亿胜生物科技(01061) - 2020 - 中期财报

Company Information Board of Directors and Committees This section outlines the composition of the company's board, including executive and independent non-executive directors, and members of key committees - Executive Directors: Yim Ming Chi (Chairman), Fong Hoi Chow (Managing Director)[10] - Independent Non-Executive Directors: Fung Chi Ying, Mauffrey Benoit Jean Marie, Yau Mui Mui[10] - The Audit Committee Chairman is Fung Chi Ying, while the Remuneration, Nomination, and Corporate Governance Committees Chairwoman is Yau Mui Mui[10] Registered and Principal Offices This section details the company's registered office in the Cayman Islands, principal place of business in Hong Kong, and Zhuhai headquarters - Registered office is located at Cricket Square, Hutchins Drive, P.O. Box 2681 Grand Cayman KY1-1111, Cayman Islands[10] - The principal place of business in Hong Kong is Room 2818, China Merchants Tower, Shun Tak Centre, 168–200 Connaught Road Central, Hong Kong[10] - Zhuhai headquarters is located at No. 88, Keji 6th Road, High-tech Zone, Zhuhai, Guangdong, China[10] Share and Banking Information This section provides essential information on the company's share registrars, principal bankers, and stock code - The principal share registrar is SMP Partners (Cayman) Limited; Hong Kong share registrar is Hong Kong Registrars Limited[10] - Principal bankers include The Hongkong and Shanghai Banking Corporation Limited, Bank of China, Bank of Communications Co., Ltd., China Merchants Bank, China Construction Bank, and Industrial and Commercial Bank of China (Asia) Limited[10] - The company's stock code is 01061[10] Financial Statements Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income This report presents the unaudited consolidated profit or loss and other comprehensive income for the six months ended June 30, 2020, showing significant year-on-year declines in turnover and profit, with exchange differences leading to an other comprehensive loss Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income Key Data | Indicator | H1 2020 (thousand HKD) | H1 2019 (thousand HKD) | YoY Change (%) | | :--- | :--- | :--- | :--- | | Turnover | 323,835 | 581,716 | -44.3% | | Gross Profit | 254,710 | 468,766 | -45.7% | | Profit Before Income Tax | 57,790 | 149,780 | -61.4% | | Profit for the Period | 49,188 | 129,575 | -62.0% | | Other Comprehensive Income for the Period | (46,362) | 11,116 | N/A (turned to loss) | | Total Comprehensive Income for the Period | 2,826 | 140,691 | -98.0% | | Basic Earnings Per Share | 8.51 HK cents | 22.39 HK cents | -61.9% | | Diluted Earnings Per Share | 8.51 HK cents | 21.96 HK cents | -61.2% | Condensed Consolidated Statement of Financial Position As of June 30, 2020, the company's total assets and net assets both decreased, while current liabilities slightly increased, leading to a reduction in net current assets and a change in the asset-liability structure Condensed Consolidated Statement of Financial Position Key Data | Indicator | June 30, 2020 (thousand HKD) | December 31, 2019 (thousand HKD) | Change (thousand HKD) | | :--- | :--- | :--- | :--- | | Total Non-Current Assets | 773,233 | 810,453 | (37,220) | | Total Current Assets | 1,084,610 | 1,267,490 | (182,880) | | Total Assets | 1,857,843 | 2,077,943 | (220,100) | | Total Current Liabilities | 518,843 | 509,090 | 9,753 | | Total Non-Current Liabilities | 167,492 | 371,708 | (204,216) | | Total Liabilities | 686,335 | 880,798 | (194,463) | | Net Assets | 1,171,508 | 1,197,145 | (25,637) | Condensed Consolidated Statement of Changes in Equity For the six months ended June 30, 2020, total equity decreased from HK$1,197,145 thousand at the beginning of the period to HK$1,171,508 thousand, primarily due to reduced profit, exchange differences, and fair value changes of equity instruments at fair value through other comprehensive income - As of June 30, 2020, the company's total equity was HK$1,171,508 thousand, a decrease from HK$1,197,145 thousand as of January 1, 2020[16] - Profit for the period was HK$49,188 thousand, but this was largely offset by exchange differences arising from the translation of financial statements of overseas operations (HK$27,261 thousand loss) and fair value changes of equity instruments at fair value through other comprehensive income (HK$19,101 thousand loss)[16] - Dividends paid amounted to HK$28,897 thousand[16] Condensed Consolidated Statement of Cash Flows For the six months ended June 30, 2020, net cash from operating activities decreased, cash outflow from investing activities increased, and financing activities shifted from net inflow to net outflow, resulting in a net decrease in cash and cash equivalents Condensed