Interim Results
Hutchison China Meditech Limited
09 August 2007
Hutchison China MediTech Limited ('Chi-Med')
(AIM: HCM)
Interim Results for the Six Months Ended 30 June 2007
All businesses developing rapidly. Positive outlook.
• Group sales up 18% to $37.7 million (H1 2006: $32.0m)
• Spending on Drug R&D continues as planned -- breakthrough Phase II trial
results in ulcerative colitis
• China Healthcare -- sales up 16% to $36.0 million and operating profit up
62% to $3.0 million
• Consumer Products -- sales up 44% driven by further Sen shop openings
• Resulting loss to shareholders also as planned at $5.6 million (H1 2006:
$3.8m)
• Cash and cash equivalents totalled $64.1 million at 30 June 2007
London: Thursday, 9 August 2007: Chi-Med, the pharmaceutical and healthcare
group backed by Hutchison Whampoa Limited, today announces its interim results
for the six months ended 30 June 2007.
Christian Hogg, CEO of Chi-Med, said:
'Chi-Med has delivered a strong set of results for the first half of the year
with group sales up 18% to $37.7 million.
Our China Healthcare business continues to grow fast with like-for-like sales up
16% and operating profits up 62%. Our Consumer Products business has expanded
its Sen shop portfolio and grown sales by 44%, and our Drug R&D business has
made major clinical progress.
Significantly, our Drug R&D business has announced successful Phase II
proof-of-concept trial results for HMPL-004, our ulcerative colitis therapy, as
well as progressing enrollment on its other three clinical trials. Concurrently
the in-house drug discovery programme and joint-discovery collaborations with
Merck KGaA and Procter & Gamble are advancing well. Undoubtedly the focus of
the pharmaceutical industry is on Chi-Med for the quality of its discovery and
development capability and for its potential to develop important new drugs for
the global marketplace from its efficient cost base in China. As previously
stated, the increased spend on Drug R&D has led to a larger loss for the group
as a whole. However this is our plan and expectation.
Looking ahead, we expect our Drug R&D business to conclude further collaboration
agreements with major pharmaceutical companies. The China Healthcare business
will continue to grow strongly with the potential for strategic opportunities to
add to its organic growth and we see continuing good growth potential for the
Sen brand in our Consumer Products business. A strong cash position is
underpinning our future growth plans in all three core businesses. We remain
confident we will add further significant value for shareholders in the rest of
this year and beyond.'
Enquiries
Chi-Med
Christian Hogg, CEO Telephone: +44 (0) 20 7638 9571
Citigate Dewe Rogerson Telephone: +44 (0) 20 7638 9571
Anthony Carlisle Mobile: +44 (0) 7973 611 888
Yvonne Alexander Mobile: +44 (0) 7866 610 682
Results are reported in US dollar currency unless stated otherwise.
The interim results statement and the information required by Rule 26 (Company
information disclosure) of the AIM Rules for the Companies are available on the
website of Chi-Med: www.chi-med.com
An analyst presentation will be held at 9.00am today at Citigate Dewe Rogerson,
3 London Wall Buildings, London, EC2M 5SY.
About Chi-Med
Chi-Med is the holding company of a pharmaceutical and healthcare group based
primarily in China and was admitted to trading on the Alternative Investment
Market of the London Stock Exchange in May 2006. Chi-Med is focused on
researching, developing, manufacturing, and selling pharmaceuticals, health
supplements and other consumer health and personal care products derived from
Traditional Chinese Medicine and botanical ingredients.
Chi-Med is majority owned by Hutchison Whampoa Limited, an international
corporation listed on the Main Board of The Stock Exchange of Hong Kong Limited.
INTRODUCTION
In 1999 Hutchison China MediTech Limited ('Chi-Med'), the pharmaceutical and
healthcare group backed by Hutchison Whampoa Limited ('Hutchison Whampoa'),
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 seven 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.
CHAIRMAN'S STATEMENT
Our vision is simple - to become a major player in the global pharmaceutical and
consumer products businesses.
We believe that TCM represents a reservoir of pharmaceutical activity and proven
safety from which we can develop new drugs and new health and wellness consumer
products and concepts for the global market.
We believe that the strength and experience of Hutchison Whampoa in China,
built-up through its decades of operation in the country, is also an important
advantage for Chi-Med in its drive to explore and commercialise the
pharmaceutical and consumer products opportunities represented by TCM.
Financial review
Sales for the six months to 30 June 2007 were $37.7 million (H1 2006: $32.0m),
an increase of 18%. This was driven primarily by strong organic growth in the
China Healthcare business.
