(Incorporated in the Cayman Islands with limited liability) Stock Code : 01110 ANNUAL REPORT 2020 Healthy Life with CONTENTS 1 Contents 2 Corporate Information 4 Financial Highlights 5 Chairman’s Statement 12 Management Discussion and Analysis 52 Directors’ and Senior Management’s Biographies 56 Corporate Governance Report 65 Report of the Directors 89 Independent Auditor’s Report 95 Consolidated Statement of Profit or Loss 96 Consolidated Statement of Profit or Loss and Other Comprehensive Income 97 Consolidated Statement of Financial Position 99 Consolidated Statement of Changes in Equity 100 Consolidated Statement of Cash Flows 102 Notes to the Consolidated Financial Statements 209 Financial Summary 210 Particulars of Key Properties Corporate Information DIRECTORS AUTHORISED REPRESENTATIVES Executive Directors Mr. Zhao Li Sheng Mr. Chan Hon Wan Mr. Zhao Li Sheng (Chairman) Ms. Chan Lok San Mr. Zhou Xuhua REGISTERED OFFICE Ocorian Trust (Cayman) Limited Independent Non-executive Directors Windward 3, Regatta Office Park Mr. Duan Jidong PO Box 1350 Mr. Wong Cheuk Lam Grand Cayman KY1-1108 Mr. Zhang Jianbin Cayman Islands AUDIT COMMITTEE HEADQUARTERS AND PRINCIPAL PLACE OF BUSINESS IN THE PRC Mr. Wong Cheuk Lam (Chairman) Mr. Duan Jidong 8th-9th Floor, Block A Mr. Zhang Jianbin Majialong Chuangxin Building 198 Daxin Road REMUNERATION COMMITTEE Nanshan District, Shenzhen Guangdong Province Mr. Zhang Jianbin (Chairman) The PRC Mr. Duan Jidong Mr. Wong Cheuk Lam PRINCIPAL PLACE OF BUSINESS IN HONG KONG NOMINATION COMMITTEE Rooms 1906-1907, 19th Floor Mr. Duan Jidong (Chairman) Shui On Centre Mr. Wong Cheuk Lam 6-8 Harbour Road Mr. Zhang Jianbin Wanchai Hong Kong COMPANY SECRETARY Mr. Chan Hon Wan PRINCIPAL SHARE REGISTRAR AND TRANSFER OFFICE IN CAYMAN ISLANDS Ocorian Trust (Cayman) Limited Windward 3, Regatta Office Park PO Box 1350 Grand Cayman KY1-1108 Cayman Islands 2 KINGWORLD MEDICINES GROUP LIMITED ANNUAL REPORT 2020 Corporate Information PRINCIPAL BANKS LEGAL ADVISORS TO THE COMPANY China Construction Bank King & Wood Mallesons Shenzhen Luohu Sub-branch 13th Floor, Gloucester Tower East Section The Landmark Financial Centre 15 Queen’s Road Central South Hong Ling Road Central Shenzhen Hong Kong Guangdong Province The PRC AUDITOR Crowe (HK) CPA Limited Industrial Bank 9th Floor Shenzhen Overseas Chinese Town Sub-branch Leighton Centre B1-29 Yitian Holiday Plaza 77 Leighton Road 9028 Shennan Avenue, Nanshan Causeway Bay Shenzhen Hong Kong Guangdong Province The PRC STOCK CODE Nanyang Commercial Bank 01110 Hong Kong, Western Branch 1st Floor - 2nd Floor WEBSITE ADDRESS 359-361 Queen’s Road Central Hong Kong www.kingworld.com.cn BRANCH SHARE REGISTRAR AND TRANSFER OFFICE IN HONG KONG Tricor Investor Services Limited Level 54, Hopewell Centre 183 Queen’s Road East Wanchai Hong Kong KINGWORLD MEDICINES GROUP LIMITED ANNUAL REPORT 2020 3 Financial Highlights For the year ended 31 December Changes 2020 2019 Increase/ RMB’000 RMB’000 (Decrease) Financial Highlights Revenue 745,383 977,928 (23.8)% Cost of sales (465,229) (710,525) (34.5)% Gross profit 280,154 267,403 4.8% Profit before taxation 70,891 69,809 1.5% Profit for the year 50,889 50,271 1.2% Profit attributable to owners of the Company 11,716 43,427 (73.0)% Basic earnings per share (RMB cents) 1.91 7.00 (72.7)% Proposed final dividends per share (HK cents) 0.65 2.34 (72.2)% Changes As at 31 December Increase/ 2020 2019 (Decrease) Liquidity and Asset-liability Ratio Current ratio (1) 1.29 1.27 1.6% Quick ratio (2) 1.05 0.92 14.1% Asset-liability ratio (3) 23.6% 16.7% 6.9% pts Notes: (1) Current ratio is calculated as current assets divided by current liabilities. (2) Quick ratio is calculated as current assets less inventories divided by current liabilities. (3) Asset-liability ratio is calculated as total bank borrowings divided by total assets and multiplied by 100%. 4 KINGWORLD MEDICINES GROUP LIMITED ANNUAL REPORT 2020 Chairman’s Statement Dear Shareholders, On behalf of Kingworld Medicines Group Limited (the “Company”) and its subsidiaries (together, the “Group”), I would like to express my sincere gratitude to all shareholders (the “Shareholders”) and stakeholders for your continuing attention, support and encouragement to the Group. For the Group, the year ended 31 December 2020 (the “Year Under Review”) was a challenging year. Nevertheless, with the continuing endeavours and constant efforts of all our staff, we strived to create a powerful driving force to foster the development of our various lines of businesses which have consequently reached their new heights. MARKET OVERVIEW In 2020, we saw the impact of the novel coronavirus (COVID-19) (the “Pandemic”) swept across the globe, accelerating the evolution of unprecedented changes of the world in a