CONTENTS Corporate Information 2 Financial Highlights 4 Chairman’s Statement 5 Management Discussion and Analysis 7 Report of the Directors 24 Corporate Governance Report 39 Corporate Social Responsibility 56 Profiles of Directors, Supervisors and Senior Management 57 Independent Auditors’ Report 63 Consolidated Statement of Profit or Loss and Other Comprehensive Income 70 Consolidated Statement of Financial Position 71 Consolidated Statement of Changes in Equity 73 Consolidated Statement of Cash Flows 75 Notes to Financial Statements 77 Definitions 152 Glossary of Technical Terms 154 CORPORATE INFORMATION BOARD OF DIRECTORS AUDIT COMMITTEE Mr. Shen Hongbo (Chairman) Executive Directors: Ms. You Jie Dr. Hou Yongtai (Chairman) Mr. Chen Huabin Mr. Wu Jianying (General Manager) Mr. Li Yuanxu Mr. Huang Ming (Secretary of the Board) Mr. Zhu Qin Ms. Chen Yiyi Mr. Tang Minjie (Chief Financial Officer) REMUNERATION COMMITTEE Mr. Zhu Qin (Chairman) Non-executive Directors: Mr. Wu Jianying Ms. You Jie Mr. Huang Ming Mr. Gan Renbao Mr. Shen Hongbo Mr. Li Yuanxu Independent Non-executive Directors: Mr. Chen Huabin NOMINATION COMMITTEE Mr. Shen Hongbo Mr. Li Yuanxu (Chairman) Mr. Li Yuanxu Dr. Hou Yongtai Mr. Zhu Qin Ms. You Jie Mr. Wong Kwan Kit Mr. Chen Huabin Mr. Zhu Qin THIRD SESSION OF THE SUPERVISOR COMMITTEE STRATEGY COMMITTEE Mr. Liu Yuanzhong Ms. You Jie (Chairlady) Ms. Yang Qing Dr. Hou Yongtai Mr. Tang Yuejun Mr. Wu Jianying Mr. Wei Changzheng Mr. Huang Ming Mr. Yang Linfeng Mr. Li Yuanxu AUTHORIZED REPRESENTATIVES LEGAL ADVISERS Mr. Huang Ming Tiang & Co. Mr. Chiu Ming King Room 2010, 20/F, Edinburgh Tower JOINT COMPANY SECRETARIES The Landmark Mr. Huang Ming 15 Queen’s Road Central Mr. Chiu Ming King (a fellow member of the Hong Kong Hong Kong Institute of Chartered Secretaries) AUDITORS Ernst & Young Certified Public Accountants 22nd Floor, CITIC Tower 1 Tim Mei Avenue Central, Hong Kong 2 Shanghai Haohai Biological Technology Co., Ltd. CORPORATE INFORMATION HEADQUARTERS AND PRINCIPAL PLACE REGISTERED OFFICE OF BUSINESS IN THE PRC No. 5 Dongjing Road 23/F, WenGuang Plaza, No. 1386 Songjiang Industrial Zone Hongqiao Road, Changning District Shanghai, China Shanghai, China PRINCIPAL BANKERS PRINCIPAL PLACE OF BUSINESS IN Industrial and Commercial Bank of China Ltd. HONG KONG (Xinhua Road Sub-branch, Shanghai) Room 1901, 19/F No. 506 Xinhua Road Lee Garden One Changning District 33 Hysan Avenue Shanghai, China Causeway Bay, Hong Kong Bank of Shanghai, Co., Ltd H SHARE REGISTRAR (Changning Branch, Shanghai) Computershare Hong Kong Investor Services Limited No. 320 Xianxia Road Shops 1712-1716, 17th Floor Changning District Hopewell Centre Shanghai, China 183 Queen’s Road East Wan Chai, Hong Kong INVESTOR ENQUIRIES Investors’ Service Line: (86) 021-52293555 INFORMATION OF H SHARES Fax: (86) 021-52293558 Place of listing: The Main Board of The Stock Website: www.3healthcare.com Exchange of Hong Kong Limited Stock code: 6826 Number of H shares issued: 40,045,300 H shares Nominal value: RMB1.00 per H share Stock short name: HAOHAI BIOTEC Annual Report 2017 3 FINANCIAL HIGHLIGHTS 31 December 31 December 31 December 31 December 31 December 2017 2016 2015 2014 2013 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Results of operation Revenue 1,344,856 851,157 663,917 515,940 401,088 Gross Profit 1,057,389 709,606 558,844 450,057 346,252 Profit before tax 461,621 365,885 320,647 215,616 166,467 Net profit attributable to shareholders of the parent 372,415 305,052 273,474 183,582 141,521 Profitability Gross profit margin 78.6% 83.4% 84.2% 87.2% 86.3% Net profit margin 27.7% 35.8% 41.2% 35.6% 35.3% Earnings per share (RMB) Basic earnings per share* 2.33 1.91 1.86 1.53 1.18 Assets Total assets 4,075,299 3,693,412 2,821,910 751,903 621,178 Total liabilities 708,594 707,552 156,476 157,743 90,600 Total equity attributable to ordinary equity holders of the parent 3,200,562 2,903,992 2,661,911 594,160 530,578 Gearing ratio 17.4% 19.2% 5.5% 21.0% 14.6% * Diluted earnings per share is the same as basic earnings per share as the Group had no potential dilutive ordinary shares in issue during the periods. 4 Shanghai Haohai Biological Technology Co., Ltd. CHAIRMAN’S STATEMENT Dear Shareholders, I herein represent the Group to present the annual performance of the Group for the year ended 31 December 2017. 