Huadong Medicine Co., Ltd.
2020 Annual Report
April 2021
To the shareholders
In 2020, Huadong Medicine encountered unprecedented challenges, includingCOVID-19 pandemic impact on the entire manufacturing operation, the unsuccessful GPOparticipation of Acarbose products, as well as the impact of a series of subsequent policies suchas the GPO process and National Drug Reimbursement List (NDRL) price negotiations.Nevertheless, we acknowledged that Huadong overcame these challenges and successfullymet its full year operational & business targets. Although the Company’s total revenue wasslightly delclined year on year while profit growth had been squeezed, the PharmaceuticalIndustry business sector maintained its growth, while bucking market trends. Acarbose tabletsmaintained its market share and continued to increase its share of the ex-hospital and retailmarkets. This achievement was really a hard-won!
Huadong Medicine’s R&D strategy has always adhered to the corporate philosophy ofbeing “Devoted to science, Dedicated to patients”, with “clinical value, healthcare economicalvalue and commercial value” as key focuses. It has established a pipeline of innovativeproducts in the field of oncology, immunology and endocrinology. Through reconstruction ofinnovative drug R&D functions, the Company’s R&D capability has been significantlystrengthened. The IND application in China for an in-licensed ADC product was completedwithin 100 days and has already obtained CTA approval from CDE. The excellent executioncapability of the R&D team has underpinned our confidence in the long term transformationand growth of the Company’s innovative drug business. In the TA of diabetes, the Companycontinues to monitor cutting-edge technologies and innovative product pipeline globally, and
will continue enriching its product portfolio. The Company has already participated andinvested in a number of domestic and international biotech companies with leadingtechnologies. Through establishing differentiated peptide innovation technology platform,autoimmune disease antibody technology platform, microbial fermentation cytotoxintechnology platform and innovative linker technology platform, as well as mutually beneficialcollaborations, Huadong Medicine is building and improving its pharmaceutical research anddevelopment ecosystem.
Huadong commercial distribution business has been adhering to the philosophy of “caringthe world with sincerity, integrity, persistence and being pragmatic”, transforming from a basicdistributor to an integrated service provider with greater industry expertise. The Company’scold chain business is positioned as the whole life-cycle precision management and control forbiological specialty drugs. It has continuously strengthened the competitive advantage of thecold chain capability and driven the high-quality development of digital intelligent supplychain. The Company will vigorously expand e-commerce business, establish a new “onlineoffline interaction” growth model, and actively explore the new healthcare services business of“internet + chronic disease management”.
Huadong Medicine has begun expanding in the field of aesthetics when China’s aestheticsindustry is in the ascendant. We have witnessed aesthetics products transitioning fromdiscretionary consumer products to necessities and the industry is about to experience a longterm high growth phase. This strengthened our commitment to expand in the field of aesthetics.There are still significant upside in aesthetics over the long term. Going forward, we willcontinue following the strategy of “global operational positioning, dual-cycle business
development”, make China an important market for aesthetics and bring "first-in-class",high-end international products to China over time. We will leverage the Company’sestablished aesthetics distribution capabilities in China and the fast growth of the aestheticsindustry, to support rapid availability of high quality international product portfolio in Chinaand provide beauty seekers personalised and differentiated aesthetics product portfolios. Thus,a new model of domestic and international dual-cycle joint growth and mutual promotion isformed.
2021 will be another significant year for Huadong Medicine’s strategic transformation. AsGPO policies and price reduction may continue to impact the Company’s overall operation,Huadong Medicine will also face the strongest pressure on its business growth in history.Nevertheless, we constantly remind ourselves: don’t waste a good crisis. The current situationof China’s pharmaceutical market represents a rare opportunity for Huadong Medicine totransform into an innovative company and expand globally.
Expansion in innovative pharmaceutical business remains firmly as the main theme ofHuadong Medicine. Aesthetics, as a core strategic focus of the Company’s healthcare business,marks the beginning of the Company’s globalization strategy. We are committed to continuestrategically positioning across the global pharmaceutical and healthcare value chain, andactively integrate into global pharmaceutical innovation collaborations by strengthening ourown innovative drug R&D capabilities and key advantages.
This is an era of survival of the fittest and in the end all sands will be removed and onlythe gold left shinning. From now on to the foreseeable future, the only certainty is that we will
continue experiencing various uncertainties caused by infrastructural changes in the industry.Huadong Medicine will remain committed to its course, continue to outperform in the currentenvironment and strategically plan for the future. Thanks to all the investors for yourrecognition and long term support, which are the source of our commitment and confidence inpursuing the transformation! Huadong Medicine will strive to firmly meet shareholdersexpectations and continue delivering excellent results.
Lv Liang
On Behalf Of Huadong Medicine
Grain Rain 2021
Section I. Important Declaration, Contents and DefinitionsThe Board of Directors, Board of Supervisors, directors, supervisors andsenior management of Huadong Medicine Co., Ltd. (hereinafter referred to asthe “Company”) hereby guarantee that the information presented in this annualreport is authentic, accurate and complete and free of any false records,misleading statements or material omissions, and shall undertake individual andjoint legal liabilities.
Lv Liang, the Company’s legal representative and the officer in charge ofaccounting, and Qiu Renbo, head of accounting department (accountingsupervisor) hereby declare and guarantee that the financial statements in thisannual report are authentic, accurate and complete.
All directors have attended the Board of Directors meeting to review thisannual report.
The future plans, development strategies and other forward-lookingstatements in this annual report shall not be considered as substantialcommitment of the Company to investor. Therefore, investors are kindlyreminded to pay attention to possible investment risks.
The profit distribution plan reviewed and adopted by this Board ofDirectors meeting is as follows: on the basis of 1,749,809,548 shares, a cashdividend of 2.3 yuan (tax included) is to be distributed to all shareholders for
every 10 shares; no bonus share will be issued; and no capital reserve will beconverted to increase the capital stock.
According to “Stock Listing Rules of the Shenzhen Stock Exchange”, iflisted companies have both Chinese or other language version of public notice,they should ensure the content of both versions are the same. In the case ofdiscrepancy, the original version in Chinese shall prevail.
Contents
To the shareholders ...... 2
Section I. Important Declaration, Contents and Definitions ......................................................................... 6
Section II. Company Profile and Key Financial Indicators ......................................................................... 11
Section III. Overview of the Company’s Business......................................................................................... 16
Section IV. Discussion and Analysis of Operations.......................................................................................... 23
Section V. Important Matters...................................................................................................................................... 75
Section VI. Share Change and Shareholders..................................................................................................... 117
Section VIII. Convertible Corporate Bonds ...................................................................................................... 125
Section VIII. Convertible Corporate Bonds ...................................................................................................... 126
Section IX. Directors, Supervisors, Senior Managers and Employees ................................................. 127
Section X. Corporate Governance .......................................................................................................................... 137
Section XI. Information about Corporate Bonds............................................................................................ 143
Section XII. Financial Report ................................................................................................................................... 144
Definitions
Term
| Term | refers to | Definition |
| CSRC | refers to | China Securities Regulatory Commission |
| SSE | refers to | Shenzhen Stock Exchange |
| Huadong Medicine/the Company/our Company | refers to | Huadong Medicine Co., Ltd. |
| CGE | refers to | China Grand Enterprises, Inc. |
| Huadong Medicine Group | refers to | Hangzhou Huadong Medicine Group Co., Ltd. |
| Zhongmei Huadong | refers to | Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd. |
| Jiangdong Company | refers to | Hangzhou Zhongmei Huadong Pharmaceutical Jiangdong Co., Ltd. |
| Jiuyang Bio | refers to | Jiangsu Jiuyang Biopharm Co., Ltd. |
| Xi’an Bohua | refers to | Huadong Medicine (Xi’an) Bohua Pharmaceutical Co., Ltd. |
| Jiuyuan Gene | refers to | Hangzhou Jiuyuan Gene Engineering Co., Ltd. |
| Huadong Ningbo Company | refers to | Huadong Ningbo Medicine Co., Ltd. |
| Chongqing Peg-Bio | refers to | Chongqing Peg-Bio Biopharm Co., Ltd. |
| Qyuns Therapeutics | refers to | Qyuns Therapeutics Co., Ltd. |
| XtalPi | refers to | XtalPi Inc. |
| Sanyou Bio | refers to | Sanyou Biopharmaceuticals Co., Ltd. |
| Sinclair | refers to | Sinclair Pharma Limited |
| vTv公司 | refers to | vTv Therapeutics LLC |
| R2 | refers to | R2 Technologies,Inc. |
| MediBeacon | refers to | MediBeacon Inc. |
| ImmunoGen | refers to | ImmunoGen, Inc. |
| Provention Bio | refers to | Provention Bio, Inc. |
| RAPT | refers to | RAPT Therapeutics,Inc. |
| Kylane | refers to | Kylane Laboratoires SA |
| High Tech | refers to | High Technology Products, S.L.U. |
| LG | refers to | LG Chem Ltd |
| Jetema | refers to | Jetema. Co,.ltd |
| Exscientia | refers to | Exscientia Ltd. |
| GMP | refers to | Good Manufacturing Practice |
| CGMP | refers to | Current Good Manufacture Practices |
| GSP | refers to | Good Supply Practice |
BE
| BE | refers to | Bioequivalence |
| CDE | refers to | Center for Drug Evaluation (of National Medical Products Administration) |
| MAH | refers to | Marketing Authorization Holder |
| FDA | refers to | (U.S.) Food and Drug Administration |
| NMPA | refers to | National Medical Products Administration |
| NDA | refers to | New Drug Application |
| ANDA | refers to | Abbreviated New Drug Application |
| ICH | refers to | International Council for Harmonisation (of Technical Requirements for Pharmaceuticals for Human Use) |
| IND | refers to | Investigational New Drug |
| PK/PD | refers to | pharmacokinetics/pharmacodynamics |
| CMC | refers to | Chemistry, Manufacturing and Control |
| CMO | refers to | Contract Manufacturing Organization |
| CDMO | refers to | Contract Development and Manufacturing Organization |
| PMA | refers to | Premarket Application |
| QA | refers to | Quality Assurance (department) |
| Catalogue of Drugs for Insurance（2020） | refers to | Catalogue of Drugs for Basic National Medical Insurance/Employment Injury Insurance/Birth Insurance（2020） |
| ADC | refers to | Antibody-Drug Conjugate |
| EHS | refers to | Environment、Health、Safety |
| Prescription Drugs | refers to | Drugs that can only be purchased and used according to prescriptions issued by physicians |
| OTC | refers to | Over The Counter |
| MRCT | refers to | International Multi-center Clinical Trial |
Section II. Company Profile and Key Financial IndicatorsI. Company information
Stock name (abbreviation)
| Stock name (abbreviation) | Huadong Medicine | Stock code | 000963 |
| Stock listed on | Shenzhen Stock Exchange | ||
| Company name in Chinese | 华东医药股份有限公司 | ||
| Company name in Chinese (abbreviation) | 华东医药 | ||
| Company name in English (if any) | Huadong Medicine Co., Ltd. | ||
| Company name in English (abbreviation, if any) | Huadong Medicine | ||
| Legal representative | Lv Liang | ||
| Registered address | Floor 7, 9 and 10, Gate No. 1, Building No. 1, 468 Yan’an Road, Hangzhou | ||
| Zip code of the registered address | 310006 | ||
| Office address | 866 Moganshan Road, Hangzhou | ||
| Zip code of the office address | 310011 | ||
| Official website | www.eastchinapharm.com | ||
| Email address | hz000963@126.com | ||
II. Contact persons and contact information
| Secretary of the Board of Directors | Securities affairs representative | |
| Name | Chen Bo | / |
| Contact address | 866 Moganshan Road, Hangzhou | / |
| Tel. | 0571-89903300 | / |
| Fax | 0571-89903300 | / |
III. Channels of disclosure and location of preparation
| Media selected by the Company for information disclosure | China Securities Journal, Securities Times, and Shanghai Securities News |
| Website designated by CSRC for publication of the annual report | http://www.cninfo.com.cn |
| Location of preparation of the Company’s annual report | Office of the Company’s Board of Directors |
IV. Registration changes
Organization code
| Organization code | 91330000143083157E |
| Changes of the Company’s main business since its listing (if any) | None |
| Previous changes of controlling shareholder (if any) | None |
IV. Registration changes
| Organization code | 91330000143083157E |
| Changes of the Company’s main business since its listing (if any) | None |
| Previous changes of controlling shareholder (if any) | None |
VI. Key accounting data and financial indicators
Whether the Company needs to perform a retroactive adjustment or restatement of previous accounting data
□Yes √No
| 2020 | 2019 | Percentage increase/decrease from last year to this year | 2018 | |
| Operating revenue (yuan) | 33,683,058,759.75 | 35,445,698,216.15 | -4.97% | 30,663,374,326.27 |
| Net profit attributable to shareholders of listed companies (yuan) | 2,819,861,203.63 | 2,813,118,702.11 | 0.24% | 2,267,229,174.08 |
| Net profit attributable to shareholders of listed companies after deducting non-recurring gains/losses (yuan) | 2,429,761,433.56 | 2,574,437,417.52 | -5.62% | 2,236,323,500.44 |
| Net cash flow from operating activities (yuan) | 3,411,447,747.56 | 2,001,698,170.67 | 70.43% | 2,039,496,083.26 |
| Basic earnings per share (yuan/share) | 1.6115 | 1.6077 | 0.24% | 1.29 |
| Diluted earnings per share (yuan/share) | 1.6115 | 1.6077 | 0.24% | 1.29 |
| Weighted average return on equity (ROE) | 20.95% | 25.29% | -4.34% | 24.87% |
| End of 2020 | End of 2019 | Percentage increase/decrease from last year to this | End of 2018 |
year
| year | ||||
| Total assets (yuan) | 24,201,348,154.75 | 21,463,974,146.63 | 12.75% | 19,217,357,282.33 |
| Net assets attributable to shareholders of listed companies (yuan) | 14,619,821,308.60 | 12,309,477,308.00 | 18.77% | 9,938,148,996.53 |
The Company’s net profit before or after deducting non-recurring gains and losses, whichever is lower, in the last three fiscal yearsare all negative, and the audit report of last year shows doubt about the Company’s ability to continue as a going concern.
□Yes √No
The company's net profit before and after deducting non-recurring gains/losses in the last three fiscal years is negative.
□Yes √No
Capital stock of the Company as of the trading day before disclosure
| Capital stock of the Company as of the trading day before disclosure (share) | 1,749,809,548 |
Fully diluted earnings per share calculated on the basis of the latest capital stock
| Dividends paid on preferred shares | 0.00 |
| Fully diluted earnings per share calculated on the basis of the latest capital stock (yuan/share) | 1.6115 |
VII. Differences in accounting data under domestic and overseas accounting standards
1. Differences in net profit and net assets disclosed in financial statements under international and Chineseaccounting standards
□ Applicable √ N/A
There are no differences in net profit and net assets disclosed in financial statements under international andChinese accounting standards.
2. Differences in net profit and net assets disclosed in financial statements under overseas and Chineseaccounting standards
□ Applicable √ N/A
There are no differences in net profit and net assets disclosed in financial statements under overseas and Chineseaccounting standards.
3、Reasons for differences in accounting data under overseas and Chinese accounting standards
□ Applicable √ N/A
VIII. Key financial indicators by quarter
Unit: RMB yuan
| Q1 | Q2 | Q3 | Q4 | |
| Operating revenue | 8,598,069,911.29 | 8,062,864,246.35 | 8,839,942,450.31 | 8,182,182,151.80 |
Net profit attributable toshareholders of listed companies
| Net profit attributable to shareholders of listed companies | 1,147,278,457.64 | 583,906,263.61 | 660,281,883.53 | 428,394,598.85 |
| Net profit attributable to shareholders of listed companies after deducting non-recurring gains/losses | 856,930,262.10 | 549,793,711.00 | 624,184,921.23 | 398,852,539.23 |
| Net cash flow from operating activities | 218,779,623.89 | 1,036,763,043.40 | 646,271,689.37 | 1,509,633,390.90 |
Whether the above financial indicators or their totals are significantly different from relevant financial indicators in previousquarterly and semiannual reports by the Company
□ Yes √ No
IX. Items and amounts of non-recurring gains/losses
√ Applicable □ N/A
Unit: RMB yuan
| Item | 2020 | 2019 | 2018 | Note |
| Gains/losses on disposal of non-current assets (including the written-off part of the accrued assets impairment reserve) | 319,656,661.95 | 109,574,836.97 | -697,591.38 | Mainly due to the transfer of distribution rights in the Western European market of related products of Sinclair, a wholly-owned subsidiary of the Company in the UK, during the current reporting period. |
| Tax refund and reduction with ultra vires examination and approval or without offical approval documents | 8,424,351.97 | 4,407,536.93 | 1,630,170.53 | |
| Government grants included in current gains/losses (excluding those closely related to operating activities and measured according to unified national standards) | 190,906,656.31 | 112,527,883.18 | 79,368,271.28 | Mainly due to the government subsidies recognized by subsidiaries during the current reporting period. |
| Gains/losses on assets entrusted to others | 16,058,460.95 |
for investment or management
| for investment or management | ||||
| Receivables subject to separate impairment test and reversal of reserve for impairment of contract assets | 3,845,312.41 | 1,896,979.79 | ||
| Other non-operating revenue or expenditure expect above-mentioned items | -20,500,748.15 | 77,976,120.18 | -34,052,605.70 | |
| Other profit and loss items satisfying the definition of non-recurring gain/loss | -4,899,999.00 | |||
| Minus: Amount affected by income tax | 92,420,221.30 | 47,542,186.99 | 14,789,855.01 | |
| Amount affected by rights and interests of minority stakeholders (after tax) | 14,912,244.12 | 20,159,885.47 | 16,611,177.03 | |
| Total | 390,099,770.07 | 238,681,284.59 | 30,905,673.64 | -- |
If the Company recognizes an item as a non-recurring gain/loss based on the “Interpretative Announcement No. 1 on InformationDisclosure Criteria for Public Companies – Non-Recurring Profit/Loss” or recognizes an item satisfying the definition ofnon-recurring gain/loss in the announcement as a recurring gain/loss, reasons should be specified.
□ Applicable √ N/A
No such case during the reporting period.
Section III. Overview of the Company’s Business
I Main business of the company during the reporting period
Huadong Medicine Co., Ltd. (stock code: 000963), founded in 1993 and headquartered inHangzhou, Zhejiang Province, was listed on Shenzhen Stock Exchange in December 1999. Aftermore than 20 years of development, the Company has developed into a large comprehensive listedpharmaceutical company integrating R&D, production and sales of medicine. The Company hasmore than 10,000 employees, and its business covers the whole pharmaceutical industrial chain.With the pharmaceutical industry as its core, the Company expands its medicine business andaesthetic medicine industry.The pharmaceutical industry of the Company focuses on R&D, production and sales ofspecialist medication, chronic disease medication and medication for special purposes. TheCompany has formed core product pipelines in such fields as chronic kidney diseases,transplantation immunity, internal secretion and gastrointestinal system, and owns a number offirst-line clinical medications with market advantages in China. Meanwhile, through independentdevelopment, external introduction and project cooperation, the Company focuses on the R&Dlayout of innovative drugs and generic drugs with high technical barriers in the three core fields ofanti-tumor, internal secretion and autoimmunity. Its pharmaceutical sales channels have coveredmore than ten thousand large and medium-sized hospitals in China. And its pharmaceutical R&Dinvolves fungal and microbial fermentation, small molecule, biological macromolecule and peptidedrugs, covering drug discovery, clinical and preclinical research, chemical manufacturing andcontrol (CMC) and registration. The Company continues to carry out international productregistration, international certification, consistency evaluation, etc., forming an internationalpharmaceutical industry system with a leading position in China.
By means of pharmaceutical business, the Company becomes one of the leading and powerfulcomprehensive large-scale pharmaceutical business service providers in Zhejiang Province, rankingthe top ten pharmaceutical business enterprises in China for many years consecutively. It has set up11 regional subsidiaries in Zhejiang Province, with customers covering 11 cities and 90 counties
(county-level cities) in the province. It has four business segments, including Traditional ChineseMedicine (TCM) and Western Medicine, medical devices, ginseng, antler and other herbs, andhealth industry, covering the whole field of pharmaceutical circulation, mainly includingpharmaceutical wholesale (public health care, private health care, retail pharmacies and commercialdistribution), pharmaceutical retail, third-party pharmaceutical logistics characterized by cold chain,pharmaceutical e-commerce, pharmaceutical service (hospital value-added service), marketdevelopment and featured mega health industry, providing customers with integrated solutions.The Company’s aesthetic medicine business focuses on R&D, production and sales of thelatest products and devices in facial micro-plastic surgery and skin management. Sinclair, awholly-owned subsidiary of the Company that is headquartered in the United Kingdom and servesas the holding company of a Spanish firm named High Tech, has production bases in France, theNetherlands, the United States, Switzerland and Bulgaria, and promotes and sells long-effectmicrosphere fillers for injection, hyaluronic acid, as well as face thread lift and coolsculptingproducts in the global market. Sinclair is the global operation platform of the Company for aestheticmedicine business. Huadong Ningbo Medicine Co., Ltd., a controlled subsidiary of the Company, isa comprehensive aesthetic medicine health platform focusing on product R&D and professionalpromotion, and also acts as the general agent for the promotion and sales of Korean YVOIREhyaluronic acid products and skin care products series of SanteMuse in the Chinese market.
II. Significant changes in major assets
1. Significant changes in major assets
Major assets
| Major assets | Note on significant changes |
| Equity assets | The ending balance is 107,553 million yuan, an increase of 131.66% from the beginning of the period, which is mainly due to the increase of long-term equity investments and other equity instrument investment in the current period. |
| Fixed assets | None |
| Intangible assets | None |
| Constructions in progress | None |
| Other non-current assets | The ending balance is 712.07 million yuan, an increase of 286.7% from the beginning |
of the period, mainly due to the increased prepayment for technology transfer duringthe current reporting period
| of the period, mainly due to the increased prepayment for technology transfer during the current reporting period | |
| Short-term borrowing | The ending balance is 1,416.93 million yuan, an increase of 116.14% from the beginning of the period, mainly due to the increased repayment upon maturity of bank financing during the current reporting period |
| deferred tax liability | The ending balance is 88.74 million yuan, a increase of 124.06% from the beginning of the period, mainly due to the increased repayment upon maturity of bank financing during the current reporting period |
2、Major overseas assets
Applicable □ N/A
| Specific content of assets | Reason for formation | Assets size (ten thousand yuan) | Location | Operating mode | Control measures to ensure assets safety | Profit or loss | Proportion of overseas assets in the Company’s net assets | Whether there are any significant impairment risks |
| Sinclair Pharma Limited | Acquisition of equity | 97,594.13 | UK | Independent accounting | Control of the Board of Directors and examination & approval of major decisions; daily supervision of financial matters; entrusting external intermediaries to conduct audits | Profit | 6.68% | None |
Note: In April 2019, the Company entered into strategic cooperation with R2 Dermatology, a US company specializing in medicaldevices and technology development related to dark spot removal and skin whitening using freezing technology in the field ofaesthetic medicine, and made equity investment in R2 and became its shareholder. As of the date of this disclosure, the Company hasinvested 30 million US dollars, with a shareholding ratio of 34%. In July 2019, the Company entered into strategic cooperation withMediBeacon, a US company dedicated to the development of contrast agents and equipment in such medical fields as renal functionand gastrointestinal function assessment, and invested 30 million US dollars for equity investment. As of the date of this report, theCompany has contributed 15 million US dollars, or 4.3% of its shares.III. Analysis of core competitiveness
1. Open innovative drug R&D System and continuous improvement of innovationcapability
After years of development, the Company has established its independent R&D system, aglobal new drug R&D center as well as a global R&D strategic collaboration ecosystem centered on
Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd., and cooperated with world-renownedcolleges at home and abroad, research institutes, innovative R&D companies, professionaltechnology platforms and so on in new drug R&D projects. The Company continuously hasincreased R&D investment, made an overall planning for the global innovative products in the threecore areas of anti-tumor, internal secretion and autoimmunity, and carried out cooperation with theworld’s leading AI drug discovery company Exscientia and XtalPi in anti-tumor drug R&D.Through independent R&D, external cooperation and product license-in, the Company hascontinuously enriched the product pipelines in core areas, formed a good development trend ofcontinuous clinical promotion and marketing of innovative products, and provided new momentumfor medium- and long-term growth.
