TIDMCMSH
RNS Number : 0088R
China Medical System Holdings Ltd
12 August 2010
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| For immediate release | |
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NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE
OR IN PART, IN, INTO OR FROM THE UNITED STATES OF AMERICA, AUSTRALIA, CANADA OR
JAPAN OR ANY OTHER JURISDICTION WHERE TO DO SO MIGHT CONSTITUTE A VIOLATION OF
THE RELEVANT LAWS OR REGULATION.
China Medical System Holdings Ltd.
("CMS" or "the Company" or "We")
Interim Results Announcement
For the six months ended 30 June 2010
China Medical System Holdings Ltd. (AIM: CMSH), a leading China-based
pharmaceutical services company focusing on the marketing, promotion and sale of
prescription drugs of overseas and domestic specialty pharmaceutical companies,
is pleased to announce its interim results for the six months ended 30 June
2010.
Results are reported in US dollar currency unless otherwise stated.
HIGLIGHTS
Financial Highlights:
l Sales up 30.8% to $61.2M (H1 2009: $46.8M)
l Gross Profit up 25.6% to $37.2M (H1 2009: $29.6M)
l Net Profit up 45.2% to $15.3M (H1 2009: $10.6M)
l Adjusted Net Profit1 up 43.8% to $16.6M (H1 2009: $11.5M)
l Basic EPS and Diluted EPS up 45.4% and 43.8% to $1.608 and $1.590,
respectively
(H1 2009: $1.106 for both)
Operational Highlights
l Significant sales increase of the majority of our key in-licensed products:
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| Deanxit | $26.0M | 14.3% increase (H1 2009:$22.8M) |
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| Ursofalk | $16.9M | 26.5% increase (H1 2009:$13.4M) |
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| Stulln | $3.8M | 35.4% increase (H1 2009:$2.8M) |
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| XinHuoSu | $5.7M | 91.0% increase (H1 2009:$3.0M) |
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| Salofalk | $1.7M | 155.9% increase (H1 2009:$0.7M) |
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| Cystistat | $0.3M | 86.5% increase (H1 2009:$0.2M) |
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1 Adjusted net profit represents net profit excluding exceptional items. For the
interim period of 2010, exceptional item included an expense of $1.2M in
relation to the listing of the shares of par value of US$0.005 each in the
capital of the Company (the "Shares") on the main board of The Stock Exchange of
Hong Kong Limited ("Hong Kong Stock Exchange"); in the comparative period of
2009, exceptional item included an expense of $1.0M for research & development
operations which was disposed of at the end of 2009.
l Two new products introduced during the period:
Exacin (Antibiotic) $3.4M (in relation to which, the Company obtained a right
to promote and sell one shipment imported under its one-time permit in China,
with its imported drug licence being under renewal)
Bioflor (Anti-Diarrhea) $0.3M (in relation to
which, the Company obtained an exclusive right to promote and sell Bioflor in
China for 5 years)
l Recruited more than 220new marketing, promotion and sales staff to satisfy
the needs from expanding portfolio and business.
For further information, please contact:
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| China Medical System Holdings Ltd | + (852) 2369 3889 |
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| Vincent Hui | |
| | |
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| Seymour Pierce Limited (Nominated Adviser) | + 44 (0)20 7107 8344 |
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| Freddy Crossley / Catherine Leftley | |
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The information contained in this document is not for release, publication or
distribution, directly or indirectly, in whole or in part, in, into or from in
the United States of America (including its territories and possessions, any
state of the United States and the District of Columbia). These materials do not
contain, constitute or form part of an offer to sell or the solicitation of an
offer to purchase securities in the United States. The securities referred to
herein (the "Securities") have not been and will not be registered under the US
Securities Act of 1933, as amended (the "Securities Act"), and may not be
offered or sold in the United States absent registration under the Securities
Act except pursuant to an available exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act. There will be
no public offer of the Securities in the United States.
China Medical System Holdings Limited
China Medical System Holdings Ltd., (CMS) is listed on the Alternative
Investment Market (AIM) of the London Stock Exchange with the ticker symbol
"CMSH". For further information, please visit www.chinamedicalsystem.com
CHAIRMAN & CEO'S STATEMENT
The first half of 2010 has been a remarkable period for CMS both in terms of
operational achievements as well as our status as a listed company. With our aim
to consolidate our position as the leading China-based pharmaceutical services
company providing marketing, promotion and sale services in China, we disposed
of our non-core R&D operations and medical device manufacturing business at the
end of 2009.
In the six months ended 30 June 2010, our revenue reached US$61.2M, representing
an increase of 30.8% (H1 2009: US$46.8M); gross profit increased by 25.6% to
US$37.2M (H1 2009: US$29.6M); and the net profit increased by 45.2% to US$15.3M
(H1 2009: US$10.6M). The impressive increase in net profit was due to a
combination of factors including: (i) the continuous expansions of our product
portfolio; (ii) effective cost controls measures; (iii) the absence of the
expenses in relation to the R&D and medical devices manufacturing business which
we disposed of in December 2009; and (iv) continued expansion of our marketing,
promotion and sales network which createdfavourable economies of scale.
Since our listing on AIM in London in 2007, we have grown considerably. For the
three years ended 31 December 2007, 2008 and 2009, our total turnover was
US$51.7 million, US$72.6 million, and US$96.5 million, respectively,
representing a CAGR of 36.5% over the three years from 2007 to 2009. For each of
these periods, our gross profit was US$33.6 million, US$44.8 million, and
US$60.9 million, respectively, representing a CAGR of 34.6% over the three years
from 2007 to 2009, and gross profit margin was 64.9%, 61.7% and 63.1% in the
respective period. For each of these periods, our net profit was US$8.7 million,
US$15.0 million, and US$20.8 million, respectively, representing a CAGR of 55.0%
over the three years from 2007 to 2009, and our net profit margin was 16.8%,
20.7%, and 21.6% in the respective period.
We have maintained this healthy growth in the past three years through the close
adherence to our growth strategies, which included:
· Increase our penetration of the Chinese pharmaceutical market by further
expanding our marketing, promotion and sales team, broadening our marketing,
promotion and sales network, and increasing our hospital and medical doctor
base.
Our marketing, promotion and sales team has grown rapidly to promote our
expanding product portfolio. Our marketing, promotion and sales network has also
broadened quickly to achieve a wider geographic coverage and deeper penetration
in many provinces. Including the new hires this year, our total number of
marketing, promotion and sales team exceeds 970 staff, which is more than double
the number of 450 reported in our AIM admission document ("AAD") in June 2007.
As of 30 June 2010, our operations covered 30 out of the 31 provinces in China,
and our marketing, promotion and sales network reached over 5,900 hospitals, as
compared to approximately 3,000 hospitals in 26 provinces in 2007, as stated in
our AAD.
· Continue to expand our product portfolio and therapeutic focus by obtaining
exclusive rights to promote and sell new pharmaceutical products with high
growth potential in China through our marketing, promotion and sales platform.
Since 2007, the continuousexpansion of our product portfolio has contributed
significantly to our growth. In 2006, nearly all of the revenue from the sales
of our in-licensed products was derived from Deanxit and Ursofalk, the two
earliest in-licensed products, sales of the six key products we newly
in-licensed since late 2006 to 2010, namely Stulln, GanFuLe, XinHuoSu, Salofalk,
Cystistat, and Bioflor, have increased significantly. Such products contributed
to approximately 11.9%, 16.3%, 21.9% and 22.9% of our revenue from the sales of
in-licensed products for each of the three years ended 31 December 2007, 2008
and 2009 and the six months ended 30 June 2010, respectively, and their revenue
growth contributed about 35.3%, 25.4%, 38.0% and 32.4% of the growth in the
revenue of our in-licensed products in the respective period. As our product
portfolio expands, we reduce the risks associated with our reliance on a limited
number of products and the expanding portfolio is expected to continue to
contribute to our growth. The therapeutic areas covered by our products have
continued to broaden since 2006 as we in-licensed products targeting new
therapeutic areas. The economies of scale can be reflected in the decrease of
the selling and administrative expenses as a percentage of revenue from 38.4% in
2007 to 33.4% in 2009.
· Follow our strict product selection criteria to identify a product which
has significant market potential, has unique feature that help to differentiate
it from competitive products, or is difficult to imitate and market in China.
The success of our product selection and promotion strategies is demonstrated
by, amongst other things, the continued growth recorded by the sales of Deanxit
and Ursofalk, which we started to promote and sell in 2002. Sales of Deanxit and
Ursofalk continued to grow by 21.1% and 34.4%, respectively in 2009, or at CAGRs
of 26.0% and 44.4%, respectively since 2002. Sales of the six recently
introduced products have grown significantly in the last few years, from US$5.6
million in 2007 to US$20.5 million in 2009, representing a CAGR of 91.2%. We
believe our successfulproduct selection and promotion strategies will enable us
to identify additional appropriate products, further expand our business and
diversify our revenue sources. Our strategy to continuously expand our product
portfolio has been supported by international and domestic pharmaceutical
manufacturers, and as a result we in-licensed products from five international
manufacturers from four countries (Denmark, Germany, Ireland, and France), and
two domestic pharmaceutical manufacturers. Our listing status on AIM,
transparent and established corporate governance procedures, strong track
record, and quality of our marketing, promotion and sales services attract new
and existing suppliers to engage us to promote their products in China.
In line with our growth strategy, we were delighted to add two imported products
to our portfolio during the interim, namely Bioflor and Exacin (in relation to
which, we obtained a right to promote and sell one shipment imported under its
one-time permit in China, with its imported drug license being under renewal),
which are manufactured by Biocodex (France) and Asahi Kasei Pharma Corporation
(Japan), respectively. The two products combined already contributed US$3.7M, or
6.0% to our turnover within the interim period.
Financial Review
Turnover
During the interim period we derive revenue from sales of two kinds of products,
namely in-licensed productsand self-manufactured products, which accounted for
98.7% and 1.3% of our total revenue, respectively Our turnover increased by
30.8% from US$46.8 million in the six months ended 30 June 2009 to US$61.2
million in the six months ended 30 June 2010, reflecting an increase of 33.6% in
revenue from the sales of our in-licensed products, and a decrease of 49.2% in
revenue from the sales of our in-house manufactured pharmaceutical products.
Total turnover from our in-licensed products increased by 33.6% from US$45.2
million in the six months ended 30 June 2009 to US$60.4 in the six months ended
30 June 2010 mainly due to an increase in the sales volume of our products,
while prices of which remained relatively stable. We obtained the right to
promote and sell one shipment of Exacin in the PRC in January 2010, before that,
Exacin was introduced to the Chinese market in 1996. The sales of Exacin
amounted to approximately US$3.4 million in the six months ended 30 June 2010,
accounting for 5.5% of our total turnover in the same period. Further, we
obtained the exclusive right to promote and sell Bioflor in the PRC in February
2010, before that, Bioflor was introduced to the Chinese market in 1998 by
another domestic pharmaceutical company. The sales of Bioflor amounted to
approximately US$0.3 million in the six months ended 30 June 2010, accounting
for 0.5% of our total turnover in the same period.
Selling expenses
Our selling expenses increased by 17.2% from US$11.4 million in the six months
ended 30 June 2009 to US$13.3 million in the six months ended 30 June 2010
primarily due to an increase in marketing and promotion expenses, salaries &
wages, travelling and conference expenses incurred by our marketing and sales
staff corresponding to increased sales during the period. Our selling expenses
as a percentage of our revenue decreased by 2.5% from 24.3% in the six months
ended 30 June 2009 to 21.8% in the six months ended 30 June 2010 as we benefited
from economies of scale.
Administrative expenses
Our administrative expenses decreased by 16.2% from US$3.9 million in the six
months ended 30 June 2009 to US$3.3 million in the six months ended 30 June 2010
primarily due to (i) an expense of US$0.2 million incurred in the six months
ended 30 June 2009 only in relation to our research and development and medical
device manufacturing businesses which we disposed of in late 2009, (ii) a
decrease of US$0.2 million in the costs of share-based payment related to the
grant of shares under the Key Employee Benefit Scheme, and (iii) a decrease in
other expenses. As our business continued to grow, we achieved greater economies
of scale and our administrative expenses as a percentage of our revenue
decreased by 3.0% from 8.4% in the six months ended 30 June 2009 to 5.4% in the
six months ended 30 June 2010.
Research and development costs
We did not incur any research and development costs in the six months ended 30
June 2010 because we disposed of our Research and Development operations in
December 2009.
