中国生物科技服务(08037) - 2019 - 年度财报

Company Information Company Basic Information This section provides fundamental information about China Biotech Services Holdings Limited, including board composition, committee responsibilities, registered and principal office addresses, main bankers, and stock code, outlining the company's governance structure and operational foundation - Executive Directors include Liu Xiaolin (Co-Chairman), Yao Yi (Co-Chairman, appointed on May 20, 2019), He Xun, Huang Song (re-designated on December 16, 2019), Liang Bo Hao, and Wang Zheng[7] - Independent Non-Executive Directors include Yan Guoxiang (Chairman of the Audit Committee), Dr He Junjie, and Qian Hongji[7] - The company's stock code is 8037[7] Chairman's Statement 2019 Annual Review and Strategic Layout The Chairman's Statement reviews the impact of global economic slowdown and social unrest in Hong Kong on the Group's business in 2019, highlighting efforts to consolidate market share in medical testing and healthcare while accelerating cell therapy industry deployment, particularly the R&D progress of Shanghai Longyao's CAR-T product, and expresses confidence in the biotechnology industry's prospects - Global economic growth slowed in 2019, international trade frictions intensified, and social unrest in Hong Kong affected investor and consumer confidence, leading to a volatile business environment in China and Hong Kong, impacting the healthcare industry to varying degrees[9] - The Group is committed to steady progress, consolidating its market share in medical testing and healthcare businesses in Hong Kong, and focusing on the development and registration of immune cell products, striving for breakthroughs in product R&D milestones[9] - Mr Yao Yi, former Clinical Medical Reviewer of the Gene and Cell Therapy Division at the US Food and Drug Administration (FDA), was appointed Co-Chairman and Executive Director on May 20, 2019, leading clinical research and drug registration for the immune cell division[10] - Mr Huang Song, Deputy Director of the National Institute of Biological Sciences, Beijing, was re-designated as Executive Director and Chief Technology Officer, strengthening the Group's potential for technical cooperation and development in cell therapy products[10] - Subsidiary Shanghai Longyao Biotechnology Co Ltd's novel CD20-targeted CAR-T showed significant efficacy in human clinical trials, has largely completed investigator-initiated clinical trials, and has submitted Pre-IND application materials to the Center for Drug Evaluation of China[11] - The Group subscribed for shares in Pillar Biosciences, Inc, a US cancer gene precision testing company, and established a joint venture, Asia Molecular Diagnostics Laboratory Limited, in Hong Kong to introduce advanced international cancer testing technology, which is expected to change the previous practice of sending cancer samples to the US from Hong Kong[14] - Completed the acquisition of 51% of the issued shares of Richstone International (Hong Kong) Limited, expanding insurance brokerage services to provide insurance and wealth management plans for high-net-worth clients in Greater China, creating synergy with the health check-up business[15] - The Group's management is confident in the biotechnology industry's prospects, will strive to obtain clinical approvals for cell therapy products and launch CAR-T products as soon as possible, and will continue to seek better technology and product cooperation and acquisitions globally[16] Management Discussion and Analysis Financial Review This section reviews the Group's financial performance for the 2019 fiscal year, with total revenue decreasing by 15.77% to HK$59.214 million, primarily due to the disposal of Shuangsheng Pharmaceutical and market competition in Hong Kong, resulting in a HK$107.5 million loss mainly from reduced gross profit, increased administrative expenses, and impairment of goodwill/intangible assets 2019 Annual Revenue and Year-on-Year Change | Business Type | 2019 Revenue (HK$ thousand) | 2018 Revenue (HK$ thousand) | Year-on-Year Change (HK$ thousand) | Year-on-Year Change (%) | | :--------------------------- | :-------------------------- | :-------------------------- | :--------------------------------- | :---------------------- | | Total Revenue | 59,214 | 70,304 | (11,090) | (15.77%) | | Oncology Immuno-Cell Therapy Services | 125 | 0 | 125 | N/A | | Healthcare-related and Pharmaceutical Product Manufacturing and Sales | 1,448 | 9,732 | (8,284) | (85.12%) | | Medical Biochemical Testing and Health Check-up Services | 53,551 | 58,698 | (5,147) | (8.77%) | | Insurance Brokerage Services | 2,402 | 0 | 2,402 | N/A | | Money Lending Business (Interest Income) | 1,688 | 1,604 | 84 | 5.24% | | Securities Trading (Net Loss) | (1,252) | (397) | (855) | 215.37% | 2019 Annual Key Financial Indicators | Indicator | 2019 (HK$ thousand) | 2018 (HK$ thousand) | Year-on-Year Change (HK$ thousand) | Year-on-Year Change (%) | | :----------------------- | :------------------ | :------------------ | :--------------------------------- | :---------------------- | | Gross Profit | 22,373 | 28,084 | (5,711) | (20.34%) | | Gross Profit Margin | 37.78% | 39.95% | (2.17) percentage points | (5.43%) | | Selling and Distribution Expenses | 12,379 | 16,966 | (4,587) | (27.04%) | | Administrative Expenses | 94,111 | 78,988 | 15,123 | 19.15% | | Finance Costs | 1,692 | 3,472 | (1,780) | (51.27%) | | Impairment Loss on Goodwill | 264 | 0 | 264 | N/A | | Impairment Loss on Intangible Assets | 28,838 | 0 | 28,838 | N/A | | Loss for the Year | 107,483 | 69,433 | 38,050 | 54.80% | - The net loss for the year was partially offset by a gain on remeasurement of a previously held equity interest in an associate of approximately HK$8,096,000 and a gain on fair value change of contingent consideration of approximately HK$8,038,000[40] Business Review This section reviews the Group's significant business activities in 2019, including the completion of acquisitions of Shanghai Longyao (immune cell therapy) and Richstone (insurance brokerage), and investment in Pillar Biosciences (cancer precision diagnostics), while also noting the lapse of certain acquisition and disposal matters, and the granting of share options and share repurchases during the year - The Group completed the acquisition of approximately 67% equity interest in Shanghai Longyao Biotechnology Co Ltd on March 29, 2019, making it a non-wholly owned subsidiary, with a total consideration of approximately RMB225 million[44] - Shanghai Longyao has completed clinical research on cell therapy in collaboration with three Grade A tertiary hospitals in China and initiated investigator-initiated clinical research on a new generation of CD20-targeted CAR-T with Jiangsu Provincial People's Hospital and Xuzhou Medical University Affiliated Hospital[49] - The Group completed the acquisition of 51% of the issued shares of Richstone International (Hong Kong) Limited on October 31, 2019, for a consideration of HK$12.24 million, aiming to extend products and services to the insurance industry and generate synergies with the