2. Comprehensive capability in international business developmentThe Company has actively promotes global expansion. Through the acquisition of the equity ofUK Sinclair and Spanish High Teach engaged in aesthetic medicine, the Company has realized theglobal layout of aesthetic medicine sales network. Through strategic and equity collaboration withR2 (US), Medibeacon (US), ImmunoGen (US), Provention Bio (US), Kylane (Switzerland), LG(South Korea), Jetema (South Korea) and so on, the Company supplemented and enriched thecommercial development rights of innovative drugs and high-end aesthetic medicine products athome and abroad. The Company also accelerated the international registration of products. Itsonline chemical raw medicines have been certified by the Food and Drug Administration (FDA) orEU and other authoritative authentication in markets; its Pantoprazole Sodium Lyophilized Powderfor Injection has been temporarily approved by the FDA; and its Acarbose Tablets gained marketaccess to the United States and the European Union Austria. The Company is the first Chinesemedicine enterprise to achieve these results. In addition, the Company actively developsinternational logistics and purchasing suppliers to realize the internationalization of purchasingability. It has promoted the internationalization level of CMO/CDMO business and integrate it intothe global innovative drug R&D industry chain.
3. Abundant product pipelines for specialized departments and chronic diseases and overallcompetitive advantage in the field of diabetes medication
Over the years, the Company has been deeply engaged in medication for specialized
departments, chronic diseases and special drugs, and has built a good brand effect and solid marketfoundation in such fields as chronic kidney diseases, transplantation immunity, internal secretion,and digestive system, and has maintained a leading market share of similar products in China. TheCompany has formed a comprehensive pipeline of innovative drugs and differentiated generic drugsin the diabetes clinical mainstream therapeutic target. In the field of organ transplantation, it alsorealized full coverage of clinical first-line immunosuppressive drugs. The Company has establisheda global first-in-class distribution of new drugs in the three core areas of anti-tumor, internalsecretion and autoimmunity, forming a differentiated advantage. At present, 24 core marketedproducts of the Company have been included in the 2020 Catalog of Medicines Covered by theNational Medical Insurance System.
4. Leading professional pharmaceutical care team and extensive market network in ChinaThe pharmaceutical industry of the Company has a professional pharmaceutical care team of6,000 people, takes the promotion of clinical value and academic results as the core, and promotes amulti-channel marketing model that combines general hospitals, primary medical institutions, retailand third terminals, and Internet online. It has gradually formed effective coverage through multiplechannels and has a good competitive advantage.The business of the Company has been deeply rooted in the market of Zhejiang Province formany years, with complete commercial formats and rich distribution varieties, and has
comprehensive competitive advantages in policy affairs, market access and network coverage. It hasfully covered the customers from public medical institutions, key private medical institutions andretail pharmacies in Zhejiang Province, and maintained the leading order satisfaction rate. TheCompany has established business cooperation with 90% of the mainstream pharmaceuticalenterprises at home and abroad. The Company has a complete cold chain logistics distributionservice system and professional capabilities, and its cold chain logistics distribution business is inthe lead in China. The Company has obtained the first express business license of pharmaceuticalcold chain enterprise in Zhejiang Province, and got the exclusive qualification of third-party storingand transporting vaccine from Zhejiang Provincial Center for Disease Control and Prevention.
5. High end international aesthetic medicine product pipeline covering mainstreamnon-surgical fieldsIn 2018, through the successful acquisition of Sinclair in UK, the Company strategicallyentered the aesthetic medicine industry, effectively completed the integration of products andbusinesses in less than three years, and realized the full layout of the non-invasive and minimallyinvasive aesthetic medicine industry chain. In the fields of facial fillers, body shaping, catgutembedding, energy source devices and so on, we have a number of patented products with globalrights and also have an international aesthetic medicine operation and BD team. Focusing on theglobal high-end aesthetic medicine market, further integrating R&D resources and capabilities, andrelying on the four global R&D centers of Sinclair in the UK, High Tech in Spain, R2 in the UnitedStates and Kylane in Switzerland, and five global production bases in the Netherlands, France, theUnited States, Switzerland and Bulgaria, the Company has formed its international aestheticmedicine business integrating R&D, production, and marketing, and set up a global aestheticmedicine marketing network, which has covered more than 60 countries and regions in the world.Huadong Ningbo Medicine Co., Ltd., the controlled subsidiary of the Company, has a sales teamwhich has been deeply engaged in the Chinese aesthetic medicine market for many years, and awide range of aesthetic medicine institutions, with outstanding sales and promotion ability. Itsmarket share has been in the lead in the domestic hyaluronic acid market for many yearscontinuously.
6. Prudent and pragmatic operation style and shareholder return
The Company values management innovation, and strives to meet the demand of marketcompetition by improving its quality of operation. High quality products, excellentcommercialization ability, compliant and efficient marketing services, differentiated marketpositioning, innovative R&D layout and completed talent planning all boost the long-term andstable development of the Company. Since its listing, the Company has maintained steady growth inperformance for 21 years. Since 2007, the Company has kept the return on equity (ROE) above20% for 14 years consecutively, leading A-share listed companies and the medicine industry. Sinceits listing 21 years ago, the Company has paid dividends for 17 times, with a total value ofRMB4.174 billion, far exceeding the RMB250 million raised in its IPO. The Company has broughtcontinuous and stable returns of investment to shareholders.
Section IV. Discussion and Analysis of OperationsI. Overview
For China and the world, 2020 is an extraordinary year. It is also a key year for the Companyto fully implement strategic transformation and internationalization. In the past year, in the face ofthe sudden outbreak of COVID-19 pandemic, the reform of the domestic pharmaceutical industry,the new challenges brought by the changes in internal and external environments, the Company hassuffered unprecedented operating and development pressures, coupled with the impact of failure innational centralized procurement tendering of acarbose and lower price for medical insurancereimbursement list through negotiations. However, with its bravery and tenacity, the Companysurvived in this challenging year, unswervingly promoted the transformation of R&D innovationand marketing mode, and steadily implemented various measures of operation and management byresponding to changes and hardships with dedication, thus delivering strategic decisions andmaintaining the steady development with joint forces in 2020. In this year, the Company completedthe reform of R&D system, rapidly adjusted the marketing strategy, strengthened the cooperation inoverseas new drugs, and accelerated the international layout of aesthetic medicine industry. It alsoactively explored new operation mode of pharmaceutical business, opened up new market areas,and laid a solid foundation for continuous innovation and transformation in 2021.
Growth trend of Huadong Medicine’s operating income over the past 10 years
Growth trend of Huadong Medicine’s net profit attributable to the parent company over the past 10 yearsIn 2020, due to the impacts of the COVID-19 pandemic and national medicine centralizedprocurement, the Company achieved annual operating income of RMB33.683 billion, down 4.97%year on year; the net profit attributable to the shareholders of the listed company was RMB2.82billion, up 0.24% year on year, and the net profit attributable to the shareholders of the listedcompany after deducting non-operating profit was RMB2.43 billion, down 5.62% year on year. Bythe end of 2020, the total assets of the Company were RMB24.201 billion, and the net assetsattributable to the shareholders of the parent company was RMB14.62 billion, and the asset-liabilityratio was 37.28%, and the ROE was 20.95%, which has remained above 20% for 14 consecutiveyears.The core subsidiary of the Company in pharmaceutical industry, Hangzhou Zhongmei HuadongPharmaceutical Co., Ltd., actively overcame the influence of national medicine centralizedprocurement, and stabilized the market and development. Its business performance continued to growin adversity. During the reporting period, the operating income reached to RMB11.04 billion, up
5.07% year on year, and the net profit was RMB2.332 billion, up 6.13% year on year, which hasmaintained growth for 20 years on end. The annual ROE of Zhongmei Huadong was 35.53%, whichhas remained above 35% for 14 consecutive years.
(i) Pharmaceutical industry
1. Accelerating R&D innovation and constantly enriching product pipelines
ROE (%) of Huadong Medicine and Zhongmei Huadong during 2007-2020In 2020, the Company continued to strengthen R&D innovation, reconstructed R&D system,arranged R&D personnel properly, and promoted R&D function return. The first stage of R&Dsystem reform has been completed. In 2020, the Company’s innovative drug R&D center activelyexplored and learned from the international advanced innovative drug R&D system building,continuously optimized and adjusted the overall innovation R&D system framework of the Company,and improved the functional modules of innovation project R&D through introducing high-end R&Dtalents, so as to fully guarantee the realization of strategic planning objectives of the innovationproject. During the reporting period, the Company completed 15 innovative projects, and introduced47 innovative R&D talents at home and abroad, including 15 doctors and 27 masters. The Companyhas initially established a vigorous innovation team with international concept, international visionand international management ability. Meanwhile, we established a core expert consultant pool,including dozens of senior experts in statistics, medicine, registration and other fields. In addition, westarted the recruitment of postdoctoral programme. The Company reached the cooperation intentionof postdoctoral joint training with Zhejiang University, Institute of Nephrology of Peking Universityand other domestic first-class universities.
We boosted ongoing projects and consistently evaluated projects as scheduled, and 10 products(11 quality specifications) obtained production approval and 13 products (14 quality specifications)were applied for production. We established and improved the decision-making managementmechanism of R&D projects, centered on the strategic treatment field, and focused on the clinical
value of the projects to complete the Company’s R&D pipeline analysis and dynamic evaluation ofongoing projects. We also strengthened the project management and the training of PM, andcompleted the user experience test of PLM system.
The collaboration between R&D and BD was further deepened, which enriched the Company’sproduct pipelines in the fields of tumor, autoimmune and diabetes.
(1) Anti-tumor: Introduced the phase III clinical research products of ImmunoGen (US), theworld’s first targeting folate receptorα (FRα) Mirvetuximab Soravtansine (MIRV), an ADC candidatedrug for ovarian cancer, and acquired exclusive development and commercial rights in Greater China(including Chinese mainland, Hongkong, Macao and Taiwan). And accelerated its clinical research inChina.
(2) Endocrinology: Signed an agreement with PEG-BIO BIOPHARM CO., LTD. (Chongqing)on the cooperative development and commercialization of somaluptide products, which wouldfurther enrich the important product pipeline in the field of diabetes and consolidate its leadingposition in the field of domestic diabetes drugs.
(3) Autoimmunity: Introduced the ongoing QX001S product of Qyuns Therapeutics (abiosimilar similar to original drug Stelara?, used to treat psoriasis and Crohn’s disease), and gainedthe rights to develop and commercialize it in Chinese mainland, which further improved themacromolecule pipeline layout in the field of immunology.
(For the details of the R&D work and product pipelines of the Company during the reportingperiod, please refer to R&D Section)
2. Initial building of agile production and operation system, and shifting from cost centerto profit center
In 2020, overcoming the impact of the COVID-19 pandemic and market uncertainty, theCompany initially established an agile production and operation system, quickly integratedproduction resources according to market changes, took measures such as emergency resumption ofproduction, shift adjustment and production capacity expansion, and successfully completedemergency production tasks of some products due to sudden increase in demand. We promotedoutsourcing business to ensure the market supply throughout the year, fully implemented the costcontrol plan, boosted the cost management of the whole value chain, and achieved cost reductionthrough technology improvement, lean management, bidding and purchasing negotiation and assetutilization from many aspects, striving to improve labor efficiency per capita and productionefficiency. We did a good job in risk management and control of EHS, practiced the “asset-light”production organization mode, and successfully developed a number of cooperative production
enterprises, and gradually formed an open Huadong pharmaceutical manufacturing system. We tookinternal surprise inspection as the starting point to implement the GMP normal management, andsuccessfully passed it four times, with no major safety accidents throughout the year.The manufacturing and CMC (including subsidiaries) center changed the original positioningconcept of internal facilities, started CMO/CDMO mode by following international standards, andexplored the transformation from cost center to profit center. We actively faced the internationalmarket, and participated in the international market competition to integrate with the globalpharmaceutical R&D industry chain. In 2020, we made positive progress in export of raw materialsand CDMO business customized by foreign customers, which laid a solid foundation for realizing agreater breakthrough in 2021.In 2020, the Company continued to construct production parks, and arranged the transfers ofproduct and personnel, and the disposal of equipment and facilities in an orderly manner. JiangdongPhase II project has been completed as planned and is expected to be officially put into operation inthe second half of 2021 after completing equipment commissioning and certification; the project ofinternational R&D and manufacturing center for preparations has also been completed and isexpected to be put into use in 2021; the project approval, land acquisition, overall planning anddesign as well as construction preparation of Huadong Medicine Biomedical Science and TechnologyPark have been completed, and the project officially entered the construction stage in March 2021.
3. Making efforts in grass roots and out-of-hospital markets and improving all-roundmarketing ability
During the reporting period, Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd. faced thepandemic situation and market challenges, turned the pressure into the driving force by facingdifficulties and changing concepts, and improved marketing ability in all respects. According to thetrend of national normalized centralized procurement, we quickly adjusted the market strategy, tookthe establishment of “pharmaceutical care management system to adapt to the modernpharmaceutical industry development” as the goal, and continued to deepen the organizationalstructure reform. We strengthened the organizational structure building of local pharmaceutical carecompanies with county-level markets, increased out-of-hospital teams and primary-level marketpersonnel, and comprehensively promoted the development and coverage of primary-level markets,out-of-hospital markets and self-paying markets. We also actively explored new channels of retailpharmacies and online sales, developed online market, and seized the remaining markets. In termsof academic promotion, we continued to focus on the patient-centered concept to strengthen patienteducation and further improve the professional level of front-line marketing personnel, and to carry
out clinical restudy of marketed products, and improved expert consensus and clinical valuerecognition through academic platform building. Through the differentiated market positioning ofAcarbose Tablets and Acarbose Chewable Tablets, we continued to work hard in the primary-level,out-of-hospital and retail markets. The sales volume and overall market share of acarbose productsremained stable throughout the year, and the proportions of out-of-hospital and retail marketsincreased steadily. The Company has confidence that the sales volume of acarbose will continue togrow in 2021.
National marketing network distribution map of pharmaceutical industry
4. Keeping up with international level and improving quality management to new levelIn 2020, the Company further strengthened the centralized and unified quality management,continuously improved the building of quality management system, innovated the normalizedmanagement methods of GMP, and implemented surprise inspection system. We optimized themanagement mode of public system, strengthened the linkage mechanism of quality managementfrom R&D to large production, established a normalized management list for weak managements,and successfully completed the site verification for registration of all products with consistencyevaluation and new products, onsite GMP compliance inspection and surprise inspection. Aiming atinternational quality level, we continued to improve the quality standard, completed the standardsetting of olistar capsule, pioglitazone hydrochloride tablet and indobufen tablets, followed up the
progress of pharmacopoeia, and participated in the standard setting of USP for pantoprazole sodiumlyophilized powder for injection. After the Acarbose Tablets of Huadong Medicine Co., Ltd.obtained a marketing approval from Austria of EU and was approved by the FDA of the UnitedStates, the international quality management of the Company was lifted to a new level.
5. “Refusing Mediocrity and Pursuing Excellence” and Creating an Appropriate HumanResource Management SystemIn 2020, the Company continued to improve the level of human resource management. Wecontinuously optimized the talent structure, improved the talent ability and introduced 66 top talentsin the fields of innovative medicines, international aesthetic medicine, strategic market as well asinvestment and financing, including 21 doctors and 12 international talents. We continuouslyoptimized the organization and human resource allocation of companies, developed incentive andefficiency, improved the efficiency of human resources, and gradually established an assessmentmechanism aiming at “rejecting mediocrity and pursuing excellence”. We innovated and developedperformance management mode, set up a R&D performance appraisal management mechanism thatwas appropriate to the actual situation of R&D, and perfected matrix management mode for R&D,and formed a performance appraisal and management scheme for the three R&D centers. We furtherimproved the building of leader echelon, standardized and unified the management of appointedleaders, and optimized the personnel training mechanism to realize the rapid transformation oftalents.
6. Strengthening the integration of business and finance, and deeply innovating financialorganization structure
During the reporting period, the Company carried out the innovation of financial organizationstructure, and formed a headquarters financial structure based on the professional lines of treasurydepartment, international business department, accounting information department (virtual), tax andinformation, which enabled the coordination of treasury management among headquarters,Zhongmei Huadong as well as business finance. By establishing a “3+X” financial analysis teamand setting up business partner team of financial aesthetic medicine, R&D and innovation business,we strengthened the integration of business and finance and the continuous investment of the wholefinancial system in the professional line, and carried out works in the aspects of fine financial fundmanagement and budget cost reduction, building and efficiency improvement of financialinformation system, financial internal control and compliance, investment merger andpost-investment management. As a result, we straightened out the financial organizational structureand the centralized and unified management system with “one headquarters and three business
sectors”, and the financial management ability was also continuously improved.
7. Achieving Positive Results in Central Purchasing and Access to Medical InsuranceSystemIn August 2020, Anastrozole Tablets (1mg) and Domperidone Tablets (10mg) respectively fromthe wholly-owned subsidiaries of the Company, Hangzhou Zhongmei Huadong Pharmaceutical Co.,Ltd. and Huadong Medicine (Xi’an) Bohua Pharmacy Co., Ltd, won the bid in the third batch ofnational drug centralized procurement. In December 2020, Bailing Capsule and Acarbose ChewingTablets from Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd. participated in thenegotiations of medical insurance payment standard and renewal, and both of them were successful.In February 2021, Pantoprazole Injection (40mg) from Hangzhou Zhongmei HuadongPharmaceutical Co., Ltd. won the bid in the fourth batch of national drug centralized procurement.(ii) Pharmaceutical commerce
1. With optimized and adjusted business structure of the Company, its pharmaceuticalcommerce continued to take the lead in Zhejiang
In 2020, faced with the combined impact of the pandemic and the volume-based procurement,the pharmaceutical commerce of the Company took active measures and fulfilled the emergencymedical instrument stockpile task of Zhejiang Province in an excellent way, and was commendedby many government departments at provincial, municipal and district levels. Under the backgroundof the normalization of volume-based procurement, the Company took the initiative to deal with itby reverse thinking, and sped up the adjustment, optimization and enrichment of its businessstructure. The Company has kept consolidating the intra-hospital markets, strengthenedcoordination between purchases and sales, and increased order fill rate, the market share anddelivery rate in the province, taking the lead in the distribution volume of medicines procuredcentrally in the province. The Company has built a network-wide sales platform covering both theintra- and out-of-hospital markets, expanded and strengthened the cooperative relationship withupstream pharmaceutical enterprises, highlighted the advantageous capabilities of market accessand policy matters, and became a trustworthy and respectable partner of the customers’ supplychain through integrated solutions and value-added services. The Company has continued toincrease the introduction of high-quality products, accelerate the early intervention to and businessundertaking of varieties included in volume-based procurement and newly-listed high-valueinnovative varieties, and improve service quality and brand influence. During the year, theCompany carried out strategic and special cooperation with many multinational pharmaceuticalcompanies such as Pfizer, AstraZeneca, Roche, Eli Lilly, Sanofi, Novartis and Merck with respect to
the primary-level market of chronic disease products, realized the implementation of cooperativeprojects in a quite short time through its professional project management, and won universalrecognition from customers.The Company has accelerated the optimization and transformation of its sales model,continued to expand the out-of-hospital markets while maintaining its competitive position in theintra-hospital markets, and sped up the transition from intra-hospital to out-of-hospital and fromoffline to online. Relying on its advantages in relationship with upstream suppliers and downstreamoffline sales channels, the Company effectively connected to Internet and mobile Internettechnologies, built an information system from the supply end to the consumer end, and establishedan effective online and offline marketing system. Through management and empowerment, theCompany gives full play to the centralized advantages of its products and the advantages of thebranches and subsidiaries in the province regarding local sales, achieving the effect of 1+1>2.
2. Integrating e-commerce interconnection to win market opportunitiesIn 2020, the Company’s pharmaceutical commerce explored and transformed the businessmodel of retail pharmacies, provided “value-added services” such as pharmaceutical consultation,drug distribution and return visits for special patients through channels like self-operated DTPpharmacy, and built a pharmaceutical care and service system centered on patients’ needs. Itoptimized the promotion of marketing channels such as the “Huadong Medicine CommerceNetwork”, “Huadong Pharmacy Flagship Store”. It completed the establishment of the OTC SalesManagement Department and the E-commerce Sales Department, and realized the rapid growth ofe-commerce business during the pandemic. Relying on the first prescription distribution platform inthe province developed by itself, the Company actively connected with the “Internet + diagnosisand treatment” service in Zhejiang Province, quickly connected with provincial and municipalhealth and health care departments at the beginning of the outbreak of COVID-19, launched theprovince’s first “online medical insurance settlement + medicine delivery services”, and opened upthe full channel of “Internet + diagnosis and treatment”.
3. Improving ability concerning cold chain logistics and creating the “golden businesscard” of commerce business transformationHuadong business supply chain continued to improve the province-wide logistics systemfeaturing multi-warehouse collaboration, promoted Jinhua supply chain projects, expanded thethird-party services featuring “cold chain”, and actively explored logistics services under the newmode of “E-commerce logistics distribution, prescription outflow distribution”. With the goal of “tobe the leader in the industry and become the leading role in the value chain”, Huadong businesscold chain built a province-wide logistics system with the cold chain distribution ofbiopharmaceuticals and vaccines as the core, and established an industry brand. The Company hasundertaken the vaccine business of a number of well-known pharmaceutical enterprises at home andabroad, with the business volume ranking first in Zhejiang Province. Besides, it has obtained thefirst delivery business license for pharmaceutical cold chain enterprises in Zhejiang Province, whichpromoted the expansion of the Company’s pharmaceutical cold chain business in the expressdelivery field, especially the Internet C-end business distribution. In addition, the Company activelyinvolved in the delivery service of COVID-19 vaccines across the province, and obtained theexclusive qualification regarding third-party vaccine storage and transportation service from theZhejiang Provincial Center for Disease Control and Prevention. It will give priority to guarantee thedelivery of COVID-19 vaccines as required by the Zhejiang Provincial Center for Disease Control
and Prevention, and complete the distribution of COVID-19 vaccines in 11 cities in the provincewithin 24 hours after receiving the distribution task, to ensure the timely and safe delivery ofCOVID-19 vaccines, and support the nationwide vaccination of COVID-19 vaccines.(iii) Aesthetic medicine
1. Deeply engaging in the aesthetic medicine industry, and continuously optimizing andimproving the pipeline of aesthetic medicine products
Aesthetic medicine is one of the core business areas of the Company. Adhering to the operationphilosophy of “focusing on those who pursue beauty and serving them with professionalism andpreciseness”, Huadong Medicine focuses on the R&D, production, sales and service of the latestproducts and instruments in the field of facial micro plastic and skin management, and fullyintegrates the global aesthetic medicine resources. Being deeply engaged in the aesthetic medicineindustry with its scientific and rigorous attitude, the Company continues to optimize the productstructure, with emerging achievements in aesthetic medicine internationalization. Since itssuccessful acquisition of Sinclair in the UK in 2018, the Company has been actively introducinghigh-tech new products and technologies in the field of aesthetic medicine around the world, andcreating high-end, differentiated aesthetic medicine brands and product clusters. Up to now, theCompany has many differentiated non-surgical mainstream aesthetic medicine products, such as fullproduct portfolio of sodium hyaluronate, collagen stimulator, botulinum toxin type A, threadembedding and implanting, and energy source device.
2. Accelerating the introduction of new international aesthetic medicine products andpushing forward the international strategic layout of the aesthetic medicine sector
In 2020, the Company’s aesthetic medicine business was significantly affected by theCOVID-19 pandemic at home and abroad, and its revenue and net profit decreased year on year.But the Company seized the opportunity brought by the low ebb of the international aestheticmedicine industry during the pandemic, quickly promoted the internationalization strategy of theaesthetic medicine sector, and accelerated the arrangement and introduction of new internationalaesthetic medicine products. As a result, it achieved positive results.
In March 2020, Sinclair, the global operating headquarters of the Company’s aestheticmedicine business, and Galderma, a world-renowned dermatology pharmaceutical company inSwiss, reached an agreement on the transfer of the distribution rights of Sculptra (PLLAmicrospheres) in western European market, and completed the transaction, resulting in an assetdisposal earnings of approximately GBP30.65 million (after tax) for Sinclair. Later, it signed anagreement with Kylane, a Swiss professional aesthetic medicine R&D company, thereby obtainingfrom Kylane the exclusive worldwide license of the MaiLi-series lidocaine-containing hyaluronic
acid fillers (hyaluronic acid) (which have been approved by the European Union for launch). InAugust 2020, the Company signed a strategic cooperation agreement with Jetema, a South Koreanlisted company, and obtained the sole agency of its botulinum toxin type A in China, thereby furthersupplementing the Company’s product pipelines in the aesthetic medicine sector. In October 2020,Sinclair and Kylane once again reached a deep strategic cooperation on equity investment andproduct development. Sinclair invested EUR6 million for all of Kylane’s ordinary shares, and afterthe transaction was completed, Sinclair held 20% of Kylane’s equity, becoming Kylane’s thirdlargest shareholder. In addition, Sinclair and Kylane entered into a R&D partnership, enablingSinclair to obtain the IP and global rights of Kylane’s two key products in the face and body fillersarea, as well as the prioritized negotiation rights of Kylane’s other follow-up products. In February2021, Sinclair has acquired the 100% equity in High Tech, a Spanish energy source aestheticmedicine devices company by paying a consideration of EUR65 million and a sales threshold of upto EUR20 million, intending to participate in the body shaping and skin repairing fields such ascryolipolysis and hair removal. The equity delivery was completed in April 2021.
