May 13, 2011
Press Release

C&O keeps its high gross profit margin at 62%, net profit attributable to shareholders amounted to HK$34 million in 3QFY2011

Financial Highlights

HK$’000	9MFY11	9MFY10	Change (%)	3QFY11	3QFY10	Change (%)
Revenue	453,333	461,622	-2%	170,901	165,806	3%
Gross Profit	284,926	288,942	-1%	106,070	104,640	1%
Gross Profit Margin	63%	63%	-	62%	63%	-
Operating Profit	102,921	126,322	-19%	38,649	59,567	-35%
Net Profit attributable to shareholders	91,458	97,183	-6%	33,574	41,529	-19%
Net Profit Margin	20%	21%	-	20%	25 %	-

Mainboard-listed C & O Pharmaceutical Technology (Holdings) Limited (“C&O” or the “Company” and together with its subsidiary companies, the “Group”) today reported that its net profit attributable to shareholders for the third quarter ended 31 March 2011 (“3QFY2011”) amounted to HK$34million. Group revenue for the latest quarter rose 3% to HK$171 million. Sales of its Exclusive products and C&O Branded products grew moderately by 2% and 9% respectively.

Commenting on the performance of the Group, Mr Gao Bin, Deputy Chairman of C&O said, “Our sales growth were inevitably disturbed by the uncertainty in government policy on drug pricing. However, we are gratified that the Group register top-line growth thanks to the market recognition in our C&O Branded as well as Exclusive products. We remain well-prepared for challenges ahead.”

Exclusive products

In 3QFY2011, revenue from Exclusive products increased to HK$115 million, despite Amoxycillin sales declining by 2% to HK$92 million as a result of a transition in packing from 24-capsules to 36-capsules. However, combined sales of other Exclusive products registered a sizeable growth of 18% to HK$23 million.

C&O Branded products

Despite unstable market demand for some C&O Branded products, the Group recorded a 9% growth in sales to HK$54 million.

Correspondingly, C&O’s gross profit remained stable at HK$106 million, representing a gross margin of 62%. Over the last eight quarters, the Group has maintained a high gross profit margin of at least 60%.

Other revenue and net income dropped 98% due to the absence of a gain from the disposal of Nanjing Meizhanli Pharmaceutical Technology Co., Limited (“NJMZ”), in which approximately HK$18 million was recorded in the period a year ago.

Distribution expenses increased by 3% year-on-year, in proportion to higher sales recorded in 3QFY2011, and it has been kept stable as a percentage of revenue at 27%. Administrative expenses rose 16% largely due to wage increment.

Income tax decreased substantially by 74%, largely due to the absence of a provision for withholding tax pertaining to the declaration of the second special interim dividend in which HK$12 million was recorded a year ago.

Excluding the one-time gain from the disposal of NJMZ and the provision for withholding tax pertaining to the declaration of the second special interim dividend in 3QFY2010, the Group’s net profit would have declined by 6% from HK$35 million in 3QFY2010 to HK$33 million in 3QFY2011.

9MFY2011 Performance

For the nine months ended 31 March 2011 (“9MFY11”), revenue dipped 2% to HK$453 million largely due to the decline in sales of both Exclusive products and C&O Branded products, while net profit attributable to shareholders declined by 6% to HK$91 million.

The Group’s balance sheet remained healthy, with total cash (including fixed deposits held at banks and cash and cash equivalents) of HK$97 million as at 31 March 2011, down from HK$286 million recorded a year ago. This was attributable to the payout of dividends (declared during its last financial year) in 9MFY2011.

C&O’s basic earnings per ordinary share declined from HK cents 6.26 in 3QFY10 to HK cents 5.06 in 3QFY11, based on 663,360,000 ordinary shares. Net asset value per ordinary share was at HK$1.076 as at 31 March 2011 (As at 30 June 2010: HK$0.998).

Outlook

China’s pharmaceutical industry remains buoyant on the back of the favourable macro environment and increase in government spending on medical care. China is expected to become the world’s third largest pharmaceutical market by 2011, from its number five ranking in 2009 (Source: SFDA Southern Medicine Economic Research Institute).

More recently, the PRC government announced another round of price adjustments to drug products in March 2011. Although 7 C&O’s products and 1 Exclusive product were covered, C&O expects the average unit sales price of these products to remain stable.

Said Mr Gao, “The Group is well prepared for potential market changes and has taken the necessary measures and strategy to maintain its sales performance which is expected to be rather stable in the coming quarters.”

“Leveraging on Sumitomo’s network, we have acquired another exclusive distributorship in April 2011 from a major pharmaceutical company in Japan, Shionogi & Co., Ltd. (“Shionogi”) By adding Shionogi’s injectable oxacephem antibiotics, “Flumarin®” (氟吗宁®), together with our upcoming C&O Branded product, Edaravone Injection, is expected to contribute to the Group’s performance in the coming financial year.”

To date, the Group’s portfolio includes 8 Exclusive products and 28 C&O Branded products.