Financials
Full Year Financial Statement Announcement for the Period Ended 31/12/2007
Income Statement
Review of Performance
Revenue
Fourth Quarter Performance
The Group experienced an increase in revenue in the fourth quarter of FY2007 ("4Q07") of RMB 66.8 million or 86.7% as compared to 4Q06. 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. The increase in pharmaceutical sales was offset by lower export sales and sales of R&D results. Sales of our Group's pharmaceutical drugs, including distribution sales, contributed approximately 100.0% of our total revenue in 4Q07, as compared to 97.1% in 4Q06.
Sales of our Group's pharmaceutical drugs including distribution sales in 4Q07 increased significantly by RMB 69.1 million or 92.3% as compared to 4Q06. The increase in revenue for 4Q07 was mainly due to sales contribution from CMNa by RMB 3.6 million or 100.5% and new contribution from drugs of newly acquired companies like Lipusu and Tiandixin with sales contribution of RMB 30.3 million and RMB 29.8 million, respectively. Sales of Maitongna increased by RMB 7.2 million or 28.3% as it recovers from the withdrawal of the 25mg dosage in FY2006. Sales for Nusosen and Lutingnuo reduced by RMB 3.6 million (24.1%) and RMB 0.1 million (0.4%), respectively because of price cuts despite maintaining the sales volume in the challenging market conditions. Sales for Ximingting increased by RMB 0.2 million or 332.9% following the launch in FY2006.
Sales of R&D results increased by RMB 0.5 million or 42.6% from - RMB 1.3 million in 4QFY06 to - RMB 0.8 million in 4QFY07 as R&D sales of two drugs and its distribution network amounting to RMB 6.0 were reclassified to "other income" in 4Q06 and were offsetted against the sales of R&D results for two drugs which did not belong to the core focus of the Group's new product development purposes.
As the Group continues to strategically reduce export sales of active ingredients due to its low margin and higher credit risks, export sales of active ingredients reduced by RMB 2.8 million or 79.8% in 4Q07.
Full year Performance
The Group experienced an increase in revenue for the financial year ended 31 December 2007, of RMB 200.7 million or 65.1% as compared to the last financial year. 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. The increase in pharmaceutical sales was offset by lower export sales and sales of R&D results. Sales of our Group's pharmaceutical drugs, including distribution sales, contributed approximately 99.3% of our total revenue in FY07, as compared to 90.1% in FY06.
Sales of our Group's pharmaceutical drugs including distribution sales in FY07 increased significantly by RMB 227.8 million or 82.0% as compared to FY06. The increase in revenue for FY07 was mainly due to full year sales contribution from CMNa by RMB 18.6 million or 523.3% and new contribution from drugs of newly acquired companies like Lipusu and Tiandixin with sales contribution of RMB 94.0 million and RMB 115.1 million, respectively. Sales of Maitongna increased by RMB 6.7 million or 6.9% as it recovers from the withdrawal of the 25mg dosage in FY2006. Sales for Nusosen and Lutingnuo reduced by RMB 7.6 million (15.7%) and RMB 9.4 million (8.5%), respectively because of price cuts despite maintaining the sales volume in the challenging market conditions. Sales of Sidinuo continue its strong growth from RMB 5.2 million in FY2006 to RMB 9.1 million an increase of RMB 3.9 million or 75.0%. Sales for Ximingting increased by RMB 0.7 million or 504.5% following the launch in FY2006.
In line with the Group's decision to focus our R&D resources for the development of our own drugs, sales of R&D results decreased by RMB 13.6 million or 91.2%.
As the Group continues to strategically reduce export sales of active ingredients due to its low margin and higher credit risks, export sales of active ingredients reduced significantly by RMB 13.5 million or 86.8% for FY07.