3. Accelerating the registration and launch process of key aesthetic medicine productsDuring the reporting period, the Company set up an aesthetic medicine international businessdepartment, which is responsible for the strategic planning and day-to-day operation managementof the aesthetic medicine business. At the same time, the Company established Sinclair Aesthetics(Shanghai) Medical Technology Co., Ltd. and R2 (Shanghai) Medical Technology Co., Ltd., whichwill be served as the operating platform after products are launched on the market. The Companysped up the registration and launch process of key aesthetic medicine products in the Chinesemarket, and Ellansé?, a long-effect microsphere for injection, the key product of Sinclair, theCompany’s subsidiary in UK, was officially approved for domestic launch and registration in April
2021 and is expected to go on sale in Chinese mainland in the second half of 2021.Silhouette
?Instalift?, the only absorbable thread for midface tissue lifting approved by the FDA, isundergoing a domestic clinical trial as planned. The Company is actively preparing for the launch ofGlacial
?Spa (F0), a cool-touch cosmetic instrument introduced from R2 located in the UnitedStates, in China, and is promoting the registration of Glacial? Rx (F1), a frozen freckle-removingmedical device in China in an orderly manner. MaiLi
?
series product, a new high-endlidocaine-containing hyaluronic acid filler using OXIFREE? patented technology and process willbe launched on the European market in the first half of 2021, and registration in the Chinese markethas been initiated. Cooltech Define, a cryolipolysis product newly acquired by Sinclair from HighTech, a Spanish company, has obtained the CE certification from EU. The Company has activelyexpanded its teams in accordance with the launch progress of Ellansé and Glacial, and has startedpre-launch preparations. The Company’s controlled subsidiary Huadong Ningbo Company activelyresponded to the adverse effects of the pandemic in 2020, took multiple measures to stabilize itssales performance, and launched the special “2020 YVOIRE Rising Star Program – NavigatorSpeaking Tour Program” during the post-pandemic period to promote the gradual recovery ofperformance in the second half of the year. The SanteMuse Biological Skin Care R&D Center wasset up in Hangzhou, aiming to create a new product line of customized skin care based on skingenes centering on SanteMuse, a customized skin care brand. The center has functional modulessuch as gene testing laboratory, cosmetic formula R&D laboratory, ingredient R&D laboratory, cellculture in vitro, microbial fermentation and human efficacy evaluation laboratory, and has created awhole process R&D system including gene detection, product development and efficacy evaluation,realizing the one-stop closed-loop development of customized skincare.
R&D of the Company’s main aesthetic medicine products
In 2020, with its outstanding performance in various fields, the Company was granted formany honors and awards, including New Fortune’s Second “New Fortune Best Listed Company”,Securities Times’ 14
th
“Top 100 Chinese Listed Companies on Main Board”, MENET’s “Top 100Pharma Companies in China in 2019”, “Jinzhi Award” in the financial industry, “ExcellentManagement Award” in the pharmaceutical and biological industry, China’s Top 100 IndustrialEnterprises in Chemical-Pharmaceutical Industry in 2020, 21st Century Business Herald’s 2020Sunshine Award of China’s Healthy Industry – Industry Benchmarking Enterprise Award, ChineseRadio Network’s Second “Listed Companies Most Trusted by Investors – Innovative Pioneers inBiomedicine”, Top 10 High-tech Enterprises in Zhejiang Province in the Field of Biological andNew Pharmaceutical Technology in 2020, Commendation for the 40th Anniversary of MedicalEconomic News · Pharmaceutical Enterprises Making Outstanding Contributions to the JointPrevention and Control of COVID-19 in China, and continued to be listed on the Fortune China 500
selected by FortuneChina.com, ranking 273rd in 2020.II. Analysis of main business
1. Overview
Refer to “I. Overview” in “Discussion and Analysis of Operations”.
2. Income and cost
(1) Composition of operating revenue
Unit: RMB yuan
| 2020 | 2019 | Year-on-year percentage increase/decrease | |||
| Amount | Proportion in operating revenue | Amount | Proportion in operating revenue | ||
| Total operating revenue | 33,683,058,759.75 | 100% | 35,445,698,216.15 | 100% | -4.97% |
| By sector | |||||
| Business | 23,010,850,986.99 | 66.26% | 25,098,006,088.85 | 68.79% | -8.32% |
| Manufacturing | 11,398,357,479.02 | 32.82% | 10,864,875,032.13 | 29.78% | 4.91% |
| aesthetic medicine[note1] | 942,632,376.28 | 2.80% | 1,328,360,780.34 | 3.75% | -29.04% |
| International aesthetic medicine | 319,167,474.26 | 0.92% | 509,190,691.24 | 1.43% | -37.32% |
| Offset (inter-sectoral offset) | -1,045,317,180.52 | -1,026,373,596.07 | |||
| By product | |||||
| By region | |||||
| Domestic sales | 33,321,963,372.21 | 98.93% | 34,883,617,590.88 | 98.41% | -4.48% |
| Overseas sales | 361,095,387.54 | 1.07% | 562,080,625.27 | 1.59% | -35.76% |
[Note 1] The aesthetic medicine business of the Company includes both the domestic and the international aesthetic medicinebusiness. There is a slight overlap between the income statistics of the domestic aesthetic medicine business and that of thepharmaceutical commerce and the pharmaceutical manufacturing industry. In order to truly reflect the Company’s business reality,the data is counted.
(2) Sectors, products or regions that accounts for more than 10% of the Company’s operating revenue oroperating profit:
√ Applicable □ N/A
Unit: RMB yuan
| Operating revenue | Operating cost | Gross profit rate | Year-on-year percentage increase/decrease in operating revenue | Year-on-year percentage increase/decrease in operating cost | Year-on-year percentage increase/decrease in gross profit rate | |
| By sector | ||||||
| Business | 23,010,850,986.99 | 21,279,818,471.97 | 7.52% | -8.32% | -8.15% | -0.17% |
| Manufacturing | 11,398,357,479.02 | 2,203,096,679.98 | 80.67% | 4.91% | 22.24% | -2.74% |
| International aesthetic medicine | 319,167,474.26 | 104,350,496.25 | 67.31% | -37.32% | -25.72% | -5.10% |
| Offset (inter-sectoral offset) | -1,045,317,180.52 | -1,036,783,957.47 | ||||
| By product | ||||||
| By region | ||||||
| Domestic sales | 33,321,963,372.21 | 22,423,303,870.36 | 32.71% | -4.48% | -6.24% | 1.27% |
| Overseas sales | 361,095,387.54 | 127,177,820.37 | 64.78% | -35.76% | -25.27% | -4.94% |
If the statistical specifications of the Company’s main business data have been adjusted during the reporting period, the Company’smain business data of the most recent year should be adjusted according to the specifications at the end of the reporting period.
□ Applicable √ N/A
(3) Whether the Company’s income from in-kind sales is greater than that from labor services
√ Yes □ No
(4) Performance of major sales contracts signed by the Company as of the current reporting period
□ Applicable √ N/A
(5) Composition of operating cost
By sector
Unit: RMB yuan
| Sector | Item | 2020 | 2019 | Year-on-year percentage increase/decrease | ||
| Amount | Proportion in operating cost | Amount | Proportion in operating cost | |||
| Business | Operating cost | 21,279,818,471.97 | 90.22% | 23,169,206,360.31 | 92.26% | -8.15% |
Manufacturing
| Manufacturing | Operating cost | 2,203,096,679.98 | 9.34% | 1,802,276,075.36 | 7.18% | 22.24% |
| International aesthetic medicine | Operating cost | 104,350,496.25 | 0.44% | 140,481,356.33 | 0.56% | -25.72% |
| Offset (inter-sectoral offset) | Operating cost | -1,036,783,957.47 | -1,025,240,830.27 |
(6) Whether the scope of consolidation has changed during the reporting period
√ Yes □ No
For details, please refer to “VIII. Change of consolidation scope” in “Section XII. Financial Report”.
(7) Significant changes or adjustments to the Company’s business, products or services during thereporting period
□ Applicable √ N/A
(8) Major customers and major suppliers
The Company’s major customers
| Total sales amount of the top five customers (yuan) | 6,096,785,978.21 |
| Proportion of the total sales amount of the top five customers in the total annual sales amount | 18.10% |
| Proportion of related parties’ sales amount of the top five customers’ sales amount in the total annual sales amount | 0.00% |
Note: The customers under the control of the same actual controller shall be listed together, except those under the actual control ofthe same state-owned assets management institution.
Information of the Company’s top five customers
| No. | Customer name | Sales amount (yuan) | Proportion in the total annual sales amount |
| 1 | Customer a1 | 3,052,496,406.11 | 9.06% |
| 2 | Customer a2 | 1,180,127,547.89 | 3.50% |
| 3 | Customer a3 | 676,479,961.92 | 2.01% |
| 4 | Customer a4 | 594,032,885.39 | 1.76% |
| 5 | Customer a5 | 593,649,176.90 | 1.76% |
| Total | -- | 6,096,785,978.21 | 18.10% |
Other information of major customers
□ Applicable √ N/A
Information of the Company’s major suppliers
Total purchase amount of the top five suppliers (yuan)
| Total purchase amount of the top five suppliers (yuan) | 2,391,591,676.59 |
| Proportion of the total purchase amount of the top five suppliers in the total annual purchase amount | 10.66% |
| Proportion of related parties’ purchase amount of the top five customers’ purchase amount in the total annual purchase amount | 0.00% |
Information of the Company’s top five suppliers
| No. | Supplier name | Purchase amount (yuan) | Proportion in the total annual purchase amount |
| 1 | Supplier b1 | 557,325,884.72 | 2.48% |
| 2 | Supplier b2 | 515,430,595.92 | 2.30% |
| 3 | Supplier b3 | 468,724,901.88 | 2.09% |
| 4 | Supplier b4 | 441,540,123.61 | 1.97% |
| 5 | Supplier b5 | 408,570,170.46 | 1.82% |
| Total | -- | 2,391,591,676.59 | 10.66% |
Other information of major suppliers
□ Applicable √ N/A
3. Expenses
Unit: RMB yuan
| 2020 | 2019 | Year-on-year percentage increase/decrease | Note on changes | |
| Sales expenses | 5,970,614,819.26 | 5,797,236,883.02 | 2.99% | No significant changes |
| Administrative expenses | 998,746,330.35 | 1,095,227,423.65 | -8.81% | No significant changes |
Financial expenses
| Financial expenses | 34,200,637.61 | 2,473,146.13 | 1,282.88% | It is primarily due to a lower base of financial expense in the comparable period as a result of the write-down of financial expense caused by the cash settled interest adjustment of the contingent consideration of Sinclair’s product rights in the same period of the previous year. |
| R&D expenses | 926,725,468.93 | 1,072,937,182.39 | -13.63% | No significant changes |
4. R&D investment
√Applicable □ N/A
(1) Overall situation of R&D
With “scientific research-based, patient-centered” as the corporate philosophy, the Companycontinued to increase investment in R&D, and continuously enriched its arrangements in the R&Dof innovative drug pipeline. During the reporting period, the Company invested RMB1.444 billionon R&D in the pharmaceutical industry, an increase of 8.91% year on year, of which, RMB918million was spent on direct R&D, down 12.96% from 2019 (RMB1.055 billion), and RMB525million was spent on the introduction of external new drug technologies and rights, up 94.10% from2019. The research and development work of the Company mainly involves the following aspects:
1) Continued to practice the new drug R&D model which combines independent R&D +cooperative development + product license-in, tracked the latest international drug actionmechanism and target as well as advances in clinical application research, accelerated thedevelopment of innovative drugs and the introduction of innovative drug projects at home andabroad, and obtained the approval regarding potential innovative drugs in the fields of metabolismand nephrosis;
2) Focused on varieties with superior clinical effect and pharmacy for special population,accelerated the R&D of generic drugs with high technical barrier and improved new drugs (505b
(2)), and initiated key projects centering on autoimmunity, antivirus and anti-tumor fields during thereporting period;
3) Continued to improve the process and quality level of bulk drugs and preparations, reducedthe cost, actively developed dosage forms of on-line products, and strengthened the marketcompetitiveness; and
4) Strengthened the evaluation on the comprehensive dynamic of varieties under research,
ensured the R&D progress of key varieties under research to the greatest extent through the priorityranking of ongoing projects and the rational allocation of R&D resources.
(2) R&D of projects regarding major innovative drugs and biosimilarsThe Company has drawn up a strategic plan for the development of innovative drugs for thenext five years, clearly defined the key direction and number of innovation projects for each yearduring the planning period centering on the existing therapeutic fields, and proposed that no lessthan 15 innovative varieties (including original new drugs, improved new drugs, innovative medicaldevices and high-end products) should be established and reserved annually during the planningperiod. During the reporting period, the Company actively boosted the clinical research oninnovative drugs under research and key biosimilars, seeking early approval for launch to themarket. In addition, the Company actively explored and learned from the international advancedinnovative drug R&D system building, continuously optimized and adjusted its overall R&Dsystem structure, improved the functional modules on the R&D of innovative projects through theintroduction of high-end R&D personnel, to achieve the objectives on the strategic planning of theCompany’s innovative projects.
(3) Progress on the clinical research of key innovative drugs, innovative medical devicesand biosimilars
1) Mefatinib: Mefatinib for the treatment of advanced non-small cell lung cancer is underphase II clinical trial and the registration for phase III clinical trial is also under progress, and it isplanned that the enrollment of the last subject will be completed in the third quarter of this year;
2) TTP273: the world’s first oral GLP-1 receptor agonist small-molecule innovative drugs, iscurrently undergoing multi-regional phase II clinical trials in Chinese mainland and Taiwan. Thephase II clinical trial was led by Nanfang Hospital of Southern Medical University, and the firstsubject was administrated in December 2020;
3) HD-NP-102 (dynamic TGFR monitoring system): The renal function is evaluated throughreal-time monitoring of glomerular filtration rate. The application for carrying out the clinical trialof MB102 (fluorescent tracer), class 1 new drug used in the monitoring system, in China has beenaccepted. The MRCT clinical trial of the TGFR dynamic monitoring system will be carried out afterthe Clinical Trial Notification is officially obtained;
4) HDM3002 (PRV-3279): It is used for the treatment of systemic lupus erythematosus (SLE)and for preventing or reducing the immunogenicity of gene therapy, and two indications of it arebeing tested in the United States. Phase I 1a and 1b trials have been completed for the indications ofSLE (systemic lupus erythematosus), and indications regarding preventing or reducing the
immunogenicity of gene therapy are under preclinical trials. The phase II clinical research ofPRV-3279 is expected to be carried out in the second half of 2021, and part of the trial will becarried out in China;
5) HDM2002 (IMGN853, ADC drug under research): the world’s first ADC drug underresearch for FRα-positive ovarian cancer, is used to treat platinum-resistant ovarian cancer withhigh expression of folate receptor. The clinical trials of HDM2002, including MRCT phase IIIclinical and PK bridging trials, have received clinical approval, and various pre-clinical preparationsare currently being promoted as planned;
6) Overall arrangement of R&D of early innovative drugs: drug screening and activitycharacterization regarding oral GLP-1 innovative drugs for the treatment of type 2 diabetes,anti-tumor projects including CDK targeted drugs and innovative drugs such as PROTACT areunder way as planned; and
7) Biosimilars: GLP-1 receptor agonist liraglutide injection, one of the Company’s keydiabetes products, is undergoing phase III clinical research for indications for diabetes and weightloss in China. The phase III clinical trial on the indications for diabetes has basically beencompleted, and it is expected that all clinical work will be completed by the end of the secondquarter of 2021, and application for registration will be submitted soon afterwards. The clinicalwork regarding the indications for weight loss is expected to be completed in the third quarter ofthis year, and registration will be submitted before the end of this year. It is planned that theinvestigational new drug (IND) domestic clinical trial application regarding semaglutide injectionwill be launched in 2021. Preparation regarding phase III clinical work of HDM3001 (QX001S) isbeing made, and phase III clinical trials are scheduled to be carried out in the second half of thisyear. Clinical application regarding ranibizumab injection has been submitted and supplementaryinformation has been submitted. Insulin degludec injection, insulin aspart injection and glucagonare under preclinical study.
(4) Progress of R&D of major generic drugs
During the reporting period, the Company conducted earnest dynamic evaluation and combingof the existing generic drug varieties under research, and further clarified the varieties to be focusedand prioritized. The progress regarding the key varieties is as follows:
1) Diabetes: On-site verification regarding Metformin Hydrochloride and EmpagliflozinTablets (5/500mg) has been completed, and approval is expected to be obtained within the year.Canagliflozin Tablets (specifications: 0.1g, 0.3g) has been declared for production. SitagliptinPhosphate/Metformin Hydrochloride Tablets (50/850mg) has been declared for production.
Pioglitazone Hydrochloride and Metformin Hydrochloride Tablets (15/850mg) is under laboratoryresearch;
2) Immunity: Laboratory research regarding tacrolimus extended-release tablets, granules andointment was carried out as planned;
3) Anti-tumor: On-site verification regarding letrozole tablets has been completed, andapproval is expected to be obtained within the year. Sorafenib tablets has been declared forproduction. Ibrutinib capsules and olaparib tablets are under laboratory research;
4) Super antibiotic: On-site verification regarding Micafungin Sodium for Injection has beencompleted, and approval is expected to be obtained within the year;
5) Digestion: Supplementary materials regarding Compound Omeprazole and SodiumBicarbonate Capsule have been submitted and approval is expected to be obtained within the year;and
6) Cardiovascular: Macitentan tablets has been declared for production.
(5) R&D and registration of aesthetic medicine products
During the reporting period, MaiLi
?
series products, new and high-end lidocaine-containinghyaluronic acid filler produced by Sinclair, a wholly-owned subsidiary of the Company, usingOXIFREE? patented technology and process have obtained CE certification of EU in June 2020,which will be launched in the European market in the first half of 2021, and registration in theChinese market has already been started.
F1, a medical device related to frozen freckle-removing and skin whitening introduced fromR2, US, has obtained the 510(k) approved by the FDA. In August 2020, the Company signed astrategic cooperation agreement with Jetema, a South Korean listed company, to introduce itsbotulinum toxin type A. In February, 2021, Sinclair, a wholly-owned subsidiary of the Company,acquired the 100% equity in High Tech, a Spanish company engaged in energy source aestheticmedicine device. The design of the clinical protocols in China of the above products is being carriedout in an orderly manner.Ellansé
?, a novel collagen stimulator, the core product of Sinclair, has obtained the MedicalDevice Registration Certificate issued by the National Medical Products Administration on April 13,2021, and will be officially marketed in Chinese mainland in the second half of 2021.
Silhouette
?Instalift? is the only absorbable thread approved by the FDA for mid-face tissuelift, which adopts 3D cone suspension technology, can achieve immediate and long-lasting tissuerepositioning, stimulate collagen regeneration, and effectively remodel face and neck contours. Theclinical trial of Silhouette
?
Instalift? in China is being carried out smoothly.
The Glacial? Spa (F0), a whitening and refreshing device imported from R2, is the lifecosmetology version of the medical instrument for frozen freckle removal. It adopts aestheticmedicine technology and is introduced into the life cosmetology channel through the energy safetytest, and is scheduled to go on sale in China in the second quarter of 2021. The registration ofGlacial? Rx (F1) in China, a medical instrument for frozen freckle removal, is being carried out inan orderly manner.
MaiLi
?
series products, novel high-end lidocaine-containing hyaluronic acid filler usingOXIFREE? patented technology and process, will be launched in the European market in the firsthalf of 2021, and registration in the Chinese market has been initiated.
Cooltech Define, a non-invasive cryolipolysis equipment independently developed by HighTech, Spain, which is newly acquired by Sinclair, has officially obtained the CE certification of EUin February 2021, and Titania, an innovative radiofrequency product under research for skintightening and body shaping, is expected to obtain the CE certification of EU in the fourth quarterof 2021 and will be available for sale globally once it is approved.The Company has actively expanded its teams in accordance with the launch progress ofEllansé and Glacial, and has started pre-launch preparations.
(6) Progress of consistency evaluation
During the reporting period and the first quarter of 2021, the consistency evaluation on thequality and efficacy of the Company’s generic drugs was progressing well, Mycophenolate MofetilCapsules (0.25g), Clarithromycin Tablets (0.25g) and Pioglitazone Hydrochloride and MetforminHydrochloride Tablets have all obtained consistency evaluation. Pioglitazone Hydrochloride Tablets(15mg) was granted the notice of acceptance of the supplementary application for consistencyevaluation. On-site verification of Pioglitazone Hydrochloride Tablets (30mg) has been completed.Decitabine for injection and daptomycin for injection are under the stage of submittingsupplementary materials, and the other varieties to be evaluated are under pharmaceutical research,pilot scale-up or process validation.
(7) Progress of patent
The Company has attached great importance to the protection of its intellectual property rightsand the application of results in recent years, and the number of patent applications and grants aresteadily increasing. The Company has applied for more than 560 patents at home and abroad overthe years, of which more than 270 were granted. Hangzhou Zhongmei Huadong Pharmaceutical Co.,Ltd., a wholly-owned subsidiary of the Company, is a national IP demonstration enterprise and israted as excellent in the annual assessment in 2020. In November 2014, the Company passed the
external audit of Zhongzhi (Beijing) Certification Co., Ltd., becoming one of the 147 enterpriseswho have firstly passed the standard implementation certification. During the reporting period, theCompany successfully passed the reexamination review on supervising the standard implementationof corporates’ intellectual property.During the reporting period, the Company’s patent application and maintenance proceededsmoothly. Zhongmei Huadong, a wholly-owned subsidiary of the Company, applied and submitteda total of 67 patents, among which 58 were utility patents, 14 were authorized in China and 11 ofthe authorized ones were utility patents. In April 2020, the utility patent “Enzyme for synthesizingand metabolizing inosine monophosphate of Cordyceps sinensis (Berk.) Sacc. Hirsutella sinensisand application thereof” of Zhongmei Huadong was awarded the golden patent prize in ZhejiangProvince, with the patent number: ZL201110267161.3.
(8) Other important issues related to R&D
1) In January 2021, the Company entered into an agreement with Shanghai Yuanda InvestmentManagement Co., Ltd. and Hangzhou High-tech Venture Capital Management Co., Ltd. and jointlyset up Hangzhou Fuguang Hongxin Equity Investment Partnership (L.P.) (referred to as“Pharmaceutical Industry Fund”). The Pharmaceutical Industry Fund was established with a totalscale of RMB200 million, of which RMB98 million is contributed by the Company with its ownfunds and the Company is a limited partner of the Pharmaceutical Industry Fund. ThePharmaceutical Industry Fund mainly invests in startup and early projects in the fields of aestheticmedicine, endocrinology, anti-rejection regarding organ transplantation, alimentary canal, tumor,nephrology, immunology, etc. As of the disclosure date of this report, the Pharmaceutical IndustryFund had completed the initial fund raising, finished the industrial and commercial registrationprocedures, and completed the filing with AMAC on April 2, 2021.
2) In December 2020, Zhongmei Huadong, a wholly-owned subsidiary of the Company, signeda strategic cooperation agreement with Sanyou Bio, a biotechnology company that focuses on theoverall solution for the R&D of innovative antibody drugs. The two sides will jointly developinnovative dual-antibody and ADC molecules targeting high-quality targets to accelerate the launchof a new generation of anti-tumor drugs.
3) In November 2020, Zhongmei Huadong, a wholly-owned subsidiary of the Company,signed an agreement on the cooperative development of pipelines with XtalPi, an artificialintelligence (AI) drug R&D technology company driven by digital and intelligent technologies. Thetwo sides will conduct in-depth cooperation on the discovery of high-quality new anti-tumor drugtargets, and make full use of the advantages of AI technology featuring large exploration space, high
computing efficiency and accurate computational results, as well as the advanced technologies andcommercial integration capability of Huadong Medicine in the field of anti-tumor, to jointlydevelop a new generation of anti-tumor drugs.