Inventories
Our inventory balances increased by US$6.3 million from US$11.1 million as at 31
December 2009 to US$17.4 million as at 30 June 2010, resulting from the increase
in stock of finished products which was primarily due to (i) the single purchase
of a large quantity of Exacin following our exclusive right obtained in January
2010 to promote and sell one shipment of Exacin under its one-time permit in
China and (ii) our purchases of inventories partly due to our expanded
portfolio.
Trade receivables
Our net trade receivables balances increased from US$20.7 million as at 31
December 2009 to US$28.9 million as at 30 June 2010, primarily reflecting (i) an
increase in sales in the six months ended 30 June 2010 and (ii) an increase in
the average trade receivable turnover day for the six months ended 30 June 2010,
being 75 days, compared to that for 2009, being 73 days (whilst in the six
months ended 30 June 2009, the average trade receivable turnover day was higher,
being 79 days).
Bank balances and cash, and source of cash
As at 30 June 2010, we maintained a healthy cash position. Bank balances and
cash decreased by US$4.8 million from US$15.1 million as at 31 December 2009 to
US$10.3 million as at 30 June 2010, primarily reflecting (i) paymentof the final
dividend we declared for 2009 amounted to US$4.7 million, (ii) cash payment for
the single purchase of a large quantity of Exacin under its one-time permit in
China, and (iii) the acquisition of a land use right in Shenzhen amounted to
US$2.9 million.
The balance of our source of cash (represented by bill receivables) decreased
from US$9.5 million as at 31 December 2009 to US$8.9 million as at 30 June 2010.
Trade payables
Our trade payables balances decreased from US$6.1 million as at 31 December 2009
to US$4.3 million as at 30 June 2010, primarily due to our cash payment for the
purchases of Exacin and Bioflor upon delivery, both of which were newly
introduced in 2010.
Operational Review
Marketing & Promotion
For the interim period ended 30 June 2010, revenue from the sales of our
in-licensed products were US$60.4M, representing an increase of 33.6% from 2009
(H1 2009: US$45.2M). Revenue generated from the sale of our in-licensed products
for the three years ended 31 Dec 2007, 2008 and 2009 was US$47.0M, US$69.6M, and
US$93.8M respectively, representing a CAGR of 41.2% over the three years from
2007 to 2009. Since 2007, the continuous expansion of our product portfolio has
contributed significantly to our growth. Sales of the six key products we newly
in-licensed since late 2006 have increased significantly. Such products
contributed to approximately 11.9%, 16.3%, 21.9% and 22.9% of our revenue from
the sales of in-licensed products for each of the three years ended 31 December
2007, 2008 and 2009 and the six months ended 30 June 2010, respectively. As our
product portfolio expands, we reduce the risks associated with our reliance on a
limited number of products and the expanding portfolio is expected to continue
to contribute to our growth.
We provide exclusive marketing, promotion and sales services that primarily
include one-on-one visits to physicians, providing them with professional
education specific to therapeutic areas related to our products, educating
physicians on the clinical uses, benefits, side effects and other clinical
aspects of our in-licensed products, organising medical symposia and sponsoring
industry conferences. By accurately positioning the products to target unmet
medical needs and raising the awareness of our products among physicians, our
services enable pharmaceutical companies lacking an effective commercialisation
or promotion capability in China to bring their products to the market
efficiently and generate demand for their products.
We have a highly qualified and professional marketing, promotion, and sales team
which effectively promotes our products to the physicians. Our promotion and
sales team has been with us for an average period of about four years, and among
them the mid-level to senior members have been with us for an average period of
approximately nine years. Over 70% of our promotion and sales team have
educational backgrounds in medicine or pharmacology, and a number of them
practised medicine and hence possess first-hand clinical experience. Their
professional background and experience in the pharmaceutical industry have
enabled us to successfully implement our promotion and sales strategy, which
requires a substantial level of interfacing with physicians and focuses on
educational training in the specific therapeutic areas of our products.
According to the Frost & Sullivan, we are the largest pharmaceutical services
company focusing on the marketing, promotion and sales of prescription drugs in
China, accounting for 18% of the market in 2009, and we operate the largest
third-party promotion network in China in terms of hospital coverage,
therapeutic focus and number of salespeople. During the seven months ended 31
July 2010, we recruited more than 220 new staff to join our marketing, promotion
and sales team, making the total number of salespeople at the end of July 2010
to be over 970. The expanded marketing, promotion and sales team enables our
services to reach over 5,900 hospitals located across 30 provinces, 97% of the
provincial capitals and 86% of prefecture level cities in China. Our hospital
network covers 91.4 % of class-three hospitals and 34.4% of class-two hospitals
in China. Our promotion and sales network has identified over 100,000 target
physicians who specialise in different therapeutic areas that are relevant to
our products, including neurology, psychiatry, hepatology, gastroenterology,
urology, ophthalmology, cardiovascular disease, oncology and paediatric.
We follow a rigorous product screening process to select products which have
distinctive features which cannot be easily imitated and marketed in China, and
which we expect will enjoy product exclusivity and a leading market position in
the market. Our product exclusivity is reflected in the absence of competing
products under the same generic name based on our research carried out on the
website of the State Food and Drug Administration of the PRC ("SFDA") as at 17
May 2010, or reflected in the administrative protection in the case of GanFuLe,
a traditional Chinese medicine. The product exclusivity applies to all our key
in-licensed products except for Ursofalk and Salofalk.
A brief review of our key in-licensed products is as follows:
Deanxit (Flupentixol and Melitracen)
Sales of Deanxit, our largest revenue contributor, increased by 14.3% to
US$26.0M in the six months ended 30 June 2010 (H1 2009: US$22.8M). During the
interim period of 2010, Deanxit was sold to over 4,500hospitals across
29 provinces in China. In 2002, we entered into a five-year agreement with H.
Lundbeck A/S of Denmark to promote and sell Deanxit in China (excluding Hong
Kong and Macau) on an exclusive basis, and in 2008, we renewed the agreement for
another five years. Since 2002, sales of Deanxit have grown at a CAGR of 28.8%
to US$44.5 million for the year ended 31 December 2009, contributing
approximately 46.1% of our total turnover for 2009. Deanxit is currently the
second best selling anxiolytic anti-depressant in China, after its sales
surpassed its competitive product Prozac in 2009. According to World Health
Organisation ("WHO"), it is estimated that 5% to 10% of the population at any
given time is suffering from identifiable depression requires psychiatric
treatment or psychosocial intervention. Despite the seriousness of depression as
a disease and the availability of effective treatment, only 30% of cases
worldwide receive appropriate care. As the general awareness of mental health
continues to improve, we anticipate large unmet demand for the treatment of
depression. According to the Frost & Sullivan, the anti-depression market in
China was US$393.5M in 2009, and is expected to grow at a CAGR of 17.9% from
2005 to 2016. We believe this provides significant growth potential for our
product Deanxit.
Ursofalk (Ursodesoxycholic Acid or "UCDA")
Sales of Ursofalk, our second largest revenue contributor, increased by 26.5% to
US$16.9M in the interim period of 2010 (H1 2009: US$13.4M). Ursofalk is used for
the treatment of cholesterol gallstones, cholestatic liver disease and
gastritis. During the interim period of 2010, Ursofalk was sold to over
2,300 hospitals across 30 provinces in China. In 2002, we entered into an
exclusive agreement with Dr. Falk Pharma of Germany for the promotion and sale
of Ursofalk in China. The contract was automatically renewed in 2009 for a term
of five years after fulfilling the annual minimum order quantities we had agreed
with Dr. Falk Pharma. Since 2002, our sales of Ursofalk have grown at a CAGR of
47.6% to US$28.3 million for the year ended 31 December 2009 and contributed
approximately 29.4% of our total turnover in 2009. UCDA has been included in the
Drug Catalogue of National Basic Medical Insurance, and added in the new
National Essential Drug List in China released in 2009. According to the Frost &
Sullivan, Ursofalk represented 98.0% of the UDCA market in China in 2009. UDCA
drugs have become a major non-surgical treatment for cholesterol gallstones, and
further, UDCA's efficacy in treating choleststic liver diseases has been
recognised in recent years. According to the Frost & Sullivan, the overall
cholagogue market in China was US$50.7M in 2009 and is expected to grow at a
CAGR of 21.6% from 2005 to 2016. Frost & Sullivan also concluded that Ursofalk
has maintained a market share of more than 50% of the Chinese market for
cholagogue drugs since 2007 and was ranked first by market share since 2005
amongst other similar competitive products.
Augentropfen Stulln Mono Eye-drops ("ASM")
Augentropfen Stulln Mono is an imported eye-drop approved by SFDA for the
treatment of age-related macula degeneration (AMD). ASM is also approved as
treatment for all forms of ocular asthenopia. Sales of ASM increased by 35.4% to
US$3.8M in the six months ended 30 June 2010 (H1 2009: US$2.8M) as we continue
to sell the product in more than 1,600 hospitals. According to the Frost &
Sullivan, the AMD market in China was US$63.4M in 2009 and is expected to grow
at a CAGR of 15.2% from 2009 to 2016. ASM had a market share of about 7.8%, 8.3%
and 9.7% of the Chinese AMD market in 2007, 2008, and 2009, respectively. We are
currently exploring the possibility of changing the product from a prescription
drug to an over-the-counter eye-drop product, which we believe will
significantly increase our market share in China.
Augentropfen Stulln Mono eye-drops are a product of Pharma Stulln GmbH, Germany
and were introduced to the Chinese market in 1999 by another domestic
pharmaceutical company. We first obtained an exclusive right to promote and sell
Augentropfen Stulln Mono eye-drops in China in 2006 and then acquired the
exclusive agency right in China in 2008 for a term of ten years. Since 2007, we
have sponsored numerous nationwide academic conferences and seminars to build
brand awareness. As a result, we successfully expanded the number of hospitals
that prescribe Augentropfen Stulln Mono eye-drops from less than 200 in 2006
before we obtained the exclusive distribution right to over 1,500 hospitals in
2009. According to data provided by Pharma Stulln GmbH, the volume of
Augentropfen Stulln Mono eye-drops (boxes of 10) imported into China increased
from approximately 600,000 boxes in 2006, to approximately 1,680,000 boxes in
2009.
XinXinHuoSu (Lyophilized Recombinant Human Brain Natriuretic Peptide "rhBNP")
XinHuoSu was first sold in China by Tibet Rhodiola Co. Ltd., in 2005. We
obtained the exclusive right to promote and sell XinHuoSu in China in 2008.
Sales of XinHuoSu increased by 91.0% to US$5.7M in the six months ended 30 June
2010 (H1 2009: US$3.0M). This product is a National Class One New Drug, and is a
cardiovascular product used to treat acute heart failure (AHF) patients who have
dyspnea at rest or with minimal activity. rhBNP is included in the Guideline for
Diagnosis and Treatment of Acute Heart Failure issued by the Chinese Medical
Association of Cardiovascular Department as the treatment for AHF and XinHuoSu
is the only rhBNP drug in the China market, based on our research carried out on
the website of the SFDA as at 17 May 2010. With China's growing ageing
population and increasing incidence rate of cardiovascular diseases such as
hypertension and coronary heart disease, the prevalence rate of heart failure
has gradually increased in recent years. According to an article published by
the Chinese Journal of Cardiology in January 2003, the prevalence rate of heart
failure in China amongst adults was about 0.9% (with 0.7% applicable to men and
1.0% applicable to women) and four million adult patients aged from 35 to 74
suffered from heart failure, which showed a rising trend year by year.
In 2008, we initiated a multi-centre phase IV clinical trial for XinHuoSu, which
was coordinated by eight centres and involved 2,184 patients. Phase IV trials,
also known as post marketing surveillance trials, involve the safety
surveillance of a drug after it receives approvals to sell in the market. The
safety surveillance is designed to detect any rare or long-term adverse effects
over a much larger patient population and longer time period than was possible
during the phase I to III clinical trials. The phase IV clinical trial for
XinHuoSu was completed in April 2010 and the results provide clinical evidence
that substantiates the efficacy of XinHuoSu. From the time we obtained the
agency rights in 2008 to the end of 2009, we expanded the coverage of hospitals
prescribing XinHuoSu from less than 70 to approximately 400.
According to Tibet Rhodiola Pharmaceutical Co. Ltd., before we took over the
exclusive rights, sales of XinHuoSu were less than RMB5.0 million (equivalent to
approximately US$0.7 million) in 2007. Our revenue from the sale of XinHuoSu
reached US$2.8 million in 2008 and US$7.3 million in 2009, representing an
increase of 155.5% over the two years' period.
