TIDMCMSH
RNS Number : 1195S
China Medical Systems Holdings Ltd
13 May 2009
+------------------------------------------+------------------------------------------+
| For Immediate Release | 13 May 2009 |
+------------------------------------------+------------------------------------------+
China Medical System Holdings Ltd.
("CMS" or "the Company")
Annual Report 2008
For the year ended 31 December 2008
China Medical System Holdings Ltd. (AIM: CMSH), the profitable Chinese
pharmaceutical sales, marketing & research company, is pleased to announce its
annual resuts for the year ended 31 December 2008.
Results are reported in US dollar currency unless otherwise stated.
Financial Highlights:
* Sales up 40% to $72.6 million (2007: $51.7 million)
* Gross Profit up 33% to $44.8 million (2007: $33.6 million)
* Net Profit up 72% to $15.0 million (2007: $8.7 million)
* Adjusted Net Profit1 up 32% to $15.0 million (2007: $11.4 million)
* Cash and Cash Equivalent2 up 14% to $20.1 million (2007: $17.6 million)
* EPS up 59% to $0.316 per share (2007: $0.199 per share)
* Total Dividend3 for year of $0.15 per share (2007: $0.10 per share)
Operational Highlights
* Continued growth of existing in-licensed products
* Deanxit (anti-depressant) : sales up 41%
* Ursofalk (chloretic) : sales up 43%
* Stulln Mono (eye drops) : sales up 47%
* GanFuLe (primary liver cancer) : sales up 50%
* Three new products introduced during the period: XinHuoSu, Cystistat and
Salofalk
* XinHuoSu (Heart Failure):first part year sales reached $2.8 million
* Renewed the Import Drug License and the exclusive agency agreement for Deanxit
and Stulln Mono Eye Drops
* Received Chinese State Food and Drug Administration (SFDA) approval to initiate
Phase II Clinical Trials of CMS024-02
* Expanded sales network by recruiting over 200 new staff (Total sales team of
over 720)
* Accredited as one of "Asia's 200 Best Under A Billion" by Forbes
______________________
1 Adjusted Net Profit in 2007 represents Net Profit excluding IPO expenses $2.7
million. There were no adjustments in 2008. These items are deducted in
calculating the Adjusted Net Profit, because they are considered non-recurring
items.
2 Cash and Cash Equivalent in 2008 represents Cash and Bank deposits after the
final dividend paid for 2007 ($0.10 per share) and Interim dividend paid for
2008 ($0.05 per share).
3 Dividend in 2008 includes interim dividend of $0.05 in 2008.
Commenting on the results, Mr Kong Lam, Chairman & CEO said:
I am delighted to report on a second outstanding year for CMS as a public
company despite the challenging economic environment seen domestically and
globally. We have achieved sustained and steady growth in sales and profits, and
I am pleased that, in line with our growth strategy, we have also made solid
progress towards expanding our product portfolio as well as advancing our
in-house R&D novel compounds.
For further information, please contact:
+--------------------------------------------+---------------------------+
| China Medical System Holdings Ltd. | + (852) 2369 3889 |
+--------------------------------------------+---------------------------+
| Vincent Hui | |
+--------------------------------------------+---------------------------+
| | |
+--------------------------------------------+---------------------------+
| Seymour Pierce | + 44 (0)20 7107 8344 |
+--------------------------------------------+---------------------------+
| Chris Howard / Huaizheng Peng | |
| / Christopher Wren | |
+--------------------------------------------+---------------------------+
| | |
+--------------------------------------------+---------------------------+
CHAIRMAN & CEO'S STATEMENT
I am delighted to report on a second outstanding year for CMS as a public
company despite the challenging economic environment seen domestically and
globally. We have achieved strong growth in revenue and profits, and I am
pleased that, in line with our growth strategy, we have made solid progress
towards expanding our product portfolio as well as advancing our in-house R&D
novel compounds.
Our objective is to consistently deliver strong growth, invest in the future of
the business, and return value to shareholders.
During 2008, we have seen excellent sales performance, with sales increasing by
40% to $72.6 million (2007: $51.7 million), and gross profit increasing by 33%
to $44.8 million (2007: $33.6 million).To maintain our growth momentum, we
successfully added three new products to our portfolio, and employed over 200
new staff to strengthen CMS's formidable sales team. The strong operational
results for 2008 reflect the continuing success of our growth strategy, the
performance of our experienced sales team and our commitment to provide quality
products to patients and healthcare professionals.
With our Sales and Marketing business firmly established, the Company has also
focused on the research & development of our in-house projects. One of our
leading compounds indicated for non-small cell lung cancer has received approval
from SFDA for the conducting of further clinical trials. The future development
of our products is very significant for CMS and is set to transform the
revenue-generating capabilities of the Company in years to come.
Dividend Declaration
The Company's policy is to distribute 25-50% of net profit as dividends. The
Company paid an interim dividend of US$0.05 per ordinary share for the first six
months of 2008. The Board is delighted to recommend a final dividend for the
year of US$0.10 per ordinary share, giving a total of US$0.15 per ordinary share
for the year. This represents a growth in dividends year-on-year of 50%. Subject
to shareholder approval at the Annual General Meeting ("AGM") on 12 June 2009,
the final dividend will be paid on 19 June, 2009 to shareholders on the register
on 22 May 2009, with an ex-dividend date of 20 May 2009.
The AGM is scheduled for 12 June 2009 and is to be held at 10:00 a.m. (Macau
time) in Ballroom 3, Wynn Macau, rua cidade de sintra, Nape, Macau.
Operational Review
Sales & Marketing
A key factor to the continued success of CMS is the well-developed sales network
which has been established and evolved for over one and a half decades. The
Company's sales network not only penetrates key hospitals throughout the
country, but our decentralised organisational structure also allows us to
respond quickly to rapidly changing market conditions. After the addition of our
203 new recruits, our sales team at the end of December 2008 was well over 700,
but aside from the quantity of representatives we also maintain the quality of
our sales team with over 89% of the representatives with graduate degrees in
medicine or pharmacy. The overall success of our sales network and sales
professionals is reflected in the 40% increase in sales achieved in 2008.
By in-licensing high quality, innovative and patient-friendly medicines, we can
ensure a healthy portfolio of products for the future, while continuing to
improve the lives of patients. In line with the company strategy, CMS introduced
three new products during 2008, namely XinHuoSu, Cystitat and Salofalk and it is
expected that these products will contribute significantly to the overall
turnover in the coming years. The addition of these products to the portfolio
demonstrates our determination to enhance our international reputation and
become a leading pharmaceutical company in China.
CMS achieved record sales in 2008 reaching $72.6 million representing an
increase of 40% from last year. The growth in sales was driven by a 41% increase
in sales of our products at the growth stage of the product life cycle to $57.8
million (2007: $40.9 million), together with the impressive sales performance of
products at the introductory stage amounting to $11.3 million (2007: $5.6
million), representing a 102% increase. The percentage of sales derived from
introductory stage products increased steadily from 11% in 2007 to over 16% in
2008; this has developed in line with our overall growth strategy to expand our
portfolio and as a result reduce risk and reliance on a few products. CMS is now
well positioned for the next stage in its growth as we look forward to these
products maturing into the growth stage of the product cycle and further
expansion of our product range.
A brief review of major licensed drug products follows:
Growth Stage Products
Deanxit
Sales of Deanxit, one of the leading drugs for the treatment of depression in
China, increased 41% to $36.7 million in 2008 (2007: $26.1million). As one of
the fastest growing and best selling products of CMS, Deanxit's growth achieved
the expectations of management in 2008. The renewal of the relevant Import Drug
License was approved by the SFDA in April 2008. During the year, CMS also
renewed the exclusive agency agreement with H. Lundbeck A/S to sell and market
Deanxit in China (excluding Hong Kong and Macau) until the end of 2013.