Consolidated Statement of Cash Flows Key Data | Indicator | H1 2020 (thousand HKD) | H1 2019 (thousand HKD) | Change (thousand HKD) | | :--- | :--- | :--- | :--- | | Net Cash Generated from Operating Activities | 57,828 | 83,618 | (25,790) | | Net Cash Used in Investing Activities | (88,588) | (76,332) | (12,256) | | Net Cash (Used in) / Generated from Financing Activities | (43,955) | 17,596 | (61,551) | | Net (Decrease) / Increase in Cash and Cash Equivalents | (74,715) | 24,882 | (99,597) | | Cash and Cash Equivalents at End of Period | 390,388 | 334,730 | 55,658 | Notes to the Condensed Consolidated Interim Financial Statements 1. General Information Essex Bio-Technology Limited is incorporated in the Cayman Islands, listed on the HKEX, and primarily engaged in investment holding and the development, manufacturing, and sale of biopharmaceutical products in China - The company was incorporated as a limited liability company in the Cayman Islands on July 31, 2000, and its shares are listed on the Main Board of The Stock Exchange of Hong Kong Limited (Stock Code: 1061)[24] - The Group's principal activities are investment holding and the development, manufacture, and sale of biopharmaceutical products in the People's Republic of China[24] 2. Basis of Preparation and Accounting Policies The condensed consolidated interim financial statements are prepared in accordance with HKAS 34 and HKEX Listing Rules, using consistent accounting policies with the 2019 annual financial statements, with no significant impact from new standards - The condensed consolidated interim financial statements have been prepared in accordance with Hong Kong Accounting Standard 34 Interim Financial Reporting issued by the Hong Kong Institute of Certified Public Accountants and the applicable disclosure requirements of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited[25] - The accounting policies adopted in the preparation of these condensed consolidated interim financial statements are consistent with those followed in the preparation of the 2019 financial statements, except for the adoption of revised standards effective for annual periods beginning on or after January 1, 2020, which had no significant impact[27] 4. Segment Reporting The company manages its business by product type (ophthalmic and surgical products) and has reorganized its internal reporting structure; both segments saw significant year-on-year declines in revenue and profit in H1 2020, with a major customer contributing over 10% of revenue - The Group manages its businesses by product type, and the identified reportable operating segments have been reorganized into ophthalmic products and surgical products[30] Reportable Segment Revenue and Profit | Segment | H1 2020 Revenue (thousand HKD) | H1 2019 Revenue (thousand HKD) | Revenue YoY Change (%) | H1 2020 Profit (thousand HKD) | H1 2019 Profit (thousand HKD) | Profit YoY Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Ophthalmic Products | 146,048 | 249,919 | -41.6% | 32,695 | 69,701 | -53.1% | | Surgical Products | 177,787 | 331,797 | -46.4% | 36,972 | 92,195 | -59.9% | | Total | 323,835 | 581,716 | -44.3% | 69,667 | 161,896 | -57.0% | - For the six months ended June 30, 2020, one major customer contributed HK$78,200,000 in revenue, accounting for over 10% of the Group's total revenue[34] 5. Turnover and Other Income Turnover primarily represents sales value of products and service income, net of sales taxes. Other income and gains decreased year-on-year in H1 2020, mainly due to reduced government grants, royalty income, and processing income, but fair value changes of financial assets at fair value through profit or loss increased - Turnover refers to the sales value of products supplied to customers and service income (net of sales taxes, value-added tax, trade discounts, and sales returns)[35] Other Income and Other Gains and Losses | Item | H1 2020 (thousand HKD) | H1 2019 (thousand HKD) | Change (thousand HKD) | | :--- | :--- | :--- | :--- | | Interest income from convertible loans receivable | 944 | 392 | 552 | | Government grants | 2,871 | 4,047 | (1,176) | | Interest income from bank deposits | 2,823 | 888 | 1,935 | | Fair value changes of financial assets at fair value through profit or loss | 7,959 | 5,791 | 2,168 | | Royalty income | 2,577 | 5,399 | (2,822) | | Miscellaneous income | 780 | 2,569 | (1,789) | | Processing income | – | 1,070 | (1,070) | | Total | 15,747 | 20,156 | (4,409) | 7. Finance Costs and Profit Before Income Tax Finance costs decreased year-on-year in H1 2020, mainly due to increased capitalization. Profit before income tax was affected by various expenses, including depreciation, amortization, staff costs, and R&D costs Finance