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Shenzhen Accord Pharmaceutical Co., Ltd.
Semi-annual Report 2004
August 2004
. IMPORTANT NOTICE--------------------------------------------------------------------
. COMPANY PROFILE---------------------------------------------------------------------
. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHARES
HELD BY MAIN SHAREHOLDERS----------------------------------------------------------------------
. PARTICULARS ABOUT DIRECTORS, SUPERVISORS AND SENIOR
EXECUTIVES---------------------------------------------------------------------------------------------------
. DISCUSSION AND ANALYSIS OF THE MANAGEMENT----------------------
. SIGNIFICANT EVENTS------------------------------------------------------------------
. FINANCIAL REPORT---------------------------------------------------------------------
. DOCUMENTS AVAILABLE FOR REFERENCE-----------------------------------
. Important Notice
1. The Board of Directors of Shenzhen Accord Pharmaceutical Co., Ltd. (hereinafter referred to as the Company) and its directors individually and collectively accept responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are no material omissions nor errors which would render any statement misleading. 2. This report was prepared in both Chinese and English. Should be there any difference in interpretation between the two versions, the Chinese version shall prevail. 3. No director stated that he (she) could not ensure the correctness, accuracy and completeness of the contents of the Semi-annual Report or have objection for this report. 4. Due to business trip, Director Ms. Yuan Xueping were absent from the 28th meeting of the 3rd Board of Directors, in which the semi-annual report for 2004 was examined and respectively entrusted Director Mr. Guo Yuan to attend and vote on her behalf in written form. 5. The semi-annual financial report of the Company has not been audited. 6. Chairman of the Company Mr. Guo Yuan, General Manager Mr. Shi Jinming and Chief Financial Officer Ms. Lin Jing and Person in charge of Accounting Organ Ms. Lai Wanying hereby confirm that the Financial Report enclosed in the semi-annual report is true and complete. I. Company information 1. Legal Name of the Company In English: Shenzhen Accord Pharmaceutical Co., Ltd. Abbr. of English name: Accord Pharm. 2. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: Accord Pharm./Accord Pharm.-B Stock Code: 000028/200028 3. Registered Address: Accord Pharm. Bldg., No. 15, Ba Gua Si Road, Futian District, Shenzhen Guangdong Office Address: Accord Pharm. Bldg., No. 15, Ba Gua Si Road, Futian District, Shenzhen Guangdong Post Code: 518029 The Company’s Internet Website: http://www.szaccord.com.cn E-mail: 0028@szaccord.com.cn 4. Legal Representative: Guo Yuan 5. Secretary of the Board: Chen Changbing Contact Address: Accord Pharm. Bldg., No. 15, Ba Gua Si Road, Futian District, Shenzhen Guangdong Tel: +(86) 755 25875195 Fax: +(86) 755 25875166 E-mail: champion@szaccord.com.cn 6. Newspapers Chosen for Disclosing the Information of the Company: Securities Times and Ta Kung Pao Internet Website Appointed by CSRC for Publishing the Semi-annual Report: http://www. szse.cn or http://www.cninfo.com.cn The Place Where the Interim Report is Prepared and Placed: Secretariat of the Board of Directors II. Major financial data and indexes (I) Major accounting data and financial indexes Increase/decrease at
At the end of report
At the period-end
the end of this report
Items Unit period
of last year
period compared with
the year-begin
Shareholders’ equity RMB 351,810,658.76 Increase/decrease in
this report period
The report period
At the same
compared with the
(Jan.-Jun. 2004)
period of last year
same period of last
Items of deducting non-recurring gains and losses (II) Explanation on difference in net profit between domestic accounting statement and international accounting statement The Company’s net profit was respectively RMB 11,953,000 and RMB 11,503,000 as audited according to CAS and IAS. Reasons of difference are as follows: As reported under Accounting System of Enterprise Section III. Change in Share Capital and Particulars about Share Held by Main Shareholders I. Particulars about change in share capital In the report period, the Company’s total shares and its structure remained unchanged. II. About shareholders 1. Ended June 30, 2004, the Company had totally 35,766 shareholders, including 25,388 shareholders of A-share and 10,378 shareholder of B-share. 2. Particulars about shares held by the top ten shareholders (ended June 30, 2004) Total shareholder at the end of report period Particulars about shares held by the top ten shareholders Explanation on associated relationship among the top Among the above top ten shareholders, there exists no associated relationship among state-owned shareholder and each shareholders of legal person’s share, and they do not belong to the consistent actionist regulated by the Management Measure of Information Disclosure on Change of Shareholding for Listed Companies. For other shareholders of circulation share, the Company is unknown Particulars about shares held by the top ten shareholders of circulation share Full name of Shareholders
