Sinopharm Group Co. Ltd. — Capital/Financing Update 2011

Jan 26, 2011

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

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SINOPHARM GROUP CO. LTD. 國藥控股股份有限公司

(A joint stock limited company incorporated in the People’s Republic of China with limited liability and carrying on business in Hong Kong as 國控股份有限公司 )

(Stock Code: 01099)

Cooperative Framework Agreement with LRT Pharmaceutical Group

This announcement is made by the Company pursuant to Rule 13.09(1) of the Listing Rules.

The Board is pleased to announce that on 25 January 2011, the Company entered into the Cooperative Framework Agreement with LRT Pharmaceutical Group, pursuant to which (i) LRT Pharmaceutical Group will transfer the Distribution Businesses and entire equity interest in its four subsidiaries to LRT Pharmaceutical Logistics, and further change the name of LRT Pharmaceutical Logistics to Sinopharm LRT; (ii) the Company will acquire a 60% equity interest in Sinopharm LRT from LRT Pharmaceutical Group, and further inject capital in the amount of RMB60,000,000.00 (equivalent to approximately HK$70,588,235.29) by way of cash into Sinopharm LRT; and (iii) Sinopharm Guoda, a wholly-owned subsidiary of the Company, will acquire a 60% equity interest in LRT Pharmaceutical Chain from LRT Pharmaceutical Group. The Company and Sinopharm Guoda will enter into two equity transfer agreements in relation to the Acquisitions with LRT Pharmaceutical Group respectively. The aggregate consideration payable for the Acquisitions by the Company shall be determined base on the formula set out in the Cooperative Framework Agreement, which in any event shall not exceed RMB1,300,000,000.00 (equivalent to approximately HK$1,529,411,764.70). Upon the completion of the Acquisitions, Sinopharm LRT will become a 60% owned subsidiary of the Company and LRT Pharmaceutical Chain will become a 60% owned subsidiary of Sinopharm Guoda.

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A. THE COOPERATIVE FRAMEWORK AGREEMENT

1. Date: 25 January 2011

2. Parties:

Party A: the Company

Party B: LRT Pharmaceutical Group

1. Content of Cooperative Framework Agreement:

Pursuant to the Cooperative Framework Agreement, (i) LRT Pharmaceutical Group will transfer the Distribution Businesses and entire equity interest in its four subsidiaries to LRT Pharmaceutical Logistics, and further change the name of LRT Pharmaceutical Logistics to Sinopharm LRT; (ii) the Company will acquire a 60% equity interest in Sinopharm LRT from LRT Pharmaceutical Group, and further inject capital in the amount of RMB60,000,000.00 (equivalent to approximately HK$70,588,235.29) by way of cash into Sinopharm LRT; and (iii) Sinopharm Guoda will acquire a 60% equity interest in LRT Pharmaceutical Chain from LRT Pharmaceutical Group.

1. Consideration:

Pursuant to the Cooperative Framework Agreement, the aggregate cash consideration for the Acquisitions shall be determined base on the formula set out in the Cooperative Framework Agreement, which in any event shall not exceed RMB1,300,000,000.00 (equivalent to approximately HK$1,529,411,764.70) and shall be payable by the Company to LRT Pharmaceutical Group in two tranches: the fi rst tranche equivalent to RMB600,000,000.00 (equivalent to approximately HK$705,882,352.94) shall be payable with 30 working days from the date of signing of the Cooperative Framework Agreement and the second tranche equivalent to the balance of the consideration shall be payable within 30 working days from the date on which change in the equity interests is registered with the relevant administration for industry and commerce.

The Cooperative Framework Agreement was negotiated and entered into on an arm’s length basis. The said consideration for the Acquisitions will be funded by the internal resources of the Company.

1. Effectiveness of the Cooperative Framework Agreement:

The Cooperative Framework Agreement shall become effective after it is signed by the legal representative or authorised representative of the parties to the Cooperative Framework Agreement.

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B. REASONS FOR AND BENEFITS OF THE COOPERATION

The reasons and benefi ts of the cooperation with LRT Pharmaceutical Group are:

1. Rapid growth of the pharmaceutical market in Hebei province

2. a) In 2009, the overall economy of Hebei province maintained a stable and rapid growth and its GDP growth continuously exceeded the average level of the PRC;

3. b) During 2010, the new type of rural cooperative medical care system (the “NCMS”) was implemented in all counties, districts and cities in Hebei province and the increase in per capita funding in the NCMS from RMB50 to RMB140 will be achieved;

4. c) It is anticipated that the growth rate of the pharmaceutical market in Hebei province will be maintained at approximately 25% in 2010. As a result of the increase in government expenditure on the pharmaceutical and healthcare sector, it is anticipated that the pharmaceutical market size will maintain its rapid growth.

5. Value of LRT Pharmaceutical Group

6. a) LRT Pharmaceutical Group’s market share in the pharmaceutical distribution business is ranked number 1 in Hebei province.

LRT Pharmaceutical Group is currently a pharmaceutical wholesale and retail enterprise with the largest sales volume, the most extensive distribution network and the most complete range of products and highest market share in second tier and above pharmaceutical market in Hebei province. According to the statistics in 2009, LRT Pharmaceutical Group held 30% of the market share in the pharmaceutical distribution market in Hebei province which is absolutely in a leading position.

• b) Value of networks

Value of sales network: LRT Pharmaceutical Group sells over 20,000 kinds of pharmaceutical products and its network covers over thousand class 2 hospitals, county or township hospitals in Hebei province.