Costs | Item | H1 2020 (thousand HKD) | H1 2019 (thousand HKD) | Change (thousand HKD) | | :--- | :--- | :--- | :--- | | Interest expense on bank borrowings | 2,759 | 996 | 1,763 | | Interest expense on lease liabilities | 114 | 129 | (15) | | Imputed interest expense on convertible loan payable | 4,465 | 4,256 | 209 | | Less: Amount capitalized | (3,957) | (1,142) | (2,815) | | Total | 3,381 | 4,239 | (858) | - Profit before income tax was HK$57,790 thousand (H1 2019: HK$149,780 thousand), primarily influenced by factors such as cost of inventories, cost of services, depreciation, amortization, staff costs, and research and development costs[12][38] 9. Income Tax and Dividends The company's main operating subsidiary in Zhuhai, China, enjoys a preferential tax rate of 15% as a high-tech enterprise, with different rates in other regions. The board does not recommend an interim dividend for H1 2020 - The Group's principal operating subsidiary in Zhuhai, China, as a high-tech enterprise, enjoys a preferential tax rate of 15%[39] - Other operating subsidiaries of the Group in China, Singapore, and the United States are subject to corporate income tax rates of 25%, 17%, and 27.3%, respectively[40] - The Board does not recommend the declaration of an interim dividend for the six months ended June 30, 2020 (six months ended June 30, 2019: interim dividend of HK$0.035 per ordinary share declared)[41] 11. Earnings Per Share Basic and diluted earnings per share for H1 2020 were both 8.51 HK cents, a significant decrease from the prior year, primarily due to reduced profit for the period Earnings Per Share | Indicator | H1 2020 | H1 2019 | YoY Change (%) | | :--- | :--- | :--- | :--- | | Basic Earnings Per Share | 8.51 HK cents | 22.39 HK cents | -61.9% | | Diluted Earnings Per Share | 8.51 HK cents | 21.96 HK cents | -61.2% | - For the six months ended June 30, 2020, the calculation of diluted earnings per share did not assume the issuance of potential ordinary shares related to all outstanding share options and convertible loans payable, as they had an anti-dilutive effect[47] 12. Property, Plant and Equipment As of June 30, 2020, the carrying value of property, plant and equipment increased to HK$195,023 thousand, mainly due to additions to construction in progress and plant and machinery, also affected by exchange adjustments Property, Plant and Equipment Carrying Value | Item | June 30, 2020 (thousand HKD) | December 31, 2019 (thousand HKD) | Change (thousand HKD) | | :--- | :--- | :--- | :--- | | Buildings and leasehold improvements | 99,320 | 102,936 | (3,616) | | Plant and machinery | 39,467 | 44,332 | (4,865) | | Furniture, fixtures and equipment | 18,772 | 16,297 | 2,475 | | Motor vehicles | 2,105 | 2,141 | (36) | | Construction in progress | 35,359 | 14,655 | 20,704 | | Total | 195,023 | 180,361 | 14,662 | - In H1 2020, additions to construction in progress amounted to HK$21,195 thousand, and additions to plant and machinery were HK$1,130 thousand[50] 13. Other Intangible Assets As of June 30, 2020, the carrying value of other intangible assets increased to HK$412,709 thousand, primarily due to additions in development costs and intangible assets Other Intangible Assets Carrying Value | Item | June 30, 2020 (thousand HKD) | December 31, 2019 (thousand HKD) | Change (thousand HKD) | | :--- | :--- | :--- | :--- | | Development costs | 134,326 | 124,665 | 9,661 | | Intangible assets | 278,383 | 252,363 | 26,020 | | Total | 412,709 | 377,028 | 35,681 | - In H1 2020, additions to development costs amounted to HK$13,250 thousand, and additions to intangible assets were HK$31,421 thousand[54] 14. Convertible Loans Receivable The company holds Convertible Loan C, Convertible Loan E, and Convertible Loan F, totaling HK$53,420 thousand, with most being current portions. Fair values are calculated using a binomial option pricing model - The Group's convertible loans receivable totaled HK$53,420 thousand (December 31, 2019: HK$46,075 thousand), comprising Convertible Loan C, Convertible Loan E, and Convertible Loan F[65] - As of June 30, 2020, the current portion of convertible loans receivable was HK$48,527 thousand, and the non-current portion was HK$4,893 thousand[65] - The fair value of convertible loans receivable is calculated using a binomial option pricing model, with key assumptions including expected volatility (C: 113%, E: 54%, F: 81%)[65] 15. Financial Assets at Fair Value Through Other Comprehensive Income and Profit or Loss The company holds equity investments designated at fair value through other comprehensive income (listed and unlisted) and equity investments designated at fair value through profit or loss. In H1 2020, both non-current and current portions