Gross profit for the period was $22.9 million (H1 2006: $19.4m). Selling
expenses as a percentage of sales dropped to 39% (H1 2006: 42%) as a result of
the increased volume scale. Administrative expenses as a percentage of sales
rose to 38% (H1 2006: 29%) as a result of accounting for our employee share
option scheme and the full period effect of unallocated corporate expenses
primarily resulting from being a publicly quoted company. The loss attributable
to equity holders increased, in line with budget, to -$5.6 million (H1 2006:
-$3.8m).
During the period we grew the operating profitability of our China Healthcare
business by 62% to $3.0 million (H1 2006: $1.9m). This partially offset the
operating losses on our Drug R&D business, which as planned, rose 16% to -$3.8
million (H1 2006: -$3.3m).
Cash and Financing
Net operating cash outflow was -$4.6 million (H1 2006: -$3.9m).
Chi-Med's cash position remains very strong, providing a strong base, together
with operational cash inflows, to finance its Drug R&D business and the
expansion of its other businesses over the coming years. Cash and cash
equivalents at the end of the period totalled $64.1 million (H1 2006: $72.6m).
In addition to this cash balance, Chi-Med guaranteed bill receivables rose to
$15.6 million (H1 2006: $8.6m).
Outlook
We remain very confident about the future prospects of Chi-Med.
With the full support of Hutchison Whampoa and its unrivalled goodwill,
experience, and capabilities throughout China, we believe we are 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 2007
CHIEF EXECUTIVE OFFICER'S STATEMENT
Our core businesses are Drug R&D, China Healthcare and Consumer Products. Each
has made very good progress in the first half of this year.
Drug R&D
Chi-Med's Drug R&D business, which is focused on the development of novel cancer
and auto-immune therapeutics, has made good progress through our wholly owned
subsidiary Hutchison MediPharma Limited ('HMPL'). Operating losses, as
expected, have increased 16% to -$3.8 million (H1 2006: -$3.3m).
In line with its agreed discovery and development plans, the business has grown
its research and development team and now has over 130 full time employees,
compared to 70 a year ago, in our Pu Dong site. The new employees are primarily
engaged in the discovery area, in medicinal chemistry, biology, and
pharmacology, principally to staff our internal discovery programme and our
discovery co-operations with Merck KGaA and Procter & Gamble. By 30 June 2007,
HMPL had filed 63 patent applications worldwide, up from 26 a year ago.
On the discovery front, we focused on the progression of pre-clinical candidates
and initiation of new projects. In the oncology area, the multi-kinase
inhibitor project is now in final stages of evaluation for candidate selection
and patent applications were filed both in China and the U.S. Two other new
projects for cancer were initiated and are now at the lead generation stage.
In the auto-immune area, HMPL-010, a cytokine inhibitor with potential for use
in psoriasis, was delivered in February 2007. Preliminary safety evaluation on
HMPL-010 has been completed and pre-clinical results are pending. Another novel
series of cytokine modulators has been identified and patent application is
being prepared as an alternative to HMPL-010. Multiple compounds in this series
demonstrated good efficacy in animal models of rheumatoid arthritis and
excellent pharmacokinetic properties. Work is in progress to evaluate the
potential of this series as a clinical candidate for auto-immune diseases such
as rheumatoid arthritis. Furthermore, a kinase inhibition project targeting
inflammation and asthma has advanced to lead optimization stage.
Our most advanced clinical candidate, HMPL-004, has now completed its Phase II
proof-of-concept ('POC') study in China for the treatment of patients with
mild-to-moderate ulcerative colitis ('UC'). The trial fully met its objectives,
in that HMPL-004 was well tolerated and met all its efficacy end points. After
treatment for eight weeks, the patients' clinical symptom score reduction for
HMPL-004 was 56% versus 59% for Mesalazine (the current first-line treatment for
UC) in the Intention-to-treat ('ITT') population. The overall remission rate
(combination of complete and partial remissions) for HMPL-004 was 57% by
clinical score compared to 53% for Mesalazine in the ITT population and 47% for
HMPL-004 versus 42% for Mesalazine by colonoscopy in the ITT population.
HMPL-004 was well tolerated in the study and the patients with adverse events
were half that in the Mesalazine group. This positive result on HMPL-004 is a
significant milestone for us as Mesalazine has only approximately 60% response
among UC patients and resistance can build up over time, so HMPL-004, which has
a novel mechanism of action, has potential to bring patients another option for
the treatment of this chronic, painful and frequently recurring disease.
HMPL-004 has a second clinical trial in progress in the US. This Phase II trial
is a double blinded, randomised, multi-centred, placebo-controlled study in both
male and female patients with active moderate Crohn's disease. Recruitment is
ongoing and 35% of the required patients have already been enrolled into the
study. HMPL-004's positive UC Phase II POC results in China will boost
recruitment speed in the US and we anticipate finishing patient enrolment and
treatment in the third quarter 2008.
