
treatment of senile macula degeneration (SMD). ASM is also approved as treatment
for all forms of ocular asthenopia. Sales of ASM increased by 39.9% to $6.1M in
2009 (2008: $4.4M) as we continue to sell the product in more hospitals.
ASM is a product of Pharma Stulln GmbH, Germany. We first obtained the exclusive
right to promote and sell ASM in China in 2006, and then acquired the exclusive
agency right in China in 2008. Since 2007, we have sponsored many nationwide
academic conferences and seminars to build up the brand awareness. In 2009,
CMS achieved positive progress in promoting ASM for ocular asthenopia and
we organized several different conferences, such as the conference on ¡ Results
discussion of national multi-center clinical study on the efficacy and safety of
Stulln in the treatment of Asthenopia¡±. As a result, we successfully expanded
the number of hospitals that prescribe ASM from 200 in 2007 to over 1,000
hospitals in 2009.
GanFuLe (GFL)
Sales of GanFuLe increased by 22.3% to $4.8M in 2009 (2008: $3.9M). GFL was
introduced in 2007 and is a traditional Chinese medicine used to treat primary
liver cancer, hepatitis B and cirrhosis with specified symptoms. GFL is included
in the Drug Catalogue of National Basic Medical Insurance which helps to promote
wider prescription in the market. In addition, the product was granted a
seven-year National Second Grade Traditional Chinese Medicine Protection
expiring in July 2013, during which time, other manufacturers are not allowed to
produce the product.
We entered into an exclusive agreement with Huahe Pharmacy Lengshuijiang
Pharmaceutical Co. Ltd for the sales and marketing of GFL in southern regions of
China in 2007, which was renewed in 2010, and will expire in 2014.
As GFL receives more recognition from physicians, we are confident we will
continue to gain market share.
XinXinHuoSu (Lyophilized Recombinant Human Brain Natriuretic Peptide rhBNP)
XinHuoSu was introduced in 2008. Sales of XinHuoSu increased by 155.5% to $7.3M
in 2009 (2008: $2.8M). This product is used for acutely decompensated congestive
heart failure (¡ ADHF¡±) patients who have dyspnea at rest or with minimal
activity. XinHuoSu is classified as a National Class One New Drug by the SFDA.
We entered into an exclusive agreement with Tibet Rhodiola Co. Ltd, for the
sales and marketing of XinHuoSu in China in 2008, which expires by 2010 and may
be renewed for another 3 years if we meet the minimum order quantities.
As of December 31, 2009, we were able to expand the number of hospitals
prescribing XinHuoSu from 249 to over 400, and sales in 2009 more than doubled
that of 2008.
Cystistat (Sodium Hyaluronate)
Cystistat is used with a medical device for the temporary replacement of the
glycosaminoglycan (GAG) layer in the bladder caused by Interstitial cystitis
(IC). We entered into an exclusive agreement with Bioniche Teoranta to promote
and sell Cystistat in China in 2008 and the term of the agreement is five years
with automatic renewal if minimum order quantity is satisfied. Sales of
Cystistat was $0.5M in 2009
Salofalk (Mesalazine)
Salofalk is prescribed for the treatment of Ulcerative Colitis and the acute
exacerbations of Crohn¡¯s disease. This is the second product we in-licensed
from Dr. Falk Pharma, and we entered into an exclusive agreement to market and
sell the product in China in 2008 for a term of 5 years. Salofalk is included in
the Class B Drug Catalogue of National Basic Medical Insurance.
In 2009, we sponsored many conferences to introduce the Company and the product
to the market. We were able to leverage our existing relationship withdoctors to
build up the expert network for Salofalk, which assisted us in educating the
physicians about the clinical benefits of the drug. We also co-sponsored Falk
Symposium in Shanghai with support from Falk Foundation, which provided a
platform for the local physicians to exchange experiences with the
internationally renowned Professor G.Adler (Professor of internal medicine of
University Ulm), and helped to establish brand awareness of Salofalk amongst the
Chinesehealthcare practitioners.
Sales in 2009 amounted to $1.8M, and we believe its sales will be further
increased through our established network.
Outlook & Summary
According to reports prepared by IMS Health in 2009 on the state of the global
pharmaceutical market (the ¡ IMS Reports¡±), whilst the global pharmaceutical
market is expecting single digit growth as it navigates through the current
challenging economic climate, China¡¯s pharmaceutical sector grew by 26% in 2008
and is expected to drive $40 billion in growth through 2013. According to the
IMS Reports, China was the sixth largest pharmaceutical market in 2009 and will
become the third biggest by 2011. The strategic importance of China for many
Western pharmaceutical companies has become increasingly apparent, but
regulatory and cultural differences have made it difficult for overseas
pharmaceutical companies to directly penetrate the China market. As the leading
marketing and promotional service provider in China for prescription
pharmaceutical products according to the Frost Report, we are confident that we
can assist such companies in entering into the Chinese market.