significantly decreased Financial Assets at Fair Value Through Other Comprehensive Income and Profit or Loss | Item | June 30, 2020 (thousand HKD) | December 31, 2019 (thousand HKD) | Change (thousand HKD) | | :--- | :--- | :--- | :--- | | Non-current - Equity investments designated at fair value through other comprehensive income | 94,478 | 109,774 | (15,296) | | Current - Equity investments designated at fair value through other comprehensive income | 1,940 | 10,564 | (8,624) | | Current - Equity investments designated at fair value through profit or loss | 20 | 25 | (5) | - Unlisted equity investments include investments in private companies in the United States and Singapore, as well as equity investments in Shanggong and Antikor[69] - During the period ended June 30, 2020, the Group disposed of a portion of its equity interest in MeiraGTx, with cumulative gains of approximately HK$1,600 thousand recognized in other comprehensive income reclassified to retained earnings[69] 16. Inventories As of June 30, 2020, the company's total inventories slightly increased, mainly reflecting growth in work-in-progress and finished goods Inventory Composition | Item | June 30, 2020 (thousand HKD) | December 31, 2019 (thousand HKD) | Change (thousand HKD) | | :--- | :--- | :--- | :--- | | Raw materials | 10,837 | 10,998 | (161) | | Work in progress | 15,018 | 9,309 | 5,709 | | Finished goods | 94,459 | 93,818 | 641 | | Total | 120,314 | 114,125 | 6,189 | 17. Trade and Other Receivables As of June 30, 2020, total trade and other receivables significantly decreased, primarily due to a reduction in trade receivables, though trade receivables aged over 90 days increased Trade and Other Receivables | Item | June 30, 2020 (thousand HKD) | December 31, 2019 (thousand HKD) | Change (thousand HKD) | | :--- | :--- | :--- | :--- | | Trade receivables (net of impairment losses) | 429,808 | 608,811 | (179,003) | | Other receivables | 37,375 | 42,926 | (5,551) | | Total | 467,183 | 651,737 | (184,554) | - The Group's policy grants its trade customers an average credit period of 90 days[76] Trade Receivables Ageing Analysis | Ageing | June 30, 2020 (thousand HKD) | December 31, 2019 (thousand HKD) | Change (thousand HKD) | | :--- | :--- | :--- | :--- | | 0 to 60 days | 204,844 | 418,493 | (213,649) | | 61 to 90 days | 70,164 | 54,291 | 15,873 | | Over 90 days | 154,800 | 136,027 | 18,773 | 18. Deposits and Prepayments As of June 30, 2020, total deposits and prepayments increased to HK$34,816 thousand, mainly due to higher deposits paid for property, plant and equipment Deposits and Prepayments | Item | June 30, 2020 (thousand HKD) | December 31, 2019 (thousand HKD) | Change (thousand HKD) | | :--- | :--- | :--- | :--- | | Deposits paid for acquisition of property, plant and equipment | 15,170 | 10,201 | 4,969 | | Deposits paid for acquisition of other intangible assets | 5,483 | – | 5,483 | | Other deposits | 906 | 840 | 66 | | Other prepayments | 13,257 | 13,008 | 249 | | Total | 34,816 | 24,049 | 10,767 | 19. Trade and Other Payables As of June 30, 2020, total trade and other payables significantly decreased, primarily due to reductions in trade payables and other payables Trade and Other Payables | Item | June 30, 2020 (thousand HKD) | December 31, 2019 (thousand HKD) | Change (thousand HKD) | | :--- | :--- | :--- | :--- | | Trade payables | 5,515 | 53,139 | (47,624) | | Other payables and accrued expenses | 297,813 | 412,816 | (115,003) | | Total | 303,328 | 465,955 | (162,627) | - Other payables and accrued expenses include accrued sales and marketing costs of approximately HK$283,700 thousand (December 31, 2019: approximately HK$355,500 thousand)[81] 20. Bank Borrowings As of June 30, 2020, total bank borrowings were HK$210,375 thousand, with most repayable after one year. The company secured bank facilities of approximately HK$626,100 thousand, of which HK$220,000 thousand was utilized - As of June 30, 2020, bank borrowings amounted to HK$210,375 thousand (December 31, 2019: HK$19,250 thousand current, HK$200,750 thousand non-current)[15] - Bank borrowings and bank facilities are secured by corporate guarantees provided by the company and its subsidiaries, and pledged bank deposits of approximately HK$42,100 thousand[83] - As of June 30, 2020, the Group had bank facilities of approximately HK$626,100 thousand, of which HK$220,000 thousand had been utilized[83] 21. Convertible Loan Payable The company's HK$150,000 thousand convertible loan with IFC, bearing 1.9% annual interest and a conversion price of HK$5.9 per share, had its maturity date extended by three years to the eighth anniversary of the disbursement date - The Group entered into a convertible loan agreement with International Finance