Number of circulation shares held at
Type (A-share, B-share, H-share and
the period-end
Explanation on associated relationship among the The Company is unknown whether there exists associated top ten shareholders or consistent action relationship or whether they belong to the consistent actor. Explanation on the appointed period of holding shares which strategic investor or general legal person participates in the allotment of new shares 3. In the report period, the controlling shareholder of the Company remained unchanged. On Feb. 28, 2004, Shenzhen Investment Holding Corporation, the first largest shareholder of the Company, signed the Stock Transfer Agreement with SINO-PHARM Holding Co., Ltd. on the transfer matters of 124,864,740 state-owned shares held by Shenzhen Investment Holding Corporation. SINO-PHARM Holding Co., Ltd. agreed to acquire 124,864,740 state-owned shares, and has paid assignment charge of the said stock according to the agreement. The work of reporting for approval related with the said acquisition is in progress; the relevant equity transfer procedure will be handled after replay of State-owned Assets Supervision and Administration Commission of the State Council and approval of CSRC. At the appointed time, SINO-PHARM Holding Co., Ltd. will become the controlling shareholder of the Company. Section IV. PARTICULARS ABOUT DIRECTORS, SUPERVISORS AND SENIOR EXECUTIVES I. In the report period, directors, supervisors and senior executives of the Company did not hold the Company’s shares. II. Particulars about change in directors, supervisors and senior executives in the report period: On Feb. 27, 2004, the 25th Meeting of the 3rd Board of Directors agreed that Director Su Yanwei and Director Qin Changsheng no longer concurrently took the post of General Manager and CFO respectively; the Meeting engaged Mr. Shi Jinming and Ms. Lin Jing as General Manager and CFO respectively at the same time. The public notice on resolution of the meeting was published on Securities Times and Ta Kung Pao dated Feb. 28, 2004. Section V. Discussion and Analysis of the Management I. Whole operation in the report period 1. In the report period, it was the interim when the Company’s state-owned shares were transferred. All staff of the Company studied and caught the management concept and enterprise culture of SINOPHARM with consciousness that considering the overall condition and open psychology, transferred the idea and became realistic and enterprising, which made the Company’s production and operation reach the expected objectives of being stably developing in the interim. Under the condition that the thought of staff was steady and enterprise’s operation was stable, the Company realized income from main operation amounting to RMB 805.5987 million in the first half of the year, a decrease of 19.82% over the same period of last year (if eliminate the factor that Shenzhen Jian’an Pharmaceutical Company, originally affiliated wholly-owned enterprise, was not listed in the consolidated statements in the year, then income from main operations realized in the first half of the year only decreased by 0.25% over the last year); meanwhile, under the condition that the price of medicine continued to be low, profit from main operation amounting to RMB 197.9506 million was still realized, a decrease of 16.35% over the same period of last year (if considering the factor of Jian’an Company, then decrease by 5.87%). In the aspect of pharmaceutical wholesale, the enterprise division of the Company represented the operating concept of “With purchase as the lead and with varieties as direction” through adjusting purchase system and revising partial business flow; realized the transfer concept through “Four changes” to enhance the services: firstly, change service attitude, actively communicate with customers and enhance the satisfaction; secondly, change the way of behavior and change “Sitting and waiting for Commerce” into “Searching for Commerce”; thirdly, change way of work from “Discussing principles” to “Dealing with concrete matters relating to work”; fourthly, change the management concept, emphasize the executive force and attach importance to results. Meanwhile, the enterprise division reinforced the management to accounts receivable, recent inventories and goods withdrawal and gained preliminary achievements. In the aspect of pharmaceutical retail, Accord Chain Company made the Company reduce the losses by a relatively great margin in the respect of medicine retail through several measures such as developing the planning of