Interim Results
Hutchison China Meditech Limited
09 August 2006
For Immediate Release
Hutchison China MediTech Limited ('Chi-Med') (AIM: HCM)
Financial Results for the Six Months Ended 30 June 2006
Strong Growth. Positive Outlook.
• Promising drug discovery and clinical programs
• Group sales up 86% to $32 million+
• Gross profit up 75% to $19.4 million
• Adjusted loss before tax improved 31% to $1.9 million
• Cash and cash equivalents totalled $72.6 million
London: Wednesday, 9 August 2006: Chi-Med today announces its financial results
for the six months ended 30 June 2006, the first results of Chi-Med since its
listing on AIM in May 2006.
Chi-Med is a pharmaceutical and healthcare group based primarily in China. It
focuses on researching, developing, manufacturing and selling pharmaceuticals,
health supplements and other consumer health and personal care products derived
from Traditional Chinese Medicine ('TCM') and botanical ingredients. It has
three businesses: Drug Research and Development ('R&D'); China Healthcare; and
Consumer Products. Its aim is to become a major player in the global
pharmaceutical and consumer healthcare markets.
Sales for the six months increased by 86% to $32 million (2005: $17.2m) driven
primarily by strong organic growth and the full period impact of Hutchison
Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited ('HBYS') joint
venture in the China Healthcare operations.
Gross profit increased 75% to $19.4 million (2005: $11.1m) with selling expenses
falling to 42.1% of sales (2005: 52.1%) as a result of increased scale from
HBYS.
Operating profitability of the China Healthcare business grew to $1.9 million,
compared to a $0.1 million loss for the same period in 2005. The China
Healthcare operating profits partially offset increased investment in Chi-Med's
Drug R&D operations. Investment continued as planned in Drug R&D behind
expansion of the research team and new drug discovery operations, as well as
progress of US and China clinical trials on both HMPL-002 (cancer) and HMPL-004
(inflammatory bowel disease).
Administrative expenses across the group rose to 29.2% of sales (2005: 28.6%) as
a result of costs associated with the employee share option scheme and relating
to Chi-Med's being a publicly traded company ($1.0 million).
The adjusted loss before taxation (before amortization, share option charges and
expenses associated with the listing) improved to -$1.9 million (2005: -$2.7m).
Loss to equity holders of Chi-Med rose to $3.8 million (2005: $2.9m).
Cash and cash equivalents at the end of the period totalled $72.6 million (2005:
$5.5m), following the raising of $69.8 million net proceeds from the placing of
Chi-Med shares and the listing. Net cash (outflow)/inflow from operating
activities was $(3.9) million (2005: $1.1m) due to an increase in short term
transaction related payables on the acquisition of HBYS.
Commenting, Christian Hogg, CEO of Chi-Med, said:
'Chi-Med has had a very successful first half, and looks forward to making
further substantial progress during the rest of the year.
Our China Healthcare business continues to benefit from strong growth in demand
for TCM products, both over the counter and prescription, and we continue to
out-perform overall China market growth. The policy changes introduced by
China's State Food and Drug Administration which we reported earlier should only
have a short term impact,and expectations of continuing positive progress remain
unchanged.
Our core drug research and development business is growing in scale. Its
clinical trials in auto-immune disease and cancer are progressing well, with the
latter now enabled by the US Food and Drug Administration to widen its IND
protocol to include platinum-based chemoradiotherapy, thereby increasing its
market potential by five times or more. During the first half of the year, our
screening has led to four new lead candidates and five qualified hits in the
oncology and auto-immune disease fields. We have now begun to explore drug
research collaborations with major global pharmaceutical groups and are meeting
with a high level of interest.
Sen, our consumer products brand, more than quadrupled sales, with same store
sales up 21%, and we continue to explore avenues to accelerate growth, including
partnerships with large scale international consumer groups.
We remain convinced of the major reservoir TCM represents for developing new
drugs and health and wellness consumer products for the global market. Our
flotation was a milestone, which has provided additional funding for drug
research and development and enabled our important equity incentive plan for key
employees. We look forward to making further substantial progress in the second
half.'
An analyst presentation will be held at 9.30am today at Citigate Dewe Rogerson,
3 London Wall Buildings, London, EC2M 5SY.
The interim results statement is available on the website of Chi-Med:
www.chi-med.com
* The Traditional Chinese Medicine Industry is defined as raw TCM herbs and
State Food & Drug Administration registered TCM health foods, OTC drugs, and
prescription drugs. Source: China Pharmaceutical Statistical Yearbook
1999-2004. 2005 data not yet published.
+ In US dollar currency unless stated otherwise.
Enquiries
Chi-Med
Christian Hogg, CEO Telephone: August 9: +44 (0) 20 7638 9571
www.Chi-Med.com
Citigate Dewe Rogerson Telephone: +44 (0) 20 7638 9571
Anthony Carlisle (07973 611 888)
Chris Gardner (07903 737 649)
Yvonne Alexander (07866 610682)
INTRODUCTION
In 1999 Hutchison China MediTech Limited ('Chi-Med') identified a major
opportunity to modernise and globalise the Traditional Chinese Medicine ('TCM')
industry*. In China this industry* is estimated at over $15 billion+ annually
and is growing rapidly with the expansion of the Chinese economy. Outside China
however, the TCM industry is a fraction of the size and remains largely
undeveloped and unexplored.
During the past six years, Chi-Med has established operations aimed at drawing
upon the untapped wealth of knowledge and history of usage in the China TCM
industry to develop pharmaceuticals and consumer products for the global market.
Through its three core business units: Drug R&D; China healthcare; and consumer
products, Chi-Med is now positioned to unlock the global potential of the TCM
industry, thereby delivering high-growth and ultimately achieving the vision of
becoming a major player in the global pharmaceutical and consumer products
businesses.