We have rich experience in cooperating with overseas pharmaceutical companies
and have a proven track record and devoted management team. We intend to
continue to grow our existing products¡¯ market share, as well as expand our
product portfolio to add at least two additional products each year to increase
our revenue. We aim at continuously delivering satisfactory results to our
in-licensing partners, and as our market and therapeutic reach expands, we
believe we can continue to attract new suppliers of quality products.
We look forward to 2010 with confidence, we believe we have the team and
strategy in place to deliver on our above goals. As supported by our strong
cashflow and balance sheet, we are well positioned to capitalize on potential
acquisition opportunities when they become available.
Post Balance Sheet Event
Bioflor
Bioflor (Saccharomyces boulardii), produced by Biocodex of France, is a
probiotic antidiarrheal product mainly used in the prevention and treatment of
diarrhea, found in adults and children. Biocodex, founded in 1953, is an
independent, family-owned French pharmaceutical company specializing in
Gastroenterology, Pain Treatment, Neurology and Psychiatry. We signed an
agreement with Biocodex for the exclusive sales and promotion of Bioflor capsule
and sachet in China in February 2010 for a duration of five years.
Exacin
Exacin (Isepamicin Sulfate) is an aminoglycoside antibiotic product developed
and produced by Asahi Kasei Pharma. Corporation (¡ Asahi Kasei Pharma¡±), and it
has been imported in China since 2004 and is approved by the SFDA for treatment
of sensitive bacteria causing septicaemia, secondary infections arising from
trauma, burns and surgery as well as chronic bronchitis, bronchiectasis,
pneumonia, pyelonephritis, cystitis and peritonitis. Asahi Kasei Pharma has
acquired a one-time import permit from the State Food and Drug Administration of
the People's Republic of China (SFDA) for Exacin, while the Imported Drug
License is under renewal. We recently contracted with Asahi Kasei Pharma
Corporation who granted us the rights to promote the one-time imported Exacin in
China (excluding Hong Kong and Macau).
Kong Lam
Chairman & CEO
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2009
20092008
US$'000 US$'000
Turnover
2 96,454 72,600
Cost of goods sold
(35,596) (27,835)
_______ _______
Gross profit
60,858 44,765
Other gains and losses
3 662 2,690
Selling expenses
(24,840) (18,631)
Administrative expenses
(7,399) (6,940)
Research and development costs
(2,038) (2,275)
Finance costs
4 (390) (226)
Share of results of associates
30 152
Share of result of a jointly controlled entity
43 -
_______ _______
Profit before taxation
26,926 19,535
Taxation
5 (6,096) (4,487)
_______ _______
Profit for the year
6 20,830 15,048
_______ _______
Other comprehensive income
Exchange differences from translation
70 2,880
Share of changes in reserve of an associate
(1) 36
Fair value changes on cash flow hedges
(145) -
_______ _______
Total comprehensive income for the year
20,754 17,964
_______ _______
Profit for the year attributable to:
Owners of the Company
20,684 14,946
Minority interests
146 102
_______ _______
20,830 15,048
_______ _______
_______ _______
Total comprehensive income attributable to:
Owners of the Company
20,608 17,877
Minority interests
146 87
_______ _______
20,754 17,964
_______ _______
_______ _______
Earnings per share
7
Basic
0.437 0.316
_______ _______
_______ _______
Diluted
0.435 0.316
_______ _______
_______ _______
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT 31 DECEMBER 2009
20092008
US$'000 US$'000
Non-current assets
Property, plant and equipment
3,575 5,459
Prepaid lease payments
260 267
Interest in a jointly controlled entity
43 -
Interest in an associate
1,507 535
Intangible assets
8 6,461 7,575
Goodwill
379 581
Deferred tax assets
1,432 1,073
_______ _______
13,657 15,490
_______ _______
Current assets
Inventories
11,060 5,945
Trade and other receivables
9 32,794 27,684
Amount due from an associate
- 172
Amount due from a jointly controlled entity
481 -
Amounts due from a director
- 43
Held for trading investments
31 -
Pledged bank deposits
17,641 1,060
Bank balances and cash
15,113 20,100
_______ _______
77,120 55,004
_______ _______
Current liabilities
Trade and other payables
10 11,062 9,252
Dividends payable
- 5
Bank borrowings - secured
16,517 -
