Message from Executive Chairman
Extracted from Annual Report 2007
Dear Shareholders,
It is with great pleasure that I present to you our annual report for the financial year ended 31 December 2007 ("FY2007").
The year under review was a fast growing and challenging year for AsiaPharm Group Ltd. ("AsiaPharm" or the "Group"), significantly expanded our business operations and foothold within the People's Republic of China ("PRC") pharmaceutical industry. I am pleased to report that the integration process is on track and contributions from the various acquired operations have added significantly to AsiaPharm's performance in FY2007.
The PRC pharmaceutical industry is gradually recovering from the impact of regulatory and price controls implemented by the State Food and Drug Administration ("SFDA") and the National Development and Reform Commission ("NDRC") in 2006. With the contributions from Nanjing Kanghai ("Kanghai") and Nanjing Sike ("Sike") – pharmaceutical manufacturing specialists in oncology drugs, which were acquired for a combined sum of Rmb345.0 million in FY2007 – the Group's total revenue grew 65.1% to Rmb509.0 million in FY2007 from Rmb308.3 million in FY2006.
Subsequent to the acquisition of Kanghai and Sike, the Group announced in November 2007 the completion of its acquisition of a 43% stake in WBL Peking University Biotech Co., Ltd. ("WPU") – the manufacturer for Xuezhikang Capsule, a natural drug used to lower cholesterol levels – for Rmb99.4 million. Concurrently, the Group also acquired 100% interest in Wearnes Biotech & Medicals (1998) Pte. Ltd. & its subsidiary ("WBM"), a Singapore pharmaceutical distributor for S$2.1 million, expanding the Group's distribution network in South-East Asia and other countries.
The successive acquisition of new businesses is in line with the Group's strategic expansion initiative and reinforces AsiaPharm's efforts to further strengthen its position within the PRC pharmaceutical industry. With the successful integration of these new businesses, we will enhance our competitive advantage and seek to improve our future financial performance.
Business Outlook
Domestic Market
For FY2007, the Group reported a 65.1% or Rmb200.7 million increase in revenue to Rmb509.0 million from Rmb308.3 million in FY2006. Contributions from our newly acquired products in particular sales of CMNa®, Lipusu and Tiandixin offset the smaller contributions from products such as Nuosen and Lutingnuo and helped boost Earnings before Interest, Tax, Depreciation and Amortization ("EBITDA") by 23.2% to Rmb118.4 million in FY2007 from Rmb96.1 million in FY2006.
In line with the Group's focus on the sale of higher-margin pharmaceutical products, contribution from the sale of the Group's pharmaceutical drugs including distribution sales in FY2007 increased significantly by Rmb227.0 million or 81.7% as compared to FY2006.
Sales from our acquired products CMNa®, Lipusu and Tiandixin contributed significantly to the Group's revenue, while sales of Maitongna recovered from the withdrawal of the 25mg dosage in FY2006 to post a 6.9% increase in sales for FY2007. Sales of Sidinuo continued its strong growth in FY2007 rising 75.0%. Sales volume for Nuosen and Lutingnuo were maintained in FY2007, however a tighter operating environment following price cuts implemented in FY2006 lead to declines in contributions of 15.7% and 8.5% respectively. The management believes that the price pressure on a number of our products will continue in the future, particularly after the adoption of the online bidding process by regional and provincial governments.
Research and development of new drugs is an essential component of our business strategy. In October 2007, China SFDA promulgated Circular 28, an update on drug registration requirements, which tightens the approval standards for new formulation drugs. 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 Rmb13.6 million or 91.2%.
As the Group continues to strategically reduce export sales of active ingredients due to the lower margins and higher credit risks; export sales of active ingredients declined by Rmb13.5 million or 86.8% in FY2007.
While our sales revenue grew significantly for the year under review, our net profit was affected by fair value adjustments for Solid Success Group of companies of Rmb16.2 million on amortisation of intangible assets and Rmb6.9 million to the Cost of Goods Sold for the year. The higher finance charges of approximately Rmb14.3 million pertain to interest expenses for the increase in bank borrowings used in the acquisition of WPU.
The Group recorded net profit attributable to shareholders and Earnings per share on a fully diluted basis of Rmb59.5 million and 12.09 Rmb cents respectively for FY2007. Net asset value per share grew to 157.46 Rmb cents as at 31 December 2007.
Integration of the various acquired businesses and the continued expansion of our core operations through further acquisitions was the key strategic focus for the Group in FY2007. In November 2007, we concluded the cash acquisition for a 43% stake in WPU and full year contribution is expected to begin in FY2008. Moving forward, we will continue to emphasize on the integration of our various business entities and explore additional opportunities to further expand our competitive advantages.
International Markets
FY2007 saw a continuation of our international expansion initiative as we progressed from our existing markets of Vietnam and Pakistan into Korea through the appointment of an exclusive agency to secure the necessary approvals pertaining to the sale and distributorship for our proprietary drug CMNa® in Korea in January 2007.
On an alternate front, our acquisition of WBM – the distributor of the lipid regulation drug brand names HypoCol® and Lipascor® in various countries including Singapore and Malaysia as part of the WPU acquisition, will grant AsiaPharm ready access to outlets in various countries that currently carry its products.
Strategic Partnerships
While sale of our proprietary pharmaceutical drugs remains the key performance driver of the Group, AsiaPharm is constantly exploring collaborative opportunities with international partners to expand our product portfolio and boost our standing as a leader in the industry. I am pleased to report that in FY2007 we made significant headway in establishing licensing and distribution agreements with internationally recognised parties that will not only boost our existing distribution networks both within the PRC and internationally, but also serve to increase the Group's global presence.
The Group announced in August 2007 its exclusive product distribution agreement in the PRC with leading Korean drug maker LG Life Sciences Ltd. for its proprietary osteoarthritis drug – Hyruan Plus Inj.® ("Hyruan Plus") – a hyaluronic acid injection for osteoarthritis of the knee joint. Targeted at over 8 million afflicted patients in the PRC, this drug will add to our existing portfolio of orthopedics products and contribute to our future performance.
In December 2007, we announced the appointment of international pharmaceutical conglomerate Sandoz, a Novartis company, as the exclusive promoter in the PRC for our proprietary Parkinson's disease drug – JinSiPing. Targeting over 1.7 million patients in the PRC, this latest agreement will allow AsiaPharm to capitalise on Sandoz's existing sales network for Neurology drugs to boost the market penetration and coverage for JinSiPing without the need to establish a separate product marketing team.
Moving forward, we will continue to explore additional collaborative opportunities with other international pharmaceutical companies to expand our product development portfolio and enhance our performance through cost reductions and higher margin product offerings.
Rewarding Shareholders
To reward our loyal shareholders for the performance for the year under review, the Board of Directors (the "Board") has proposed a first and final dividend of 0.4 US cent per ordinary share.
Appreciation
The PRC pharmaceutical industry still possesses significant potential for AsiaPharm. In the years ahead, we will continue building on our successful business strategies and endeavor to reap the highest rewards for our shareholders through improved financial performance.
Once again let me extend my sincere appreciation and thanks for your past support and let us look forward to scaling greater heights ahead.
Liu Dian Bo
Executive Chairman
30 March 2008