HMPL's second clinical candidate HMPL-002 is also progressing well in a Phase II
POC study in China where it is being used concurrently with chemo-radiotherapy
in stage III non-small cell lung cancer ('NSCLC') patients. To-date, 80% of the
required patients have been enrolled into the study, indicating that HMPL will
meet the end-2007 enrolment completion target date.
HMPL-002 is also in clinical trials in the US for the treatment of head and neck
cancer. The first cohort for the Phase I trial has been completed with no drug
related severe adverse events observed. The second and final dose cohort
started in July 2007 and will be followed by a Phase II trial that is expected
to commence during the second half of 2007.
The two projects in collaboration with Merck KGaA for cancer are progressing as
planned, and we expect completion of HMPL's screening activities by the end of
2007. Once screening is completed, upon agreement by both parties, qualified
hits will be chosen for further development and HMPL will start to receive
milestone income.
The collaboration with Procter & Gamble is on track to complete the screening of
its collection of plant extracts against beauty care targets nominated by
Procter & Gamble by early 2008. Once screening is completed, Procter & Gamble
will commence work to formulate active components into its beauty care products,
the ultimate objective being consumer noticeable beauty care benefits. If this
objective is met, HMPL will become the exclusive supplier of these active
components to Procter & Gamble.
In addition, in June 2007, HMPL exercised an option to purchase, for $3.3
million, the 5,024 sq.m. building it leased for the past three years in the
Zhang Jiang High Tech Park ('ZJHTP'). The purchase price compares very
favourably with the current market price for the facility, which is now
approximately $7.0 million. This reflects the very tight inventory of buildings
and the high demand from global pharmaceutical companies looking to set up
operations in ZJHTP, which is now the primary biotech and pharmaceutical R&D
centre in China. By buying the property, HMPL has protected itself against
rapidly rising rental costs. For a facility of this size in ZJHTP, current
rents are approximately $800,000 a year and are currently growing at
approximately 15% a year.
China Healthcare
Chi-Med's China Healthcare business has three operating companies: Hutchison
Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited ('HBYS'), Shanghai
Hutchison Pharmaceuticals Limited ('SHPL') and Hutchison Healthcare Limited ('
HHL'). Overall, the China Healthcare business has accelerated its growth with
sales up 16% to $36.0 million (H1 2006: $31.1m) and operating profits up 62% to
$3.0 million (H1 2006: $1.9m).
The sales growth was driven principally by continued progress on the Baiyunshan
brand of over-the-counter ('OTC') medicines (cough cold, angina, periodontitis,
and liver health); the strong performance of SHPL's cardiovascular prescription
drug She Xiang Bao Xin pill ('SXBXP'); and the advances made on the HHL Zhi Ling
Tong ('ZLT') brand of infant nutritional health supplement products.
Volume sales growth has driven margin enhancement. In addition, as a by-product
of recent SXBXP State Secrecy Bureau and State Science and Technology Commission
awards, we have been able to argue for and secure our first price increases
(under the full reimbursement system) on SXBXP since 2000. While prices to the
consumer remain flat, SXBXP's bidding price to hospitals has increased 10%. In
the second quarter, we also started the restructure of the NLT capsule (for
memory) business by withdrawing from unprofitable markets and focusing on six
core markets thereby leading to improved margins despite volume loss of 21%. In
parallel, the restructure of the Sheng Mai injection business, which was
affected in 2006 by the State Food and Drug Administration ('SFDA') restrictions
on reimbursement to emergency use only, led to us reducing the price and cutting
all marketing expense in order to reposition the product to compete against low
cost manufacturers. While lower prices led to a 54% loss in sales on Sheng Mai
injection during the period, it also led to a 19% increase in unit volume with
consequent benefits in both capacity utilisation and contribution.
In line with our strategy, we continue to appraise potential strategic
acquisitions in the China market, in particular looking at
State-owned-enterprises, pre-IPO firms, and large private firms, for which our
name, market position and expansion potential can make us an attractive partner.
We believe there remain potential opportunities; but we will only make
acquisitions where the price and fit are attractive and we are confident of the
ability to add value.
HBYS: The Baiyunshan brand is rapidly becoming one of the top OTC brands in
China. HBYS is delivering a rate of growth of over 20% with sales for the
period up 24% for the second year in a row to $23.7 million (H1 2006: $19.1m).
HBYS has a four pronged commercial strategy: 1) to focus distribution on fewer,
but larger, distributors across China; 2) to continue its expired prescription
medicine exchange programme which continues to gain plaudits from State
Government and media as well as building consumer loyalty; 3) to expand its
reimbursement list - for example, in Guangdong 87% of HBYS's 137 products are
now reimbursed; and 4) the opening of the Baiyunshan TCM Museum in Guangzhou
which has attracted both strong media interest and a significant number of
visitors.