Deferred consideration payables
838 685
Derivative financial instruments
145 -
Tax payable
1,226 813
_______ _______
29,788 10,755
_______ _______
Net current assets
47,332 44,249
_______ _______
Total assets less current liabilities
60,989 59,739
_______ _______
_______ _______
NOTES20092008
US$'000 US$'000
Capital and reserves
Share capital
11 4,741 4,725
Reserves
48,992 48,065
_______ _______
Equity attributable to equity holders
of the Company
53,733 52,790
Minority interests
201 (69)
_______ _______
53,934 52,721
_______ _______
Non-current liabilities
Deferred tax liabilities
1,764 839
Deferred consideration payables
5,291 6,179
_______ _______
7,055 7,018
_______ _______
60,989 59,739
_______ _______
_______ _______
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2009
20092008
US$'000 US$'000
Operating activities
Profit before taxation
26,926 19,535
Adjustments for:
Share of results of associates
(30) (152)
Share of result of a jointly controlled entity
(43) -
Discount on acquisition of an associate
(647) -
Amortisation of intangible assets
1,115 793
Depreciation of property, plant and equipment
898 772
Release of prepaid lease payments
7 7
Interest income
(329) (221)
Imputed interest income on available-for-sale
investment
- (20)
Interest expenses
43 -
Imputed interest expense on deferred
consideration payable
347 226
Gain on disposal of property, plant and equipment
(7) (2)
Impairment loss recognised on property, plant
and equipment
805 -
Gain on disposal of a subsidiary
(24) -
Loss on disposal of an associate
70 -
Allowance for inventories
10 119
Allowance for bad and doubtful debts
57 23
_______ _______
Operating cash flows before movements in
working capital
29,198 21,080
(Increase) decrease in inventories
(5,226) 5,347
Increase in trade and other receivables
(5,287) (7,526)
Increase in held for trading investments
(31) -
Decrease (increase) in amount due from
an associate
172 (8)
Increase in amount due from a jointly controlled
entity
(481) -
Decrease (increase) in amounts due from directors
43 (23)
Increase (decrease) in trade and other payables
2,284 (5,011)
_______ _______
Cash generated from operations
20,672 13,859
PRC Enterprise Income Tax paid
(5,008) (3,637)
Hong Kong Profits Tax paid
(115) (47)
_______ _______
Net cash from operating activities
15,549 10,175
_______ _______
20092008
US$'000 US$'000
Investing activities
Purchase of property, plant and equipment
(280) (959)
Capital injected in an associate
- (149)
Increase in pledged bank deposits
(16,581) (1,060)
Interest received
329 221
Dividend received from an associate
235 -
Proceeds from disposal of available-for-sale
investment
- 187
Proceeds from disposal of property, plant
and equipment
120 16
Cash outflow from disposal of a subsidiary
(1) -
Proceeds from disposal of an associate
439 -
Acquisition of an associate
(877) -
_______ _______
Net cash used in investing activities
(16,616) (1,744)
_______ _______
Financing activities
Dividends paid
(9,471) (7,082)
Cash outflow from distribution in specie
(10,068) -
Repayment of deferred consideration payables
(1,245) (137)
Proceeds from issue of shares
451 -
New bank borrowings raised
16,517 -
Dividends paid to a minority shareholder
(206) -
_______ _______
Net cash used in financing activities
(4,022) (7,219)
_______ _______
Net (decrease) increase in cash and cash
equivalents
(5,089) 1,212
Cash and cash equivalent at beginning of the year
20,100 17,601
Effect of foreign exchange rate changes
102 1,287
_______ _______
Cash and cash equivalent at end of the year,
represented by bank balances and cash
15,113 20,100
_______ _______
_______ _______
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2009
1. GENERAL
The Company was incorporated as an exempted company with limited liability in
the Cayman Islands on 18 December 2006. On 26 June 2007, the Company was listed
on the Alternative Investment Market ("AIM") operated by the London Stock
Exchange plc. The Company's ultimate holding company and immediate holding
company is Treasure Sea Limited, a company incorporated in the British Virgin
Islands. The address of the Company\'s registered office is P.O. Box 309GT,
Ugland House, South Church Street, George Town, Grand Cayman, Cayman Islands.
The address of its principal place of business is 8/F., Block A, Tong Fong
Information Centre, Long Shan Road, Nan Shan, Shenzhen, the People's Republic of
China (the "PRC").