Salofalk (Mesalazine)
Salofalk is used to treat ulcerative colitis and the acute phase of Crohn's
disease. During the six months ended 30 June 2010, sales of Salofalk reached
US$1.7M, representing an increase of 155.9% over the same period last year (H1
2009: US$0.7M). Salofalk was first introduced to the Chinese market in 2003 by
another pharmaceutical company. We obtained the exclusive right from Dr. Falk
Pharma to promote and sell Salofalk in China in 2008 for a term of five
years. Sales of Salofalk in China reached US$0.1 million in 2008 and US$1.8
million in 2009, representing an increase of 1,271.4% over the two-year
period. According to the IMS Health analysis, Salofalk was the fourth
best-selling anti-inflammatory agent globally for the 12-month period up to the
third quarter of 2009, with total sales of US$187 million. According to
Datamonitor, the global sales volume of Salofalk is expected to grow at a CAGR
of 20% from 2008 to 2013. We believe that sales of Salofalk in China will also
increase in the coming years. According to "Analysis of incidence of
inflammatory bowel disease in China" (Chinese Journal of Digestion, 2008,
12:814-817), the prevalence rates of ulcerative colitis and Crohn's disease in
China were about 11.6 out of 100,000 people and 1.4 out of 100,000 people
respectively, with an upward trend in recent years.
Bioflor (Saccharomyces boulardii)
Bioflor, a type of probiotic, is used to treat acute infectious diarrhoea,
antibiotic-associated colitis and diarrhoea (AAD). Bioflor was introduced to the
Chinese market in 1998 by another domestic pharmaceutical company. We obtained
an exclusive right from Biocodex of France to promote and sell Bioflor in China
in February 2010 for a term of five years. During the interim period of 2010,
sales of Bioflor reached US$0.3M. According to its manufacturer, Bioflor has
been launched in the international market for more than 49 years and is
currently sold in about 100 countries. According to an article entitled
"Diarrhoea in developed and developing countries: magnitude, special settings,
and etiologies" published by Rev Infect Dis. in 1990, diarrhoeal diseases are
major causes of morbidity, with attack rates ranging from two to 12 or more
illnesses per person per year in developed and developing countries. By
projecting the low end of such attack rate of two times per person per year in
developed and developing countries to the population of 1.3 billion in China,
the attack rates of diarrhoea would be 2.6 billion times per year in China. In
addition, according to the article "Antibiotic resistance in China - a major
future challenge" published by the Lancet in 2009, the rate of antibiotic
prescription to inpatients in China is 80%. With extensive use of antibiotics in
China, the estimated prevalence rate of antibiotic-associated diarrhoea is about
9.3% among adult patients according to a study published on the World Chinese
Journal of Gastroenteritis. Saccharomyces boulardii, along with lactobacillus
rhamnosus GG and probiotic mixtures, is clinically proven to significantly
reduce the development of AAD based on "Meta-analysis of probiotics for the
prevention of antibiotic associated diarrhoea and the treatment of Clostridium
difficile disease" published by PubMed in 2006. We believe that there is
significant market potential in China for Bioflor as a treatment for acute
infectious diarrhoea and AAD.
Cystistat(Sterile hyaluronate solution)
Cystistat is used with a medical device for the temporary replacement of the
glycosaminoglycan (GAG) layer in the bladder caused by Interstitial cystitis
(IC). For the six months ended 30 June 2010, sales of Cystistat increased by
86.5% over the same period last year to reach US$0.3M (H1 2009: US$0.2M).
According to the report "Screening, treatment and management of IC/PBS"
published by the Association of Reproductive Health Professionals in May 2008,
the prevalence rate of interstitial cystitis in the general population in the
United States has been estimated to be about 60 per 100,000 people. We believe
that interstitial cystitis is under-diagnosed and under-treated in China. By
increasing the product awareness through educating physicians about the disease,
available treatments and the clinical advantages of Cystistat in treating
interstitial cystitis, we believe there is growth potential for Cystistat.
We first obtained the exclusive right from Bioniche Teoranta of Ireland to
promote and sell Cystistat in China in 2008 for a term of five years, and this
will be automatically renewed provided that certain conditions, principally the
minimum order quantities are met. According to the data from Bioniche Teoranta,
the volume of Cystistat imported into China increased from 550 bottles in 2007
to 1,000 bottles in 2008 and 3,000 bottles in 2009.
GanFuLe ("GFL")
Sales of GanFuLe decreased by 10.7% from US$2.2 million in the six months ended
30 June 2009 to US$2.0 million in the six months ended 30 June 2010 because the
territorial exclusivity under the renewed agreement in 2010 was reduced. GFL was
first sold in China in 1994 by its manufacturer. We obtained the exclusive right
to promote and sell GFL in China in late 2006. In 2010, we renewed the agreement
with the supplier for a term of five years, under which we have an exclusive
right to promote and sell GFL in certain regions of China. GFL is a traditional
Chinese medicine used to treat primary liver cancer, hepatitis B and cirrhosis
with specified symptoms. GFL is included in the Drug Catalogue of National Basic
Medical Insurance which helps to promote wider prescription in the market. In
addition, the product was granted a seven-year National Second Grade Traditional
Chinese Medicine Protection expiring in July 2013, during which time, other
manufacturers are not allowed to produce the product. According to the Study for
Opportunities Assessment for Hepatitis B Therapeutics in China prepared by Frost
& Sullivan in 2008, the number of carriers of hepatitis B virus (HBV) in China
in 2007 was 54 million, which is expected to increase to 60 million by 2012.
Chronically HBV infected persons are at risk of death from cirrhosis of the
liver and liver cancer, making HBV the second leading cause of death in China.
As GFL is clinically proven to delay the progression of hepatic fibrosis and
reduce the probability of developing liver cirrhosis, and hence the probability
of developing liver cancer, we expect that our revenue from GFL will continue to
grow with the increasing number of HBV carriers and liver cancer incidences.
Exacin (Isepamicin Sulfate)
Exacin is an aminoglycoside antibiotic product used to treat septicaemia caused
by sensitive bacteria, secondary infections caused by trauma, burns and surgery,
chronic bronchitis, bronchiectasis, pneumonia, pyelonephritis, cystitis and
peritonitis. For the six months ended 30 June 2010, sales of Exacin already
reached an impressive US$3.4M. Bloodstream infection (BSI) includes septicaemia
and bacteremia. The average incidence rate of BSI increased from about 1.6% in
1986 to 3.1% in 2006, according to an article entitled "Etiology, diagnosis and
treatment development of BSI" published in the Journal of Practical Medicine
2009. Exacin is included in the Drug Catalogue of National Basic Medical
Insurance Class B.
We obtained the right to promote one shipment of Exacin imported into China
under its one-time permit in 2010 and its imported drug licence is currently
under renewal. We are currently exploring an opportunity to obtain from the
manufacturer a long-term exclusive right to promote and sell Exacin in China and
we may or may not be able to obtain such right. We expect Exacin to become one
of our key in-licensed products if we successfully obtain the exclusive right of
promotion and sale from the manufacturer.
Changes in the Board of Directors
During the interim period, we made some changes to the members of the board of
directors. Ms. Hou Xiaoxuan changed her role from an Executive Director to a
Non-Executive Director of the Company. Owing to family reasons, Ms. Hou
expressed her wish to take a less active role in the management of our Group and
accordingly Ms. Hou and we agreed that she would not be responsible for
overseeing the day-to-day operations of the Group. She is currently mainly
involved in the overall strategic development of our business. Meanwhile, we
would like to express our heartfelt gratitude to Dr. Paul Harper, an Independent
Non-executive Director ("INED") of the Company, who resigned from the board in
May 2010, for his valuable contribution to the Company during his tenure of
office. We are delighted to welcome Dr. Huaizheng Peng and Mr. Wu Chi Keung, our
two INEDs newly appointed in May and June 2010, respectively, who bring to the
board their rich experience in corporate finance and financial audit industry.
Sub-division of shares
To lower the trading price of the Company's shares quoted on AIM with the aim of
improving the liquidity of the shares, pursuant to an ordinary resolution of the
Company's shareholders (the "Shareholders") passed at an extraordinary general
meeting held on 25 June 2010, each share of par value of US$0.1 in the capital
of our Company was sub-divided into 20 shares of par value of US$0.005 each with
effect from 28 June 2010.
Hong Kong Listing
On 29 April 2010, the Company announced that an application for the listing of
the Shares on the main board of the Hong Kong Stock Exchange ("Hong Kong
Listing") was made on that day. Since the admission of the Shares to trading on
AIM in June 2007, the Company and the Shareholders have been well served by AIM.
The proceeds raised from the placing of Shares as part of the admission of the
Shares to trading on AIM enabled the Company and its subsidiaries (collectively,
the "Group") to implement its expansion plan. Given that the Group operates and
generates all of its sales in China, the directors of the Company (the
"Directors") believe that the Company will be better served by listing its
Shares on a stock exchange where the potential investors are generally more
familiar with the Chinese market and the Company's business environment.
Because of its geographical and economic proximity and cultural similarity to
China, and its large, liquid and well-maintained securities trading platform,
the Directors believe that Hong Kong Stock Exchange would be a suitable choice
of stock exchange for the Company to grow further. The Directors also believe
that as the Hong Kong Stock Exchange has attracted a broad range of the People's
Republic of China ("PRC"), Asian and other international investors, the
liquidity of and access to the Company's Shares is expected to improve following
the Hong Kong Listing, which shall in turn improve the Company's profile and
provide better access to quality institutional investors that are familiar with
China's pharmaceutical industry in the long term.
The Directors have considered the advantages and disadvantages of maintaining
the Company's admission to AIM after its Shares are listed on the Hong Kong
Stock Exchange, and concluded that it will not be in the best interests of the
Company and the Shareholders to maintain dual listings on two different stock
exchanges. The Directors are of the view that a dual-listing is likely to
result in division of liquidity of Shares between the two markets, which is
likely to partly negate the benefits of the Hong Kong Listing. A dual-listing
will also incur additional legal, audit and other maintenance and management
fees, and require additional management resources as the Company would have to
comply with two sets of regulatory requirements. Accordingly, the Directors
believe that the additional time and costs required to maintain a dual-listing
will outweigh its benefits. The Company proposes to cancel the admission of
Shares to trading on AIM (the "Delisting") conditional upon the Hong Kong
Listing occurring and on the same day as the date of the Hong Kong Listing (the
"Listing Date").
The Hong Kong Listing is subject to, among other things, the approval of the
listing sub-committee of the board of directors of the Hong Kong Stock Exchange
("Listing Committee"), and may be affected by a number of factors including the
related share offering and market conditions. Subject to the approval of the
Listing Committee, it is currently expected that the earliest possible date that
the Hong Kong Listing may occur is 21 September 2010. The Delisting is
conditional on Shareholders' approval and the Hong Kong Listing taking place,
and will be effective on the Listing Date. The expected Listing Date and the
date of the Delisting are subject to change. Once the final date of Hong Kong
Listing and the date of Delisting are confirmed, the Company will make an
announcement regarding such dates as soon as practicable and in any event not
less than ten days (upon which the London Stock Exchange plc is open for
business) in advance of the final date of Delisting.
Outlook & Summary
The Chinese pharmaceutical market has grown rapidly in recent years due to the
favourable macro environment in terms of the GDP growth and an increase in
healthcare expenditure in China. According to the Frost & Sullivan Report, the
Chinese pharmaceutical market grew from US$18.7 billion in 2005 to US$37.6
billion in 2009, representing a CAGR of 19.0%. It is estimated that the amount
will reach US$137.1 billion in 2016, representing a CAGR of 20.3% from 2009 to
2016. According to the Frost & Sullivan Report, the Chinese prescription drugs
market amounted to US$29.9 billion in 2009, accounting for about 79.5% of the
whole Chinese pharmaceutical market in terms of sales volume in the same year,
and the market size of the prescription drugs market in China is expected to
reach US$110.7 billion by 2016, representing a CAGR of 20.6% from 2009 to 2016.