SHPL: Last year's SFDA tightening of policy on the access of medical sales
representatives to hospitals initially led to some uncertainty on SHPL's
prescription cardiovascular drug business (SXBXP), but it has not had any
long-term impact. SHPL grew sales on SXBXP for the period 17% to $4.9 million
(H1 2006: $4.2m). This helped SHPL resume growth with total joint venture sales
for the period up 6% to $6.2 million (H1 2006: $5.8m) despite price cuts that
were required to remain competitive in the generic Sheng Mai injection business.
As a prescription drug business, our commercial focus has been on building the
reputation of SHPL's products (particularly SXBXP) among the medical and
academic communities by securing State Government intellectual property
protection and technical endorsements. In late 2006, SXBXP was awarded a State
Secret Certificate as 'Confidential Information' by the Ministry of Science and
Technology and State Secrecy Bureau. This extends effective patent protection
for five years. In early 2007, SXBXP was one of only two TCM products selected
to be part of the State 11th Five Year Scientific Plan, by the State Science and
Technology Commission ('SSTC'). This selection means that the SSTC will fund
78% of a RMB 4.5 million ($0.6m) research project, between SHPL and top academic
and research institutions in China, into SXBXP's mechanism of action. All
patents generated by this research will belong to SHPL. Finally, in June 2007,
SHPL's number two product Dan Ning tablet (for gall bladder) was granted a
twenty-year China patent on the formulation and process by the State Patent
Bureau.
HHL: Strong progress was made during the period by HHL on ZLT, our infant
nutrition brand. ZLT sales for the period grew 170% to $1.8 million (H1 2006:
$0.7m). After four years of effort to establish the brand, ZLT is now starting
to grow rapidly and is an example of the speed at which health supplement
businesses can grow in China. The cooperation between ZLT and the primary State
run family planning organisation, the Chinese Association for Improving Birth
Outcomes and Child Development, as well as local family planning clinic
education programmes, has been a very effective driver of trial and loyalty.
Overall HHL sales were flat during the period at $6.2 million (H1 2006: $6.2m)
as the progress on ZLT offset declines in NLT capsule sales as we commenced
withdrawal from some unprofitable provincial markets.
Consumer Products
Chi-Med's Consumer Products business, through its wholly owned subsidiary Sen
Medicine Company Limited ('Sen'), grew sales by 44% during the period to $1.3
million (H1 2006: $0.9m), reflecting the full period effect of the Harrods and
Harvey Nichols shop openings and good like-for-like sales growth in shops open
more than a year. Operating losses increased to $0.8 million (H1 2006: $0.5m)
due to investments in product and brand development in preparation for third
party retail expansion projects.
Like-for-like sales increased 4%, consolidating the 32% step-change growth in
like-for-like sales achieved in 2006. The two main initiatives of 2006, the
opening of the 900 sq.ft. Harvey Nichols shop-in-shop and the introduction of
Sen skin care and body care accessories have been successful.
Sen has consistently been a strong performer on the fourth floor of Harvey
Nichols and has been profitable since day one. This, and the continued positive
results of our other established shops, means we are planning a further seven
openings in central London. These include a shop off Piccadilly that opened
this July; planned openings in Kensington and Westbourne Grove during the second
half of 2007; and further shops to be opened in Holborn, the new Westfield
shopping centre in Shepherd's Bush, and another two central London locations in
2008.
Sen's skin care and body care accessories are selling well, helping increase
Sen's retail product sales by 26% during the period. Retail product (primarily
body care, skin care, and teas) sales now account for 21% of Sen total sales (H1
2006: 17%). This strong progress has given us confidence to accelerate plans to
expand these lines into third party luxury retail distribution channels.
Outlook
We expect our Drug R&D business to create substantial value over the coming
years. It has started to deliver breakthrough results. Its model has now been
validated through: our joint-discovery collaborations with Merck KGaA and
Procter & Gamble; our discovery success and the progression of several new high
potential pre-clinical projects; and delivering a positive result in the
HMPL-004 Phase II POC trial in record time. We have a very high quality team
and state-of-the-art facilities, which enable us quickly and effectively to
perform pre-clinical work and run clinical trials to ICH standards. Our
strategy of screening natural substances with a history of use reduces
probability of failure and our location in China reduces discovery and
development costs. We expect internal discovery and development projects to
progress over the balance of the year as well as completing the majority of
screening activities under the Merck KGaA and Procter & Gamble collaborations.
Furthermore, we intend to develop further joint discovery deals with global
partners.
With our China Healthcare business, we have a diversified portfolio of products
whose sales are growing rapidly, with earnings improving at a greater rate. We
expect strong organic growth to continue and believe there will be opportunities
to add to this over time through acquisitions.
Our Consumer Products business model in London is now tested and we believe our
planned further London openings over the balance of 2007 and early 2008 and
expansion into third party luxury distribution channels will increase the rate
of growth and have a positive impact on operating margins.
Chi-Med has a solid foundation of operations, which represent a strong platform
for growth and value creation.