health check-up business[50][51] - The Group completed the disposal of Dragon Rise Enterprise Limited and its subsidiaries on August 16, 2019, to save administrative costs[55] - The Group subscribed for a total of 1,638,216 Series B preferred shares in Pillar Biosciences, Inc in 2019, for a total consideration of approximately HK$39.208 million, representing approximately 5.60% of Pillar's issued share capital, aiming to introduce cancer precision diagnostic technology[56] - The possible acquisition of 70% of the issued shares of China Precision Medical Technology Holdings Limited terminated on December 31, 2019, due to non-fulfillment of certain preconditions[57] - The possible disposal of the entire issued share capital of Gainful Holdings Limited lapsed on September 30, 2019[61] - The Group granted a total of 25,420,000 share options to eligible participants on August 20, 2019[62] - The Group repurchased and cancelled 380,000 company shares in 2019, for a total consideration of approximately HK$508,800[63][378] Future Outlook Facing challenges from an uncertain geopolitical and macroeconomic environment, the Group will continue to adjust its strategy, consolidate its medical testing and healthcare businesses, and prioritize the development and launch of immune cell products, especially CAR-T technology, aiming to become a competitive company in the international cell therapy industry - The economic outlook for the coming year is expected to remain sluggish, affected by factors such as the US-China trade conflict, Brexit, social unrest in Hong Kong, and the outbreak of the novel coronavirus[64] - The Group will continue to overcome adverse impacts, adjust its strategy, consolidate its market share in medical testing and healthcare businesses in Hong Kong, and focus on the development and registration of immune cell products[64] - CAR-T technology is considered the most promising cancer treatment, with the market size projected to grow exponentially between 2019 and 2028, at a compound annual growth rate of up to 46.1%[64] - The Group's management is confident in the biotechnology industry's prospects, will strive to obtain clinical approvals for cell therapy products as soon as possible, launch CAR-T products for cancer treatment early, and continue to seek better technology and product cooperation and acquisitions internationally[64] Liquidity, Financial Resources, and Capital Structure This section outlines the Group's liquidity position, sources of financial resources, and capital structure, noting a significant decrease in cash and bank balances in 2019 primarily due to acquisitions and investments, with notable changes in both the gearing ratio and current ratio reflecting the Group's capital deployment during business expansion 2019 December 31 Liquidity and Capital Structure Indicators | Indicator | 2019 December 31 (HK$ thousand) | 2018 December 31 (HK$ thousand) | Year-on-Year Change (HK$ thousand) | Year-on-Year Change (%) | | :------------------------ | :------------------------------ | :------------------------------ | :--------------------------------- | :---------------------- | | Cash and Bank Balances | 45,518 | 154,479 | (108,961) | (70.54%) | | Loans from Controlling Shareholder | 20,000 | 0 | 20,000 | N/A | | Other Borrowings | 3,911 | 0 | 3,911 | N/A | | Total Assets | 416,584 | 337,761 | 78,823 | 23.34% | | Total Liabilities | 103,221 | 18,846 | 84,375 | 447.72% | | Gearing Ratio | 24.78% | 5.58% | 19.20 percentage points | 344.09% | | Current Ratio | 1.61 times | 13.76 times | (12.15) times | (88.30%) | | Total Issued Share Capital | 96,980,615 shares | 93,534,675 shares | 3,445,940 shares | 3.68% | - The decrease in cash and bank balances was mainly used for the acquisition of Shanghai Longyao (approximately HK$90.28 million) and subscription for Pillar shares (approximately HK$39.208 million)[69] - Richstone, as an insurance brokerage company, complied with the capital and net asset requirements under the Insurance Ordinance as of December 31, 2019, maintaining a minimum net asset value of HK$100,000 and minimum paid-up share capital[70] Placing of New Shares Under General Mandate and Use of Proceeds This section discloses the company's fundraising through placing new shares in 2018 and the allocation of proceeds, primarily for the acquisition of Shanghai Longyao, subscription for Pillar shares, and general working capital for the Group - On August 22, 2018, the company raised approximately HK$132 million net proceeds by placing 79,500,000 new shares at HK$1.68 per share[75] - Use of proceeds: approximately HK$78.68 million for the acquisition of Shanghai Longyao; approximately HK$19.638 million for the subscription of Pillar shares; and approximately HK$33.682 million for the Group's general working capital[75] Significant Investments Held and Performance This section outlines the Group's significant investments and their performance in 2019, primarily focusing on investments in Pillar Biosciences and Broncus Holding Corporation, strategically aimed at precision diagnostics and entering the precision treatment industry - In 2019, the Group invested US$4,999,999.06 (approximately HK$39.208 million) in financial assets measured at fair value through other comprehensive income by subscribing for new shares in Pillar Biosciences, Inc[76] - As of December 31, 2019, the Group held approximately 5.21% interest in Pillar, recording an unaudited consolidated loss of approximately HK$13.9 million, with the Group recording a fair value loss of approximately HK$328,000 on its investment[77] - As of December 31, 2019, the Group held approximately 2.05% interest in Broncus Holding Corporation, recording an unaudited consolidated loss of approximately HK$17.3 million[81] - The Group believes that the investment in Pillar will create synergies with medical laboratory testing services and health check-up services, while the investment in Broncus will contribute to strategic allocation in precision diagnostics and entry into the precision treatment industry[77][81] Employees and Remuneration Policy This section outlines the Group's employee headcount, total staff costs, and remuneration policy, which is determined based on employee performance, experience, and market rates, offering various benefits while complying with relevant retirement benefit plan regulations - As of December 31, 2019, the Group employed a total of 143 full-time employees (2018: 125), located in China and Hong Kong[89] - Total staff costs for the year 2019 were approximately HK$48.739 million (2018: HK$52.323 million)[89] - The Group determines remuneration based on employee performance, experience, and prevailing market rates, offering discretionary bonuses, Mandatory Provident Fund, insurance and medical benefits, training, and share option schemes[89] - The Group has established an MPF scheme for eligible employees in Hong Kong and participates in state-managed defined contribution retirement benefit plans for employees in China[90] Biographical Details of Directors Executive Directors' Biographies This section details the personal backgrounds, educational