Gross profit
Fourth Quarter Performance
The Group's fourth quarter gross profit improved significantly by RMB 59.3 million or 95.9% from RMB 61.9 million in 4QFY06 to RMB 121.2 million in 4QFY07 due mainly to the increase in pharmaceutical sales. Gross profit margin improved by 3.9 percentage points, from 80.3% in 4Q06 to 84.2% in 4Q07 due mainly to the better margin of the pharmaceutical drug sales. On the other hand, gross profit margin was affected by the fair value adjustment for SSL Group of approximately RMB 6.9 million, which increases the cost of goods sold.
Full Year Performance
The Group's FY07 gross profit improved significant by RMB 184.0 million or 75.2% from RMB 244.8 million in FY06 to RMB 428.8 million in FY07 due mainly to the increase in pharmaceutical sales. Gross profit margin improved by 4.9 percentage points, from 79.4% in FY06 to 84.3% in FY07 due mainly to the better margin of the pharmaceutical drug sales. On the other hand, gross profit margin was affected by the fair value adjustment for SSL Group of approximately RMB 6.9 million, which increases the cost of goods sold.
Operating expenses
Fourth Quarter Performance
Selling and distribution costs increased significantly by 154.8% from RMB 38.4 million to RMB 97.8 million due mainly to the increase in sales activities of pharmaceutical drugs following the acquisition of SSL Group and CMNa. Administrative expenses increased by 65.5% from RMB 13.8 million to RMB 13.8 million to RMB 22.8 million mainly due to higher amortisation of intangible assets of approximately RMB 16.2 million as a result of the fair value adjustment for SSL Group's intangible assets. Other expenses increased by 106.6% or RMB 5.9 due mainly to higher net exchange loss of RMB 3.3 million as well as higher R&D expenses of RMB 2.3 million following the Group's decision to focus more on the R&D of our own products and R&D expenses of newly acquired SSL Group.
Full Year Performance
Selling and distribution costs increased significantly by 90.5% from RMB 129.6 million to RMB 246.8 million due mainly to increase in sales activities of pharmaceutical drugs following the acquisition of CMNa and SSL Group. Adminstrative expenses increased by 137.0% from RMB 32.4 million to RMB 76.8 million mainly due to administrative expenses of the newly acquired companies of approximately RMB 17.4 million, higher amortisation of intangible assets of approximately RMB 16.2 million as a result of the fair value adjustment for SSL Group's intangible assets as well as increase in corporate activities. Other expenses increased by 63.3% or RMB 11.4 million due mainly to higher net exchange loss of RMB 3.3 million (net exchange gain of RMB 8.5 million in FY06) as well as higher R&D expenses of RMB 7.8 million, which included the R&D expenses of newly acquired SSL Group.
Profitability
Fourth Quarter Performance
Net profit decreased by RMB 32.1 million or 157.0% to a net loss of RMB 11.6 million primarily due to:
(i) decrease in other income of RMB 16.6 million mainly due to reductions in net exchange gain of RMB 8.6 million and RMB 6.0 million of sales of distribution network for two drugs to a related company in FY2006;
(ii) increase in selling and distribution costs of RMB 59.4 million as explained above;
(iii) increase in other expenses of RMB 5.9 million as explained above;
(iv) increase in finance costs of RMB 3.8 million due to interest expenses paid for the increase in bank borrowings for the acquisition of WPU as well as the working capital loans of the acquired companies; offset by
(v) reduction in taxation of RMB 2.5 million; and
(vi) increase in share of profit of associates of RMB 1.0 million following the acquisition of WPU.
