Financial Performance - The overall business revenue for 2020 was RMB 2.66 billion, a slight decrease of 1.9% compared to the previous year[14]. - The net profit for 2020 decreased by 41.4% to RMB 295 million, primarily due to a one-time non-recurring impairment provision of approximately RMB 229 million[14]. - The basic earnings per share for 2020 was RMB 0.39, down from RMB 0.64 in 2019[8]. - The company reported a gross profit of RMB 1.99 billion for 2020, with a gross margin maintained at approximately 74.8%[8]. - The group reported a net profit attributable to shareholders of RMB 295,033,000, a decrease of 41.4% compared to the previous year, primarily due to a one-time impairment provision for a subsidiary's assets[61]. - Excluding the impairment provision, the net profit only declined by 0.7%, with a net profit margin of 18.8%[23]. - The group’s effective tax rate for 2020 was 25.3%, an increase from 21.7% in 2019, primarily due to non-deductible impairment losses[60]. - The company generated a net cash flow from operating activities of RMB 638.57 million, a 73.5% increase from RMB 367.996 million in 2019[46]. - The company’s free cash flow for 2020 is estimated at RMB 572.54 million, equivalent to HKD 680.18 million or HKD 0.82 per share, enhancing its ability to return value to shareholders[46]. Product Development and Strategy - The company has over 400 product registrations and more than 30 proprietary products across 17 therapeutic categories, making it one of the most comprehensive modern Chinese medicine enterprises in the industry[15]. - The company plans to enhance product research and clinical value, focusing on high-end hospitals, grassroots medical care, and internet marketing strategies[16]. - The company aims to leverage national healthcare policy adjustments to promote its major product strategy and extend product life cycles through evidence-based medical research[16]. - The company is focusing resources on developing exclusive innovative drugs with independent intellectual property rights, targeting areas such as cardiovascular diseases, pediatrics, orthopedics, gynecology, and geriatric diseases[37]. - The company aims to expand its national market strategy for formula granules, targeting a production capacity that could reach an annual output value of RMB 4 billion[34]. - The company plans to accelerate the development of oral formulations to diversify profit contributions away from injection products[31]. - The group aims to strengthen its leadership in traditional Chinese medicine injection products and enhance clinical research investments[19]. Sales and Market Performance - The group's sales for 2020 decreased by 1.9% year-on-year to RMB 2,655,701,000 due to the impact of COVID-19 on hospital and outpatient volumes[22]. - The overall sales of soft capsule products increased by 4.5% year-on-year, despite a decline in Q1 due to the pandemic, with growth recorded in Q2 and Q4[29]. - The sales of the exclusive product, synovial inflammation granules, grew by 64.7% during the year, contributing to a 4.4% increase in overall granule product sales[29]. - The sales of traditional Chinese medicine formula granules increased by 10.8% year-on-year, accounting for 20.9% of total sales in 2020[32]. - The company is optimistic about returning to growth in 2021, overcoming previous challenges in achieving sustained sales growth[14]. - The group recorded a significant recovery in sales during Q4 2020, with an 18.4% increase compared to the previous year[28]. Operational Efficiency - The company has implemented a digital manufacturing model, achieving smart factory standards and integrating various information technologies to enhance production efficiency and quality control[44][45]. - The company has established long-term business relationships with key suppliers and customers, focusing on maintaining these relationships[97]. - The company is actively monitoring regulatory changes in China's healthcare reform, which may impact its operations[101]. - The company has a dedicated team to oversee and manage drug bidding processes to secure favorable pricing[102]. Corporate Governance and Compliance - The board consists of four executive directors, three independent non-executive directors, and one non-executive director as of December 31, 2020[181]. - The board held four meetings and one annual general meeting in 2020, with attendance rates for executive directors ranging from 75% to 100%[186]. - The company has implemented a higher standard code for securities trading by directors than that outlined in the listing rules[180]. - The independent non-executive directors reviewed the continuous connected transactions and confirmed that they were conducted at fair and reasonable terms[164]. - The company confirmed compliance with the disclosure requirements under the Listing Rules for the continuous connected transactions[165]. Employee and Director Remuneration - The remuneration policy for employees is determined by the remuneration committee based on employees' abilities, education, and performance[167]. - The total amount of bonuses payable to all directors in any financial year shall not exceed 5% of the audited profit after tax but before extraordinary items[170]. - The committee ensures that any compensation arrangements for dismissed directors are fair and reasonable, adhering to contract terms[199]. - The committee reviews and approves performance-based remuneration in line with the company's objectives[199]. Environmental and Social Responsibility - The company is committed to environmental sustainability and has implemented relevant laws such as the Environmental Protection Law of the People's Republic of China[94]. - The company made charitable donations totaling RMB 3.45 million and contributed 560 hours to public welfare activities during the year[177].