commodity, conducting brand management, holding topic promotion, creating sample shop and enhancing service level etc. In the aspect of pharmaceutical industry, Shenzhen Pharmaceutical Plant actively replied to the influence from policy price reduction of antibiotics, adjusted the sales strategy with market as direction, reinforced channel and terminal construction, walked road of refined products and enhanced the operating efficiency of market, which made sales volume of two leading varieties, namely “Federal Cough Syrup” and “Dali Xinzhen”, increased by 1.25 million pieces and 1.71 million pieces respectively over the same period of last year. II. Analysis to main operating results and financial position (I) Scope of main operations of the Company is manufacture, wholesale and chain retail of medicine. The leading products of medicine industrial enterprises are Federal Cough Syrup, Cefuroxime Sodium and Jian’er Qingjie Ye etc. The wholesale and retail of medicine is mainly to distribute the medicine produced by the domestic and oversea factories with distribution variety reaching over 10,000 kinds and the sales market is mainly in Shenzhen and its adjacent areas. (II) Formation of income from main operations 1. Statement of main operations classified according to industries or products Gross Increase/decrease Increase/decrease Increase/decrease Transactions conducted according to market price Note: In the report period, amount of related transactions that the Company sold goods to its controlling and subsidiaries was RMB 256,410.26. 2. Income from main operations classified according to areas (Unit: RMB) Note: Domestic sales areas were mainly in Shenzhen. (III) Brief analysis to financial position In the report period, changes in main financial indexes (Unit: RMB) Notes: (1) The main reason for decrease in income from main operations was that the consolidated statements in the same period of last year included data of Shenzhen Jian’an Pharmaceutical Company, originally affiliated wholly-owned enterprise, which was not listed into the consolidated statement this year. This index was basically the same if this factor was eliminated. (2) Profit from main operations decreased, especially income from main operations decreased, which was mainly because that Jian’an Pharmaceutical Company was not listed in the statements on one hand, on the other hand, gross profit ratio decreased due to decrease in price of medicine. (3) Main reasons for increase in net profit: affiliated enterprise of the Company, increased in its benefits. Pharmaceutical Company, originally affiliated enterprise, was no longer listed in the consolidated statements and the Company did not calculate investment earnings to Shenzhen Modern Computer Company (these two companies were both in losses in the same period of last year), which made the investment earnings of the Company increase by a great margin; Shenzhen Accord Pharmaceutical Chain Co., Ltd., an affiliated enterprise of the Company, operated in a better and better way; expenses decreased by relatively great margin over the same period of last year. (4) Net increase in cash and cash equivalents decreased, which was mainly because that the Company refunded the expired bank loans this year. (5) Total assets decreased, which was mainly because that the Company refunded bank loans. (6) Shareholder’ equity increased, which was mainly due to net profit realized in the period. (IV) In the report period, there was no operating business affecting material influence on net profit. (V) Problems and difficulties from the operation In the first half year of 2004, National Development and Reform Commission would reduce the price of 24 kinds of anti-infection medicines as a whole, with average decrease of 30%. This was the 12th time for the State to reduce the price in policy and brought a certain influence on the operation of pharmaceutical enterprises. The Company would continue to reduce the cost, control the expense and enhance operating scale so as to reply market changes and safeguard profitability capability. III. Investments of the Company In the report period, the Company had no investment project or the proceeds raised through shares offering in previous years continuing to the period. I. Actual situation of the Company’s administration In the report period, the Company normatively operated strictly according to Company Law and Securities Law. According to the requirements of Administration Rules of Listed Companies, the Company actively developed every item of administration work and continuously consummated legal person’s administration structure. The 3rd Board of Directors and 3rd Supervisory Committee of the Company expired. The Company would change the Board of Directors and the Supervisory Committee recently. II. The Company would neither conduct profit distribution nor convert public capital reserve into share capital in the