The recent healthcare reform initiated by the State Council in 2009 called for
acceleration in building basic medical insurance system and essential drug
system, and promotion on primary health care facilities and pilot reform of
State-run hospitals. Under the reform, an estimated amount of RMB850 billion
(equivalent to approximately US$125 billion) will be spent on healthcare through
2011. With RMB850 billion investment (equivalent to approximately US$125
billion), the reform is considered to lay a solid foundation for equitable and
universal access to essential health care for all in China by 2020. With the
increasing government spending on healthcare, rising disposable income and
living standards in China, people in China become more health conscious and
hence the domestic demand for high-quality imported prescription drugs will
increase, as they become more attractive to patients in China.
Drawn by such rapid growth and significant market potential in China, many
overseas pharmaceutical companies are eager to bring their products to the
Chinese market, and according to the Frost & Sullivan Report, sales of imported
prescription drugs in China grew at a CAGR of 34.7% from 2005 to 2009, compared
to a CAGR of 20.9% for the overall prescription drug market in China over the
same period of time, eclipsing the growth of the overall prescription drugs
market in China. In our experience, large global pharmaceutical companies
generally focus their resources on a limited portfolio of selective higher
revenue-generating products and engage third-party service providers to market,
promote and sell their other products. Most small and medium size overseas
pharmaceutical companies have limited understanding of the Chinese market and
culture and do not have the capability, expertise and experience to introduce
their products to the Chinese market. These small and medium size overseas
pharmaceutical companies also often choose to engage third-party service
providers to launch and promote their products in China as a cost-efficient way
to enter the market. We believe demand for pharmaceutical marketing, promotion
and sale services in China among overseas and domestic specialty pharmaceutical
companies will continue to grow as more companies are attracted to the strong
growth of the Chinese pharmaceutical market, which is largely driven by
increasing healthcare spending, higher disposable income, rising health
awareness and the recently announced healthcare reform in China.
We believe that with our broad marketing, promotion and sales platform, we are
able to offer pharmaceutical companies more cost-effective and time-efficient
access to the healthcare market in China for their products. With our broad
promotion and sales network, extensive hospital coverage and wide scope of
therapeutic areas covered by our products, we are better able to cross-sell our
products in a cost-effective way and benefit from economies of scale as we add
further in-licensed products to our portfolio, which we expect will bolster our
operating profit margin in the future.
We have the ability to effectively bridge the gap faced by pharmaceutical
companies in introducing their products to the end market due to constraints on
their capital, marketing expertise or other resources. Our track record provides
us with an advantage when we compete for the exclusive promotion and selling
rights for new in-licensed products and from new suppliers.
With all the above mentioned factors giving strong support to the growth of the
Chinese pharmaceutical market, our experience, established and nationwide
marketing, promotion, and sales network, and our proven track record, we are
confident we are in a position to maximize the opportunities available in one of
the fastest growing markets in the world to further enhance our profitability.
Kong Lam
Chairman & CEO
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED 30 JUNE 2010
+-------------------------------------+-------+-------------+-------------+
| | | Six months ended |
+-------------------------------------+-------+---------------------------+
| | | 30 June |
+-------------------------------------+-------+---------------------------+
| |NOTES | 2010 | 2009 |
+-------------------------------------+-------+-------------+-------------+
| | | US$'000 | US$'000 |
+-------------------------------------+-------+-------------+-------------+
| | |(unaudited) |(unaudited) |
+-------------------------------------+-------+-------------+-------------+
| | | | (restated) |
+-------------------------------------+-------+-------------+-------------+
| | | | |
+-------------------------------------+-------+-------------+-------------+
| Turnover | 3 | 61,195 | 46,775 |
+-------------------------------------+-------+-------------+-------------+
| Cost of goods sold | | (23,970) | (17,139) |
+-------------------------------------+-------+-------------+-------------+
| Gross profit | | 37,225 | 29,636 |
+-------------------------------------+-------+-------------+-------------+
| Other gains and losses | | 546 | 691 |
+-------------------------------------+-------+-------------+-------------+
| Selling expenses | | (13,318) | (11,366) |
+-------------------------------------+-------+-------------+-------------+
| Listing expenses | | (1,221) | - |
+-------------------------------------+-------+-------------+-------------+
| Administrative expenses | | (3,274) | (3,908) |
+-------------------------------------+-------+-------------+-------------+
| Research and development costs | | - | (1,057) |
+-------------------------------------+-------+-------------+-------------+
| Finance costs | 4 | (336) | (191) |
+-------------------------------------+-------+-------------+-------------+
| Share of results of associates | | 42 | (26) |
+-------------------------------------+-------+-------------+-------------+
| Share of result of a jointly | | 25 | 21 |
| controlled entity | | | |
+-------------------------------------+-------+-------------+-------------+
| Profit before taxation | | 19,689 | 13,800 |
+-------------------------------------+-------+-------------+-------------+
| Taxation | 5 | (4,355) | (3,243) |
+-------------------------------------+-------+-------------+-------------+
| Profit for the period | 6 | 15,334 | 10,557 |
+-------------------------------------+-------+-------------+-------------+
| | | | |
+-------------------------------------+-------+-------------+-------------+
| Other comprehensive income | | | |
+-------------------------------------+-------+-------------+-------------+
| Exchange differences from | | 497 | 19 |
| translation | | | |
+-------------------------------------+-------+-------------+-------------+
| Share of changes in reserve of an | | (5) | - |
| associate | | | |
+-------------------------------------+-------+-------------+-------------+
| Fair value changes on cash flow | | 32 | - |
| hedges | | | |
+-------------------------------------+-------+-------------+-------------+
| Total comprehensive income for the | | 15,858 | 10,576 |
| period | | | |
+-------------------------------------+-------+-------------+-------------+
| | | | |
+-------------------------------------+-------+-------------+-------------+
| Profit for the period attributable | | | |
| to: | | | |
+-------------------------------------+-------+-------------+-------------+
| Owners of the Company | | 15,230 | 10,448 |
+-------------------------------------+-------+-------------+-------------+
| Non-controlling interests | | 104 | 109 |
+-------------------------------------+-------+-------------+-------------+
| | | 15,334 | 10,557 |
+-------------------------------------+-------+-------------+-------------+
| Total comprehensive income | | | |
| attributable to: | | | |
+-------------------------------------+-------+-------------+-------------+
| Owners of the Company | | 15,754 | 10,467 |
+-------------------------------------+-------+-------------+-------------+
| Non-controlling interests | | 104 | 109 |
+-------------------------------------+-------+-------------+-------------+
| | | 15,858 | 10,576 |
+-------------------------------------+-------+-------------+-------------+
| | | | |
+-------------------------------------+-------+-------------+-------------+
| | | US$Cent | US$Cent |
+-------------------------------------+-------+-------------+-------------+
| Earnings per share | 8 | | |
+-------------------------------------+-------+-------------+-------------+
| Basic | | 1.608 | 1.106 |
+-------------------------------------+-------+-------------+-------------+
| Diluted | | 1.590 | 1.106 |
+-------------------------------------+-------+-------------+-------------+
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT 30 June 2010
+--------------------------------------+-------+-------------+------------+
| | NOTES | 30.6.2010 | 31.12.2009 |
+--------------------------------------+-------+-------------+------------+
| | | US$'000 | US$'000 |
+--------------------------------------+-------+-------------+------------+
| | | (unaudited) | (audited) |
+--------------------------------------+-------+-------------+------------+
| Non-current assets | | | |
+--------------------------------------+-------+-------------+------------+
| Property, plant and equipment | 9 | 3,310 | 3,575 |
+--------------------------------------+-------+-------------+------------+
| Prepaid lease payments | | 3,098 | 260 |
+--------------------------------------+-------+-------------+------------+
| Interest in a jointly controlled | | 68 | 43 |
| entity | | | |
+--------------------------------------+-------+-------------+------------+
| Interest in an associate | | 1,498 | 1,507 |
+--------------------------------------+-------+-------------+------------+
| Intangible assets | 10 | 5,786 | 6,461 |
+--------------------------------------+-------+-------------+------------+
| Goodwill | | 379 | 379 |
+--------------------------------------+-------+-------------+------------+
| Deferred tax assets | | 1,153 | 1,432 |
+--------------------------------------+-------+-------------+------------+
| | | 15,292 | 13,657 |
+--------------------------------------+-------+-------------+------------+
| Current assets | | | |
+--------------------------------------+-------+-------------+------------+
| Inventories | | 17,437 | 11,060 |
+--------------------------------------+-------+-------------+------------+
| Trade and other receivables | 11 | 41,485 | 32,794 |
+--------------------------------------+-------+-------------+------------+
| Amount due from a jointly | | 506 | 481 |
| controlled entity | | | |
+--------------------------------------+-------+-------------+------------+
| Held for trading investments | | 406 | 31 |
+--------------------------------------+-------+-------------+------------+
| Tax recoverable | | 324 | - |
+--------------------------------------+-------+-------------+------------+
| Derivative financial instruments | 12 | 18 | - |
+--------------------------------------+-------+-------------+------------+
| Pledged bank deposits | | 17,792 | 17,641 |
+--------------------------------------+-------+-------------+------------+
| Bank balances and cash | | 10,340 | 15,113 |
+--------------------------------------+-------+-------------+------------+
| | | 88,308 | 77,120 |
+--------------------------------------+-------+-------------+------------+
| Current liabilities | | | |
+--------------------------------------+-------+-------------+------------+
| Trade and other payables | 13 | 12,235 | 11,062 |
+--------------------------------------+-------+-------------+------------+
| Bank borrowings - secured | 14 | 16,346 | 16,517 |
+--------------------------------------+-------+-------------+------------+
| Deferred consideration payables | | 811 | 838 |
+--------------------------------------+-------+-------------+------------+
| Derivative financial instruments | 12 | 131 | 145 |
+--------------------------------------+-------+-------------+------------+
| Tax payable | | 1,848 | 1,226 |
+--------------------------------------+-------+-------------+------------+
| | | 31,371 | 29,788 |
+--------------------------------------+-------+-------------+------------+
| | | | |
+--------------------------------------+-------+-------------+------------+
| Net current assets | | 56,937 | 47,332 |
+--------------------------------------+-------+-------------+------------+
| | | | |
+--------------------------------------+-------+-------------+------------+
| Total assets less current | | 72,229 | 60,989 |
| liabilities | | | |
+--------------------------------------+-------+-------------+------------+
| | | | |
+--------------------------------------+-------+-------------+------------+
| Capital and reserves | | | |
+--------------------------------------+-------+-------------+------------+
| Share capital | 15 | 4,768 | 4,741 |
+--------------------------------------+-------+-------------+------------+
| Reserves | | 60,186 | 48,992 |
+--------------------------------------+-------+-------------+------------+
| Equity attributable to equity | | | |
| holders | | | |
+--------------------------------------+-------+-------------+------------+
| of the Company | | 64,954 | 53,733 |
+--------------------------------------+-------+-------------+------------+
| Non-controlling interests | | - | 201 |
+--------------------------------------+-------+-------------+------------+
| | | 64,954 | 53,934 |
+--------------------------------------+-------+-------------+------------+
| Non-current liabilities | | | |
+--------------------------------------+-------+-------------+------------+
| Deferred tax liabilities | | 2,289 | 1,764 |
+--------------------------------------+-------+-------------+------------+
| Deferred consideration payables | | 4,986 | 5,291 |
+--------------------------------------+-------+-------------+------------+
| | | 7,275 | 7,055 |
+--------------------------------------+-------+-------------+------------+
| | | | |
+--------------------------------------+-------+-------------+------------+
| | | 72,229 | 60,989 |
+--------------------------------------+-------+-------------+------------+
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 30 JUNE 2010
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| | Attributable to the equity holders of the Company | | |
| | | | |
+-----------------------+------------------------------------------------------------------------------------------------------------------------+-------------+----------+
| | | | | Share | Surplus | Public | | | | | | Non- | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| | Share | Share | Capital | option | reserve | welfare | Translation | Hedging | Accumulated | Dividend | | controlling | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| | capital | premium | reserve | reserve | fund | fund | reserve | reserve | profits | reserve | Total | interests | Total |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| | | | | | | | | | | | | | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| Balance at 1 January | 4,725 | 17,147 | 4,911 | 570 | 6,057 | - | 5,661 | - | 8,994 | 4,725 | 52,790 | (69) | 52,721 |
| 2009 | | | | | | | | | | | | | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| | | | | | | | | | | | | | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| Exchange differences | - | - | - | - | - | - | 70 | - | - | - | 70 | - | 70 |