The Company is an investment holding company. The principal activities of its
subsidiaries are production of medicines, distribution and import of drugs and
medical devices and research and development on microbiology related drugs.
The functional currency of the Company is Renminbi as it is the
currency in which the majority of the Group's transactions are denominated. The
consolidated financial statements of the Group are presented in United States
Dollars ("US$") as the directors consider this presentation to be more useful
for its current and potential investors.
2. TURNOVER AND SEGMENT INFORMATION
Turnover represents the net amount received and receivable for goods sold during
the year.
The Group has adopted IFRS 8 "Operating segments" with effect from 1 January
2009. IFRS 8 is a disclosure standard that requires operating segments to be
identified on the basis of internal reports about components of the Group that
are regularly reviewed by the chief operating decision maker for the purpose of
allocating resources to segments and assessing their performance. In contrast,
the predecessor Standard (IAS 14 "Segment reporting") required an entity to
identify two sets of segments (business and geographical) using a risks and
returns approach. As a result of the adoption of IFRS 8, the identification of
the Group's reportable segments has changed. In prior year, the Group's
operation is regarded as a single segment, being an enterprise engaged in
production of medicine, distribution and import of drugs and medical devices and
research and development on microbiology related drugs. However, information
reported to the chief operating decision maker for the purpose of resources
allocation and assessment of performance focuses more specifically on the types
of products sold. Therefore, on adoption of IFRS 8, management has identified
the following reportable segments: promotion and sales of pharmaceutical
products and others.
For the purpose of resources allocation and performance assessment,
the chief operating decision maker reviews operating results of pharmaceutical
products by product basis. Each product is identified as an operating segment
in accordance with IFRS 8. When the pharmaceutical product is operating in
similar business model with similar target group of customers, the Group's
operating segments are aggregated into promotion and sales of pharmaceutical
products.
The Group's reportable operating segments under IFRS 8 for the year
ended 31 December 2008 were originally three operations: promotion and sales of
pharmaceutical products, research and development and others. The Group changed
the structure of its internal organisation in a manner that causes the
composition of its reportable segments reduced to two operations: promotion and
sales of pharmaceutical products and others. The composition of its reportable
segments for the year ended 31 December 2008 was restated. The segment result
for the year ended 31 December 2008 on the reportable segment of the research
and development has been reclassified to other gains and losses, administrative
expenses and research and development costs by US$3,000, US$280,000 and
US$2,022,000 respectively.
No analysis of the Group's assets and liabilities by operating
segments is disclosed as it is not regularly provided to the chief operating
decision maker for review.
The Group's reportable operating segments under IFRS 8 are the following two
operations:
(1) Promotion and sales of pharmaceutical products - promotion and sales
of in-licensed medicine and pharmaceutical products from overseas and domestic
pharmaceutical companies to wholesale customers across China, including
distributors and hospitals; and
(2) Others - production and sales of other medicine and pharmaceutical
products to wholesale customers across China, including distributors and
hospitals and production and sales of medical instruments.
2. TURNOVER AND SEGMENT INFORMATION - continued
The segment information is as follows:
For the year ended 31 December 2009
Promotion and
sales of
pharmaceutical
productsOthersEliminationConsolidated
US$'000 US$'000 US$'000 US$'000
External segment revenue 93,752
2,702 - 96,454
Inter-segment revenue -
2,100 (2,100) -
_______ _______ _______ _______
Revenue
93,752 4,802 (2,100) 96,454
_______ _______ _______ _______
_______ _______ _______ _______
Segment results
58,419 2,439 - 60,858
_______ _______ _______ _______
Other gains and losses
662
Selling expenses
(24,840)
Administrative expenses
(7,399)
Research and development costs
(2,038)
Finance costs
(390)
Share of results of associates
30
Share of result of a jointly controlled
entity
43
_______
Profit before taxation
26,926
_______
For the year ended 31 December 2008
Promotion and
sales of
pharmaceutical
productsOthersEliminationConsolidated
US$'000 US$'000 US$'000 US$'000
External segment revenue 69,595
3,005 - 72,600
Inter-segment revenue -
4,496 (4,496) -
______ _______ _______ _______
Revenue
69,595 7,501 (4,496) 72,600
______ _______ _______ _______
Segment results 42,237
2,528 - 44,765
______ _______ _______ _______
Other gains and losses
2,690
Selling expenses
(18,631)
Administrative expenses
(6,940)
Research and development costs
(2,275)
Finance costs
(226)
Shares of result of an associate
152
______
Profit before taxation
19,535
_______
_______
2. SIGNIFICANT ACCOUNTING POLICIES - continued
Inter-segment revenue are conducted at prices and terms mutually agreed amongst
those business segments.