Corporation (IFC) involving a principal amount of HK$150,000,000, bearing interest at an annual rate of 1.9%[84][86] - The conversion price is HK$5.9 per share[87] - On July 10, 2020, the Group entered into an amendment agreement to the convertible loan agreement with IFC, extending the maturity date by 3 years to the eighth anniversary of the disbursement date[84] Convertible Loan Payable Movement | Item | June 30, 2020 (thousand HKD) | December 31, 2019 (thousand HKD) | Change (thousand HKD) | | :--- | :--- | :--- | :--- | | Debt component | 143,183 | 140,159 | 3,024 | | Conversion component | 33,323 | 33,323 | 0 | | Total | 176,506 | 173,482 | 3,024 | 22. Fair Value Measurement of Financial Instruments The fair value measurement of the company's financial instruments uses market observable inputs, categorized into three fair value levels. Convertible loans receivable and equity investments are measured at fair value, while other financial instruments' carrying amounts approximate their fair values - Fair value measurements are categorized into three levels: Level 1 (quoted prices in active markets for identical assets or liabilities), Level 2 (directly or indirectly observable inputs), and Level 3 (inputs not based on observable market data)[92] - Convertible loans receivable and equity investments are measured and disclosed at fair value[93] - The carrying amounts of cash and cash equivalents, trade and other receivables, trade and other payables, bank borrowings, lease liabilities, and other instruments approximate their fair values[95] Financial Instruments Measured at Fair Value | Item | Level 1 (thousand HKD) | Level 2 (thousand HKD) | Level 3 (thousand HKD) | Total (thousand HKD) | | :--- | :--- | :--- | :--- | :--- | | June 30, 2020 | | | | | | Listed equity investments | 28,682 | – | – | 28,682 | | Unlisted equity investments | – | 36,881 | 30,875 | 67,756 | | Convertible loans receivable | – | – | 53,420 | 53,420 | | December 31, 2019 | | | | | | Listed equity investments | 44,580 | – | – | 44,580 | | Unlisted equity investments | – | 49,913 | 25,870 | 75,783 | | Convertible loans receivable | – | – | 46,075 | 46,075 | 23. Capital Commitments and Contingent Liabilities As of June 30, 2020, total capital commitments were HK$331,747 thousand, primarily for new factory construction, acquired intangible assets, and development expenditures. The group had no significant contingent liabilities Capital Commitments | Item | June 30, 2020 (thousand HKD) | December 31, 2019 (thousand HKD) | Change (thousand HKD) | | :--- | :--- | :--- | :--- | | Property, plant and equipment | 3,080 | 5,096 | (2,016) | | Development expenditure | 29,469 | 28,025 | 1,444 | | Acquired intangible assets | 108,147 | 133,446 | (25,299) | | Construction of new factory | 181,401 | 199,237 | (17,836) | | Expansion of existing factory | 9,650 | – | 9,650 | | Total | 331,747 | 365,804 | (34,057) | - As of June 30, 2020, the Group had no significant contingent liabilities[148] 24. Related Party Transactions In May 2020, the company acquired 100% equity of Majeton Pte. Ltd., with part of the payment made to the son of Chairman Yim Ming Chi. Remuneration paid to key management personnel is also disclosed - On May 29, 2020, the Group acquired 100% equity interest in Majeton Pte. Ltd. from Yim Yin Lung (son of Yim Ming Chi, Chairman and Executive Director of the Company) and two independent third parties, with SGD260,000 (approximately HK$1,400,000) paid to Yim Yin Lung[103] Remuneration Paid to Key Management Personnel (Directors) | Item | H1 2020 (thousand HKD) | H1 2019 (thousand HKD) | Change (thousand HKD) | | :--- | :--- | :--- | :--- | | Salaries and other benefits | 2,934 | 3,048 | (114) | | Pension scheme contributions | 14 | 20 | (6) | | Total | 2,948 | 3,068 | (120) | 25. Events After Reporting Period In addition to the amendment of the convertible loan agreement with IFC, the company also entered into a US$25,000,000 loan agreement with IFC, which had not been drawn down as of the reporting date - In addition to the amendment agreement with IFC disclosed in Note 21, on July 10, 2020, the Group entered into a loan agreement with IFC, whereby IFC conditionally agreed to lend and the Group conditionally agreed to borrow a loan with a principal amount of US$25,000,000 (approximately HK$193,800,000) [105] - As of the date of this report, the Group had not drawn down any portion of the loan[105] Management Discussion and Analysis Business Review and Outlook The company focuses on R&D, production, and sales of gene-engineered drug rb-bFGF, primarily for ophthalmic and surgical fields, expanding into new areas via the "Enhancement Program." The bFGF series is the core revenue source, accounting