YEAR TO DATE RESULTS
• Chi-Med sales up 86% to $32 million (2005: $17.2m); loss attributable
to equity holders to $3.8 million (2005: $2.9m)
• Drug R&D investment increased behind expansion of the research team and
new drug discovery operations, as well as progress of US and China clinical
trials on both HMPL-002 (cancer) and HMPL-004 (inflamatory bowel disease);
operating loss increased to $3.3 million (2005: $2.1m)
• China healthcare sales up 84% to $31.1 million (2005: $16.9m) due to full
period consolidation and post joint venture growth of HBYS; operating
profit $1.9m (2005: -$0.1m)
• Consumer products sales up 257% to $0.9 million (2005: $0.2m) with
expansion of Sen retail outlets and operating losses being tightly
controlled to $0.48 million (2005: $0.52m).
• £40m ($75.2m) gross fundraising from placement of new shares at IPO.
CHAIRMAN'S STATEMENT
We are delighted to report our first financial period as a publicly traded
company following our IPO in May 2006.
Our vision is simple; our intention is to become a major player in the global
pharmaceutical and consumer products businesses.
Strategically, we believe that the enormous TCM industry in China represents a
reservoir of pharmaceutical activity and proven safety from which we could
develop new drugs, and a breeding ground for highly attractive health and
wellness based global consumer products and concepts.
We believe that the decades of success that Hutchison Whampoa Limited has
enjoyed in China is an advantage for Chi-Med in the race to explore and
commercialise the pharmaceutical and consumer products opportunities that we are
discovering in the TCM industry.
In May 2006, Chi-Med was admitted to trading on the Alternative Investment
Market ('AIM') in London. We did this at a relatively early stage in Chi-Med's
development, in order to create independence, a higher profile, and provide a
currency, in the form of the share option scheme, to retain key personnel.
The promise of the share option scheme, as set out in the admission document,
has been used to attract key staff during the past six years. The exercise price
of 109p is a discount of 60% versus the 275p admission price. This one-time
discount is recognition for the work of the past six years; future options will
be granted at market price. The share option scheme is limited to no more than
5% of the enlarged capital of Chi-Med. The cost of options outstanding is $5.4
million over the following three years.
In addition to completing the IPO, we have delivered strong results on our three
core businesses.
Financial review
Sales for the six months to 30 June 2006 were $32 million (2005: $17.2m), an
increase of 86%. This was driven primarily by the fast growth and full-period
impact of the successful HBYS joint venture that commenced operations in May
2005.
Gross profit for the period was $19.4 million (2005: $11.1m). Selling expenses
as a percentage of sales dropped to 42.1% (2005: 52.1%) as a result of the
increased scale from HBYS. Administrative expenses as a percentage of sales
rose to 29.2% (2005: 28.6%) as a result of accounting for our employee share
option scheme and expenses resulting from being a publicly traded company. Loss
attributable to equity holders of Chi-Med grew 29% to -$3.8 million (2005:
-$2.9m).
During the period we continued to grow operating profitability on the China
healthcare business to $1.9 million (2005: -$0.1m) in line with our strategy of
using China healthcare operating profits to partially offset operating losses on
our Drug R&D operations (up 55% to -$3.3 million; 2005: -$2.1m).
The impact of the employee share option scheme of Chi-Med, as well as expenses
resulting from being a publicly traded company began to be felt in the period
with expenses of $1.0 million (2005: $0). Adjusted loss before taxation
(before amortisation, share option charges, and the expenses referred to above)
was reduced by 31% to -$1.9 million (2005: -$2.7m).
Cash and Financing
In May we raised $75.2 million ($70.1m net of expenses) by the issue of
14,545,454 new ordinary shares at an issue price of 275 pence through an IPO on
AIM in London. Our net cash outflow from operating activities during the period
was -$3.9 million (2005: inflow of $1.1m due to an increase in short-term
transaction related payables on the HBYS joint venture). Cash and cash
equivalents at the end of the period totalled $72.6 million (2005: $5.5m) and
are sufficient to fund Drug R&D operations, one or more China healthcare
acquisitions; and the expansion of the Sen consumer products business in the
following three years.
Outlook
We are very excited and confident about the future prospects of Chi-Med. With
the full support of Hutchison Whampoa and its unrivalled goodwill, experience,
and capabilities throughout China, Chi-Med hopes to be well positioned to secure
attractive positions in joint ventures in the China healthcare industry and to
realise synergy and rapid growth from these activities. Our strong management
and R&D team are also well placed to capitalise on the substantial growth
potential in the global pharmaceutical and consumer products businesses.
I would like to express my deep appreciation for the support of our investors,
directors, and partners and for the commitment and dedication of Chi-Med's
management and staff.
Simon To, Executive Chairman, 8 August 2006
CEO'S REVIEW OF OPERATIONS
We are pleased to present the review of our three core operating businesses:
Drug R&D; China healthcare; and consumer products for the period ended 30 June
2006.
Drug R&D
Chi-Med has continued to increase investment in Drug R&D operations in line with
our agreed discovery and development plans. As a result, the operating losses of
Hutchison MediPharma Limited ('HMPL') increased 55% to -$3.3 million (2005:
-$2.1m). The IPO and employee share option scheme have enabled Chi-Med to
fulfil promises made during the recruitment of our team of extraordinarily
experienced Drug R&D personnel from big Pharma and Biotech companies in the
United States. These key personnel have helped develop HMPL into a highly
sophisticated and productive single molecular entity discovery and development
operation.