The accounting policies of the reportable segments are the same as the Group's
policies. Segment results for the promotion and sales of pharmaceutical
products and others reportable segments represented the gross profit of the
relevant operations. This is the measure reported to the chief operating
decision maker for the purpose allocation and performance assessment.
Other segment information
Promotion and
sales of
pharmaceutical
productsOthersTotal
US$'000 US$'000 US$'000
Amounts included in the measure
of segment profit:
2009
Depreciation and amortisation
1,115 391 1,506
Allowance for inventories
- 10 10
_______ _______ _______
_______ _______ _______
2008
Depreciation and amortisation
793 392 1,185
Allowance for inventories
- 119 119
_______ _______ _______
_______ _______ _______
The Group primarily operates in the PRC. All revenue for external
customers are attributed to the PRC and all non-current assets of the Group are
located in the PRC.
Revenue from major products
The following is an analysis of the Group's revenue from its major products:
20092008
US$'000 US$'000
Deanxit
44,468 36,710
Ursofalk
28,327 21,074
Augentropfen Stulln Mono Eye-drops
6,146 4,394
GanFuLe
4,780 3,910
XinHuoSu
7,253 2,839
Salofalk
1,824 133
Cystistat
515 66
Others
3,141 3,474
_______ _______
Total
96,454 72,600
_______ _______
_______ _______
3. OTHER GAINS AND LOSSES
20092008
US$'000 US$'000
Service fee income
- 771
Net exchange (loss) gain
(405) 743
Government subsidies (Note)
801 623
Interest income
329 221
Gain on disposal of a subsidiary
24 -
Loss on disposal of an associate
(70) -
Fair value change on investments held for trading
81 158
Imputed interest income on available-for-sale investment
- 20
Gain on disposal of property, plant and equipment
7 2
Impairment loss recognised on property, plant and
equipment
(805) -
Discount on acquisition of an associate
647 -
Others
53 152
_______ _______
662 2,690
_______ _______
_______ _______
Note: The amount represents the incentive subsidies provided by
the PRC local authorities to the Group to encourage performance of the research
and development. There are no specific conditions attached to the grants, the
Group recognised the grants upon receipts.
4. FINANCE COSTS
20092008
US$'000 US$'000
Interest on bank loans wholly repayable within
five years
43 -
Imputed interest on deferred consideration payable
347 226
_______ _______
390
226
_______ _______
_______ _______
5. TAXATION
20092008
US$'000 US$'000
Current tax:
PRC Enterprise Income Tax
5,443 4,236
Hong Kong Profits Tax
97 63
Other jurisdictions
6 6
_______ _______
5,546 4,305
_______ _______
Overprovision in prior years
PRC Enterprise Income Tax
(11) (21)
_______ _______
Deferred taxation:
- Current year
561 203
_______ _______
Taxation charge for the year
6,096 4,487
_______ _______
_______ _______
The provision for PRC Enterprise Income Tax is based on the estimated taxable
income for PRC taxation purposes at the rate of taxation applicable to each
year.
On 16 March 2007, the PRC promulgated the Law of the PRC on
Enterprise Income Tax (the "New Law") by Order No. 63 of the President of the
PRC. On 6 December 2007, the State Council of the PRC issued Implementation
Regulation of the New Law. Under the New Law and Implementation Regulation, the
Enterprise Income Tax rate of the Company's subsidiaries in the PRC was
increased from 15% to 25% progressively from 1 January 2008 onwards. The
deferred tax has been adjusted to reflect the tax rates that are expected to
apply to the respective periods when the assets are realized or the liabilities
are settled.
For the year ended 31 December 2009, the Enterprise Income Tax rate of Shenzhen
Kangzhe Pharmaceutical Company Limited ("Shenzhen Kangzhe") and Shenzhen Kangzhe
Medical Instrument Limited ("Kangzhe Medical") was increased from 18% to 20%.
Certain PRC subsidiaries are eligible for certain tax concession in the PRC.
Pursuant to relevant laws and regulation, Kangzhe (Hunan) Medical Co. Ltd.
("Hunan Kangzhe") is entitled to a tax reduction to 15% for three years starting
from 1 January 2006 granted by the Hunan Province Government. After year ended
31 December 2008, Hunan Kangzhe is entitled to such a tax concession under
annual renewal basis. For year ended 31 December 2009, Hunan Kangzhe continued
to entitle to a tax reduction to 15% (2008: 15%).