2017 marked a significant year for the implementation of the spirit of the National Health and Well-being Convention and the “13th Five-Year Plan” for deepening the reforms of the pharmaceuticals and healthcare system. The frequent release of the national medical policies makes the industry face new important opportunities and challenges. During the Reporting Period, the Group recorded aggregate revenue of approximately RMB1,344.86 million, representing an increase of RMB493.70 million, or approximately 58.0%, as compared to that in 2016. During the Reporting Period, the profit attributable to ordinary equity holders of the Company was approximately RMB372.42 million, representing an increase of approximately 22.1% as compared to that in 2016. The amortisation charge attributable to ordinary equity holders of the Company on intangible assets from business acquisition of the Group (after tax) was approximately RMB12.50 million, after excluding the impact of such charge, the profit attributable to ordinary equity holders of the Company was approximately RMB384.92 million, representing an increase of approximately 25.6% as compared to that in 2016. Since 2016, the Group completed a number of acquisitions, including the acquisition of 60% equity interest in Shenzhen NIMO, 100% equity interest in Henan Universe, 100% equity interest in Zhuhai Eyegood and Aaren Business. Following these acquisitions, the Group completed the acquisition of 70% share capital in Contamac Holdings, a UK IOL, ophthalmic materials and technology supplier, during the Reporting Period, which will help the Group to secure long-term and stable upstream material supply and enhance the research and development of new IOL and other ophthalmic products. So far, the Group’s global whole industry chain layout centered on IOL products has been primarily established, which has laid an industry foundation for the long-term growth of the ophthalmic high-valued materials business in the future. On 23 February 2017, the Ministry of Human Resources and Social Security officially issued the 2017 National Reimbursement Drug List (“NRDL”), and upon experts’ appraisal, rhEGF “Healin” was reclassified to Class B medical insurance products by lifting the limitation on the work-related injury insurance products in the 2009 NRDL. Advanced jointly by the favourable policies and the Group’s efforts on marketing, the Group’s revenue from the sales of “Healin” products rapidly increased to approximately RMB53.03 million for the Reporting Period from approximately RMB37.52 million in 2016, representing an increase of 41.3%. During the Reporting Period, our sodium hyaluronate injection product with a new specification of 2.5ml has been approved by the CFDA, making the Group the only enterprise having sodium hyaluronate injection products with full series of specifications of 2ml, 2.5ml and 3ml in the PRC market. The management of the Company believes that the approval of the new specification will help the Group to gain new strengths in the intense market competition. Annual Report 2017 5 CHAIRMAN’S STATEMENT During the Reporting Period, the Group continued to enlarge its R&D investments and focus on the technological innovation. The project on “Research & Development of New Intraocular Lens and High-end Ophthalmic Implant Materials” led by the Group was successfully selected in the National Key Research and Development Programs under the “13th Five-Year Plan”, which will offer in-depth support to the Group on improving the quality and market competitiveness of domestic IOL products and then realizing its strategic plan related to replacing the imported products. As at the date of this annual report, the Company, as the only bio-medicine enterprise in Shanghai, has been included on the Proposed List of National Enterprise Technology Centers released by the National Development and Reform Commission, making the Company the first Shanghai bio-medicine enterprise enlisted ever since 2015. The year of 2018 will still be a year full of challenges, however, we believe that current reforms, enterprises benefiting from the advantage of scale and in possession of advanced technologies, well established brands, marketing competitive edge and industrial integration capabilities will experience invaluable development opportunities. In conclusion, on behalf of the Board, I would like to express the sincere gratitude to our staff and management team, customers and Shareholders for their ongoing support. And we look forward to heading to a new year with fruitful results along with you. Hou Yongtai Executive Director and Chairman of the Board 26 March 2018 6 Shanghai Haohai Biological Technology Co., Ltd. MANAGEMENT DISCUSSION AND ANALYSIS BUSINESS REVIEW AND PROSPECT 2017 marked a significant year for the implementation of the spirit of the National Health and Well-being Convention and the “13th Five-Year Plan” for deepening the reforms of the pharmaceuticals and healthcare system. In 2017, the consecutive introduction of major policies for the pharmaceutical and medical device industry in China since 2015 continued to affect the whole industry, and the reform policies released during the Reporting Period covered almost all of the sub-sectors under the four major sectors including pharmaceuticals, healthcare, medical insurance and circulation, which created severe challenges for the enterprises within the industry, while on the other hand, important develop opportunities also emerged. During the Reporting Period, the Group offered responses to the reforms.