During the first six months of 2006, the 94-person research team of HMPL (17
PhD; 45 Master; and 23 Bachelor level) continued to build new global standard in
vitro assay platforms (to a total of 42) and in vivo models (a total of 58) in
the oncology and auto-immune areas. HMPL performed thousands of assays in
screening substances for activity, most of which were single entities either
synthesized or isolated from botanical and TCM sources by HMPL. This screening
identified over 150 hits, which in turn has led to four new lead candidates and
five new qualified hits (i.e. robust IP) in the fields of oncology and
auto-immune disease.
On the development side, HMPL is progressing well. Clinical trials on
HMPL-002, a cancer product, in the United States (head & neck cancer) and
China (non-small cell lung cancer) progress to plan. As recently announced, the
US Food and Drug Administration has allowed HMPL to amend the HMPL-002 protocol
to include its use in combination with platinum-based chemoradiotherapy versus
the previous plan of radiotherapy alone. This will increase HMPL-002 market
potential at least five-fold.
Clinical trials on HMPL-004, an inflammatory bowel disease product, in the
United States (Crohn's disease) and China (ulcerative colitis), are ahead of
recruitment targets with lower than anticipated dropout rates.
It should be noted, HMPL's current monthly cash burn of approximately $0.7
million ($0.3m discovery/pre clinical; $0.2m clinical; and $0.2m overhead and
depreciation) is extremely low for a 94-person team with the qualification
profile and discovery and development productivity that HMPL has shown during
the period. Being based in China is a major cost advantage for HMPL.
We have begun to explore HMPL drug research collaborations with big Pharma and
have been met with a high level of interest.
China Healthcare
During the period, the China healthcare business of Chi-Med displayed continued
overall strength with sales growth of 84% to $31.1 million (2005: $16.9m).
Operating profit grew to $1.9 million (2005: - $0.1m).
Looking at the market more broadly, the fragmented TCM industry* in China grew
at over 20% per annum from 2001 to 2004. The industry is set for continued
growth of a similar magnitude for the foreseeable future driven by expansion in
the Chinese economy and mandatory employee insurance programmes that reimburse
the cost of healthcare.
During the period, two State Food and Drug Administration (SFDA) policy shifts
were imposed on the China healthcare business: one limiting reimbursement of
Sheng Mai injection to emergency use and one banning the use of medical
representatives in hospitals.
These policy shifts are not of long-term concern to Chi-Med. Sheng Mai is a
relatively small part of our business with sales of $0.5 million during the
period (2005: $0.7m) or only 1.6% of total sales.
Furthermore, the medical representative policy shift has affected all companies
in the prescription drug industry, thereby challenging Shanghai Hutchison
Pharmaceuticals Limited ('SHPL') in the short-term to re-tool its commercial
model, but not presenting SHPL with a long-term issue. China is a rapidly
developing healthcare market where regulatory change is normal. To succeed we
will react quickly to change by exploiting our experience in the China market,
as well as protecting ourselves with an increasingly diversified product
portfolio.
During the period, HBYS, our joint venture which began operations in May 2005,
has performed well with May-June 2006 sales up 20% to $5.4 million (2005:
$4.5m). Sales for the period grew 22% to $19.1 million (2005: $15.7m
unaudited). HBYS is proof of Chi-Med's ability to secure fast growth,
profitable joint ventures in China healthcare.
SHPL succeeded in holding flat, with sales down only 2% to $5.8 million (2005:
$6.0m), despite the emerging impact of the two SFDA policy shifts. SHPL is a
business with very high potential due to its main product, She Xiang Bao Xin
pill ('SXBXP'), which has grown 18% compound annually in the past four years.
Underlying in-market consumption of SXBXP during the period grew 16% to $4.8
million (2005: $4.1m) far exceeding invoice sales of $4.2 million. This healthy
in-market consumption exists in both hospitals (up 14% to $3.5 million) and in
drugstores (up 20% to $1.3 million).
Hutchison Healthcare Limited ('HHL'), Chi-Med's health food business performed
below expectations during the period after an average of 71% growth on our main
product, Nao Ling Tong capsule ('NLT'), in each of the past two years. While
NLT still has major expansion potential, we will continue to expand our product
portfolio to reduce reliance on any one product. The expansion of the Zhi Ling
Tong ('ZLT') infant nutrition line and the launch of two new schools channel
products (Health Goal growth liquid and NLT 1+1+1 study driving force) in 2006
are expected to help to HHL's growth.
Chi-Med is in negotiations with multiple China healthcare joint venture targets.
Our hope is to replicate, potentially on a larger scale, the success of the
HBYS deal.
Consumer Products
Sales in Chi-Med's consumer products business, Sen Medicine Company Limited ('
Sen'), have grown 257% to $0.9 million (2005: $0.2m). Operating losses are down
8% to -$0.48m (2005: -$0.52m). Same store sales (for stores open more than one
year) increased 21% during the period compared to the same period in 2005. This
gives us confidence to open more stores in London starting with a 900 sq.ft.
store-in-store in Harvey Nichols in Knightsbridge in September 2006.
The May 2006 launch of a new range of high-end Sen skin care products has been
well received and represents a good opportunity to broaden distribution to third
party retailers.
We continue to explore avenues to accelerate growth on Sen including
partnerships with large-scale global consumer products groups.
Outlook
Our China healthcare business is a solid, fast growth unit. We hope to grow
faster than the industry's 20% per annum through further joint ventures and the
commercial synergies that will come from consolidation. This we feel is
conservative given that we saw 67% compound annual growth from 2003 through
2005.
We have a very strong track record in China M&A. We know how to identify,
acquire, integrate, and modernise China healthcare targets. We are now working
on several potential joint ventures that we expect will create value for
Chi-Med.
