WeRide Inc. — Earnings Release 2001

Oct 26, 2001

Far East Pharmaceutical Technology Company Limited

（ 遠 東 生 物 制 藥 科 技 有 限 公 司 ）

(Incorporated in the Cayman Islands with limited liability)

Announcement of Final Results for the Year ended 30 June 2001

Audited Annual Results

The Board of Directors (the "Board") of Far East Pharmaceutical Technology Company Limited (the "Company") is pleased to announce the audited consolidated annual results of the Company and its subsidiaries (the "Group") for the year ended 30 June 2001 (the "Year") together with the comparative amounts for the corresponding year in 2000 as follows:

2001 2000

Notes HK$'000 HK$'000

Turnover 2 409,633 353,116

Cost of sales (254,113 ) (219,781 )

Gross profit 155,520 133,335

Other revenue 2,459 210

Selling and distribution costs (32,456 ) (26,839 )

Administrative expenses (15,656 ) (13,588 )

Other operating expenses (902 ) (1 )

Profit from operating activities 3 108,965 93,117

Finance costs 4 (236 ) (148 )

Profit before tax 108,729 92,969

Tax 5 (14,321 ) (11,308 )

Profit before minority interests 94,408 81,661

Minority interests 133 -

NET Profit from ordinary activities

attributable to shareholders 94,541 81,661

Dividends 6 14,297 43,037

Earnings Per Share 7

• Basic HK30.0 cents HK34.0 cents

• Diluted HK29.7 cents N/A

Notes:

1. Group Reorganisation, Basis of Presentation and Consolidation

The Company was incorporated in the Cayman Islands as an exempted company with limited liability on 24 May 2000 under the Companies Law (Revised) of the Cayman Islands.

Pursuant to a reorganisation scheme (the "Group Reorganisation") to rationalise the structure of the Group in preparation for the listing of the Company's shares on The Stock Exchange of Hong Kong Limited (the "Stock Exchange") in August 2000, the Company became the holding company of the companies now comprising the Group on 26 July 2000, except for 福建閩清制藥廠 ("Minqing Factory") which was acquired subsequent to the completion of the Group Reorganisation. This was accomplished by acquiring the entire issued share capital of Far East Global Group Limited, the then holding company of the subsidiaries now comprising the Group (except for Minqing Factory), in consideration of and in exchange for the allotment and issue of 999,999 shares of HK$0.10 each in the share capital of the Company credited as fully paid. Further details of the Group Reorganisation are set out in the Company's prospectus dated 11 August 2000.

The consolidated financial statements have been prepared using the merger basis of accounting as a result of the Group Reorganisation completed on 26 July 2000. Under this basis, the Company has been treated as the holding company of its subsidiaries for the financial years presented rather than from the date of their acquisition, except for Minqing Factory which was acquired subsequent to the completion of the Group Reorganisation and is therefore consolidated from its effective date of acquisition. Accordingly, the consolidated results of the Group for the years ended 30 June 2000 and 2001 include the results of the Company and its subsidiaries with effect from 1 July 1999 or since their respective dates of incorporation, where this is a shorter period. The comparative balance sheet as at 30 June 2000 has been prepared on the basis that the existing Group had been in place at that date.

2. Turnover and Contribution to Profit from Operating Activities

Turnover represents the invoiced value of goods sold, net of trade discounts and returns.

The Group's turnover and contribution to profit from operating activities, which are all derived from the Group's operations in the People's Republic of China (the "PRC"), are analysed as follows:

Contribution to profit

Turnover from operating activities

2001 2000 2001 2000

HK$'000 HK$'000 HK$'000 HK$'000

By principal activity:

Manufacture and distribution of:

Anti-viral drugs 208,282 167,976 70,882 57,155

Antibiotics 78,979 76,959 17,303 17,385

Vitamins 42,599 37,470 2,019 1,760

Analgesics 29,009 25,911 2,590 2,329

Chinese patent medicines 24,590 19,178 7,678 6,164

Chinese tonic liquor 26,174 25,622 8,493 8,324

409,633 353,116 108,965 93,117

3. Profit from Operating Activities

The Group's profit from operating activities is arrived at after charging:

2001 2000

HK$'000 HK$'000

Depreciation 4,836 3,683

Goodwill amortisation 155 -

4. Finance Costs

2001 2000

HK$'000 HK$'000

Interest expense on bank loans wholly repayable

within five years 236 148

5. Tax

2001 2000

HK$'000 HK$'000

Current year provision:

Overseas 14,321 11,308

Tax charge for the year 14,321 11,308

Hong Kong profits tax has not been provided for the Year (2000: Nil) because the Group did not generate any assessable profits arising in Hong Kong during the Year (2000: Nil). Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the countries in which the Group operated, based on existing legislation, interpretations and practices in respect thereof.