In a fast developing country, with society full of anxieties brought about by
natural catastrophes and economic uncertainties, combined with the increase
awareness of depression by the general public and medical profession, we believe
Deanxit still has further growth potential and will maintain its position as one
of the Company's best selling products.
Ursofalk
Sales of Ursofalk, used to treat the dissolution of cholesterol gallstones,
cholestatic liver disease and gastritis, surged by 43% to US$21.1 million
in 2008 (2007: US$14.8 million). As a product included in the national medical
insurance list in China, Ursofalk maintains its leading position in its
therapeutic area as a quality imported drug. With the effort from Dr. Falk and
CMS, through various academic activities, Ursofalk continues to contribute
significantly to the growth in sales and profit of CMS.
To expand Ursofalk's market influence, CMS brought Ursofalk to various overseas
and local academic activities, including the Hong Kong-Shanghai International
Liver Congress 2008 where over 2600 delegates from over 60
countries attended. Moreover, CMS and the German manufacturer Dr. Falk Pharma
cosponsored the 163rd International Falk Symposium in March 2008, this
prestigious event was held in China for the first time. Over 800 delegates from
over 30 countries, including 500 doctors from China were present at the
event. Dr. Falk also pays close attention and assists CMS to provide doctors
and scientists with the most up-to-date and balanced information on diseases and
therapies in gastroenterology and hepatology. Dr. Falk Pharma places high
emphasis on the Chinese Market through those activities. CMS is certainly
confident of the future growth of Ursofalk with promotion activities continuing
to be developed and intensified.
Main Introductory Stage Products
Augentropfen Stulln Mono
Augentropfen Stulln Mono (ASM) was introduced in 2007, and it is the only
imported eye-drop approved by SFDA for the treatment of senile / age-related
macula degeneration (SMD/AMD). Through considerable academic promotion activity
and with the extension of its indications to ocular asthenopia, sales of ASM
reached $4.4 million in 2008 (2007: $3.0 million), representing an increase of
47% from last year.
During the period, CMS has stepped up various promotional activities including
academic seminars, annual conferences and scholarships for doctors' overseas
education, as well as co-operated with the Chinese Medical Association (CMA),
hospitals and experts to further strengthen brand awareness. CMS also modified
its agency and distribution relationship in 2008, and contracted directly with
the manufacturer Pharma Stulln GmbH obtaining the exclusive right to sell and
market ASM for the next ten years in China from Stulln's former agent Ophol
Limited. The renewal of the Import Drug License of ASM was approved by SFDA in
May 2008, with validity extended to May 2013. All these developments reflect
Stulln's recognition of CMS's capability, while CMS has also secured the
exclusive distribution right of ASM. There are several reasons for CMS to
believe that the market share and further potential of ASM will substantially
increase over the next few years.
GanFuLe ("GFL")
GFL was also introduced in 2007 and is used to treat primary liver cancer,
hepatitis B and cirrhosis with specified symptoms. GFL is also included in the
national medical insurance list and enjoys China's National TCM protection, both
of which facilitated academic promotion for GFL. GFL has created a favourable
new situation in a number of major provinces and cities in China through the
efforts of the CMS sales team. Sales of GFL tablets increased by 50% to
$3.9 million in 2008 (2007: $2.6 million). With further consolidation of
developed areas and continual expansion into new markets, CMS believes GFL will
certainly achieve future increases in market share and sales turnover.
XinHuoSu (Nesiritide, recombinant human B-type Natriuretic Peptide)
XinHuoSu was introduced in 2008. It is a cardiovascular product which is aimed
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.
With less than a full year sales, we are extremely pleased with the sales
performance of XinHuoSu which reached $2.8 million. As one of the key products
introduced in 2008, CMS has carried out a large number of promotional activities
in 2008, hosting various academic activities in coordination with a Phase IV
clinical trial. XinHuoSu has further opened up the market with a favourable
increase in its market share since CMS took over the sales and marketing during
2008. XinHuoSu has been accepted in approximately 300 hospitals nationwide by
the end of 2008, covering many provinces and cities. We believe XinHuoSu has
great growth potential with XinHuoSu's efficacy gaining recognition by doctors
as more local experience becomes available from the clinical trials.
Cystistat
Cystistat was also in-licensed in 2008. Cystistat 's main ingredient is Sodium
Hyaluronate, and is indicated for the temporary replacement of the
glycosaminoglycan (GAG) layer in the bladder. Cystistat received registration
approval as a Medical Device from the SFDA of China in 1999. The registration of
Cystistat has been successfully renewed in the first half of 2009. As a new
product with market potential in the People's Republic of China ("PRC"), CMS
has completed an in depth pre-marketing investigation and identified the
precise product positioning for Cystistat , by carefully examining academic
information available from overseas and local urology meetings, all of which
have laid a solid foundation for its sales in 2009. We believe that Cystistat
will become a profit contributor in the near future.
Salofalk
Salofalk is the third product in-licensed in 2008 from Dr. Falk Pharma. Sales
are expected to initiate in 2009.
Considering the remarkable sales & marketing track record of Ursofalk and the
successful cooperation with Dr. Falk Pharma, CMS in-licensed another product
from Dr. Falk Pharma-Salofalk, used to treat Ulcerative Colitis and the acute
phase of Crohn's disease. CMS has done a great deal of preparatory work in 2008,
like participating in various academic meetings. We believe that after the
formal launch of its sales and marketing activities nationwide in 2009, Salofalk
will benefit from the positive brand awareness of Ursofalk in China and
contribute to the profitability of CMS.
Declining Stage Products
Jinerlun (Naloxone Hydrochloride Injection)
In line with our expectation, sales of Jinerlun decreased 37% in 2008 to $2.9
million (2007: $4.6 million). Its sales have declined in recent years primarily
due to the growing number of generics coming into the market and much
competition. As our growth stage products continue to expand and our
introductory stage products develop into growth stage products, the significance
of Jinerlun in the Company's total turnover will gradually decrease.
Research & Development
While focusing on marketing and sales, CMS also focus on new drug R&D and
protection of intellectual property rights. CMS continuously concentrates on new
drug development in therapeutic areas and major diseases in oncology, hepatology
and antibiotics. CMS believes its R&D activity is well positioned to benefit
from the lower costs of new drug development in China and quicker development
period as a result of the large inherent patient pool. For the moment, we have
received a positive response from SFDA relating to two programs.
CMS024 (Tyroserleutide)-Primary Liver Cancer
CMS024, Tyroserleutide, is the lead tri-peptide compound developed by CMS for
the treatment of primary liver cancer and also the most advanced product in the
CMS portfolio. The Clinical trials of Phase II have shown CMS024 to be
effective, safe, well tolerated, and have prolonged patient survival with only
mild side effects.
In December of 2007, CMS received an Assessment Notice from the SFDA which
required the Company to enlarge the patient sample group in the clinical trial.
New explorative research on methods of drug delivery has been initiated in 2008,
and we have made considerable progress. In accordance with SFDA's requirement,
CMS is expected to initiate an expanded, randomized, double-blinded,
multi-centred clinical trial study in the latter half of 2009.
CMS024-02 (Tyroservatide)-Non-Small Cell Lung Cancer
CMS024-02, Tyroservatide, the novel compound developed by CMS for the treatment
of non-small cell lung cancer, completed Phase I clinical trials in November
2006, which proved its safety and tolerance in patients. In June 2008, CMS
received SFDA approval for a Phase II Clinical Trial for CMS024-02. The Company
has been consulting with local specialists and preparing the Phase II Clinical
Trial protocol.
Other R&D Programmes
CMS also have a number of candidate drugs including CMS010-26, CMS017 and an
antibiotic programme which are all at the pre-clinical stage. Further
pre-clinical studies are currently being arranged.
