Playing a Unique Role
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Playing A Unique Role Eu Yan Sang International Ltd annual report 2003 OUR VISION OUR MISSION OUR VALUES We want to be a global consumer We care for mankind by helping Humanity healthcare company with a focus our consumers realise good To always reflect respect for in Traditional Chinese Medicine life-long health. human life and care for its and Integrative Healthcare. well being. Quality To offer the highest quality standards in the industry. Progress Seek opportunities to produce new consumer healthcare products and services. Leadership To stay ahead in every aspect of the TCM industry. Contents 1 Corporate Profile 8 Chairman’s Statement 12 Board of Directors 15 Senior Management 19 Corporate Data 20 Group Structure 22 Calendar of Events 24 Operations Review 28 Financial Highlights 29 Corporate Governance 36 Financial Statements 92 Portfolio of Properties 93 Shareholders’ Information 95 Notice of Annual General Meeting 99 Proxy Form CORPORATE PROFILE Listed on the Singapore Exchange, Eu Yan Sang International Limited is a progressive, global healthcare company with its core focus in Traditional Chinese Medicine. Eu Yan Sang dedicates its business to the pursuit of offering the best natural healthcare products and services to its customers. Today, Eu Yan Sang manufactures and markets fine quality, Chinese herbs and medicines under the brand name "Eu Yan Sang". A household name in Asia for over 120 years, Eu Yan Sang has since earned an unrivalled reputation as the leader in the traditional Chinese medicine industry. With its mission "Caring for Mankind", Eu Yan Sang dedicates its business to offer the best natural healthcare products and services to its customers by helping them realise good life-long health. It manufactures, sells prescription and over-the-counter drugs and operates a chain of 11 TCM clinics in Singapore and Malaysia; and seven "YourHealth" Integrative Medicine Centres (IMC) in Australia and Singapore. As a consumer healthcare group, Eu Yan Sang strives to introduce new product formulations and broaden the appeal of its products to a larger segment of consumers through key investments, research partnerships and strategic expansion of its distribution network. The Group currently offers more than 150 products under its "Eu Yan Sang" brand name and over 1,000 different types of Chinese herbs and other medicinal products. Manufacturing facilities are carried out in its three GMP-certified (Good Manufacturing Practice) factories in Hong Kong and Malaysia. It has an extensive distribution network comprising 80 retail outlets in Hong Kong, Malaysia, Singapore and USA. Its products are available in over 5000 drugstores, pharmacies, medical halls, hospitals, supermarkets, chain stores, health clubs, spas and convenience stores worldwide. Its cybershop at www.euyansang.com.sg offers its global customers the ease and convenience of purchasing online. “As our products reach out to more customers than ever, we are becoming part of their lives. With such an avenue, every single customer presents us with an opportunity to make a meaningful difference.” Eu Yan Sang has an extensive distribution network comprising 80 retail outlets in Hong Kong, Malaysia, Singapore and USA. Its products are available in over 5000 drugstores, pharmacies, medical halls, hospitals, supermarkets, chain stores, health clubs, spas and convenience stores worldwide. “Caring, nurturing and forging a human connection is at the heart of everything we do. With this in mind, we are constantly seeking to raise the standards of the TCM industry.” Eu Yan Sang actively participates in joint R&D projects with established research institutions in the region to develop new proprietary products. We recently collaborated with the Baptist University of Hong Kong to publish an academic reference textbook on TCM herbs. “No matter where we are, the same passion, the same care and the same unwavering attention is given to each and every one of our patients. If we didn’t feel so passionately about what we do, we could never be the enduring company that we aspire to be.” Traditional Chinese Medicine (TCM) Clinics and Integrative Medicine Centres (IMC) are a natural extension of our business. We currently operate a total of 11 TCM clinics in Singapore and Malaysia. Integrative medicine clinics are operated under the brand name of ‘YourHealth’. We have 4 IMCs in Australia and 3 IMCs in Singapore. CHAIRMAN’S STATEMENT “Behind every individual need, there’s a Eu Yan Sang.” On behalf of the Board of Directors, The Year In Review After a challenging year in FY2002, I was naturally cautious in my previous report to you. Little did I know that FY2003 would I am pleased to present to turn out to be equally challenging. The year started on a relatively slow note, with consumer sentiment weighed down you the Group’s annual by the sluggish regional economies. The onset