| arising from | | | | | | | | | | | | | |
| translation | | | | | | | | | | | | | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| Share of changes in | - | - | - | - | - | - | (1) | - | - | - | (1) | - | (1) |
| reserve of an | | | | | | | | | | | | | |
| associate | | | | | | | | | | | | | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| Fair value changes on | - | - | - | - | - | - | - | (145) | - | - | (145) | - | (145) |
| cash flow hedges | | | | | | | | | | | | | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| Profit for the year | - | - | - | - | - | - | - | - | 20,684 | - | 20,684 | 146 | 20,830 |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| | | | | | | | | | | | | | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| Total comprehensive | | | | | | | | | | | | | |
| income and expense | | | | | | | | | | | | | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| for the year | - | - | - | - | - | - | 69 | (145) | 20,684 | - | 20,608 | 146 | 20,754 |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| Issue of shares | 16 | 435 | - | - | - | - | - | - | - | - | 451 | - | 451 |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| Release of | | | | | | | | | | | | | |
| translation reserve | | | | | | | | | | | | | |
| upon disposal | | | | | | | | | | | | | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| of subsidiary | - | - | - | - | - | - | 8 | - | (8) | - | - | - | - |
| | | | | | | | | | | | | | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| Release of | | | | | | | | | | | | | |
| translation reserve | | | | | | | | | | | | | |
| upon disposal | | | | | | | | | | | | | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| of an associate | - | - | - | - | - | - | (36) | - | 36 | - | - | - | - |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| Dividends paid to a | - | - | - | - | - | - | - | - | - | - | - | (206) | (206) |
| non-controlling | | | | | | | | | | | | | |
| shareholder | | | | | | | | | | | | | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| Effect of | - | (11,503) | - | - | - | - | 853 | - | - | - | (10,650) | 330 | (10,320) |
| distribution in | | | | | | | | | | | | | |
| specie | | | | | | | | | | | | | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| Dividends paid | - | - | - | - | - | - | - | - | (4,741) | (4,725) | (9,466) | - | (9,466) |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| Dividends proposed - | - | - | - | - | - | - | - | - | (4,741) | 4,741 | - | - | - |
| 2009 | | | | | | | | | | | | | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| Transfer of reserves | - | - | - | - | 2,102 | - | - | - | (2,102) | - | - | - | - |
| | | | | | | | | | | | | | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| | | | | | | | | | | | | | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| Balance at 31 | 4,741 | 6,079 | 4,911 | 570 | 8,159 | - | 6,555 | (145) | 18,122 | 4,741 | 53,733 | 201 | 53,934 |
| December 2009 | | | | | | | | | | | | | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| | | | | | | | | | | | | | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| Exchange differences | - | - | - | - | - | - | 497 | - | - | - | 497 | - | 497 |
| arising from | | | | | | | | | | | | | |
| translation | | | | | | | | | | | | | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| Share of changes in | - | - | - | - | - | - | (5) | - | - | - | (5) | - | (5) |
| reserve of an | | | | | | | | | | | | | |
| associate | | | | | | | | | | | | | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| Fair value changes on | - | - | - | - | - | - | - | 32 | - | - | 32 | - | 32 |
| cash flow hedges | | | | | | | | | | | | | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| Profit for the period | - | - | - | - | - | - | - | - | 15,230 | - | 15,230 | 104 | 15,334 |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| | | | | | | | | | | | | | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| Total comprehensive | - | - | - | - | - | - | 492 | 32 | 15,230 | - | 15,754 | 104 | 15,858 |
| income for the period | | | | | | | | | | | | | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| Issue of shares | 1 | 103 | - | - | - | - | - | - | - | - | 104 | - | 104 |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| Issue of shares in | | | | | | | | | | | | | |
| consideration of | | | | | | | | | | | | | |
| acquisition | | | | | | | | | | | | | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| of additional | 26 | 2,299 | - | - | - | - | - | - | - | - | 2,325 | - | 2,325 |
| interest in a | | | | | | | | | | | | | |
| subsidiary | | | | | | | | | | | | | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| Acquisition of | - | - | (2,221) | - | - | - | - | - | - | - | (2,221) | (104) | (2,325) |
| additional interest | | | | | | | | | | | | | |
| in a subsidiary | | | | | | | | | | | | | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| Dividends paid to a | - | - | - | - | - | - | - | - | - | - | - | (201) | (201) |
| non-controlling | | | | | | | | | | | | | |
| shareholder | | | | | | | | | | | | | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| Dividends paid | - | - | - | - | - | - | - | - | - | (4,741) | (4,741) | - | (4,741) |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| Transfer of reserves | - | - | - | - | 1,068 | - | - | - | (1,068) | - | - | - | - |
| | | | | | | | | | | | | | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| | | | | | | | | | | | | | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| Balance at 30 June | 4,768 | 8,481 | 2,690 | 570 | 9,227 | - | 7,047 | (113) | 32,284 | - | 64,954 | - | 64,954 |
| 2010 (unaudited) | | | | | | | | | | | | | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| | | | | | | | | | | | | | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| Balance at 1 January | 4,725 | 17,147 | 4,911 | 570 | 6,057 | - | 5,661 | - | 8,994 | 4,725 | 52,790 | (69) | 52,721 |
| 2009 | | | | | | | | | | | | | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| | | | | | | | | | | | | | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| Exchange differences | - | - | - | - | - | - | 19 | - | - | - | 19 | - | 19 |
| arising from | | | | | | | | | | | | | |
| translation | | | | | | | | | | | | | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| Profit for the period | - | - | - | - | - | - | - | - | 10,448 | - | 10,448 | 109 | 10,557 |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| | | | | | | | | | | | | | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| Total comprehensive | - | - | - | - | - | - | 19 | - | 10,448 | - | 10,467 | 109 | 10,576 |
| income for the period | | | | | | | | | | | | | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| Dividends paid | - | - | - | - | - | - | - | - | - | (4,725) | (4,725) | (103) | (4,828) |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| Dividends proposed - | - | - | - | - | - | - | - | - | (4,725) | 4,725 | - | - | - |
| 2009 interim | | | | | | | | | | | | | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| Transfer of reserves | - | - | - | - | 1,339 | - | - | - | (1,339) | - | - | - | - |
| | | | | | | | | | | | | | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| | | | | | | | | | | | | | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
| Balance at 30 June | 4,725 | 17,147 | 4,911 | 570 | 7,396 | - | 5,680 | - | 13,378 | 4,725 | 58,532 | (63) | 58,469 |
| 2009 (unaudited) | | | | | | | | | | | | | |
+-----------------------+---------+----------+---------+---------+---------+---------+-------------+---------+-------------+----------+----------+-------------+----------+
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED 30 JUNE 2010
+----------------------------------------------+-------------+-------------+
| | Six months ended |
+----------------------------------------------+---------------------------+
| | 30 June |
+----------------------------------------------+---------------------------+
| | 2010 | 2009 |
+----------------------------------------------+-------------+-------------+
| | US$'000 | US$'000 |
+----------------------------------------------+-------------+-------------+
| |(unaudited) |(unaudited) |
+----------------------------------------------+-------------+-------------+
| | | |
+----------------------------------------------+-------------+-------------+
| Net cash from operating activities | 4,673 | 9,369 |
+----------------------------------------------+-------------+-------------+
| | | |
+----------------------------------------------+-------------+-------------+
| Net cash used in investing activities | | |
+----------------------------------------------+-------------+-------------+
| Purchase of property, plant and equipment | (101) | (59) |
+----------------------------------------------+-------------+-------------+
| Purchase of land use right | (2,919) | - |
+----------------------------------------------+-------------+-------------+
| Increase in pledged bank deposits | (151) | (5,069) |
+----------------------------------------------+-------------+-------------+
| Dividend received from an associate | 46 | - |
+----------------------------------------------+-------------+-------------+
| Proceeds from disposal of property, plant | 11 | 111 |
| and equipment | | |
+----------------------------------------------+-------------+-------------+
| Acquisition of an associate | - | (877) |
+----------------------------------------------+-------------+-------------+
| Interest received | 302 | 94 |
+----------------------------------------------+-------------+-------------+
| | (2,812) | (5,800) |
+----------------------------------------------+-------------+-------------+
| | | |
+----------------------------------------------+-------------+-------------+
| Net cash from financing activities | | |
+----------------------------------------------+-------------+-------------+
| Dividends paid | (4,741) | (4,730) |
+----------------------------------------------+-------------+-------------+
| Repayment of deferred consideration | (512) | (731) |
| payables | | |
+----------------------------------------------+-------------+-------------+
| Proceeds from issue of shares | 104 | - |
+----------------------------------------------+-------------+-------------+
| New bank borrowings raised | 2,555 | - |
+----------------------------------------------+-------------+-------------+
| Expenditure incurred in connection with | | |
| listing of | | |
+----------------------------------------------+-------------+-------------+
| shares to Main Board | (1,416) | - |
+----------------------------------------------+-------------+-------------+
| Repayment of borrowings | (2,726) | - |
+----------------------------------------------+-------------+-------------+
| Dividends paid to a non-controlling | (201) | (103) |
| shareholder | | |
+----------------------------------------------+-------------+-------------+
| | (6,937) | (5,564) |
+----------------------------------------------+-------------+-------------+
| | | |
+----------------------------------------------+-------------+-------------+
| Net decrease in cash and cash equivalents | (5,076) | (1,995) |
+----------------------------------------------+-------------+-------------+
| Cash and cash equivalent at beginning of the | 15,113 | 20,100 |
| period | | |
+----------------------------------------------+-------------+-------------+
| Effect of foreign exchange rate changes | 303 | 24 |
+----------------------------------------------+-------------+-------------+
| Cash and cash equivalent at end of the | | |
| period, | | |
+----------------------------------------------+-------------+-------------+
| represented by bank balances and cash | 10,340 | 18,129 |
+----------------------------------------------+-------------+-------------+
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2010
1. GENERAL
The condensed consolidated financial statements have been prepared
in accordance with the International Accounting Standard 34 "Interim financial
reporting" issued by the International Financial Reporting Interpretations
Committee ("IFRIC").
2. PRINCIPAL ACCOUNTING POLICIES
The condensed consolidated financial statements have been prepared under the
historical cost basis except for certain financial instruments, which are
measured at fair values, as appropriate.
The accounting policies used in the condensed consolidated financial statements
are consistent with those followed in the preparation of the Group's annual
financial statements for the year ended 31 December 2009 except as described
below.
In the current interim period, the Group has applied, for the first
time, the following amendments and interpretations ("new IFRSs") issued by the
IFRIC.
IFRSs (Amendments) Amendment to IFRS 5 as
part of Improvements
to
IFRSs 2008
IFRSs (Amendments) Improvements to IFRSs
2009
IAS 27 (Revised) Consolidated and
separate financial statements
IAS 39 (Amendment) Eligible hedged items
IFRS 1 (Amendment) Additional exemptions
for first-time adopters
IFRS 2 (Amendment) Group cash-settled
share-based payment transactions
IFRS 3 (Revised) Business
combinations
IFRIC 17Distributions of non-cash assets to owners
Except as described below, the application of these new IFRSs had no
material effect on the condensed consolidated financial statements of the Group
for the current or prior accounting periods.
IAS 27 (Revised 2008) consolidated and separate financial statements
The application of IAS 27 (Revised 2008) has resulted in changes in
the Group's accounting policies regarding increases or decreases in ownership
interests in subsidiaries of the Group. In prior years, in the absence of
specific requirements in IFRSs, increases in interests in existing subsidiaries
were treated in the same manner as the acquisition of subsidiaries, with
goodwill or a bargain purchase gain being recognised where appropriate. The
impact of decreases in interests in subsidiaries that did not involve loss of
control (being the difference between the consideration received and the
carrying amount of the share of net assets disposed of) was recognised in profit
or loss. Under IAS 27 (Revised 2008), all increases or decreases in such
interests are dealt with in equity, with no impact on goodwill or profit or
loss.
When control of a subsidiary is lost as a result of a transaction,
event or other circumstance, the revised Standard requires that the Group
derecognises all assets, liabilities and non-controlling interests at their
carrying amount. Any retained interest in the former subsidiary is recognised
at its fair value at the date the control is lost. A gain or loss on loss of
control is recognised in profit or loss as the difference between the proceeds,
if any, and these adjustments.
In respect of the acquisitions during the period of additional
interests in Sky United Trading Limited ("Sky United") the impact of the change
in policy has been that the difference of US$347,000 between the consideration
paid and the decrease in the carrying amount of the non-controlling interests
has been recognised directly in equity. Had the previous accounting policy been
applied, this amount would have been recognised in goodwill amounting to
US$451,000. Therefore, the change in accounting policy has resulted in a
decrease in goodwill of US$451,000.
