Operations Review & Development
Extracted from Annual Report 2007
AsiaPharm continued its acquisition momentum in FY2007, concluding a total of two other acquisitions for the year which are expected to enhance AsiaPharm's competitive advantages and further consolidate its position within the PRC pharmaceutical industry.
Overview and Financial Performance
FY2007 was a year in which AsiaPharm successfully amalgamated its acquired operations and existing operations to create a stronger entity that continues to distinguish itself within the PRC pharmaceutical industry.
In January 2007, AsiaPharm successfully acquired two pharmaceutical companies specializing in oncology drugs Nanjing Kanghai ("Kanghai") and Nanjing Sike ("Sike") for Rmb345 million. Acquired at a historical price to earnings ratio of 6.3 times, this acquisition marked AsiaPharm's second successive acquisition and has served to strengthen the Group's competitive advantage in the field of Oncology. For the year under review, key drugs from Kanghai and Sike - Tiandixin, Lipusu - contributed 41% or Rmb209.1 million to the Group's total revenue from the sale of pharmaceutical drugs.
In November 2007, AsiaPharm announced the completion of its acquisition for a 43% stake in WBL Peking University Biotech Co., Ltd. ("WPU") – the manufacturer for Xuezhikang Capsule (血脂康®), a natural drug used to lower cholesterol levels – for Rmb99.4 million.
Through this acquisition, AsiaPharm will also acquire Wearnes Biotech & Medicals Pte. Ltd. ("WBM") which distributes Xuezhikang under the brandnames HypoCol® and Lipascor® in various countries including Singapore and Malaysia and gain access to distribution outlets in the countries that carry these products.
Following the tightening of regulatory policies in FY2006 and government effort in reducing medical costs, the pharmaceutical industry experienced a period of consolidation. Underlined by the expanded operations following its acquisitions, the Group's revenue from pharmaceutical product sales rose 81.7% to Rmb504.8 million in FY2007 from Rmb277.8 million in FY2007. Total revenue for the year rose 65.1% to Rmb509.0 million from Rmb308.3 million in FY2006.
Operational and Financial Performance
Revenue and Profit
In FY2007, sales of Maitongna – which were lowered in FY2006 following the withdrawal of the 25mg dosages - have increased by Rmb6.7 million in FY2007 to Rmb103.9 million as hospitals switched to our 5mg and 10mg dosages in the annual tender renewals. While sales of Nuosen and Lutingnuo were weaker due to price revisions initiated in FY2006, contributions from our newly acquired businesses in particular sales of CMNa®, Lipusu and Tiandixin boosted our Earnings before Interest, Tax, Depreciation and Amortization ("EBITDA") by approximately 23.2% to Rmb118.4 million in FY2007 from Rmb96.1 million in FY2006.
In FY2007, the Group recognized finance charges of approximately Rmb14.3 million incurred due to interest expenses paid for the increase in bank borrowings for the acquisition WPU as well as the working capital loans of the acquired companies. The acquisition of WPU was completed in November 2007 and AsiaPharm expects to recognise full year contributions from this entity from FY2008. The Group recorded net profit of Rmb59.0 million for FY2007 compared to Rmb80.9 million in FY2006. Earnings per share ("EPS") for FY2007 was 12.09 Rmb cents, calculated on a weighted average number of shares.
In line with the Group's strategies to reduce its lower margin businesses and focus on the sale and distribution of its highermargin drug, AsiaPharm's gross profit margins rose to 84.2% in FY2007 from 79.4% in FY2006.
AsiaPharm remains in a strong financial position with net cash of Rmb142.9 Million. Operational cash flow in FY2007 more than doubled from Rmb51.0 million in FY2006 to Rmb138.5 million. Net asset value per share rose to 157.46 Rmb cents as at 31 December 2007 compared to 149.16 Rmb cents a year earlier.
Segmental Contribution
Sales of Group's Pharmaceutical Drugs
Sales of the Group's pharmaceutical drugs, represented 99.2% of total revenue in FY2007 from 90.1% in FY2006 following increased efforts by the Group to reduce its lower margin businesses. Driven by contributions from its newly acquired products, contributions from pharmaceutical drug sales grew a significant 81.7% or Rmb227.0 million from FY2006 figures.
Demand for key products Sidinuo and Maitongna continues to increase, with recorded sales growth of 75.0% and 6.9% respectively. Contributions of CMNa® also grew 753.8% owing to continued sales growth and recognition of full year contributions.
Sales of R&D Results
The Group continues to retain economically viable research findings for further development as proprietary drugs. Sales of R&D results declined Rmb12.8 million or 85.9% from Rmb14.9 million to Rmb2.1 million and represented 0.4% of total revenue.
Export Sales of Active Ingredients
As part of the Group's decision to reduce export sales of active ingredients due to its low margin and higher credit risks, export sales of active ingredients continues to decline. Contributions decreased by 86.5% to Rmb2.1 million in FY2007 from Rmb15.6 million in FY2006 and represented 0.4% of total revenue.
Significant Developments
Corporate Developments
AsiaPharm continued its acquisition momentum in FY2007, concluding a total of two other acquisitions for the year which are expected to enhance AsiaPharm's competitive advantages and further consolidate its position within the PRC pharmaceutical industry.
Acquisition of Nanjing Kanghai and Nanjing Sike
AsiaPharm announced in January 2007 its second corporate acquisition of Kanghai and Sike for Rmb345 million via a cash and shares deal from its equity holder Solid Success Holdings Limited.
This second acquisition is in line with the Group's corporate strategy to consolidate its position within the PRC Oncology sector and to expand its business segments.
The acquisition added eight new products to AsiaPharm's product portfolio, development pipelines for 10 additional products - three of which are based on its newly acquired proprietary Liposome technology - and additional marketing channels that will contribute to the Group's future financial performance.
Acquisition of 43% stake in WBL Peking University Biotech Co., Ltd.
AsiaPharm announced in November 2007 the completion of its cash acquisition of a 43% stake in WPU at a historical price-to-earnings ratio of nine times (based on FY2006 audited figures), financed thorough a combination of internal resources as well as borrowings.
The latest acquisition adds Xuezhikang (血脂康®) – an internationally recognised anti-cholesterol drug which has exhibited high sales growth over the past ten years – to AsiaPharm's stable of drugs, and enlarges AsiaPharm's distribution network in the PRC from 2,500 hospitals to over 3,500 hospitals. Together with the acquisition of WPU, AsiaPharm will also gain entry into the Singapore and Malaysian OTC market through the acquisition of WBM which distributes Xuezhikang under the brandnames HypoCol® and Lipascor®.
Forging Ahead
AsiaPharm remains well positioned to tap its expansion initiatives for future growth and to benefit from increased contributions in domestic and international sales.
AsiaPharm's outlook for the coming months will be driven by the successful integration of its various acquired operations. Building on the momentum gathered in FY2007, AsiaPharm will continue to broaden its distribution network and revenue base to secure additional growth opportunities for the Group.