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Annual Report 2018 中 國 中 中國中藥控股有限公司 藥 控 股 有 限 公 司 年報 2018 2018 ANNUAL REPORT 2018 年報 China Traditional Chinese Medicine Holdings Co. Limited Co. Holdings Medicine Chinese Traditional China 2018 Annual Report Annual Contents Corporate Information 2 Five Year Financial Summary 3 Chairman’s Statement 5 Management Discussion and Analysis 9 Report of the Directors 30 Corporate Governance Report 52 Biographical Details of Directors and Senior Management 71 Independent Auditor’s Report 77 Consolidated Statement of Profit or Loss and Other Comprehensive Income 83 Consolidated Statement of Financial Position 84 Consolidated Statement of Changes in Equity 86 Consolidated Statement of Cash Flows 87 Notes to the Consolidated Financial Statements 89 Corporate Information BOARD OF DIRECTORS STRATEGIC COMMITTEE Executive Directors Mr. WU Xian (Chairman) Mr. WANG Xiaochun Mr. WU Xian (Chairman) Mr. YANG Wenming Mr. WANG Xiaochun (Managing Director) Mr. YU Tze Shan Hailson Mr. YANG Wenming Mr. QIN Ling Non-executive Directors REGISTERED OFFICE Room 1601, Emperor Group Centre Mr. YANG Shanhua 288 Hennessy Road Ms. LI Ru Wanchai Mr. YANG Binghua Hong Kong Mr. WANG Kan Mr. KUI Kaipin Tel: (852) 2854 3393 Independent Non-executive Directors Fax: (852) 2544 1269 Email: [email protected] Mr. XIE Rong Mr. YU Tze Shan Hailson STOCK CODE Mr. QIN Ling The shares of China Traditional Chinese Medicine Co. Mr. LI Weidong Limited are listed on The Stock Exchange of Hong Kong Limited JOINT COMPANY SECRETARIES Stock code: 00570 Mr. ZHAO Dongji Ms. LEUNG Suet Lun AUDITORS AUDIT COMMITTEE Deloitte Touche Tohmatsu Certified Public Accountants Mr. XIE Rong (Chairman) 35/F., One Pacific Place Mr. YU Tze Shan Hailson 88 Queensway Mr. YANG Shanhua Hong Kong Mr. QIN Ling Mr. LI Weidong SHARE REGISTRAR AND TRANSFER REMUNERATION COMMITTEE OFFICE Computershare Hong Kong Investor Services Limited Mr. QIN Ling (Chairman) Shops 1712-1716 Mr. YANG Shanhua 17th Floor, Hopewell Centre Mr. XIE Rong 183 Queen’s Road East Mr. YU Tze Shan Hailson Wan Chai Mr. LI Weidong Hong Kong NOMINATION COMMITTEE PRINCIPAL BANKERS Mr. WU Xian (Chairman) Bank of China (Hong Kong) Limited Mr. WANG Xiaochun China Merchants Bank Co., Ltd. (Foshan Branch) Mr. YANG Wenming Guangdong Shunde Rural Commercial Bank Co., Ltd. Mr. XIE Rong Industrial and Commercial Bank of China Limited Mr. YU Tze Shan Hailson (Foshan Branch) Mr. QIN Ling Mr. LI Weidong WEBSITE http://www.china-tcm.com.cn 2 China Traditional Chinese Medicine Holdings Co. Limited Five Year Financial Summary (Expressed in RMB) 2014-2018 Compound 2014 2015 2016 2017 2018 Annual RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Growth Rate Results Revenue 2,650,454 3,709,406 6,532,867 8,337,795 11,258,941 43.56% Gross profit 1,643,389 2,200,673 3,787,680 4,651,582 6,193,573 39.33% Profit from operations 551,696 760,978 1,376,783 1,786,453 2,156,025 40.60% Profit before taxation 489,119 689,160 1,303,804 1,567,237 1,856,697 39.58% Profit attributable to the shareholders of the Company 413,090 625,596 966,927 1,170,434 1,439,018 36.62% Profitability Gross profit margin 62.00% 59.33% 57.98% 55.79% 55.01% Operating profit margin 20.82% 20.51% 21.07% 21.43% 19.15% Net profit margin 15.53% 17.36% 16.63% 15.73% 13.92% Earnings per share Basic & Diluted 16.30 cents 16.97 cents 21.73 cents 26.41 cents 29.84 cents 16.32% Financial position Total assets 5,331,852 19,208,676 21,036,784 24,885,307 30,287,390 Total equity attributable to equity shareholders of the Company 3,183,756 11,133,372 11,588,327 12,436,778 15,551,433 Total liabilities 2,074,730 7,068,463 8,280,922 11,070,050 12,776,819 Bank balances and cash 439,416 2,101,856 2,373,356 4,787,781 6,349,714 Debt asset ratio 38.91% 36.80% 39.36% 44.48% 42.19% ANNUAL REPORT 2018 3 Five Year Financial Summary (Expressed in RMB) REVENUE GROSS PROFIT RMB’000 RMB’000 Annual Growth of 2017-2018 Annual Growth of 2017-2018 35.03% 33.15% 11,258,941 6,193,573 8,337,795 4,651,582 6,532,867 3,787,680 3,709,406 2,200,673 2,650,454 1,643,389 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 PROFIT ATTRIBUTABLE TO THE TOTAL ASSETS SHAREHOLDERS OF THE COMPANY RMB’000 RMB’000 Annual Growth of 2017-2018 Annual Growth of 2017-2018 22.95% 21.71% 1,439,018 30,287,390 1,170,434 24,885,307 966,927 21,036,784 19,208,676 625,596 413,090 5,331,852 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 4 China Traditional Chinese Medicine Holdings Co. Limited Chairman’s Statement Chairman’s Statement ANNUAL REPORT 2018 5 Chairman’s Statement Dear shareholders, The year 2018 was an extraordinary one. With strong support from our shareholders, China Traditional Chinese Medicine Holdings Co. Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) implemented a five-year strategic plan of “building a comprehensive, sustainable and cooperative traditional Chinese medicine (“TCM”) industrial chain, and becoming a leading TCM healthcare complex group in the industry”. A good start was achieved, adding value to the value chain and laying a solid foundation for the Group’s steady development. On behalf of the Board, I would like to express my sincere gratitude to all for your sincere dedication and encouragement. In 2018, the global environment changed in ways that were impossible to predict. A US-China trade war and various regional geopolitical risks created uncertainty in the world economy and led to significant fluctuation across the major stock markets. At the same time, it was a challenging year for the pharmaceutical industry. Despite the growing demand for healthcare in the PRC, cost control became more stringent on medical insurance reimbursements. These changes of national policies had led to dramatically shift on the industry development strategy and the competitive landscape. As benefited from favorable national policies to TCM industry and the trend of TCM modernization, the Group continued to follow its current development strategies while making adjustments to its operational strategies, boosting its production and operational efficiency, and promoting high-quality economic development. All of these measures helped the Company’s results to maintain a continuous rapid growth. During the Reporting Period, the Group’s revenue was RMB11,258,941,000, representing a 35.0% increase from the previous year’s RMB8,337,795,000. The board (the “Board”) of directors (“Directors”) of the Company recognizes the shareholders’ full support by recommending the distribution of a final dividend of HK5.51 cents per share (approximately RMB4.71 cents) for the year ended 31 December 2018, with a payout ratio of 35.0% for the year. Throughout the development history of the Group, it is a process of win-win combination of advantages and mergers and acquisitions. In a number of major mergers, the Board has demonstrated an excellent ability to rapidly understand and respond to the market and execute plans efficiently, which has facilitated the development of the Group’s TCM healthcare complex segment in a rapid manner. Since 2018, the Group has gradually shifted its principal direction from external mergers and acquisitions to strengthening its organic development. In response to internal and external environmental changes, and in order to exploit the resource advantages of the China National Pharmaceutical Group Corporation (“CNPGC”) and strengthen the Group’s four major segments (concentrated TCM granules, TCM decoction pieces, finished drugs and healthcare complex), the Company entered into cooperation with Boston Consulting Group (“BCG”) in October 2018. The measure was taken with the aim of comprehensively rationalizing the Group’s businesses and advantages, identifying the Group’s management conditions and organization structure, devising new management model and a new decision-making mechanism, and implementing strategies for future development. The Company believes that with the help of a leading international consulting company, a strategic analysis and rationalization model, and a strategic goal decomposition calculation method for its strategic management work, its decision-making body will be able to deliver more clear and accurate quantitative results for strategic management. In this way, its business and organization structure will be solidly founded and its direction of development clearly defined, leading to a comprehensively enhanced core competitiveness of the Company in the modern TCM industry. 6 China Traditional Chinese Medicine Holdings Co. Limited Chairman’s Statement STRENGTHENING UPSTREAM AND DOWNSTREAM EXTENSIONS OF THE Industrial Chain, Supporting the Principle “Consolidated HoriZontal AND VERTICAL DEVELOPMENT” In 2018, based on the Board’s development strategy and plans for the Group’s four major business segments, the Group made great efforts to strengthen upstream and downstream extensions of the entire TCM industrial chain under the principle “consolidated horizontal and vertical development”. For upstream business, the Group integrated local Chinese medicinal herbs resources and constructed a standardized TCM industrial chain that extends from seed breeding, plantation and initial processing to logistics and warehousing. This was achieved through developing Chinese medicinal herbs plantation bases, creating a source tracking system for the quality of local Chinese medicinal herbs, and a Chinese medicinal herb dictionary. By taking these actions, the Group established a foundation for implementing quality and cost control on bulk Chinese medicinal herbs. For midstream business, the Company fully seized the window period before the implementation of the market open-up policy, and accelerated the production plan of TCM decoction pieces and concentrated TCM granules across the country.
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