of the war in Iraq in early 2003 further dampened consumer sentiment and the outbreak of SARS in Asia shortly thereafter shook the report for the financial retailing industry across the region. year ended 30 June 2003. SARS had a huge impact on retailing in Asia. During the outbreak, tourist travel was sharply reduced, and consumers stayed away from shopping centres. Your Group, with retail outlets in Hong Kong, Singapore and Malaysia, was partially affected by the slowdown. However, the SARS crisis raised the overall health consciousness of consumers and allowed us to demonstrate our responsiveness by delivering a new TCM product quickly to the market. I will elaborate on this, but first let me take you through the Group’s performance in FY2003. Despite challenging market conditions, the Group was able to sustain turnover growth across all business activities and over the region. In a difficult year, the performance of our core Traditional Chinese Medicine (“TCM”) operations had been encouraging. However, our investments in the newer 08 CHAIRMAN’S STATEMENT Menoease and Bak Foong Pills Singapore operations spearheaded growth with turnover rising 29.9% to $25.6 million. Malaysia and Hong Kong turnover grew 14.8% and 2.7% respectively. TCM related activities have yet to bear fruits. In FY2003, conscious efforts to expand the younger English speaking group turnover grew 14% to $110.8 million. Growth was broad segment of our customer base. This is reflected in our advertising, based, with improvement across all key geographical markets. product education, store design, product packaging and new products introduced. Singapore operations spearheaded growth with turnover rising 29.9% to $25.6 million. Malaysia and Hong Kong turnover I am pleased to report that our efforts at reaching out to a wider grew 14.8% and 2.7% respectively. Although the outbreak of segment of consumers have paid off in FY2003. We are seeing SARS in Hong Kong led to higher demand for medicinal herbs, higher traffic of younger English speaking consumers at many the curb in shopping over the period reduced sales of Chinese of our outlets. More importantly, our range of bottled bird’s Proprietary Medicine (“CPM”) and Health Foods. Due to the nest, introduced over two years ago to appeal to a wider opening of two additional Integrative Medicine Centres (“IMCs”) segment of consumers, have done well. In a convenient ready- in Australia, turnover there rose 145.5% to $5.4 million. to-drink-form, our bottled bird's nest have blended very well with Singapore, Malaysia and Australia registered an improvement the busy lifestyle of our customers. In FY2003, sales of our entire in their respective share of group turnover, while Hong Kong, range of bottled bird’s nest have exceeded Bak Foong Pills and still our biggest market, eased from 56.5% to 51.0% of group Bo Ying Compound, our traditional flagship products, and at turnover in FY2003. $13.4 million or 12.1% of group turnover is the best selling product in the Group. This is remarkable for a new product. We have three main business activities: Retail (TCM), The market for bottled bird’s nest in Hong Kong, Singapore Wholesale (TCM & Prescription/OTC) and Clinics, and during and Malaysia is large and we have barely scratched the surface. the year every activity registered growth in turnover. Retailing We are confident of the market potential of our bottled bird’s at $74.7 million remains the largest contributor, accounting for nest and we are working to double the contribution from this 67.4% to group turnover. In the last two years, we have made group of products in the near future. 09 CHAIRMAN’S STATEMENT Telford Plaza, Hong Kong South Bridge Road, Singapore Elixir, Hollywood and Highland Centre, USA We will continue to expand our distribution network by adding new retail outlets in areas of high consumer traffic in our key markets. With core TCM operations performing satisfactorily, our gross were distributed free of charge to healthcare workers in profit grew 10.7% to $55.6 million. Gross profit margin eased Hong Kong at the height of the outbreak. During this period, from 51.7% to 50.2% due mainly to a change in product mix, we donated packets of TCM herbal tonic to the staff of five higher costs of TCM herbs during the SARS outbreak and higher hospitals in Singapore. production costs following the upgrading of our factories in Hong Kong. Our recent investments in TCM related activities Our collaboration with the Baptist University of Hong Kong in are still at the incubation stage. In particular, two such investments studying the authenticity and efficacy of TCM herbs has resulted have dragged down group performance in FY2003: in the publication of an academic reference textbook on TCM a $0.7 million provision for goodwill impairment in associate herbs entitled “An Illustrated Chinese Materia Medica in Botanical Health Resources Inc., and $2.9 million provision for Hong Kong”.