Intellectual Property
CMS has a rich patent portfolio. As of the period ended 31 December 2008,
compared to that of 2007, for pharmaceutical substances there have been 12 new
overseas patent applications with 25 new overseas patents granted and 3 new
patents granted in China; for medical devices, there have been 4 new patent
applications in China.
As of the period end, CMS024 has obtained patent warrants in 24 countries with
CMS024-02 in 5 countries.
Outlook & Summary
As the world's most populous country, and one in possession of the fastest
growing major economy in the world, China's pharmaceutical market is not only a
large, rising opportunity in itself - reaching an estimated US$37 billion in
2008 and still growing at near 20% annually - in the near future, IMS Health
sees China becoming the third largest pharmaceutical market by 2011, versus
sixth place today. The recently released plan to invest over US$120 billion in
the healthcare and medical treatment sector in the following three years by the
Chinese government gives further support to the rapid expansion of the China
pharmaceutical market. CMS's strong position in this market provides the
opportunity for continued growth.
We continue to examine opportunities to broaden our sales and marketing reach
and to expand further our product portfolio. Our in-house technical, regulatory,
R&D, and manufacturing capabilities are set to become increasingly valuable in a
market subject to growing regulatory pressure where consumers are becoming more
concerned about the quality of the products that they are buying. The focus
of our business on sales and marketing, and additional emphasis on research and
development, will provide the platform for our future growth.
We highly appreciate all the efforts, hard work and diligence our staff have put
into the development of the Company. In order to motivate and retain key
employees and as a result contribute to the continued success of the Company,
the Board has proposed to improve its employees' benefits after their retirement
by establishing an employees' benefit scheme. Key employees who served much of
their lifetime in the Company and made an outstanding contribution to the
Company will be eligible to join the Scheme.
In summary, we are delighted with the progress we made in 2008 and we look
toward the year ahead with enthusiasm as we anticipate capitalising on an
exciting array of growth opportunities. We have built an attractive position in
an expanding market and the Board looks forward to guiding the business through
the months ahead and to reporting progress to shareholders as we proceed.
Post Balance Sheet Event
In 2008, the agency and distribution relationship of Augentropfen Stulln Mono
(ASM) has been modified for the purpose of the product's development. The
Company acquired 73.47% of Ophol at a consideration of RMB22.5 million. In March
2009, the Company transferred 48.98% in Ophol to the two founding shareholders
at a consideration of RMB15 million. Such share transfer will be completed at
the end of June 2009. Consequently the Company will ultimately hold a 24.49%
shares in Ophol at a consideration of RMB7.5 million.
Kong Lam
Chairman & CEO
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2008
+----------------------------------------------+---------+---------------+--------------+
| | NOTES | 2008 | 2007 |
+----------------------------------------------+---------+---------------+--------------+
| | | US$'000 | US$'000 |
+----------------------------------------------+---------+---------------+--------------+
| Turnover | | 72,600 | 51,747 |
+----------------------------------------------+---------+---------------+--------------+
| Cost of goods sold | | (27,835) | (18,149) |
+----------------------------------------------+---------+---------------+--------------+
| | | ______ | ______ |
+----------------------------------------------+---------+---------------+--------------+
| Gross profit | | 44,765 | 33,598 |
+----------------------------------------------+---------+---------------+--------------+
| Other income | 3 | 2,690 | 1,288 |
+----------------------------------------------+---------+---------------+--------------+
| Selling expenses | | (18,631) | (13,934) |
+----------------------------------------------+---------+---------------+--------------+
| Initial public offering expenses | | - | (2,773) |
+----------------------------------------------+---------+---------------+--------------+
| Other administrative expenses | | (6,940) | (5,955) |
+----------------------------------------------+---------+---------------+--------------+
| | | ______ | ______ |
+----------------------------------------------+---------+---------------+--------------+
| Administrative expenses | | (6,940) | (8,728) |
+----------------------------------------------+---------+---------------+--------------+
| | | ______ | ______ |
+----------------------------------------------+---------+---------------+--------------+
| Research and development costs | | (2,275) | (1,633) |
+----------------------------------------------+---------+---------------+--------------+
| Finance costs | | (226) | (301) |
+----------------------------------------------+---------+---------------+--------------+
| Share of results of an associate | | 152 | 56 |
+----------------------------------------------+---------+---------------+--------------+
| | | ______ | ______ |
+----------------------------------------------+---------+---------------+--------------+
| Profit before taxation | | 19,535 | 10,346 |
+----------------------------------------------+---------+---------------+--------------+
| Taxation | 4 | (4,487) | (1,672) |
+----------------------------------------------+---------+---------------+--------------+
| | | ______ | ______ |
+----------------------------------------------+---------+---------------+--------------+
| Profit for the year | 5 | 15,048 | 8,674 |
+----------------------------------------------+---------+---------------+--------------+
| | | ______ | ______ |
+----------------------------------------------+---------+---------------+--------------+
| Attributable to: | | | |
+----------------------------------------------+---------+---------------+--------------+
| Equity holders of the Company | | 14,946 | 8,685 |
+----------------------------------------------+---------+---------------+--------------+
| Minority interests | | 102 | (11) |
+----------------------------------------------+---------+---------------+--------------+
| | | ______ | ______ |
+----------------------------------------------+---------+---------------+--------------+
| | | 15,048 | 8,674 |
+----------------------------------------------+---------+---------------+--------------+
| | | ______ | ______ |
+----------------------------------------------+---------+---------------+--------------+
| Dividends paid | 6 | 7,087 | - |
+----------------------------------------------+---------+---------------+--------------+
| | | ______ | ______ |
+----------------------------------------------+---------+---------------+--------------+
| Dividends proposed | 6 | 4,725 | 4,725 |
+----------------------------------------------+---------+---------------+--------------+
| | | ______ | ______ |
+----------------------------------------------+---------+---------------+--------------+
| | | | |
+----------------------------------------------+---------+---------------+--------------+
| | | US$ | US$ |
+----------------------------------------------+---------+---------------+--------------+
| Earnings per share | 7 | | |
+----------------------------------------------+---------+---------------+--------------+
| Basic | | 0.316 | 0.199 |
+----------------------------------------------+---------+---------------+--------------+
| | | ______ | ______ |
+----------------------------------------------+---------+---------------+--------------+
| Diluted | | 0.316 | 0.198 |
+----------------------------------------------+---------+---------------+--------------+
| | | ______ | ______ |
+----------------------------------------------+---------+---------------+--------------+
CONSOLIDATED BALANCE SHEET
AT 31 DECEMBER 2008
+----------------------------------------------+---------+---------------+--------------+
| | NOTES | 2008 | 2007 |
+----------------------------------------------+---------+---------------+--------------+
| | | US$'000 | US$'000 |
+----------------------------------------------+---------+---------------+--------------+
| Non-current assets | | | |
+----------------------------------------------+---------+---------------+--------------+
| Property, plant and equipment | | 5,459 | 4,940 |
+----------------------------------------------+---------+---------------+--------------+
| Prepaid lease payments | | 267 | 257 |
+----------------------------------------------+---------+---------------+--------------+
| Interest in a jointly controlled entity | | - | - |
+----------------------------------------------+---------+---------------+--------------+
| Interest in an associate | | 535 | 198 |
+----------------------------------------------+---------+---------------+--------------+
| Available-for-sale investment | | - | 162 |
+----------------------------------------------+---------+---------------+--------------+
| Intangible assets | 8 | 7,575 | 610 |
+----------------------------------------------+---------+---------------+--------------+
| Goodwill | | 581 | 581 |
+----------------------------------------------+---------+---------------+--------------+
| Deferred tax assets | | 1,073 | 429 |
+----------------------------------------------+---------+---------------+--------------+
| | | ______ | ______ |
+----------------------------------------------+---------+---------------+--------------+
| | | 15,490 | 7,177 |
+----------------------------------------------+---------+---------------+--------------+
| | | ______ | ______ |
+----------------------------------------------+---------+---------------+--------------+
| Current assets | | | |
+----------------------------------------------+---------+---------------+--------------+
| Inventories | | 5,945 | 10,677 |
+----------------------------------------------+---------+---------------+--------------+
| Trade and other receivables | 9 | 27,684 | 19,305 |
+----------------------------------------------+---------+---------------+--------------+
| Amount due from an associate | | 172 | 164 |