[Table of Contents](index=2&type=section&id=Table%20of%20Contents) [Company Information](index=3&type=section&id=Company%20Information) [Board of Directors and Committees](index=3&type=section&id=Board%20of%20Directors%20and%20Committees) The company's Board of Directors comprises executive and independent non-executive directors, with established committees for audit, remuneration, nomination, and CSR to ensure robust corporate governance - Board members include Executive Directors Li Zhenjiang (Chairman), Xin Yunxia, Li Huimin, Chen Zhong, and Independent Non-Executive Directors Cheng Li, Professor Luo Guoan, Zhang Zhenyu[10](index=10&type=chunk) - Established Audit Committee, Remuneration Committee, Nomination Committee, and Corporate Social Responsibility and Sustainable Development Committee, each with a clear chairman[10](index=10&type=chunk) [Company Registration and Contact Information](index=3&type=section&id=Company%20Registration%20and%20Contact%20Information) The company is registered in the Cayman Islands, with primary operations in Shijiazhuang, Hebei, China, and Hong Kong, detailing key registration and contact information - The company's registered office is in the Cayman Islands, with its head office in Luancheng, Shijiazhuang, Hebei, China, and its principal place of business in Hong Kong at Central Plaza[10](index=10&type=chunk)[11](index=11&type=chunk) - Hong Kong stock code is **2877**, listed on the Main Board of The Stock Exchange of Hong Kong Limited[11](index=11&type=chunk) - Principal bankers include China Construction Bank (Asia), The Hongkong and Shanghai Banking Corporation, The Bank of East Asia, and Bank of China[11](index=11&type=chunk) [Interim Results Highlights](index=5&type=section&id=Interim%20Results%20Highlights) For the six months ended June 30, 2020, the Group's revenue decreased by **13.0%** to **RMB1.19 billion**, profit for the period fell by **11.8%** to **RMB254 million**, while gross profit margin improved to **73.6%**, with earnings per share at **RMB33 cents** and an interim dividend of **RMB11 cents** per share declared Interim Results Highlights | Indicator | H1 2020 (RMB) | Y-o-Y Change | | :--- | :--- | :--- | | Revenue | 1,190,112,000 yuan | -13.0% | | Gross Profit Margin | 73.6% | +2.3 percentage points | | Profit for the Period | 253,721,000 yuan | -11.8% | | Earnings Per Share | 33 cents | -8.3% | | Interim Dividend Per Share | 11 cents | Flat | | Net Assets Per Share | 7.1 yuan | - | | Net Cash Per Share | 4.6 yuan | - | [Company Overview](index=6&type=section&id=Company%20Overview) China Shineway Pharmaceutical Group primarily engages in R&D, production, and sales of modern TCM injections, soft capsules, granules, and formula granules, with products mainly sold in China, comprising approximately **83.1%** prescription and **16.9%** OTC drugs across eight therapeutic areas - The Group primarily engages in the research, development, production, and sales of modern Traditional Chinese Medicine (TCM) injections, soft capsules, granules, and TCM formula granules[13](index=13&type=chunk) - In H1 2020, the revenue split between prescription drugs and over-the-counter (OTC) drugs was approximately **83.1%** and **16.9%**, respectively[13](index=13&type=chunk) - Products cover eight major therapeutic areas, including cardiovascular and cerebrovascular, respiratory, digestive, pediatric, gastric, tonifying, nervous system, and gynecological conditions[13](index=13&type=chunk) - Over **60** types of drugs are listed in the National Essential Drug List (2012 edition)[13](index=13&type=chunk) [Management Discussion and Analysis](index=7&type=section&id=Management%20Discussion%20and%20Analysis) [Business Review](index=7&type=section&id=Business%20Review) Affected by the COVID-19 pandemic, the Group's H1 2020 sales and net profit declined, but oral product sales recovered in Q2, gross margin improved due to increased oral product contribution, TCM formula granule market share grew, and exclusive/chronic disease medications performed well, supported by national TCM policies - H1 2020 sales decreased year-on-year by **13.0%**, and net profit decreased by **11.8%**, primarily due to reduced medical visits caused by the pandemic[14](index=14&type=chunk) - Net profit margin increased from **21.0%** in the same period last year to **21.3%**, and gross profit margin rose from **71.3%** to **73.6%**, mainly benefiting from an increased contribution ratio of high-margin oral products[14](index=14&type=chunk) - Injection product sales decreased by approximately **24.9%**, while oral product sales, after a **9.0%** decline in Q1, turned to a **4.0%** growth in Q2[14](index=14&type=chunk) [Impact of COVID-19 on End-Demand Gradually Recovering](index=7&type=section&id=Impact%20of%20COVID-19%20on%20End-Demand%20Gradually%20Recovering) The pandemic significantly reduced national medical institution outpatient visits, particularly pediatric clinics, with oral product demand gradually recovering in Q2, while injection products remained heavily impacted - In H1 2020, national medical institution outpatient visits decreased year-on-year by **21.6%**, with a significant drop in outpatient visits and hospitalization rates at hospitals and primary healthcare institutions[14](index=14&type=chunk)[15](index=15&type=chunk) - The pandemic had a greater impact on injection products, but end-demand for oral products is gradually recovering, with sales growing by **4.0%** in Q2[16](index=16&type=chunk)[17](index=17&type=chunk) 2020 Quarterly and July Sales Growth Rates | Product Type | Q1 | Q2 | July 2020 | | :--- | :--- | :--- | :--- | | Injection Products | -21.4% | -27.7% | -13.2% | | Oral Products | -9.0% | 4.0% | 14.1% | | Total Sales | -14.6% | -11.6% | 2.0% | [Oral Products Contribute 72.3% of Gross Profit](index=8&type=section&id=Oral%20Products%20Contribute%2072.3%25%20of%20Gross%20Profit) Oral product sales increased from **52.4%** to **58.9%** of total revenue, contributing **72.3%** of the Group's gross profit, with soft capsule sales growing by **5.4%**, driven by strong performance from key products like Wufu Xinnaoqing Soft Capsules and Qingkailing Soft Capsules H1 2020 Sales Comparison by Dosage Form | Dosage Form | H1 2019 (RMB thousand) | H1 2020 (RMB thousand) | Y-o-Y Growth Rate | H1 2020 Sales Contribution | | :--- | :--- | :--- | :--- | :--- | | Injection | 651,371 | 489,274 | -24.9% | 41.1% | | Soft Capsules | 242,591 | 255,648 | 5.4% | 21.5% | | Granules | 162,076 | 147,312 | -9.1% | 12.4% | | TCM Formula Granules | 241,302 | 239,762 | -0.6% | 20.1% | | Other Dosage Forms | 70,940 | 58,116 | -18.1% | 4.9% | | **Oral Products** | **716,909** | **700,838** | **-2.2%** | **58.9%** | | **Total Sales** | **1,368,280** | **1,190,112** | **-13.0%** | **100.0%** | - Oral products contributed **72.3%** of the Group's total gross profit after excluding the two-invoice system effect, higher than injection products[21](index=21&type=chunk) - Soft capsule product sales increased by **5.4%** overall, with Wufu Xinnaoqing Soft Capsules, Huoxiang Zhengqi Soft Capsules, and Qingkailing Soft Capsules growing by **15.3%**, **1.8%**, and **50.8%** respectively[20](index=20&type=chunk) [Market Share of Traditional Chinese Medicine (TCM) Formula Granules Continues to Grow](index=10&type=section&id=Market%20Share%20of%20Traditional%20Chinese%20Medicine%20(TCM)%20Formula%20Granules%20Continues%20to%20Grow) TCM formula granule sales slightly decreased by **0.6%** due to ex-factory price adjustments, but would have grown by **30.8%** at original prices; the Group increased market share in Hebei, ranking sixth nationally, and is expanding into Yunnan and other provinces, benefiting from national policy excluding formula granules from centralized procurement - TCM formula granule sales decreased year-on-year by a slight **0.6%**, but would have increased by approximately **30.8%** if calculated at original ex-factory prices[22](index=22&type=chunk) - The Group's TCM formula granules increased market share in Hebei Province, with domestic sales currently ranking sixth nationally[22](index=22&type=chunk) - In H1 2020, **68** new hospital clients and **435** new primary healthcare institution clients were added in Hebei Province, and the Group actively expanded into the Yunnan Province market[22](index=22&type=chunk) - The National Healthcare Security Administration clarified that TCM formula granules are temporarily not included in centralized procurement, creating a clear opportunity for future development[22](index=22&type=chunk) [Exclusive Products and Chronic Disease Medications Maintain Growth](index=11&type=section&id=Exclusive%20Products%20and%20Chronic%20Disease%20Medications%20Maintain%20Growth) The Group has over **110** regular products, including **19** exclusive ones, with many listed in the National Essential Drug List; while injection and pediatric/respiratory oral product demand declined due to the pandemic, exclusive and chronic disease medications like Huamoyan Granules performed well, supported by national policies promoting evidence-based TCM and integrated medicine - The Group has a total of over **110** regular production products, distributed across **17** therapeutic areas, of which **19** are exclusive products[23](index=23&type=chunk) H1 2020 Key Product Sales | Product Name | H1 2019 (RMB thousand) | H1 2020 (RMB thousand) | Y-o-Y Growth Rate | H1 2020 Sales Contribution | | :--- | :--- | :--- | :--- | :--- | | TCM Formula Granules | 241,302 | 239,762 | -0.6% | 20.1% | | Shuxuening Injection | 224,013 | 133,148 | -40.6% | 11.2% | | Qingkailing Injection | 194,348 | 128,953 | -33.6% | 10.8% | | Wufu Xinnaoqing Soft Capsules | 83,989 | 96,837 | 15.3% | 8.1% | | Huoxiang Zhengqi Soft Capsules | 91,926 | 93,568 | 1.8% | 7.9% | | Shenmai Injection | 107,625 | 81,633 | -24.2% | 6.9% | | Huamoyan Granules | 22,014 | 36,803 | 67.2% | 3.1% | | Qingkailing Soft Capsules | 21,267 | 32,063 | 50.8% | 2.7% | | Qihuang Tongmi Soft Capsules | 35 | 5,537 | 15,720.0% | 0.5% | | **Total Sales** | **1,368,280** | **1,190,112** | **-13.0%** | **100.0%** | - The state vigorously promotes the development of Traditional Chinese Medicine, requiring general hospitals, infectious disease hospitals, and specialized hospitals to promote an integrated Chinese and Western medicine medical model, and accelerate the construction of TCM evidence-based medicine centers[26](index=26&type=chunk) [Building Three Core Competitiveness Pillars](index=13&type=section&id=Building%20Three%20Core%20Competitiveness%20Pillars) The Group is actively implementing a new blueprint to become a leader in modern TCM by increasing investment in evidence-based medicine for exclusive products, accelerating innovative drug R&D and pipeline expansion, and rapidly deploying new online marketing models - The three core competitiveness pillars include: increasing investment in evidence-based medicine for exclusive and key products, increasing R&D investment to develop exclusive innovative drugs, and rapidly deploying new online marketing models[27](index=27&type=chunk) [Increasing Investment in Evidence-Based Medicine for Exclusive and Key Products](index=13&type=section&id=Increasing%20Investment%20in%20Evidence-Based%20Medicine%20for%20Exclusive%20and%20Key%20Products) The Group continues to invest in evidence-based medicine, completing **30,000** safety clinical studies for three major TCM injections and planning further studies for exclusive products across six therapeutic areas, including