The Drug R&D business is a long-term project and although costs are very tightly
controlled, represents a major investment for Chi-Med. We continue to believe
this investment is justified given our world-class team and the major cost
advantages that come from being based in China. HMPL has a strong track record
of efficient productivity in oncology and auto-immune new drug discovery. We
expect to validate our position in these areas by entering collaborations with
big Pharma.
On the development front, we expect our clinical trials on HMPL-002 and HMPL-004
in the US and China to stay on course with respect to recruitment, treatment,
and out-licensing revenue post US Phase II clinical trials.
Our consumer products business will continue to grow through store expansion.
Our focus will continue to be establishment of the Sen brand in the London and
UK markets.
Chi-Med has a very solid foundation of operations that are the result of over
six years hard work. This foundation in Drug R&D; China healthcare; and
consumer products, represents an ideal spring board for fast growth. We are
confident that Chi-Med will achieve a great deal in the coming years.
Christian Hogg, Chief Executive Officer, 8 August 2006
HUTCHISON CHINA MEDITECH LIMITED
CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2006
Unaudited
Six months period ended 30 June
Note 2006 2005
US$'000 US$'000
Sales 4 31,999 17,174
Cost of sales (12,615) (6,090)
Gross profit 19,384 11,084
Selling expenses (13,461) (8,953)
Administrative expenses (9,332) (4,908)
Other net operating income 5 506 272
Operating loss 6 (2,903) (2,505)
Finance costs 7 (189) (240)
Share of results of an associate - (7)
Loss before taxation (3,092) (2,752)
Taxation charge 8 - (140)
Loss for the period (3,092) (2,892)
Attributable to:
Minority interests 681 32
Equity holders of the Company (3,773) (2,924)
(3,092) (2,892)
US$ US$
per share per share
Loss per share 9 (0.3101) (1,462,000)
The notes on pages 11 to 22 are an integral part of these condensed interim
accounts.
HUTCHISON CHINA MEDITECH LIMITED
CONDENSED CONSOLIDATED BALANCE SHEET
AS AT 30 JUNE 2006
Unaudited Audited
Note 30 June 31 December
2006 2005
US$'000 US$'000
ASSETS
Non -current assets
Property, plant and equipment 10 22,380 22,012
Leasehold land prepayments 4,149 4,085
Intangible assets 6,820 6,810
Other non-current assets 124 -
33,473 32,907
Current assets
Inventories 8,657 8,678
Trade receivables 13 18,699 12,864
Other receivables and prepayments 2,145 2,239
Amounts due from related parties 13 487 577
Cash and cash equivalents 72,613 5,617
102,601 29,975
Total assets 136,074 62,882
EQUITY
Capital and reserves attributable to the Company's equity
holders
Share capital 11 51,212 -
Reserves 54,905 (33,670)
106,117 (33,670)
Minority interests 6,393 5,661
Total equity/(deficits) 112,510 (28,009)
LIABILITIES
Current liabilities
Trade payables 13 4,061 3,938
Other payables and accruals 11,466 8,103
Amounts due to related parties 13 575 71,465
Short-term bank loans 7,462 7,385
Total liabilities 23,564 90,891
Total equity and liabilities 136,074 62,882
The notes on pages 11 to 22 are an integral part of these condensed interim
accounts.
HUTCHISON CHINA MEDITECH LIMITED
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2006
Unaudited
Attributable to equity holders of the Company
Share Share Share- Exchange Accumu- Minority Total
capital premium based reserve lated interests
compensa- losses
tion
reserve
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
As at 1 January - - - (31) (27,368) - (27,399)
2005
Currency - - - (43) - - (43)
translation
differences
(Loss)/profit for - - - - (2,924) 32 (2,892)
the period
Reserves - - - 38 - - 38
transferred to
income statement
upon disposal of a
subsidiary
As at 30 June - - - (36) (30,292) 32 (30,296)
2005
As at 1 January - - - 475 (34,145) 5,661 (28,009)
2006
Currency - - - 411 - - 411
translation
differences
(Loss)/profit for - - - - (3,773) 681 (3,092)
the period
Issue of shares 51,212 91,510 - - - - 142,722
(Note 11)
Acquisition of a - - - 51 51
subsidiary by a
jointly controlled - -
entity
Employee share - - 427 - - - 427
option benefits
As at 30 June 51,212 91,510 427 886 (37,918) 6,393 112,510
2006
The notes on pages 11 to 22 are an integral part of these condensed interim
accounts.
HUTCHISON CHINA MEDITECH LIMITED
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2006
Unaudited
Six months period ended 30 June
Note 2006 2005
US$'000 US$'000
Cash flows from operating activities
Cash (used in)/generated from operations 12 (4,060) 1,262
Interest received 325 82
Interest paid (189) (240)
Net cash (outflow)/inflow from operating activities (3,924) 1,104
Cash flows from investing activities
Purchase of property, plant and equipment (1,406) (515)
Purchase of intangible assets (43) -
Addition of other non-current assets (124) -
Net capital injection in the formation of jointly - (11,675)
controlled entities
Acquisition of a subsidiary by a jointly controlled (4) -
entity
Disposal of a subsidiary - (14,518)
Net cash used in investing activities (1,577) (26,708)
Cash flows from financing activities
Increase in loans from immediate holding company 2,479 15,213
Repayment of short-term bank loans - (302)
Issue of shares, net of share issuance costs 70,109 -
Net cash generated from financing activities 72,588 14,911
Net increase/(decrease) in cash and cash equivalents 67,087 (10,693)
Cash and cash equivalents at beginning of period 5,617 16,274
Exchange differences (91) (75)
Cash and cash equivalents at end of period 72,613 5,506
The notes on pages 11 to 22 are an integral part of these condensed interim
accounts.