qualifications, professional experience, and key positions held by the company's Executive Directors both within and outside the company, highlighting their extensive experience and expertise in investment, biotechnology, medical review, and corporate management - Mr Liu Xiaolin (Co-Chairman and Executive Director): Possesses over 15 years of experience in investment, equity fund management, and mergers and acquisitions, currently serving as Vice Chairman of the Board of Nanjing Medical University[95] - Mr Yao Yi (Co-Chairman and Executive Director): Former Senior Medical Reviewer at the US Food and Drug Administration (FDA) Gene and Cell Therapy Division, recipient of the FDA Lifetime Achievement Award, with outstanding achievements in gene and cell therapy[96] - Mr Huang Song (Executive Director and Chief Technology Officer): Administrative Deputy Director of the National Institute of Biological Sciences, Beijing, and Director of its Synthetic Biology Center, holding a Bachelor of Biological Sciences and a PhD in Biochemistry[98] - Mr Liang Bo Hao (Executive Director and Compliance Officer): Experienced in securities trading, fund management, corporate management, and corporate finance, with approximately 15 years of experience in pharmaceutical manufacturing and sales investment, management, and operations[102] - Mr Wang Zheng (Executive Director): Possesses over 10 years of accounting and management experience, previously served as Audit Manager at KPMG Singapore, and holds a Master of Science degree in Risk Management and Financial Engineering[103] Independent Non-Executive Directors' Biographies This section introduces the professional backgrounds and qualifications of the company's Independent Non-Executive Directors, who possess extensive experience in accounting, medicine, and law, providing independent professional advice to the Board - Mr Yan Guoxiang: Possesses over 20 years of accounting and management experience, is a Chinese Intermediate Financial Economist, Certified Asset Appraiser, and Certified Public Accountant, currently serving as General Manager of Shenzhen Junhang Information Technology Co Ltd[104] - Dr He Junjie: MD from Harvard Medical School, currently a partner in Cardiac Electrophysiology at Los Angeles Cardiology Associate, and holds important positions in multiple medical centers[108] - Mr Qian Hongji: Senior lawyer with extensive practice experience in M&A and other corporate matters, currently a Senior Partner at Dacheng Law Offices[109] Corporate Governance Report Corporate Governance Practices and Board Operations This section outlines the company's corporate governance practices in 2019, confirming compliance with GEM Listing Rules (except for individual directors' absence from general meetings), detailing Board composition, responsibilities, meeting attendance, and mechanisms for director appointment, re-election, and removal, emphasizing the Board's commitment to maintaining high corporate governance standards - The company complied with the code provisions set out in Appendix 15 of the GEM Listing Rules Corporate Governance Code for the year 2019, except for Mr Huang Song, Dr He Junjie, and Mr Qian Hongji who were unable to attend the annual general meeting[113] - The company has adopted a code of conduct for directors' securities transactions no less exacting than the required standard set out in Rules 5.48 to 5.67 of the GEM Listing Rules, and all directors confirmed compliance during 2019[114] - As of December 31, 2019, the Board comprised six Executive Directors and three Independent Non-Executive Directors, whose composition reflects the directors' skills and experience in various professional fields[116] - The Board is responsible for formulating the Group's overall strategic development, overseeing the Group's management, administration, and operations, and regularly reviewing management to ensure their competence[118] 2019 Board Meeting Attendance | Director Name | Board Meetings | Audit Committee Meetings | Remuneration Committee Meetings | Nomination Committee Meetings | General Meetings | | :------------ | :------------- | :----------------------- | :------------------------------ | :---------------------------- | :--------------- | | Mr Liu Xiaolin | 20/20 | N/A | 3/3 | 2/2 | 1/1 | | Mr Yao Yi | 13/14 | N/A | N/A | N/A | N/A | | Mr He Xun | 20/20 | N/A | N/A | N/A | 1/1 | | Mr Huang Song | 18/20 | N/A | N/A | N/A | 0/1 | | Mr Liang Bo Hao | 20/20 | N/A | N/A | N/A | 1/1 | | Mr Wang Zheng | 20/20 | N/A | N/A | N/A | 1/1 | | Mr Yan Guoxiang | 20/20 | 5/5 | 3/3 | 2/2 | 1/1 | | Dr He Junjie | 18/20 | 4/5 | 3/3 | 2/2 | 0/1 | | Mr Qian Hongji | 18/20 | 5/5 | N/A | N/A | 0/1 | - All Independent Non-Executive Directors are appointed for a one-year term and are subject to re-election, and the company has received annual independence confirmations from each Independent Non-Executive Director[129][130] Board Committees This section details the composition, primary responsibilities, and 2019 work overview of the company's Audit, Remuneration, and Nomination Committees, which play crucial roles in corporate governance by ensuring financial reporting integrity, fair remuneration policies, and diverse board composition - The Audit Committee comprises three Independent Non-Executive Directors: Mr Yan Guoxiang (Chairman), Dr He Junjie, and Mr Qian Hongji, responsible for reviewing the relationship with external auditors, monitoring financial statement integrity, and reviewing risk management and internal control systems[134][135] - In 2019, the Audit Committee held five meetings, reviewing monthly unaudited consolidated financial statements, annual results, annual reports, interim reports, and quarterly reports, and reporting on compliance procedures, internal controls, and risk management[136] - The Remuneration Committee comprises two Independent Non-Executive Directors, Mr Yan Guoxiang (Chairman) and Dr He Junjie, and one Executive Director, Mr Liu Xiaolin, responsible for advising the Board on the company's remuneration policy and structure, and evaluating individual director performance[140][141] - In 2019, the Remuneration Committee held three meetings, reviewing and recommending the remuneration policy and structure for directors, evaluating individual director performance, and reviewing directors' letters of appointment[142][143] - The Nomination Committee comprises two Independent Non-Executive Directors, Mr Yan Guoxiang and Dr He Junjie, and one Executive Director, Mr Liu Xiaolin (Chairman), responsible for identifying individuals with suitable qualifications to serve as directors and assessing the independence of Independent Non-Executive Directors[147][151] - In 2019, the Nomination Committee held two meetings, reviewing the Board's structure, size, composition, and diversity, assessing the independence of each Independent Non-Executive Director, and reviewing directors' letters of appointment[151] Chairman and Chief Executive Officer and Company Secretary This section clarifies the distinction between the roles of the company's Chairman and Chief Executive Officer, and introduces the