orthopedics and cardiovascular, to provide robust evidence - The Group's three major TCM injection products (Qingkailing Injection, Shenmai Injection, Shuxuening Injection) completed **30,000** safety clinical studies[28](index=28&type=chunk) - Shineway Qingkailing Injection and Shuxuening Injection were selected among the top ten in the "Clinical Evidence Evaluation Index for Proprietary Chinese Medicines"[28](index=28&type=chunk) - The Group will accelerate evidence-based medicine research focusing on six therapeutic areas, including orthopedics, cardiovascular and cerebrovascular, antiviral, digestive, gynecology and pediatrics, and oncology, focusing on exclusive products[29](index=29&type=chunk) - The randomized, double-blind, positive drug-controlled, multi-center clinical study protocol for the exclusive product Secang Zhixie San has commenced, aiming to establish it as a first-line medication for pediatric diarrhea[29](index=29&type=chunk) [Accelerating Development of Exclusive Innovative Drugs and Expanding New Core Product Pipeline](index=14&type=section&id=Accelerating%20Development%20of%20Exclusive%20Innovative%20Drugs%20and%20Expanding%20New%20Core%20Product%20Pipeline) The Group focuses on cardiovascular, gynecology, pediatrics, and orthopedics, accelerating exclusive innovative drug development through R&D, collaborations, and patent transactions, with **7** projects in clinical trials, including Sailuotong Capsules, and actively developing TCM nebulizers and generic chemical drugs - The Group has a total of **7** research projects undergoing clinical trials, including **3** exclusive innovative drugs[30](index=30&type=chunk) - Sailuotong Capsules is undergoing Phase III clinical trials in Australia and China, targeting vascular dementia and Alzheimer's disease, and has obtained **8** overseas invention patents[31](index=31&type=chunk) - Q-B-Q-F Concentrated Pills for pediatric mycoplasma pneumonia has commenced Phase III clinical trials; JC Capsules for treating common cold is expected to complete Phase III clinical trials in 2021[33](index=33&type=chunk)[34](index=34&type=chunk) - The Group is actively promoting the development of nearly a hundred classic traditional Chinese medicine formulas, in-hospital preparations research, and TCM nebulizer R&D, and the Category 4 generic drug marketing application for Afatinib Maleate Tablets, co-sponsored with Shandong Confucius Pharmaceutical, has been accepted[34](index=34&type=chunk) [Rapidly Deploying New Online Marketing Models](index=16&type=section&id=Rapidly%20Deploying%20New%20Online%20Marketing%20Models) The Group strengthened partnerships with major e-commerce platforms, achieving a **212.0%** increase in online sales to **RMB33.5 million** in H1 2020, while actively exploring community marketing and data-driven digital marketing models - The Group strengthened strategic cooperation with mainstream pharmaceutical e-commerce platforms such as JD, Tmall, and Ping An Good Doctor, and officially launched its Tmall pharmaceutical flagship store in May 2020[35](index=35&type=chunk) - H1 2020 online sales reached **RMB33.5 million**, an increase of **212.0%** compared to the same period last year[35](index=35&type=chunk) - The Group is actively developing innovative pilot community marketing businesses and promoting digital marketing driven by big data[35](index=35&type=chunk) [Financial Review](index=16&type=section&id=Financial%20Review) In H1 2020, the Group's revenue and net profit declined due to the pandemic, but gross profit margin improved; the company maintains a solid financial position with ample bank deposits, though trade receivables turnover lengthened and inventory increased, while R&D costs significantly decreased due to pandemic-related project delays, and selling, distribution, and administrative expenses were effectively controlled - H1 2020 revenue was **RMB1.19 billion**, a year-on-year decrease of **13.0%**; net profit was **RMB253.721 million**, a year-on-year decrease of **11.8%**[36](index=36&type=chunk)[46](index=46&type=chunk) - Overall gross profit margin was **73.6%**, higher than **71.3%** in the same period last year[38](index=38&type=chunk) - Research and development costs decreased year-on-year by approximately **56.0%**, primarily due to project delays affected by the pandemic[43](index=43&type=chunk) - As of June 30, 2020, bank deposits amounted to **RMB4.083 billion**, indicating a robust financial position[48](index=48&type=chunk) [Revenue](index=16&type=section&id=Revenue) H1 2020 revenue decreased by **13.0%** year-on-year, primarily due to the pandemic, with injection product revenue down **24.9%** and oral products (soft capsules, granules, TCM formula granules) collectively down **2.2%**; prescription and OTC drugs accounted for **83.1%** and **16.9%** of total revenue, respectively H1 2020 Revenue by Dosage Form | Dosage Form | Revenue (RMB thousand) | Contribution | | :--- | :--- | :--- | | Injection | 489,274 | 41.1% | | Soft Capsules | 255,648 | 21.5% | | Granules | 147,312 | 12.4% | | TCM Formula Granules | 239,762 | 20.1% | | Other Dosage Forms | 58,116 | 4.9% | | **Total** | **1,190,112** | **100.0%** | - Prescription drug revenue was **RMB989.235 million**, and OTC drug revenue was **RMB200.877 million**[36](index=36&type=chunk) [Cost of Sales and Gross Profit Margin](index=16&type=section&id=Cost%20of%20Sales%20and%20Gross%20Profit%20Margin) Cost of sales for H1 2020 was **RMB313.747 million**, representing **26.4%** of revenue; overall gross profit margin increased to **73.6%**, with significant improvements in soft capsule and granule product margins - Cost of sales was **RMB313.747 million**, representing **26.4%** of revenue[37](index=37&type=chunk) H1 2020 Gross Profit Margin by Product | Product Type | H1 2020 Gross Profit Margin | H1 2019 Gross Profit Margin | | :--- | :--- | :--- | | Injection Products | 75.6% | 73.6% | | Soft Capsules Products | 75.3% | 70.1% | | Granules Products | 70.0% | 67.3% | | TCM Formula Granules Products | 73.2% | 74.5% | | **Overall Gross Profit Margin** | **73.6%** | **71.3%** | [Other Income and Investment Income](index=17&type=section&id=Other%20Income%20and%20Investment%20Income) Other income primarily comprised government grants of **RMB67.37 million**; total investment income significantly increased year-on-year to **RMB70.277 million**, mainly from bank deposit interest of **RMB51.256 million** and financial product interest of **RMB19.021 million** - Other income primarily includes government grants of **RMB67.37 million** (H1 2019: **RMB73.858 million**)[39](index=39&type=chunk) - Total investment income was **RMB70.277 million**, comprising bank deposit interest income of **RMB51.256 million** and financial product interest income of **RMB19.021 million**[40](index=40&type=chunk)[99](index=99&type=chunk) [Selling and Distribution Costs, Administrative Expenses, and Research and Development Costs](index=17&type=section&id=Selling%20and%20Distribution%20Costs,%20Administrative%20Expenses,%20and%20Research%20and%20Development%20Costs) Selling and distribution costs decreased by **1.3%** year-on-year, and administrative expenses by **9.9%**, demonstrating effective cost control; R&D costs significantly dropped by **56.0%**, primarily due to pandemic-related project delays - Selling and distribution costs decreased year-on-year by **1.3%**, representing **47.2%** of revenue, primarily due to reduced advertising and travel expenses[41](index=41&type=chunk) - Administrative expenses decreased year-on-year by **9.9%**, representing **10.6%** of revenue, mainly comprising salaries for administrative staff, social insurance, and depreciation of fixed assets[42](index=42&type=chunk) - Research and development costs decreased year-on-year by **56.0%**, representing **1.7%** of revenue, primarily due to project delays affected by the pandemic[43](index=43&type=chunk) [Other Gains and Losses and Taxation](index=17&type=section&id=Other%20Gains%20and%20Losses%20and%20Taxation) The Group recorded a net exchange gain of **RMB3.822 million** and a net gain of **RMB2.95 million** from the disposal of property, plant, and equipment; total taxation was **RMB48.088 million**, with the effective tax rate decreasing to **15.9%** due to reversal of prior-year over-provision and no dividend withholding tax during the period - The Group recorded a net exchange gain of **RMB3.822 million**, primarily due to changes in exchange rates of AUD and HKD against RMB[44](index=44&type=chunk) - Net gain from disposal of property, plant and equipment was **RMB2.95 million**[44](index=44&type=chunk) - Total taxation was **RMB48.088 million**, the effective tax rate decreased from **17.8%** in the same period last year to **15.9%**[45](index=45&type=chunk) [Profit for the Period and Interim Dividend](index=18&type=section&id=Profit%20for%20the%20Period%20and%20Interim%20Dividend) Net profit for H1 2020 was **RMB253.721 million**, a decrease of **11.8%** year-on-year; the Board resolved to declare an interim dividend of **RMB11 cents** per share, totaling **RMB83.006 million** - Net profit for the period was **RMB253.721 million**, a decrease of **11.8%** compared to the same period last year[46](index=46&type=chunk) - The Board declared an interim dividend of **RMB11 cents** per share for the six months ended June 30, 2020, totaling **RMB83.006 million**[47](index=47&type=chunk) [Liquidity and Financial Resources](index=18&type=section&id=Liquidity%20and%20Financial%20Resources) The Group maintains a robust financial position with ample bank deposits of **RMB4.083 billion** as of June 30, 2020; trade receivables turnover extended to **44.3 days**, inventory turnover increased to **104.2 days**, total bank borrowings were **RMB609.8 million**, and the debt-to-capital ratio was **10.4%** - As of June 30, 2020, bank deposits amounted to **RMB4.083 billion**, with most denominated in RMB[48](index=48&type=chunk) - Trade receivables turnover period was **44.3 days** (H1 2019: **28.0 days**), and trade receivables secured by bank bills turnover period was **55.3 days** (H1 2019: **50.1 days**)[49](index=49&type=chunk) - Finished goods inventory turnover period was **104.2 days** (H1 2019: **60.8 days**)[50](index=50&type=chunk) - Total bank borrowings were **RMB609.8 million**, and the debt-to-capital ratio was **10.4%**[54](index=54&type=chunk) - As of June 30, 2020, the number of employees was **3,543**, a decrease compared to the end of 2019[55](index=55&type=chunk) - The Group has no foreign exchange contracts, interest or currency swaps, or other financial derivatives for hedging purposes, nor any contingent liabilities[56](index=56&type=chunk)[57](index=57&type=chunk) [Other Information](index=21&type=section&id=Other%20Information) [Directors' and Major Shareholders' Interests in Shares](index=21&type=section&id=Directors'%20and%20Major%20Shareholders'%20Interests%20in%20Shares) As of June 30, 2020, Mr. Li Zhenjiang indirectly held **66.12%** of the company's shares through a discretionary trust, making him the largest shareholder; other executive directors held minor stakes, and the company had no arrangements enabling directors to profit from share or debenture purchases Directors' Interests in Shares | Director Name | Position | Number of Shares Held | Approximate Percentage of Company Shares | | :--- | :--- | :--- | :--- | | Li Zhenjiang | Trustee of a discretionary trust | 546,802,990 | 66.12% | | Li Huimin | Beneficial owner | 1,020,000 | 0.12% | | Xin Yunxia | Beneficial owner | 540,000 | 0.07% | | Chen