WeRide Inc. — Interim / Quarterly Report 2001

Mar 22, 2002

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)

INTERIM RESULTS ANNOUNCEMENT

FOR THE SIX MONTHS ENDED 31 DECEMBER 2001

The Board of Directors (the "Board") of Far East Pharmaceutical Technology Company Limited (the "Company") is pleased to announce the unaudited condensed consolidated interim results of the Company and its subsidiaries (the "Group") for the six months ended 31 December 2001 together with the comparative figures for the corresponding period in 2000 as follows:

CONDENSED CONSOLIDATED PROFIT AND LOSS ACCOUNT

For the six months

ended 31 December

2001 2000

(Unaudited) (Unaudited)

Notes HK$'000 HK$'000

TURNOVER 2&3 282,338 200,996

Cost of sales (177,873 ) (127,012 )

GROSS PROFIT 104,465 73,984

Other revenue 1,150 1,616

Selling and distribution costs (25,062 ) (14,366 )

Administrative expenses (12,492 ) (7,265 )

Other operating expenses (3,563 ) (2 )

PROFIT FROM OPERATING ACTIVITIES 4 64,498 53,967

Finance costs - interest expenses (105 ) -

Share of losses of a jointly-controlled entity (131 ) -

PROFIT BEFORE TAX 64,262 53,967

Tax 5 (9,079 ) (6,749 )

PROFIT BEFORE MINORITY INTERESTS 55,183 47,218

Minority interests (601 ) -

NET PROFIT FROM ORDINARY ACTIVITIES

ATTRIBUTABLE TO SHAREHOLDERS 54,582 47,218

EARNINGS PER SHARE

• Basic 6 HK15.3 cents HK15.9 cents

• Diluted 6 HK14.1 cents N/A

Other than the net profit from ordinary activities attributable to shareholders for the period, the Group had no recognised gains or losses. Accordingly, a consolidated statement of recognised gains and losses is not presented.

Notes:

1. Basis of presentation and accounting policies

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 rationalize 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"), the Company acquired, on 26 July 2000, the entire issued share capital of Far East Global Group Limited which is, at the date of this report, the intermediate holding company of the other subsidiaries within the Group. The unaudited condensed consolidated interim financial statements for the six months ended 31 December 2000 had been prepared using the merger basis of accounting in accordance with the Hong Kong Statement of Standard Accounting Practice ("SSAP") No. 2.127, "Accounting for group reconstructions", as a result of the Group Reorganisation. Under this basis, the Company had been treated as the holding company of its subsidiaries for the financial periods presented rather than from the date of their acquisition, except for Fujian Yannian Pharmaceutical Co., Ltd. (previously known as 福建閩清制藥廠）which was acquired subsequent to the completion of the Group Reorganisation and is therefore consolidated from its effective date of acquisition. Accordingly, the unaudited consolidated results of the Group for the six months ended 31 December 2000 included the results of the Company and its subsidiaries with effect from 1 July 2000 or since their respective dates of incorporation/establishment, where this is a shorter period.

The unaudited condensed consolidated interim financial statements of the Group are prepared in accordance with SSAP 25 "Interim Financial Reporting". The accounting policies and basis of presentation used in the preparation of the unaudited condensed consolidated interim financial statements are consistent with those adopted in the financial statements of the Group for the year ended 30 June 2001.

The Group has adopted the following revised or new SSAPs issued by the Hong Kong Society of Accountants which are effective for accounting period commencing on or after 1 January 2001, except for SSAP 14 which is effective for accounting period commencing on or after 1 July 2000:

* SSAP 9 (Revised): "Events after the balance sheet date"

* SSAP 14 (Revised): "Leases"

* SSAP 28: "Provisions, contingent liabilities and contingent assets"

* SSAP 29: "Intangible assets"

* SSAP 30: "Business combinations"

* SSAP 31: "Impairment of assets"

* SSAP 32: "Consolidated financial statements and accounting for investments in subsidiaries"

2. Segmental information

The principal activities of the Group consisted of the manufacture and distribution of pharmaceutical products. 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 further analysed as follows:

For the six months ended

31 December 2001 31 December 2000

Contribution Contribution

to profit from to profit from

operating operating

Turnover activities Turnover activities

(Unaudited) (Unaudited) (Unaudited) (Unaudited)

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

By principal activity:

Manufacture and distribution of:

