Words from Chairman

Global growth strengthened in 2017, accelerating at its highest pace in six years while China’s economy grew by 6.9% picking up pace for the first time in seven years. Amid the widespread concerns over potential impacts on the global economy brought by the possible rise in protectionist sentiment, escalation in geopolitical tensions and increased currency volatility, the Chinese economy saw a solid start to the year 2018 with a better-than-expected growth of 6.8% in the first quarter of the year demonstrating a pattern of stability.

While China’s economy has been rebalancing with focuses on economic transition from rapid growth to high quality development, moving towards accomplishing the overarching goal of becoming a ‘moderately prosperous society’ by year 2020 under the Thirteenth Five-Year Plan (2016-2020) and establishing a ‘Healthy China’ by year 2030, China’s pharmaceutical industry has been undergoing in-depth adjustments alongside the continuous deepening of healthcare reforms and advancing of the supply-side structural reforms. The Chinese government took further steps to reform the national healthcare system and strengthen the regulatory system for the pharmaceutical industry that a number of new policies were rolled out throughout 2017, covering key areas in the industry, including production, circulation and research and development. The implementation of policies such as the ‘Two-Invoice System’ across the entire nation by year 2018 would eliminate multi-tier distribution and call for a more unified distribution network, thereby accelerating consolidation within groups of distributors, whereas, the hierarchical diagnosis and treatment system, the zero mark-up of drugs by hospitals would affect the circulation system for drugs and the structure of the end market for drug sales, ultimately reshuffling the pharmaceutical distribution sector. The policies associated with the standardisation of drug quality via consistency evaluation on quality and efficacy of generic drugs, continuous tightening of national environmental regulations and intensified supervision pose pressure and challenges to manufacturing enterprises, while reform policies and measures were introduced to encourage research and development of innovative drugs.

In the context of frequent reform policies and stricter regulatory requirements, China’s pharmaceutical industry has entered into a new normal state characterised by slower growth rate while the industry structure is being optimised. The in-depth implementation of the reform policies and stricter standards spurred fierce competition among pharmaceutical enterprises and lead to severe market conditions which have been increasingly impacting the Group’s trading segment of imported pharmaceutical products which are more price-sensitive due to intensifying competition from locally manufactured quality products and are impacted by the regulatory measures of increasing scrutiny on imported products. Despite the weaker than expected performance of the trading segment which has turned into loss-making, the Group’s relentless efforts on manufacturing quality products by leveraging the production facilities of the Group’s GMP plants in Changchun have demonstrated positive progress, the manufacturing segment has achieved continuing improvement in performance during the year under review.

The Group’s profit for the year attributable to owners of the Company amounted to about HK$29.9 million as compared to a profit of about HK$20.8 million of last financial year, representing an increase of about HK$9.1 million primarily attributable to non-cash items.

As China’s pharmaceutical industry is still going through in-depth structural adjustments under the sustained deepening of healthcare reforms, the ongoing evolution of the pharmaceutical market will pose additional challenges to the Group. However, the Group believes that China’s rebalancing economy with growth momentum provides dynamics for the sustainable growth of the pharmaceutical industry. The Group will continue to focus on leveraging its GMP plants in Changchun to develop quality products to meet market demand and stay vigilant in cash flow management and cost control to enhance overall operational efficiency with the aim of improving the Group’s performance and maintaining its sound financial fundamentals to cater for its long-term development. In the meantime, the Group will endeavor to seek potential business opportunities to diversify its revenue stream, and will continuously identify and evaluate investment opportunities which will provide long-term benefits to the Group, with a view to enhancing the Group’s corporate value.

On behalf of the Board, I would like to express its appreciation to all those in the Group for their dedicated efforts and contribution to the Group during the past year, and to the shareholders and business partners for their continuous support.

Dr. Xie Yi

Chairman