responsibilities and professional development of the Company Secretary, emphasizing the company's efforts to ensure effective Board operations and information disclosure - The Chairman position is jointly held by Mr Liu Xiaolin and Mr Yao Yi, whose responsibilities include ensuring the effective operation of the Board and fulfillment of its duties, and timely discussion of important matters[153] - As of December 31, 2019, and the date of this report, the company had not appointed a Chief Executive Officer, with daily management duties handled jointly by the Executive Directors[153] - Ms Wang Miaochun, the Company Secretary, attended over 15 hours of relevant professional training during 2019 to update her skills and knowledge, supporting Board operations and ensuring compliance[157] Directors' Continuous Professional Development This section emphasizes the company's commitment to directors' continuous professional development, ensuring they possess the necessary knowledge and skills to fulfill their duties through training and updated information, and encouraging their participation in ongoing professional development activities - The company provides necessary induction training and information to all newly appointed directors to ensure they have an adequate understanding of the company's operations, business, and relevant regulations[158] - During 2019, all directors participated in continuous professional development through attending training and reading materials on the latest developments in GEM Listing Rules and other applicable regulatory requirements[158] 2019 Director Training Activity Participation | Director Name | Seminars | Reading Materials | | :------------ | :------- | :---------------- | | Mr Liu Xiaolin | v | v | | Mr Yao Yi | v | v | | Mr He Xun | v | v | | Mr Huang Song | v | v | | Mr Liang Bo Hao | x | v | | Mr Wang Zheng | v | v | | Mr Yan Guoxiang | v | v | | Dr He Junjie | x | v | | Mr Qian Hongji | x | v | Accountability and Audit This section outlines the company's accountability mechanisms and audit procedures for financial reporting, risk management, and internal controls, with the Board confirming its responsibility for preparing true and fair financial statements and regularly reviewing the effectiveness of risk management and internal control systems, while also disclosing auditor's remuneration - The Board confirms its responsibility for preparing financial statements for each financial year that give a true and fair view of the Group's affairs, and for preparing them on a going concern basis[164] - Management is responsible for maintaining appropriate and effective risk management and internal control systems, with the Board and Audit Committee continuously reviewing and monitoring their effectiveness annually[165] - The company has established an internal control system compliant with the COSO framework, aiming to achieve operational effectiveness and efficiency, financial reporting reliability, and compliance with applicable laws and regulations[170] - The company engages an independent professional firm to perform internal audit functions, reviewing risk management and internal control systems through annual interviews, walk-throughs, and testing of operational effectiveness[177] - Auditor's remuneration for 2019: HK$980,000 for audit services, and approximately HK$1.1 million for non-audit services (including acting as reporting accountant for major transactions)[179] Investor Relations and Communication with Shareholders This section emphasizes the company's commitment to maintaining high transparency by publicly and timely disclosing company information to shareholders and investors through various channels, and encouraging shareholder participation in general meetings to facilitate direct communication between the Board and shareholders - The company updates shareholders on its latest business developments and financial performance through corporate communications such as annual reports, interim reports, quarterly reports, notices, announcements, and circulars[180] - The company website provides a communication platform for the public and shareholders, and shareholders are encouraged to attend annual general meetings and other general meetings to provide opportunities for direct communication[180][181] - Shareholders holding not less than one-tenth of the paid-up capital may request the Board to convene an extraordinary general meeting in accordance with Article 58 of the company's articles of association[184] - Shareholders may mail inquiries and opinions to the Company Secretary, who is responsible for forwarding them to the Board or relevant departments for handling[185] Dividend Policy This section outlines the company's dividend policy adopted in 2019, aiming to balance shareholders' profit sharing with the company's liquidity and future growth opportunities, and lists key factors the Board will consider when deciding on dividend distribution - The Board approved and adopted a dividend policy on March 25, 2019, aiming to allow shareholders to share in the company's profits while retaining liquidity to seize future growth opportunities[187] - Factors the Board will consider before proposing and declaring dividends include: the Group's operating and financial performance, capital requirements and future funding needs, liquidity position, reserve status, restrictions on dividend payments, general economic conditions, and other internal and external factors[187] Environmental, Social and Governance Report Reporting Scope and Stakeholder Engagement This section describes the scope of the company's 2019 Environmental, Social and Governance (ESG) report, covering key business segments and operating locations, emphasizing the company's commitment to environmental protection and social responsibility, and identifying and assessing the materiality of ESG issues through extensive communication with internal and external stakeholders - The ESG report covers the Group's main business segments: oncology immuno-cell therapy, immune cell storage and health management services; healthcare-related and pharmaceutical product manufacturing, R&D, sales and distribution; medical laboratory testing services and health check-up services; insurance brokerage services; and securities trading[190] - The reporting scope covers the Group's business operations, including the Hong Kong head office, and the Group's subsidiaries operating in Hong Kong and Shanghai (i.e., Shanghai Longyao Biotechnology Co Ltd)[192] - The reporting period covers January 1, 2019, to December 31, 2019[193] - The Group communicates with stakeholders through various channels including training, performance reviews, internal announcements, suggestion boxes, press releases, annual general meetings, annual/interim/quarterly reports, company website, after-sales service, customer feedback, site visits, supplier feedback, government supervision, community activities, and charitable donations[198] Environmental Performance This section details the company's environmental performance in 2019, including resource consumption (energy, water, paper), gas