Sinopharm Group Announces 2019 Annual Results Continuous Improvement in Market Share Maintaining Steady Business Growth
30 Mar 2020
(March 30 2020, 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 Standards (“HKFRSs”) for the year ended 31 December 2019 (the “Reporting Period”).
During the Reporting Period, the Group recorded revenue of RMB 425,272.73 million, representing an increase of 23.44% as compared with the corresponding period of last year. The Group recorded a net profit of RMB 10,620.07 million, representing an increase of 12.93% as compared with the corresponding period of last year; profit attributable to owners of the parent amounted to RMB 6,252.54million, representing an increase of 7.14% as compared with the corresponding period of last year. Basic earnings per share of the Company amounted to RMB2.11, representing an increase of 7.11% as compared with the corresponding period of last year. The final dividend for the year 2019 of RMB 0.60 per share (tax inclusive), amounting to RMB1,872,3942 thousand in total, will be reviewed by the shareholders at the annual general meeting of the Company on 11 June 2020.
In the past few years, with the issue and implementation of policies such as the “Two-Invoice Zero Mark-up for Drug Sales at Public Hospitals”, “Negotiation for Medical Insurance Catalog”, “Centralized Procurement of Drugs”, and “Diagnosis-Related Groups (DRGs)”, the government departments’ intention to “implement value-oriented strategic purchases of medical insurance” became very clear, and the supervision continued to tighten. As competition intensified, the prices of pharmaceutical and medical device products gradually declined. On the other hand, these policies also brought about development opportunities as industry concentration raised and leading enterprises became increasingly competitive. Size and efficiency have become the core competitiveness for the survival and development of pharmaceutical distribution companies in the future. The environment of the pharmaceutical reform hastened the survival of the fittest in the distribution industry, the rise of leading enterprises such as Sinopharm would accelerate based on their own advantages in this round of transformation.
Solid advantages of leader in the distribution business and continuous increase in market share
In the past two years, regulatory policies such as “Centralized Procurement” and “Two-Invoice System” have had a profound impact on the pharmaceutical distribution industry. Seizing the historical opportunity of structural reform in the distribution industry, the Group comprehensively improved the operational efficiency and service capabilities of the distribution business, and continued to tap the advantages of integrated operations and resource coordination. Leveraging the established integrated pharmaceutical supply chain and advanced supply chain management model, it has further promoted the penetration of the distribution network and strengthened the coverage of and ability of serving medical terminals such as secondary and tertiary hospitals, private hospitals, community health centres, and township health centres. By the end of 2019, the Group’s revenue from pharmaceutical distribution business has reached RMB337.317 billion, representing a year-on-year increase of 20.02%, achieving rapid growth in the pharmaceutical distribution segment and continuous increase in market share. In 2019, the Group successfully acquired 100%equity interests of Anhui Pharmaceutical (Group) Co., Ltd. and 70% equity interests of Guizhou Yitong Pharmaceutical Co., Ltd. respectively, effectively strengthening the business networks in Anhui and Guizhou provinces, and achieving a leap in market share in the relevant region.
Rapid development in professional pharmacies and optimization and reinforcement of retail layout
The retail industry is facing new market opportunities and regulatory challenges. Guided by the strategy of “wholesale-retail integration”, the Group actively improved the construction of provincial platforms, implemented unified standards and chain certification system, facilitated the overall upgrade of retail brands, and promoted the sustained and rapid development of the pharmaceutical retail business. By the end of 2019, the Group’s revenue from pharmaceutical retail business amounted to RMB19.803 billion, representing a year-on-year increase of 33.77%. To further improve the capabilities of serving end customers and tap new pharmaceutical retail business growth opportunities, by making full use of the advantages of the distribution supply chain system and the accumulated hospital customer resources, the Group strove build a leading professional pharmacy system, so as to achieve the coordinated development of traditional pharmacies and professional pharmacies. By the end of 2019, Sinopharm Holding Guoda Drugstore Co., Ltd., a subsidiary of the Company, has set up pharmacies including 5,021 retail pharmacies, covering 19 provinces, municipalities and au-tonomous regions across the country, with retail pharmacies amounted to 5,021. The Group also has 1,183 professional pharmacies with a network covering 30 provinces, municipalities and au-tonomous regions. The scale of retail network continued to lead the industry. The Group achieved fast growth for all-channel pharmaceutical retail business during the Reporting Period.
Medical devices business developed rapidly with accelerated integration of network layout
Medical devices is one of Sinopharm’s important strategic businesses to achieve high-quality and sustainable development. The successive formulation and issue of the policies of “Unified Coding of Medical Consumables”, “Centralized Procurement of Medical Devices ” and “Two Invoice System for Medical Devices” in 2019 indicated that the regulatory policies for medical devices distribution will follow the regulatory direction of the pharmaceutical industry, and will bring similar challenges and changes. To effectively cope with the potential impact of the policies, the Group actively deepened its strategic cooperation with upstream and downstream companies as well as leading medical devices companies worldwide. Meanwhile, the Group actively explored professional comprehensive service solutions, to rapidly advance the management of medical consumables supply chain and other innovative medical services. These strategies continued to drive the development of the Group’s medical devices business, ensuring the Group’s leading position in the Chinese medical device industry, and further promoting the Group’s transformation and upgrade into a comprehensive medical service provider. During the Reporting Period, the sales revenue from the medical devices segment increase by 40.06% compared with the same period last year.
Improving support capability of the headquarter and strengthening management and control of business risk
In 2019, the Group established a global procurement and supply chain service center, which focused on service innovation to make an all-out effort to promote business optimization and reform to create Sinopharm’s turnkey solution for the supply chain. In addition, the Group also focused on promoting financial innovation in the supply chain, deepened the cooperation with financial institutions, and effectively used comprehensive funding channels such as equity and debt to further optimize the Company’s expense structure and profitability. To continue to improve the quality of business operations, the Group conducted comprehensive risk inspection and identification, strengthened management and control of receivables and cash flows, and improved the Group’s credit and receivables management system, further strengthening corporate governance and compliance management. By the end of 2019, the Group’s net operating cash inflow amounted to RMB18.777 billion, representing an increase of RMB 15.123 billion compared with the same period last year, effectively demonstrating the Company’s business goal of high-quality and sustainable development.
The epidemic has had temporary impacts on the upstream and downstream of the industry as well as Sinopharm Group, the Group believes with the gradual end of the epidemic, social production and operation will return to normal, relevant price reduction compensation and sales rebate will process as usual, and relevant financial indicators will recover gradually. In addition to the impact of the epidemic, various measures will be implemented in the coming years for the national health care system, the market competition will further intensified and it would bring tougher challenges to the ability of corporate governance. In the future, it’s expected that the impact of structural adjustment in the distribution industry will gradually manifest. As a leading enterprise in the pharmaceutical distribution industry, the Group will carefully study the industry trends, optimize the Group’s principal businesses, accurately judge the situation and proactively address the challenges. The Company will fully explore its core competitive advantages and strengthen the Company’s diversified business layout, focusing on developing one-stop, integrated supply chain service capabilities, so as to promote win-win development with upstream manufacturers and downstream end customers. In addition, the Group will select suitable targets for mergers and acquisitions in the pharmaceutical retail, medical devices and other business segments. Through the “dual drivers” of endogenous and external growth, the Group will actively promote the overall optimization and improvement of the Company’s business to minimize the negative impact of industry policies, fully explore incremental profit growth drivers, and comprehensively enhance the Company’s business advantages.