Anti-viral drugs 107,407 32,646 88,105 31,121

Antibiotics 54,697 10,703 32,525 7,816

Vitamins 29,301 1,986 27,907 1,646

Analgesics 22,537 1,792 21,024 1,986

Chinese patent medicines 17,894 5,232 15,203 5,130

Chinese tonic liquor 17,201 5,505 16,232 6,268

Anti-hypotensive drugs 24,518 4,818 - -

Gastrointestinal and Gastrohepatic 4,734 772 - -

Others 4,049 1,044 - -

282,338 64,498 200,996 53,967

3. Turnover

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

4. Profit from operating activities

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

For the six months ended

31 December

2001 2000

(Unaudited) (Unaudited)

HK$'000 HK$'000

Depreciation 5,801 2,175

Amortisation of intangible asset 908 -

Amortisation of goodwill 231 -

Write off of fixed assets 275 -

5. Tax

For the six months ended

31 December

2001 2000

(Unaudited) (Unaudited)

HK$'000 HK$'000

Current period provision:

Outside Hong Kong 9,079 6,749

Tax charge for the period 9,079 6,749

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

Tax has not been provided by a jointly controlled entity of the Group as no assessable profits were derived during the period under review (2000: Nil).

Deferred tax has not been provided because there were no significant timing differences at 31 December 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. Earnings per share

The calculation of basic earnings per share is based on the net profit from ordinary activities attributable to shareholders of approximately HK$54,582,000 (2000: HK$47,218,000) and weighted average number of 356,646,043 ordinary shares (2000: 296,956,522 shares) in issue during the six months ended 31 December 2001.

The calculation of diluted earnings per share for the current period is based on the adjusted net profit attributable to shareholders for the six months ended 31 December 2001 of HK$54,687,000 after adding back interest on redeemable convertible bonds and weighted average number of 388,248,615 ordinary shares. The weighted average number of ordinary shares used in the calculation of diluted earnings per share is the sum of (i) 356,646,043 ordinary shares in issue during the period, as used in the basic earnings per share calculation; (ii) the weighted average of 11,510,057 ordinary shares assumed to have been issued at no consideration on the deemed exercise of all share options outstanding during the period; and (iii) the weighted average of 20,092,515 ordinary shares assumed to have been issued upon the conversion of all the redeemable convertible bonds since their respective dates eligible to be converted.

A diluted earnings per share amount for the six months ended 31 December 2000 has not been disclosed as no diluting events existed during that period.

Interim Dividend

The Board does not recommend to pay any interim dividend in respect of the six months ended 31 December 2001 (2000: Nil).

Bonus issue of warrants

Subject to the conditions mentioned below, the Board proposed to make a bonus issue (the "Bonus Issue") of warrants (the "Warrants") to its shareholders to subscribe for shares of HK$0.10 each in the Company on the terms set out below.

The Warrants will be issued on the basis of one Warrant for every five shares held by the shareholders whose names appear on the register of members of the Company on 29 April 2002. Each Warrant will entitle the holder thereof to subscribe for new shares of the Company at an initial subscription price of HK$2.62 per share, subject to adjustments, at any time between the date when dealings in the Warrants on the Stock Exchange commence (expected to be 7 May 2002) and 6 May 2003 (both days inclusive). Fractional entitlements to the Warrants will not be granted to the shareholders but will be aggregated and sold and the proceeds of the sale will be retained for the benefit of the Company. The Warrants will be issued in registered form and will be traded in board lots of 16,000 units. Application will be made to the Stock Exchange for the listings of, and permission to deal in, the Warrants and any shares of the Company which may fall to be issued upon the exercise of the subscription rights attaching to the Warrants.

Conditions of the Bonus Issue of Warrants

The Bonus Issue of Warrants is conditional upon, inter alia:

(a) the passing of an ordinary resolution by the shareholders of the Company at an extraordinary general meeting of the Company scheduled to be held on 29 April 2002 (the "EGM") for approving the Bonus Issue of Warrants and the issue of new shares of the Company falling to be issued upon the exercise of the subscription rights attaching to the Warrants; and

(b) the Listing Committee of the Stock Exchange granting listings of, and permission to deal in, the Warrants and any shares of the Company which may fall to be issued upon the exercise of the subscription rights attaching to the Warrants.

Details of the Bonus Issue of Warrants are contained in a separate announcement issued by the Company on 21 March 2002, and a circular containing further details of the Bonus Issue of Warrants, together with a notice convening the EGM, will be despatched to shareholders of the Company within 21 days from the date of publication of this announcement.