first half of 2004. III. Material lawsuits and arbitrations In the report period, there existed no significant lawsuits and arbitrations about the Company. IV. Significant purchase, sale and reorganization of assets In the report period, the Company had no significant purchase and sale and reorganization of assets. V. Significant related transaction issues (I) Related transaction from purchase and sale of commodity (II) Credit and liability between the Company and the related parties VI. Significant contracts and their implementations (I) Entrustment, contract and lease In the report period, the Company has no significant custody, contract and lease of other companies and vice visa occurred in the report period or occurred in previous period and lasted in the report period. (II) Significant guarantee Including: total balance of related guarantee Total amount of guarantee the listed company provided for its Total amount of guarantee breaking regulations Proportion of total amount of guarantee in net assets of the Company Notes: 1. The Company provided guarantee amounting to RMB 16.60 million for Modern Computer Company and this guarantee was originally USD 4000 thousand (equivalent to RMB 33.20 million). According to the provisions in Equity Transfer Agreement signed by the Company and Shenzhen Yinghai Technology Investment Co., Ltd. for transfer of 45.9% equity of Shenzhen Modern Computer Company, ended Mar. 2, 2004, Yinghai Technology had released the Company’s guarantee liability for the said USD 2000 thousand and RMB 20 million. 2. The Company provided guarantee for comprehensive credit limit of Shenzhen Jian’an Pharmaceutical Company amounting to RMB 10 million and Jian’an Company was still the wholly-owned affiliated enterprise of the Company when the Company approved this guarantee. After the restructure, Shantou Guangshan Packing Co., Ltd., the shareholder of this company, has issued anti-guarantee letter for this credit guarantee. Ended the present, this company has still not used this credit limit. 7.4 Related credits and liabilities current Including: in the report period, the listed company did not provide capital to the controlling shareholder and its subsidiaries. In July, Shenzhen Pharmaceutical Trade Company refunded loan amounting to RMB 320,000 and there still left RMB 355,400 to be refunded. (III) Entrusting others to manage cash assets The Company did not entrust others to management its cash assets in the report period or occurred in previous period but lasting in the report period. (IV) Other material contract The Company had no other material contract in the report period. VII. Commitment of the Company or shareholders holding over 5% shares of the Company 1. The report period, the shareholders holding over 5% equity (including 5%) of the Company have not commitment events with possible influence on operation result and financial status occurred in the report period or occurred in previous period and lased in the report period. 2. In the report period, the controlling shareholder Shenzhen Investment Holding Corporation signed Share Equity Transfer Agreement with China National Medicines Company about 124,864,740 state-owned shares of the Company held by Shenzhen Investment Holding Corporation. The share equity transfer was approved by State-owned Assets Supervision and Administration Commission of the State Council. The relevant work about application for exempting offer purchasing obligation to CSRC was still in progress. VIII. The capital occupation by the Controlling Shareholder and related parties and payback commitment The controlling shareholder Shenzhen Investment Holding Corporation didn’t occupy the assets of the Company. The related enterprise Shenzhen Medical Production and Supply Company occupied the capital of the Company. Ended Mar. 31, 2004, the balance that Shenzhen Medical Production and Supply Company should pay the Company was amounted to RMB 29,058,600 (including non-current occupation amounting to RMB 16,414,400 and current payment of commodities amounting to RMB 12,644,200). According to the clearing plan presented by Shenzhen Medical Production and Supply Company, the Company committed to pledge commercial housing about RMB 21 million before Aug. 31, 2004 and pledge share equity of other joint stock companies for the rest liabilities. IX. Special explanation and independent opinions on the external guarantee, guarantee out of line, capital occupation and implementing relevant regulations in the accumulated and the current period by independent directors As independent directors of Shenzhen Accord Pharmaceutical Co., Ltd., according to the requirements of Notification on Standardizing the Capital Current between Listed Companies and the Related Parties and Several Problems about the External Guarantee of Listed Companies (ZJF[2003] No. 56), we checked seriously the external guarantee and capital occupation by related parties accumulated and in the current period. Now the independent opinions given were as follows: 1. Problem of external guarantee. Anti-guarantee provided for controlling shareholder Shenzhen Investment Holding Corporation by the Company and Guarantee provided for the affiliated company Shenzhen Modern Computer Manufacture Co., Ltd. didn’t accord with the spirit of CSRC [2003] No. Document. In the report period, joint liabilities responsibilities of USD 2 million and RMB 20 million were discharged. For the rest guarantee, the Company actively transacted discharges issues with other relevant parties. 