4) In September 2020, the Company established a cooperative development partnership withExscientia, the world’s leading AI drug R&D company, to accelerate the discovery of noveltreatments for small-molecule drugs against tumor. The first project between the two sides is thedevelopment of drugs that target the transcriptional control of DNA damage response genes to treatpatients with a high frequency of mutations in repair of DNA damage, such as patients with ovarianand breast cancer.
R&D investment of the Company
| 2020 | 2019 | Percentage change | |
| Number of R&D personnel (person) | 1,207 | 1,078 | 11.97% |
| Proportion of R&D personnel | 12.79% | 11.31% | 1.48% |
| R&D investment amount (yuan) | 918,180,946.98 | 1,054,842,676.50 | -12.96% |
| Proportion of R&D investment in operating revenue | 8.06% | 10.04% | -1.98% |
| Capitalized R&D investment amount (yuan) | 0.00 | 0.00 | 0.00% |
| Proportion of capitalized R&D investment in R&D investment | 0.00% | 0.00% | 0.00% |
Notes: (1) The above R&D investment is from the R&D expenses of the Company’s main industrial controlled subsidiary, totalingRMB918 million, which is mainly used for clinical research of products under research, upgrading of existing product process,expenses for commissioned technological development, consistency evaluation and international registration certification. In terms offinances, most of R&D investment is listed in expense, and is recognized in the current period without subsequent annualamortization, which will not have a significant impact on the Company’s future operating results.In 2020, the Company’s total R&D investment in the pharmaceutical industry was RMB1.444 billion, a year-on-year increase of
8.91%; of which, RMB918 million was used for direct R&D, a decrease of 12.96% from 2019 (RMB1.055 billion), and RMB525million was used for the introduction of external new drug technologies and rights, an increase of 94.10% over 2019.
(2) The proportion of the number of R&D personnel means the proportion of the number of people in the Company’s subsidiariesmainly engaging in pharmaceutical manufacturing; the proportion of R&D investment in operating income means the proportion ofthe R&D investment of Company’s pharmaceutical industry in the operating income of the Company’s pharmaceuticalmanufacturing.
(3) The above-mentioned R&D personnel for 2020 are: The total of R&D personnel of the Company’s R&D system and R&Dpersonnel of the production system.
Reasons for the year-on-year significant change in the proportion of total R&D investment in operating revenue
□ Applicable √ N/A
Reasons for the significant change in the capitalization rate of R&D investment and its rationality
□ Applicable √ N/A
5. Cash flows
Unit: RMB yuan
Item
| Item | 2020 | 2019 | Year-on-year change |
| Cash inflows from operating activities | 37,110,493,946.97 | 38,801,282,424.47 | -4.36% |
| Cash outflows for operating activities | 33,699,046,199.41 | 36,799,584,253.80 | -8.43% |
| Net cash flow from operating activities | 3,411,447,747.56 | 2,001,698,170.67 | 70.43% |
| Cash inflows from investing activities | 385,678,726.69 | 74,637,287.55 | 416.74% |
| Cash outflows for investing activities | 2,124,316,150.63 | 1,657,245,184.32 | 28.18% |
| Net cash flow from investing activities | -1,738,637,423.94 | -1,582,607,896.77 | -9.86% |
| Cash inflows from financing activities | 2,211,047,477.21 | 1,922,537,327.51 | 15.01% |
| Cash outflows for financing activities | 2,936,777,488.44 | 2,531,134,823.51 | 16.03% |
| Net cash flow from financing activities | -725,730,011.23 | -608,597,496.00 | -19.25% |
| Net increase in cash and cash equivalents | 925,635,526.76 | -166,937,959.56 | 654.47% |
Main influencing factors of significant changes in relevant data year on year
√ Applicable □ N/A
The cash inflows from investing activities in the current period are 3.86 billion yuan, a year-on-year decrease of 75 million yuan or
416.74%, mainly due to the transfer of distribution rights in the Western European market of related products of Sinclair, awholly-owned subsidiary of the Company in the UK, during the current reporting period..
Reasons for the significant difference between the Company’s net cash flow from operating activities and the current year’s net profitduring the reporting period
□ Applicable √N/A
II. Analysis of non-main business
√ Applicable □ N/A
Unit: RMB yuan
| Amount | Proportion in total profit | Note on reasons | Sustainable or not | |
| Other gains | 191,999,829.91 | 5.56% | Mainly due to the confirmation of government grants in the current period | No |
| Gains on asset disposal | 322,636,323.26 | 9.34% | Nainly due to the transfer of distribution rights in the Western European market of related products of Sinclair, a wholly-owned subsidiary of the Company in the UK, during the current reporting period.. | No |
IV. Assets and liabilities
1. Major changes in asset composition
Since 2020, the Company has implemented new financial instrument standards, new income standards or new lease standards for thefirst time, and adjusted and implemented items related to financial statements at the beginning of the year
√ Applicable □ N/A
Unit: RMB yuan
| End of 2020 | Beginning of 2020 | Change of proportion | Note on major changes | |||
| Amount | Proportion in total assets | Amount | Proportion in total assets | |||
| Monetary funds | 3,198,080,997.82 | 13.21% | 2,402,730,395.39 | 11.19% | 2.02% | Mainly due to the increase of inflow of operating net cash during the current period and the increase of balance of monetary capital at the end of the period. |
| Accounts receivable | 6,137,675,568.82 | 25.36% | 6,092,305,184.47 | 28.38% | -3.02% | Mainly due to the increase of the total assets during the current period and the decrease of the proportion of accounts receivable. |
| Inventories | 4,067,635,254.80 | 16.81% | 4,038,975,496.93 | 18.82% | -2.01% | Mainly due to the increase of total assets during the current period and the decrease of the proportion of inventory. |
| Real estate properties for investment | 17,792,735.95 | 0.07% | 21,701,908.75 | 0.10% | -0.03% | / |
Long-term equityinvestments
| Long-term equity investments | 850,072,053.02 | 3.51% | 222,595,018.54 | 1.04% | 2.47% | Mainly due to the increase of equity investment during the current period. |
| Fixed assets | 2,420,366,582.92 | 10.00% | 2,175,216,842.65 | 10.13% | -0.13% | |
| Constructions in progress | 2,240,201,926.65 | 9.26% | 1,829,808,233.19 | 8.53% | 0.73% | |
| Short-term borrowing | 1,416,932,884.87 | 5.85% | 655,549,973.27 | 3.05% | 2.80% | Mainly due to the increase in repayment of corporate bonds upon maturity of bank financing during the current reporting period. |
| Long-term borrowing | 151,611,367.86 | 0.63% | 0.00 | 0.00% | 0.63% | / |
| Other non current assets | 712,069,194.08 | 2.94% | 184,141,659.07 | 0.86% | 2.08% | Mainly due to the increase in advance payment of technology transfer during the current period. |
2. Assets and liabilities measured at fair value
√Applicable □ N/A
Unit: RMB yuan
| Item | Amount at the beginning of the period | Gains and losses from changes in fair value | Accumulated fair value changes recognized in equity | Depreciation reserves withdrawn during the period | Amount of buying in during the period | Amount of selling out during the period | Other changes | Amount at the end of the period |
| Financial assets | ||||||||
| Including: Other equity instrument investments | 241,675,712.05 | -7,557,508.15 | -7,557,508.15 | 3,252,055.19 | 5,413,028.66 | 225,453,120.05 | ||
| Total | 241,675,712.05 | -7,557,508.15 | -7,557,508.15 | 3,252,055.19 | 5,413,028.66 | 225,453,120.05 | ||
| Financial liabilities | 0.00 | 0.00 | ||||||
Other changesNone
Whether there are significant changes in the main asset measurement attribute of the Company during the Report Period.
□ Yes √ No
3. Limitation of asset rights at the end of the reporting period
Unit: RMB yuan
Item
| Item | Book value at the end of the period | Reason for limitation |
| Monetary funds | 40,673,924.56 | Cash deposit |
| Bills receivable | 2,648,002.20 | Bill pledge |
| Fixed assets | 32,222,155.71 | Mortgage guarantee for borrowing |
| Intangible assets | 4,428,290.15 | Mortgage guarantee for borrowing |
| Total | 79,972,372.62 |
V. Investment
1. Overview
√ Applicable □ N/A
| Investment amount in the reporting period (yuan) | Investment amount in the same period of last year (yuan) | Percentage change |
| 2,195,588,789.55 | 1,965,240,000.00 | 11.72% |
Note: The investment amount in the reporting period refers to the total capital expenditure in the reporting period.
2. Significant equity investments acquired during the reporting period
√ Applicable □ N/A
Unit: RMB ten thousand yuan
| Name of invested company | Main business | Way of investment | Investment amount | Shareholding ratio | Capital source | Partner | Term of investment | Product type | Progress as of the balance sheet date | Projected income | Profit or loss of investment in the current period | Involved in litigation or not | Disclosure date (if any) | Disclosure index (if any) |
| Chongqing Peg-Bio | R&D of biological | Capital increase and equity | 21,000 | 39.80% | Own funds | / | / | Equity | All payments completed | / | No profit for the | No | N/A | http://www.cninfo.com.cn |
Biopharm Co.,Ltd.
| Biopharm Co., Ltd. | chemical product and technologies; R&D of fermentation process optimization technology | transfer | time being | |||||||||||
| Qyuns Therapeutics Co., Ltd. | Biological medicine R&D, etc. | Capital increase and equity transfer | 37,000.00 | 20.56% | Own funds | / | / | Equity | All payments completed | / | No profit for the time being | No | August 18, 2020 | http://www.cninfo.com.cn |
| Kylane Laboratoires SA | Aesthetic medicine R&D | Acquisition | EUR6,000,000 | 20.00% | Own funds | / | / | Equity | All payments completed | / | No profit for the time being | No | October 16, 2020 | http://www.cninfo.com.cn |
Notes: 1. Zhongmei Huadong, a wholly-owned subsidiary of the Company, invested a total of RMB210 million to Peg-Bio BiopharmCo., Ltd. (Chongqing) by means of capital increase and acquisition of minority holding twice, and acquired 39.80% of its equity,becoming its second largest shareholder. As of December 31, 2020, Zhongmei Huadong had paid all the investment funds, andPeg-Bio Biopharm Co., Ltd. (Chongqing) had completed the relevant industrial and commercial change registration.
2. Zhongmei Huadong, a wholly-owned subsidiary of the Company, contributed RMB370 million to invest in the stock equity ofQyuns Therapeutics through the form of capital increase, and held 20.56% of its equity after investment, becoming its second largestshareholder. As of December 31, 2020, Zhongmei Huadong had paid all the investment funds, and Qyuns Therapeutics hadcompleted the relevant industrial and commercial change registration.
3. Sinclair, a wholly-owned subsidiary of the Company, entered into an agreement on equity investment and collaborative productdevelopment with Kylane Laboratoires SA, a Swiss advanced aesthetic medicine R&D firm. Sinclair contributed EUR6 million for a20% equity in Kylane, making it Kylane’s third-largest shareholder. As of December 31, 2020, all the investment funds had beenpaid.
4. In April 2019, the Company entered into a strategic partnership with R2, an American company specializing in the development ofmedical devices and technologies related to frozen freckle-removing and whitening. The Company invested USD30 million in R2’sequity and became a shareholder. As of the reporting date, the USD30 million for equity investment had been fully paid out and theCompany held a 34% equity upon completion of the investment.
5. In July 2019, the Company entered into a strategic cooperation with MediBeacon, a US company dedicated to the development ofcontrast agents and equipment in the medical field such as renal function and gastrointestinal function evaluation, and investedUSD30 million in its stock equity. As of the end of the reporting period, the Company had paid USD15 million to MediBeacon,accounting for 4.30% of its shares, and the remaining USD15 million will be paid as agreed in the contract.
3. Significant non-equity investments in progress during the reporting period
√ Applicable □ N/A
Unit: RMB yuan
Projectname
| Project name | Way of investment | Investment in fixed assets or not | Industry involved in the investment project | Investment amount during the reporting period | Cumulative actual investment amount by the end of the reporting period | Capital source | Project progress | Projected income | Cumulative income realized by the end of the reporting period | Reasons for not meeting the planned schedule and projected income | Disclosure date (if any) | Disclosure index (if any) |
| Huadong Medicine Biomedical Science and Technology Park Project Phase II | Self-built project | Yes | Pharmaceutical manufacturing | 387,907,668.09 | 1,716,331,906.80 | Own funds | 90.00% | / | / | N/A | March 9, 2017 | http://www.cninfo.com.cn |
| Total | -- | -- | -- | 387,907,668.09 | 1,716,331,906.80 | -- | -- | / | / | -- | -- | -- |
4. Investment in financial assets
(1) Securities Investment
√ Applicable □ N/A
Unit: RMB yuan
| Type of stock | Stock code | Stock abbreviation | Initial investment cost | Accounting measure | Book value at the | Gain/loss from fair | Accumulative fair | Purchase amount | Selling amount in the | Gain/loss during the | Book value at the end | Accounting item | Capital source |
mentmodel
| ment model | beginning of the period | value changes in the current period | value changes included in equity | in the current period | current period | reporting period | of the period | ||||||
| Domestic and overseas stock | RAPT | RAPT | 20,207,400.00 | Fair value measurement | 42,009,254.79 | -9,761,293.38 | -9,761,293.38 | -- | 8,665,083.85 | -- | 23,582,877.56 | Other equity instrument investment | Own funds |
| Other securities investments held at the end of the period | -- | -- | -- | ||||||||||
| Total | 20,207,400.00 | -- | 42,009,254.79 | -9,761,293.38 | -9,761,293.38 | -- | 8,665,083.85 | -- | 23,582,877.56 | -- | -- | ||
| Date of announcement of the Board of Directors on securities investment approval | N/A | ||||||||||||
| Date of announcement of the Board of Shareholders on securities investment approval (if any) | N/A | ||||||||||||
Note: In 2019, Huadong Medicine Investment Holding (Hong Kong) Co., Ltd., a subsidiary of the Company,invested USD 3 million to purchase 218,102 preferred shares of RAPT Therapeutics, Inc. in C-2 series. RAPTTherapeutics, Inc. (stock code: RAPT) was listed on the NASDAQ Stock Exchange on October 30, 2019.Huadong Medicine Investment Holding (Hong Kong) Co., Ltd. holds 0.74% of the total shares of RAPTTherapeutics, Inc.
(2) Derivatives investment
□ Applicable √ N/A
No such case during the reporting period.
5. Use of raised funds
□ Applicable √ N/A
No such case during the reporting period..
VI. Major assets and equity sales
1. Major assets sales
□ Applicable √ N/A
No such case during the reporting period.
2. Major equity sales
□ Applicable √ N/A
VII. Analysis of wholly-partially owned and shareholding companies
√ Applicable □ N/A
Main subsidiaries and the shareholding companies that have an impact on the Company’s net profit of more than 10%
Unit: RMB yuan
Company
name
| Company name | Company type | Main business | Registered capital | Total assets | Net assets | Operating revenue | Operating profit | Net profit |
| Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd. | Subsidiary | Production and management of Traditional Chinese and Western raw medicines and preparations, and health care products | 872,308,130 | 9,552,485,036.62 | 6,943,175,422.15 | 11,040,482,097.70 | 2,683,887,257.80 | 2,332,440,967.67 |
| Huadong Ningbo Medicine Co., Ltd. | Subsidiary | Sales of biological products as proxy | 5,000,000 | 1,004,249,306.28 | 564,257,925.95 | 1,284,921,262.37 | 164,162,105.58 | 123,375,008.73 |
| Huadong Medicine Wenzhou Co., Ltd. | Subsidiary | Wholesale of TCM materials, TCM decoction pieces, chemical preparations, etc. | 61,300,000 | 1,206,969,159.63 | 231,107,415.39 | 2,519,633,080.86 | 42,021,431.24 | 28,705,403.66 |
HuadongMedicineSupply ChainManagement(Hangzhou)Co., Ltd.
| Huadong Medicine Supply Chain Management (Hangzhou) Co., Ltd. | Subsidiary | Warehousing and storage services | 50,729,863 | 239,818,600.19 | 129,389,498.43 | 164,492,370.77 | 25,093,155.00 | 17,393,751.76 |
| Sinclair Pharma Limited | Sub-subsidiary | R&D, production and sales of aesthetic medicine products | 219,962,963.92 | 975,941,324.76 | 493,007,584.35 | 319,167,474.26 | 146,645,400.16 | 109,468,406.19 |
Acquisition and disposal of subsidiaries during the reporting period
√ Applicable □ N/A
| Company name | Methods of acquisition and disposal of subsidiaries during the reporting period | Impact on the overall production, operation and performance |
| MediBeacon Technology (Shanghai) Co., Ltd. | New subsidiary | Business operation of medical apparatus and instruments of the Company |
| Zhejiang Huida Biotech Co., Ltd. | New subsidiary | Technology innovation platform in the field of microbial pharmacy the Company |
| Shenzhen Xinda Yanchuang Technology Development Co., Ltd. | New subsidiary | External technical services and cooperation |
| Sinclair Pharmaceuticals (Asia-Pacific) Pte Ltd. | New subsidiary | International aesthetic medicine business expansion of subsidiaries of the Company |
| Sinclair Chile SPA | New subsidiary | International aesthetic medicine business expansion of subsidiaries of the Company |
| Sinclair (Shanghai) Medical Technology Co., Ltd. | New subsidiary | International aesthetic medicine business expansion of subsidiaries of the Company |
| R2 (Shanghai) Medical Technology Co., Ltd. | New subsidiary | International aesthetic medicine business expansion of subsidiaries of the Company |
| Beijing Huachuang Dongxin Technological Development Co., Ltd. | New subsidiary | External technical services and cooperation |
| Huadong Medicine Medical Equipment Technology (Hangzhou) Co., Ltd. | Cancellation | Commercial business adjustment of the Company |
| Ningbo Sinfmuse Medical Investment | Cancellation | Commercial business adjustment of the |
Management Co., Ltd.
| Management Co., Ltd. | Company | |
| Huadong Medicine Wuhan Pharmaceutical Co., Ltd. | Cancellation | Commercial business adjustment of the Company |
Note: Sinclair (Shanghai) Medical Technology Co., Ltd. was renamed as Xinkeli Aesthetics (Shanghai) Medical Technology Co., Ltd.on April 1, 202
VIII. Structured entities controlled by the Company
□ Applicable √ N/A
IX. Prospect of the Company’s future development
1. Development status and prospect of macro economy and pharmaceutical industryIn 2020, the sudden outbreak of the COVID-19 pandemic was intertwined with the world’sseismic changes not seen for a century, bringing a huge impact to the world. The pandemic has hada serious impact on people’s life, health and economic activities, which has aggravated the alreadyweak world economy. Economic globalization has encountered headwinds. The internationalenvironment is becoming more and more complex. The world has entered a period of turbulentchange, with significantly increasing instability and uncertainty. As pointed out by the Fifth PlenarySession of the 19th CPC Central Committee, peace and development are still the theme of the times,and China’s development is still in an important strategic opportunity period. On the one hand, anew round of scientific and technological revolution and industrial transformation has developeddeeply in the world today, and international power contrast has been profoundly adjusted. Peace anddevelopment are still the theme of the times. The concept of a community with a shared future formankind has become popular, and China’s appeal and influence as a responsible large country in theglobal pandemic control have increased significantly; on the other hand, China has turned to thestage of high-quality development, with significant institutional advantages, improved governanceefficiency, long-term economic improvement, strong material basis, abundant human resources,broad market space, strong development resilience, and social stability, and has multiple advantagesand conditions for continued development.The Chinese government controlled the spread of COVID-19 in China in a timely manner andachieved a rapid recovery of the national economy after the first quarter. However, the uncertaintyfactors faced by the domestic economy still exist. On the one hand, the foundation of economicrecovery in China is still not solid. In the face of severe pandemic situation abroad, China still needsto consolidate the achievements of pandemic prevention and control and socio-economic recovery.On the other hand, external public opinions and challenges of anti-globalization and desinicization
are rising, and domestic enterprises are facing more business risks in both supply chain and marketenvironment.In the long term, the market size of the global pharmaceutical industry will still maintain astable growth trend due to the growth of the total population and the aging of the population.According to the latest data of IQVIA, the total scale of the global pharmaceutical market was closeto USD1.2 trillion in 2020, and maintained a growth rate of 3–4% for many consecutive years. Thescale of the Chinese pharmaceutical market ranked second in the world. According to the data of theNational Bureau of Statistics, the cumulative operating income and total profit of industrialenterprises above the scale of domestic pharmaceutical manufacturing industry in 2020 wereRMB2,485.73 billion and RMB350.67 billion, respectively, showing an increase of 4.5% and
12.8%, respectively, compared with the same period of last year. Affected by the pandemic, theoperating data of the pharmaceutical manufacturing industry were recovered in the second half ofthe year after experiencing negative growth in the first half of the year, and the year-on-year growthrate was significantly higher than the industrial growth rate above the national scale in the sameperiod.With the gradual integration of drug review system with the world in China, the industrialchain of innovative drugs has been flourishing, and the global R&D industrial chain has also begunto shift to China. While the transfer of industrial chain has developed a large number of R&Dtalents, it has also made local pharmaceutical innovation enterprises flourish. It is the key forpharmaceutical companies to improve their pharmaceutical quality while innovating. Consumptionupgrading will further drive high growth in high-quality consumer medical track.In 2020, China’s pharmaceutical industry played a very significant role in the process offighting against the pandemic. Driven by the demand for prevention and control, production wasrapidly resumed, laying an important foundation for the full recovery of the economy. China’spharmaceutical industry has continuously promoted high-quality and standardized development in2020, with a solid foundation, which has become one of the important cornerstones for the steadydevelopment of China’s economy.According to the data of Frost & Sullivan, the revenue scale of aesthetic medicine businessservice market in China reached RMB143.6 billion in 2019, and the compound annual growth rateis expected to reach 17.3% from 2019 to 2024; among them, the growth rate of non-surgicalcosmetic diagnosis and treatment market (mainly injection and photoelectric projects) is fast. Due tofast recovery time and low-price risk, it has become increasingly popular with consumers in recentyears, reaching a market size of RMB60 billion in 2019, with an expected compound annual growth
rate of 19.2% from 2019 to 2024.
2. Analysis of the development trend of the pharmaceutical industryIn 2020, under the superposition of various medical reform policies, the Chinesepharmaceutical industry was changed dramatically. As medical reform continues to be critical andthe route of deepening the reform of the medical and health system gradually becomes clear,China’s biomedicine has entered the year of transformation. With the gradual introduction of keypolicies such as consistency evaluation, drug centralized procurement, medical insurancenegotiation of innovative drugs, consumable centralized procurement and DRGs, medical reformhas entered the deep-water zone, and a new era of medicine has been ushered in. The era of highgross profit of generic drugs has come to an end, and innovative drugs will occupy a larger marketspace in the future. The Chinese pharmaceutical industry is gradually changing from “generic” to“innovative”. With population aging in China and the substantial growth of medical insuranceexpenditure, “cost control” has become the main theme of medical reform. On January 17, August20 and November 5, 2020, the State organized the second and third round of centralized drugprocurement and centralized procurement of coronary stents, respectively, which significantlyreduced the cost of patients. The expanding and normalizing scope of centralized procurement hasbecome an industry consensus. In the future, injections, device consumables, insulin and otherfields will be gradually included.