Zhong | Beneficial owner | 280,000 | 0.03% | - Mr. Li Zhenjiang indirectly held **100%** equity interest in Fuwei Investment Co., Ltd. through his family trust, and is thus deemed to be interested in **546,802,990 shares**[59](index=59&type=chunk) - Major shareholders Fuwei Investment Co., Ltd. and Fiducia Suisse SA (as trustee of the trust) both held **546,802,990 shares**, representing approximately **66.12%** of the company's share capital[63](index=63&type=chunk) [Share Option Scheme and Share Award Scheme](index=22&type=section&id=Share%20Option%20Scheme%20and%20Share%20Award%20Scheme) The company operates 2004 and 2015 share option schemes and a 2018 share award scheme to incentivize and attract talent; in H1 2020, the trustee purchased **7,032,000 shares** for **HKD40.08 million** under the share award scheme, holding **72,400,000 shares** at period-end - The company has 2004 and 2015 share option schemes, the 2015 scheme is valid until May 28, 2025[64](index=64&type=chunk) - In H1 2020, the trustee purchased **7,032,000 shares** at an average price of approximately **HKD5.70** per share under the share award scheme, totaling **HKD40.08 million**[71](index=71&type=chunk) - As of the end of the reporting period, the trustee held **72,400,000 shares**[71](index=71&type=chunk) [Corporate Governance and Compliance](index=26&type=section&id=Corporate%20Governance%20and%20Compliance) The company complied with the HKEX Corporate Governance Code during the period, with a deviation where the Chairman and CEO roles are combined, which the company believes benefits business strategy execution; all directors confirmed compliance with the Model Code - The company complied with the HKEX Corporate Governance Code, with a deviation from code provision A.2.1 where the roles of Chairman and CEO are combined and held by Mr. Li Zhenjiang[72](index=72&type=chunk) - The Board believes that combining the roles of Chairman and CEO facilitates the execution of the Group's business strategies and maximizes operational efficiency[72](index=72&type=chunk) - All Directors confirmed compliance with the Model Code for Securities Transactions by Directors during the reporting period[73](index=73&type=chunk) - The Audit Committee has reviewed the accounting principles, policies, and unaudited consolidated results adopted by the Group[75](index=75&type=chunk) [Review Report on Condensed Consolidated Financial Statements](index=28&type=section&id=Review%20Report%20on%20Condensed%20Consolidated%20Financial%20Statements) Deloitte Touche Tohmatsu reviewed China Shineway Pharmaceutical Group Limited's condensed consolidated financial statements for the six months ended June 30, 2020, in accordance with Hong Kong Standard on Review Engagements 2410, concluding no matters suggesting non-compliance with IAS 34 in all material respects - Deloitte Touche Tohmatsu has reviewed the condensed consolidated financial statements in accordance with Hong Kong Standard on Review Engagements 2410[78](index=78&type=chunk)[79](index=79&type=chunk) - The review concluded that nothing has come to our attention that causes us to believe that the condensed consolidated financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34[80](index=80&type=chunk) [Condensed Consolidated Financial Statements](index=29&type=section&id=Condensed%20Consolidated%20Financial%20Statements) [Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income](index=29&type=section&id=Condensed%20Consolidated%20Statement%20of%20Profit%20or%20Loss%20and%20Other%20Comprehensive%20Income) For the six months ended June 30, 2020, the Group reported revenue of **RMB1.19 billion**, gross profit of **RMB876.365 million**, profit and total comprehensive income for the period of **RMB253.721 million**, with basic and diluted earnings per share both at **RMB33 cents** Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income Summary | Indicator | H1 2020 (RMB thousand) | H1 2019 (RMB thousand) | | :--- | :--- | :--- | | Revenue | 1,190,112 | 1,368,280 | | Cost of sales | (313,747) | (392,992) | | Gross profit | 876,365 | 975,288 | | Other income | 73,732 | 78,295 | | Investment income | 70,277 | 47,710 | | Selling and distribution costs | (561,832) | (569,256) | | Administrative expenses | (126,488) | (140,442) | | Research and development costs | (20,176) | (45,825) | | Profit before tax | 301,809 | 349,957 | | Taxation | (48,088) | (62,301) | | Profit and total comprehensive income for the period | 253,721 | 287,656 | | Basic earnings per share | RMB33 cents | RMB36 cents | | Diluted earnings per share | RMB33 cents | RMB36 cents | [Condensed Consolidated Statement of Financial Position](index=30&type=section&id=Condensed%20Consolidated%20Statement%20of%20Financial%20Position) As of June 30, 2020, the Group's total non-current assets were **RMB1.833 billion**, total current assets **RMB5.599 billion**, total current liabilities **RMB1.367 billion**, and net assets **RMB5.835 billion** Condensed Consolidated Statement of Financial Position Summary | Indicator | June 30, 2020 (RMB thousand) | December 31, 2019 (RMB thousand) | | :--- | :--- | :--- | | **Non-current assets** | | | | Property, plant and equipment | 1,422,751 | 1,493,926 | | Intangible assets | 226,952 | 248,267 | | Goodwill | 159,291 | 159,291 | | Deferred tax assets | 24,194 | 26,804 | | **Total non-current assets** | **1,833,188** | **1,928,288** | | **Current assets** | | | | Inventories | 444,438 | 430,803 | | Trade receivables | 316,382 | 260,026 | | Trade receivables secured by bank bills | 304,487 | 414,285 | | Bank balances and cash | 4,083,437 | 3,946,006 | | **Total current assets** | **5,599,690** | **5,203,053** | | **Current liabilities** | | | | Trade payables | 134,813 | 188,907 | | Bank borrowings | 609,800 | 398,392 | | **Total