HUTCHISON CHINA MEDITECH LIMITED
NOTES TO THE CONDENSED INTERIM ACCOUNTS
1 General information
Hutchison China MediTech Limited (the 'Company') and its subsidiaries (together
the 'Group') are principally engaged in the manufacturing, distribution and
sales of traditional Chinese medicine ('TCM') and healthcare products. The Group
is also engaged in carrying out pharmaceutical research and development. The
Group has manufacturing plants in Shanghai and Guangzhou in the People's
Republic of China (the 'PRC') and sells mainly in the PRC and the United Kingdom
(the 'UK').
The Company was incorporated in the Cayman Islands on 18 December 2000 as an
exempted company with limited liability under the Companies Law (2000 Revision),
Chapter 22 of the Cayman Islands. On 4 August 2005, the Company changed its
name from Hutchison Global MediTech Limited to Hutchison China MediTech Limited.
The address of its registered office is Ugland House, P.O Box 309, George Town,
Grand Cayman, Cayman Islands, British West Indies.
The Company's ordinary shares were admitted to trading on the Alternative
Investment Market operated by the London Stock Exchange ('AIM'). These
condensed interim accounts are presented in thousands of United States Dollars
('US$'000'), unless otherwise stated, and was approved for issue by the Board of
Directors on 8 August 2006.
2 Basis of preparation
The Company has a financial year end date of 31 December. These
condensed interim accounts for the six months period ended 30 June 2006 has been
prepared in accordance with International Accounting Standard 34, 'Interim
financial reporting'. In connection with the Company's admission on AIM (the '
Admission'), the Company issued an admission document (the 'Admission Document')
on 10 May 2006 and an accountants' report (the 'Accountants' Report') is
included in the Admission Document. These condensed interim accounts should be
read in conjunction with the financial information of the Group for the year
ended 31 December 2005 as set out in the Accountants' Report.
3 Accounting policies
The accounting policies adopted are consistent with those used in the
Accountant's Report. The following amendments to standards and interpretations
are mandatory for financial year ending 31 December 2006.
IAS 19 (Amendment) Actuarial Gains and Losses, Group Plans and
Disclosures
IAS 21 (Amendment) Net Investment in a Foreign Operation
IAS 39 (Amendment) Cash Flow Hedge Accounting of Forecast
Intra-group Transactions
IAS 39 (Amendment) The Fair Value Option
IAS 39 and IFRS 4 (Amendment) Financial Guarantee Contracts
IFRS 1 and IFRS 6 (Amendment) First-time Adoption of International Financial
Reporting Standards and Exploration for and
Evaluation of Mineral Resources
IFRIC 4 Determining whether an Arrangement contains a
Lease
IFRIC 5 Rights to Interests Arising from Decommissioning,
Restoration and Environmental Rehabilitation
Funds
IFRIC 6 Liabilities arising from Participating in a
Specific
Market - Waste Electrical and Electronic
Equipment
The adoption of the above amendments to standards and interpretations did not
have any significant financial impact to the Group.
HUTCHISON CHINA MEDITECH LIMITED
NOTES TO THE CONDENSED INTERIM ACCOUNTS
4 Segment information
The Group is principally engaged in the manufacturing, distribution and sales of
traditional Chinese medicine and healthcare products. The Group is also engaged
in carrying out pharmaceutical research and development.
Business segments Drug China Consumer Corporate Total
Six months period research healthcare products unallocated
ended 30 June 2006 and expenses
development
US$'000 US$'000 US$'000 US$'000 US$'000
Sales - 31,129 870 - 31,999
Operating profit/ (3,255) 1,871 (480) (1,039) (2,903)
(loss)
Business segments Drug China Consumer Corporate Total
Six months period research healthcare products unallocated
ended 30 June 2005 and expenses
development
US$'000 US$'000 US$'000 US$'000 US$'000
Sales - 16,930 244 - 17,174
Operating profit/ (2,098) (95) (523) 211 (2,505)
(loss)
Note:
(a) Included in the corporate unallocated expenses for the six months period
ended 30 June 2006 were share-based compensation expenses of US$427,000
(2005: Nil).
HUTCHISON CHINA MEDITECH LIMITED
NOTES TO THE CONDENSED INTERIM ACCOUNTS
5 Other net operating income
Six months period ended 30 June
2006 2005
US$'000 US$'000
Interest income 325 153
Net gain on disposal of a subsidiary - 195
Net foreign exchange gains 84 95
Other operating income 166 43
Other operating expenses (69) (214)
506 272
6 Operating loss
Operating loss is stated after charging the following:
Six months period ended 30 June
2006 2005
US$'000 US$'000
Amortisation of intangible assets and leasehold land 122 103
prepayments
Cost of inventories recognised as expense 11,415 5,103
Depreciation of property, plant and equipment 1,354 956
Operating lease rentals in respect of land and buildings 588 266
Research and development expense 1,644 802
Employee benefits expense 6,525 3,324
7 Finance costs
Six months period ended 30 June
2006 2005
US$'000 US$'000
Interest expense on amount due to a joint venture partner - 14
of a jointly controlled entity
Interest expense on short-term bank loans 189 226
189 240
HUTCHISON CHINA MEDITECH LIMITED
NOTES TO THE CONDENSED INTERIM ACCOUNTS
8 Taxation charge
Six months period ended 30 June
2006 2005
US$'000 US$'000
Current tax - 20
Deferred income tax - 120
- 140
(a) The Group had no estimated assessable profit for the six months period
ended 30 June 2006.
(b) Pursuant to the relevant PRC income tax rules and regulations, as foreign
invested enterprises, special income tax rates ranging from 15% to 27%
have been granted to certain subsidiaries and jointly controlled entities.