2. Problem of capital occupied by related parties. Through the unremitting efforts of the Board and management, the actively asking for discharge by every way, the Company retrieved majority of capital occupation, which helped the balance of capital occupies at present decreased sharply compared with that of the beginning of capital replacement. As independent directors, we have acknowledged the contents of Proposal on Discharging Capital Occupation of Accord Occupation Pharmaceutical submitted by the related party of the Company Shenzhen Pharmaceutical Production and Supply Corporation, considering the actual situation of the Company. We believed, in the discharging proposal submitted by Shenzhen Pharmaceutical Production and Supply Corporation, the arrangement of pledging the real estate and share equity for debts were practical and feasible. Implementation the commitment of the proposal would effectively resolve the historical residuals of capital occupation of Accord Pharmaceutical by Shenzhen Pharmaceutical Production and Supply Corporation. In the process of implementation, the Company should strictly accorded with the requirements of Notification on Standardizing the Capital Current between Listed Company and the Related Parties and Several Problems about External Guarantee of Listed Company promulgated by CSRC and State-owned Assets Supervision and Administration Commission of the State Council, evaluated the assets for canceling out the debts and fulfilled the statutory examination and approval procedures. 3. The controlling shareholder of the Company didn’t occupy the capital of the Company; 4. In the current period, there was no newly incurred external guarantee; there was no capital newly occupied. X. Engagement of Certified Public Accountants In the report period, the Company didn’t make decisions on reengaging or changing CPAs in 2004. XI. The semi-annual financial report of the Company was not audited. XII. Information indexes of other significant events In the report period, the Company published public notices in Securities Times, Hong Kong Ta Kung Pao and Internet Website of Shenzhen Stock Exchange http://www.szse.cn and http://www.cninfo.com.cn: 1. On Jan. 7, 2004, Public notice on resolutions of 24th Meeting of 3rd Board about canceling inefficient inventories of subsidiaries after verification and long-term investment, and Public notice on Providing Guarantee Comprehensive Credit amounting to USD 4 million for Shenzhen Modern Computer Manufacture Co., Ltd. and on Transferring Share Equity of Shenzhen Modern Computer Manufacture Co., Ltd.; 2. On Jan. 30, 2004, Suggestive Public Notice on Plan of Stated-owned Share Equity Transfer of the Company; 3. On Feb. 4, 2004, Public notice on Signing Frame Agreement about Stated-owned Share Equity Transfer Issues between the Controlling Shareholder of the Company and China National Medicines Company; 4.On Feb. 6, 2004, Public notice on Stated-owned Share Equity Transfer Compensation of the Company; 5.On Feb. 20, 2004, Public notice on Signing Normative Agreement about Stated-owned Share Equity Transfer Issues between the Controlling Shareholder of the Company and China National Medicines Company, and Report on Changes in Shares Held by Shareholders of Accord Pharmaceutical and the Summary of Purchasing Report; 6. On Feb. 28, 2004, Public notice on Resolution of 25th Meeting of the 3rd Board on Engaging General Manager and CFO and Report of the Board to All Shareholders about Purchasing Matters; 7. On Apr. 10, 2004, 2003 Annual Report of the Company and its Summary (A-share, B-share) and Public Notice on Resolution of 26th Meeting of 3rd Board and Notification on Holding 2003 Shareholders’ General Meeting; 8. On Apr. 24, 2004, 1st Quarterly Report 2004 of the Company and its Summary (A-share, B-share); 9. On May 21, 2004, Public Notice on the Resolutions of 2003 Shareholders’ General Meeting of the Company; 10. On Jun. 2, 2004, Public Notice on Short term Loan amounting to RMB 35 million of the Company; 11. On Jul. 6, 2004, Public Notice on Clearing Plan about the Related Party Occupying Capital; 12. On Jul. 15, 2004, Public Notice on Approval of State-owned Assets Supervision and Administration Commission of the State Council on Stated-owned Shares Transfer of the