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Announced 2018 Annual Results - Business Structure further Optimized Company Results Reach New High Again

25 Mar 2019



(25 March 2019– Hong Kong) Sinopharm Group Co. Ltd. (“Sinopharm” or the “Company”, Stock Code: 1099.HK), the biggest wholesaler and retailer of pharmaceutical and healthcare products, as well as a leading supply chain service vendor in China, is pleased to announce the audited consolidated results of the Company and its subsidiaries (the “Group”) prepared under the Hong Kong Financial Reporting Standard for the year ended 31 December 2018 (the “Reporting Period”).

During the Reporting Period, the Group recorded a revenue of RMB344,525.82 million, representing an increase of 11.73% as compared with the corresponding period of last year. The Group recorded a net profit of RMB9,404.48 million, representing an increase of 8.53% as compared with the corresponding period of last year. Profit attributable to shareholders of the Company amounted to RMB5,835.84 million, representing an increase of 4.67% as compared with the corresponding period of last year. Basic earnings per share of the Company amounted to RMB1.97, representing an increase of 4.79% as compared with the corresponding period of last year.

Due to influence of policies, the growth of pharmaceutical distribution industry dropped slightly on a year-on-year basis, but still continued to exceed the macroeconomic growth. The industry competition has become more intense, the pharmaceutical distribution and retail enterprises have accelerated the pace of merger, acquisition and expansion, the pace of industry consolidation has accelerated, highlighting the importance of scale advantage. Policies such as “two-invoice system” and centralized drug procurement have brought challenges to the industry, but the impact will be short term and manageable, in the long run they will contribute to facilitate the acceleration of the survival of the fittest and the consolidation of the industry. The concentration ratio of the industry is bound to increase in the future, enabling large-scale enterprises with scale advantage and superior control and management like us to get better development.

Significant effect from structural adjustment of distribution business
Faced with challenging industry situation and negative impact from the performance results of the Group in the first quarter of this year, the Group focused on direct sale, deeply engaged end customers, enhanced product aggregation, deepened management and control, and promoted innovation, resulting in significant growth in the direct sale business, the proportion of direct sales business in distribution revenue increased to 89.44%, representing a year-on-year increase of 6.91 percentage point, which drove the improvement in gross profit margin. This promoted the recovery growth in the revenue and net profit during the year, further consolidating the leading position and advantages of the Group. In the pharmaceutical distribution sector, the Group has built an integrated pharmaceutical supply chain, established an advanced supply chain management model, achieved steady adjustments in product structures, continuously optimized customer structure, continually expanded and integrated national distribution network. As at 31 December 2018, the Group's distribution network covered 31 provinces, municipalities and autonomous regions across China, with a prefecture-level administrative region coverage rate of 97% and a county-level administrative region coverage rate of 98%. The Group's national pharmaceutical distribution logistics network included 5 logistic hubs, 38 logistic centers at provincial level, 240 logistics outlets at prefecture level, 26 retail logistics outlets, with a total number of logistics outlets reaching 309.

Leading position in the retail business
In respect of retail pharmacy, aiming to establish an integrated wholesale-retail pharmaceutical distribution model, the Group vigorously promoted the development of the retail business and strengthened its leading advantages. The Group has set up retail chain pharmacies that are either directly operated by the Group or through franchises in major cities throughout China. Our retail network covered 30 provinces, municipalities and autonomous regions and more than 229 cities. As at 31 December 2018, the total number of our retail pharmacies reached 5,183, representing an increase of 740 on a year-on-year basis, our pharmaceutical retail scale continued to lead the industry. Sinopharm Holding Guoda Drugstore Co., Ltd.’s strategic cooperation with Walgreens Boots Alliance, Inc., the world’s leading pharmaceutical retailer, has progressed smoothly, gradually forming a differentiated business model which is different from the homogeneous competition of domestic retail chain pharmacies, its management capability and operation efficiency continued to improve.

Rapid growth of medical device business
The Group actively seized the opportunities of rapid development of medical device industry and vigorously developed medical device distribution business. In 2018, the sales of the Group's medical device business achieved rapid growth, leading to the increase in the Group’s revenue growth and gross profit margin. The acquisition of 60% equity interests in China’s largest medical device distributor China National Scientific Instruments and Materials Co., Ltd. was completed successfully, further consolidating the Group’s leading position in China’s medical device industry.

Focus on transformation, advance innovation and strengthen management and control
The Group continued to rapidly promote the supply chain service transformation, and established various nationwide business platforms. The promotion and usage of these platforms have received initial success and has been widely recognized by our suppliers and subsidiaries. The Group established a “full track” vaccine tracking system and endeavored to become the industry benchmark, resulting in integration of tracking and business process and further enhancing its innovative cold-chain logistics service capabilities. By leveraging our industry-leading position and strong brand influence, and combining our experience in the industry with market demand, the Group established a supply chain financial service platform which achieved the combination of industry and finance. The Group comprehensively promoted the integrated operation, achieving business management and control integration, supply chain coordination and service sharing.

Looking forward, Mr. Li Zhiming, Chairman and Executive Director of Sinopharm Group Co. Ltd. said, the healthcare industry will maintain a stable growth rate which is attributable to factors such as the aging population, urbanization, increase in chronic diseases, increase in healthcare investments as well as the continuous deepening of healthcare reform, etc. The business opportunities brought by various innovative business models will also drive the future growth in the industry. The healthcare industry is still one of the industries with the highest growth potential. We believe that the continuous deepening of healthcare and the continued launch of various policies will accelerate the survival of the fittest in the industry and bring about further compliance and consolidation. The prospect of the industry will become better and better. As the largest and most powerful pharmaceutical distributor and retailer in China, Sinopharm will continue to conform to the “new normal” of the development of the pharmaceutical healthcare industry, seize the opportunities brought by supply-side structural reforms, further stimulate corporate vitality and creativity, and continue to promote the high-quality development of the Group under the guidance of the new strategy.」

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