Pursuant to the Labuan Offshore Business Activity Tax Act 1990 ("Labuan Tax
Act") in Malaysia, CMS Pharmaceutical Agency Co., Ltd. ("CMS Pharmaceutical") is
eligible to elect to pay a lump sum taxation charge of MYR 20,000 (equivalent to
approximately US$6,000) or 3% on net audited profits. CMS Pharmaceutical
elected to pay a lump sum tax.
On 26 June 2008, the Hong Kong Legislative Council passed the
Revenue Bill 2008 which reduced corporate profits tax rate from 17.5% to 16.5%
effective from the year of assessment 2008/2009. Therefore, Hong Kong Profits
Tax is calculated at 16.5% of the estimated assessable profit for both years.
5. TAXATION - continued
The taxation for the year can be reconciled to the profit before taxation per
the consolidated statement of comprehensive income as follows:
20092008
US$'000 US$'000
Profit before taxation
26,926 19,535
_______ _______
_______ _______
Tax at the applicable tax rate at 20% (2008: 18%) (Note)
5,385 3,516
Tax effect of share of result of a jointly controlled entity
(9) -
Tax effect of share of results of associates
(6) (27)
Tax effect of expenses that are not deductible in determining
taxable profit
575 340
Tax effect of income that is not taxable in determining
taxable profit
(52) (122)
Tax effect of tax losses not recognised
223 438
Tax effect of tax concession
(28) (78)
Effect on different applicable tax rates of subsidiaries
(280) (265)
Effect of tax benefit arising from Labuan Tax Act
(629) (133)
Overprovision in prior years
(11) (21)
Utilisation of tax loss previously not recognised
- (3)
Deferred tax arising from withholding tax on undistributed
profit of a PRC subsidiary
925 839
Others
3
3
_______ _______
Taxation charge for the year
6,096 4,487
_______ _______
_______ _______
Note: The applicable PRC Enterprise Income Tax rate of 20% (2008: 18%) is the
prevailing tax rate in Shenzhen, the PRC, where the operations of the Group are
substantially based and the taxation charge mainly represents income tax of
Shenzhen Kangzhe.
6. PROFIT FOR THE YEAR
20092008
US$'000 US$'000
Profit for the year has been arrived at after charging:
Directors' remuneration
Fees
161 193
Other emoluments
340 328
Pension costs
15 12
_______ _______
516
533
Other staff costs
13,082 10,668
Pension costs
674 626
Key employee benefit expense
451 -
_______ _______
Total staff costs
14,723 11,827
_______ _______
Auditor's remuneration
150 135
Allowance for bad and doubtful debts
57 23
Allowance for inventories
10 119
Release of prepaid lease payments
7 7
Depreciation of property, plant and equipment
898 772
Amortisation of intangible assets
(included in cost of goods sold)
1,115 793
Cost of inventories recognised as an expense
34,078 25,753
Minimum lease payment under operating
lease in respect of property
621 591
_______ _______
_______ _______
7. EARNINGS PER SHARE
The calculation of the basic and diluted earnings per share attributable to the
owners of the Company is based on the following data:
20092008
US$'000 US$'000
Earnings for the purposes of basic and diluted earnings
per share (profit attributable to owners of the
Company)
20,684 14,946
_______ _______
_______ _______
Number of
ordinary shares
20092008
Weighted average number of ordinary shares for the
purpose of basic earnings per share
47,314,504 47,246,376
Effect of dilutive potential ordinary shares on share
options
256,635 -
__________ __________
Weighted average number of ordinary shares for the
purpose of diluted earnings per share
47,571,139 47,246,376
__________ __________
__________ __________
The computation of diluted earnings per share does not assume the
exercise of the Company's outstanding share options for the year ended 31
December 2008 as the exercise price of those options is higher than the average
market price of the Company's shares.