2. PRINCIPAL ACCOUNTING POLICIES - continued
IAS 27 (Revised 2008) consolidated and separate financial statements - continued
The Group has not early applied new and revised standards, amendments or
interpretations that have been issued but are not yet effective.
IFRS 9 Financial Instruments introduces new requirements for the classification
and measurement of financial assets and will be effective from 1 January 2013,
with earlier application permitted. The Standard requires all recognised
financial assets that are within the scope of IAS 39 Financial Instruments:
Recognition and Measurement to be measured at either amortised cost or fair
value. Specifically, debt investments that (i) are held within a business model
whose objective is to collect the contractual cash flows and (ii) have
contractual cash flows that are solely payments of principal and interest on the
principal outstanding are generally measured at amortised cost. All other debt
investments and equity investments are measured at fair value. The application
of IFRS 9 might affect the classification and measurement of the Group's
financial assets.
The directors of the Company anticipate that the application of other new and
revised standards, amendments or interpretations will have no material impact on
the results and the financial position of the Group.
3. TURNOVER AND SEGMENT INFORMATION
For the purpose of resources allocation and performance assessment,
the chief operating decision maker reviews operating results of pharmaceutical
products by product basis. Each product is identified as an operating segment
in accordance with IFRS 8. When the pharmaceutical product is operating in
similar business model with similar target group of customers, the Group's
operating segments are aggregated into promotion and sales of pharmaceutical
products.
Segment results for the promotion and sales of pharmaceutical
products and others reportable segments represented the gross profit of the
relevant operations. This is the measure reported to the chief operating
decision maker for the purpose allocation and performance assessment.
3. TURNOVER AND SEGMENT INFORMATION - continued
The segment information is as follows:
For the six months ended 30 June 2010(unaudited)
+---------------------------+----------------+---------+-------------+--------------+
| | Marketing, | | | |
+---------------------------+----------------+---------+-------------+--------------+
| | promotion | | | |
+---------------------------+----------------+---------+-------------+--------------+
| | and sales | | | |
| | of | | | |
+---------------------------+----------------+---------+-------------+--------------+
| | pharmaceutical | | | |
+---------------------------+----------------+---------+-------------+--------------+
| | products | Others | Elimination | Consolidated |
+---------------------------+----------------+---------+-------------+--------------+
| | US$'000 | US$'000 | US$'000 | US$'000 |
+---------------------------+----------------+---------+-------------+--------------+
| | | | | |
+---------------------------+----------------+---------+-------------+--------------+
| External segment revenue | 60,389 | 806 | - | 61,195 |
+---------------------------+----------------+---------+-------------+--------------+
| Inter-segment revenue | - | 430 | (430) | - |
+---------------------------+----------------+---------+-------------+--------------+
| Revenue | 60,389 | 1,236 | (430) | 61,195 |
+---------------------------+----------------+---------+-------------+--------------+
| | | | | |
+---------------------------+----------------+---------+-------------+--------------+
| Segment results | 36,705 | 520 | - | 37,225 |
+---------------------------+----------------+---------+-------------+--------------+
| | | | | |
+---------------------------+----------------+---------+-------------+--------------+
| Other gains and losses | | | | 546 |
+---------------------------+----------------+---------+-------------+--------------+
| Selling expenses | | | | (13,318) |
+---------------------------+----------------+---------+-------------+--------------+
| Listing expenses | | | | (1,221) |
+---------------------------+----------------+---------+-------------+--------------+
| Administrative expenses | | | | (3,274) |
+---------------------------+----------------+---------+-------------+--------------+
| Research and development | | | | - |
| costs | | | | |
+---------------------------+----------------+---------+-------------+--------------+
| Finance costs | | | | (336) |
+---------------------------+----------------+---------+-------------+--------------+
| Share of result of an | | | | 42 |
| associate | | | | |
+---------------------------+----------------+---------+-------------+--------------+
| Share of result of a | | | | |
| jointly controlled | | | | |
+---------------------------+----------------+---------+-------------+--------------+
| entity | | | | 25 |
+---------------------------+----------------+---------+-------------+--------------+
| Profit before taxation | | | | 19,689 |
+---------------------------+----------------+---------+-------------+--------------+
For the six months ended 30 June 2009 (unaudited)
+---------------------------+----------------+---------+-------------+--------------+
| | Marketing, | | | |
+---------------------------+----------------+---------+-------------+--------------+
| | promotion | | | |
+---------------------------+----------------+---------+-------------+--------------+
| | and sales | | | |
| | of | | | |
+---------------------------+----------------+---------+-------------+--------------+
| | pharmaceutical | | | |
+---------------------------+----------------+---------+-------------+--------------+
| | products | Others | Elimination | Consolidated |
+---------------------------+----------------+---------+-------------+--------------+
| | US$'000 | US$'000 | US$'000 | US$'000 |
+---------------------------+----------------+---------+-------------+--------------+
| | | | | |
+---------------------------+----------------+---------+-------------+--------------+
| External segment revenue | 45,188 | 1,587 | - | 46,775 |
+---------------------------+----------------+---------+-------------+--------------+
| Inter-segment revenue | - | 484 | (484) | - |
+---------------------------+----------------+---------+-------------+--------------+
| Revenue | 45,188 | 2,071 | (484) | 46,775 |
+---------------------------+----------------+---------+-------------+--------------+
| | | | | |
+---------------------------+----------------+---------+-------------+--------------+
| Segment results | 28,184 | 1,452 | - | 29,636 |
+---------------------------+----------------+---------+-------------+--------------+
| | | | | |
+---------------------------+----------------+---------+-------------+--------------+
| Other gains and losses | | | | 691 |
+---------------------------+----------------+---------+-------------+--------------+
| Selling expenses | | | | (11,366) |
+---------------------------+----------------+---------+-------------+--------------+
| Administrative expenses | | | | (3,908) |
+---------------------------+----------------+---------+-------------+--------------+
| Research and development | | | | (1,057) |
| costs | | | | |
+---------------------------+----------------+---------+-------------+--------------+
| Finance costs | | | | (191) |
+---------------------------+----------------+---------+-------------+--------------+
| Share of results of | | | | (26) |
| associates | | | | |
+---------------------------+----------------+---------+-------------+--------------+
| Share of result of a | | | | |
| jointly controlled | | | | |
+---------------------------+----------------+---------+-------------+--------------+
| entity | | | | 21 |
+---------------------------+----------------+---------+-------------+--------------+
| Profit before taxation | | | | 13,800 |
+---------------------------+----------------+---------+-------------+--------------+
_______
4. FINANCE COSTS
+-----------------------------------------------+---------+----------+
| | Six |
| | months ended |
+-----------------------------------------------+--------------------+
| | 30 June |
+-----------------------------------------------+--------------------+
| | 2010 | 2009 |
+-----------------------------------------------+---------+----------+
| | US$'000 | US$'000 |
+-----------------------------------------------+---------+----------+
| Interest on bank loans wholly repayable | | |
| within | | |
+-----------------------------------------------+---------+----------+
| five years | 187 | - |
+-----------------------------------------------+---------+----------+
| Imputed interest on deferred consideration | 149 | 191 |
| payable | | |
+-----------------------------------------------+---------+----------+
| | 336 | 191 |
+-----------------------------------------------+---------+----------+
5. TAXATION
+-----------------------------------------------+---------+----------+
| | Six |
| | months ended |
+-----------------------------------------------+--------------------+
| | 30 June |
+-----------------------------------------------+--------------------+
| | 2010 | 2009 |
+-----------------------------------------------+---------+----------+
| | US$'000 | US$'000 |
+-----------------------------------------------+---------+----------+
| Current tax: | | |
+-----------------------------------------------+---------+----------+
| PRC Enterprise Income Tax | 3,492 | 2,725 |
+-----------------------------------------------+---------+----------+
| Hong Kong Profits Tax | 66 | - |
+-----------------------------------------------+---------+----------+
| Other jurisdictions | 3 | - |
+-----------------------------------------------+---------+----------+
| | 3,561 | 2,725 |
+-----------------------------------------------+---------+----------+
| Overprovision in prior years | | |
+-----------------------------------------------+---------+----------+
| PRC Enterprise Income Tax | (11) | (7) |
+-----------------------------------------------+---------+----------+
| Deferred taxation: | | |
+-----------------------------------------------+---------+----------+
| - Current period | 805 | 525 |
+-----------------------------------------------+---------+----------+
| Taxation charge for the period | 4,355 | 3,243 |
+-----------------------------------------------+---------+----------+
PRC Enterprise Income Tax has been calculated based on the estimated assessable
profits in accordance with the relevant tax rates applicable to certain
subsidiaries in the PRC.
The profit of the Group mainly sourced from Shenzhen Kangzhe Pharmaceutical Co.,
Ltd. ("Kangzhe Shenzhen"), Kangzhe (Hunan) medical Co., Ltd. ("Kangzhe Hunan")
and Changde Kangzhe Pharmaceutical Co., Ltd. (Kangzhe Changde). For the six
months ended 30 June 2009 and 2010, the Enterprise Income Tax rate of Kangzhe
Shenzhen was increased from 20% to 22%.
Kangzhe Hunan continued to entitle to a tax reduction to 15%. Starting from 1
January 2010, Kangzhe Changde is entitled to a tax reduction to 15% granted by
the Hunan Province Government and such tax concession is subject to renewal by
the relevant tax bureau annually.
Hong Kong Profits Tax is provided at 16.5% (six months ended 30 June 2009:
16.5%) of the assessable profit for the period.
6. PROFIT FOR THE PERIOD
+-----------------------------------------------+---------+----------+
| | Six |
| | months ended |
+-----------------------------------------------+--------------------+
| | 30 June |
+-----------------------------------------------+--------------------+
| | 2010 | 2009 |
+-----------------------------------------------+---------+----------+
| | US$'000 | US$'000 |
+-----------------------------------------------+---------+----------+
| Profit for the period has been arrived at | | |
| after charging: | | |
+-----------------------------------------------+---------+----------+
| | | |
+-----------------------------------------------+---------+----------+
| Release of prepaid lease payments | 33 | 4 |
+-----------------------------------------------+---------+----------+
| Depreciation of property, plant and equipment | 380 | 445 |
+-----------------------------------------------+---------+----------+
| Amortisation of intangible assets | | |
+-----------------------------------------------+---------+----------+
| (included in cost of goods sold) | 419 | 585 |
+-----------------------------------------------+---------+----------+
| Cost of inventories recognised as an expense | 23,255 | 16,349 |
+-----------------------------------------------+---------+----------+
7. DIVIDENDS
During the period, a dividend of US$0.10 per ordinary share of par
value of US$0.10 (six months ended 30 June 2009: US$0.10) totalling US$4,741,000
was paid to shareholders as the final dividend for the year ended 31 December
2009 (six months ended 30 June 2009: US$4,725,000 for the year ended 31 December
2008).
The Board of Directors have declared nil interim dividend per ordinary share of
par value of US$0.005 for the six months ended 30 June 2010 (six months ended 30
June 2009: US$0.10 per ordinary share of par value of US$0.10).
8. EARNINGS PER SHARE
The calculation of the basic and diluted earnings per share attributable to the
owners of the Company is based on the following data:
+-----------------------------------------------+---------+----------+
| | Six |
| | months ended |
+-----------------------------------------------+--------------------+
| | 30 June |
+-----------------------------------------------+--------------------+
| | 2010 | 2009 |
+-----------------------------------------------+---------+----------+
| | US$'000 | US$'000 |
+-----------------------------------------------+---------+----------+
| Earnings for the purposes of basic and | | |
| diluted earnings | | |
+-----------------------------------------------+---------+----------+
| per share (profit attributable to owners of | | |
| the | | |
+-----------------------------------------------+---------+----------+
| Company) | 16,451 | 10,448 |
+-----------------------------------------------+---------+----------+
+-----------------------------------------------+-------------+-------------+
| | Number of ordinary |
| | shares |
+-----------------------------------------------+---------------------------+
| | 2010 | 2009 |
+-----------------------------------------------+-------------+-------------+
| Weighted average number of ordinary shares | | |
| for the | | |
+-----------------------------------------------+-------------+-------------+
| purpose of basic earnings per share | 946,963,529 | 944,927,520 |
+-----------------------------------------------+-------------+-------------+
| Effect of dilutive potential ordinary shares | | |
| on share | | |
+-----------------------------------------------+-------------+-------------+
| Options | 10,643,868 | - |
+-----------------------------------------------+-------------+-------------+
| Weighted average number of ordinary shares | | |
| for the | | |
+-----------------------------------------------+-------------+-------------+
| purpose of diluted earnings per share | 957,607,397 | 944,927,520 |
+-----------------------------------------------+-------------+-------------+
The number of shares for the purpose of calculating basic and
diluted earnings per share for the period ended 30 June 2009 have been adjusted
to reflect the share sub-division (see note 15) effective on June 2010.