Christian Hogg
Chief Executive Officer, 8 August 2007
HUTCHISON CHINA MEDITECH LIMITED
CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE SIX MONTHS ENDED 30 JUNE 2007
Unaudited
Six months ended 30 June
Note 2007 2006
US$'000 US$'000
Sales 3 37,723 31,999
Cost of sales (14,811) (12,615)
Gross profit 22,912 19,384
Selling expenses (14,729) (13,461)
Administrative expenses (14,234) (9,332)
Other net operating income 4 2,029 506
Operating loss 5 (4,022) (2,903)
Finance costs 6 (172) (189)
Loss before tax (4,194) (3,092)
Tax charge 7 (508) -
Loss for the period (4,702) (3,092)
Attributable to:
Equity holders of the Company (5,647) (3,773)
Minority interests 945 681
(4,702) (3,092)
Loss per share for loss attributable to US$ US$
equity holders of the Company during the per share per share
period
- Basic and diluted 8 (0.1103) (0.0940)
The notes below are an integral part of these condensed consolidated interim
accounts.
HUTCHISON CHINA MEDITECH LIMITED
CONDENSED CONSOLIDATED BALANCE SHEET
AS AT 30 JUNE 2007
Unaudited Audited
Note 30 June 31 December
2007 2006
US$'000 US$'000
ASSETS
Non-current assets
Property, plant and equipment 9 23,249 22,874
Leasehold land 4,309 4,230
Goodwill 6,428 6,241
Trademarks, patents and others 875 775
Available-for-sale financial asset 132 128
34,993 34,248
Current assets
Inventories 9,427 9,490
Bill receivables 15,565 8,585
Trade receivables 12 10,079 7,997
Other receivables and prepayments 2,142 2,110
Financial assets at fair value through profit or loss 50,348 60,544
Cash and bank balances 13,716 10,069
101,277 98,795
Total assets 136,270 133,043
EQUITY
Capital and reserves attributable to the Company's
equity holders
Share capital 10 51,212 51,212
Reserves 48,712 51,739
99,924 102,951
Minority interests 7,804 7,030
Total equity 107,728 109,981
LIABILITIES
Current liabilities
Trade payables 12 5,911 3,185
Other payables and accruals 15,119 11,894
Amounts due to related parties 12 202 868
Short-term bank loans 7,310 7,115
Total liabilities 28,542 23,062
Total equity and liabilities 136,270 133,043
The notes below are an integral part of these condensed consolidated interim
accounts.
HUTCHISON CHINA MEDITECH LIMITED
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 30 JUNE 2007
Unaudited
Attributable to equity holders of the Company
Share Share Share-based Exchange Statutory Accumulated Total Minority Total
capital premium compensation reserve reserves losses interests equity
reserve
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
As at 1 January
2006 - - - 475 - (34,145) (33,670) 5,661 (28,009)
Exchange
translation
differences - - - 411 - - 411 - 411
(Loss)/profit for
the period - - - - - (3,773) (3,773) 681 (3,092)
Issue of shares
(Note 10) 51,212 91,510 - - - - 142,722 - 142,722
Acquisition of a
subsidiary by a
jointly controlled
entity - - - - - - - 51 51
Share-based
compensation
expense - - 427 - - - 427 - 427
As at 30 June 2006 51,212 91,510 427 886 - (37,918) 106,117 6,393 112,510
As at 1 January
2007 51,212 91,277 2,368 1,844 29 (43,779) 102,951 7,030 109,981
Exchange
translation
differences - - - 1,001 - - 1,001 170 1,171
(Loss)/profit for
the period - - - - - (5,647) (5,647) 945 (4,702)
Dividend paid to a
minority
shareholder of a
subsidiary - - - - - - - (341) (341)
Share-based
compensation
expense - - 1,619 - - - 1,619 - 1,619
Transfer between
reserves - - (285) - - 285 - - -
As at 30 June 2007 51,212 91,277 3,702 2,845 29 (49,141) 99,924 7,804 107,728
The notes below are an integral part of these condensed consolidated interim
accounts.
HUTCHISON CHINA MEDITECH LIMITED
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED 30 JUNE 2007
Unaudited
Six months ended 30 June
Note 2007 2006
US$'000 US$'000
Cash flows from operating activities
Cash used in operations 11 (4,009) (4,060)
Interest received 41 325
Interest paid (172) (189)
Income tax paid (508) -
Net cash used in operating activities (4,648) (3,924)
Cash flows from investing activities
Purchase of property, plant and equipment (1,271) (1,406)
Purchase of trademarks, patents and others (170) (43)
Purchase of available-for-sale financial asset - (124)
Acquisition of a subsidiary by a jointly controlled entity - (4)
Net cash used in investing activities (1,441) (1,577)
Cash flows from financing activities
Increase in amount due to immediate holding company - 2,479
Repayment of short-term bank loans (19) -
Dividend paid to a minority shareholder of a subsidiary (341) -
Issue of shares, net of share issuance costs - 70,109
Net cash (used in)/generated from financing activities (360) 72,588
Net (decrease)/increase in cash and cash equivalents (6,449) 67,087
Cash and cash equivalents at beginning of period 70,613 5,617
Exchange differences (100) (91)
Cash and cash equivalents at end of period 64,064 72,613
Analysis of cash and cash equivalents
Cash and bank balances 13,716 72,613
Financial assets at fair value through profit or loss 50,348 -
64,064 72,613
The notes below are an integral part of these condensed consolidated interim
accounts.