+----------------------------------------------+---------+---------------+--------------+
| Amounts due from directors | | 43 | 20 |
+----------------------------------------------+---------+---------------+--------------+
| Pledged bank deposits | | 1,060 | - |
+----------------------------------------------+---------+---------------+--------------+
| Bank balances and cash | | 20,100 | 17,601 |
+----------------------------------------------+---------+---------------+--------------+
| | | ______ | ______ |
+----------------------------------------------+---------+---------------+--------------+
| | | 55,004 | 47,767 |
+----------------------------------------------+---------+---------------+--------------+
| | | ______ | ______ |
+----------------------------------------------+---------+---------------+--------------+
| Current liabilities | | | |
+----------------------------------------------+---------+---------------+--------------+
| Trade and other payables | 10 | 9,252 | 12,920 |
+----------------------------------------------+---------+---------------+--------------+
| Dividends payable | | 5 | - |
+----------------------------------------------+---------+---------------+--------------+
| Deferred consideration payable | | 685 | - |
+----------------------------------------------+---------+---------------+--------------+
| Tax payable | | 813 | 180 |
+----------------------------------------------+---------+---------------+--------------+
| | | ______ | ______ |
+----------------------------------------------+---------+---------------+--------------+
| | | 10,755 | 13,100 |
+----------------------------------------------+---------+---------------+--------------+
| | | ______ | ______ |
+----------------------------------------------+---------+---------------+--------------+
| Net current assets | | 44,249 | 34,667 |
+----------------------------------------------+---------+---------------+--------------+
| | | ______ | ______ |
+----------------------------------------------+---------+---------------+--------------+
| Total assets less current liabilities | | 59,739 | 41,844 |
+----------------------------------------------+---------+---------------+--------------+
| | | ______ | ______ |
+----------------------------------------------+---------+---------------+--------------+
| Capital and reserves | | | |
+----------------------------------------------+---------+---------------+--------------+
| Share capital | 11 | 4,725 | 4,725 |
+----------------------------------------------+---------+---------------+--------------+
| Reserves | | 48,065 | 37,275 |
+----------------------------------------------+---------+---------------+--------------+
| | | ______ | ______ |
+----------------------------------------------+---------+---------------+--------------+
| Equity attributable to equity holders | | | |
+----------------------------------------------+---------+---------------+--------------+
| of the Company | | 52,790 | 42,000 |
+----------------------------------------------+---------+---------------+--------------+
| Minority interests | | (69) | (156) |
+----------------------------------------------+---------+---------------+--------------+
| | | ______ | ______ |
+----------------------------------------------+---------+---------------+--------------+
| | | 52,721 | 41,844 |
+----------------------------------------------+---------+---------------+--------------+
| | | ______ | ______ |
+----------------------------------------------+---------+---------------+--------------+
| Non-current liabilities | | | |
+----------------------------------------------+---------+---------------+--------------+
| Deferred tax liabilities | | 839 | - |
+----------------------------------------------+---------+---------------+--------------+
| Deferred consideration payable | | 6,179 | - |
+----------------------------------------------+---------+---------------+--------------+
| | | ______ | ______ |
+----------------------------------------------+---------+---------------+--------------+
| | | 7,018 | - |
+----------------------------------------------+---------+---------------+--------------+
| | | ______ | ______ |
+----------------------------------------------+---------+---------------+--------------+
| | | 59,739 | 41,844 |
+----------------------------------------------+---------+---------------+--------------+
| | | ______ | ______ |
+----------------------------------------------+---------+---------------+--------------+
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2008
+----------------------------------------------+---------+---------------+--------------+
| | NOTES | 2008 | 2007 |
+----------------------------------------------+---------+---------------+--------------+
| | | US$'000 | US$'000 |
+----------------------------------------------+---------+---------------+--------------+
| Operating activities | | | |
+----------------------------------------------+---------+---------------+--------------+
| Profit before taxation | | 19,535 | 10,346 |
+----------------------------------------------+---------+---------------+--------------+
| Adjustments for: | | | |
+----------------------------------------------+---------+---------------+--------------+
| Share of results of an associate | | (152) | (56) |
+----------------------------------------------+---------+---------------+--------------+
| Amortisation of intangible assets | | 793 | 59 |
+----------------------------------------------+---------+---------------+--------------+
| Depreciation of property, plant and | | 772 | 637 |
| equipment | | | |
+----------------------------------------------+---------+---------------+--------------+
| Release of prepaid lease payments | | 7 | 6 |
+----------------------------------------------+---------+---------------+--------------+
| Interest income | | (221) | (236) |
+----------------------------------------------+---------+---------------+--------------+
| Imputed interest income on | | | |
| available-for-sale | | | |
+----------------------------------------------+---------+---------------+--------------+
| investment | | (20) | (30) |
+----------------------------------------------+---------+---------------+--------------+
| Interest expenses | | - | 301 |
+----------------------------------------------+---------+---------------+--------------+
| Imputed interest expense on deferred | | | |
+----------------------------------------------+---------+---------------+--------------+
| consideration payable | | 226 | - |
+----------------------------------------------+---------+---------------+--------------+
| Expenses paid upon placing and admission to | | - | 2,773 |
| AIM | | | |
+----------------------------------------------+---------+---------------+--------------+
| (Gain) loss on disposal of property, plant | | | |
| and | | | |
+----------------------------------------------+---------+---------------+--------------+
| equipment | | (2) | 8 |
+----------------------------------------------+---------+---------------+--------------+
| Allowance for inventories | | 119 | 92 |
+----------------------------------------------+---------+---------------+--------------+
| Allowance for bad and doubtful debts | | 23 | 44 |
+----------------------------------------------+---------+---------------+--------------+
| | | ______ | ______ |
+----------------------------------------------+---------+---------------+--------------+
| Operating cash flows before movements in | | | |
+----------------------------------------------+---------+---------------+--------------+
| working capital | | 21,080 | 13,944 |
+----------------------------------------------+---------+---------------+--------------+
| Decrease (Increase) in inventories | | 5,347 | (8,986) |
+----------------------------------------------+---------+---------------+--------------+
| Increase in trade and other receivables | | (7,526) | (4,545) |
+----------------------------------------------+---------+---------------+--------------+
| Increase in amount due from an associate | | (8) | (56) |
+----------------------------------------------+---------+---------------+--------------+
| (Increase) decrease in amounts due from | | (23) | 624 |
| directors | | | |
+----------------------------------------------+---------+---------------+--------------+
| (Decrease) increase in trade and other | | (5,011) | 7,734 |
| payables | | | |
+----------------------------------------------+---------+---------------+--------------+
| Decrease in amount due to a director | | - | (6) |
+----------------------------------------------+---------+---------------+--------------+
| | | ______ | ______ |
+----------------------------------------------+---------+---------------+--------------+
| Cash generated from operations | | 13,859 | 8,709 |
+----------------------------------------------+---------+---------------+--------------+
| PRC Enterprise Income Tax paid | | (3,637) | (2,111) |
+----------------------------------------------+---------+---------------+--------------+
| Hong Kong Profits Tax paid | | (47) | (26) |
+----------------------------------------------+---------+---------------+--------------+
| | | ______ | ______ |
+----------------------------------------------+---------+---------------+--------------+
| Net cash from operating activities | | 10,175 | 6,572 |
+----------------------------------------------+---------+---------------+--------------+
| | | ______ | ______ |
+----------------------------------------------+---------+---------------+--------------+
| Investing activities | | | |
+----------------------------------------------+---------+---------------+--------------+
| Purchase of property, plant and equipment | | (959) | (795) |
+----------------------------------------------+---------+---------------+--------------+
| Acquisition of available-for-sale investment | | | |
+----------------------------------------------+---------+---------------+--------------+
| and intangible asset | | - | (770) |
+----------------------------------------------+---------+---------------+--------------+
| Capital injected in an associate | | (149) | - |
+----------------------------------------------+---------+---------------+--------------+
| Acquisition of subsidiaries | | - | (537) |
+----------------------------------------------+---------+---------------+--------------+
| Increase in pledged bank deposits | | (1,060) | - |
+----------------------------------------------+---------+---------------+--------------+