The computation of diluted earnings per share does not assume the
exercise of the Company's outstanding share options for the six months ended 30
June 2009 as the exercise price of those options is higher than the average
market price of the Company's shares.
9. PROPERTY, PLANT AND EQUIPMENT
During the six months ended 30 June 2010, the Group spent US$101,000
(six months ended 30 June 2009: US$59,000) on acquisition of property, plant and
equipment.
10. INTANGIBLE ASSETS
+------------------------------------+--------------+-----------+----------+
| | Exclusive | Exclusive | |
+------------------------------------+--------------+-----------+----------+
| | distribution | agency | |
+------------------------------------+--------------+-----------+----------+
| | right | right | Total |
+------------------------------------+--------------+-----------+----------+
| | US$'000 | US$'000 | US$'000 |
+------------------------------------+--------------+-----------+----------+
| | (Note | (Note | |
| | a) | b) | |
+------------------------------------+--------------+-----------+----------+
| COST | | | |
+------------------------------------+--------------+-----------+----------+
| At 1 January 2009 | 951 | 7,403 | 8,354 |
+------------------------------------+--------------+-----------+----------+
| Exchange adjustments | 1 | - | 1 |
+------------------------------------+--------------+-----------+----------+
| | | | |
+------------------------------------+--------------+-----------+----------+
| At 31 December 2009 | 952 | 7,403 | 8,355 |
+------------------------------------+--------------+-----------+----------+
| Exchange adjustments | 5 | - | 5 |
+------------------------------------+--------------+-----------+----------+
| Adjustment (note a(iii)) | (258) | - | (258) |
+------------------------------------+--------------+-----------+----------+
| | | | |
+------------------------------------+--------------+-----------+----------+
| At 30 June 2010 | 699 | 7,403 | 8,102 |
+------------------------------------+--------------+-----------+----------+
| | | | |
+------------------------------------+--------------+-----------+----------+
| AMORTISATION | | | |
+------------------------------------+--------------+-----------+----------+
| At 1 January 2009 | (288) | (491) | (779) |
+------------------------------------+--------------+-----------+----------+
| Charge for the year | (294) | (821) | (1,115) |
+------------------------------------+--------------+-----------+----------+
| | | | |
+------------------------------------+--------------+-----------+----------+
| At 31 December 2009 | (582) | (1,312) | (1,894) |
+------------------------------------+--------------+-----------+----------+
| Exchange adjustments | (3) | - | (3) |
+------------------------------------+--------------+-----------+----------+
| Charge for the period | (49) | (370) | (419) |
+------------------------------------+--------------+-----------+----------+
| | | | |
+------------------------------------+--------------+-----------+----------+
| At 30 June 2010 | (634) | (1,682) | (2,316) |
+------------------------------------+--------------+-----------+----------+
| | | | |
+------------------------------------+--------------+-----------+----------+
| CARRYING VALUES | | | |
+------------------------------------+--------------+-----------+----------+
| At 30 June 2010 | 65 | 5,721 | 5,786 |
+------------------------------------+--------------+-----------+----------+
| | | | |
+------------------------------------+--------------+-----------+----------+
| At 31 December 2009 | 370 | 6,091 | 6,461 |
+------------------------------------+--------------+-----------+----------+
10. INTANGIBLE ASSETS - continued
(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 the Operation Agreement. Accordingly, the cost of the
intangible asset of exclusive distribution right amounting to US$644,000
obtained from Qingdao League was determined as the excess of the consideration
paid of US$770,000 over the fair value of the investment in Qingdao League as at
the date of acquisition of US$126,000. The expected useful life of the
exclusive distribution right of Stulln was 10 years.
The exclusive distribution right of Stulln was early terminated when
the Group entered into a supplementary agreement with Ophol Limited (the
"Ophol") and the supplier of Stulln in Germany in July 2008. The remaining
unamortised carrying amount of this exclusive distribution right of Stulln
qualified as a direct attributable cost in acquiring the exclusive agency right
of Stulln, pursuant to the Group entered into such supplementary agreement with
Ophol and the supplier of Stulln in Germany in July 2008 (see (b) below).
Accordingly, the remaining unamortised carrying amount of the exclusive
distribution right of Stulln amounting to US$628,000 was then transferred to the
exclusive agency right of Stulln. The details are set out in (b) below.
(ii) On 9 March 2008, the Group entered into an exclusive
distribution agreement and a supplementary agreement (the "Nesiritide
Agreements") with Î÷??µÏ¿µ??·þ·ÝÓÐÏÞ¹«Ë¾ (Tibet Rhodiola Pharmaceutical Holding
Co., Ltd.) ("Rhodiola") in connection to a finished drug product (Lyophilized
Recombinant Human Brain Natriuretic Peptide) which is distributed in the PRC
market since 2005 under the trade name of Nesiritide for a term of three years
with effect from 1 July 2008 to 30 June 2011.
Pursuant to the Nesiritide Agreements, the Group has
obtained the exclusive distribution right of Nesiritide at nil consideration and
has committed to handle the Phase IV clinical trials of Nesiritide for 2,000
cases in the PRC to meet the drug safety standards set by the Food and Drug
Administration in the PRC ("SFDA"). The drug, Nesiritide, to be used in the
2,000 case clinical trials will be provided by Rhodiola free of charge. All
other costs of the 2,000 case clinical trials should be borne by the Group. The
management of the Group estimates the total costs to be incurred for completion
of the 2,000 case clinical trials would be approximately RMB6,500,000
(equivalent to approximately US$919,000).
In the opinion of the directors of the Company, the
Group obtained the exclusive distribution right of Nesiritide on the basis that
the Group should complete the clinical trials of Nesiritide and bear all the
costs of the clinical trials. Therefore, the costs to be incurred in clinical
trials of US$919,000 are capitalised as an intangible asset with corresponding
liability recognised.
The expected useful life of the exclusive distribution
right of Nesiritide is 3 years.
10. INTANGIBLE ASSETS - continued
(a) Exclusive distribution right - continued
(iii) During the period ended 30 June 2010, an adjustment of RMB1,755,000
(equivalent to approximately US$258,000) in respect of an over accrual of cost
of clinical trials in the previous years was made as a result of completion of
the 2,000 case clinical trials.
(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., a company which has common shareholder with Ophol
under the sale and purchase agreement. 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 Agency"), a wholly-owned subsidiary of the Company, at
a consideration of RMB60,000,000 (equivalent to approximately US$8,779,000).
CMS Pharmaceutical Agency will pay annually of RMB6,000,000 (equivalent to
approximately US$878,000) to Ophol over the next ten years to settle the
consideration. The directors of the Group recognise the payable as a deferred
consideration (see note 27) in the amount of US$6,775,000, which represents the
present value of the consideration of US$878,000 over next 10 years discounted
at 5%. CMS Pharmaceutical Agency has replaced Qingdao League as the exclusive
agent of Stulln for Pharma in the PRC from 1 August 2008 to 31 July 2018.
The expected useful life of the exclusive agency right is 10 years.
11. TRADE AND OTHER RECEIVABLES
The Group normally allows a credit period of three months to its trade
customers. Lengthened credit period up to four months was allowed to some
selected customers.
An aging analysis of the trade receivables net of allowance for bad
and doubtful debts at the respective reporting dates is as follows:
+-----------------------------------------------+-----------------+------------+
| | 30.6.2010 | 31.12.2009 |
+-----------------------------------------------+-----------------+------------+
| | US$'000 | US$'000 |
+-----------------------------------------------+-----------------+------------+
| | | |
+-----------------------------------------------+-----------------+------------+
| 0 - 90 days | 25,640 | 17,879 |
+-----------------------------------------------+-----------------+------------+
| 91 - 365 days | 3,262 | 2,839 |
+-----------------------------------------------+-----------------+------------+
| Over 365 days | 29 | 28 |
+-----------------------------------------------+-----------------+------------+
| | 28,931 | 20,746 |
+-----------------------------------------------+-----------------+------------+
12. DERIVATIVE FINANCIAL INSTRUMENTS
Derivative under hedge accounting
+-----------------------------------------------+-----------+------------+
| | 30.6.2010 | 31.12.2009 |
+-----------------------------------------------+-----------+------------+
| | US$'000 | US$'000 |
+-----------------------------------------------+-----------+------------+
| Cash flow hedges | | |
+-----------------------------------------------+-----------+------------+
| - Interest rate swaps | 131 | 74 |
+-----------------------------------------------+-----------+------------+
| - Foreign currency forward contracts | (18) | 71 |
+-----------------------------------------------+-----------+------------+
| | 113 | 145 |
+-----------------------------------------------+-----------+------------+
(i) Interest rate swaps
The Group uses interest rate swaps to minimise its exposure to interest expenses
of certain of its floating-rate US dollar bank borrowings by swapping floating
interest rates to fixed interest rates. The interest rate swaps and the
corresponding bank borrowings have the same terms and the directors of the
Company considered that the interest rate swaps are highly effective hedging
instruments. Major terms of the interest rate swaps are set out below:
At 30 June 2010
+----------------------+---------------+----------------------------+
| Notional amount | Maturity | Swaps |
+----------------------+---------------+----------------------------+
| | | |
+----------------------+---------------+----------------------------+
| US$3,765,000 | 28 September | From 1-month LIBOR + 0.35% |
| | 2010 | to 1.47% |
+----------------------+---------------+----------------------------+
| US$1,470,000 | 29 November | From 3-month LIBOR + 0.35% |
| | 2010 | to 1.68% |
+----------------------+---------------+----------------------------+
| US$1,617,000 | 14 December | From 3-month LIBOR + 0.35% |
| | 2010 | to 1.68% |
+----------------------+---------------+----------------------------+
| US$2,108,000 | 30 December | From 3-month LIBOR + 0.35% |
| | 2010 | to 1.68% |
+----------------------+---------------+----------------------------+
| US$1,481,000 | 09 February | From 3-month LIBOR to |
| | 2011 | 1.68% |
+----------------------+---------------+----------------------------+
At 31 December 2009
+----------------------+---------------+----------------------------+
| Notional amount | Maturity | Swaps |
+----------------------+---------------+----------------------------+
| | | |
+----------------------+---------------+----------------------------+
| US$3,765,000 | 28 September | From 1-month LIBOR + 0.35% |
| | 2010 | to 1.47% |
+----------------------+---------------+----------------------------+
| US$1,470,000 | 29 November | From 3-month LIBOR + 0.35% |
| | 2010 | to 1.68% |
+----------------------+---------------+----------------------------+
| US$1,617,000 | 14 December | From 3-month LIBOR + 0.35% |
| | 2010 | to 1.68% |
+----------------------+---------------+----------------------------+
| US$2,108,000 | 30 December | From 3-month LIBOR + 0.35% |
| | 2010 | to 1.68% |
+----------------------+---------------+----------------------------+
12. DERIVATIVE FINANCIAL INSTRUMENTS - continued
(ii) Foreign currency forward contracts
At the end of the reporting period, the Group had the following
foreign currency forward contracts designated as highly effective hedging
instruments in order to manage the Group's foreign currency exposure in relation
to US dollar interest and principal payments of its US dollar bank borrowings.