Full Year Performance
Net profit decreased by RMB 21.9 million or 27.1% to RMB 59.0 million primarily due to:
(i) decrease in other income of RMB 14.6 million mainly due to reduction in net exchange gain of RMB 8.6 million and RMB 6.0 million of sales of distribution network for two drugs to a related company in FY2006;
(ii) increase in selling and distribution costs of RMB 117.2 million as explained above;
(iii) increase in other expenses of RMB 11.4 million as explained above;
(iv) increase in finance costs of RMB 15.5 million due to interest expenses paid for the increase in bank borrowings for the acquistion of WPU as well as the working capital loans of the acquired companies;
Balance Sheet
There is no material variance for the balance sheet items between 31 Decemeber 2006 and 31 December 2007 except for the following:
(i) Property, plant and equipment increased by RMB 40.4 million due mainly to the property, plant and equipment acquired from the acquisition of RMB 34.9 million in net book value and additions during the year of RMB 17.7 million offset by depreciation charge for the year of RMB 16.1 million;
(ii) Investments in associates increased by RMB 112.4 million as a result of the acquisition of the 43% interest in WPU;
(iii) Intangible assets increased by RMB 167.4 million due mainly to the RMB 192.2 million of intangible assets from acquisition offset by amortisation for the year of RMB 24.8 million;
(iv) Land use rights increased by RMB 6.7 million due mainly to RMB 7.0 million of land use rights from acquisition offset by amortisation for the year of RMB 0.3 million
(v) Available-for-sale investments decreased by RMB 4.6 million, representing the unrealised loss on shares in Napo Pharmaceuticals of RMB 4.6 million offset by RMB 2.7 million of unquoted equity investments acquired in the acquisition of WBM;
(vi) Long-term deferred expenditures decreased by RMB 0.5 million to RMB 3.3 million as a result of an amortisation change for the year;
(vii) Prepayment for acquisition decreased by RMB 288.6 million as a result of completion and settlenent of the acquisition of SSL Group;
(viii) Goodwill increased significantly by RMB 124.3 million as a results of the acquisition of SSLP Group and WBM;
(ix) Inventories increased by RMB 8.7 million to RMB 42.3 million due mainly to increase in inventory holding at year end following the acquisition of SSL Group;
(x) Contact for services decreased by RMB 1.5 million due mainly to recognisation of an impairment loss of RMB 1.0 million;
(xi) Trade and note receivables increased significantly by RMB 66.2 million to RMB 231.2 million due to trade receivables arising from the acquisitions of SSL Group;
(xii) Prepayments, deposits and other receivables increased by RMB 7.0 million to RMB 15.3 million due mainly to the various acquisitions;
(xiii) Cash and cash equivalents increased by RMB 47.3 million to RMB 142.9 million due mainly to the following;
- positive cashflow generated from operating activities
- net proceeds from bank borrowings of RMB 108.3 million, offset by;
- acquisition of associates (WPU) of RMB 102.4 million;
- acquisition of subsidiaries (WBM and SSL Group) of RMB 26.7 million;
- acquisition of CMNa business of RMB 38.0 million;
- Repurchase of treasury shares under the Group's Share Award Plan of RMB 2.0 million; and
- purchase of 2006 final dividend of RMB 19.1 million.
(xiv) Pledged short-term deposits increased by RMB 4.4 million as a security for the loan undertaken by our main operating subsidiary;
(xv) Amount due from related parties decreased by RMB 2.0 million mainly due to the full settlement of RMB 4.8 million due from Wuhu Luye Pharmaceutical Co. for the sale of 2 drugs and its networks offset by amount due to related companies for certain expenses paid on behalf of the Group;
(xvi) Non-current portion of interest-bearing loans and borrowings increased by RMB 115.8 million as a result of bank borrowings taken for the acquisition of WPU and WBM;
(xvii) Current portion of interest-bearing loans and borrowings increased by RMB 83.6 million as a result of working capital loans for the newly acquired SSL Group;
(xviii) Long-term liabilities due with one year increased by RMB 24.7 million as a result of the current portion of the bank borrowings taken for the acquisition of WPU and WBM;
(xix) Amount due to holding company decreased by RMB 1.7 million as a result of settlement of expenses paid on behalf of the Group before year end; and
(xx) Amount due to related parties increased by RMB 1.5 million mainly due to expenses paid on behalf of the Group..
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 alla, 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 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 Company, the board would not be making any statement of prospects on the Company.
Balance Sheet