In accordance with the relevant approval documents issued by the PRC tax authorities, Fujian Desheng Pharmaceuticals Company Limited ("Desheng"), a subsidiary of the Company, operating in the PRC is exempted from the PRC corporate income tax for the first two profitable calendar years of operation starting from 1997 and thereafter is eligible for a 50% relief from the PRC corporate income tax for the following three years. The standard PRC corporate income tax rate applicable to Desheng is 24%.

No provision for the PRC corporate income tax has been provided for Minqing Factory as Minqing Factory did not derive any assessable income in the PRC during the Year.

Deferred tax has not been provided because there were no significant timing differences at 30 June 2001 (2000: Nil).

No deferred tax has been provided on the revaluation surplus of the Group's properties situated in the PRC because the Group presently does not have any intention to dispose of such properties.

6. Dividends

2001 2000

HK$'000 HK$'000

Special dividends - 43,037

Proposed final dividend - HK$0.04

(2000: Nil) per ordinary share 14,297 -

14,297 43,037

The amount of proposed final dividend is calculated based on 357,424,000 shares in issue as at the date of this announcement.

Special dividends of a total of HK$43,037,000 for the year ended 30 June 2000 were paid or declared by a subsidiary of the Company to its then shareholders prior to the Group Reorganisation.

7. Earnings Per Share

The calculation of basic earnings per share for the Year is based on the net profit from ordinary activities attributable to shareholders for the Year of HK$94,541,000 (2000: HK$81,661,000) and the weighted average number of 315,147,945 ordinary shares in issue during the Year (2000: weighted average of 240,000,000 ordinary shares).

The diluted earnings per share for the Year is based on the net profit from ordinary activities attributable to shareholders of HK$94,541,000 and 318,545,828 shares, which is the weighted average of the shares in issue during the Year plus the weighted average of 3,397,883 shares deemed to be issued at no consideration if all of the outstanding share options had been exercised since their respective dates of issue.

There are no potential dilutive ordinary shares in existence for the year ended 30 June 2000 and accordingly, no diluted earnings per share for that year has been presented.

Proposed final Dividend

The Board recommended the payment of a final dividend of HK4 cents per share for the Year (2000: Nil), payable to the shareholders of the Company whose names appear on the Register of Members of the Company on 29 November 2001. Subject to the approval of the Company's shareholders at the Company's forthcoming Annual General Meeting to be held on 29 November 2001, the said proposed final dividend will be paid to the shareholders of the Company on or about 18 December 2001.

Business And Financial Review

The Group's turnover for the Year was HK$409,633,000 (2000: HK$353,116,000). This represented an increase of 16.0% as compared with the corresponding year of 2000. The net profit from ordinary activities attributable to shareholders for the Year amounted to approximately HK$94,541,000 and was increased by 15.8% to that of last year. Basic earnings per share for the Year was approximately HK30 cents (2000: HK34 cents). Decrease in basic earnings per share is mainly attributable to the issue of 80 million shares to the general public upon the listing of the Company in the Stock Exchange on 23 August 2000. The overall net profit margin remained constant when compared with last year.

The increase in turnover was mainly attributable to the increase in sales generated from the anti-viral drugs.

Anti-viral drugs

Sales of anti-viral drugs during the Year were approximately HK$208,082,000, accounting for 50.8% of the total turnover of the Group and representing approximately 24.0% increase when compared with last year. The increase was due to the increase demand of the Jin Gang Gold which has an excellent therapeutic effect to the treatment of common cold, cough and influenza and due to the banning sales of 16 types of drugs with Phenylpropanolamine (PPA) which are principally used for the treatment of common cold, cough and influenza. On 16 November 2000, the State Pharmaceutical Supervision and Administration of China has announced to ban sales of 16 types of drugs with PPA. Some major competitors' products have been banned in the above-mentioned announcement. As a result, the Board believes the Group has grabbled a golden opportunity to expand its market share in the anti-viral drugs such as Jin Gang Cold, which is PPA-free.

Antibiotics

Sales of antibiotics showed approximately 2.6% increase when compared with the last year. The slight increase was due to the tense competition from other competitors. But the Group will put effort in re-engineering the production process to raise cost efficiency and enhance the competitiveness of the products.

Vitamins

With the increasing demand of the Group's high quality Vitamins, the Group had recognised a steady growth in the turnover of its Vitamins.

Analgesics

The sales of analgesics increased from approximately HK$25,911,000 in last year to HK$29,009,000 for the Year, representing approximately 12.0% increase. This was attributable to the recognition of the Group's Ta Shan brand products.