(c) As approved by the tax authorities, certain subsidiaries and jointly
controlled entities are also entitled to a two year exemption from income
taxes followed by a 50% reduction in income taxes for the following three
years, commencing from their first cumulative profit-making year net of
losses carried forward.
9 Loss per share
Basic loss per share is calculated by dividing the loss attributable to equity
holders of the Company by the weighted average number of ordinary shares in
issue during the period.
Six months period ended 30 June
2006 2005
Loss attributable to equity holders of the Company (3,773) (2,924)
(US$'000)
Weighted average number of ordinary shares in issue 12,166,417 2
Basic loss per share (US$ per share) (0.3101) (1,462,000)
Diluted loss per share is not presented as the exercise of the
employee share option would have an antidilutive effect.
HUTCHISON CHINA MEDITECH LIMITED
NOTES TO THE CONDENSED INTERIM ACCOUNTS
10 Property, plant and equipment
As at 30 June
2006 2005
US$'000 US$'000
Net book value as at 1 January 22,012 13,322
Additions 1,406 9,239
Acquisition of a subsidiary by a jointly controlled 66 -
entity
Disposal of a subsidiary - (73)
Disposals (39) -
Depreciation for the period (1,354) (956)
Exchange differences 289 (49)
Net book value as at 30 June 22,380 21,483
HUTCHISON CHINA MEDITECH LIMITED
NOTES TO THE CONDENSED INTERIM ACCOUNTS
11 Share capital
(a) Authorised and issued capital
Number of US$
shares
Authorised:
As at 1st January 2005 and 31st December 2005 50,000 50,000
Increase in authorised share capital (note (i)) 74,950,000 74,950,000
As at 30 June 2006 75,000,000 75,000,000
Number of US$
shares
Issued and fully paid:
As at 1st January 2005 and 31st December 2005 2 2
Capitalisation issue (note (ii)) 36,666,665 36,666,665
Issue of shares for offering (note (iii)) 14,545,454 14,545,454
As at 30 June 2006 51,212,121 51,212,121
Notes:
(i) Pursuant to a resolution passed by the then sole shareholder of the Company
on 9 May 2006, conditional upon Admission taking place not later than 19
May 2006, the authorised share capital of the Company was increased from
US$50,000 to US$75,000,000 by the creation of 74,950,000 shares of US$1
each.
(ii) On 9 May 2006, conditional upon Admission taking place not later than 19
May 2006, an amount due to Hutchison Healthcare Holdings Limited ('HHHL'),
the immediate holding company of the Company, amounting to HK$575,219,920
(equivalent to US$73,746,000) was capitalised as 36,666,665 shares of the
Company of US$1 each, credited as fully paid. By the time of Admission,
these new shares rank pari passu in all respects with the then existing
shares.
(iii) On 19 May 2006, the Company completed an offering of 14,545,454 shares
with a par value of US$1 each, of which 14,537,704 shares and 7,750 shares
were allotted and issued at a price of £2.75 and HK$39.62 respectively, for
an aggregate consideration equivalent to US$75,026,000. All these shares
rank pari passu in all respects with the then existing shares. These shares
commenced trading on AIM on 19 May 2006.
(b) Share option scheme
On 4 June 2005, the Company adopted a share option scheme (the 'Share Option
Scheme'), conditional on Admission, pursuant to which the Board of Directors of
the Company may, at its discretion, offer any employees and directors (including
executive and non-executive directors other than independent non-executive
directors) of the Company, its subsidiaries and jointly controlled entities
options to subscribe for shares of the Company. As of 30 June 2006, options
representing approximately 3.85% of the issued share capital of the Company were
granted to a director of the Company and certain employees of the Group and its
jointly controlled entities under the Share Option Scheme which are exercisable
within a period of ten years from the offer date subject to vesting on the
first, second and third anniversaries of the Company's Admission on AIM.
HUTCHISON CHINA MEDITECH LIMITED
NOTES TO THE CONDENSED INTERIM ACCOUNTS
11 Share capital (Continued)
(b) Share option scheme (Continued)
Details of the options granted under the Share Option Scheme outstanding as at
30 June 2006 are as follows:
Effective date Exercise period Exercise Number of shares
of grant of share options price subject to the
(Note (i)) (Note (ii)) options
Christian Hogg 19 May 2006 On Admission to 768,182
3 June 2015 £1.09
11 employees in 19 May 2006 On Admission to 1,203,483
aggregate 3 June 2015 £1.09
1,971,665
There is no consideration in connection with all options granted. Upon the
departure of an employee, 25,606 options lapsed during the six months period
ended 30 June 2006. Save as mentioned above, no other share options were
cancelled or exercised or lapsed during the six months period ended 30 June
2006. The Company has no legal or constructive obligation to repurchase or
settle the options in cash.
Notes:
(i) Options were granted to a director of the Company and certain employees of
the Group and its jointly controlled entities on 4 June 2005 conditionally
upon Admission which took place on 19 May 2006.
(ii) The share options granted to certain founders are subject to amongst other
relevant vesting criteria the vesting schedule of 50% on the first
anniversary of the Company's Admission and 25% on each of the second and
third anniversaries of the Company's Admission. The share options granted
to non-founders are subject to amongst other relevant vesting criteria the
vesting schedule of one third on each of the first, second and third
anniversaries of the Company's Admission.
(iii) The fair value of share options in connection with the 1,971,665 options
granted amounting to £3,049,000 (equivalent to US$5,427,000) is to be
recognised as expense of the Group over the 3 years vesting periods as
mentioned in note (ii) above from the effective grant date. The amount
recognised as expense for the 6 month period ended 30th June 2006 amounted
to US$427,000 (2005: Nil).
