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Financials

Full Year Financial Statement And Dividend Announcement 2017

Financials Archive

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UNAUDITED FULL YEAR FINANCIAL STATEMENT AND DIVIDEND ANNOUNCEMENT FOR THE PERIOD ENDED 31 DECEMBER 2017

Profit and Loss

Income Statement 4Q2017

Consolidation statement of Comprehensive Income for the year

Comprehensive Income

Balance Sheet

Balance Sheet 4Q2017

Review of Performance

Overview

As announced on 15 February 2018, the Group recorded a significant drop in its profit in 4Q2017 and FY2017. During 4Q2017, the Group faced great challenges from the change of policies by implemented by the China central government. This new policy effectively changed the traditional multi-level distribution chain to a flatter one. As the distribution chain could only contain only one distributor and one customer, this has indirectly impacted the sales prices of the Group's medical products resulted in higher profit margin. However, the selling and distribution expenses increased drastically as the Group had to change it's way of distribution channel and networks in order to accommodate the change effected by the new policy.

In early December 2017, a new policy of Generic drugs (injections) called "Consistency evaluation" announced by China central government which had affected certain Research and Development ('R&D') projects of the Group. After comprehensive compliance assessments of the success rate, the future costs to be invested, the profitability and the future market conditions, the Group terminated some R&D projects and recorded RMB20.6 million impairment loss during 4Q2017.

In FY2017 the Group recorded RMB19.5 million in net loss attributable to equity holders and revenue obtained of RMB93.3 million.

Revenue

Group revenue increased 51% from RMB61.7 million in FY2016 to RMB93.3 million in FY2017 due to the higher selling price of drugs under "Two-Invoice System".

Revenue

Antibiotics drugs revenue increased 20% to RMB24.1 million in FY2017 due to increase in the revenue of Azithromycin Aspartate for Injection, Clindamycin Hydrochloride Injection and Sultamicrillin Tosilate Tablets which partially offset with the decrease of sales of Cefepime hydrochloride for Injection. Antibiotics accounted for 26% of Group revenue in FY2017, making it the second largest revenue of the Group.

Cardiovascular drugs and cerebrovascular drugs revenue increased 26% to RMB3.7 million in FY2017. This is mainly due to increase in the selling price of Vinpocetine for Injection. Cardiovascular drugs and cerebrovascular drugs represented 4% of Group revenue in FY2017.

Other specialized drugs revenue increased 70% to RMB65.5 million in FY2017 due to increase in revenue of Potassium Sodium Dehydroandrographolide Succinate for Injection, Amoxicillin and Dicloxacillin Sodium Tablets and Cobamamide for Injection. Other specialized drugs remained the largest revenue contributor constituting 70% of Group revenue in FY2017.

Profitability

Gross profit increased 143% to RMB52.0 million in FY2017 owing to higher selling price of drugs under "Two-Invoice system".

Other operating income increased 30% from RMB2.0 million in FY2016 to RMB2.6 million in FY2017 caused by increase of subcontracting service income, government grants and rental income.

Selling and distribution expenses increased by 5.5 times to RMB37.8 million in FY2017 from RMB5.9 million in FY2016 caused mainly by the selling and marketing expenses to those distributors that taken active roles to assist the Group to facilitate the sales to hospitals.

Administrative expenses increased 7% to RMB16.5 million in FY2017 from RMB15.4 million in FY2016 mainly due to general increase of operating costs in China.

Other expenses increased by 43.7 times to RMB24.5 million in FY2017 mainly were the result from RMB20.6 million impairment loss of R&D projects in FY2017 together with RMB3.4 million foreign exchange losses in various currencies against RMB during this year.

Finance income decreased 84% to RMB0.6 million caused by lower interest income from available-for-sale financial assets of RMB1.6 million and no exchange gain of RMB2.1 million that earned in FY2016.

Finance expenses down 99% to RMB0.02 million in FY2017 as there was no loss incurred on redemption of available-for-sale financial assets that recorded in FY2016.

Tax expenses decreased from RMB1.2 million in FY2016 to tax credit of RMB4.1 million in FY2017. This was mainly due to net increase of deferred tax assets of RMB5.5 million in FY2017 which were the unutilized tax benefit of a China subsidiary.

Overall, the Group recorded a net loss attributable to equity holders RMB19.5 million in FY2017.

Financial Position
(31 December 2017 vs. 31 December 2016)

Non-current assets decreased from RMB86.6 million to RMB80.9 million. Property, plant and equipment dropped from RMB54.0 million to RMB42.5 million due to transfer of .Construction in progress assets amounting to RMB 6.6 million to Investment property after the property completion in Singapore and the depreciation for the year that offset by the additional equipment purchased during the year. Investment property increased from RMB2.4 million to RMB12.3 million as the property purchased in Singapore has completed its construction in 4Q2017. Intangible assets reduced from RMB6.1 million to RMB5.4 million caused by impairment loss of deferred development cost. Refundable deposits reduced to RMB13.3 million in FY2017 due to impairment loss of RMB13.9 million, refunded RMB7.7 million from third party vendors to the Group and new prepayment of RMB12.7 million to third party R&D vendors to develop new drugs during the year.

Current assets increased from RMB104.9 million to RMB111.9 million. Inventories rose from RMB22.3 million to RMB27.4 million due to the increase of work-in progress and finished goods level at the end of FY2017. Trade and bills receivables increased from RMB2.2 million to RMB9.0 million due to longer credit terms given to the customers. Other receivables, prepayments and deposits decreased from RMB10.7 million to RMB5.5 million due to the receipt of RMB7.0 million of refundable deposits which partially offset with the general increase of other receivables during the year. Cash and bank balances decreased slightly from RMB69.7 million to RMB69.0 million.

Non-current liabilities comprising deferred tax liabilities was fully expensed on FY2017.

Current liabilities rose from RMB35.8 million to RMB56.8 million. Trade payables increased from RMB10.5 million to RMB12.5 million the purchase of raw materials. Other payables increased from RMB13.3 million to RMB44.3 million was mainly caused by the amount due to distributors for selling and distribution expenses under the "Twoinvoice system". Short term borrowing was fully settled in FY2017.

Cash Flow Statement

The Group's net cash inflow from operating activities was RMB22.8 million in FY2017 and RMB3.7 million in 4Q2017. This was mainly caused by the increase of amounts payable to the distributors for providing marketing services to the Group.

Net cash used in investing activities in FY2017 amounted to RMB14.7 million and in 4Q2017 amounted to RMB3.1 million. These were due to purchase of available-for-sale financial assets and advances for products development to third party vendors but was partially offset by the proceeds from the redemption of available-for-sale financial assets upon maturity.

The Group's net cash used in financing activities in FY2017 amounted to RMB12.1 million. This was primarily due to the repayment of short-term borrowing of RMB12 million during the year.

As a result, the net cash outflow in FY2017 amounted to RMB4.0 million and net inflow in 4Q2017 was RMB0.6 million.

Commentary

For the pharmaceutical industry in China, the main operating pressures came from policy changes such as lower price tender trend, control over medical insurance premium, the change in proportion of drugs hospitals can directly control, the cancellation of mark-up of sales prices of drugs to hospitals and the "Two-Invoice System" that have affected and changed the pattern of sales.

Facing the change in these policies, the Group expects business conditions remain challenging in 2018. The Group will actively cope with these changes by adjusting the sales and marketing system. For business growth, the Group will continue to invest in R&D efforts to roll out new products.


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