| Interest received | | 221 | 236 |
+----------------------------------------------+---------+---------------+--------------+
| Proceeds from disposal of available-for-sale | | | |
+----------------------------------------------+---------+---------------+--------------+
| investment | | 187 | - |
+----------------------------------------------+---------+---------------+--------------+
| Proceeds from disposal of property, plant | | | |
| and | | | |
+----------------------------------------------+---------+---------------+--------------+
| equipment | | 16 | 5 |
+----------------------------------------------+---------+---------------+--------------+
| | | ______ | ______ |
+----------------------------------------------+---------+---------------+--------------+
| Net cash used in investing activities | | (1,744) | (1,861) |
+----------------------------------------------+---------+---------------+--------------+
| | | ______ | ______ |
+----------------------------------------------+---------+---------------+--------------+
| Financing activities | | | |
+----------------------------------------------+---------+---------------+--------------+
| Dividends paid | | (7,082) | - |
+----------------------------------------------+---------+---------------+--------------+
| Repayment of deferred consideration payable | | (137) | - |
+----------------------------------------------+---------+---------------+--------------+
| Proceeds from issue of shares | | - | 19,989 |
+----------------------------------------------+---------+---------------+--------------+
| New bank borrowings raised | | - | 5,757 |
+----------------------------------------------+---------+---------------+--------------+
| Expenses incurred in connection with issue | | | |
| of share | | | |
+----------------------------------------------+---------+---------------+--------------+
| upon placing and admission to AIM | | - | (4,320) |
+----------------------------------------------+---------+---------------+--------------+
| Repayment of borrowings | | - | (12,905) |
+----------------------------------------------+---------+---------------+--------------+
| Repayment of amounts due to shareholders | | - | (5,148) |
+----------------------------------------------+---------+---------------+--------------+
| Interest paid | | - | (301) |
+----------------------------------------------+---------+---------------+--------------+
| | | ______ | ______ |
+----------------------------------------------+---------+---------------+--------------+
| Net cash (used in) from financing activities | | (7,219) | 3,072 |
+----------------------------------------------+---------+---------------+--------------+
| | | ______ | ______ |
+----------------------------------------------+---------+---------------+--------------+
| Net increase in cash and cash equivalents | | 1,212 | 7,783 |
+----------------------------------------------+---------+---------------+--------------+
| Cash and cash equivalent at beginning of the | | 17,601 | 8,948 |
| year | | | |
+----------------------------------------------+---------+---------------+--------------+
| Effect of foreign exchange rate changes | | 1,287 | 870 |
+----------------------------------------------+---------+---------------+--------------+
| | | ______ | ______ |
+----------------------------------------------+---------+---------------+--------------+
| Cash and cash equivalent at end of the year, | | | |
+----------------------------------------------+---------+---------------+--------------+
| represented by bank balances and cash | | 20,100 | 17,601 |
+----------------------------------------------+---------+---------------+--------------+
| | | ______ | ______ |
+----------------------------------------------+---------+---------------+--------------+
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2008
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 operated ("AIM") 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.
Whilst the financial information included in this final results announcement has
been computed in accordance with International Financial Reporting Standards
(IFRS), this announcement in itself does not contain sufficient information to
comply with IFRS.
2. BASIS OF CONSOLIDATION
The consolidated financial statements incorporate the financial statements of
the Company and entities controlled by the Company (its subsidiaries). Control
is achieved where the Company has the power to govern the financial and
operating policies of an entity so as to obtain benefits from its activities.
The results of subsidiaries acquired or disposed of during the year, other than
those resulting from Group Reorganisation, are including in the consolidated
income statement from the effective date of acquisition or up to the effective
date of disposal, as appropriate.
Where necessary, adjustments are made to the financial statements of
subsidiaries to bring their accounting policies into line with those used by
other members of the Group.
All intra-group transactions, balances, income and expenses are eliminated on
consolidation.
Minority interests in the net assets of consolidated subsidiaries are presented
separately from the Group's equity therein. Minority interests in the net assets
consist of the amount of those interests at the date of the original business
combination and the minority's share of changes in equity since the date of the
consolidation. Losses applicable to the minority in excess of the minority's
interest in the subsidiary's equity are allocated against the interests of the
Group except to the extent that the minority has a binding obligation and is
able to make an additional investment to cover the losses.
3. OTHER INCOME
+-------------------------------------------------------+------------+----------+
| | 2008 | 2007 |
+-------------------------------------------------------+------------+----------+
| | US$'000 | US$'000 |
+-------------------------------------------------------+------------+----------+
| Service fee income | 771 | - |
+-------------------------------------------------------+------------+----------+
| Net exchange gain | 743 | 655 |
+-------------------------------------------------------+------------+----------+
| Government subsidies (Note) | 623 | 1 |
+-------------------------------------------------------+------------+----------+
| Interest income | 221 | 236 |
+-------------------------------------------------------+------------+----------+
| Gain on disposal of investments held for trading | 158 | 288 |
+-------------------------------------------------------+------------+----------+
| Imputed interest income on available-for-sale | 20 | 30 |
| investment | | |
+-------------------------------------------------------+------------+----------+
| Gain on disposal of property, plant and equipment | 2 | - |
+-------------------------------------------------------+------------+----------+
| Others | 152 | 78 |
+-------------------------------------------------------+------------+----------+
| | ______ | ______ |
+-------------------------------------------------------+------------+----------+
| | 2,690 | 1,288 |
+-------------------------------------------------------+------------+----------+
| | ______ | ______ |
+-------------------------------------------------------+------------+----------+
Note: The amount represents the incentive subsidies provided by the PRC
local authorities to the Group to encourage performance of the research and
development. There is no specific conditions attached to the grants, the Group
recognised the grants upon receipts.
4. TAXATION
+-------------------------------------------------------+------------+----------+
| | 2008 | 2007 |
+-------------------------------------------------------+------------+----------+
| | US$'000 | US$'000 |
+-------------------------------------------------------+------------+----------+
| Current tax: | | |
+-------------------------------------------------------+------------+----------+
| PRC Enterprise Income Tax | 4,236 | 1,864 |
+-------------------------------------------------------+------------+----------+
| Hong Kong Profits Tax | 63 | 21 |
+-------------------------------------------------------+------------+----------+
| Other jurisdictions | 6 | - |
+-------------------------------------------------------+------------+----------+
| | ______ | ______ |
+-------------------------------------------------------+------------+----------+
| | 4,305 | 1,885 |
+-------------------------------------------------------+------------+----------+
| | | |
+-------------------------------------------------------+------------+----------+
| | ______ | ______ |
+-------------------------------------------------------+------------+----------+
| Overprovision in prior years | | |
+-------------------------------------------------------+------------+----------+
| PRC Enterprise Income Tax | (21) | (6) |
+-------------------------------------------------------+------------+----------+
| | ______ | ______ |
+-------------------------------------------------------+------------+----------+
| Deferred taxation: | | |
+-------------------------------------------------------+------------+----------+
| - Current year | 203 | (169) |
+-------------------------------------------------------+------------+----------+
| - Attributable to a change in tax rate | - | (38) |
+-------------------------------------------------------+------------+----------+
| | ______ | ______ |
+-------------------------------------------------------+------------+----------+
| | 203 | (207) |
+-------------------------------------------------------+------------+----------+
| | ______ | ______ |
+-------------------------------------------------------+------------+----------+
| Taxation charge for the year | 4,487 | 1,672 |
+-------------------------------------------------------+------------+----------+
| | ______ | ______ |
+-------------------------------------------------------+------------+----------+
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 2007, pursuant to relevant law and regulation,
Shenzhen Kangzhe and Shenzhen Kangzhe Medical Instrument Ltd. ("Kangzhe
Medical") are subject to PRC Enterprise Income Tax rate at 15%, being the
preferential tax rate in
4. TAXATION - continued
Shenzhen Economic Zone. For the year ended 31 December 2008, the Enterprise
Income Tax rate of Shenzhen Kangzhe and Kangzhe Medical was increased from 15%
to 18%.