8. INTANGIBLE ASSETS
Exclusive Exclusive
distribution agency
rightrightTotal
US$'000 US$'000 US$'000
(Note a) (Note b)
COST
At 1 January 2008
671 - 671
Exchange adjustments
78 - 78
Additions
919 6,775 7,694
Transfer
(717) 628 (89)
_______ _______ _______
At 31 December 2008
951 7,403 8,354
Exchange adjustments
1 - 1
_______ _______ _______
At 31 December 2009
952 7,403 8,355
_______ _______ _______
AMORTISATION
At 1 January 2008
(61) - (61)
Exchange adjustments
(14) - (14)
Charge for the year
(302) (491) (793)
Transfer
89 - 89
_______ _______ _______
At 31 December 2008
(288) (491) (779)
Charge for the year
(294) (821) (1,115)
_______ _______ _______
At 31 December 2009
(582) (1,312) (1,894)
_______ _______ _______
CARRYING VALUES
At 31 December 2009
370 6,091 6,461
_______ _______ _______
_______ _______ _______
At 31 December 2008
663 6,912 7,575
_______ _______ _______
_______ _______ _______
8. INTANGIBLE ASSETS - continued
(a) Exclusive distribution right
(i) On 10 February 2007, the Group entered into a
supplemental agreement with Qingdao LeaguePharmaceutical Co., Ltd. (Qingdao
League), which gave the Group exclusive distribution right of Augentropfen
Stulln Mono ("Stulln"), which is a finished drug product under the trade name of
Augentropfen Stulln Mono in the PRC for a term of ten years with effect from 1
January 2007 to 31 December 2016. In the opinion of the directors of the
Company, the exclusive distribution right of Stulln was acquired by the Group in
connection with the Operation Agreement. Accordingly, the cost of the
intangible asset of exclusive distribution right amounting to US$644,000
obtained from Qingdao League was determined as the excess of the consideration
paid of US$770,000 over the fair value of the investment in Qingdao League as at
the date of acquisition of US$126,000. The expected useful life of the
exclusive distribution right of Stulln was 10 years.
The exclusive distribution right of Stulln was early terminated when
the Group entered into a supplementary agreement with Ophol Limited (¡ Ophol¡±)
and the supplier of Stulln in Germany in July 2008. The remaining unamortised
carrying amount of this exclusive distribution right of Stulln qualified as a
direct attributable cost in acquiring the exclusive agency right of Stulln,
pursuant to the Group entered into such supplementary agreement with Ophol and
the supplier of Stulln in Germany in July 2008 (see (b) below). Accordingly,
the remaining unamortised carrying amount of the exclusive distribution right of
Stulln amounting to US$628,000 was then transferred to the exclusive agency
right of Stulln. The details are set out in (b) below.
(ii) On 9 March 2008, the Group entered into an exclusive
distribution agreement and a supplementary agreement (the "Nesiritide
Agreements") with Tibet Rhodiola Pharmaceutical Holding Co., Ltd. ("Rhodiola")
in connection to a finished drug product (Lyophilized Recombinant Human Brain
Natriuretic Peptide) which is distributed in the PRC market since 2005 under the
trade name of Nesiritide for a term of three years with effect from 1 July 2008
to 30 June 2011.
Pursuant to the Nesiritide Agreements, the Group has
obtained the exclusive distribution right of Nesiritide at nil consideration and
has committed to handle the Phase IV clinical trials of Nesiritide for 2,000
cases in the PRC to meet the drug safety standards set by the Food and Drug
Administration in the PRC ("SFDA"). The drug, Nesiritide, to be used in the
2,000 case clinical trials will be provided by Rhodiola free of charge. All
other costs of the 2,000 case clinical trials should be borne by the Group. The
management of the Group estimates the total costs to be incurred for completion
of the 2,000 case clinical trials would be approximately RMB6,500,000
(equivalent to approximately US$919,000).
In the opinion of the directors of the Company, the
Group obtained the exclusive distribution right of Nesiritide on the basis that
the Group should complete the clinical trials of Nesiritide and bear all the
costs of the clinical trials. Therefore, the costs to be incurred in clinical
trials of US$919,000 are capitalised as an intangible asset with corresponding
liability recognised.
The expected useful life of the exclusive distribution
right of Nesiritide is 3 years.
8. INTANGIBLE ASSETS - continued
(b) Exclusive agency right
On 26 April 2008, a transfer agreement was entered into between
Ophol, Qingdao League and Pharma Stulln GmbH ("Pharma", the supplier of Stulln
in Germany) in connection to the transfer of the exclusive agency right of
Stulln in the PRC from Qingdao League to Ophol at nil consideration. After
Ophol has obtained the exclusive agency right of Stulln in the PRC, Ophol agreed
to transfer such exclusive agency right to the Group on condition that the 51%
equity interest of Qingdao League owned by Shenzhen Kangzhe would be transferred
to Qingdao Leatu Trading Ltd. (¡ Qingdao Leatu¡±), a company which has common
shareholder with Ophol under the sale and purchase agreement entered with
Qingdao Leatu on 16 July 2008. On 15 July 2008, the Group entered into a
supplementary agreement with Ophol and Pharma in connection to the transfer of
exclusive agency right of Stulln, from Ophol to CMS Pharmaceutical Agency Co.,
Ltd. (¡ CMS Pharmaceutical¡±), a wholly-owned subsidiary of the Company, at a
consideration of RMB60,000,000 (equivalent to approximately US$8,779,000). CMS
Pharmaceutical will pay annually of RMB6,000,000 (equivalent to approximately
US$878,000) to Ophol over the next ten years to settle the consideration. The
directors of the Group recognise the payable as a deferred consideration in the
amount of US$6,775,000, which represents the present value of the consideration
of US$878,000 over next 10 years discounted at 5%. CMS Pharmaceutical has
replaced Qingdao League as the exclusive agent of Stulln for Pharma in the PRC
from 1 August 2008 to 31 July 2018.