The terms of the foreign currency forward contracts have been
negotiated to match the terms of the respective designated hedged items. Major
terms of the foreign currency forward contracts are as follows:
At 30 June 2010
+----------------------+---------------+------------------+
| Notional amount | Maturity | Exchange rates |
+----------------------+---------------+------------------+
| | | |
+----------------------+---------------+------------------+
| Buy US$2,140,000 | 23 August | US$1: RMB 6.822 |
| | 2010 | |
+----------------------+---------------+------------------+
| Buy US$3,821,000 | 28 September | US$1: RMB 6.858 |
| | 2010 | |
+----------------------+---------------+------------------+
| Buy US$1,470,000 | 2 December | US$1: RMB 6.638 |
| | 2010 | |
+----------------------+---------------+------------------+
| Buy US$1,620,000 | 14 December | US$1: RMB 6.719 |
| | 2010 | |
+----------------------+---------------+------------------+
| Buy US$2,140,000 | 30 December | US$1: RMB 6.686 |
| | 2010 | |
+----------------------+---------------+------------------+
| Buy US$1,510,000 | 9 February | US$1: RMB 6.699 |
| | 2011 | |
+----------------------+---------------+------------------+
At 31 December 2009
+----------------------+---------------+----------------------------+
| Notional amount | Maturity | Exchange rates |
+----------------------+---------------+----------------------------+
| | | |
+----------------------+---------------+----------------------------+
| Buy US$2,140,000 | 23 August | US$1: RMB 6.822 |
| | 2010 | |
+----------------------+---------------+----------------------------+
| Buy US$3,821,000 | 28 September | US$1: RMB 6.858 |
| | 2010 | |
+----------------------+---------------+----------------------------+
| Buy US$1,470,000 | 2 December | US$1: RMB 6.638 |
| | 2010 | |
+----------------------+---------------+----------------------------+
| Buy US$1,620,000 | 14 December | US$1: RMB 6.719 |
| | 2010 | |
+----------------------+---------------+----------------------------+
| Buy US$2,140,000 | 30 December | US$1: RMB 6.686 |
| | 2010 | |
+----------------------+---------------+----------------------------+
13. TRADE AND OTHER PAYABLES
An aging analysis of the trade payables presented based on the
invoice date at the end of the reporting period as follows:
+--------------------------------------------+------------+------------+
| | 30.6.2010 | 31.12.2009 |
+--------------------------------------------+------------+------------+
| | US$'000 | US$'000 |
+--------------------------------------------+------------+------------+
| | | |
+--------------------------------------------+------------+------------+
| 0 - 90 days | 4,299 | 6,067 |
+--------------------------------------------+------------+------------+
| 91 - 365 days | 1 | 5 |
+--------------------------------------------+------------+------------+
| Over 365 days | 7 | 7 |
+--------------------------------------------+------------+------------+
| | 4,307 | 6,079 |
+--------------------------------------------+------------+------------+
The average credit period on purchases of goods is 90 days.
14. bank BORROWINGS - SECURED
During the six months ended 30 June 2010, the Group repaid bank
borrowings amounting to US$2,726,000 (six months ended 30 June 2009: nil) and
obtained new bank borrowing amounting to US$2,555,000 (six months ended 30 June
2009: nil) which were used as general working capital.
15. SHARE CAPITAL
+--------------------------------------------+------------+----------+
| | Number of | |
+--------------------------------------------+------------+----------+
| | shares | Amount |
+--------------------------------------------+------------+----------+
| | '000 | US$'000 |
+--------------------------------------------+------------+----------+
| Authorised share capital: | | |
+--------------------------------------------+------------+----------+
| | | |
+--------------------------------------------+------------+----------+
| At 31 December 2008 and 31 December 2009 | 1,000,000 | 100,000 |
+--------------------------------------------+------------+----------+
| Increase in authorised share capital (note | 19,000,000 | - |
| 3) | | |
+--------------------------------------------+------------+----------+
| At 30 June 2010 | 20,000,000 | 100,000 |
+--------------------------------------------+------------+----------+
| | | |
+--------------------------------------------+------------+----------+
| Issued and fully paid: | | |
+--------------------------------------------+------------+----------+
| | | |
+--------------------------------------------+------------+----------+
| At 31 December 2008 | 47,246 | 4,725 |
+--------------------------------------------+------------+----------+
| Issue of shares | 162 | 16 |
+--------------------------------------------+------------+----------+
| At 31 December 2009 | 47,408 | 4,741 |
+--------------------------------------------+------------+----------+
| | | |
+--------------------------------------------+------------+----------+
| Issue of shares to Key Employee Benefit | 12 | 1 |
| Scheme (note 1) | | |
+--------------------------------------------+------------+----------+
| Issue of shares in consideration of | | |
| acquisition of additional | | |
+--------------------------------------------+------------+----------+
| interest in a subsidiary (note 2) | 264 | 26 |
+--------------------------------------------+------------+----------+
| Share sub-division (note 3) | 906,007 | - |
+--------------------------------------------+------------+----------+
| At 30 June 2010 | 953,691 | 4,768 |
+--------------------------------------------+------------+----------+
Notes:
(1) On 31 July 2009 and 14 May 2010, 162,528 and 11,835 new
ordinary shares of US$0.10 of the Company were issued at GBP1.68 per share
(equivalent to US$2.78 per share) and GBP5.99 per share (equivalent to U$8.8per
share) respectively for cash to the trust under the Key Employee Benefit Scheme
(the "Scheme").
(2) On April 2010, pursuant to sales and purchase agreement
entered on 19 April 2010, the Company issued 263,833 new ordinary shares of the
Company of US$0.10 as the consideration for the acquisition of additional
interest in Sky United.
(3) Pursuant to the resolutions of the shareholders passed on
25 June 2010 and effective on 28 June 2010, each issued and unissued share in
the share capital of the Company of a par value of US$0.10 was sub-divided into
20 new shares of a par value of US$0.005 each. Effective from 28 June 2010, the
authorised and issued share capital of the Company is 20,000,000,000 ordinary
shares of a par value of US$0.005 each and 953,691,440 ordinary shares of a par
value of US$0.005 each respectively.
All the shares which were issued by the Company during the six
months ended 30 June 2010 rank pari passu with each other in all respects.
16. SHARE OPTIONS
The Company granted share options of 708,695 shares with an exercise price of
GBP1.38 per share on 26 June 2007. These options were granted to Evolution
Securities China Limited ("Evolution"), the underwriters of the Company on the
Company's initial public offering on AIM, in exchange for a payment of GBP1.00
from Evolution to the Company. These options are exercisable over a period of
five years and vest on 26 June 2007. The share options will expire on 25 June
2012. The estimated fair value per share of these options is GBP0.4019
(equivalent to US$0.8046) with a total fair value of US$570,000. In addition to
the share options granted to Evolution on successful basis, the Company paid an
underwriting commission of US$1,151,000 (equivalent to GBP575,000) to Evolution
representing 5.75% to the gross proceeds of the new issue. Such underwriting
commission of US$1,151,000 settled in cash was recognised in the share premium
account together with other initial public offering expenses allocated to the
new issued shares.
On 9 March 2009, Mr. Chen Hong Bing, a director of the Company,
acquired the share options of 708,695 shares from Evolution. There was no other
movement in the share options for both periods.
On 28 June 2010, pursuant to the terms of the share options, the exercisable
shares and exercise price had been adjusted to 14,173,900 share and GBP0.069 per
share respectively to reflect the share sub-division (note 15).
This fair value was calculated using the binominal model. The inputs into the
model were as follows:
+---------------------------+-----------------------------------------+
| | 2007 |
+---------------------------+-----------------------------------------+
| | |
+---------------------------+-----------------------------------------+
| Stock price at date of | GBP1.380 |
| grant | |
+---------------------------+-----------------------------------------+
| Exercise price | GBP1.380 |
+---------------------------+-----------------------------------------+
| Standard deviation | 35% |
+---------------------------+-----------------------------------------+
| Expected life | 5 years |
+---------------------------+-----------------------------------------+
| Risk-free rate | 5.689% |
+---------------------------+-----------------------------------------+
| Expected dividend yield | 4% |
+---------------------------+-----------------------------------------+
| Exercise multiple | 2 |
+---------------------------+-----------------------------------------+
The Group recorded the fair value of these options of US$570,000 to a share
options reserve for the year ended 31 December 2007 as these options were
granted by the Company in connection with the underwriting of the shares of the
Company.
17. RELATED PARTY TRANSACTIONS
(a) Apart from details of the balances with related parties disclosed in
the condensed consolidated statement of financial position, the Group entered
into the following transactions with related parties during the period:
+------------+-----------------+----------------+----------+---------+
| | | | Six months ended |
+------------+-----------------+----------------+--------------------+
| Name of | | Nature of | 30 June |
+------------+-----------------+----------------+--------------------+
| related | Relationship | transactions | 2010 | 2009 |
| company | | | | |
+------------+-----------------+----------------+----------+---------+
| | | | US$'000 | US$'000 |
+------------+-----------------+----------------+----------+---------+
| | | | | |
+------------+-----------------+----------------+----------+---------+
| Ophol | Associate | Finance cost | 149 | 191 |
+------------+-----------------+----------------+----------+---------+
| GDLT | Jointly | Sales of goods | 395 | 307 |
| | controlled | | | |
| | entity | | | |
+------------+-----------------+----------------+----------+---------+
| Hui Ki Fat | Director | Consideration | | |
| | | paid for | | |
+------------+-----------------+----------------+----------+---------+
| | | acquisition of | | |
| | | | | |
+------------+-----------------+----------------+----------+---------+
| | | additional | | |
+------------+-----------------+----------------+----------+---------+
| | | interest in a | 2,325 | |
| | | subsidiary | | |
+------------+-----------------+----------------+----------+---------+
(b) The Group entered into the following banking facilities which were
secured by personal guarantees executed by related parties during the Relevant
Periods:
+-------------------------------+---------------+--------------+
| | As at 31 | As at 30 |
| | December | June |
+-------------------------------+---------------+--------------+
| | 2009 | 2010 |
+-------------------------------+---------------+--------------+
| | US$'000 | US$'000 |
+-------------------------------+---------------+--------------+
| Bank A (note i) | | |
+-------------------------------+---------------+--------------+
| - letters of credit and | | |
| other | | |
+-------------------------------+---------------+--------------+
| facilities amount | 11,606 | 11,600 |
+-------------------------------+---------------+--------------+
| - working capital | | |
| facilities | | |
+-------------------------------+---------------+--------------+
| amount | 4,394 | 4,400 |
+-------------------------------+---------------+--------------+
| | 16,000 | 16,000 |
+-------------------------------+---------------+--------------+
| - letters of credit and | | |
| other | | |
+-------------------------------+---------------+--------------+
| utilised amount | 5,277 | 2,437 |
+-------------------------------+---------------+--------------+
| - working capital utilised | | |
+-------------------------------+---------------+--------------+
| amount | - | - |
+-------------------------------+---------------+--------------+
| | 5,277 | 2,437 |
+-------------------------------+---------------+--------------+
| Bank B (note ii) | | |
+-------------------------------+---------------+--------------+
| - letters of credit and | | |
| other | | |
+-------------------------------+---------------+--------------+
| facilities amount | 10,252 | 10,308 |
+-------------------------------+---------------+--------------+
| - working capital | | |
| facilities | | |
+-------------------------------+---------------+--------------+
| amount | 2,929 | 2,945 |
+-------------------------------+---------------+--------------+
| | 13,181 | 13,253 |
+-------------------------------+---------------+--------------+
| - letters of credit and | | |
| other | | |
+-------------------------------+---------------+--------------+
| utilised amount | 1,648 | 4,267 |
+-------------------------------+---------------+--------------+
| - working capital utilised | | |
+-------------------------------+---------------+--------------+
| amount | - | - |
+-------------------------------+---------------+--------------+
| | 1,648 | 4,267 |
+-------------------------------+---------------+--------------+
17. RELATED PARTY TRANSACTIONS - continued
Notes:
(i) The banking facilities were secured by personal guarantees executed
by a director, Mr. Lam Kong.
(ii) The banking facilities were
secured by personal guarantees executed by the directors of the Company. Mr.
Lam Kong, Mr. Chen Hongbing, Ms. Chen Yanling, Ms. Huo Xiaoxuan and personal
guarantees executed by a director of Kangzhe Shenzhen, Ms. Sa Manling.
18. COMPARATIVE FIGURES
The comparative figures of amortisation of intangible assets in the condensed
consolidated statement of comprehensive income have been adjusted to conform to
the accounting treatment adopted in the audited consolidated financial
statements of the Group for the year ended 31 December 2009.
During the period ended 30 June 2009, the Group acquired a 24.49% equity
interest in Ophol at a consideration of RMB7,500,000 (equivalent to
approximately US$ 1,098,000) and the discount on acquisition is amounted to US$
590,000. In preparing the condensed consolidated financial statements for the
period ended 30 June 2009, the directors were of the view that the discount on
acquisition should be deducted against intangible assets recognised previously
and thus the amortisation of intangible assets should be adjusted
accordingly.
For the year ended 31 December 2009, the Group had changed
the accounting treatment to recognise the discount on acquisition in profit or
loss immediately on acquisition to conform with the IFRS.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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