Taxation charge mainly represents income tax charge of Shenzhen Kangzhe
Pharmaceutical Company Limited ("Shenzhen Kangzhe") at 18% (2007: 15%).
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 in connection with development of the western part of China
Tax Concession policy. For year ended 31 December 2008, Hunan Kangzhe continued
to entitle to a tax reduction to 15% (2007: 15%). Hunan Kangzhe is entitled to
such tax concession for a further term of five years after the year ended 31
December 2008.
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% (2007: 17.5%) of the estimated assessable profit for the year.
The taxation for the year can be reconciled to the profit before taxation per
the consolidated income statement as follows:
+-------------------------------------------------------+------------+----------+
| | 2008 | 2007 |
+-------------------------------------------------------+------------+----------+
| | US$'000 | US$'000 |
+-------------------------------------------------------+------------+----------+
| Profit before taxation | 19,535 | 10,346 |
+-------------------------------------------------------+------------+----------+
| | ______ | ______ |
+-------------------------------------------------------+------------+----------+
| Tax at the applicable tax rate at 18% (2007: 15%) | 3,516 | 1,552 |
| (Note) | | |
+-------------------------------------------------------+------------+----------+
| Tax effect of share of results of an associate | (27) | (8) |
+-------------------------------------------------------+------------+----------+
| Tax effect of expenses that are not deductible in | | |
| determining | | |
+-------------------------------------------------------+------------+----------+
| taxable profit | 340 | 550 |
+-------------------------------------------------------+------------+----------+
| Tax effect of income that are not taxable in | | |
| determining | | |
+-------------------------------------------------------+------------+----------+
| taxable profit | (122) | (337) |
+-------------------------------------------------------+------------+----------+
| Tax effect of tax losses not recognised | 438 | 104 |
+-------------------------------------------------------+------------+----------+
| Tax effect of tax concession | (78) | (177) |
+-------------------------------------------------------+------------+----------+
| Effect on different applicable tax rates of | (398) | 182 |
| subsidiaries | | |
+-------------------------------------------------------+------------+----------+
| Overprovision in prior years | (21) | (6) |
+-------------------------------------------------------+------------+----------+
| Utilisation of tax loss previously not recognised | (3) | (169) |
+-------------------------------------------------------+------------+----------+
| Tax effect of change in tax rate in the current year | - | (38) |
+-------------------------------------------------------+------------+----------+
| Deferred tax arising from withholding tax on | | |
| undistributed | | |
+-------------------------------------------------------+------------+----------+
| profit of a PRC subsidiary | 839 | - |
+-------------------------------------------------------+------------+----------+
| Others | 3 | 19 |
+-------------------------------------------------------+------------+----------+
| | ______ | ______ |
+-------------------------------------------------------+------------+----------+
| Taxation charge for the year | 4,487 | 1,672 |
+-------------------------------------------------------+------------+----------+
| | ______ | ______ |
+-------------------------------------------------------+------------+----------+
| | | |
+-------------------------------------------------------+------------+----------+
Note: The applicable PRC Enterprise Income Tax rate of 18% (2007: 15%) is the
prevailing tax rate in Shenzhen, the PRC, where the operations of the Group are
substantially based.
5. PROFIT FOR THE YEAR
+-------------------------------------------------------+------------+----------+
| | 2008 | 2007 |
+-------------------------------------------------------+------------+----------+
| | US$'000 | US$'000 |
+-------------------------------------------------------+------------+----------+
| Profit for the year has been arrived at after | | |
| charging | | |
+-------------------------------------------------------+------------+----------+
| (crediting): | | |
+-------------------------------------------------------+------------+----------+
| Directors' remuneration | | |
+-------------------------------------------------------+------------+----------+
| Fees | 193 | 188 |
+-------------------------------------------------------+------------+----------+
| Other emoluments | 328 | 308 |
+-------------------------------------------------------+------------+----------+
| Pension costs | 12 | 17 |
+-------------------------------------------------------+------------+----------+
| | ______ | ______ |
+-------------------------------------------------------+------------+----------+
| | 533 | 513 |
+-------------------------------------------------------+------------+----------+
| Other staff costs | 10,668 | 7,633 |
+-------------------------------------------------------+------------+----------+
| Pension costs | 626 | 529 |
+-------------------------------------------------------+------------+----------+
| | ______ | ______ |
+-------------------------------------------------------+------------+----------+
| Total staff costs | 11,827 | 8,675 |
+-------------------------------------------------------+------------+----------+
| | ______ | ______ |
+-------------------------------------------------------+------------+----------+
| Auditor's remuneration | 135 | 165 |
+-------------------------------------------------------+------------+----------+
| Allowance for bad and doubtful debts | 23 | 44 |
+-------------------------------------------------------+------------+----------+
| Allowance for inventories | 119 | 92 |
+-------------------------------------------------------+------------+----------+
| Release of prepaid lease payments | 7 | 6 |
+-------------------------------------------------------+------------+----------+
| Depreciation of property, plant and equipment | 772 | 637 |
+-------------------------------------------------------+------------+----------+
| Amortisation of intangible assets (included in cost | | |
+-------------------------------------------------------+------------+----------+
| of goods sold) | 793 | 59 |
+-------------------------------------------------------+------------+----------+
| | | |
+-------------------------------------------------------+------------+----------+
| Cost of inventories recognised as an expense | 25,753 | 17,413 |
+-------------------------------------------------------+------------+----------+
| (Gain) loss on disposal of property, plant and | (2) | 8 |
| equipment | | |
+-------------------------------------------------------+------------+----------+
| Minimum lease payment under operating lease | | |
+-------------------------------------------------------+------------+----------+
| in respect of property | 591 | 448 |
+-------------------------------------------------------+------------+----------+
| | ______ | ______ |
+-------------------------------------------------------+------------+----------+
6. DIVIDENDS
+-------------------------------------------------------+------------+----------+
| | 2008 | 2007 |
+-------------------------------------------------------+------------+----------+
| | US$'000 | US$'000 |
+-------------------------------------------------------+------------+----------+
| Dividend paid | | |
+-------------------------------------------------------+------------+----------+
| Interim dividend for 2008 of US$0.05 (2007: nil) per | | |
| share | | |
+-------------------------------------------------------+------------+----------+
| on 47,246,376 shares | 2,362 | - |
+-------------------------------------------------------+------------+----------+
| Final dividend for 2007 of US$0.07 per share on | | |
+-------------------------------------------------------+------------+----------+
| 47,246,376 shares | 3,307 | - |
+-------------------------------------------------------+------------+----------+
| Special dividend for 2007 of US$0.03 per share on | 1,418 | - |
+-------------------------------------------------------+------------+----------+
| 47,246,376 shares | ______ | _____ |
+-------------------------------------------------------+------------+----------+
| | 7,087 | - |
+-------------------------------------------------------+------------+----------+
| | ______ | _____ |
+-------------------------------------------------------+------------+----------+
| Dividends proposed | | |
+-------------------------------------------------------+------------+----------+
| Proposed final dividend for 2008 of US$0.10 (2007: | | |
| US$0.07) | | |
+-------------------------------------------------------+------------+----------+
| per share on 47,246,376 shares | 4,725 | 3,307 |
+-------------------------------------------------------+------------+----------+
| Proposed special dividend for 2008 of nil (2007: | | |
| US$0.03) | | |
+-------------------------------------------------------+------------+----------+
| per share on 47,246,376 shares | - | 1,418 |
+-------------------------------------------------------+------------+----------+
| | ______ | _____ |
+-------------------------------------------------------+------------+----------+
| | 4,725 | 4,725 |
+-------------------------------------------------------+------------+----------+
| | ______ | _____ |
+-------------------------------------------------------+------------+----------+
6. DIVIDENDS - continued
During the year ended 31 December 2008, the directors of the Company declared
an interim dividend for 2008 of US$0.05 (2007: nil) per share amounting to
US$2,362,000.