HUTCHISON CHINA MEDITECH LIMITED
NOTES TO THE CONDENSED INTERIM ACCOUNTS
11 Share capital (Continued)
(b) Share option scheme (Continued)
The fair value of options granted under the Share Option Scheme determined using
the Binomial Model is as follows:
Effective date of
grant of share option
(Note (i) above)
19 May 2006
Value of each option £1.546
Total value of share option scheme £3,049,057
Significant inputs into the valuation model:
Exercise price £1.09
Share price at effective grant date £2.505
Expected volatility (Note) 38.8%
Risk-free interest rate 4.54%
Expected life of options 9.04 years
Expected dividend yield 0%
Note:
The volatility of the underlying stock during the life of the options is
estimated based on the historical volatility of the comparable companies for the
past one year as of the valuation date, that is, the effective grant date, since
there is no trading record of the Company's shares at the grant date.
HUTCHISON CHINA MEDITECH LIMITED
NOTES TO THE CONDENSED INTERIM ACCOUNTS
12 Note to condensed consolidated cash flow statement
Reconciliation of loss for the period to net cash (used in)/generated from
operations
Six months period ended 30 June
2006 2005
US$'000 US$'000
Loss for the period (3,092) (2,892)
Adjustments for:
Taxation - 140
Share of results of an associate - 7
Share-based compensation expense 427 -
Amortisation of intangible assets and leasehold land 122 103
prepayments
Depreciation on property, plant and equipment 1,354 956
Loss on disposal of property, plant and equipment 39 -
Interest income (325) (153)
Interest expense 189 240
Net gain on disposal of a subsidiary - (195)
(1,286) (1,794)
Changes in working capital:
- decrease/(increase) in inventories 312 (321)
- (increase) in trade receivables (5,658) (871)
- decrease/(increase) in other receivables and prepayments and 251 (4,516)
amounts due from related parties
- increase in trade payables 48 176
- increase in other payables and accruals and amounts due to 2,273 8,588
related parties
Cash (used in)/generated from operations (4,060) 1,262
HUTCHISON CHINA MEDITECH LIMITED
NOTES TO THE CONDENSED INTERIM ACCOUNTS
13 Significant related party transactions
The Group is controlled by Hutchison Healthcare Holdings Limited ('HHHL') (a
company incorporated in the British Virgin Islands), which owns approximately
72% of the Company's shares. The ultimate holding company of the Company is
Hutchison Whampoa Limited, a company incorporated and listed in Hong Kong.
The major related parties that had transactions with the Group were as follows:
Name of related parties Relationship with the Company
Hutchison Whampoa (China) Limited ('HWCL') An intermediate holding company
HHHL The immediate holding company
Cascade Trading Limited A fellow subsidiary
Hutchison Whampoa (China) Commerce Limited A fellow subsidiary
Hutchison Whampoa Enterprises Limited A fellow subsidiary
Shanghai Traditional Chinese Medicine Co., Ltd. (' A joint venture partner of a jointly controlled
STCM') entity
Shanghai Lei Yun Shang Pharmaceuticals Co., Ltd. A subsidiary of STCM
Shanghai Huayu Pharmaceuticals Co., Ltd. A subsidiary of STCM
Ningxia Dyne Pharmaceuticals Co., Ltd. A minority shareholder of a subsidiary
Masson Holdings Co., Ltd. A minority shareholder of a subsidiary
A minority shareholder of a subsidiary
Bestchosen Limited
Guangzhou Baiyunshan Pharmaceuticals Holdings Co., A joint venture partner of a jointly controlled
Ltd. entity
The following significant transactions were carried out with related parties for
the six months ended 30 June 2006:
Six months period ended 30 June
2006 2005
US$'000 US$'000
Revenues:
Sales of goods and materials
- Shanghai Lei Yun Shang Pharmaceuticals Co., Ltd. 2,068 2,731
- Cascade Trading Limited 1,094 914
HUTCHISON CHINA MEDITECH LIMITED
NOTES TO THE CONDENSED INTERIM ACCOUNTS
13 Significant related party transactions (Continued)
Six months period ended 30 June
2006 2005
US$'000 US$'000
Expenses:
Purchase of goods and raw materials
- Shanghai Huayu Pharamaceuticals Co., Ltd. 461 401
- Masson Holdings Co., Ltd. 675 375
Sub-contracting charge
- Masson Holdings Co., Ltd. 434 522
Technology fee
- Masson Holdings Co., Ltd. 151 155
Key management compensation borne by the Group
- Wages, salaries and bonus 155 -
- Pension costs - defined contribution plans 4 -
- Other employee benefits - -
Other items not recognised in income statement
Key management compensation borne by HWCL
- Wages, salaries and bonus 100 211
- Pension costs - defined contribution plans 5 9
- Other employee benefits - 1
Other administrative expenses borne by HWCL 267 728
These transactions are entered into at terms agreed with these related parties
in the ordinary course of the Group's business.
No transactions have been entered into with the directors of the Company (being
the key management personnel) during the six months period ended 30 June 2006
other than the emoluments paid to them (being the key management personnel
compensation) as disclosed.