2021 is the opening year of the 14th Five-Year Plan period and the turning point for thedramatic changes in China’s pharmaceutical market landscape. It will also be a year of greaterchange and uncertainty as the policy continues and deepens. Each link from manufacturers,distributors to medical institutions, medical insurance supervision, doctors and patients amongothers of the medical industry faces different needs for transformation and innovation. Survival ofthe fittest is always the way for pharmaceutical companies to survive. In order to develop better, wecan only actively adapt to the changes in the development of the industry, and at the same timeactively make more flexible adjustments and changes in response to the market environment.With the normalization of centralized procurement at the national level, the transmission effectof low prices has been highlighted. The price of bid-winning drugs has been reduced to the lowestlevel in history, and centralized procurement has also expanded from drugs to the field ofhigh-value medical consumables. In addition, the centralized procurement of provincial andcross-provincial alliances also includes the drugs that have not passed the consistency evaluation.The procurement variety is richer, covering a larger market, and the bid-winning rules are alsocontinuously optimized, forming complementarity with the national centralized procurement,
accelerating the change of the existing drug bidding mechanism and reshaping the drug pricesystem and competitive pattern. The coordinated reform of medical services, health insurance, andthe medicine industry has brought unprecedented changes in market environment and survivalchallenges, urging enterprises to improve the quality of drugs in the fierce competition throughbreaking through the existing production model and looking for new development focuses, thus tofurther achieve innovation, transformation and upgrading.Under the influence of domestic centralized procurement, many multinational pharmaceuticalcompanies are accelerating the adjustment of business models by focusing on the promotion of coremarkets and optimizing product lines. In the future, focusing on core business by stripping offnon-core assets will become the norm.From the overall point of view, the primary-level market has become a new development outletfor pharmaceutical companies under the pressure of medical reform policies such as centralizedprocurement. The change of the new medical system will definitely bring about the deconstructionand reshaping of China’s primary-level care industry. In this context, primary-level care is bound tobecome the flow entrance of future medical care, and it will also enable pharmaceutical companiesthat fully lay out the primary-level market to gain more development opportunities.Both internal pressure and pressure from foreign companies are pushing Chinesepharmaceutical companies to make innovations. The drug review system continues to deepenreform, which encourages pharmaceutical companies to innovate at a higher quality. The number ofnew drugs entering national health insurance negotiations has increased significantly, and drugprices have decreased rapidly, but the cost of new drug R&D is increasing. The threshold fordomestic pharmaceutical innovation has been raised, and differentiated R&D has become the key.The number of innovative drugs is increasing year by year, but the degree of innovation is stillinsufficient. The R&D of innovative drugs is still based on chasing hot targets, especially thecrowded R&D track of anti-tumor drugs, and the homogenization phenomenon is serious, whichaggravates the market competition in the future. Therefore, the commercialization prospect is notoptimistic.The licensing and cooperative development of innovative drug projects between Chinesepharmaceutical companies and various countries is increasingly active. Under the background of the“innovation plus internationalization” journey, the R&D capacity, commercialization, talent andbusiness layout, strategic cooperation and globalization of capital of local innovative drugenterprises will be the key elements for the success of internationalization strategy in the future.The Company has formulated a brand-new development strategy based on the pharmaceutical
and health industry, led by the pharmaceutical industry, while expanding the pharmaceuticalbusiness and aesthetic medicine business, adhering to the scientific research-based andpatient-centered corporate philosophy, and becoming an international brand pharmaceuticalpowerhouse driven by scientific research innovation.
3. Development plan for pharmaceutical innovation of the Company
(1) Focusing on the core therapeutic field, the Company plans to move from producing genericdrugs to innovative drugs, and from following to leading. In the future, the Company will beoriented to meeting clinical needs in scientific research and innovation. In the project approval anddecision-making of new drug R&D, the Company will take innovation and differentiation as thescale, based on clinical value, clinical pharmacoeconomic value, and commercial value of products,and focus on the long-term pipeline layout, adhere to the upgrading of generic drugs and thedevelopment of innovative drugs. The R&D of generic drugs should be highly technical,differentiated, fast and cost effective, while the R&D of innovative drugs should have a highstarting point, wide track, new targets and international participation. We take innovative drugs asthe basis and direction to build our future core competitiveness, focus on and emphasize thedevelopment of innovative drugs and high-tech barrier generic drugs with outstanding clinical valuein major diseases and chronic diseases such as anti-tumor, endocrine and autoimmune, and closelyfollow the technical development and R&D trends in the cutting-edge fields of biological drugs,gene therapy and antibody drugs at home and abroad. With a scientific and pragmatic attitude,based on our own capabilities and risk matching, we will start from differentiated innovation,gradually move towards the first of the same kind/the best breakthrough innovation model of thesame kind, accelerate the pace of integration into the innovation chain and value chain of globalnew drug innovation, and eventually move from Chinese innovation to global innovation, so as tocontinuously improve the innovation level of the Company to a new height.
(2) The Company will continuously increase R&D investment and enrich and optimize productpipelines. Since 2020, we have strived to invest more than 10% of the sales revenue of thepharmaceutical industry in R&D each year to provide sufficient material guarantee for innovation.While increasing the investment, we will continue to improve the efficiency of the use of R&Dfunds. Through independent project approval and external introduction, we will strive to completeat least 15 innovation projects (including drugs, medical devices, etc.) every year, of which theproject approval of no fewer than 3 innovative drugs, so that each existing product line has thesupplement and guidance of innovative products, eventually building a rich product pipeline and agood product ladder, forming a benign development rhythm of continuous marketing of innovative
products since 2022, and striving to achieve the phased goal that the innovation business sectoraccounts for 30% of the overall industry in 2025.
(3) The Company will accelerate the introduction of high-level talents and building high-levelscientific research teams. Focusing on introducing R&D leaders and high-level R&D technicaltalents with rich experience, we will strengthen the building of internal R&D system and technicalplatform, and actively promote the building of domestic and overseas R&D platform. We will createan innovative cultural environment and atmosphere that is bold in innovation, encourages success,and tolerates failure, and establish a market-oriented performance mechanism oriented to success.We will build a scientific research team with outstanding ability, open thinking, passion, courage,pioneer and innovation, and promote the real implementation of the Company’s innovationinternationalization strategy. We will establish a dynamic evaluation mechanism for R&D projects,and assist the Company in decision-making and management of R&D and product introduction byestablishing an external expert academic committee to ensure the scientific nature, advancementand feasibility of scientific research and innovation.
(4) The Company will deepen comprehensive cooperation with foreign partners and productintroduction, and build a global R&D strategic cooperation ecosystem centered on ZhongmeiHuadong. Integrating and connecting external advantageous resources and technologies, we willpromote the introduction and development of high-quality innovation projects through cooperativedevelopment, licensing or acquisition, continuously enrich the Company’s product pipelines andimprove the medium- and long-term layout of innovative products. At the same time, we will alsocontinue to improve the international operation capacity of our products, and license our ownadvantageous products, advanced technologies and patents.
Development plan of Huadong business:
We will take service as the core and transform with innovation. Adhering to in-depthdevelopment in Zhejiang, we will continue to enhance the brand influence, and maintain the leadingposition of the industry in Zhejiang. Instead of pursuing simple scale expansion, scale and benefitsshould be paid equal attention. We will pursue high-quality and sustainable benefits through refinedmanagement. We will improve the modern pharmaceutical logistics network covering ZhejiangProvince, make every effort to build a high-end third-party pharmaceutical logistics featuring coldchain and improve value-added service capacity. With the help of commercial forces to drivemarket networks and channel resources, we will transform and improve traditional business models,actively develop new business models such as general agent, business trusteeship, and BTCpharmacy, and cultivate innovative businesses. We will consolidate the in-hospital market, expand
the out-of-hospital market, use the Internet platform, and innovate the services for suppliers throughbig data, AI, Internet of Things and other new technologies. We will also extend the service supplychain, and accurately connect downstream medical institutions and upstream pharmaceuticalenterprises, so as to gradually develop towards modern pharmaceutical professional value-addedservices and take the path of sustainable development.
Business development plan for the aesthetic medicine business:
The Company’s aesthetic medicine business adopts the strategy of “global operation layout anddual-circulation operation and development”. Take Sinclair, a core subsidiary, as the globaloperating platform to realize the global operating layout of aesthetic medicine business, we willbuild it into an international first-class aesthetic medicine business enterprise and create a newdevelopment space in the future. As a special market for the Company’s aesthetic medicine business,the Chinese market has successively introduced the products with high scientific and technologicalcontent and great market potential. We will steadily expand the Chinese market with the help of theCompany’s registration and marketing strength in China; internationally, relying on the Company’sdomestic aesthetic medicine business marketing basis and the rapid development of the aestheticmedicine business industry, we will help the rapid implementation and commercialization ofinternational high-quality products, so as to form a new pattern of joint development and mutualpromotion of domestic and international circulations.In the future, the Company will continue to focus on the global high-end market of aestheticmedicine business, relying on four global R&D centers: wholly-owned subsidiaries Sinclair (UK),High Tech (Spain) and partially-owned companies R2 (US) and Kylane (Switzerland), to furtherintegrate R&D resources and capacity, actively optimize and improve product structure, and enrichand improve industrial layout. The five global production bases located in the Netherlands, France,the United States, Switzerland and Bulgaria will provide a strong capacity guarantee for theinternationalization of the Company’s aesthetic medicine business products and better meet thefuture development and market demand.
4. The Company’s business plan for 2021
2021 is a key year for Huadong Medicine’s innovation, transformation and reform to enter thedeep-water zone, and it is also the closing year of the sixth three-year plan. The severe challengesbrought about by policy changes and industry competition in the domestic pharmaceutical industrywill continue, and the Company will face greater business difficulties and policy uncertainties.Although the positive conditions and favorable factors to promote operation are also graduallygathering, Zhongmei Huadong will still face major challenges of declining growth rate in its annual
operation due to the prominent phased impact of the price reduction of key products on theCompany’s operation. The Company has formulated specific plans and assessment plans for variouswork, striving to maintain the continued growth of the overall business of the pharmaceuticalindustry throughout the year. All officials and employees are required to further change theirmindset, clarify their own positioning, stimulate their own vitality, innovate their own value andrealize their own transformation with a more open, proactive and enterprising spirit under theannual business working policy of “repositioning, reshaping value, stimulating vitality anddeepening transformation”. We will continue to maintain a brave and determined work style, so asto broaden the horizon and pursue excellence. We will work with the momentum of no time to loseand size the day to revive the entrepreneurial spirit of Huadong Medicine, create a new pattern ofthe development of Huadong Medicine, and reshape the core competitiveness of HuadongMedicine.
(1) Pharmaceutical industry:
We will promote the transformation of production system from cost center to profit center. In2021, we will continue to optimize the production layout combining “self-built production parks”with “outsourced production sites”, align with the advanced, improve the light asset production andoperation system, and do a good job in production planning and resource allocation. We will createan engineer culture, build agile production, lean material procurement, production organization andproduct delivery, continuously save production costs, improve per capita labor efficiency, anddevelop new business and create new value for the Company. Since production system preparations,raw materials and various technology platforms are important links in the global pharmaceuticalmanufacturing industry chain, we will strive to explore new moats and create more profit points inmultiple ways and in multiple fields, and make concerted efforts in BD, quality, patent, R&D andmanufacturing departments to accelerate CMO/CDMO projects and open up international marketsto make a major breakthrough in international business development in 2021.
We will make overall plans to promote fixed asset investment projects, and focus on doing agood job in the construction of Huadong Medicine Life Sciences Industrial Park, Jiangdong PhaseII, International R&D and Manufacturing Center for Preparations, industrialization of SemaglutideAPIs and other major projects. We will strengthen the management of project progress, cost, qualityand safety, and ensure the advancement of technology while meeting the investment incomeindicators.
We continue to carry out normal management, change and registration of GMP, producttransfer and entrusted production and quality group management with the overall goal of
“developing capacity and improving efficiency” in quality system.
(2) R&D:
We will continue to deepen the reform of R&D system, introduce international, professionaland innovative high-quality R&D talents, enhance the overall combat ability of R&D teams bycombining introduction and training, and form a refined and efficient R&D team with internationalvision. We will further optimize the R&D process, improve the R&D efficiency, promote the R&Dinternal order system, open up to undertake external R&D projects on the basis of ensuring theprogress and quality of our own projects, and enhance the market competitiveness of our R&Dorganizations. We will also continue to strengthen cooperation with the world’s leading biomedicalR&D companies to explore innovative R&D models suitable for the future development of theCompany and build a unique core technology platform.
We will continuously follow up and evaluate new targets and cutting-edge technologies in thefield of global new drug R&D, and further consolidate the pipeline of innovative products throughindependent R&D and external introduction. Moreover, we will accelerate the cultivation of theCompany’s R&D capabilities in early drug discovery and preclinical/translational medicine. In 2021,we will strive to complete project approval for no fewer than 15 innovative drugs, 6 generic drugsand 1 other new product, strive to obtain 3 manufacturing approvals, pass consistency evaluation forat least 2 product categories, complete 25 patent applications and have 2 product internationalregistrations approved.
(3) Marketing and pharmaceutical services of Zhongmei Huadong:
We will accelerate the transformation of marketing strategy, implement the policy of “turningfrom in-hospital to out-of-hospital and from medical insurance to self-financing”, carry out therefined marketing of the Company’s products, and actively expand the out-of-hospital market,primary-level market and self-financing market. We will continue to improve the sales volume inthe hospital market and primary-level market by means of four target management. We willvigorously improve the building and personnel allocation of out-of-hospital market organizations,expand personnel, and improve the coverage rate of key products of the Company in chainpharmacies and terminals. We will explore the self-financing market sales model to strive to achievethe breakthrough of self-financing market sales, and actively explore the new marketing model ofonline prescription drug purchase and chronic disease management in Internet hospitals to increasethe coverage of Internet market and product sales.
(4) Management:
In 2021, the whole company should further change its concepts, advocate value culture and
incentive culture, and fully activate the overall organizational vitality of the Company. We willimprove the official management mechanism and accelerate the training of outstanding officials. Wewill continuously build the organization competitiveness of Huadong Medicine. We will strengthenthe basic human resource management and consolidate the cornerstone of human resourcemanagement; continue to carry out the introduction and training of core talents and accelerate theintroduction of talents in new business segments including devices, aesthetic medicine business andInternet hospitals; and innovate the performance and salary incentive mechanism and activate theorganization through assessment;We will adapt to the development needs of the Company, keep promoting the overall financialplanning objectives of “collective, compliant, IT-based and internationalized” management, takevalue as the center and performance as the orientation, and make every effort to carry out four basictasks: energizing organization, aligning with the advanced, reducing costs and increasing efficiency,and operating finance. We will strengthen foreign exchange, improve working standards andrequirements, vigorously improve the operation and management level of the financial system, andbuild a lean and efficient financial management team. We will earnestly do a good job in thebuilding of the budget system based on value management, fully participate in the operation,provide decision support, promote efficiency improvement, and create financial value.
(5) Pharmaceutical business:
“Achieving four transformations, innovating for profit, and regulating for efficiency” is themain theme of Huadong business in 2021. We shall profoundly understand industrial changes,optimize the allocation and integration of internal resources, promote coordinated development, andimprove operating efficiency. Taking customer satisfaction as the overall goal, we will change ouroperation mindset, optimize the in-hospital marketing, and layout the marketing outside the hospital.We will take the hospital as the base, keep up with the development of the hospital and achieve asteady increase of business; deeply explore the out-of-hospital and self-financing market; and firmlydiscovery a new model of the mega health industry and do a good job in the Internet market. Wewill build a province-wide market expansion network, establish three promotion teams, i.e.,in-hospital team, private team and retail team, serve the suppliers with enriched product lines,expand the service scope and cultivate new profit models by relying on the advantages of “platform+ product + network” of Huadong business. We will relocate the retail market, build a new retail inHuadong Medicine, pay close attention to the provincial expansion of OTC business, and focus onthe development of DTP, in-hospital and out-of-hospital stores and special outpatient departments.We will also complete the layout of one DTP in one city as soon as possible to realize the varietiesand management down to the community level, incorporate subsidiary pharmacies into the retailsystem of Huadong Medicine, and expand the coverage of the whole province with a unified retail
brand image of Huadong Medicine. Aiming at profit improvement, we will integrate thee-commerce resources of Huadong Medicine and expand the Internet market. For instance, we willpromote “Business Network of Huadong Medicine”, build “Flagship Store of Huadong Pharmacy”,introduce more varieties with online authorized sales, connect with “Internet plus medical care”,and cooperate with physical medical institutions and Internet hospitals with order taking online anddelivering drugs to homes.
We shall earnestly focus on the innovative development of professional cold chain of Huadongbusiness cold chain, locate the precise management and control of the whole life cycle of specialdrugs, continuously strengthen the competitive advantage of cold chain capacity and promote thehigh-quality development of intelligent digital supply chain. We shall actively cultivate newbusinesses, improve the logistics system of the whole province in the cold chain, enhance thecompetitiveness of the tripartite businesses, and consolidate the industrial status. We will contributeto the universal inoculation of COVID-19 vaccines, make every effort to do a good job in theprovincial distribution of COVID-19 vaccines, and ensure timely and safe delivery.
(6) Aesthetic medicine business
It is necessary to continue to improve the international operation system, focus on theinternational high-end market of aesthetic medicine, further integrate R&D resources and capacities,and continue to promote the structural adjustment of aesthetic medicine products and the innovativebusiness development. Efforts also should be made to actively optimize and enhance the productstructure, carry on the research and study of high-tech products and new technologies and theproject introduction in the field of aesthetic medicine all over the world, and enrich and improve theindustrial layout. Through accurate positioning, the Company gives full play to the brand value ofthe products, quickly gets to the market, and creates a new pattern of aesthetic medicine in thedomestic market. It shall also accelerate the establishment of the promotion team for new productsof aesthetic medicine, and actively introduce marketing talents from external established aestheticmedicine market. The Company shall implement the establishment of the marketing team, brandand market communication, and communication with aesthetic medicine institutions, doctor training,and other preparation related to launch and subsequent marketing promotion for the core productssuch as Ellansé, and Glacial? Spa (F0) in Chinese market in 2021, realizing the quick coverage ofmid-to-high aesthetic medicine institutions and the rapid increase of sales after the products are putinto the market.
Besides, the Company shall carry out the business development planning and market
expansion after acquiring the equity of Spanish firm High Tech, speed up the domestic clinicalregistration of Sinclair embedding product Silhouette
?
Instalift?, MaiLi
?
hyaluronic acid ofKylane of Switzerland, and creotoxin of Jetema of South Korea, try to lower the impact of theCOVID-19 pandemic on the domestic and overseas aesthetic medicine business of the Company,and build a solid foundation for the normal operation after the pandemic.X. Risks and Countermeasures
1. Industry policies and market risks
The pharmaceutical industry is one of the industries influenced by national policies in thedeepest manner. In recent years, the reform in the area of medical health has been deepenedcontinuously with various policies introduced intensively, and the State has conducted theregulation and supervision of the pharmaceutical industry in a stricter manner. The pharmaceuticalmarket is facing many uncertainties due to the trend of the normalization of the COVID-19pandemic. With the further promotion of the policies such as volume-based procurement and healthinsurance negotiation, the production costs and profitability in the pharmaceutical industry are alsofacing challenges.
Countermeasures:
The Company will pay close attention to and study the national pharmaceutical policies andindustrial development trends, increase the investment in R&D, speed up the layout of innovativevarieties, enrich the product pipelines, and optimize the product structure. At the same time, it shallmaintain lean production to realize lower costs and risks and higher efficiency in production andoperation. Besides, it will make great efforts to expand the primary-level and self-funded market toincrease the market coverage. Its task is also to continue to excavate the dominant products andsubdivision of aesthetic medicine, improve brand competitiveness, and create new profit points.
2. New drug R&D risk
The R&D of new medicine has the characteristics of high technology and high risks. Theinnovative drug products also experience long cycle and various links including R&D at the earlystage, technology development, clinical trials, registration, and launch, and are subject to preclinicalresearch, clinical trials, registration and declaration, production approval and other processes, whichare time-consuming and have many uncertainties and risks in the process. In addition, the R&D ofnew medicine has extremely high requirements of personnel quality, and is apt to be affected by
factors such as policies, approval, and technologies. The R&D expenses at the early stage will leadto some pressure on the Company for the current operation goal, meanwhile, the new medicine afterits launch will be subject to the testing of market demands, which may result in consequences suchas the return of the R&D investment lower than expectation, and the negatively affectedprofitability.Countermeasures:
The Company will enrich and optimize the product pipelines, adopt generic drugs andinnovative drugs with high barriers, and stoutly eliminate outmoded varieties through independentproject approval and external introduction. It will also proactively promote the R&D systemestablishment of international innovative drugs, continuously conduct dynamic optimization andadjustment of the Company’s entire R&D system and framework, and improve the scientific anddynamic investigation, assessment, and decision-making system, based on the increasinginvestment in R&D of new medicine. The Company aims to continue to introduce high-level R&Dtalents, strengthen the cultivation and incentive of internal talents, create a scientific research teamcovering the whole cycle of new medicine R&D, and promote the establishment of the high-levelpharmaceutical R&D base.
3. Price reduction risk
With the more intensive competition in the pharmaceutical market, and more deepeningmedical insurance fee control, and the comprehensive launch of the national policies forvolume-based procurement, the Chinese pharmaceutical market has entered into a stage of steadydevelopment when generic drugs have fallen from the golden age to the age with low profitability.With the foreign-invested enterprises targeting at the domestic market, the competition in the areaof innovative drugs is more intensive. The national policies of medical insurance negotiation alsohave a profound impact on the pricing of innovative drugs, and the innovative drugs also face therisks of price reduction.
Countermeasures:
The Company will actively handle the changes in policies and market to enhance thetechnological quality advantages mainly driven by scientific R&D and technological innovation inline with the international standards. It will accelerate the transformation of marketing strategies,carry out the delicacy marketing of the Company’s products, and actively explore the marketingmode of the self-financing market, and new marketing mode of medicine purchase with the online
hospital prescription and chronic disease management. It will also adopt primary-level marketingchannels and academic promotion, enhance the market expansion, enlarge the market coverage, andincrease the market access capacity.
4. Risk of change in exchange rate
The changes in exchange rate have a profound and long-lasting impact on enterprises, whichcan not only bring good economic benefits but also cause serious economic risks. With thecontinuous promotion of the Company’s internationalization, international cooperation andcommunication have increased continuously with the aesthetic medicine marketing networkcovering all around the world, and the proportion of business settled by foreign currencies isincreasing. The changes in exchange rate will have an impact on the asset, liability, and benefits ofenterprises, further affecting the operation capacity, debt repayment capacity, and profitability.Countermeasures:
The Company will pay attention to the changes in exchange rate all the time, and adjust theoperation strategies and resolve negative impacts in a timely manner based on its own condition. Itwill foster the awareness of curreny risk prevention, and create a sound management system offoreign exchange risks while strengthening the professional skills of financial personnel and thetraining of risk awareness, and avoiding risks by means of financial methods.
XI. Activities of receptions, including research, communication and interview
1. Registration form of receptions, including research, communication and interview, undertaken duringthe reporting period
√ Applicable □ N/A
Reception
Date
| Reception Date | Reception Adress | Reception Method | Type of visitor | Reception object | Main content of discussion and information provided | Index of basic information of the research |
| January 19, 2020 | Company conference room | Communication by phone | Institution | Industrial Securities, etc. | Interpretation of the bidding results of Huadong Medicine attending the | Please refer to “Huadong Medicine: 000963 Huadong Medicine information on research activities: January 19, 2020” |
nationalcentralizedmedicineprocurement
| national centralized medicine procurement | presented on the websites of irm.cninfo.com.cn and cninfo.com.cn for details. | |||||
| April 30, 2020 | Company conference room | Communication by phone | Institution | China International Capital Corporation Limited., etc. | Interpretation of 2019 Annual Report and 2020 First Quarterly Report of Huadong Medicine | Please refer to “Huadong Medicine: record of investor relations activities: April 30, 2020” presented on the websites of irm.cninfo.com.cn and cninfo.com.cn for details. |
| June 5, 2020 | Company conference room | Field research | Institution | Zhongtai Securities, etc. | Activities of investors’ reception day of the Company | Please refer to “Huadong Medicine: record of investor relations activities: June 5, 2020 (investor reception day activities)” presented on the websites of irm.cninfo.com.cn and cninfo.com.cn for details. |
| August 28, 2020 | Company conference room | Communication by phone | Institution | Industrial Securities, etc. | Please refer to “Huadong Medicine: record of investor relations activities: August 28, 2020” presented on the websites of irm.cninfo.com.cn and cninfo.com.cn for details. | |
| September 2, 2020 | Company conference room | Communication by phone | Institution | UBS Securities, etc. | Interpretation of 2020 Half Year Report of Huadong Medicine | Please refer to “Huadong Medicine: record of investor relations activities: September 2, 2020” presented on the |
websites ofirm.cninfo.com.cnand cninfo.com.cnfor details.
| websites of irm.cninfo.com.cn and cninfo.com.cn for details. | ||||||
| October 27, 2020 | Company conference room | Communication by phone | Institution | Changjiang Securities, etc. | Online discussion on China A-shares | For details, please refer to “Huadong Medicine: record of investor relations activities: October 27, 2020” presented on the websites of irm.cninfo.com.cn and cninfo.com.cn for details. |
| November 3, 2020 | Company conference room | Communication by phone | Institution | Industrial Securities, etc. | Interpretation of 2020 Third Quarterly Report of Haudong Medicine | Please refer to “Huadong Medicine: 000963 Huadong Medicine information on research activities: November 3, 2020” presented on the websites of irm.cninfo.com.cn and cninfo.com.cn for details. |
| November 10, 2020 | Company conference room | Field research | Institution | RoyalFlush, etc. | Special communication on aesthetic medicine business of the Company | Please refer to “Huadong Medicine: record of investor relations activities: November 10, 2020” presented on the websites of irm.cninfo.com.cn and cninfo.com.cn for details. |
| November 18, 2020 | Company conference room | Communication by phone | Institution | Goldman Sachs, etc. | “Activities for Listed Companies” – Huadong Medicine | Please refer to “Huadong Medicine: record of investor relations activities: November 18, 2020” presented on the websites of irm.cninfo.com.cn |
and cninfo.com.cnfor details.
| and cninfo.com.cn for details. | |||||||
| November 19, 2020 | Company conference room | Field research and Communication by phone | Institution | Industrial Securities, Founder Securities, etc. | Online communication of 2020 Goldman Sachs Asia Pacific Medical Investors Summit | Please refer to “Huadong Medicine: record of investor relations activities: November 19, 2020” presented on the websites of irm.cninfo.com.cn and cninfo.com.cn for details. | |
| Number of receptions | 10 | ||||||
| Number of institutions received | 1,200 | ||||||
| Number of individuals received | 100 | ||||||
| Number of other visitors received | 0 | ||||||
| Has any undisclosed important information been disclosed, revealed or divulged? | No | ||||||
Section V. Important MattersI. The Company’ s profit distribution of common shares and increase of capital stock bycapital reserve conversionFormulation, implementation or adjustment of the profit distribution policy of common shares, especially the cash dividend policy,during the reporting period
√ Applicable □ N/A
During the reporting period, the Company’ s profit distribution policy conforms to the Articles of Association and the reviewprocedure, and fully protects the legitimate rights and interests of small and medium investors. The independent directors haveexpressed their opinion, and there is a clear standard and ratio of dividends.