HUTCHISON CHINA MEDITECH LIMITED
NOTES TO THE CONDENSED CONSOLIDATED INTERIM ACCOUNTS
1 General information
Hutchison China MediTech Limited (the 'Company') and its subsidiaries (together
the 'Group') is 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 Peoples' 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. 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 consolidated interim accounts are presented in thousands of United
States Dollars ('US$'000'), unless otherwise stated, and were approved for issue
by the Board of Directors on 8 August 2007.
2 Summary of significant accounting policies
(a) Basis of preparation
The Company has a financial year end date of 31 December. These condensed
consolidated interim accounts for the six months ended 30 June 2007 have been
prepared in accordance with International Accounting Standard 34, ' Interim
financial reporting'. These condensed consolidated interim accounts should be
read in conjunction with the annual financial statements of the Group for the
year ended 31 December 2006.
(b) Significant accounting policies
The condensed consolidated interim accounts have been prepared under the
historical cost convention except for certain financial instruments which are
stated at fair values.
The accounting policies and methods of computation used in the preparation of
these condensed consolidated interim accounts are consistent with those used in
the 2006 annual accounts except for the adoption of standards, amendments and
interpretations issued by the International Accounting Standards Board mandatory
for annual financial periods beginning 1 January 2007.
The adoption of these standards, amendments and interpretations was not material
to the Group's results of operations or financial position.
HUTCHISON CHINA MEDITECH LIMITED
NOTES TO THE CONDENSED CONSOLIDATED INTERIM ACCOUNTS
3 Segment information
The following is an analysis of the sales and results for the period, analysed
by business segment, the Group's primary basis of segmentation.
Six months ended 30 June 2007
China Consumer Drug Corporate Total
healthcare products research unallocated
and expenses
development
US$'000 US$'000 US$'000 US$'000 US$'000
Sales 36,037 1,255 431 - 37,723
Operating profit/(loss) 3,030 (833) (3,782) (2,437) (4,022)
Six months ended 30 June 2006
China Consumer Drug Corporate Total
healthcare products research unallocated
and expenses
development
US$'000 US$'000 US$'000 US$'000 US$'000
Sales 31,129 870 - - 31,999
Operating profit/(loss) 1,871 (480) (3,255) (1,039) (2,903)
Included in the corporate unallocated expenses for the six months ended 30 June
2007 were share-based compensation expense of US$1,619,000 (2006: US$427,000).
4 Other net operating income
Six months ended 30 June
2007 2006
US$'000 US$'000
Interest income 41 325
Fair value gain on financial assets at fair value through profit 1,507 -
or loss
Net foreign exchange gain 312 84
Other operating income 183 166
Other operating expenses (14) (69)
2,029 506
HUTCHISON CHINA MEDITECH LIMITED
NOTES TO THE CONDENSED CONSOLIDATED INTERIM ACCOUNTS
5 Operating loss
Operating loss is stated after charging the following:
Six months ended 30 June
2007 2006
US$'000 US$'000
Amortisation of trademarks, patents and others and leasehold 143 122
land
Cost of inventories recognised as expense 14,163 11,415
Depreciation of property, plant and equipment 1,548 1,354
Employee benefits expense 8,774 6,525
Loss on disposal of property, plant and equipment 18 39
Operating lease rentals in respect of land and buildings 739 588
Research and development expense 1,866 1,644
6 Finance costs
Six months ended 30 June
2007 2006
US$'000 US$'000
Interest expense on short-term bank loans 172 189
7 Tax charge
Six months ended 30 June
2007 2006
US$'000 US$'000
Current tax 508 -
(a) The Group has no assessable profit in Hong Kong and the UK for the
period (2006: Nil).
(b) Pursuant to the relevant PRC income tax rules and regulations, special
income tax rates of (i) 15% has been granted to Hutchison MediPharma Limited as
foreign invested enterprise which is engaged in research and development
activities, and (ii) 27% have been granted to Hutchison Healthcare Limited,
Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited and
Shanghai Hutchison Pharmaceuticals Limited as foreign investment production
enterprises.