for approximately 81.5% of total turnover - The Group focuses on the research, development, production, and sale of gene-engineered drug rb-bFGF, which promotes the repair and regeneration of various cells[109] - Key therapeutic areas are ophthalmology and surgery, with expansion into new therapeutic areas such as oncology, orthopedics, and neurology through the Group's Enhancement Program[109] - The combined turnover of the bFGF series (including Beifushu, Beifuji, and Beifuxin) accounts for approximately 81.5% of the Group's total turnover[109] - The Group has received approval in China for the registration, production, and commercialization of several preservative-free single-dose eye drops, which are expected to strengthen the product pipeline in the coming years[110] Enhancement Program Since 2015, the company has invested approximately HK$439,200 thousand through its "Enhancement Program" to boost R&D capabilities and expand its product portfolio, mainly focusing on ophthalmic, oncology, and medical technology therapeutic areas - The Enhancement Program, launched in 2015, has invested a total of approximately HK$439,200 thousand in multiple projects and/or entities at different clinical development stages, primarily focusing on ophthalmic and oncology fields, as well as medical technology therapies[112] - On June 4, 2020, the Group entered into a framework agreement with Tibet Linzhi Baisheng Pharmaceutical Co., Ltd. regarding the potential acquisition of all intellectual property rights related to the R&D technology and production processes of Iodized Lecithin and other different dosage forms of drugs with Iodized Lecithin as the active pharmaceutical ingredient[112] Market Development The company maintains a strong sales and distribution network in China, covering approximately 8,880 hospitals and 2,000 pharmacies. To adapt to regulatory changes, the company implemented strategies such as investing in clinical observation, covering lower-tier cities, developing pharmacy channels, and building online platforms, while also expanding into Southeast Asian markets - The Group maintains a strong sales and distribution network in China by establishing 43 regional sales offices and deploying approximately 1,310 sales personnel and marketing representatives[113] - The Group's pharmaceutical products are prescribed in approximately 8,880 hospitals and medical institutions and approximately 2,000 pharmacies across major cities, provinces, and counties in China[113] - Sales and marketing strategies have been implemented to enhance competitiveness, including investing in clinical observation programs, covering lower-tier city markets, developing pharmacies as supplementary sales channels, and building online platforms[113] - During the review period, the Group began expanding its sales and distribution network into Southeast Asian countries by establishing a base in Singapore[114] Research and Development and Production Capacity The company's main R&D initiatives include growth factors, antibodies, drug formulations, and blow-fill-seal platforms, possessing a recombinant protein technology platform and 30 patents. It has secured approval for 4 preservative-free single-dose eye drops in China and established an R&D center in the US for oncology and ophthalmic targeted antibody research - The Group's main R&D programs include growth factors, antibodies, drug formulations, and blow-fill-seal platforms[117] - As of June 30, 2020, the Group had received approval in China for the registration and commercialization of 4 preservative-free single-dose eye drops[117] - As of the date of this report, the Group holds a total of 30 patent certificates or authorizations, including 23 invention patents, 3 utility model patents, and 4 design patents[118] - The Group established a wholly-owned subsidiary, EssexBio Therapeutics Inc., in the United States on March 9, 2020, to serve as its R&D center in the US and to manage clinical trials for the Group's products[118] - The Group's Zhuhai plant is equipped with well-appointed production lines for manufacturing pharmaceutical raw materials, flagship biopharmaceutical formulations, and advanced blow-fill-seal production lines[119] - The Group is constructing a second plant in Zhuhai High-tech Zone, expected to be completed by mid-2023, which will house an R&D center, additional manufacturing facilities, administrative offices, and staff dormitories[120] Financial Review Total turnover for H1 2020 decreased by 44.3% year-on-year to HK$323.8 million, and profit for the period decreased by 62.0% to HK$49.2 million, primarily due to the impact of the COVID-19 pandemic. Distribution and selling expenses declined in line with turnover, while