Chinese patent medicines

Turnover of Chinese patent medicines increased from last year's HK$19,178,000 to approximately HK$24,590,000 this Year. The sales of Chinese patent medicines achieved encouraging growth due to the Group's effort of effective marketing strategy and market penetration through its relationship with wholesalers and distributors.

Chinese tonic liquor

During the Year, the sales of Chinese tonic liquor increased from approximately HK$25,622,000 to HK$26,174,000, representing approximately 2.2% increase when compared with last year. This was attributable to the recognition of the Group's Ta Shan brand products.

Due to the increase in turnover and the results of economies of scale, the overall gross profit margin had improved. The overall gross profit margin was 38.0%, representing an increase of 0.2% as compared with last year.

Administrative expenses amounted to HK$15,656,000 (2000: HK$13,588,000) which was comparable to last year's level at 3.8% of turnover. Selling and distribution expenses had increased from last year's HK$26,839,000 to the current year's HK$32,456,000, due to the hiring of additional salesmen and related expenses, which accounted for 7.9% of the Group's turnover.

Finance cost amounted to HK$236,000 was incurred during the Year (2000: HK$148,000).

On 7 March 2001, the Group had acquired 85% interest in Minqing Factory at a consideration of approximately HK$9,688,000 which was financed by the placing of 20,000,000 shares of the Company at HK$1 per share. The remaining proceeds of the said placing of shares are used as the working capital of the Group. The details of the said placing of shares have been set out in the Company's press announcement dated 8 March 2001. After the acquisition of Minqing Factory, the number of types of pharmaceutical products manufactured by the Group increased from 41 to 120.

Future prospects

The year 2001 marked the advent of a new century and, at the same time, presented an excellent development opportunity for the pharmaceutical industry in the PRC. With the steady growth of its economy, the ongoing reform of its public health system, and its imminent entry into the World Trade Organisation, the PRC will provide a golden opportunity for the domestic pharmaceutical producers. The Group will strive to capitalize on these favourable trends and to develop hi-tech Chinese medicines and biotechnology drugs, in order to enhance its competitiveness in both domestic and overseas markets.

In the past, the Group focused its efforts on the construction of a modern plant of 20,000 square metres. Meanwhile, the successful acquisition of Minqing Factory has brought the Group the right to manufacture more than 70 medical pharmaceutical products and the sales channels previously owned by Minqing Factory. The research and development project with its primary interests in genetic engineering has been set up in Pudong, Shanghai, and will soon start operation. New biotechnology drugs are expected to deliver and introduce to the market shortly afterwards. The Board believes that the new three products developed by the Group will continue to bring high growth rates of turnover and high gross profit margin to the Group. Therefore, the Group will continue its efforts in developing such business and will, when the opportunity arises, acquire pharmaceutical enterprises in order to further penetrate the huge pharmaceutical market in the PRC.

The Group is fully confident of its future and will put particular emphasis on the absorption of hi-tech research projects and professionals, with the aim of launching new product each and every year after 2002 and maintaining excellent development prospects for the Group. The Group will make great efforts in establishing its sales network by both reinforcing its market share in the local market and stretching its reach in overseas markets. Meanwhile, the Group will step up its efforts in enhancing its operating efficiency, making good use of the existing modern plants and advanced equipment in increasing the production volume and efficiency, reducing costs and improving returns. In addition, the Group will expand its production capacity and increase its capital investment to take advantage of the PRC's policy on developing the pharmaceutical industry in recent years. Besides, the Group will also strengthen its efforts in acquiring other pharmaceutical companies with quality assets and an impressive category of registered medical products, so as to expand its operation and enhance its cost effectiveness. It is the Group's ultimate goal to develop into one of the first-rate leading companies in the PRC in the shortest span of time.

Looking ahead, the Group is fully confident of the prospects for its operation in the PRC pharmaceutical market. It will continue to push forward with the Group's 120 high-quality medical products in the existing sales network, and will step up its efforts in exploring new drugs via biotechnology. In order to increase the Group's profitability and the shareholders' wealth, the Group will continue to focus on developing hi-tech Chinese medicines and biotechnology drugs with its utmost effort in the coming year.

Charges on group assets

At 30 June 2001, none of the Group's assets was pledged as security for liability.

Use Of Proceeds From the Issuance of Shares

On 23 August 2000, the Company has issued a total of 80,000,000 new shares at an issue price of HK$1.00 each pursuant to the New Issue and Placing (as defined in the Company's prospectus dated 11 August 2000). The net proceeds therefrom after deducting expenses, were amounted to approximately HK$67 million. As at 30 June 2001, a substantial part of the net proceeds had been utilized in line with the terms stipulated in the Company's prospectus, as follows:

• HK$13 million for the establishment of the new production plant in the PRC;

• HK$17 million for the purchase and installation of related production equipment and facilities in the new production plant in the PRC;

• HK$0.5 million for research and development of new pharmaceutical formulae and improvement of the Group's existing production technology, production rate and product quality; and

• HK$5 million for expanding the distribution and sales network of the Group.