(c) As approved by the PRC tax authorities, certain subsidiaries and jointly
controlled entities in the PRC, which qualify as foreign investment production
enterprises, are entitled to a two-year exemption from income taxes followed by
a 50% reduction in income taxes for the ensuring three years, commencing from
their first cumulative profit-making year net of losses carried forward.
HUTCHISON CHINA MEDITECH LIMITED
NOTES TO THE CONDENSED CONSOLIDATED INTERIM ACCOUNTS
8 Loss per share
Basic loss per share is calculated by dividing the loss attributable to equity
holders of the Company by the weighted average number of ordinary shares in
issue during the period.
Six months ended 30 June
2007 2006
Loss attributable to equity holders of the Company (US$'000) (5,647) (3,773)
Weighted average number of ordinary shares in issue 51,212,121 40,122,217
Basic loss per share (US$ per share) (0.1103) (0.0940)
The weighted average number of ordinary shares for the purposes of basic earning
per share has been retrospectively adjusted for the effects of the
capitalisation of 36,666,665 ordinary shares on 9 May 2006.
Diluted loss per share is the same as basic loss per share as the exercise of
the employee share option would have an antidilutive effect.
9 Property, plant and equipment
Six months ended 30 June
2007 2006
US$'000 US$'000
Net book value as at 1 January 22,874 22,012
Additions 1,271 1,406
Acquisition of a subsidiary by a jointly controlled entity - 66
Disposals (18) (39)
Depreciation for the period (1,548) (1,354)
Exchange differences 670 289
Net book value as at 30 June 23,249 22,380
10 Share capital
(a) Authorised and issued capital
There is no movement in authorised and issued capital during the six months
ended 30 June 2007.
(b) Share option scheme
On 4 June 2005, the Company adopted a share option scheme ( the 'Share Option
Scheme'), which was subsequently amended by the Board of Directors of the
Company on 21 March 2007. Pursuant to the Share Option Scheme, the Board of
Directors of the Company may, at its discretion, offer any employees and
directors (including executive and non-executive directors but excluding
independent non-executive directors) of the Company, holding companies of the
Company and any of their subsidiaries or affiliates, and subsidiaries or
affiliates of the Company options to subscribe for shares of the Company. As of
30 June 2007, options representing approximately 4.35% 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.
HUTCHISON CHINA MEDITECH LIMITED
NOTES TO THE CONDENSED CONSOLIDATED INTERIM ACCOUNTS
10 Share capital (Continued)
(b) Share option scheme (Continued)
Details of the share options granted under the Share Option Scheme outstanding
as at 30 June 2007 are as follows:
Effective date of Exercise period of Exercise price Number of shares
grant of share share options subject to the share
options options
Christian Hogg 19 May 2006 From 19 May 2006 to 3 £1.090 768,182
(Notes (i) & June 2015
(ii))
9 employees in 19 May 2006 From 19 May 2006 to £1.090 998,635
aggregate (Notes (i) & 3 June 2015
(ii))
2 employees in 11 September From 11 September £1.715 120,810
aggregate 2006 (Note (ii)) 2006 to 18 May 2016
1 employee 23 March 2007 From 23 March 2007 to £1.750 25,606
(Note (iii)) 22 March 2017
11 employees in 18 May 2007 From 18 May 2007 to £1.535 314,146
aggregate (Note (iii)) 17 May 2017
2,227,379
467,782 share options were granted to certain employees during the six months
ended 30 June 2007. There is no consideration in connection with all share
options granted. Upon the departure of 3 employees, 373,131 share options
lapsed during the six months ended 30 June 2007. Save as mentioned above, no
other share options were cancelled or exercised or lapsed during the six months
ended 30 June 2007. The Company has no legal or constructive obligation to
repurchase or settle the share options in cash.
Notes:
(i) Options were granted on 4 June 2005, conditionally upon the
Company's Admission which took place on 19 May 2006 (the 'Admission Date').
(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 Admission Date and 25% on each of the second and third
anniversaries of the Admission Date. 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 Admission
Date.
(iii) The share options granted 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 date of grant of share options.
HUTCHISON CHINA MEDITECH LIMITED
NOTES TO THE CONDENSED CONSOLIDATED INTERIM ACCOUNTS
10 Share capital (Continued)
(b) Share option scheme (Continued)
The fair value of share options granted under the Share Option Scheme determined
using the Binomial Model is as follows:
Effective date of grant of share 19 May 2006 11 September 2006 23 March 2007 18 May 2007
options
Value of each share option £1.546 £0.553 £0.635 £0.533
Total value of the Share Option £2,732,305 £66,572 £16,261 £167,317
Scheme (Note (i))
Significant inputs into the
valuation model:
Exercise price £1.090 £1.715 £1.750 £1.535
Share price at effective grant £2.5050 £1.7325 £1.7900 £1.5400
date
Expected volatility (Note (ii)) 38.8% 38.8% 40.0% 40.0%
Risk-free interest rate 4.540% 4.766% 4.834% 5.098%
Life of share options 9.04 years 9.69 years 10 years 10 years
Expected dividend yield 0% 0% 0% 0%
Notes:
(i) The fair value of share options in connection with the
2,227,379 share options granted amounting to £2,982,455 (equivalent to
US$5,973,000) is to be recognised as expense of the Group over the vesting
period as mentioned in the notes above from the effective date of grant of share
options. The amount recognised as expense for the six months ended 30 June 2007
amounted to US$1,619,000 (2006: US$427,000).