administrative expenses increased due to donations and business expansion - For the six months ended June 30, 2020, the Group recorded a total turnover of approximately HK$323.8 million, a 44.3% decrease compared to the same period last year, primarily attributed to the restrictive measures implemented by various provincial and municipal governments in China during the review period to curb the spread of COVID-19[122] Turnover Composition | Segment | H1 2020 (million HKD) | H1 2019 (million HKD) | YoY Change (%) | | :--- | :--- | :--- | :--- | | Ophthalmic | 146.0 | 249.9 | -41.6% | | Surgical | 177.8 | 331.8 | -46.4% | | Total | 323.8 | 581.7 | -44.3% | - During the review period, the Group's profit was approximately HK$49.2 million, a 62.0% decrease compared to approximately HK$129.6 million in the same period last year, due to the aforementioned impact of COVID-19[125] - Distribution and selling expenses for the review period were approximately HK$163.5 million, a 45.6% decrease from approximately HK$300.7 million in the same period last year, consistent with the decrease in turnover[125] - Administrative expenses for the review period were approximately HK$45.7 million, primarily including approximately HK$5.8 million in donations and approximately HK$3.7 million for business expansion in Singapore and the United States, as well as the establishment of an online medical consultation platform[126] - Research and development expenses for the period ended June 30, 2020, increased to approximately HK$3.0 million from approximately HK$1.1 million in the same period last year[126] Convertible Loan from International Finance Corporation ("IFC") The company's HK$150,000 thousand convertible loan with IFC had its maturity date extended by three years. The net proceeds were used for strategic investments and biopharmaceutical business development. As of June 30, 2020, the loan remained unconverted, and the company is capable of meeting its repayment obligations - The company entered into a convertible loan agreement with IFC to borrow a convertible loan with a principal amount of HK$150,000,000, bearing an annual interest rate of 1.9%, and a conversion price of HK$5.90 per share[129] - On July 10, 2020, the company entered into an amendment agreement to the convertible loan agreement with IFC to extend the maturity date by three years[130] - The net proceeds from the convertible loan, approximately HK$145,000,000, were utilized in 2018 according to the intended purposes, for the company's strategic investments and development of the Group's biopharmaceutical business, as well as general working capital needs[132] - As of June 30, 2020, no portion of the outstanding principal amount of HK$150,000,000 of the convertible loan had been converted[133] - The company is capable of fulfilling its repayment obligations under the convertible loan[138] - Under the loan agreement, Yim Ming Chi, Yim Ming Kit, and Liu Hui Juan (as a group) are required to maintain at least 35%-40% of the economic and voting rights and remain the single largest direct and indirect shareholders of the company; otherwise, it would constitute an event of default[140] Liquidity and Financial Resources As of June 30, 2020, the company had bank credit facilities of HK$626,100 thousand, with HK$220,000 thousand utilized, and cash and cash equivalents of HK$390,400 thousand. The gearing ratio was 36.9%, a year-on-year decrease - As of June 30, 2020, the Group had bank credit facilities of approximately HK$626,100 thousand, of which HK$220,000 thousand had been utilized[143] - As of June 30, 2020, the Group's cash and cash equivalents amounted to approximately HK$390,400 thousand (December 31, 2019: approximately HK$473,300 thousand)[143] - The gearing ratio (defined as total liabilities to total assets) as of June 30, 2020, was 36.9% (December 31, 2019: 42.4%)[143] - As of June 30, 2020, bank deposits of approximately HK$42,100 thousand were pledged as security for the Group's bank facilities[146] - As of June 30, 2020, the Group's capital commitments amounted to approximately HK$331,700 thousand[147] - The Group's assets, liabilities, and transactions are primarily denominated in HKD, RMB, or USD, and the Directors believe that the Group's operating cash flows and liquidity are not exposed to significant foreign exchange risk, thus no hedging arrangements have been made[151] Share Capital and Share Options The company's authorized share capital remained unchanged. No share options were exercised, cancelled, or lapsed during the period ended June 30, 2020. The scheme aims to recognize contributions, optimize performance, and attract and retain talent - The company's authorized share capital remained unchanged during