emissions, greenhouse gas emissions, and waste management, demonstrating the company's commitment to implementing environmental policies, promoting a "green office" culture, and strictly complying with relevant environmental regulations to minimize operational environmental impact - The Group has formulated several environmental policies to ensure compliance with all applicable laws and regulations in China and Hong Kong, and is committed to monitoring environmental compliance, fostering an environmental culture among employees, improving resource utilization efficiency, and adopting "green office measures"[206] - The Group implements energy-saving measures, including purchasing energy-efficient equipment, setting air conditioning to 25.5 degrees Celsius, and turning off idle electronic devices; it also promotes paper-saving measures such as using electronic document platforms and double-sided printing[207][210] 2019 Resource Consumption | Resource | 2019 Consumption | 2018 Consumption | 2019 Consumption Intensity / HK$1,000 Revenue | 2018 Consumption Intensity / HK$1,000 Revenue | | :------- | :--------------- | :--------------- | :-------------------------------------------- | :-------------------------------------------- | | Electricity (kWh) | 681,363 | 656,491 | 11.51 | 9.34 | | Water (cubic meters) | 1,272 | 3,652 | 0.021 | 0.052 | - In 2019, the Group's gas emissions included 5.1 kg of nitrogen oxides, 0.16 kg of sulfur oxides, and 0.38 kg of particulate matter, primarily from private vehicle operations[212] - The Group's total greenhouse gas emissions in 2019 were estimated at 2,837 tonnes of CO2 equivalent, with Scope 2 (indirect energy emissions) accounting for 86%[217][218] - The Group recorded no incidents of non-compliance with any environmental laws and regulations in 2019[217] - The Group has established strict medical waste management policies to ensure compliance with the Waste Disposal Ordinance, engaging licensed contractors for collection and disposal, generating 1.4 tonnes of hazardous waste in 2019 (2018: 6.6 tonnes), and maintaining a zero-violation record[220][223][224] - The Group promotes a paperless work environment, with total paper consumption of approximately 4 tonnes in 2019; laboratory operations consumed and disposed of 9,000 masks, 128,800 gloves, and 70 bags of cotton balls[225] Social Performance This section details the company's social performance in 2019, including employment policies, health and safety measures, training and development programs, equal opportunity and anti-discrimination policies, and employee demographic data, demonstrating the company's commitment to providing competitive remuneration, a safe working environment, and fostering employee growth and career development - The Group has established a Remuneration Committee to attract, retain, and motivate talented employees, regularly reviewing employee remuneration and implementing objective performance appraisals[235] - The Group strictly complies with the Occupational Safety and Health Ordinance, and has formulated safety manuals and laboratory conduct guidelines to ensure a safe working environment, recording no work-related injuries or lost workdays in 2019[239][240] - Shanghai Longyao has established procedures for handling biological waste, including classification, disinfection, limiting container fill volume, and setting up temporary storage points to reduce the risk of exposure to hazardous substances[243] - The Group has formulated specialized training policies for employees to ensure they acquire necessary knowledge and skills, promoting personal growth and career development[248] - In 2019, 10 employees in China received a total of 116 hours of training (topics included clinical trials, cell therapy, production processes, and quality management), while Hong Kong office staff received a total of 7.5 hours of training[248] - The Group implements an equal employment opportunity policy, prohibiting discrimination based on gender, marital status, disability, age, race, etc, and strictly complies with relevant laws such as the Sex Discrimination Ordinance[252] - The Group has zero tolerance for forced labor and child labor, with employment policies requiring applicants to be at least 18 years old and undergoing background checks[254] 2019 Employee Demographic Data | Indicator | Quantity | Percentage | | :-------------------------- | :------- | :--------- | | Total Employees | 143 | - | | Hong Kong Full-time | 121 | - | | Hong Kong Part-time | 32 | - | | China Full-time | 22 | - | | China Part-time | 1 | - | | Overall Turnover Rate | - | 29% | | Age Distribution | | | | Under 30 years old | 36 | 20% | | 31-40 years old | 52 | 30% | | 41-50 years old | 39 | 22% | | Over 50 years old | 49 | 28% | | Gender Distribution | | | | Male | 53 | 30% | | Female | 123 | 70% | | Education Level Distribution (Full-time Employees) | | | | Bachelor's Degree and above | 66 | 46% | | Other | 77 | 54% | Governance Performance This section outlines the company's governance performance in 2019, including supplier management, quality assurance, data protection, anti-corruption policy, and community investment, demonstrating the company's commitment to establishing a strict supplier evaluation system, ensuring product and service quality, protecting customer data, firmly opposing corruption, and actively participating in community welfare activities - The Group has strict policies for supplier procurement in Hong Kong, purchasing chemicals and equipment only from ISO-certified, reputable, cost-effective, and responsive suppliers providing reliable and safe services, with annual review and re-evaluation of the supplier list[264] - Shanghai Longyao uses an evaluation matrix to assess supplier suitability, covering supplier surveys, product quality agreements, quality standards, quality analysis, and various certifications (including GMP certificates)[264] - The Group conducts comprehensive internal audits in Hong Kong regularly to assess the quality management system, reporting results to senior management for continuous improvement[268] - Shanghai Longyao has developed a "Quality Risk Management Procedure," employing systematic risk assessment tools (such as FMECA, FTA, HAZOP) to identify, estimate, and mitigate product quality risks[269] - The Group strictly complies with Hong Kong's Personal Data (Privacy) Ordinance, with laboratory operations adopting a confidentiality policy to ensure personal data of tested individuals is handled discreetly and properly stored, not to be released to third parties without authorization[270][271] - The Group strictly complies with all anti-corruption legal requirements, prohibits all forms of illegal activities, establishes whistleblowing channels, and regularly organizes internal anti-corruption training, with no known non-compliance with relevant laws and regulations in 2019[275][276] - In 2019, the Group donated RMB300,000 (approximately HK$329,000) to the Nanjing Medical University Education Development Fund to support educational development[277] Directors' Report Company Profile and Principal Risks This section introduces