The directors of the Company propose to declare a final dividend of US$0.10
(2007: US$0.07) and a special dividend of nil (2007: US$0.03) per share. The
proposed final dividend and special dividend proposed are subject to the
approval by the shareholders of the Company in the forthcoming annual general
meeting. As a result, an amount of US$4,725,000 (2007: US$4,725,000) has been
transferred to the dividend reserve.
7. EARNINGS PER SHARE
The calculation of the basic and diluted earnings per share attributable to the
ordinary equity holders of the Company is based on the following data:
+-------------------------------------------------------+------------+------------+
| | 2008 | 2007 |
+-------------------------------------------------------+------------+------------+
| | US$'000 | US$'000 |
+-------------------------------------------------------+------------+------------+
| Earnings for the purposes of basic and diluted | | |
| earnings | | |
+-------------------------------------------------------+------------+------------+
| per share (profit attributable to equity holders of | | |
| the | | |
+-------------------------------------------------------+------------+------------+
| Company) | 14,946 | 8,685 |
+-------------------------------------------------------+------------+------------+
| | ______ | ______ |
+-------------------------------------------------------+------------+------------+
| | Number of | |
+-------------------------------------------------------+------------+------------+
| | ordinary | |
| | shares | |
+-------------------------------------------------------+------------+------------+
| | 2008 | 2007 |
+-------------------------------------------------------+------------+------------+
| Weighted average number of ordinary shares for the | | |
+-------------------------------------------------------+------------+------------+
| purpose of basic earnings per share | 47,246,376 | 43,732,380 |
+-------------------------------------------------------+------------+------------+
| | | |
+-------------------------------------------------------+------------+------------+
| Effect of dilutive potential ordinary shares on share | | |
+-------------------------------------------------------+------------+------------+
| options | - | 26,948 |
+-------------------------------------------------------+------------+------------+
| | __________ | __________ |
+-------------------------------------------------------+------------+------------+
| Weighted average number of ordinary shares for the | | |
+-------------------------------------------------------+------------+------------+
| purpose of diluted earnings per share | 47,246,376 | 43,759,328 |
+-------------------------------------------------------+------------+------------+
| | __________ | __________ |
+-------------------------------------------------------+------------+------------+
For the purpose of the calculation of basic earnings per share for the year
ended 31 December 2007, the weighted average number of shares for that year was
adjusted for the capitalisation of 39,980,000 new ordinary shares on 25 April
2007 as if the capitalisation was occurred on 1 January 2007.
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 in the current year.
8. INTANGIBLE ASSETS
+---------------------------------------+---------------+--------------+----------+
| | Exclusive | Exclusive | |
+---------------------------------------+---------------+--------------+----------+
| | distribution | agency | |
+---------------------------------------+---------------+--------------+----------+
| | right | right | Total |
+---------------------------------------+---------------+--------------+----------+
| | US$'000 | US$'000 | US$'000 |
+---------------------------------------+---------------+--------------+----------+
| | (Note a) | (Note b) | |
+---------------------------------------+---------------+--------------+----------+
| COST | | | |
+---------------------------------------+---------------+--------------+----------+
| Additions | 644 | - | 644 |
+---------------------------------------+---------------+--------------+----------+
| Exchange adjustments | 27 | - | 27 |
+---------------------------------------+---------------+--------------+----------+
| | ______ | ______ | ______ |
+---------------------------------------+---------------+--------------+----------+
| At 31 December 2007 | 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 |
+---------------------------------------+---------------+--------------+----------+
| | ______ | ______ | ______ |
+---------------------------------------+---------------+--------------+----------+
| AMORTISATION | | | |
+---------------------------------------+---------------+--------------+----------+
| Charge for the year | (59) | - | (59) |
+---------------------------------------+---------------+--------------+----------+
| Exchange adjustments | (2) | - | (2) |
+---------------------------------------+---------------+--------------+----------+
| | ______ | ______ | ______ |
+---------------------------------------+---------------+--------------+----------+
| At 31 December 2007 | (61) | - | (61) |
+---------------------------------------+---------------+--------------+----------+
| Exchange adjustments | (14) | - | (14) |
+---------------------------------------+---------------+--------------+----------+
| Charge for the year | (302) | (491) | (793) |
+---------------------------------------+---------------+--------------+----------+
| Transfer | 89 | - | 89 |
+---------------------------------------+---------------+--------------+----------+
| | ______ | ______ | ______ |
+---------------------------------------+---------------+--------------+----------+
| At 31 December 2008 | (288) | (491) | (779) |
+---------------------------------------+---------------+--------------+----------+
| | ______ | ______ | ______ |
+---------------------------------------+---------------+--------------+----------+
| CARRYING VALUES | | | |
+---------------------------------------+---------------+--------------+----------+
| At 31 December 2008 | 663 | 6,912 | 7,575 |
+---------------------------------------+---------------+--------------+----------+
| | ______ | ______ | ______ |
+---------------------------------------+---------------+--------------+----------+
| At 31 December 2007 | 610 | - | 610 |
+---------------------------------------+---------------+--------------+----------+
| | ______ | ______ | ______ |
+---------------------------------------+---------------+--------------+----------+
(a)Exclusive distribution right
(i) On 10 February 2007, the Group entered into a supplemental agreement
with Qingdao League Pharmaceutical 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 an operation
agreement entered with Ophol Limited ("Ophol") on 10 February 2007. 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 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.
8.INTANGIBLE ASSETS - continued
(a)Exclusive distribution right - continued
(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 cases
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.
The expected useful life of the exclusive distribution right of Nesiritide
is 3 years.
(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") under a 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 annual installment 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 annual instalments of US$878,000 over next
10 years discounted at 5%. CMS Pharmaceutical has replaced Qingdao League as the
exclusive agent of Stulln for Pharma in the PRC from 1 August 2008 to 31 July
2018.
The expected useful life of the exclusive agency right is 10 years.
9. TRADE AND OTHER RECEIVABLES
+-------------------------------------------------------+------------+----------+
| | 2008 | 2007 |
+-------------------------------------------------------+------------+----------+
| | US$'000 | US$'000 |
+-------------------------------------------------------+------------+----------+
| Trade receivables | 17,441 | 14,785 |
+-------------------------------------------------------+------------+----------+
| Less: Allowance for bad and doubtful debts | (221) | (307) |
+-------------------------------------------------------+------------+----------+
| | ______ | ______ |
+-------------------------------------------------------+------------+----------+
| | 17,220 | 14,478 |
+-------------------------------------------------------+------------+----------+
| Bills receivables | 7,062 | 2,669 |
+-------------------------------------------------------+------------+----------+
| Other receivables | 3,402 | 2,158 |
+-------------------------------------------------------+------------+----------+
| | ______ | ______ |
+-------------------------------------------------------+------------+----------+
| Total trade and other receivables | 27,684 | 19,305 |
+-------------------------------------------------------+------------+----------+
| | ______ | ______ |
+-------------------------------------------------------+------------+----------+
The Group normally allows a credit period of three months to its trade
customers. Lengthened credit period up to four months was allowed to some
selected customers.