the review period[154] - During the period ended June 30, 2020, no share options granted under the company's share option scheme were exercised, cancelled, or lapsed[154][178] - The purpose of the share option scheme is to recognize and acknowledge the contributions of eligible participants, provide opportunities to acquire ownership interests in the company to encourage optimized performance, and attract and retain talent[155] - The total number of ordinary shares of the company available for issue under the scheme is 25,375,000 shares, representing 4.39% of the issued share capital[157][158] - The exercise price will be determined by the Board and shall not be less than the highest of the closing price on the date of grant, the average closing price for the five trading days immediately preceding the date of grant, and the nominal value of the shares[167] Details of Granted Share Options (Unexercised) | Participant | Grant Date | Exercise Price (HKD) | Exercise Period | Unexercised as of Jan 1, 2020 | Unexercised as of June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | :--- | | Employees | 11.11.2016 | 5.9 | 11.05.2017–10.11.2021 | 2,243,000 | 2,243,000 | | Employees | 27.06.2018 | 10.0 | 27.06.2020–26.06.2023 | 1,000,000 | 1,000,000 | | Investor Relations Consultant | 01.11.2017 | 7.5 | 01.11.2019–31.10.2020 | 1,085,507 | 1,085,507 | | Investor Relations Consultant | 01.11.2017 | 8.5 | 01.11.2020–31.10.2021 | 1,600,000 | 1,600,000 | | Total | | | | 5,928,507 | 5,928,507 | Other Information Directors' and Chief Executive's Interests and Short Positions in Shares, Underlying Shares and Debentures As of June 30, 2020, Yim Ming Chi held 26.64% equity interest in the company, Fong Hoi Chow held 0.91%, and Zhong Sheng held 0.35% Directors' and Chief Executive's Long Positions in Shares of the Company | Name | Capacity | Number of Ordinary Shares / Underlying Shares of the Company | Approximate Percentage of Interest in the Company's Issued Share Capital | | :--- | :--- | :--- | :--- | | Yim Ming Chi | Beneficial owner and interest in controlled corporation | 153,945,667 | 26.64% | | Fong Hoi Chow | Beneficial owner | 5,244,300 | 0.91% | | Zhong Sheng (retired on July 4, 2020) | Beneficial owner | 2,036,150 | 0.35% | - Yim Ming Chi's interests include 147,279,000 ordinary shares held in his personal name and 6,666,667 ordinary shares held through Dynatech Ventures Pte Ltd[187] Major Shareholders' and Other Persons' Interests Discloseable Under Part XV of the Securities and Futures Ordinance As of June 30, 2020, Yim Ming Kit held 26.30% equity interest in the company, and Liu Hui Juan held a 26.64% family interest Major Shareholders' and Other Persons' Long Positions in Shares of the Company | Name | Capacity | Number of Ordinary Shares / Underlying Shares of the Company | Approximate Percentage of Interest in the Company's Issued Share Capital | | :--- | :--- | :--- | :--- | | Yim Ming Kit | Beneficial owner and interest in controlled corporation | 152,020,667 | 26.30% | | Liu Hui Juan | Family interest | 153,945,667 | 26.64% | - Yim Ming Kit's interests include 145,354,000 ordinary shares held in his personal name and 6,666,667 ordinary shares held through Dynatech Ventures Pte Ltd[191] - Liu Hui Juan, spouse of Executive Director Yim Ming Chi, is deemed under the Securities and Futures Ordinance to have an interest in the 153,945,667 shares in which Yim Ming Chi has an interest[191] Purchase, Redemption or Sale of the Company's Listed Securities During the review period, neither the company nor any of its subsidiaries purchased, redeemed, or sold any of the company's listed securities - During the review period, neither the company nor any of its subsidiaries purchased, redeemed, or sold any of the company's listed securities[193] Corporate Governance and Review The company complied with the Code Provisions of the Corporate Governance Code in Appendix 14 of the Listing Rules throughout the review period. The Audit Committee reviewed accounting principles, internal controls, and financial reporting matters - Throughout the review period, the company consistently complied with the Code Provisions set out in the Corporate Governance Code in Appendix 14 of the Listing Rules[194] - The company's Audit Committee has reviewed the accounting principles and practices adopted by the Group and discussed internal control and financial reporting matters[195] - The Board does not recommend the declaration of an interim dividend for the six months ended June 30, 2020[196] - After specific inquiries to all Directors, all Directors have confirmed their full compliance with the required standards and provisions of the Model Code throughout the six months ended June 30, 2020[197]