the company's registration information, principal businesses, and key risks and uncertainties faced in 2019, including market competition, financial risks, technology reliance, macroeconomic environment, employee turnover, and regulatory compliance risks, with the company having established policies to identify, monitor, and manage these risks - The company was incorporated in the Cayman Islands and continued in Bermuda, with its principal business being investment holding[282][295] - The Group faces principal risks including: intense industry competition, financial risks such as credit/interest rate/liquidity, reliance on information technology systems and networks, macroeconomic environment (e.g., US-China trade conflict, social unrest in Hong Kong, COVID-19 outbreak), key employee turnover risk, and regulatory and operational compliance risks from multiple regulations (e.g., China National Medical Products Administration, Hong Kong Competition Ordinance, Insurance Ordinance, and GEM Listing Rules)[284][286][290][291][292][293] - The company has established policies to continuously identify, report, monitor, and manage significant risks that may adversely affect the Group[284] Financial Performance and Share Capital Movements This section reports the company's financial performance for 2019, confirming a recorded loss and no proposed dividend, detailing share capital movements including changes due to subsidiary acquisitions, share subscriptions, and share repurchases, as well as specifics of share-linked agreements - The Group recorded a loss for the year 2019, and the Board does not recommend paying a dividend for the year[296] - In 2019, the Group made charitable donations of approximately HK$329,000 (2018: HK$1 million)[296] 2019 Key Customer and Supplier Ratios | Indicator | Percentage | | :----------------------- | :--------- | | Largest Customer as % of Revenue | 21.38% | | Top Five Customers as % of Revenue | 39.46% | | Largest Supplier as % of Purchases | 27.38% | | Top Five Suppliers as % of Purchases | 62.81% | - Share capital movements in 2019 included: issuance of 27,509,400 consideration shares for the acquisition of Shanghai Longyao; subscription of 5,800,000 new shares; issuance of 1,530,000 consideration shares for the acquisition of Richstone; and repurchase and cancellation of 380,000 shares[300][301][305][31] - Pursuant to the share-linked agreement with Shanghai Longyao, if Shanghai Longyao achieves its performance targets, the company will issue a total of 29,100,000 new shares at HK$2.00 per share as contingent consideration[301] - The company adopted a share option scheme on May 29, 2014, and granted share options to subscribe for 25,420,000 shares on August 20, 2019[305] Environmental, Social and Governance Commitments This section reiterates the company's commitments to environmental, social, and governance aspects, emphasizing the importance of sound environmental management, the necessity of complying with laws and regulations, and efforts to build and maintain good relationships with key stakeholders - The Group recognizes the importance of sound environmental management, implements green policies, enhances energy efficiency, and reduces energy consumption[313] - The Group has implemented systems and allocated human resources to ensure continuous compliance with relevant laws and regulations in Hong Kong and China that significantly impact the Group[314] - The Group is committed to operating sustainably, balancing the interests of various stakeholders including employees, customers, suppliers, and the community[317] - The Group values its employees, invests resources in staff training and development, provides a work environment free from all forms of discrimination, and ensures competitive remuneration packages[318] - The Group is committed to providing safe and high-quality products and services to customers, and has a customer complaint handling mechanism to improve service and product quality[319] - The Group carefully selects suppliers, requiring them to meet conditions such as track record, financial strength, reputation, and timely delivery capability, and evaluates supplier performance annually[320] - The company will continue to contribute to society, participate in public service activities, and work together to build a harmonious society[321] Directors' and Major Shareholders' Interests This section details the long and short positions of the company's directors, chief executive, and major shareholders in the company's shares and related shares, along with specifics of the share option scheme, including reasons for granting options to consultants, and reports on the company's repurchases and cancellations of listed securities during the year - All directors have entered into one-year service contracts with the company and are subject to retirement by rotation and re-election at annual general meetings[328] - During 2019, no director or their associates held any interest in any business that competes or is likely to compete directly or indirectly with the Group's business[333] 2019 December 31 Directors' and Chief Executive's Long Positions in Company Shares | Director Name | Capacity and Nature of Interest | Number of Shares Held | Approximate Percentage | | :------------ | :------------------------------ | :-------------------- | :--------------------- | | Mr Liu Xiaolin | Interest in controlled corporation | 529,500,546 | 54.60% | | Mr Liu Xiaolin | Person acting in concert | 128,300,000 | 13.23% | | Mr He Xun | Beneficial owner | 10,000,000 | 1.03% | | Total | | 667,800,546 | 68.86% | 2019 December 31 Directors' and Chief Executive's Short Positions in Company Shares | Director Name | Capacity and Nature of Interest | Number of Shares Held | Approximate Percentage | | :------------ | :------------------------------ | :-------------------- | :--------------------- | | Mr Liu Xiaolin | Person acting in concert | 20,000,000 | 2.06% | 2019 December 31 Major Shareholders' Long Positions in Shares and Related Shares | Shareholder Name | Capacity and Nature of Interest | Number of Shares Held | Approximate Percentage | | :--------------- | :------------------------------ | :-------------------- | :--------------------- | | Genius Earn | Interest in controlled corporation | 529,500,546 | 54.60% | | Genius Lead | Beneficial owner | 529,500,546 | 54.60% | | Yao Xin Venture Capital Co Ltd | Beneficial owner | 128,300,000 | 13.23% | | Yao Xin Venture Capital Co Ltd | Person acting in concert | 529,500,546 | 54.60% | | Qiu Yongyao | Beneficial owner | 7,720,000 | 0.80% | | Qiu Yongyao | Interest in controlled corporation | 657,800,546 | 67.83% | 2019 December 31 Major Shareholders' Short Positions in Shares and Related Shares | Shareholder Name | Capacity and Nature of Interest | Number of Shares Held | Approximate Percentage | | :--------------- | :------------------------------ | :-------------------- | :--------------------- | | Yao Xin Venture Capital Co Ltd | Beneficial owner | 20,000,000 | 2.06% | | Qiu Yongyao | Interest in controlled corporation | 20,000,000 | 2.06% | - During 2019, the company