Special notes on cash dividend policy
| Special notes on cash dividend policy | |
| Whether it complies with the provisions of the Articles of Association or the requirements of the resolutions of shareholders’ meeting: | Yes |
| Whether the standard and ratio of dividends are clear: | Yes |
| Whether the relevant decision-making procedures and mechanisms are complete: | Yes |
| Whether the independent directors have performed their duties and played their due roles: | Yes |
| Whether minority shareholders have the opportunity to fully express their opinions and demands, and whether their legitimate rights and interests are fully protected: | Yes |
| If the cash dividend policy is adjusted or changed, whether the conditions and procedures are compliant and transparent: | Yes |
The Company’ s common share dividend distribution plan (preplan) and plan for capital stock increase by capital reserve conversion(preplan) in recent three years (including the current reporting period):
(1) The Company’ s distribution plan for 2018: Based on the total share capital of 1,458,174,624 shares, 3.3 yuan (tax included) ispaid as a cash dividend for every 10 shares; the total share dividend distributed is 481,197,625.92 yuan, and 2 shares are added forevery 10 shares by capital reserve conversion;
(2) The Company’ s distribution plan for 2019: Based on the total share capital of 1,749,809,548 shares, 2.8 yuan (tax included) ispaid as a cash dividend for every 10 shares; the total share dividend distributed is 489,946,673.44 yuan, and 0 shares are added forevery 10 shares by capital reserve conversion.
(3) The Company’ s distribution plan for 2020: Based on the total share capital of 1,749,809,548 shares, 2.3 yuan (tax included) ispaid as a cash dividend for every 10 shares; the total share dividend distributed is 402,456,196.04 yuan, and 0 shares are added forevery 10 shares by capital reserve conversion.
The Company’ s cash dividends of common shares in recent three years (including the reporting period)
Unit: RMB yuan
Year whendividends aredistributed
| Year when dividends are distributed | Cash dividends (tax included) | Net profit attributable to the common shareholders of the Company in the annual consolidated statements | Proportion of cash dividends in the net profit attributable to the common shareholders of the Company in the consolidated statements | Cash dividends by other means (such as share repurchase) | Proportion of cash dividends by other means in the net profit attributable to the common shareholders of the Company in the consolidated statements | Total cash dividends (including those by other means) | Proportion of total cash dividends (including those by other means) in the net profit attributable to the common shareholders of the Company in the consolidated statements |
| 2020 | 402,456,196.04 | 2,819,861,203.63 | 14.27% | 0.00 | 0.00% | 402,456,196.04 | 14.27% |
| 2019 | 489,946,673.44 | 2,813,118,702.11 | 17.42% | 0.00 | 0.00% | 489,946,673.44 | 17.42% |
| 2018 | 481,197,625.92 | 2,267,229,174.08 | 21.22% | 0.00 | 0.00% | 481,197,625.92 | 21.22% |
During the reporting period, the Company made profits and the profit available to common shareholders of the parent company waspositive, but no cash dividend plan for common shares was proposed
□ Applicable √ N/A
II. Profit distribution and capital stock increase by capital reserve conversion during thecurrent reporting period
√ Applicable □ N/A
| Number of bonus shares every 10 shares (share) | 0 |
| Dividends paid every 10 shares (tax included) | 2.3 |
| Number of shares added for every 10 shares by capital reserve conversion | 0 |
| Capital stock base of the distribution plan (share) | 1,749,809,548 |
| Cash dividends (yuan) (tax included) | 402,456,196.04 |
| Cash dividends by other means (such as share repurchase) (yuan) | 0.00 |
| Total cash dividends (yuan) | 402,456,196.04 |
| Distributable profit (yuan) | 4,303,533,798.88 |
| Proportion of total cash dividends (including those | 100% |
by other means) in the total profit distributed
| by other means) in the total profit distributed | |
| Current cash dividends | |
| If the Company is in a mature stage of development and has a significant capital expenditure arrangement, the proportion of cash dividends in the current profit distribution should be at least 40%. | |
| Details of the profit distribution plan or the plan for capital stock increase by capital reserve conversion | |
| The Company’s profit distribution plan for 2020: Based on the total share capital of 1,749,809,548 shares, 2.3 yuan (tax included) is paid as a cash dividend for every 10 shares; the total share dividend distributed is 402,456,196.04 yuan, and 0 shares are added for every 10 shares by capital reserve conversion. | |
III. Fulfillment of commitments
1. Commitments made by interested parties such as the Company’s actual controller, shareholders, relatedparties, acquirer(s), and the Company that are fulfilled during the reporting period or unfulfilled by theend of the reporting period
√ Applicable □ N/A
| Commitment | Commitment maker | Type of commitment | Details of commitment | Date of commitment | Term of commitment | Fulfilled or unfulfilled |
| Share reform | N/A | N/A | N/A | N/A | N/A | |
| A commitment made in the report of acquisition or the report of change in equity | N/A | N/A | N/A | N/A | N/A | |
| A commitment made in assets restructuring | N/A | N/A | N/A | N/A | N/A | |
| A commitment made at the time of an initial public offering or refinancing | N/A | N/A | N/A | N/A | N/A | |
| Equity incentives | N/A | N/A | N/A | N/A | N/A | |
| Other commitments made to the Company’ s small and medium shareholders | China Grand Enterprises, Inc. | Commitment to reducing shareholdings | China Grand Enterprises undertakes that it has no plan to sell all of its shares in Huadong Medicine within 12 | February 11, 2019 | 12 months | Fulfilled |
monthsfrom thedate of thelifting ofrestrictionson thenon-publicoffering ofshares byHuadongMedicine in2016.
| months from the date of the lifting of restrictions on the non-public offering of shares by Huadong Medicine in 2016. | ||||||
| Hangzhou Huadong Medicine Group Co., Ltd. | Commitment to reducing shareholdings | Huadong Group undertakes that it has no plan to sell all of its shares in Huadong Medicine within 12 months from the date of the lifting of restrictions on the non-public offering of shares by Huadong Medicine in 2016. | February 11, 2019 | 12 months | Fulfilled | |
| Whether the commitment has been fulfilled on time | Yes | |||||
| If the commitment is overdue and has not been fulfilled, the specific reasons for unfulfillment and the future work plan should be explained in detail. | N/A | |||||
2. If there is a profit forecast for the Company’s assets or projects and the reporting period is in the profitforecast period, the Company should state the assets or projects that meet the original profit forecast andthe reasons for that
□ Applicable √ N/A
IV. Controlling shareholder’s and related parties’ occupation of non-operating funds of thelisted companies
□ Applicable √ N/A
No such case during the reporting period.V. Explanation by the Board of Directors, the Board of Supervisors and the independentdirectors (if any) on the “auditor’s nonstandard report” of the accounting firm during thecurrent reporting period
□ Applicable √ N/A
VI. Changes in accounting policies, estimation and accounting methods as compared with theprevious financial report
√ Applicable □ N/A
See section 12 of financial report five important accounting policies and accounting estimates 44 for details.VII. Retrospective restatement of the correction of significant accounting errors during thereporting period
□ Applicable √ N/A
No such case during the reporting period.VIII. Changes in the scope of consolidated statements as compared to the previous financialreport
√ Applicable □ N/A
1. Increase of the consolidation scope
Company name
| Company name | Method of equity acquisition | Time of equity acquisition | Amount of capital | Ratio of capital |
| MediBeacon Technology (Shanghai) Co., Ltd. | New subsidiary | 2020.9 | 1,000,000.00 | 100.00% |
| Zhejiang Huida Biotech Co., Ltd. | New subsidiary | 2020.1 | 5,100,000.00 | 51.00% |
| Shenzhen Xinda Yanchuang Technology Development Co., Ltd. | New subsidiary | 2020.5 | 500,000.00 | 100.00% |
Sinclair Pharmaceuticals(Asia-Pacific) Pte Ltd.
| Sinclair Pharmaceuticals (Asia-Pacific) Pte Ltd. | New subsidiary | 2020.8 | [Note ] | 100.00% |
| Sinclair Chile SPA | New subsidiary | 2020.9 | 7.5 million pesos | 100.00% |
| Sinclair (Shanghai) Medical Technology Co., Ltd. | New subsidiary | 2020.9 | [Note ] | 100.00% |
| R2 (Shanghai) Medical Technology Co., Ltd. | New subsidiary | 2020.9 | [Note ] | 100.00% |
| Beijing Huachuang Dongxin Technological Development Co., Ltd. | New subsidiary | 2020.11 | [Note ] | 100.00% |
Note: No capital has been contributed as of December 31, 2020.
2. Reduction of the consolidation scope
| Company name | Method of equity disposal | Time of equity disposal | Net assets at disposal date | Net profit from the beginning of the period to the disposal date |
| Huadong Medicine Medical Equipment Technology (Hangzhou) Co., Ltd. | Cancellation | 2020.11 | -4,277,665.48 | -503,242.26 |
| Ningbo Sinfmuse Medical Investment Management Co., Ltd. | Cancellation | 2020.3 | 2,448,018.16 | |
| Huadong Medicine Wuhan Pharmaceutical Co., Ltd. | Cancellation | 2020.7 | 5,425,926.85 |
IX. Employment and dismissal of accounting firmsAccounting firm employed by the Company for now
| Name of the domestic accounting firm | Pan-China Certified Public Accountants (special general partnership) |
| Continuous number of years of audit services provided by the domestic accounting firm | 165 |
| Remuneration of the domestic accounting firm (ten thousand yuan) | 23 |
| Certified public accountants of the domestic accounting firm | Wang Fukang, Xu Ping |
| Continuous number of years of audit services provided by certified public accountants of the domestic accounting firm | 5 |
| Name of the overseas accounting firm (if any) | None |
| Remuneration of the overseas accounting firm (ten thousand yuan) (if any) | 0 |
Continuous number of years of audit services provided by theoverseas accounting firm (if any)
| Continuous number of years of audit services provided by the overseas accounting firm (if any) | None |
| Certified public accountants of the overseas accounting firm (if any) | None |
| Continuous number of years of audit services provided by certified public accountants of the overseas accounting firm (if any) | None |
Whether the accounting firm employed was replaced in the current period
□ Yes √ No
Information about the internal control audit accounting firm, financial consultant or sponsor employed by the Company
√ Applicable □ N/A
During the reporting period, the Company employed Pan-China Certified Public Accountants (special general partnership) as theaudit institution of its annual financial report and internal control audit report; the annual financial report and internal control auditreport audit fee paid is 1.65 million yuan.X. Delisting after annual report disclosure
□ Applicable √ N/A
XI. Bankruptcy reorganization
□ Applicable √ N/A
XII. Major litigation and arbitration
□ Applicable √ N/A
No such case during the reporting period.XIII. Punishment and rectification
□ Applicable √ N/A
No such case during the reporting period.XIV. Integrity of the Company and its controlling shareholder and actual controller
□ Applicable √ N/A
XV. Implementation of the Company’s equity incentive plan, employee stock ownership planor other employee incentive measures
√Applicable □ N/A
In this period, Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd. invested 10 million yuan to establish Zhejiang HuidaBiotechnology Co., Ltd. with a registered capital of 10 million yuan and a shareholding ratio of 100.00%. In August 2020, Hangzhou
Zhongmei Huadong Pharmaceutical Co., Ltd. signed the team equity incentive agreement with the members of the core technologyteam, which agreed that the members of the core technology team would join Hangzhou Zhongmei Huadong or Zhejiang Huida ,Hangzhou Zhongmei Huadong transferred its 49.00% incentive equity of Zhejiang Hunda to the core technology team at the price of
1.00 yuan. Hangzhou Zhongmei Huadong recorded the difference between the incentive equity price of 1.00 yuan and the incentiveequity cost of 4899999.00 yuan into the management expenses.XVI. Implementation of the Company’s equity incentive plan, employee stock ownership planor other employee incentive measures
√Applicable □ N/A
Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd. invested RMB10 million to the establishment of Zhejiang Huida BiotechCo., Ltd. with the registered capital of RMB10 million. The shareholding ratio of Zhongmei Huadong reaches 100.00%. In August2020, Zhongmei Huadong entered into the Team Equity Incentive Agreement with its core technical team members, specifying thatafter the members join Zhongmei Huadong or Zhejiang Huida Biotech Co., Ltd., Zhongmei Huadong will transfer its 49.00%incentive equity of Huida Biotech to the core technical team at the price of RMB1.00, and Zhongmei Huadong includes thedifference of RMB4,899,999.00 between the equity incentive price of RMB1.00 and the incentive equity costs into the managementexpenses.
XVI. Major related transactions
1. Transactions related to daily operations
√ Applicable □ N/A
Related
party
| Related party | Relationship | Type of related transaction | Content of related transaction | Pricing principles for related transaction | Price of related transaction | Related transaction amount (ten thousand yuan) | Proportion in the amount of similar transactions | Approved transaction amount (ten thousand yuan) | Whether it exceeds the approved amount | Settlement method of related transaction | Available market prices of similar transactions | Date of disclosure | Disclosure index |
| Grandpharma (China) Co., Ltd. | Subsidiary of the Company’s controlling shareholder | Drug purchase | Drug purchase | Market price determined by the Company’s related transaction decision-making process | Market price | 6,343.28 | 0.28% | 5,000 | Yes | Cash, banker’s acceptance bill | Market price | April 28, 2020 | cninfo (http://www.cninfo.com.cn) |
| Sichuan Yuanda Shuyang Pharmaceutical Co., Ltd. | Subsidiary of the Company’s controlling shareholder | Drug purchase | Drug purchase | Market price determined by the Company’s related transaction decision-making process | Market price | 5,977.15 | 0.27% | 5,500 | Yes | Cash, banker’s acceptance bill | Market price | April 28, 2020 | cninfo (http://www.cninfo.com.cn) |
HangzhouJiuyuanGeneEngineeringCo., Ltd.
| Hangzhou Jiuyuan Gene Engineering Co., Ltd. | Joint venture of the Company | Drug purchase | Drug purchase | Market price determined by the Company’s related transaction decision-making process | Market price | 4,334.04 | 0.19% | 8,500 | No | Cash, banker’s acceptance bill | Market price | April 28, 2020 | cninfo (http://www.cninfo.com.cn) |
| Beijing Grand Johamu Pharmaceutical Co., Ltd. | Subsidiary of the Company’s controlling shareholder | Drug purchase | Drug purchase | Market price determined by the Company’s related transaction decision-making process | Market price | 2,695.87 | 0.12% | 4,500 | No | Cash, banker’s acceptance bill | Market price | April 28, 2020 | cninfo (http://www.cninfo.com.cn) |
| Penglai Nuokang Pharmaceutical Co. Ltd. | Subsidiary of the Company’s controlling shareholder | Drug purchase | Drug purchase | Market price determined by the Company’s related transaction decision-making process | Market price | 2,082.01 | 0.09% | 2,400 | No | Cash, banker’s acceptance bill | Market price | April 28, 2020 | cninfo (http://www.cninfo.com.cn) |
| Yunnan Leiyunshang Lixiang Pharmaceutical Co., Ltd. | Subsidiary of the Company’s controlling shareholder | Drug purchase | Drug purchase | Market price determined by the Company’s related | Market price | 1,414.59 | 0.06% | 1,200 | Yes | Cash, banker’s acceptance bill | Market price | April 28, 2020 | cninfo (http://www.cninfo.com.cn) |
transactiondecision-making process
| transaction decision-making process | |||||||||||||
| Hangzhou Grand Biologic Pharmaceutical Inc | Subsidiary of the Company’s controlling shareholder | Drug purchase | Drug purchase | Market price determined by the Company’s related transaction decision-making process | Market price | 1,108.19 | 0.05% | 350 | Yes | Cash, banker’s acceptance bill | Market price | April 28, 2020 | cninfo (http://www.cninfo.com.cn) |
| Wuhan Grand Pharmaceutical Group Sales Co., Ltd. | Subsidiary of the Company’s controlling shareholder | Drug purchase | Drug purchase | Market price determined by the Company’s related transaction decision-making process | Market price | 1,064.18 | 0.05% | 700 | Yes | Cash, banker’s acceptance bill | Market price | April 28, 2020 | cninfo (http://www.cninfo.com.cn) |
| Shenyang Yaoda Leiyunshang Pharmaceutical Co., Ltd. | Subsidiary of the Company’s controlling shareholder | Drug purchase | Drug purchase | Market price determined by the Company’s related transaction decision-making process | Market price | 531.34 | 0.02% | 500 | Yes | Cash, banker’s acceptance bill | Market price | April 28, 2020 | cninfo (http://www.cninfo.com.cn) |
| Leiyunshang | Subsidiary of the | Drug purchase | Drug purchase | Market price determined | Market price | 399.91 | 0.02% | 300 | Yes | Cash, banker’s | Market price | April 28, | cninfo (http://www.cninfo.co |
Pharmaceutical GroupCo. Ltd.
| Pharmaceutical Group Co. Ltd. | Company’s controlling shareholder | by the Company’s related transaction decision-making process | acceptance bill | 2020 | m.cn) | ||||||||
| Shanghai Xudong Haipu Pharmaceutical Co., Ltd | Subsidiary of the Company’s controlling shareholder | Drug purchase | Drug purchase | Market price determined by the Company’s related transaction decision-making process | Market price | 394.89 | 0.02% | 400 | No | Cash, banker’s acceptance bill | Market price | April 28, 2020 | cninfo (http://www.cninfo.com.cn) |
| Guangdong Leiyunshang Pharmaceutical Co., Ltd. | Subsidiary of the Company’s controlling shareholder | Drug purchase | Drug purchase | Market price determined by the Company’s related transaction decision-making process | Market price | 254.79 | 0.01% | 100 | Yes | Cash, banker’s acceptance bill | Market price | April 28, 2020 | cninfo (http://www.cninfo.com.cn) |
| Xi'an Yuanda new Beilin Pharmaceutical Co., Ltd | Subsidiary of the Company’s controlling shareholder | Drug purchase | Drug purchase | Market price determined by the Company’s related transaction decision-mak | Market price | 167.41 | 0.01% | 420 | No | Cash, banker’s acceptance bill | Market price | April 28, 2020 | cninfo (http://www.cninfo.com.cn) |
ing process
| ing process | |||||||||||||
| Changshu Leiyunshang Pharmaceutical Co., Ltd. | Subsidiary of the Company’s controlling shareholder | Drug purchase | Drug purchase | Market price determined by the Company’s related transaction decision-making process | Market price | 126.48 | 0.01% | 150 | No | Cash, banker’s acceptance bill | Market price | April 28, 2020 | cninfo (http://www.cninfo.com.cn) |
| Changchun Leiyunshang Pharmaceutical Co., Ltd. | Subsidiary of the Company’s controlling shareholder | Drug purchase | Drug purchase | Market price determined by the Company’s related transaction decision-making process | Market price | 102.24 | 0.00% | 110 | No | Cash, banker’s acceptance bill | Market price | April 28, 2020 | cninfo (http://www.cninfo.com.cn) |
| Hangzhou Huadong Medicine Group Guizhou TCM Development Co., Ltd. | Subsidiary of the Company’s second largest shareholder | Drug purchase | Drug purchase | Market price determined by the Company’s related transaction decision-making process | Market price | 79.51 | 0.00% | 0 | Yes | Cash, banker’s acceptance bill | Market price | April 28, 2020 | cninfo (http://www.cninfo.com.cn) |
| Grandpharma Huangshi Feiyun | Subsidiary of the Company’s controlling | Drug purchase | Drug purchase | Market price determined by the Company’s | Market price | 11.58 | 0.00% | 0 | Yes | Cash, banker’s acceptance bill | Market price | April 28, 2020 | cninfo (http://www.cninfo.com.cn) |
Pharmaceutical Co., Ltd.
| Pharmaceutical Co., Ltd. | shareholder | related transaction decision-making process | |||||||||||
| Xi'an Yuanda Detian Pharmaceutical Co., Ltd | Subsidiary of the Company’s controlling shareholder | Drug purchase | Drug purchase | Market price determined by the Company’s related transaction decision-making process | Market price | 0.29 | 0.00% | 0 | Yes | Cash, banker’s acceptance bill | Market price | April 28, 2020 | cninfo (http://www.cninfo.com.cn) |
| Beijing Huajin Pharmaceutical Co., Ltd | Subsidiary of the Company’s controlling shareholder | Drug purchase | Drug purchase | Market price determined by the Company’s related transaction decision-making process | Market price | 39.11 | 0.00% | 50 | No | Cash, banker’s acceptance bill | Market price | April 28, 2020 | cninfo (http://www.cninfo.com.cn) |
| Hangzhou Junlan Pharmaceutical Trading Co. Ltd. | Shareholding enterprise | Drug sales | Drug sales | Market price determined by the Company’s related transaction decision-making process | Market price | 12,416.14 | 0.37% | 11,000 | Yes | Cash, banker’s acceptance bill | Market price | April 28, 2020 | cninfo (http://www.cninfo.com.cn) |
| Hangzhou | Subsidiary | Drug | Drug sales | Market price | Market | 1,014.18 | 0.03% | 920 | Yes | Cash, | Market | April | cninfo |
Tangyangyuan TCMOutpatientDepartmentCo., Ltd.
| Tangyangyuan TCM Outpatient Department Co., Ltd. | of the Company’s joint venture Hangzhou Tangyangyuan Pharmaceutical Co., Ltd. | sales | determined by the Company’s related transaction decision-making process | price | banker’s acceptance bill | price | 28, 2020 | (http://www.cninfo.com.cn) | |||||
| Hangzhou Jiuyuan Gene Engineering Co., Ltd. | Joint venture of the Company | Drug sales | Drug sales | Market price determined by the Company’s related transaction decision-making process | Market price | 491.69 | 0.01% | 800 | No | Cash, banker’s acceptance bill | Market price | April 28, 2020 | cninfo (http://www.cninfo.com.cn) |
| Guangdong Leiyunshang Pharmaceutical Co., Ltd. | Subsidiary of the Company’s controlling shareholder | Drug sales | Drug sales | Market price determined by the Company’s related transaction decision-making process | Market price | 325.03 | 0.01% | 300 | Yes | Cash, banker’s acceptance bill | Market price | April 28, 2020 | cninfo (http://www.cninfo.com.cn) |
| Hangzhou Huadong Medicine Group New | Association with the Senior managemen | Drug sales | Drug sales | Market price determined by the Company’s | Market price | 473.63 | 0.01% | 400 | Yes | Cash, banker’s acceptance bill | Market price | April 28, 2020 | cninfo (http://www.cninfo.com.cn) |
DrugResearchInstituteCo., Ltd.