MANAGEMENT DISCUSSION AND ANALYSIS

Liquidity and Financial Resources

At 31 December 2001, the Group had total assets of HK$492,491,000, current liabilities of HK$71,823,000, non-current liabilities of HK$38,234,000 and shareholders' equity of HK$380,634,000. The borrowings of the Group amounted to HK$38,234,000 which was represented by the Bonds (as defined below) due on 14 August 2004. The gearing ratio is 28.9%, which was computed by dividing the current liabilities and debts by shareholders' equity. The Group has consistently maintained a strong working capital during the period under review, with net current assets of HK$285,300,000 at 31 December 2001, with the current ratio of about 4.97 times. The net assets of the Group increased from HK$289,229,000 as at 31 December 2000 to approximately HK$380,634,000 as at 31 December 2001.

The Group had not exposed to any material exchange rate fluctuation or any related hedges during the period under review.

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

Capital Structure

The Group generally finances its operations with internally generated cash flow. As at 31 December 2001, the Group had cash and bank balances of a total amount of HK$207,474,000.

On 14 August 2001, the Company and Credit Suisse First Boston (Hong Kong) Limited ("CSFB"), an independent third party, entered into a subscription agreement in relation to CSFB's subscription of unlisted and unsecured redeemable convertible bonds (the "Bonds") of the Company with an aggregate principal amount of US$12,000,000. All the Bonds bear interest at the rate of 2.5% per annum and are due on 14 August 2004. Pursuant to the subscription agreement, the Company has also granted a subscription right (the "Subscription Right") to CSFB, pursuant to which CSFB is entitled to subscribe for up to 4,741,641 shares of the Company at a subscription price of HK$1.645 per share. Subsequent to 31 December 2001, CSFB exercised the Subscription Right to subscribe for a total of 4,740,000 shares of the Company at a price of HK$1.645 per share. Accordingly, an aggregate amount of approximately HK$7.8 million was received by the Company.

During the period under review, CSFB subscribed for Bonds with an aggregate principal amount of US$8,000,000 and proceeds of approximately HK$62,400,000, before issued expenses, were received by the Company. At 31 December 2001, Bonds for an aggregate amount of US$4,900,000 (equivalent to approximately HK$38,234,000) were outstanding. During the period under review, Bonds for an aggregate amount of US$3,100,000 have been converted into ordinary shares of HK$0.10 each in the Company at various prices ranging from HK$0.977 to HK$1.214 per share, giving rise to the issue of 23,744,000 new ordinary shares of the Company.

On 27 November 2001, the Company issued a total of 20,000,000 new shares at an issue price of HK$1.36 per share pursuant to the placing and subscription agreement entered into among the Company, Great Wall Investment Group Limited (the Company's holding company) and Guotai Junan Securities (Hong Kong) Limited (an independent third party acting as placing agent). The net proceeds therefrom after deducting expenses, amounted to approximately HK$27 million of which HK$23 million will be used for the acquisition and development of pharmaceutical products namely, Finasteride (非那雄"i原料藥) and Finasteride Tablet (非那雄"i片劑).

As at 31 December 2001, the Group had no outstanding bank borrowing and no financial instruments had been used for hedging purposes. No foreign currency net investments are hedged by currency borrowings and other hedging instruments.

As at 31 December 2001, the number of outstanding employee's share options remained the same as that as at 30 June 2001.

Contingent liabilities

As at 31 December 2001, the Group did not have contingent liabilities (2000: Nil).

Business Review

The Group's turnover for the period under review was HK$282,338,000 which represented an increase of 40.5% as compared with the corresponding period of 2000. The increase in turnover was mainly attributable to the launch of the new products "*"紅抗炎素膠囊” which is classified under the category of "Antibiotics" and “复方降壓膠囊” which is classified under the category of "Anti-hypotensive drugs". The overall gross profit margin was kept constant at approximately 37.0% when compared with last period. The net profit from ordinary activities attributable to shareholders for the period under review amounted to approximately HK$54,582,000 and was increased by 15.6% to that of last period. The Group's net profit margin was 19.33%, representing a decrease of 4.16% as compared to 23.49% for the corresponding period of 2000. The decrease was mainly attributable to the increase in the advertising cost in the newly developing districts and regions in the PRC, increase in depreciation charge for the new manufacturing plant and increase in amortization of goodwill and intangible assets, and professional costs. Basic earnings per share for the current period was approximately HK15.3 cents (2000: HK15.9 cents). Diluted earnings per share for the current period was approximately HK14.1 cents (2000:N/A).

Analysis of turnover

Anti-viral drugs

Sale of anti-viral drugs during the period under review was approximately HK$107,407,000, accounting for 38.04% of the total turnover of the Group and representing approximately 21.91% increase when compared with the corresponding period of 2000. The increase was due to the increasing demand of the Jin Gang Cold, which has an excellent therapeutic effect to the treatment of common cold, cough and influenza.