repurchased and cancelled 380,000 company shares on the Stock Exchange for a total consideration of approximately HK$508,800, which the directors believe reflects the company's confidence in its long-term business prospects[377][378] - The company granted share options to consultants to reward and acknowledge their contributions to the company's business and future development, aligning with the share option scheme's purpose without adversely affecting cash flow[375] Other Disclosures This section covers other significant disclosures for the company in 2019, including major acquisitions and disposals, related party transactions, corporate governance practices, retirement benefit schemes, independence confirmations, public float, and changes in independent auditors - Apart from the acquisitions and disposals of subsidiaries disclosed in the Management Discussion and Analysis, the Group did not undertake any other significant acquisitions or disposals of subsidiaries and associates during 2019[382] - During 2019, the company did not enter into any connected transactions requiring disclosure under the GEM Listing Rules, but disclosed related party transactions (e.g., payment of loan interest expenses to the ultimate controlling party)[383][446] - The company has received annual independence confirmations from each Independent Non-Executive Director, and the Board considers all Independent Non-Executive Directors to be independent[386] - As of December 31, 2019, the company maintained the public float (31.4%) as specified under the GEM Listing Rules[387][763] - RSM Hong Kong was the Group's independent auditor for 2019, will retire by rotation, and is eligible and willing to be re-appointed[392] Independent Auditor's Report Auditor's Opinion and Key Audit Matters Independent auditor RSM Hong Kong issued an unmodified opinion on the company's 2019 consolidated financial statements, deeming them to present a true and fair view of the financial position, performance, and cash flows, in compliance with Hong Kong Financial Reporting Standards and the Hong Kong Companies Ordinance, highlighting key audit matters including the accounting treatment for the acquisitions of Shanghai Longyao and Richstone, and impairment assessments of goodwill and intangible assets for medical biochemical testing, oncology immuno-cell therapy, and insurance brokerage segments, which involve significant judgment and valuation - The auditor issued an unmodified opinion on the consolidated financial statements of China Biotech Services Holdings Limited and its subsidiaries for the year ended December 31, 2019[396] - Key audit matters include: accounting treatment for the acquisition of approximately 67% equity interest in Shanghai Longyao Biotechnology Co Ltd, and accounting treatment for the acquisition of 51% equity interest in Richstone International (Hong Kong) Limited[401] - Key audit matters also include impairment assessments of goodwill, intangible assets, right-of-use assets, and property, plant and equipment for the medical laboratory testing and health check-up services segment, the oncology immuno-cell therapy/immune cell storage and health management services segment, and the insurance brokerage services segment[405][412][415] - These key audit matters were identified as most significant to the audit of the consolidated financial statements because determining whether business combinations fall within the scope of HKFRS 3 and measuring the fair value of assets requires significant judgment[402] Directors' and Auditor's Responsibilities This section clarifies the respective responsibilities of directors and the auditor regarding the consolidated financial statements, with directors responsible for preparing true and fair statements and maintaining internal controls, while the auditor's objective is to obtain reasonable assurance that the statements as a whole are free from material misstatement, exercising professional judgment and skepticism in performing audit procedures - Directors are responsible for preparing consolidated financial statements that give a true and fair view in accordance with Hong Kong Financial Reporting Standards and the disclosure requirements of the Hong Kong Companies Ordinance, and for internal controls necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error[420] - The auditor's objective is to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes an opinion[422] - The auditor exercises professional judgment, maintains professional skepticism, identifies and assesses risks of material misstatement, and obtains sufficient and appropriate audit evidence during the audit process[425] Consolidated Statement of Profit or Loss and Other Comprehensive Income 2019 Annual Profit or Loss and Comprehensive Income Overview In fiscal year 2019, the company's revenue was HK$59.214 million, a 15.77% year-on-year decrease, with gross profit at HK$22.373 million, down 20.26% year-on-year, and due to increased administrative expenses and impairment losses on goodwill and intangible assets, the loss for the year expanded to HK$107.5 million, with loss attributable to owners of the company at HK$98.845 million, and basic and diluted loss per share at 10.3 HK cents 2019 Annual Profit or Loss and Comprehensive Income Key Data | Indicator | 2019 (HK$ thousand) | 2018 (HK$ thousand) | Year-on-Year Change (HK$ thousand) | Year-on-Year Change (%) | | :-------------------------------------------------- | :------------------ | :------------------ | :--------------------------------- | :---------------------- | | Revenue | 59,214 | 70,304 | (11,090) | (15.77%) | | Cost of Sales | (36,841) | (42,220) | 5,379 | (12.74%) | | Gross Profit | 22,373 | 28,084 | (5,711) | (20.34%) | | Net Loss on Financial Assets at Fair Value Through Profit or Loss | (1,252) | (397) | (855) | 215.37% | | Other Income, Gains/(Losses) | (959) | 2,430 | (3,389) | (139.46%) | | Impairment Loss Provision for Financial Assets, Net | (2,996) | (3,724) | 728 | (19.55%) | | Selling and Distribution Expenses | (12,379) | (16,966) | 4,587 | (27.04%) | | Administrative Expenses | (94,111) | (78,988) | (15,123) | 19.15% | | Operating Loss | (89,324) | (69,561) | (19,763) | 28.41% | | Finance Costs | (1,692) | (3,472) | 1,780 | (51.27%) | | Share of Loss of Associates | (1,390) | (460) | (930) | 202.17% | | Gain on Remeasurement of Previously Held Equity Interest in an Associate | 8,096 | 0 | 8,096 | N/A | | Gain on Fair Value Change of Contingent Consideration | 8,038 | 0 | 8,038 | N/A | | (Loss)/Gain on Disposal of Subsidiaries | (316) | 4,249 | (4,565) | (107.44%) | | Impairment Loss on Goodwill | (264) | 0 | (264) | N/A | | Impairment Loss on Intangible Assets | (28,838) | 0 | (28,838) | N/A | | Impairment Loss on Investment in an Associate | (3,903) | 0 | (3,903) | N/A | | Loss Before Tax | (109,593) | (69,244) | (40,349) | 58.27% | | Income Tax Credit/(Expense) | 2,110 | (189) | 2,299 | (1216.40%) | | Loss for the Year | (107,483) | (69,433) | (38,050) | 54.80% | | Loss Attributable to: | | | | | | Owners of the Company | (98,845) | (64,250) | (34,595) | 53.85% | | Non-controlling