| Drug Research Institute Co., Ltd. | t [note] | related transaction decision-making process | |||||||||||
| Leiyunshang Pharmaceutical Group Co. Ltd. | Subsidiary of the Company’s controlling shareholder | Drug sales | Drug sales | Market price determined by the Company’s related transaction decision-making process | Market price | 416.85 | 0.01% | 300 | Yes | Cash, banker’s acceptance bill | Market price | April 28, 2020 | cninfo (http://www.cninfo.com.cn) |
| Yunnan Leiyunshang Lixiang Pharmaceutical Co., Ltd. | Subsidiary of the Company’s controlling shareholder | Drug sales | Drug sales | Market price determined by the Company’s related transaction decision-making process | Market price | 217.11 | 0.01% | 150 | Yes | Cash, banker’s acceptance bill | Market price | April 28, 2020 | cninfo (http://www.cninfo.com.cn) |
| Hangzhou Tangyangyuan Pharmaceutical Co., Ltd. | Joint venture of the Company | Drug sales | Drug sales | Market price determined by the Company’s related transaction decision-making process | Market price | 18.23 | 0.00% | 0 | Yes | Cash, banker’s acceptance bill | Market price | April 28, 2020 | cninfo (http://www.cninfo.com.cn) |
| Grand | Subsidiary | Drug | Drug sales | Market price | Market | 14.58 | 0.00% | 0 | Yes | Cash, | Market | April | cninfo |
ResourcesGroup Co.,Ltd.
| Resources Group Co., Ltd. | of the Company’s controlling shareholder | sales | determined by the Company’s related transaction decision-making process | price | banker’s acceptance bill | price | 28, 2020 | (http://www.cninfo.com.cn) | |||||
| Hangzhou Grand Biologic Pharmaceutical Inc. | Subsidiary of the Company’s controlling shareholder | Drug sales | Drug sales | Market price determined by the Company’s related transaction decision-making process | Market price | 84.68 | 0.00% | 0 | Yes | Cash, banker’s acceptance bill | Market price | April 28, 2020 | cninfo (http://www.cninfo.com.cn) |
| Changchun Leiyunshang Pharmaceutical Co., Ltd. | Subsidiary of the Company’s controlling shareholder | Drug sales | Drug sales | Market price determined by the Company’s related transaction decision-making process | Market price | 9.27 | 0.00% | 0 | Yes | Cash, banker’s acceptance bill | Market price | April 28, 2020 | cninfo (http://www.cninfo.com.cn) |
| China Grand Enterprises, Inc. | the Company’s controlling shareholder | Drug sales | Drug sales | Market price determined by the Company’s related transaction | Market price | 85.24 | 0.00% | 0 | Yes | Cash, banker’s acceptance bill | Market price | April 28, 2020 | cninfo (http://www.cninfo.com.cn) |
decision-making process
| decision-making process | |||||||||||||
| Changshu Leiyunshang Pharmaceutical Co., Ltd. | Subsidiary of the Company’s controlling shareholder | Drug sales | Drug sales | Market price determined by the Company’s related transaction decision-making process | Market price | 6.55 | 0.00% | 0 | Yes | Cash, banker’s acceptance bill | Market price | April 28, 2020 | cninfo (http://www.cninfo.com.cn) |
| Hangzhou Jiuyuan Gene Engineering Co., Ltd. | Joint venture of the Company | House rental | House rental | Market price determined by the Company’s related transaction decision-making process | Market price | 34.76 | 0.00% | 0 | Yes | Cash, banker’s acceptance bill | Market price | April 28, 2020 | cninfo (http://www.cninfo.com.cn) |
| Hangzhou Huadong Medicine Group Co., Ltd. | The Company’s second largest shareholder | House rental | House rental | Market price determined by the Company’s related transaction decision-making process | Market price | 34.12 | 0.00% | 34 | No | Cash, banker’s acceptance bill | Market price | April 28, 2020 | cninfo (http://www.cninfo.com.cn) |
| Hangzhou Jiuyuan Gene | Joint venture of the | House leasing | Rent and rent compensat | Market price determined by the | Market price | 1,328.44 | 0.06% | 220 | Yes | Cash, banker’s acceptan | Market price | April 28, 2020 | cninfo (http://www.cninfo.com.cn) |
EngineeringCo., Ltd.
| Engineering Co., Ltd. | Company | ion | Company’s related transaction decision-making process | ce bill | |||||||||
| Beijing Yanhuang Real Estate Co., Ltd. | Subsidiary of the Company’s controlling shareholder | House leasing | House leasing | Market price determined by the Company’s related transaction decision-making process | Market price | 86.18 | 0.00% | 0 | Yes | Cash, banker’s acceptance bill | Market price | April 28, 2020 | cninfo (http://www.cninfo.com.cn) |
| Hangzhou Huadong Medicine Group Co., Ltd. | Joint venture of the Company | House leasing | House leasing | Market price determined by the Company’s related transaction decision-making process | Market price | 26.68 | 0.00% | 0 | Yes | Cash, banker’s acceptance bill | Market price | April 28, 2020 | cninfo (http://www.cninfo.com.cn) |
| Hangzhou Grand Biologic Pharmaceutical Inc. | Subsidiary of the Company’s controlling shareholder | processing charge | processing charge | Market price determined by the Company’s related transaction decision-making process | Market price | 32.3 | 0.00% | 0 | Yes | Cash, banker’s acceptance bill | Market price | April 28, 2020 | cninfo (http://www.cninfo.com.cn) |
HangzhouHuadongMedicineGroup Co.,Ltd.
| Hangzhou Huadong Medicine Group Co., Ltd. | The Company’s second largest shareholder | Property and security service fee | Property and security service fee | Market price determined by the Company’s related transaction decision-making process | Market price | 30.19 | 0.00% | 50 | No | Cash, banker’s acceptance bill | Market price | April 28, 2020 | cninfo (http://www.cninfo.com.cn) |
| Hangzhou Huadong Medicine Group Co., Ltd. | The Company’s second largest shareholder | Energy service | Energy service | Market price determined by the Company’s related transaction decision-making process | Market price | 9.02 | 0.00% | 25 | No | Cash, banker’s acceptance bill | Market price | April 28, 2020 | cninfo (http://www.cninfo.com.cn) |
| Beijing Yuanda Chuangxin Property Management Co., Ltd. | Subsidiary of the Company’s controlling shareholder | Property management fee | Property management fee | Market price determined by the Company’s related transaction decision-making process | Market price | 19.28 | 0.00% | 0 | Yes | Cash, banker’s acceptance bill | Market price | April 28, 2020 | cninfo (http://www.cninfo.com.cn) |
| Beijing Haiwan Banshan Hotel Managemen | Subsidiary of the Company’s controlling shareholder | conference fee | conference fee | Market price determined by the Company’s related | Market price | 10.42 | 0.00% | 0 | Yes | Cash, banker’s acceptance bill | Market price | April 28, 2020 | cninfo (http://www.cninfo.com.cn) |
t Co., Ltd.
| t Co., Ltd. | transaction decision-making process | ||||||||||
| Total | -- | -- | 44,311.43 | -- | 44,379 | -- | -- | -- | -- | -- | |
| Details of bulk sales returns | N/A | ||||||||||
| Actual performance during the reporting period where the total amount of daily related transactions is estimated by category for the current period (if any) | N/A | ||||||||||
| Reasons for the large difference between the transaction price and the market reference price (if applicable) | N/A | ||||||||||
2、Related transactions involving the acquisition or sale of assets and shares
√ Applicable □ N/A
Related
party
| Related party | Relationship | Type of related transaction | Content of related transaction | Pricing principles for related transaction | Book value of transferred assets (ten thousand yuan) | Assessed value of transferred assets (ten thousand yuan) | Transfer price (ten thousand yuan) | Settlement method of related transactions | Trading profit and loss (ten thousand yuan) | Date of disclosure | Disclosure index |
| Penglai Nuokang Pharmaceutical Co. Ltd. | Subsidiary of the Company’s controlling shareholder | Purchase of assets | Purchase of assets | evaluated price determined by the Company’s related transaction decision-making process | 5,000 | 8,076.81 | 5,000 | cash | / | September 16, 2020 | cninfo (http://www.cninfo.com.cn) |
| Reasons for the large difference between the transfer price and the carrying value or assessed value (if any) | The appraised value is 80,768,100 yuan, and the buyer and the seller confirm: 50 million yuan in cash plus sales share (9% of the sales revenue per year within 10 years from the year of the completion of the transfer of the target product). | ||||||||||
| Impact on the company’s operating results and financial status | No significant impact | ||||||||||
| If the relevant transaction involves performance agreement, the performance achieved during the reporting period | N/A | ||||||||||
3、Related transactions of joint external investment
□ Applicable √N/A
No such case during the reporting period.
4、Associated claim and debt transactions
□ Applicable √N/A
No such case during the reporting period.
5、Other major related transactions
□ Applicable √N/A
No such case during the reporting period.
XVII. Major contracts and their fulfilment
1. Entrustment, contracting and leasing
(1) Entrustment
□ Applicable √N/A
No such case during the reporting period.
(2) Contracting
□ Applicable √N/A
No such case during the reporting period.
(3) Leasing
□ Applicable √N/A
During the company's reporting period, there was no lease project that brought the company's profits and losses to more than 10% ofthe company's total profit during the reporting period.
2. Important guarantees
√ Applicable □ N/A
(1) Guarantees
Unit: RMB ten thousand yuan
External guarantees of the Company and its subsidiaries (excluding guarantees for subsidiaries)
| External guarantees of the Company and its subsidiaries (excluding guarantees for subsidiaries) | ||||||||||||||||
| guaranteed party | Disclosure date of the announcement related to the guarantee Cap | Guarantee Cap | Actual date of occurrence | Actual guaranteed amount | Type of guarantee | Period of guarantee | Fulfilled or not | Guarantee for a related party or not | ||||||||
| / | / | / | / | / | / | / | / | / | ||||||||
Total amount of externalguarantees approved during thereporting period (A1)
| Total amount of external guarantees approved during the reporting period (A1) | / | Total actual amount of external guarantees during the reporting period (A2) | / | |||||
| Total amount of approved external guarantees at the end of the reporting period (A3) | / | Total actual balance of external guarantees at the end of the reporting period (A4) | / | |||||
| The Company’s guarantees for its subsidiaries | ||||||||
| Guaranteed party | Disclosure date of the announcement of the guarantee cap | Guarantee cap | Actual date of occurrence | Actual guarantee amount | Type of guarantee | Term of guarantee | Fulfilled or not | Related party guarantee or not |
| Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd. | April 19, 2019 | 50,000 | March 16, 2020 | 4,600 | Joint liability guarantee | One year | No | No |
| Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd. | April 28, 2020 | 80,000 | June 1, 2020 | 21,474 | Joint liability guarantee | One year | No | No |
| Huadong Ningbo Medicine Co., Ltd. | April 28, 2020 | 27,000 | December 28, 2020 | 1,200 | Joint liability guarantee | One year | No | No |
| Huadong Ningbo Medicine Co., Ltd. | April 28, 2020 | 23,000 | December 18, 2020 | 2,029 | Joint liability guarantee | One year | No | No |
| Huadong Ningbo Medicine Co., Ltd. | April 28, 2020 | 23,000 | November 20, 2020 | 1,607 | Joint liability guarantee | One year | No | No |
| Huadong Ningbo Medicine Co., Ltd. | April 28, 2020 | 23,000 | October 23, 2020 | 1,041 | Joint liability guarantee | One year | No | No |
| Huadong | April 28, 2020 | 23,000 | October 28, | 375 | Joint | One year | No | No |
NingboMedicine Co.,Ltd.
| Ningbo Medicine Co., Ltd. | 2020 | liability guarantee | ||||||
| Huadong Ningbo Medicine Co., Ltd. | April 28, 2020 | 23,000 | October 21, 2020 | 995 | Joint liability guarantee | One year | No | No |
| Huadong Ningbo Medicine Co., Ltd. | April 28, 2020 | 23,000 | October 14, 2020 | 995 | Joint liability guarantee | One year | No | No |
| Huadong Ningbo Medicine Co., Ltd. | April 28, 2020 | 23,000 | September 23, 2020 | 995 | Joint liability guarantee | One year | No | No |
| Huadong Ningbo Medicine Co., Ltd. | April 28, 2020 | 23,000 | September 11, 2020 | 960 | Joint liability guarantee | One year | No | No |
| Huadong Ningbo Medicine Co., Ltd. | April 28, 2020 | 23,000 | June 12, 2020 | 2,387 | Joint liability guarantee | One year | No | No |
| Huadong Ningbo Medicine Co., Ltd. | April 28, 2020 | 23,000 | September 4, 2020 | 682 | Joint liability guarantee | One year | No | No |
| Huadong Ningbo Medicine Co., Ltd. | April 28, 2020 | 23,000 | September 25, 2020 | 863 | Joint liability guarantee | One year | No | No |
| Huadong Ningbo Medicine Co., Ltd. | April 28, 2020 | 27,000 | June 28, 2020 | 1,200 | Joint liability guarantee | One year | No | No |
| Huadong Ningbo Medicine Co., Ltd. | April 28, 2020 | 27,000 | June 28, 2020 | 800 | Joint liability guarantee | One year | No | No |
| Huadong Ningbo | April 28, 2020 | 27,000 | July 2, 2020 | 1,000 | Joint liability | One year | No | No |
Medicine Co.,Ltd.
| Medicine Co., Ltd. | guarantee | |||||||
| Huadong Ningbo Medicine Co., Ltd. | April 28, 2020 | 27,000 | July 2, 2020 | 1,000 | Joint liability guarantee | One year | No | No |
| Huadong Ningbo Medicine Co., Ltd. | April 28, 2020 | 27,000 | June 1, 2020 | 7,498 | Joint liability guarantee | One year | No | No |
| Huadong Medicine Wenzhou Co., Ltd. | April 19, 2019 | 24,000 | February 20, 2020 | 3,000 | Joint liability guarantee | One year | No | No |
| Huadong Medicine Wenzhou Co., Ltd. | April 19, 2019 | 24,000 | February 27, 2020 | 4,000 | Joint liability guarantee | One year | No | No |
| Huadong Medicine Wenzhou Co., Ltd. | April 28, 2020 | 24,000 | One year | |||||
| Hangzhou Huadong Pharmacy Chain Co., Ltd. | April 28, 2020 | 5,000 | One year | |||||
| Huadong Medicine (Xi’an) Bohua Pharmaceutical Co., Ltd. | April 28, 2020 | 5,000 | One year | |||||
| Jiangsu Joyang Laboratories Co., Ltd. | April 28, 2020 | 7,000 | One year | |||||
| Huadong Medicine Ningbo Sales Co., Ltd. | April 28, 2020 | 15,000 | One year | |||||
| Huadong Medicine Huzhou Co., | 18,000 | Feburary 13, 2020 | 1,100 | Joint liability guarantee | One year | No | No |
Ltd.
| Ltd. | ||||||||
| Huadong Medicine Huzhou Co., Ltd. | April 28, 2020 | 19,000 | One year | |||||
| Huadong Medicine Shaoxing Co., Ltd. | April 28, 2020 | 18,000 | One year | |||||
| Huadong Medicine Supply Chain Management (Hangzhou) Co., Ltd. | April 19, 2019 | 6,000 | Feburary 28, 2020 | 379 | Joint liability guarantee | One year | No | No |
| Huadong Medicine Supply Chain Management (Hangzhou) Co., Ltd. | April 28, 2020 | 6,000 | One year | |||||
| Huadong Medicine Supply Chain Management (JinHua) Co., Ltd. | April 19, 2019 | 20,000 | One year | |||||
| Huadong Medicine Lishui Co., Ltd. | April 19, 2019 | 10,000 | Feburary 28, 2020 | 2,600 | Joint liability guarantee | One year | No | No |
| Huadong Medicine Lishui Co., Ltd. | April 28, 2020 | 15,000 | One year | |||||
| Huadong Medicine (Hangzhou) Biological Products Co., Ltd. | April 28, 2020 | 3,200 | One year | |||||
| Hangzhou Zhongmei Huadong | March 30, 2018 | 180,000 | Ten years |
PharmaceuticalJiangdong Co.,Ltd.
| Pharmaceutical Jiangdong Co., Ltd. | ||||||||||||||||
| Hangzhou Zhongmei Huadong Pharmaceutical Jiangdong Co., Ltd. | April 28, 2020 | 17,000 | Dcember 1, 2020 | 1,848 | Joint liability guarantee | One year | No | No | ||||||||
| Huadong Medicine Jinhua Co., Ltd. | April 28, 2020 | 10,000 | One year | |||||||||||||
| Huadong Medicine Cunde (Zhoushan) Co., Ltd. | April 28, 2020 | 12,000 | One year | |||||||||||||
| Huadong Medicine Daishan Co., Ltd. | April 28, 2020 | 5,500 | One year | |||||||||||||
| Sinclair Pharma Limited | September17, 2020 | 15,000 | One year | |||||||||||||
| Sinclair Pharma Limited | December23, 2018 | 40,000 | March 26, 2019 | 15,114 | Joint liability guarantee | Three years | No | No | ||||||||
| Total guarantee cap for subsidiaries approved during the reporting period (B1) | 306,700 | Total actual guarantee amount for subsidiaries during the reporting period (B2) | 79,742 | |||||||||||||
| Total approved guarantee cap for subsidiaries at the end of the reporting period (B3) | 546,700 | Total actual guarantee balance for subsidiaries at the end of the reporting period (B4) | 79,742 | |||||||||||||
| Subsidiariesguarantee for subsidiaries | ||||||||||||||||
| Guaranteed party | Disclosure date of the announcement of the guarantee cap | Guarantee cap | Actual date of occurrence | Actual guarantee amount | Type of guarantee | Term of guarantee | Fulfilled or not | Related party guarantee or not | ||||||||
| / | / | / | / | / | / | / | / | / | ||||||||
Total guarantee cap forsubsidiaries approved during thereporting period (C1)
| Total guarantee cap for subsidiaries approved during the reporting period (C1) | / | Total guarantee cap for subsidiaries approved during the reporting period (C1) | / |
| Total approved guarantee cap for subsidiaries at the end of the reporting period (C3) | / | Total approved guarantee cap for subsidiaries at the end of the reporting period (C3) | / |
| Total amount of the Company’s guarantees (i.e. the sum of the above-mentioned 3 kinds of guarantees) | |||
| Total guarantees cap approved during the reporting period (A1+B1+C1) | 306,700 | Total actual guarantee amount during the reporting period (A2+B2+C2) | 79,742 |
| Total approved guarantee cap at the end of the reporting period (A3+B3+C3) | 546,700 | Total actual guarantee balance at the end of the reporting period (A4+B4+C4) | 79,742 |
| Proportion of the actual guarantee amount (i.e. A4+B4+C4) in the Company’s net assets | 5.45% | ||
| Including: | |||
| Balance of guarantees for shareholders, actual controllers and their related parties (D) | / | ||
| Amount of debt guarantees provided directly or indirectly for the entities with a liability-to asset ratio over 70% (E) | 10,700 | ||
| The total amount of guarantees exceeds 50% of the net assets (F) | / | ||
| Total guarantee amount of the above-mentioned three kineds of guarantees (D+E+F) | 10,700 | ||
| For the unexpired guarantee, a guarantee liability has occurred or there may be a joint liability for satisfaction during the reporting period (if any) | / | ||
| Note of external guarantees in violation of prescribed procedures (if any) | / | ||
(2) External guarantees in violation of provisions
□ Applicable √ N/A
No such case during the reporting period.
3. Entrusted management of cash assets
(1) Entrusted finances
□ Applicable √ N/A
No such case during the reporting period.
(2) Entrusted loans
□ Applicable √ N/A
No such case during the reporting period.
4. Daily significant contracts
□ Applicable √ N/A
No such case during the reporting period.
5. Other significant contracts
□ Applicable √ N/A
No such case during the reporting period.XVIII. Social responsibilities
1. Fulfillment of social responsibilities
2020 is a crucial year for deepening the transformation of Huadong Medicine. It’s also a yearof hard work to face challenges and overcome difficulties and a year of remarkable achievementsand fruitful harvest. All members of Huadong Medicine have created innovative businessmanagement ideas and empowered the Company with wisdom and hard work, ensuring the steadydevelopment of Huadong Medicine.
In the process of strategic transformation, the Company has strictly performed its socialresponsibilities as a corporate citizen; paid attention to the demands of shareholders, employees,customers, suppliers, communities and other stakeholders; assumed social responsibilities forenvironmental protection, saved energy and reduced emissions, and promoted the efficient andstable operation of the EHS system; and taken an active part in public welfare undertakings.
The Company’s fulfillment of social responsibilities in 2020 can be found in “2020 Social
Responsibility Report of Huadong Medicine”.
2. Fulfillment of social responsibility for targeted poverty alleviation
The Company has not carried out targeted poverty alleviation in the reporting year, and there is no follow-up targeted povertyalleviation plan for the time being.
3. Environmental protection
Whether the Company and its subsidiaries are the key pollutant discharging units announced by the environmental protectionauthoritiesYes
Name ofthecompanyorsubsidiary
| Name of the company or subsidiary | Name of major pollutants | Discharge type | Number of discharge outlets | Distribution of discharge outlets | Concentration of discharge | Discharge standard of pollutants | Total discharge | Approved total discharge | Excessive discharge |
| Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd. | Water pollutant:: PH value | Intermittent discharge | 1 | Front gate, 866 Moganshan Road | 7.86 | 6-9 | / | / | None |
| Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd. | Water pollutant:: COD | Intermittent discharge | 1 | Front gate, 866 Moganshan Road | 186 mg/l | 500mg/l | 150.59 tons | 475.5tons/year | None |
| Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd. | Water pollutant: ammonia nitrogen | Intermittent discharge | 1 | Front gate, 866 Moganshan Road | 8.61mg/l | 35mg/l | 6.97 tons | / | None |
| Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd. | Solid pollutant: hazardous solid waste | Legal disposal by entrusted qualified units | 2 | In the factory at 866 Moganshan Road | / | / | 3304.35 tons | / | None |
HangzhouZhongmeiHuadongPharmaceuticalCo., Ltd.
| Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd. | Solid pollutant: general solid waste | Legal disposal by entrusted qualified units | 2 | In the factory at 866 Moganshan Road | / | / | 4896.59 tons | / | None |
| Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd. | Air pollutant: nitrogen oxide | Organized emission | 1 | Roof of the boiler room in Building No. 25 | 32.6mg/ m? | 400mg/ m? | 3.56 tons | 17.7 tons/year | None |
| Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd. | Air pollutant: sulfur dioxide | Organized emission | 1 | Roof of the boiler room in Building No. 25 | 3 mg/ m3 | 100mg/ m3 | 0.321 tons | / | None |
| Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd. | Air pollutant: dust and fume | Organized emission | 1 | Roof of the boiler room in Building No. 25 | 4.44 mg/ m3 | 30mg/ m3 | 0.481tons | / | None |
| Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd. | Air pollutant: volatile organic compound | Organized emission | 1 | 103 refining (east), Building No. 16 | 9.35 mg/ m3 | 80mg/ m3 | / | / | None |
| Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd. | Air pollutant: foul smell | Organized emission | 1 | 103 refining (east), Building No. 16 | 194 | 800(dimensionless) | / | / | None |
| Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd. | Air pollutant: volatile organic compound | Organized emission | 1 | 103 refining (west), Building No. 16 | 10.7mg/ m3 | 80mg/ m3 | / | / | None |
HangzhouZhongmeiHuadongPharmaceuticalCo., Ltd.
| Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd. | Air pollutant: foul smell | Organized emission | 1 | 103 fermentation, Building No. 27 | 214 | 800(dimensionless) | / | / | None |
| Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd. | Air pollutant: foul smell | Organized emission | 1 | 107 fermentation, Building No. 33 | 146 | 800(dimensionless) | / | / | None |
| Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd. | Air pollutant: foul smell | Organized emission | 1 | 303 sewage station, Building No. 18 | 614 | 800(dimensionless) | / | / | None |
| Huadong Medicine (Xi’an) Bohua Pharmaceutical Co., Ltd. | Water pollutant: PH value | Intermittent discharge | 1 | Along National Highway 310, Liuye River, Huayin City | 7.67 | 6-9 | / | / | None |
| Huadong Medicine (Xi’an) Bohua Pharmaceutical Co., Ltd. | Water pollutant: COD | Intermittent discharge | 1 | Along National Highway 310, Liuye River, Huayin City | 17.34mg/l | 50mg/l | 0.25tons | 3tons | None |
| Huadong Medicine (Xi’an) Bohua Pharmaceutical Co., Ltd. | Water pollutant: ammonia nitrogen | Intermittent discharge | 1 | Along National Highway 310, Liuye River, Huayin City | 0.92mg/l | 8mg/l | 0.013tons | 0.72tons | None |
HuadongMedicine(Xi’an)BohuaPharmaceuticalCo., Ltd.