30 June 31 December
2006 2005
US$'000 US$'000
Balances with related parties included in:
Trade receivables due from related parties
- Shanghai Lei Yun Shang Pharmaceuticals Co., Ltd. 2,609 2,484
- Hutchison Whampoa (China) Commerce Limited 476 -
3,085 2,484
Amounts due from related parties
- Guangzhou Baiyunshan Pharmaceuticals Holdings Co., Ltd. 487 577
HUTCHISON CHINA MEDITECH LIMITED
NOTES TO THE CONDENSED INTERIM ACCOUNTS
13 Significant related party transactions (Continued)
30 Jun 2006 31 Dec 2005
US$'000 US$'000
Balances with related parties included in:
Trade payables due to related parties
- Shanghai Huayu Pharmaceuticals Co., Ltd. 383 174
- Ningxia Dyne Pharmaceuticals Co., Ltd. 263 271
- Masson Holdings Co., Ltd. 16 -
662 445
Amounts due to related parties
- Hutchison Whampoa Enterprises Limited - 1,103
- HHHL 274 62,891
- HWCL - 7,273
- STCM 53 53
- Ningxia Dyne Pharmaceuticals Co., Ltd. 77 85
- Masson Holdings Co., Ltd. 161 60
- Hutchison Whampoa (China) Commerce Limited 10 -
575 71,465
Minority interests - amount due to a minority
shareholder of a subsidiary
- Bestchosen Limited 5,253 5,253
Note:
Except for the amount due to a minority shareholder of a subsidiary which does
not have fixed repayment terms, balances with related parties are unsecured,
interest-free and are repayable on demand. The amount due to a minority
shareholder of a subsidiary represents the minority shareholder's equity
contributions to the subsidiary. The carrying value of other balances with
related parties approximates their fair values due to the short term maturity.
INDEPENDENT REVIEW REPORT TO THE BOARD OF DIRECTORS OF
HUTCHISON CHINA MEDITECH LIMITED
(incorporated in the Cayman lslands with limited liability)
Introduction
We have reviewed the accompanying condensed consolidated interim balance sheet
of Hutchison China MediTech Limited (the 'Company') and its subsidiaries
(together the 'Group') as of 30 June 2006, and the related condensed
consolidated interim statements of income, changes in equity and cash flows for
the six-month period then ended. Management is responsible for the preparation
and presentation of this condensed consolidated interim financial information in
accordance with International Accounting Standard 34 'Interim Financial
Reporting' issued by the International Accounting Standards Committee.
It is our responsibility to express a conclusion, based on our review, on this
condensed consolidated interim financial information and to report our
conclusion solely to you, as a body, in accordance with our agreed terms of
engagement and for no other purpose. We do not assume responsibility towards or
accept liability to any other person for the contents of this report.
Scope of Review
We conducted our review in accordance with International Standard on Review
Engagements 2410, 'Review of Interim Financial Information Performed by the
Independent Auditor of the Entity.' A review of interim financial information
consists of making inquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in accordance with
International Standards on Auditing and consequently does not enable us to
obtain assurance that we would become aware of all significant matters that
might be identified in an audit. Accordingly, we do not express an audit
opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe
that the accompanying condensed consolidated interim financial information is
not prepared, in all material respects, in accordance with International
Accounting Standard 34 'Interim Financial Reporting'.
PricewaterhouseCoopers
Certified Public Accountants
Hong Kong, 8 August 2006
INFORMATION FOR SHAREHOLDERS
Listing Depositary
The Company's ordinary shares are listed on the Computershare Investor Services plc
Alternative Investment Market operated by the P. O. Box 82, The Pavilions
London Stock Exchange plc Bridgwater Road
Bristol BS99 7NH
United Kingdom
Telephone: +44 (0) 870 702 0003
Facsimile: +44 (0) 870 703 6114
Code
HCM
Registered Office Investor Information
Ugland House, P.O. Box 309 Corporate press releases, financial reports and
George Town, Grand Cayman other investor information on the Company are
Cayman Islands, British West Indies available online at the Company's website.
Telephone: +1 345 949 8066
Facsimile: +1 345 949 8080
Investor Relations Contact
Please direct enquires to:
E-mail: ir@chi-med.com
Head Office Telephone: +852 2121 8200
22nd Floor, Hutchison House Facsimile: +852 2121 8281
10 Harcourt Road
Hong Kong
Telephone: +852 2128 1188 Website Address
Facsimile: +852 2128 1778 www.chi-med.com
Principal Executive Office
21st Floor, Hutchison House
10 Harcourt Road
Hong Kong
Telephone: +852 2121 8200
Facsimile: +852 2121 8281
Share Registrar
Computershare Investor Services
(Channel Islands) Limited
P. O. Box 83, Ordinance House
31 Pier Road, St. Helier
Jersey, Channel Islands JE4 8PW
Telephone: +44 (0) 1534 825200
Facsimile: +44 (0) 1534 825250
CORPORATE INFORMATION
BOARD OF DIRECTORS
Executive Chairman
Simon TO, BSc, ACGI, MBA
Executive Directors
Christian HOGG, BSc, MBA Chief Executive Officer
Patrick WAN, ACCA
Non-executive Directors
Christian SALBAING, BA, LLL, JD
Edith SHIH, BSE, MA, MA, EdM, Solicitor, FCS, FCIS
Stephen YEUNG, BA, MBA, CA
Independent Non-executive Directors
Michael HOWELL, MA, MBA
Christopher HUANG, BM, BCh, PhD, DM, ScD
Christopher NASH, BSc, MBA, ACGI
AUDIT COMMITTEE
Michael HOWELL (Chairman)
Christopher HUANG
Christopher NASH
REMUNERATION COMMITTEE
Simon TO (Chairman)
Michael HOWELL
Christopher NASH
TECHNICAL COMMITTEE
Christopher HUANG (Chairman)
Simon TO
Christian HOGG
COMPANY SECRETARY
Edith SHIH, BSE, MA, MA, EdM, Solicitor, FCS, FCIS
NOMINATED ADVISER
Lazard & Co., Limited
CORPORATE BROKER
Panmure Gordon (Broking) Limited
AUDITORS
PricewaterhouseCoopers
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