current liabilities** | **1,367,792** | **1,178,007** | | **Net assets** | **5,835,840** | **5,776,927** | [Condensed Consolidated Statement of Cash Flows](index=33&type=section&id=Condensed%20Consolidated%20Statement%20of%20Cash%20Flows) For the six months ended June 30, 2020, the Group's net cash from operating activities was **RMB341.635 million**, net cash used in investing activities was **RMB204.71 million**, net cash from financing activities was **RMB873,000**, and cash and cash equivalents at period-end totaled **RMB4.083 billion** Condensed Consolidated Statement of Cash Flows Summary | Activity Type | H1 2020 (RMB thousand) | H1 2019 (RMB thousand) | | :--- | :--- | :--- | | Net cash from operating activities | 341,635 | 226,272 | | Net cash (used in) / from investing activities | (204,710) | 31,619 | | Net cash from / (used in) financing activities | 873 | (323,548) | | Net increase / (decrease) in cash and cash equivalents | 137,798 | (65,657) | | Cash and cash equivalents at period-end | 4,083,437 | 3,546,054 | [Notes to the Condensed Consolidated Financial Statements](index=34&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) The notes to the financial statements provide detailed supplementary information on the Group's accounting policies, pandemic impact, revenue segmentation, investment income, taxation, dividends, EPS, balance sheet changes, share-based payments, and related party transactions - The Group's condensed consolidated financial statements are prepared in RMB according to HKEX Listing Rules and IAS 34[90](index=90&type=chunk) - The outbreak of the novel coronavirus during the period negatively impacted the Group's operations in China, primarily resulting in reduced revenue[90](index=90&type=chunk) - The Group operates as a single operating segment engaged in the research, development, manufacturing, and trading of Traditional Chinese Medicine products[96](index=96&type=chunk) [1. General Information](index=34&type=section&id=1.%20General%20Information) The Group's condensed consolidated financial statements are prepared in RMB according to HKEX Listing Rules and IAS 34, with the COVID-19 pandemic negatively impacting business and reducing revenue - The condensed consolidated financial statements are prepared according to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and International Accounting Standard 34 "Interim Financial Reporting"[90](index=90&type=chunk) - The Group's condensed consolidated financial statements are presented in RMB, the functional currency of the Company[90](index=90&type=chunk) - The outbreak of the novel coronavirus during the period negatively impacted the Group's operations in China, primarily resulting in reduced revenue[90](index=90&type=chunk) [2. Principal Accounting Policies](index=34&type=section&id=2.%20Principal%20Accounting%20Policies) The condensed consolidated financial statements are prepared on a historical cost basis, incorporating new IFRS amendments that have no material impact on the Group's financial position or performance - The condensed consolidated financial statements are prepared on a historical cost basis[91](index=91&type=chunk) - During the interim period, amendments to the Conceptual Framework for Financial Reporting and new IFRS amendments effective for annual periods beginning on or after January 1, 2020, have been applied for the first time[92](index=92&type=chunk) - The application of amendments to IAS 1 and IAS 8 "Definition of Material" had no impact on the Group's condensed consolidated financial statements[95](index=95&type=chunk) [3. Revenue and Segment Information](index=35&type=section&id=3.%20Revenue%20and%20Segment%20Information) The Group operates as a single segment in TCM product R&D, manufacturing, and trading; H1 2020 revenue included **RMB489.274 million** from injections, **RMB255.648 million** from soft capsules, and **RMB239.762 million** from TCM formula granules - The Group operates as a single operating segment engaged in the research, development, manufacturing, and trading of Traditional Chinese Medicine products[96](index=96&type=chunk) H1 2020 Major Product Revenue | Product Type | H1 2020 (RMB thousand) | H1 2019 (RMB thousand) | | :--- | :--- | :--- | | Injection | 489,274 | 651,371 | | Soft Capsules | 255,648 | 242,591 | | Granules | 147,312 | 162,076 | | TCM Formula Granules | 239,762 | 241,302 | | Other | 58,116 | 70,940 | | **Total** | **1,190,112** | **1,368,280** | [4. Investment Income](index=36&type=section&id=4.%20Investment%20Income) Total investment income for H1 2020 was **RMB70.277 million**, primarily comprising **RMB51.256 million** from bank deposit interest and **RMB18.993 million** from financial product investments H1 2020 Investment Income Composition | Source of Income | H1 2020 (RMB thousand) | H1 2019 (RMB thousand) | | :--- | :--- | :--- | | Bank deposit interest | 51,256 | 24,552 | | Financial product investment income | 18,993 | 5,026 | | Short-term financial product investment income | 28 | 18,132 | | **Total** | **70,277** | **47,710** | [5. Taxation](index=36&type=section&id=5.%20Taxation) Total taxation for H1 2020 was **RMB48.088 million**, with an effective tax rate of **15.9%**; Chinese subsidiaries are subject to a **25%** corporate income tax rate, with some enjoying a **15%** preferential rate or tax exemptions, and no deferred tax provision was made for accumulated undistributed profits H1 2020 Taxation Composition | Tax Type | H1 2020 (RMB thousand) | H1 2019 (RMB thousand) | | :--- | :--- | :--- | | Current tax | 53,420 | 62,979 | | Over-provision in prior years | (4,705) | (2,471) | | Withholding tax on distributed profits | – | 2,602 | | Deferred tax | (627) | (809) | | **Total** | **48,088** | **62,301** | - Chinese subsidiaries are subject to a **25%** tax rate, with some Western operations and high-tech enterprises enjoying a **15%** preferential tax rate[101](index=101&type=chunk)[103](index=103&type=chunk) - No deferred tax provision was made for accumulated undistributed profits of **RMB4.765 billion** of Chinese subsidiaries[103](index=103&type=chunk) [6. Profit for the Period](index=37&type=section&id=6.