century. Under the background of the prevalence of the global Pandemic, the progress of trade negotiations between China and the U.S. still failed to achieve breakthroughs in 2020, along with the impacts of the game between China and the U.S. and Britain’s formal exit from the European Union, the data released by the World Bank showed that the global economy encountered a 4.3% contraction in 2020, and the economic activities and income growth might be subject to suppression for a long period of time. As a result, the global economy may fall into regression. KINGWORLD MEDICINES GROUP LIMITED ANNUAL REPORT 2020 5 Chairman’s Statement Regarding the pharmaceutical industry, due to the impact of the Pandemic, the Group ushered an explosive growth in anti-Pandemic materials as represented by masks. At the same time, the sales of cold and cough drugs declined due to policy control. In view of the strong demand of consumers for foreign high-quality OTC household drugs, the country has gradually opened up pilot points for cross-border pharmaceutical e-commerce. In 2020, the country approved the “Implementation Plan for Beijing City Cross-border E-commerce Sale of Pharmaceutical Products Pilot Work “, which will enable At the same time, as China has achieved major strategic the Group to fully utilize the experience of Kingworld as an successes in the battle against the Pandemic, China’s agent of overseas health products, introduce more high-quality economy is able to achieve continuous growth despite health products and provide window opportunities in return. the fact that most countries around the world have been suffering economic difficulties. According to the latest As Shenzhen is one of the important strategic cities as the pilot economic data, China’s GDP in the first three quarters of demonstration zone of socialism with Chinese characteristics 2020 amounted to approximately US$10.34 trillion, and and the Guangdong-Hong Kong-Macau Greater Bay Area, the economy increased by 0.7% year-on-year, making the “List of the First Batch of Authorized Items for the China the only major economy capable of achieving positive Comprehensive Reform Pilot for Building a Pilot Demonstration growth. In response to the pressure from deglobalization, Zone of Socialism with Chinese Characteristics in Shenzhen” China completed the signing of RCEP and China-EU promulgated by the State Council of the PRC renders further investment agreement negotiations in 2020, and proposed support to Shenzhen to become a frontier pilot zone for China’s the economic development direction of “domestic internal reform and open policy. As Shenzhen becomes an international circulation as the core, complemented by international and city and important hub for the Greater Bay Area, it will provide domestic dual circulation”. With the steady and continuous a broad development space for the Shenzhen-based Kingworld growth of the Chinese economy, the level of income and Medicines Group and lay an even more solid foundation for consumption will increase further, which is beneficial to the Group to develop into a world leading and well-known the Group’s long-term development of plough deep into omni-channel enterprise with a complete supply chain in the the large domestic market. Looking back at the Hong Kong greater health products and services industry. market, Hong Kong experienced four waves of epidemic outbreaks in 2020, and the number of travelers coming to Hong Kong declined dramatically, thus the local retail industry entered into a “cold winter”. Similarly, the Group’s local businesses in Hong Kong also suffered heavy losses and encountered decline in performance. 6 KINGWORLD MEDICINES GROUP LIMITED ANNUAL REPORT 2020 Chairman’s Statement DEVELOPMENT ACHIEVEMENTS the formation of a new pattern of building the Chinese medicine highland, and further promote the high-quality In January 2020, with the outbreak of the Pandemic, development of Chinese medicine; build a batch of Chinese Shenzhen Dong Di Xin Technology Company Limited medicinal materials planting and breeding demonstration (“Dong Di Xin”), a holding subsidiary of the Group, bases featured with the Lingnan characteristics; support the achieved explosive growth in its infrared thermometer Chinese medicine preparation centres of medical institutions business. In April 2020, it became the fourth infrared in Guangdong and Macau to undertake the entrusted thermometer manufacturer in China to be included on the preparation of Chinese medicine preparations from medical “Name List of Medical Devices and Supplies Companies institutions in the Guangdong-Hong Kong-Macau Greater with Certification/Authorisation from other Countries Bay Area; simplify the registration and approval process of “issued by the Ministry