Aug 23, 2010
Press Release

C&O posts record year with FY2010 net profit up 44% to HK$156 million on revenue of HK$651 million

• 4Q net profit jumps 62% to HK$60 million
• Declares final dividend of S$0.0135 per share, bringing total dividend payout for FY2010 to $0.0815 per share

Financial Highlights

HK$’000	FY10	FY09	Change (%)	4QFY10	4QFY09	Change (%)
Revenue	650,926	548,566	+19%	189,304	162,998	+16%
Gross Profit	411,770	321,974	+28%	122,828	100,093	+23%
Gross Profit Margin	63%	59%	-	65%	61%	-
Operating Profit	202,190	119,016	+70%	75,868	43,355	+75%
Net Profit	156,387	108,496	+44%	60,055	37,197	+62%
Net Profit Margin	24%	20%	-	32%	23%	-

Mainboard-listed C & O Pharmaceutical Technology (Holdings) Limited (“C&O” or the “Company” and together with its subsidiary companies, the “Group”) announced a record net profit of HK$156 million on revenue of HK$651 million, up 44% and 19% respectively for the full year ended 30 June 2010 (“FY2010).

The sterling set of results demonstrates the Group’s success in shifting the product mix towards high margin products. Sales of Exclusive and C&O branded products for FY2010 grew 20% and 26% respectively year-on-year.

Gross profit increased 28% to HK$412 million, while gross profit margin rose from 59% in FY2009 to 63% in FY2010. This was mainly attributable to stronger sales contribution from high-margin products, lower import price of Exclusive products, as well as lower unit cost of C&O Branded products due to economies of scale achieved on the back of higher production levels.

4QFY10 Performance

For the latest quarter ended 30 June 2010 (“4QFY10”), net profit increased 62% to HK$60 million. Revenue grew 16% to HK$189 million on higher sales performance of its Exclusive and C&O Branded product segments. Sales of Exclusive products improved 17% to HK$127 million while sales of C&O Branded products leapt 34% to HK$60 million year-on-year.

Commenting on the Group’s performance and strategy, Mr Gao Bin, Executive Chairman of C&O said, “We are pleased with yet another sterling quarter, which helped the Group achieve a record year for both revenue and profit. Our growth is a result of our sustainable business strategy to streamline operations, focus on high-margin products, and to consistently build the C&O brand.”

In the latest 4th quarter, the Group’s gross profit rose 23% to HK$123 million, thereby generating an increase in its overall gross profit margin, from 61% in 4QFY09 to 65%. Since the beginning of FY2010, the Group has been maintaining a gross profit margin of at least 60% each quarter, affirming its efforts in shifting its sale mix to higher value products.

In line with higher sales in the latest quarter, distribution expenses increased by 6% year-on-year. 4QFY10 income tax increased from approximately HK$6 million to approximately HK$16 million, due mainly to higher profits and the provision of withholding tax in relation to the declaration of dividends.

The Group’s balance sheet remains strong, with total cash (including fixed deposits held at banks and cash and cash equivalents) of HK$286 million as at 30 June 2010, up from HK$193 million as at 30 June 2009.

C&O’s basic earnings per ordinary share rose from HK cents 5.6 in 4QFY09 to HK cents 9.1 in 4QFY10, based on 663,360,000 ordinary shares. Net asset value per ordinary share was at HK$0.998 as at 30 June 2010 (As at 30 June 2009: HK$1.186).

Dividend

“We are heartened by the continued support of our shareholders. To show our appreciation, the Board has declared a final dividend of S$0.0135 per ordinary share,” Mr Gao added.

Including the dividends declared in 2QFY10 and 3QFY10, shareholders would receive a total of S$0.0815 per share for FY2010, representing a payout ratio of 193%.

Outlook

Moving ahead, C&O expects to maintain stable organic growth in the coming financial year and remains optimistic about the industry outlook, as well as its performance. Despite economic turmoil, the steady growth of the PRC economy, coupled with increasing government support to provide universal access to basic healthcare will see the continual expansion of the PRC pharmaceutical market in the foreseeable future. China’s overall healthcare expenditure has experienced double-digit growth in the past two decades. This has resulted in intensified competition and a more consolidated market.

Mr Gao said, “We believe that an enterprise’s future, especially in the pharmaceutical industry, lies on its innovative ability. In the face of keen competition, we have not only deepened our well-established extensive distribution network and strengthened our brand building and marketing abilities, but we are also investing heavily in R&D.”

The Group’s R&D competency is well recognised. During the fiscal year under review, four of its R&D projects were selected for government sponsorship under the Eleventh Five Year Plan. The Group launched two new C&O Branded products, Levocarnitine Injection and Cefuroxime Axetil Capsule in FY2010 and expects to launch more C&O Branded products in the coming year.

It has scheduled to launch Cetrizine Dihydrocholride Tablets in 1QFY11, an over-the-counter drug that is also included in the National Health Insurance Scheme. Cetrizine Dihydrocholride is a second generation antihistamine drug, used for the treatment of allergies, such as hay fever, angioedema and urticaria.

Another upcoming product in the pipeline is Pulifloxin Tablets which the Group plans to launch in 2QFY11. Pulifloxin is a fourth-generation Quinolone antibiotic for the treatment of a wide range of disease-causing bacteria.

The Group is also increasing its efforts to expand its Exclusive product portfolio by exploring collaboration opportunities with overseas pharmaceutical companies to distribute foreign drugs in the PRC market.

Recently, the PRC government’s move to propose reforming the drug pricing policy has raised concerns. However, the Group anticipates that the increase in sales quantity resulting from increased government funding as part of the healthcare reform, as well as the increase in demand for healthcare services will be more than enough to offset potential losses caused by lower drug prices.

“We believe we are well positioned to meet such challenges and will pay close attention to policy changes and react promptly,” Mr Gao concluded.