Financials

Full Year Results Financial Statement And Related Announcement

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Full Year Financial Statements and Dividend Announcement for the Year Ended 31 December 2009

Profit & Loss

Balance Sheet

Review of Performance

Revenue

Sales of our pharmaceutical products increased by RMB173.5 million or 23.7% from RMB732.7 million in FY2008 to RMB906.2 million in FY2009 due to an increase in demand for our pharmaceutical products by medical organisations in the People's Republic of China arising from the ongoing medical reforms currently implemented in the rural areas by the PRC Government since 2007. This move had also successfully driven up the sales volume of our other pharmaceutical products.

Sales of our personal hygiene products decreased by RMB14.1 million or 17.3% from RMB81.7 million in FY2008 to RMB67.6 million in FY2009 due to the continued keen competition from foreign brands that have significantly affected the sales volume of our personal hygiene products.

Overall gross profit increased by RMB41.5 million or 14.2% from RMB292.1 million in FY2008 to RMB333.6 million in FY2009 due to the increase in line with the increase in the Group's revenue. The gross profit for our pharmaceutical products increased by RMB52.7 million or 20.7% from RMB254.7 million in FY2008 to RMB307.4 million in FY2009 in line with the increase in revenue whereas gross profit margin decreased slightly from 34.8% in FY2008 to 33.9% in FY2009. For personal hygiene products, gross profit significantly decreased by RMB11.2 million or 29.9% from RMB37.4 million in FY2008 to RMB26.2 million in FY2009, in line with the decrease in revenue. Gross profit margin decreased slighlty from 45.8% in FY2008 to 38.8% in FY2009.

Other revenue

Other revenue increased by RMB5.0 million or 250.0% from RMB2.0 million in FY2008 to RMB7.0 million in FY2009. The increase was mainly due to the increase in the interest income from bank deposits of RMB3.8 million and an increase in miscellaneous income.

Selling and distribution costs

Selling and distribution costs increased by RMB34.0 million or 23.7% from RMB143.3 million in FY2008 to RMB177.3 million in FY2009 mainly due to an increase in selling commission payable to the sales representatives of our pharmaceutical division, Reyoung, in line with the increase in revenue. Selling and distribution costs to sales ratio increased slightly from 17.6% to 18.2%.

Administrative expenses

Administrative expenses increased by RMB11.1 million or 18.5% from RMB59.9 million in FY2008 to RMB71.0 million in FY2009 mainly due to a rise in staff costs, resulting from an increase in the number of employees and salary increment for employees of our pharmaceutical division, Reyoung. Further, in line with the increase in (i) manpower and (ii) property, plant and equipment, the corresponding insurance costs and depreciation charges rose respectively.

Other operating expenses

Other operating expenses decreased by RMB7.6 million or 29.1% from RMB26.1 million in FY2008 to RMB18.5 million in FY2009 mainly due to a decrease in expenditure on research and development by RMB12.8 million and a decrease in impairment loss of inventories by RMB0.8 million, offset with an increase in the impairment loss of property, plant and equipment by RMB2.0 million and an increase in the impairment loss of trade receivables by RMB5.9 million.

Loss from fire

Further to the Company's announcement dated 10 February 2010, the Company has assessed that the loss and damages suffered by the Group for its inventories, property, plant and equipment as a result of the fire incident for the year ended 31 December 2009 amounted to RMB16.6 million.

Finance costs

Finance costs rose by RMB5.8 million or 36.0% from RMB16.1 million in FY2008 to RMB21.9 million in FY2009 mainly due to the increase in outstanding bank and other borrowings.

Income tax expense

A provision of 15% for PRC income tax was been made for the respective profits of Reyoung in the consolidated financial statements of the Group in FY2009. No provision for income tax for Shandong Yimoo and Shanghai Yimoo was made as these two companies did not have any taxable profit in FY2009.

Taxation increased by RMB3.9 million or 49.4% from RMB7.9 million in FY2008 to RMB11.8 million in FY2009 in line with the increase in the profit of Reyoung.

Cash flow/Balance sheet review

Property, plant and equipment increased by RMB37.0 million or 8.2% from RMB451.7 million as at the end of 2008 to RMB488.7 million as at the end of 2009. The increase was due to the construction work on production plant for the pharmaceutical cephalosporin-based products and the purchases of plant and machinery for the new production plant and facilities for pharmaceutical penicillin-based products.

Inventories increased by RMB36.0 million or 22.8% from RMB157.7 million as at the end of 2008 to RMB193.7 million as at the end of 2009 in line with the increase in revenue of our pharmaceutical products.

In line with the increase in revenue of our pharmaceutical products, trade and bills receivables increased by RMB32.4 million or 23.5% from RMB138.1 million as at the end of 2008 to RMB170.5 million as at the end of 2009.

Prepayments, other receivables and deposits decreased by RMB6.3 million or 34.6% from RMB18.2 million as at the end of 2008 to RMB11.9 million as at the end of 2009 mainly due to (i) better cash management which resulted in a decrease in cash advances to our sales representatives decreased by RMB5.3 million and (ii) the decrease in miscellaneous prepayments and other receivables.

Pledged bank deposits and time deposits increased by RMB76.5 million or 239.1% from RMB32.0 million as at the end of 2008 to RMB108.5 million as at the end of 2009 due to an increase in the banking facilities taken up by the Group.

Trade and bills payables increased by RMB84.1 million or 53.2% from RMB158.2 million as at the end of 2008 to RMB242.3 million as at the end of 2009 due to an increase in sales and production volume at our production facility of pharmaceutical products which came into operation in 3Q2009.

Accrued liabilities, other payables and deposits received increased by RMB25.6 million or 61.0% from RMB42.0 million as at the end of 2008 to RMB67.6 million as at the end of 2009 mainly because of the increase in receipt in advances and construction costs payables by RMB17.1 million and RMB9.9 million, respectively.

Total bank and other borrowings increased by RMB132.8 million or 48.5% from RMB273.7 million as at the end of 2008 to RMB406.5 million as at the end of 2009 as the Group obtained new bank and other loans totaling RMB402.5 million and repaid matured bank loans totaling RMB269.7 million for the year.

Positive cash flows from operations were generated in FY2009. Net cash generated from operating activities was RMB132.5 million. The cash inflows from operations and the net cash generated from bank and other borrowings of RMB132.9 million were utilised mainly for capital expenditures of RMB92.4 million.

Outlook

We are continuously operating in a very keen and competitive environment for our product segments. To maintain our competitiveness, we seek to continuously upgrade and expand our production facilities to meet the increase in market demand for our products and our customers' needs. We also continue to exercise tighter control on our operating costs and strive to offer our products at the most competitive price for the best quality.

For our pharmaceutical division, production has commenced at our new production facility since 3Q2009. We are also planning to upgrade and expand another production and storage facilities and we expect that the construction of such facilities will be completed in 2011.

For our personal hygiene products, we continue to face very keen competition from foreign brands. This keen competition from foreign brands has significantly affected our sales volume.

Barring unforeseeable circumstances, the Group expects to be profitable in 2010.