Interests | (8,638) | (5,183) | (3,455) | 66.66% | | Other Comprehensive Loss for the Year, Net of Tax | (6,173) | (308) | (5,865) | 1904.22% | | Total Comprehensive Loss for the Year | (113,656) | (69,741) | (43,915) | 62.97% | | Loss Per Share (Basic and Diluted) (HK cents) | 10.3 | 7.3 | 3.0 | 41.10% | Consolidated Statement of Financial Position 2019 December 31 Financial Position Overview As of December 31, 2019, the company's total assets were HK$416.6 million, a 23.35% increase from 2018, with non-current assets significantly rising primarily due to growth in goodwill and intangible assets, while total liabilities increased to HK$103.2 million, leading to a higher gearing ratio, and equity attributable to owners of the company was HK$289.2 million, a 10.76% year-on-year decrease 2019 December 31 Consolidated Statement of Financial Position Key Data | Indicator | 2019 (HK$ thousand) | 2018 (HK$ thousand) | Year-on-Year Change (HK$ thousand) | Year-on-Year Change (%) | | :------------------------------------------------ | :------------------ | :------------------ | :--------------------------------- | :---------------------- | | Assets | | | | | | Non-current Assets | 330,141 | 119,779 | 210,362 | 175.63% | | Property, Plant and Equipment | 23,783 | 22,954 | 829 | 3.61% | | Right-of-Use Assets | 13,135 | 0 | 13,135 | N/A | | Goodwill | 115,343 | 264 | 115,079 | 43590.53% | | Intangible Assets | 95,258 | 43,436 | 51,822 | 119.30% | | Investment in an Associate | 0 | 4,828 | (4,828) | (100.00%) | | Financial Assets at Fair Value Through Other Comprehensive Income | 82,622 | 48,297 | 34,349 | 71.12% | | Current Assets | 86,443 | 217,982 | (131,539) | (60.34%) | | Inventories | 3,426 | 3,488 | (62) | (1.78%) | | Trade and Other Receivables | 19,891 | 32,830 | (12,939) | (39.41%) | | Loans and Interest Receivables | 15,952 | 24,186 | (8,234) | (34.04%) | | Securities Held for Trading | 1,317 | 2,569 | (1,252) | (48.73%) | | Bank and Cash Balances | 45,518 | 154,479 | (108,961) | (70.54%) | | Total Assets | 416,584 | 337,761 | 78,823 | 23.34% | | Equity and Liabilities | | | | | | Share Capital | 96,981 | 93,535 | 3,446 | 3.68% | | Other Reserves | 192,211 | 230,542 | (38,331) | (16.63%) | | Equity Attributable to Owners of the Company | 289,192 | 324,077 | (34,885) | (10.76%) | | Non-controlling Interests | 24,171 | (5,162) | 29,333 | (568.22%) | | Total Equity | 313,363 | 318,915 | (5,552) | (1.74%) | | Liabilities | | | | | | Non-current Liabilities | 49,462 | 3,009 | 46,453 | 1543.80% | | Lease Liabilities | 6,085 | 0 | 6,085 | N/A | | Contingent Consideration | 31,293 | 0 | 31,293 | N/A | | Deferred Tax Liabilities | 12,084 | 1,406 | 10,678 | 759.46% | | Current Liabilities | 53,759 | 15,837 | 37,922 | 239.46% | | Trade and Other Payables | 17,328 | 12,551 | 4,777 | 38.06% | | Borrowings | 23,911 | 0 | 23,911 | N/A | | Total Liabilities | 103,221 | 18,846 | 84,375 | 447.72% | Consolidated Statement of Changes in Equity 2019 Annual Changes in Equity Overview In fiscal year 2019, the company's total equity decreased from HK$318.9 million in 2018 to HK$313.4 million, with equity attributable to owners of the company decreasing primarily due to the loss for the year, while share capital increased from shares allotted for subsidiary acquisitions and share subscriptions, partially offset by repurchased and cancelled shares, and share-based payment reserves and foreign currency translation reserves also changed 2019 Annual Consolidated Equity Changes Key Data | Indicator | 2019 January 1 (HK$ thousand) | 2019 December 31 (HK$ thousand) | Change (HK$ thousand) | | :-------------------------------------------------- | :---------------------------- | :------------------------------ | :-------------------- | | Share Capital | 93,535 | 96,981 | 3,446 | | Share Premium | 443,140 | 498,852 | 55,712 | | Share-based Payment Reserve | 12,258 | 22,793 | 10,535 | | Special Reserve | 212,948 | 212,948 | 0 | | Other Reserves | 0 | 0 | 0 | | Financial Assets at Fair Value Through Other Comprehensive Income Reserve | 48,297 | 82,622 | 34,325 | | Foreign Currency Translation Reserve | (308) | (1,290) | (982) | | Accumulated Losses | (468,465) | (556,329) | (87,864) | | Equity Attributable to Owners of the Company | 324,077 | 289,192 | (34,885) | | Non-controlling Interests | (5,162) | 24,171 | 29,333 | | Total Equity | 318,915 | 313,363 | (5,552) | - The total comprehensive loss for the year was HK$113,656 thousand, of which HK$104,578 thousand was attributable to owners of the company and HK$9,078 thousand to non-controlling interests[436] - The increase in share capital was mainly due to shares allotted for the acquisition of subsidiaries (HK$45,163 thousand) and subscription of shares (HK$11,020 thousand), partially offset by repurchased and cancelled shares (HK$471 thousand)[445][770] Consolidated Statement of Cash Flows 2019 Annual Cash Flow Overview In fiscal year 2019, net cash used in operating activities was HK$30.306 million, net cash used in investing activities was HK$100.2 million, and net cash generated from financing activities was HK$23.074 million, resulting in a net decrease in cash and cash equivalents of HK$107.5 million, with an ending balance of HK$45.518 million 2019 Annual Consolidated Cash Flow Key Data | Indicator | 2019 (HK$ thousand) | 2018 (HK$ thousand) | Year-on-Year Change (HK$ thousand) | | :------------------------------------------ | :------------------ | :------------------ | :--------------------------------- | | Net Cash Used in Operating Activities | (30,306) | (14,759) | (15,547) | | Net Cash Used in Investing Activities | (100,237) | (36,535) | (63,702) | | Net Cash Generated from Financing Activities | 23,074 | 132,636 | (109,562) | | Net (Decrease)/Increase in Cash and Cash Equivalents | (107,469) | 81,342 | (188,811) | | Cash and Cash Equivalents at January 1 | 154,479 | 73,181 | 81,298 | | Cash and Cash Equivalents at December 31 | 45,518 | 154,479 | (108,961) | - Cash outflow from investing activities significantly increased, mainly due to the purchase of financial assets at fair value through other comprehensive income (HK$39,208 thousand), capital contribution to investments in associates (HK$46,276 thousand), and net cash outflow from acquisition of subsidiaries (HK$8,407 thousand)[451] - Net cash generated from financing activities significantly decreased, mainly because borrowings raised (HK$23,968 thousand) and proceeds from share subscriptions (HK$11,600 thousand) were insufficient to offset other financing activities[451] Notes to the Consolidated Financial Statements General Information and Basis of Preparation This section provides the company's basic registration information, principal businesses, and clarifies the basis of preparation for the consolidated financial statements, including compliance with Hong Kong Financial Reporting Standards and the Hong Kong Companies Ordinance, as well as the initial application of new accounting standards (e.g., HKFRS 16) and their impact on the financial statements - China Biotech Services Holdings Limited was incorporated in the Cayman Islands and continued in Bermud