Financials
First Quarter Financial Statement Announcement for the Period Ended 31/3/2008
Income Statement
Revenue
First Quarter Performance
The Group experienced an increase in revenue in the first quarter of FY2008 (“1Q08”) of RMB 17.8 million or 16.7% as compared to 1Q07. The increase in revenue can be mainly attributed to higher sales of our pharmaceutical drugs as a result of sales contribution from CMNa and drugs of the newly acquired companies. Sales of our Group's pharmaceutical drugs, including distribution sales, contributed approximately 99.5% of our total revenue in 1Q08, as compared to 99.0% in 1Q07.
Sales of our Group's pharmaceutical drugs including distribution sales in 1Q08 increased significantly by RMB 17.8 million or 16.8% as compared to 1Q07. The increase in revenue for 1Q08 was mainly due to sales contribution from CMNa by RMB 2.5 million or 76.9% and further contribution from drugs of newly acquired companies like Lipusu and Tiandixin with sales contribution of RMB 19.9 million and RMB 5.3 million, respectively. Sales for Nusosen increased by RMB 1.5 million (17.5%) despite the lower selling price while sales of Elcatonin increased by RMB 1.1 million (74.5%) as the product gained wider acceptance. Sales of Maitongna and Lutingnuo decreased by RMB 6.7 million (28.6%) and RMB 8.2 million (32.6%), respectively, due to lower sales volume and selling price.
Sales of R&D results decreased by RMB 0.6 million or 95.3% to RMB 0.03 miliion in 1QFY08 as the Group focused on R&D of our own product pipeline.
Export sales of active ingredients grew slightly by RMB 0.3 million or 66.2% in 1Q08.
Gross profit
First Quarter Performance
The Group's first quarter gross profit improved significantly by RMB 22.6 million or 26.1% from RMB 86.4 million in 1Q07 to RMB 108.9 million in 1Q08 due mainly to the increase in pharmaceutical sales. Gross profit margin improved by 6.6 percentage points, from 80.9% in 1Q07 to 87.5% in 1Q08 due mainly to the better margin of the pharmaceutical drug sales and higher margins for the newly acquired drugs.
Operating expenses
First Quarter Performance
Selling and distribution costs increased significantly by RMB 19.3 million or 50.2% from RMB 38.6 million to RMB 57.9 million due mainly to the increase in marketing and sales activities in line with the increase in sales of pharmaceutical drugs following the acquisition of SSL Group and CMNa. Also, higher travelling expenses of about RMB 10.0 million were incurred for the one time Group sales staff meeting held in 1Q08. Administrative expenses increased by RMB 6.2 million or 31.4% from RMB 19.8 million to RMB 26.1 million due to one off expense of RMB 1.9 million for employee shares awarded in 1Q08, RMB 0.9 million incurred for the newly acquired Asiapharm Biotech Pte Ltd (“ABPL”, formerly knowned as Wearnes Biotech & Medicals (1998) Pte Ltd). Also, NJSK and NJKH have increased in travelling expenses of RMB 3.3million in total. Other expenses increased by RMB 3.9 million or 119.8% due mainly to higher R&D expenses of RMB 3.2 million or 100.2% following the Group's decision to focus more on the R&D of our own products and reduction in R&D sales. Also, there is a net exchange loss of RMB 0.4 million against a net exchange gain of RMB 0.1 million in 1Q07, as well as higher R&D expenses of RMB 2.3 million.
Profitability
First Quarter Performance
Net profit decreased marginally by RMB 1.4 million or 6.7% primarily due to:
- Increase in selling and distribution costs of RMB 19.3 million as explained above;
- Increase in administrative expenses of RMB 6.2 million as explained above;
- Increase in other expenses of RMB 4.7 million as explained above;
- Increase in finance costs of RMB 1.5 million due to higher interest expenses and bank charges for the increase in bank borrowings for the acquisition of WPU as well as the working capital loans of the acquired companies; offset by
- Increase in other income of RMB 3.9 million due mainly to write-back of accounts payable of RMB 2.9 million and increase in government grant of RMB 1.2 million;
- Increase in share of profit of associates of RMB 3.1 million following the acquisition of WPU and associates of ABPL and
- decrease in taxation of RMB 0.5 million.