%20Profit%20for%20the%20Period) Profit for H1 2020 was **RMB253.721 million**, influenced by intangible asset amortization, property, plant, and equipment depreciation, government grants, net exchange gains, and gains from property, plant, and equipment disposal H1 2020 Key Items Affecting Profit for the Period | Item | H1 2020 (RMB thousand) | H1 2019 (RMB thousand) | | :--- | :--- | :--- | | Amortization of intangible assets | 21,315 | 21,295 | | Depreciation of property, plant and equipment | 82,779 | 86,766 | | Government grants (included in other income) | (67,370) | (73,858) | | Net exchange gain | (3,822) | (4,378) | | Gain on disposal of property, plant and equipment | (2,950) | 34 (loss) | | Share-based payment expenses | 95 | 964 | [7. Dividends](index=38&type=section&id=7.%20Dividends) In H1 2020, a final dividend of **RMB12 cents** and a special dividend of **RMB9 cents** per share for 2019 were paid, totaling **RMB158.466 million**; the Board proposed an interim dividend of **RMB11 cents** per share for 2020 H1 2020 Dividend Payments and Proposals | Dividend Type | H1 2020 (RMB thousand) | H1 2019 (RMB thousand) | | :--- | :--- | :--- | | 2019 final dividend paid | 90,552 | 93,713 | | 2019 special dividend paid | 67,914 | 70,284 | | **Total dividends paid** | **158,466** | **163,997** | | Proposed 2020 interim dividend | 83,006 | 85,074 | [8. Earnings Per Share](index=38&type=section&id=8.%20Earnings%20Per%20Share) Profit attributable to company owners for H1 2020 was **RMB253.721 million**; basic and diluted earnings per share were both **RMB33 cents**, based on a weighted average of **758,879,401 shares** (excluding shares held under the share award scheme) H1 2020 Earnings Per Share Calculation Data | Indicator | H1 2020 | | :--- | :--- | | Profit for the period attributable to owners of the Company (RMB thousand) | 253,721 | | Weighted average number of ordinary shares for basic EPS calculation (shares) | 758,879,401 | | Weighted average number of ordinary shares for diluted EPS calculation (shares) | 758,879,401 | - The calculation of diluted earnings per share did not assume the exercise of all options with exercise prices higher than the average market price of the shares[108](index=108&type=chunk) [9. Property, Plant and Equipment](index=39&type=section&id=9.%20Property,%20Plant%20and%20Equipment) In H1 2020, the Group added **RMB4.403 million** in construction in progress and acquired **RMB30.367 million** in other property, plant, and equipment; disposal of property, plant, and equipment with a carrying value of **RMB23.169 million** generated a gain of **RMB2.95 million** - Additions to construction in progress amounted to **RMB4.403 million**, and acquisition of other property, plant and equipment amounted to **RMB30.367 million**[109](index=109&type=chunk) - Disposal of property, plant and equipment with a carrying value of **RMB23.169 million** resulted in net proceeds of **RMB26.119 million**, generating a gain of **RMB2.95 million**[109](index=109&type=chunk) [10. Trade Receivables / Trade Receivables Secured by Bank Bills](index=40&type=section&id=10.%20Trade%20Receivables%20%2F%20Trade%20Receivables%20Secured%20by%20Bank%20Bills) As of June 30, 2020, total trade receivables and trade receivables secured by bank bills amounted to **RMB620.869 million** (net of credit loss provisions), with **RMB561.654 million** due within six months June 30, 2020 Trade Receivables and Trade Receivables Secured by Bank Bills | Item | June 30, 2020 (RMB thousand) | December 31, 2019 (RMB thousand) | | :--- | :--- | :--- | | Trade receivables | 323,898 | 264,055 | | Trade receivables secured by bank bills | 304,487 | 414,285 | | Less: Provision for credit losses | (7,516) | (4,029) | | **Total** | **620,869** | **674,311** | June 30, 2020 Trade Receivables Aging Analysis | Aging | June 30, 2020 (RMB thousand) | December 31, 2019 (RMB thousand) | | :--- | :--- | :--- | | Within six months | 561,654 | 635,996 | | Over six months but within one year | 50,133 | 32,834 | | Over one year but within two years | 9,082 | 5,481 | | **Total** | **620,869** | **674,311** | [11. Impairment Assessment of Financial Assets, Net of Reversals](index=41&type=section&id=11.%20Impairment%20Assessment%20of%20Financial%20Assets,%20Net%20of%20Reversals) Impairment loss on trade receivables for H1 2020 was **RMB3.487 million** H1 2020 Impairment Loss on Trade Receivables | Item | H1 2020 (RMB thousand) | H1 2019 (RMB thousand) | | :--- | :--- | :--- | | Impairment loss on trade receivables | 3,487 | – | [12. Trade Payables / Trade Payables Secured by Bank Bills](index=41&type=section&id=12.%20Trade%20Payables%20%2F%20Trade%20Payables%20Secured%20by%20Bank%20Bills) As of June 30, 2020, total trade payables were **RMB134.813 million**, with an average credit period ranging from two to six months June 30, 2020 Trade Payables and Trade Payables Secured by Bank Bills | Item | June 30, 2020 (RMB thousand) | December 31, 2019 (RMB thousand) | | :--- | :--- | :--- | | Trade payables | 134,813 | 188,907 | | Trade payables secured by bank bills | – | 538 | | **Total** | **134,813** | **189,445** | June 30, 2020 Trade Payables Aging Analysis | Aging | June 30, 2020 (RMB thousand) | December 31, 2019 (RMB thousand) | | :--- | :--- | :--- | | Within six months | 125,778 | 173,007 | | Over six months but within one year | 3,655 | 2,899 | | Over one year but within two years | 2,411