(i) The volatility of the underlying stock during the life of
the share options is estimated based on the historical volatility of the
comparable companies for the past one to two years as of the respective
valuation date, that is, the effective date of grant of share options, since
there is no or only a relatively short period of trading record of the Company's
shares at the respective grant dates.
HUTCHISON CHINA MEDITECH LIMITED
NOTES TO THE CONDENSED CONSOLIDATED INTERIM ACCOUNTS
11 Note to condensed consolidated cash flow statement
Reconciliation of loss for the period to cash used in operations
Six months ended 30 June
2007 2006
US$'000 US$'000
Loss for the period (4,702) (3,092)
Adjustments for:
Tax charge 508 -
Share-based compensation expense 1,619 427
Amortisation of trademarks, patents and others and 143 122
leasehold land
Depreciation on property, plant and equipment 1,548 1,354
Loss on disposal of property, plant and equipment 18 39
Interest income (41) (325)
Interest expense 172 189
(735) (1,286)
Changes in working capital:
- decrease in inventories 332 312
- increase in bill and trade receivables (8,428) (5,658)
- decrease in other receivables and prepayments 25 251
- increase in trade payables 2,596 48
- increase in other payables and accruals and amounts due 2,201 2,273
to related parties
Cash used in operations (4,009) (4,060)
12 Significant related party transactions
Save as disclosed above, the Group has the following significant transactions
during the period with related parties which were carried out in the normal
course of business at terms determined and agreed by the relevant parties:
Six months ended 30 June
2007 2006
US$'000 US$'000
Revenues:
Sales of goods
- Fellow subsidiaries 1,813 1,094
Expenses:
Purchase of goods and raw materials
- A minority shareholder of a subsidiary 253 675
Sub-contracting charges
- A minority shareholder of a subsidiary 532 434
HUTCHISON CHINA MEDITECH LIMITED
NOTES TO THE CONDENSED CONSOLIDATED INTERIM ACCOUNTS
12 Significant related party transactions (Continued)
Six months ended 30 June
2007 2006
US$'000 US$'000
Expenses:
Management service fee
- An intermediate holding company 437 184
Technology fee
- A minority shareholder of a subsidiary 121 151
Key management compensation borne by an
intermediate holding company
- Wages, salaries and bonus - 100
- Pension costs - defined contribution plans - 5
Other administrative expenses borne by an intermediate - 267
holding company
No transactions have been entered into with the directors of the Company (being
the key management personnel) during the period other than the emoluments paid
to them.
30 June 31 December
2007 2006
US$'000 US$'000
Balances with related parties included in:
Trade receivables due from related parties
- A fellow subsidiary 2,316 833
Trade payables due to related parties
- A fellow subsidiary 532 -
- A minority shareholder of a subsidiary 279 499
Amounts due to related parties
- An intermediate holding company - 740
- Minority shareholders of a subsidiary 202 128
Note:
Balances with related parties are unsecured, interest-free and repayable on
demand. The carrying value of balances with related parties approximates their
fair values due to the short term maturity.
13 Capital commitments
The Group has the following capital commitments not provided for at
the balance sheet date:
30 June 31 December
2007 2006
US$'000 US$'000
Property, plant and equipment
Authorised but not contracted for 244 161
Contracted but not provided for 4,022 739
4,266 900
REPORT ON REVIEW OF INTERIM FINANCIAL INFORMATION TO THE BOARD OF DIRECTORS OF
HUTCHISON CHINA MEDITECH LIMITED
(incorporated in the Cayman lslands with limited liability)
Introduction
We have reviewed the interim financial information set out on pages 8 to 19,
which comprises the condensed consolidated balance sheet of Hutchison China
MediTech Limited (the 'Company') and its subsidiaries (together, the 'Group') as
at 30 June 2007, and the condensed consolidated income statement, the condensed
consolidated statement of changes in equity and the condensed consolidated cash
flow statement for the six-month period then ended, and a summary of significant
accounting policies and other explanatory notes. 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'. Our responsibility is to express a conclusion on
this interim financial information based on our review and to report our
conclusion solely to you, as a body, 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' issued by the International Federation of
Accountants. 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 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 2007
This information is provided by RNS
The company news service from the London Stock Exchange
Friday, 17th May 2024
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