Value of purchasing network: LRT Pharmaceutical Group has established a long term, stable and close strategic alliance with over two thousands reputable domestic pharmaceutical manufacturers. LRT Pharmaceutical Group was designated as fi rst tier sales agency for over 95% of pharmaceutical products imported and pharmaceutical products manufactured by joint venture enterprises in Hebei province. LRT Pharmaceutical Group has also entered into fi rst tier sales agency agreements for Hebei province for over 80% of reputable domestic pharmaceutical products.

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• c) Profi tability of pharmaceutical distribution business of LRT Pharmaceutical Group

The overall average gross profi t margin and net profi t margin of the pharmaceutical distribution business of LRT Pharmaceutical Group is higher than the average level of that of other commercial enterprises.

LRT Pharmaceutical Group has strictly managed its account receivables and inventory turnover. As a result, its account receivables collection rate and inventory turnover rate are both better than the average level of that of other commercial enterprises.

1. To rapidly achieve absolute advantage in pharmaceutical market of Beijing, Tianjin and Hebei by the Company

2. a) The cooperation with LRT Pharmaceutical Group is expected to increase the Company’s pharmaceutical sales in Hebei to RMB10 billion in the future and result in the Company rapidly dominating the Hebei market and maintaining its leading position in the pharmaceutical market in Hebei.

3. b) The cooperation with LRT Pharmaceutical Group will create synergy effect between the pharmaceutical distribution business of the Company in Beijing, Tianjin and Inner Mongolia and the pharmaceutical distribution business of the Company in Hebei and will consolidate the Company’s leading position in northern China, providing a solid foundation for continuous development of the northern China market.

C. GENERAL INFORMATION

1. Principal Business Activities

a) The Company

The Company is principally engaged in the distribution of pharmaceutical and healthcare products, operation of retail pharmacies and chemical reagents manufacturing.

• b) LRT Pharmaceutical Group

LRT Pharmaceutical Group is principally engaged in the distribution and retail sale of medicines, health foods and medical instruments in Hebei province.

• c) LRT Pharmaceutical Logistics

LRT Pharmaceutical Logistics is principally engaged in the provision of logistics service.

d) LRT Pharmaceutical Chain

LRT Pharmaceutical Chain is principally engaged in the retail sale of medicines in Hebei province.

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In this announcement, unless the context otherwise requires, the following terms shall have the following meanings:

“Acquisitions”	the acquisition of a 60% equity interest in Sinopharm LRT by the
	Company from LRT Pharmaceutical Group and the acquisition of
	a 60% equity interest in LRT Pharmaceutical Chain by Sinopharm
	Guoda from LRT Pharmaceutical Group
“Board”	the board of directors of the Company
“Company”	Sinopharm Group Co. Ltd. (國藥控股股份有限公司), a joint stock
	limited company established in the PRC, of which 690,284,125 H
	shares are listed on the Stock Exchange
“Cooperative Framework	the cooperative framework agreement dated 25 January 2011
Agreement”	entered into between the Company and LRT Pharmaceutical Group
“Distribution Businesses”	medicines distribution business, including LRT Pharmaceutical
	Group and its eight branch companies’ (i) existing contracts,
	rights and business relationships with suppliers and customers; (ii)
	transaction records and related materials in relation to the medicines
	distribution business; (iii) cash, stocks, account receivables, account
	payables, account in advance and deposit received in relation
	to the medicines distribution business; and (iv) other medicines
	distribution business actually controlled by LRT Pharmaceutical
	Group
“HK$”	Hong Kong dollars, the lawful currency of the Hong Kong Special
	Administrative Region of the PRC
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange
“LRT Pharmaceutical Chain”	Shijiazhuang Le Ren Tang Pharmaceutical Chain Co., Ltd. (石家
	莊樂仁堂醫藥連鎖有限責任公司), a limited liability company
	established in the PRC
“LRT Pharmaceutical Group”	Le Ren Tang Pharmaceutical Group Co., Ltd. (樂仁堂醫藥集團股
	份有限公司), a joint stock limited company established in the PRC
“LRT Pharmaceutical	Le Ren Tang Pharmaceutical Logistics Co., Ltd. (樂仁堂醫藥物流
Logistics”	有限公司), a limited liability company established in the PRC
“PRC”	the People’s Republic of China

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“RMB”

Renminbi, the lawful currency of the PRC

“Sinopharm Guoda”

Sinopharm Holding Guoda Drug Store Co., Ltd.(國藥控股國大藥房 有限公司), a limited liability company incorporated in the PRC

• “Sinopharm LRT”

Sinopharm Le Ren Tang Co., Ltd. (國藥控股樂仁堂有限公司) (formerly known as LRT Pharmaceutical Logistics)

“Stock Exchange”

The Stock Exchange of Hong Kong Limited

By order of the Board of Sinopharm Group Co. Ltd. She Lulin Chairman

Shanghai, the PRC 25 January 2011

As at the date of this announcement, the executive director of the Company is Mr. Wei Yulin; the non-executive directors of the Company are Mr. She Lulin, Mr. Wang Qunbin, Mr. Chen Wenhao, Mr. Zhou Bin, Mr. Deng Jindong, Mr. Chen Qiyu, Mr. Fan Banghan and Mr. Liu Hailiang; the independent non-executive directors of the Company are Mr. Wang Fanghua, Mr. Xie Rong, Mr. Tao Wuping and Mr. Zhou Bajun.

The exchange rate adopted in this announcement for illustration purposes only is HK$1.00= RMB0.85.

• The Company is registered as a non-Hong Kong company under Part XI of the Companies Ordinance (Chapter 32 of the Laws of Hong Kong) under its Chinese name and the English name “Sinopharm Group Co. Ltd.”

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