The expected useful life of the exclusive agency right is 10 years.
9. TRADE AND OTHER RECEIVABLES
20092008
US$'000 US$'000
Trade receivables
20,959 17,441
Less: Allowance for bad and doubtful debts
(213) (221)
_______ _______
20,746 17,220
Bills receivables
9,513 7,062
Other receivables
2,535 3,402
_______ _______
Total trade and other receivables
32,794 27,684
_______ _______
_______ _______
The Group normally allows a credit period of three months to its trade
customers. Lengthened credit period up to four months was allowed to some
selected customers.
An aging analysis of the trade receivables net of allowance for bad
and doubtful debts at the respective reporting dates is as follows:
20092008
US$'000 US$'000
0 - 90 days
17,879 14,811
91 - 365 days
2,839 2,316
Over 365 days
28 93
_______ _______
20,746 17,220
_______ _______
_______ _______
9. TRADE AND OTHER RECEIVABLES - continued
The bills receivables of the Group are of the age within six months
at the end of the reporting period.
Management closely monitors the credit quality of trade and other receivables
and considers the trade and other receivables that are neither past due nor
impaired to be of a good credit quality.
Included in the Group's trade receivable balance are debtors with
aggregate carrying amount of US$4,476,000 (2008: US$4,291,000) which are past
due at the reporting date for which the Group has not provided for impairment
loss. Based on the historical experiences of the Group, trade receivables past
due but not impaired are generally recoverable. The Group does not hold any
collateral over these balances.
The following is an aging analysis of trade receivables which are
past due but not impaired:
20092008
US$'000 US$'000
0 - 90 days
2,274 2,127
91 - 365 days
2,174 2,071
Over 365 days
28 93
_______ _______
4,476 4,291
_______ _______
_______ _______
The Group has provided fully for all receivables over 3 years
because historical experience is such that receivables that are past due beyond
3 years are generally not recoverable.
Movement in the allowance for bad and doubtful debts:
20092008
US$'000 US$'000
Balance at beginning of the reporting period
221 307
Impairment losses recognised on receivables
57 23
Amount written off as uncollectible
(65) (127)
Currency realignment
- 18
_______ _______
Balance at end of the reporting period
213 221
_______ _______
_______ _______
Included in the allowance for bad and doubtful debts are
individually impaired trade receivables with an aggregate balance of US$213,000
(2008: US$221,000) which have either been placed under liquidation or in severe
financial difficulties. The Group does not hold any collateral over these
balances.
10. TRADE AND OTHER PAYABLES
An aging analysis of the trade payables presented based on the
invoice date at the end of the reporting period as follows:
20092008
US$'000 US$'000
0 - 90 days
6,067 5,562
91 - 365 days
5 24
Over 365 days
7 7
_______ _______
6,079 5,593
_______ _______
_______ _______
The average credit period on purchases of goods is 90 days.
11. SHARE CAPITAL
Number of
sharesAmount
'000 US$'000
Authorised share capital with nominal value of US$0.1 each:
At 31 December 2008 and 31 December 2009
1,000,000 100,000
_________ _______
_________ _______
Issued and fully paid:
At 31 December 2007 and 31 December 2008
47,246 4,725
Issue of shares
162 16
_________ _______
At 31 December 2009
47,408 4,741
_________ _______
_________ _______
On 31 July 2009, 162,528 new ordinary shares of US$0.1 of the
Company were issued at GBP1.68 per share (equivalent to US$2.78 per share) for
cash to the trust under the Key Employee Benefit Scheme (the "Scheme").
All the shares which were issued by the Company during the year
ended 31 December 2009 rank pari passu with each other in all respects.
12. APPROVAL OF THE FINANCIAL STATEMENTS
The financial statements were approved and authorised for issue by the Board of
Directors on 30 March 2010.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR GMGGDRVKGGZG
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