An aging analysis of the trade receivables net of allowance for bad and doubtful
debts at the respective balance sheet dates is as follows:
+-------------------------------------------------------+------------+----------+
| | 2008 | 2007 |
+-------------------------------------------------------+------------+----------+
| | US$'000 | US$'000 |
+-------------------------------------------------------+------------+----------+
| 0 - 90 days | 14,811 | 12,164 |
+-------------------------------------------------------+------------+----------+
| 91 - 365 days | 2,316 | 2,188 |
+-------------------------------------------------------+------------+----------+
| Over 365 days | 93 | 126 |
+-------------------------------------------------------+------------+----------+
| | ______ | ______ |
+-------------------------------------------------------+------------+----------+
| | 17,220 | 14,478 |
+-------------------------------------------------------+------------+----------+
| | ______ | ______ |
+-------------------------------------------------------+------------+----------+
The bills receivables of the Group are of the age within six months at the
balance sheet dates.
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$4,291,000 (2007: US$4,107,000) which are past due at the
reporting date for which the Group has not provided for impairment loss. Based
on the historical experiences of the Group, trade receivables past due but not
impaired are generally recoverable. The Group does not hold any collateral over
these balances.
The following is an aging analysis of trade receivables which are past due but
not impaired:
+-------------------------------------------------------+------------+----------+
| | 2008 | 2007 |
+-------------------------------------------------------+------------+----------+
| 0 - 90 days | US$'000 | US$'000 |
+-------------------------------------------------------+------------+----------+
| 91 - 365 days | 2,127 | 1,797 |
+-------------------------------------------------------+------------+----------+
| Over 365 days | 2, 071 | 2,184 |
+-------------------------------------------------------+------------+----------+
| | 93 | 126 |
+-------------------------------------------------------+------------+----------+
| | ______ | ______ |
+-------------------------------------------------------+------------+----------+
| | 4,291 | 4,107 |
+-------------------------------------------------------+------------+----------+
| | ______ | ______ |
+-------------------------------------------------------+------------+----------+
The Group has provided fully for all receivables over 3 years because historical
experience is such that receivables that are past due beyond 3 years are
generally not recoverable.
Movement in the allowance for bad and doubtful debts:
+-------------------------------------------------------+------------+----------+
| | 2008 | 2007 |
+-------------------------------------------------------+------------+----------+
| | US$'000 | US$'000 |
+-------------------------------------------------------+------------+----------+
| Balance at beginning of the year | 307 | 244 |
+-------------------------------------------------------+------------+----------+
| Impairment losses recognised on receivables | 23 | 44 |
+-------------------------------------------------------+------------+----------+
| Amount written off as uncollectible | (127) | - |
+-------------------------------------------------------+------------+----------+
| Currency realignment | 18 | 19 |
+-------------------------------------------------------+------------+----------+
| | ______ | ______ |
+-------------------------------------------------------+------------+----------+
| Balance at end of the year | 221 | 307 |
+-------------------------------------------------------+------------+----------+
| | ______ | ______ |
+-------------------------------------------------------+------------+----------+
Included in the allowance for bad and doubtful debts are individually impaired
trade receivables with an aggregate balance of US$221,000 (2007: US$307,000)
which have either been placed under liquidation or in severe financial
difficulties. The Group does not hold any collateral over these balances.
The fair value of the Group's trade receivables, bills and other receivables at
31 December 2008 approximates to the respective carrying amount due to the
relative short-term maturity.
10. TRADE AND OTHER PAYABLES
An aging analysis of the trade payables at the respective balance sheet
dates is as follows:
+-------------------------------------------------------+------------+----------+
| | 2008 | 2007 |
+-------------------------------------------------------+------------+----------+
| | US$'000 | US$'000 |
+-------------------------------------------------------+------------+----------+
| 0 - 90 days | 5,562 | 1,272 |
+-------------------------------------------------------+------------+----------+
| 91 - 365 days | 24 | 9,122 |
+-------------------------------------------------------+------------+----------+
| Over 365 days | 7 | 7 |
+-------------------------------------------------------+------------+----------+
| | ______ | ______ |
+-------------------------------------------------------+------------+----------+
| | 5,593 | 10,401 |
+-------------------------------------------------------+------------+----------+
| | ______ | ______ |
+-------------------------------------------------------+------------+----------+
| | | |
+-------------------------------------------------------+------------+----------+
The average credit period on purchases of goods is 90 days.
The fair value of the Group's trade and other payables at 31 December 2008
approximates to the respective carrying amount due to the relative short-term
maturity.
11. SHARE CAPITAL
+-------------------------------------------------------+------------+----------+
| | Number of | |
+-------------------------------------------------------+------------+----------+
| | shares | Amount |
+-------------------------------------------------------+------------+----------+
| | '000 | US$'000 |
+-------------------------------------------------------+------------+----------+
| Authorised share capital with nominal value of US$0.1 | | |
| each: | | |
+-------------------------------------------------------+------------+----------+
| At 1 January 2007 | 10,000 | 1,000 |
+-------------------------------------------------------+------------+----------+
| Increase in authorised share capital | 990,000 | 99,000 |
+-------------------------------------------------------+------------+----------+
| | _________ | _______ |
+-------------------------------------------------------+------------+----------+
| At 31 December 2007 and 31 December 2008 | 1,000,000 | 100,000 |
+-------------------------------------------------------+------------+----------+
| | _________ | _______ |
+-------------------------------------------------------+------------+----------+
| Issued and fully paid: | | |
+-------------------------------------------------------+------------+----------+
| At 1 January 2007 | 20 | 2 |
+-------------------------------------------------------+------------+----------+
| Issue of shares on capitalisation | 39,980 | 3,998 |
+-------------------------------------------------------+------------+----------+
| Issue of shares upon placing and admission to AIM | 7,246 | 725 |
+-------------------------------------------------------+------------+----------+
| | _________ | _______ |
+-------------------------------------------------------+------------+----------+
| At 31 December 2007 and 31 December 2008 | 47,246 | 4,725 |
+-------------------------------------------------------+------------+----------+
| | _________ | _______ |
+-------------------------------------------------------+------------+----------+
Pursuant to the written shareholders' resolutions of the Company dated on 25
April 2007, the Company increased its authorised share capital from 10,000,000
to 1,000,000,000 through the creation of 990,000,000 ordinary shares at US$0.1
per share.
On the same day, the shareholders authorised a capitalisation issue of
39,980,000 ordinary shares. The Group has transferred US$3,998,000 from the
capital reserve to the share capital to reflect this issue. Such new ordinary
shares were credited as fully paid and rank pari passu with the then existing
shares.
On 26 June 2007, 7,246,376 new ordinary shares of US$0.1 of the Company were
issued at GBP1.38 per share (equivalent to US$2.76 per share) by way of placing
and initial public offering on AIM.
All the shares which were issued by the Company during the year ended 31
December 2007 rank pari passu with each other in all respects.
12. POST REVIEW PERIOD
Subsequent to the balance sheet date, the Group entered into an agreement (the
"Ophol Agreement") with the controlling shareholder of Ophol to acquire its
equity interest of 73.47% in Ophol at a consideration of RMB22,500,000.
In March 2009, the Group entered into separate agreements (the "March
Agreements") with each of the other two original shareholders of Ophol. Pursuant
to the two March Agreements, the Group shall transfer a 24.49% equity interest
in Ophol to each of the other two original shareholders of Ophol at the
consideration of RMB7,500,000 each.
13. APPROVAL OF THE FINANCIAL STATEMENTS
The financial statements were approved and authorised for issue by the Board of
Directors on 12 May 2009.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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