Company. Section VII. Financial Report (Un-audited) Prepared by Shenzhen Accord Pharmaceutical Co., Ltd. Unit: RMB Long-term credit investment due within one Including: Consolidation price variance Less: Provision for devaluation of fixed assets Prepared by Shenzhen Accord Pharmaceutical Co., Ltd. Unit: RMB Long-term liabilities due within 1 year Owner’s equity (or shareholders’ equity): Including: Statutory public welfare fund Total owner’s equity (shareholders’ Prepared by Shenzhen Accord Pharmaceutical Co., Ltd. Unit: RMB II. Profit of core business (Loss is listed with “-”) Add: Profit of other business (Loss is listed with III. Operating profit (Loss is listed with “-”) Add: Investment earnings (Loss is listed with “-”) IV. Total profits (Total loss is listed with “-”) V. Net profit (Net loss is listed with “-”) Add: Undistributed profits at the year-begin Minus: appropriation of statutory surplus public Appropriation of statutory public welfare funds Appropriation of employees’ encouragement and Appropriation of enterprise development funds VII. Profits available for distribution to investors Less: dividends of preference share payable Appropriation of arbitrary surplus public reserve Dividends of ordinary share converting into capital 1. Income from selling or disposal branch and 3. Increase (or decrease) of total profit due to the 4. Increase (or decrease) of total profit due to the Prepared by Shenzhen Accord Pharmaceutical Co., Ltd. Unit: RMB . Cash flows arising from operating activities: Cash received from selling commodities and providing labor services Other cash received concerning operating activities Subtotal of cash inflow arising from operating activities Cash paid for purchasing commodities and receiving labor service Other cash paid concerning operating activities Subtotal of cash outflow arising from operating activities Net cash flows arising from operating activities II. Cash flows arising from investing activities: Cash received from recovering investment Net cash received from disposal of fixed, intangible and other long-term assets Other cash received concerning investing activities Subtotal of cash inflow from investing activities Cash paid for purchasing fixed, intangible and other long-term assets Other cash paid concerning investing activities Subtotal of cash outflow from investing activities Net cash flows arising from investing activities . Cash flows arising from financing activities Other cash received concerning financing activities Subtotal of cash inflow from financing activities Cash paid for dividend and profit distributing or interest paying Other cash paid concerning financing activities Subtotal of cash outflow from financing activities Net cash flows arising from financing activities IV. Influence on cash due to fluctuation in exchange rate V. Net increase of cash and cash equivalents Prepared by Shenzhen Accord Pharmaceutical Co., Ltd. Unit: RMB 1. Adjusting net profit to cash flows for operating activities: Add: Withdrawal of provision for devaluation of assets Amortization of long-term expenses to be apportioned Decrease of expenses to be apportioned (Less: increase) Increase of accrued expenses (Less: decrease) Loss on disposal of fixed, intangible and other long-term assets (Less: income) Deferred tax- credit item (Less: debit) Decrease of inventories (Less: increase) Decrease of receivables in operating (less: increase) Increase of payables in operating (less: decrease) Income of minority shareholders in this period Net cash flows arising from operating activities 2. Investment and financing activities with no cash incomings/outgoings involved Convertible company bonds due within one year 3. Net increase of cash and cash equivalents: Less: Balance of cash at the period -begin Add: Balance of cash equivalents at the period -end Less: Balance of cash equivalents at the period -begin Net increase of cash and cash equivalents Prepared by Shenzhen Accord Pharmaceutical Co., Ltd. II. Total of provision for falling price of V. Total of provision for devaluation of Section VIII. Documents Available for Reference 1. Accounting statements carried with signatures and seals of the legal representative, chief financial supervisor and person in charge of accounting affairs; 2. Originals of all documents and manuscripts of public notices of the Company disclosed in public in Securities Times and Ta Kung Pao designated by CSRC in the report period; 3. Original of Semi-annual Report with signature of Chairman of the Board. 4. The depositary of documents: Secretariat of the Company, AP Building, No. 15 Ba Gua 4th Rd., Futian Dis., Shenzhen 5. The report is prepared in Chinese and English. Shall there exist any differences between the two versions, Chinese version shall prevail. Chairman : Guo yuan
Board of Directors of
Shenzhen Accord Pharmaceutical Co., Ltd.

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