Antibiotics

Sale of antibiotics shows approximately 68.17% increase when compared with the corresponding period of 2000. The increase was due to the launch of new product "*"紅抗炎素膠囊" in Fujian Yannian Pharmaceutical Co., Ltd which was strategically acquired in March 2001. This new product is effective in curing throat, auditory, respiratory, urogenital, venereal and skin diseases. The Board is optimistic that this new product will continue to contribute to the turnover of the Group.

Vitamins

With the increasing demand of the Group's high quality Vitamins, the Group had recognized a 5.00% steady growth in turnover of its Vitamins when compared with the corresponding period of 2000.

Analgesics

With the effect of the recognition of the Group's "Ta Shan" brand-name products, a 7.20% steady growth in sales of analgesics drugs was recorded when compared with last period.

Chinese patent medicines

Turnover of Chinese patent medicines increased from last period's HK$15,203,000 to approximately HK$17,894,000 for the current period. The sale of Chinese patent medicines achieved encouraging growth due to the effort of effective marketing strategy and market penetration through the Group's well-established relationship with its wholesalers and distributors.

Chinese tonic liquor

During the period under review, the sales of Chinese tonic liquor increased from approximately HK$16,232,000 to HK$17,201,000, representing an increase of approximately 5.97% when compared with the corresponding period of 2000. This was attributable to the recognition of the Group's "Ta Shan" brand-name products.

Anti-hypotensive drugs

During the period under review, the Group has launched one of the new products "复方降壓膠囊”, the sales was approximately HK$24,518,000, accounting for 8.68% of the total turnover of the Group. It is expected that, with the excellent therapeutic effect to the treatment of high blood pressure and the competitive pricing over other similar products, 复方降壓膠囊 will become one of the major products of the Group in the future.

Gastrointestinal and Gastrohepatic

During the period under review, the Group has also launched a variety of new products. The sales of Gastrointestinal and Gastrohepatic amounted to approximately HK$4,734,000, accounting for 1.68% of the total turnover of the Group.

Expenses

Selling and distribution costs for the period under review amounted to HK$25,062,000 (2000: HK$14,366,000), accounting for 8.88% of turnover, increased by 1.73% when compared with the corresponding period of 2000. Such increase was due to the rise in advertising cost for expanding the distribution and sales network of the Group. Administrative expenses, accounting for 4.42% of the Group's turnover, increased from last period's HK$7,265,000 to the current period's HK$12,492,000. Such increase is due to the hiring of additional management professionals and related expenses, the increase in depreciation charge for the new manufacturing plant and the increase in amortization of goodwill and intangible assets. Finance costs amounted to HK$105,000 (2000: Nil) which was incurred and derived from the Bonds issued during the period under review.

Future prospects

Product development

The Group will put emphasis on the absorption of hi-tech research projects and professionals, with the aim of launching new products each and every year after 2002 and maintaining excellent development prospects for the Group.

Vertical and horizontal integration

With the steady growth of economy and the ongoing reform of the public health system in the PRC and its entry into the World Trade Organisation, the PRC market continues to provide a golden business opportunity for pharmaceutical producers. With the strong financial position of the Group, it will strive to capitalize on these favourable trends in acquiring other pharmaceutical companies with quality assets and an impressive category of registered medical products, similar to the strategical acquisition and re-engineering of Fujian Yannian Pharmaceutical Co., Ltd.

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 over 120 high-quality medical products in the existing sales network, and will step up its efforts in exploring new drugs via biotechnology.

Charges on the Group's assets

At 31 December 2001, none of the Group's assets was pledged as security for liability.

Employees

At 31 December 2001, the Group had 816 employees, of which 810 were based in the PRC and 6 stationed in Hong Kong.

The remuneration policy and package of the Group's employees are reviewed and approved by the Board on a periodical basis. Besides provident funds and double pay, discretionary bonuses and share options may be rewarded to employees based on individual performance as recognition of and reward for their contribution.

AUDIT COMMITTEE

The Audit Committee of the Company presently comprises two independent non-executive directors of the Company, namely Ms. Hu Ling Po and Mr. Yu Er Feng. The Audit Committee has reviewed this unaudited interim report for the six months ended 31 December 2001 and discussed with the Board on the internal control and financial reporting matters.

PUBLICATION OF INTERIM RESULTS ON THE STOCK EXCHANGE'S WEBSITE

All the information of the unaudited consolidated interim results of the Group for the six months ended 31 December 2001 required by paragraphs 46(1) to 46(6) inclusive of Appendix 16 of the Listing Rules of the Stock Exchange will be published on the Stock Exchange's website in due course.

On behalf of the Board

Cai Chong Zhen

Chairman

Hong Kong, 21 March 2002

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