Balance sheet
There is no material variance for the balance sheet items between 31 March 2008 and 31 December 2007 except for the following:
- Construction-in-progress increased by RMB 9.0 million due mainly to the purchase of a new building to house the Group's R&D department in Yantai;
- Investments in associates increased by RMB 3.1 million due to the share of profits for the period;
- Intangible assets decreased by RMB 5.4 million due mainly to the amortisation charge for the quarter;
- Available-for-sale investments decreased by RMB 2.5 million due mainly to price fluctuation of the share price of NAPO Pharmaceuticals;
- Inventories increased by RMB 18.9 million to RMB 61.2 million due mainly to higher level of raw materials and inventories of the newly acquired entities in line with the increase in pharmaceutical sales;
- Contract for services decreased significantly by RMB 9.5 million as a result of the decrease in long term R&D contracts following the SFDA policy changes;
- Prepayments, deposits and other receivables increased by RMB 1.8 million due mainly to the increase in other receivables from the newly acquired entities;
- Cash and cash equivalents, net of pledged short-term deposits, decreased by RMB 18.5 million to RMB 124.4 million due mainly to the following;
- Amount due from related parties increased by RMB 1.7 million as a result of sale of goods to certain related parties by ABPL;
- Interest-bearing loans and borrowings decreased by RMB 12.8 million as a result of net repayment of loans;
- Government grants increased by RMB 2.2 million in line with the additional fundings obtained during the period;
- Trade payables increased by RMB 4.1 million mainly due to increase in raw material purchased during the quarter;
- Accrued liabilities and other payables decreased significantly due to the settlement of outstanding amount of RMB 50.0 due to outstanding payment for the acquisition of Solid Success Limited group of companies, offset by amount due to suppliers of contractors and suppliers for the CIP purchased;
- Amount due to a holding company increased by RMB 2.7 million as a result of expenses paid on behalf of the Group and advances made to the Group during the period; and
- Amount due to related party increased by RMB 1.6 million due mainly as a result of expenses paid on behalf of the Group.
a. Net repayment of loan of RMB 12.8 million;
b. purchase of property, plant and equipment and CIP of RMB 12.0 million; offset by
c. net cash outflow from operating activities of RMB 5.3 million.
Commentary on Current Year Prospects
ABN AMRO Bank N.V., Singapore Branch (“ABN AMRO”), has on 5 February 2008 issued, for and on behalf of LuYe Pharmaceutical Investment Co., Ltd (“the Offeror”), an announcement (“the “Offer Announcement”) of the Offeror's intention to make a voluntary conditional cash offer (“Offer”) for all the issued and paid-up ordinary shares of par value US$0.02 each (“Shares”) in the capital of the Company. On 25 February 2008, ABN AMRO announced for and on behalf of the Offeror that the offer document setting out inter alia, the terms and conditions of the Offer by the Offeror was dispatched to Shareholders on 25 February 2008.
In the offer document, the Offeror stated its intention to make the Company its wholly-owned subsidiary and that it is not the intention of the Offeror to preserve the listing status of the Company. The Offeror also intends to exercise its right to compulsorily acquire, at the Offer Price, all the remaining Shares if it is entitled under Section 102(1) of the Companies Act 1981 of Bermuda.
In view of the above mentioned announcements by ABN AMRO issued, for and on behalf of the Offeror, of the Offeror's intention to make a voluntary conditional cash offer for all the issued and paid-up ordinary shares in the capital of the Company, the board would not be making any statement of prospects on the Company.
Balance Sheet