To the extent that the above net proceeds are not applied, they are currently placed at bank as short term deposits.

Liquidity and Financial Resources

During the Year, the Group's primary sources of funding were cash provided by operating activities, cash proceeds from the New Issue and Placing (as defined in the Company's prospectus dated 11 August 2000) and cash proceeds from the aforementioned placing of 20,000,000 shares of the Company. As at 30 June 2001, the Group had cash and bank balances of a total amount of HK$117,559,000 (2000: HK$33,161,000). At 30 June 2001, the Group had total assets of HK$346,613,000 (2000: HK$148,911,000), current liabilities of HK$70,482,000 (2000: HK$50,990,000) and shareholders' equity of HK$274,932,000 (2000: HK$97,921,000). The Group has consistently maintained a strong working capital during the Year, with net current assets of HK$152,573,000 at 30 June 2001 (2000: HK$72,692,000) and with a current ratio of 3.2 times at 30 June 2001 (2000: 2.4 times).

As at 30 June 2001, the Group had no outstanding borrowings (2000: Nil).

On 14 August 2001, the Company issued US$4,000,000 convertible bonds to Credit Suisse First Boston (Hong Kong) Limited and the proceeds therefrom, before expenses, amounted to approximately HK$31,200,000. The details of the said issuance of convertible bonds have been set out in the Company's press announcement published on 15 August 2001.

The Board believes that the Group had sufficient liquidity to satisfy its commitments and working capital requirements.

Contingent liabilities and Capital Commitment

As at 30 June 2001, the Group did not have contingent liabilities (2000:Nil).

As at 30 June 2001, the Group had capital commitments of approximately HK$12,339,000 (2000: Nil) in respect of erecting a pharmaceutical production plant and the purchase of related equipment and machinery.

Employees and remuneration policy

At 30 June 2001, the Group had 816 employees in Hong Kong and the PRC.

The remuneration policy and package of the Group's employees are reviewed and approved by the Board. Besides provident funds and double pay, discretionary bonuses based on individual performance will be paid to employees as recognition of and reward for value creation.

Under the Company's existing share option scheme, options to subscribe for shares of the Company can be granted to full-time employees (including executive directors) of the Company and its subsidiaries. For the period up to the date of this announcement, 29,000,000 share options have been granted, of which 25,000,000 share options remained unexercised as at the date of this announcement.

Closure Of Register Of Members

The Register of Members of the Company will be closed from Monday, 26 November 2001 to Thursday, 29 November 2001 (both days inclusive), during which period no transfer of shares will be registered. In order to qualify for the entitlement to the proposed final dividend for the Year and for attending the Annual General Meeting of the Company to be held on Thursday, 29 November 2001, all share transfers accompanied by the relevant share certificates and the appropriate transfer forms must be lodged with the Company's Share Registrar in Hong Kong, Tengis Limited, at 4/F Hutchison House, 10 Harcourt Road, Central, Hong Kong for registration not later than 4:00 p.m. on Friday, 23 November 2001.

new share option scheme

On 23 August 2001, the Stock Exchange has announced amendments to Chapter 17 of the Rules Governing the Listing of Securities on the Stock Exchange (the "Listing Rules") in respect of share option schemes, which has come into effect on 1 September 2001. In compliance with the amendments to the Listing Rules and the announcement of the Stock Exchange, the Board considers that it is in the interest of the Company to terminate the existing share option scheme of the Company adopted on 26 July 2000 and to adopt a new share option scheme. An ordinary resolution will be proposed at the Company's forthcoming shareholders' meeting to be held on 29 November 2001 for the approval of the said adoption of the new share option scheme and termination of the Company's existing share option scheme. A circular containing the details and conditions of the adoption of the new share option scheme and a summary of the principal terms of the rules of the new share option scheme will be despatched to shareholders of the Company shortly.

change of chairman of the Board

The Board announced that Mr. Cai Chong Zhen has been appointed as the new Chairman of the Board of the Company with effect from 24 October 2001.

Publication Of Annual Results On The Stock Exchange's Website

All the information of the annual results of the Group for the Year required by paragraphs 45(1) to 45(3) inclusive of Appendix 16 to the Listing Rules will be published on the website of the Stock Exchange in due course.

On behalf of the Board

Cai Chong Zhen

Chairman

Hong Kong, 24 October 2001

Please also refer to the published version of this announcement in the i-Mail.