| Huadong Medicine (Xi’an) Bohua Pharmaceutical Co., Ltd. | Water pollutant: total nitrogen | Intermittent discharge | 1 | Along National Highway 310, Liuye River, Huayin City | 5.29mg/l | 15mg/l | 0.076tons | / | None |
| Huadong Medicine (Xi’an) Bohua Pharmaceutical Co., Ltd. | Solid pollutant: hazardous waste | Compliant disposal by entrusted qualified units | 3 | In the company | / | / | 392.88tons | / | None |
| Huadong Medicine (Xi’an) Bohua Pharmaceutical Co., Ltd. | Air pollutant: volatile organic compound | Organized emission | 1 | Raw medicine No.1 workshop | / | 60mg/ m3 | / | / | None |
| Huadong Medicine (Xi’an) Bohua Pharmaceutical Co., Ltd. | Air pollutant: hydrogen chloride | Organized emission | 1 | Raw medicine No.1 workshop | / | 30mg/ m3 | / | / | None |
| Huadong Medicine (Xi’an) Bohua Pharmaceutical Co., Ltd. | Air pollutant: hydrogen chloride | Organized emission | 1 | Raw medicine No.2 workshop | / | 20mg/ m3 | / | / | None |
| Huadong Medicine (Xi’an) Bohua Pharmaceutical | Air pollutant: particulate matter | Organized emission | 1 | Raw medicine No.2 workshop | / | 20mg/ m3 | / | / | None |
Co., Ltd.
| Co., Ltd. | |||||||||
| Huadong Medicine (Xi’an) Bohua Pharmaceutical Co., Ltd. | Air pollutant: sulfuric acid mist | Organized emission | 1 | Raw medicine No.2 workshop | / | 45mg/ m3 | / | / | None |
| Jiangsu Joyang Laboratories Co., Ltd. | Water pollutant: PH value | Intermittent discharge | 1 | Haidubei Road | 8.32 | 6-9 | / | / | None |
| Jiangsu Joyang Laboratories Co., Ltd. | Water pollutant: COD | Intermittent discharge | 1 | Haidubei Road | 170mg/l | 500mg/l | 12.24tons | 51.4173tons/year | None |
| Jiangsu Joyang Laboratories Co., Ltd. | Water pollutant: ammonia nitrogen | Intermittent discharge | 1 | Haidubei Road | 13mg/l | 35mg/l | 0.9tons | 3.6819tons/year | None |
| Jiangsu Joyang Laboratories Co., Ltd. | Water pollutant: SS | Intermittent discharge | 1 | Haidubei Road | 92mg/l | 400mg/l | 6.624tons | 24.968tons/year | None |
| Jiangsu Joyang Laboratories Co., Ltd. | Solid pollutant: hazardous solid waste | Legal disposal by entrusted qualified units | / | In the factory at Haidubei Road | / | / | 786.698tons | 3148.7tons/year | None |
| Jiangsu Joyang Laboratories Co., Ltd. | Air pollutant: particulate matter | Organized emission | 5 | Dosing section of workshop 101, fermentation section of workshop | 6.3mg/m3 | 10mg/m3 | 0.354tons/year | 0.797tons/year | None |
101,dosingsection ofworkshop
(sharedby 107and 108),fermentation sectionofworkshop
(sharedby 107and 108),anddryingsection ofworkshop
(sharedby 107and 108)
| 101, dosing section of workshop 104 (shared by 107 and 108), fermentation section of workshop 104 (shared by 107 and 108), and drying section of workshop 104 (shared by 107 and 108) | |||||||||
| Jiangsu Joyang Laboratories Co., Ltd. | Air pollutant: ethyl acetate | Organized emission | 3 | Extraction of workshop 101, Extraction of workshop 104, and workshop 303 | 7.7mg/m3 | 50mg/m3 | 0.392tons/half year | 1.074tons/year | None |
Construction and operation of pollution prevention and control facilities
1. Construction and operation of pollution prevention and control facilities of Hangzhou Zhongmei Huadong Pharmaceutical Co.,Ltd.:
(1) Waste water
| Name of pollution prevention and control facilities | Treatment process | Processing capacity | Time of operation | Status of operation |
| Waste water treatment system of the old sewage | Facultative + fluidized | Original 600 tons/day; 800 tons/day after technical | November 1993; technical | Normal |
station
| station | bed | transformation | transformation in 2007 | |
| Waste water treatment system of the new sewage station | Anaerobic (IC tower)+ facultative +CASS+ air flotation | 2,200 tons/day | December 2001; technical transformation in 2014 (IC and air flotation added) | Normal |
(2) Waste gas
| Name of pollution prevention and control facilities | Treatment process | Processing capacity | Time of operation | Status of operation |
| Waste gas treatment unit of 103 fermentation (DA001) | Condensation + level 1 alkali spray + all-in-one machine + level 1 alkali spray | 15,000 | 2009 | Normal |
| Waste gas treatment unit of 103 refining (DA002) | Level 1 water spray + level 1 alkali spray | 12,000 | 2012 | Normal |
| Waste gas treatment unit of 103 refining DA003) | Level 1 water spray + level 1 plant oil and water spray | 30,000 | 2014 | Normal |
| Waste gas treatment unit of 303 sewage station (DA004) | Level 2 alkali spray + photo-oxidation + activated carbon + level 1 alkali spray | 16,000 (one standby plant: 13,000） | 2001 | Normal |
| Waste gas treatment unit of 107 fermentation (DA005) | Level 3 alkali spray / condensation + level 1 alkali spray | 48,000+30,000 | 2009 | Normal |
| Waste gas treatment unit of 107 drying tower (DA006) | Bag dust removal + high efficiency filtration | 5,000 | 2012 | Normal |
| Waste gas treatment unit of 301 boiler (DA008 and DA009) | Low nitrogen combustion + high altitude emission | 8,000 | 2009 (The low nitrogen transformation completed in December 2019.) | Normal |
Note: Waste gas treatment process of 107 fermentation section: when the fermentation tank is not disinfected, the waste gas isdischarged at high altitude after level 3 alkali spray; when the fermentation tank is disinfected, the waste gas is first condensed andthen treated with level 1 alkali spray, and then discharged at high altitude.
(3) Solid waste
Name of pollutionprevention and control
facilities
| Name of pollution prevention and control facilities | Treatment process | Processing capacity | Time of operation | Status of operation |
| Hazardous waste warehouse | Standardized storage | 160 tons | March 2012 | Standardized storage; legal disposal by qualified units |
| Standardized storage | 240 tons | March 2010 | ||
| General solid waste yard | Standardized storage | 7 tons | March 2010 | Standardized storage; legal disposal by qualified units |
| Standardized storage | 30 tons | June 2004 |
2. Huadong Medicine (Xi’an) Bohua Pharmaceutical Co., Ltd.:
(1) Waste water
| Name of pollution prevention and control facilities | Treatment process | Processing capacity | Time of operation | Status of operation |
| Waste water treatment system of the sewage station | Ozone oxidation + facultative + aerobic + MBR | 250 tons/day | July 2012 | Normal |
(2) Waste gas
| Name of pollution prevention and control facilities | Treatment process | Time of operation | Status of operation |
| Waste gas treatment unit of raw medicine No. 1 workshop | Alkali spray + dry filter (filter cotton) +UV photolysis + activated carbon adsorption | October 2020 | Normal |
| Waste gas treatment unit of raw medicine No. 2 workshop | Alkali spray + UV photo-oxidation + activated carbon | November 2019 | Normal |
(3) Solid waste
| Name of pollution prevention and control facilities | Treatment process | Storage capacity | Time of operation | Status of operation |
| Hazardous waste warehouse | Standardized storage | 60 tons | January 2012 | Standardize storage; legal disposal by entrusted qualified units |
3. Construction and operation of pollution prevention and control facilities of Jiangsu Joyang Laboratories Co., Ltd.:
(1) Waste water
| Name of pollution prevention and control facilities | Treatment process | Processing capacity | Time of operation | Status of operation |
Waste water treatmentsystem of the sewage
station
| Waste water treatment system of the sewage station | Air floatation tank + hydrolysis acidification + IC tower + UASB pool + A/O pool + O pool + secondary sedimentation tank | 300 tons/day | December 2014 | Normal |
(2) Waste gas
| Name of pollution prevention and control facilities | Treatment process | Processing capacity CMH | Time of operation | Status of operation |
| Waste gas treatment unit of the extraction section of workshop 101 | Level 1 water spray + moisture separator + photocatalytic oxidation + level 2 activated carbon adsorption + high-altitude discharge via 25m exhaust pipe | 10,000 | 2014 | Normal |
| Waste gas treatment unit of the fermentation section of workshop 101 | Level 1 water spray + moisture separator + level 2 activated carbon adsorption + high-altitude discharge via 25m exhaust pipe | 2,000 | 2019 | Normal |
| Waste gas treatment unit of the drying section of workshop 101 | Level 1 water spray + moisture separator + level 2 activated carbon adsorption + high-altitude discharge via 25m exhaust pipe | 22,000 | 2017 | Normal |
| Waste gas treatment unit of the dosing section of workshop 101 | Cyclone separator + level 1 water spray + high-altitude discharge via 15m exhaust pipe | 5,000 | 2014 | Normal |
| Waste gas treatment unit of the fermentation section of workshop 104 | Level 1 water spray + moisture separator + level 2 activated carbon adsorption + high-altitude discharge via 25m exhaust pipe | 10,000 | 2015 | Normal |
| Waste gas treatment unit of the extraction section of workshop 104 | Level 1 water spray + moisture separator + photocatalytic oxidation + level 2 activated carbon adsorption + high-altitude discharge via 25m exhaust pipe | 10,000 | 2015 | Normal |
| Waste gas treatment unit of the dosing section of workshop 104 | Cyclone separator + level 1 water spray + high-altitude discharge via 15m exhaust pipe | 5,000 | 2015 | Normal |
| Waste gas treatment unit of the drying section of workshop 104 | Level 1 water spray + moisture separator + level 2 activated | 20,000 | 2015 | Normal |
carbon adsorption
| carbon adsorption | ||||
| Waste gas treatment unit of workshop 103 | Level 1 water spray + moisture separator + photocatalytic oxidation + level 2 activated carbon adsorption + high-altitude discharge via 25m exhaust pipe | 10,000 | 2019 | Normal |
| Waste gas treatment unit of workshop 106 | Level 1 water spray + moisture separator + photocatalytic oxidation + level 2 activated carbon adsorption + high-altitude discharge via 25m exhaust pipe | 10,000 | 2015 | Normal |
| Waste gas treatment unit of the extraction section of workshop 107 | Level 1 water spray + moisture separator + level 2 activated carbon adsorption + high-altitude discharge via 25m exhaust pipe | 20,000 | 2019 | Normal |
| Waste gas treatment unit of the extraction section of workshop 108 | Level 1 water spray + moisture separator + photocatalytic oxidation + level 2 activated carbon adsorption + high-altitude discharge via 25m exhaust pipe | 40,000 | 2019 | Normal |
| Workshop 109 | Level 1 water spray +photocatalytic oxidation + level 2 activated carbon adsorption+ high-altitude discharge via 25m exhaust pipe | 20,000 | 2019 | Normal |
| Waste gas treatment unit of sewage station 303 | Level 1 water spray + light catalytic+photocatalytic oxidation + level 2 activated carbon adsorption+ high-altitude discharge via 25m exhaust pipe | 10,000 | 2014 | Normal |
(3) Solid waste
| Name of pollution prevention and control facilities | Treatment process | Processing capacity | Time of operation | Status of operation |
| Hazardous waste warehouse | Standardized storage | 300 tons | December 2020 | Standardized storage; legal disposal by entrusted qualified units |
Domestic waste yard
| Domestic waste yard | Standardized storage | 3 tons | March 2015 | Chengdong Garbage Disposal Station |
Environmental impact assessment of construction projects and other administrative permits for environmental protectionAll construction projects of the above three subsidiaries of the Company have be declared, constructed and accepted in strictaccordance with the requirements of “three simultaneous” for environmental protection, have passed environmental impactassessment, and met the requirements of environmental impact assessment for construction projects. The Company has obtained thepollutant discharge permit and the discharge permit of urban sewage into the drainage pipe network according to the environmentalprotection requirements.On May 21, 2020, Zhongmei Huadong completed the filing of the environmental report form for the technical transformationproject of the macromolecular drug research and development professional laboratory (pilot test), and obtained the filing acceptanceletter (No.: Hangzhou Gonghuan Parts [2020] 01). Zhongmei Huadong completed the independent inspection and acceptance ofenvironmental protection for the completion of the comprehensive production quality inspection building construction project, anddisclosed the acceptance information in the National Completed Environmental Protection Acceptance Information System.
Emergency plan for environmental emergenciesThe company has established a comprehensive emergency response plan for environmental emergencies, standardizes theemergency handling of environmental emergencies, and minimizes the impact on human health caused by the leakage ofenvironmental risk substances into the air, water or soil due to fire, explosion, leakage or other unexpected emergencies. Andenvironmental hazards, continue to improve the company's emergency response capabilities for sudden environmental pollutionincidents.
The company has comprehensively established the emergency plan for environmental emergencies, standardized the emergencytreatment of environmental emergencies, minimized the harm to human health and environment caused by the leakage ofenvironmental risk substances to air, water or soil due to fire, explosion, leakage or other unexpected emergencies, and continuouslyimproved the emergency response capacity of the company for environmental pollution emergencies. The above three subsidiaries ofthe Company have compiled and established the mechanism of “Emergency Plan for Environmental Emergencies”, revised andimproved it regularly according to the requirements,Huadong Pharmaceutical (Xi'an) Bohua Pharmaceutical Co., Ltd. and Huayin branch of Weinan Ecological Environment Bureaujointly held the emergency drill for environmental emergencies in Huayin City in 2020 on June 3, 2020.Jiangsu Joyang Laboratories Co., Ltd organized a fire emergency drill in the storage tank area of the 302 workshop in May 2020.In June and July 2020, it organized more than 30 comprehensive and special drills such as solvent leakage, fire emergency drills, and119 fire protection publicity day activities, which standardized the emergency handling of environmental emergencies, minimized thehazards to human health and the environment caused by the leakage of environmental risk substances into the air, water or soil due tofire, explosion, leakage or other unexpected emergencies, and enhanced the emergency response capability for environmentalpollution incidents.
Environmental self-monitoring schemeThe above three subsidiaries of the Company have all established the mechanism of “Self-monitoring Scheme for Pollution Sources”which has been put on record in the environmental protection authorities, and all the monitoring data are reported daily according tothe regulations.Other environmental information that should be made publicNone
Other information related to environmental protectionNoneXIX. Other major events
√ Applicable □ N/A
Main drugs (products) included, newly included and withdrawn from the National Essential Drug List and the NationalReimbursement Drug List during the reporting period:
During the reporting period, the National Healthcare Security Administration and the Ministry of Human Resources and SocialSecurity officially launched the “National Drug List for Basic Medical Insurance, Work-Related Injury Insurance and MaternityInsurance (2020)” (hereinafter referred to as the “Drug List”(2020 Edition)) , which will be officially implemented on March 1, 2021.As of the end of the reporting period, the Company has listed 24 core products and 15 products under research into the “DrugList” (2020 Edition), of which the Company's listed products, Acarbose Chewable Tablets and Bailing Capsules, are listed in the“Drug List” (2020 Edition) Negotiation varieties.
As of the end of the reporting period, the Company had a total of 14 varieties (including 3 under-research varieties) included inthe “National Essential Drug List (2018 Edition)”.
XX. Major events of subsidiaries
□ Applicable √ N/A
Section VI. Share Change and ShareholdersI. Changes in Share Capital
1. Table of Changes in share capital
Unit: share
| Before the change | Change in the period (+/-) | After the change | |||||||
| Number of shares | Proportion | New shares | Number of shares | Proportion | New shares | Number of shares | |||
| I. Shares subject to conditional restriction | 25,245 | 0.00% | 0 | 0 | 0 | 22,500 | 22,500 | 47,745 | 0.00% |
| 1. Shares held by the state | 0 | 0.00% | 0 | 0 | 0 | 0 | 0 | 0 | 0.00% |
| 2. Shares held by state-owned corporations | 0 | 0.00% | 0 | 0 | 0 | 0 | 0 | 0 | 0.00% |
| 3. Shares held by other domestic investors | 25,245 | 0.00% | 0 | 0 | 0 | 22,500 | 22,500 | 47,745 | 0.00% |
| Including: held by domestic corporations | 0 | 0.00% | 0 | 0 | 0 | 0 | 0 | 0 | 0.00% |
| held by domestic natural persons | 25,245 | 0.00% | 0 | 0 | 0 | 22,500 | 22,500 | 47,745 | 0.00% |
| 4. Shares held by overseas investors | 0 | 0.00% | 0 | 0 | 0 | 0 | 0 | 0 | 0.00% |
| Including: held by overseas corporations | 0 | 0.00% | 0 | 0 | 0 | 0 | 0 | 0 | 0.00% |
| held by overseas natural persons | 0 | 0.00% | 0 | 0 | 0 | 0 | 0 | 0 | 0.00% |
| II. Shares without restriction | 1,749,784,303 | 100.00% | 0 | 0 | 0 | -22,500 | -22,500 | 1,749,761,803 | 100.00% |
| 1. RMB ordinary shares | 1,749,784,303 | 100.00% | 0 | 0 | 0 | -22,500 | -22,500 | 1,749,761,803 | 100.00% |
| 2. Domestically listed foreign shares | 0 | 0.00% | 0 | 0 | 0 | 0 | 0 | 0 | 0.00% |
| 3. Foreign shares listed overseas | 0 | 0.00% | 0 | 0 | 0 | 0 | 0 | 0 | 0.00% |
4. Others
| 4. Others | 0 | 0.00% | 0 | 0 | 0 | 0 | 0 | 0 | 0.00% |
| III. Total number of shares | 1,749,809,548 | 100.00% | 0 | 0 | 0 | 0 | 0 | 1,749,809,548 | 100.00% |
Reasons for the changes in share capital
√ Applicable □ N/A
The Company held the 9th interim meeting of the Board of Directors on October 12, 2020, and approved the Proposal onAppointing Ms. Zhu Li as the Deputy General Manager of the Company, consenting to engage Ms. Zhu Li as the Deputy GeneralManager of Huadong Medicine Co., Ltd., who is responsible for commercial matters, and concurrently as the General Manager ofHuadong Pharmaceutical Distribution Company. Ms. Zhu Li holds a total of 30,000 shares of the Company, among which 22,500shares are restricted shares for senior executives according to relevant regulations.Approval for changes in share capital
√ Applicable □ N/A
The Company held the 9th interim meeting of the Board of Directors on October 12, 2020, and approved the Proposal onAppointing Ms. Zhu Li as the Deputy General Manager of the Company, consenting to engage Ms. Zhu Li as the Deputy GeneralManager of Huadong Medicine Co., Ltd., who is responsible for commercial matters, and concurrently as the General Manager ofHuadong Pharmaceutical Distribution Company. Her term of office starts from the date on which the resolution was approved by theBoard of Directors and ends on the expiration of the current Board of Directors (June 5, 2022). For details, please refer to theAnnouncement of the Resolution of the 9th Interim Board of Directors (Announcement No.: 2020-039) issued on the same day.Transfer of shares
□ Applicable √ N/A
Progress of share repurchase
□ Applicable √ N/A
Progress of reducing repurchased shares through centralized bidding
□ Applicable √ N/A
Effects of changes in share capital on the basic earnings per share, diluted earnings per share for the most recent year and the mostrecent period, the net assets per share attributable to the Company’s shareholders of common shares and other financial indicators
□ Applicable √ N/A
Other disclosures the Company deems necessary or required by securities regulatory authorities
□ Applicable √ N/A
2. Changes in restricted shares
√ Applicable □ N/A
Unit: share
| Name of shareholder | Opening restricted shares | Increased in current period | Vested in current peirod | Closing restricted shares | Note for restricted share | Date of unlocking |
| He, Rufen | 25,245 | 0 | 0 | 25,245 | Supervisor restriction | / |
| Zhu Li | 0 | 22,500 | 0 | 22,500 | Executives | / |
restriction
| restriction | ||||||
| Total | 25,245 | 22,500 | 0 | 47,745 | -- | -- |
II. Issuance and listing of securities
1. Securities (excluding preferred shares) during the reporting period
□ Applicable √ N/A
2. Explanation on changes in share capital, the structure of shareholders and the structure of assets andliabilities
□ Applicable √ N/A
3.Existent shares held by internal staff of the Company
□ Applicable √ N/A
III. Particulars about shareholders and the actual controller
1. Total number of shareholders and their shareholdings
Unit: share
Total number ofcommonshareholderss at theend of the reportingperiod
| Total number of common shareholderss at the end of the reporting period | 129,940 | Total number of common shareholders at the end of the previous month before the disclosure of the annual report | 168,355 | Total number of preference shareholders with restoration of the voting rights at the end of the reporting period (if any) (see Note 8) | 0 | Total number of preference shareholders with restoration of the voting rights at the end of the previous month before the disclosure of the annual report (if any) (see Note 8) | 0 | ||||||||
| Particulars about shareholders with a shareholding ratio over 5% or the Top 10 shareholders | |||||||||||||||
| Name of shareholder | Nature of shareholder | Share- holding ratio | Total shares held at the end of the reporting period | Changes in the reporting period | The number of common shares held with trading restrictionsrestricted shares held | The number of shares held without trading restriction | Pledged or frozen | ||||||||
| Status | Status | ||||||||||||||
| China Grand Enterprises, Inc. | Domestic non-state-owned corporation | 41.77% | 730,938,157 | 0 | 0 | 730,938,157 | Pledged | 259,114,000 | |||||||
| Hangzhou Huadong Medicine Group Co., Ltd. | State-owned corporation | 15.92% | 278,620,000 | -9,380,000 | 0 | 278,620,000 | |||||||||
| Hong Kong Securities Clearing Company Ltd. | Overseas corporation | 2.19% | 38,299,615 | 1,512,895 | 0 | 38,299,615 | |||||||||
| China Securities Finance Co., | Domestic non-state-owned corporation | 1.27% | 22,186,818 | 0 | 0 | 22,186,818 | |||||||||
National Social Security FundPortfolio 106
| National Social Security Fund Portfolio 106 | Others | 0.95% | 16,550,361 | -6,791,152 | 0 | 16,550,361 | ||||
| National Social Security Fund Portfolio 602 | Others | 0.45% | 7,926,311 | 7,926,311 | 0 | 7,926,311 | ||||
| Basic Endowment Insurance Fund Portfolio 15041 | Others | 0.44% | 7,623,568 | 2,505,480 | 0 | 7,623,568 | ||||
| National Social Security Fund Portfolio 503 | Others | 0.40% | 6,999,773 | 6,999,773 | 0 | 6,999,773 | ||||
| Basic Endowment Insurance Fund Portfolio 807 | Others | 0.29% | 5,133,343 | -217,170 | 0 | 5,133,343 | ||||
| Bank of China Co., Ltd. – Harvest Mixed Type Securities Investment Fund LOF with 3Y closed operation through private placements with strategic investors and flexible allocation | Others | 0.24% | 4,266,168 | 4,266,168 | 0 | 4,266,168 | ||||
| Strategic investors or general corporations become the top 10 shareholders due to the placement of new shares (if any) (see Note 3) | None | |||||||||
| Explanation on associated relationships or concerted actions among the above-mentioned shareholders | The Company does not know whether the above-mentioned shareholders are related parties or whether they are acting-in-concert parties with one another. | |||||||||
| Description about above-mentioned shareholders’ entrusting/being entrusted with and waiving voting rights t | None | |||||||||
| Shareholding of the top 10 shareholders without trading restriction conditions | ||||||||||
| Name of shareholder | Number of the trading unrestricted stocks held at the end of the Report Period | Type of stocks | ||||||||
| Type of stocks | Qty | |||||||||
| China Grand Enterprises, Inc. | 730,938,157 | RMB ordinary stocks | 730,938,157 | |||||||
Hangzhou Huadong Medicine
| Hangzhou Huadong Medicine | 278,620,000 | RMB ordinary stocks | 278,620,000 |
| Hong Kong Securities Clearing Company Ltd. | 38,299,615 | RMB ordinary stocks | 38,299,615 |
| China Securities Finance Co., Ltd. | 22,186,818 | RMB ordinary stocks | 22,186,818 |
| National Social Security Fund Portfolio 106 | 16,550,361 | RMB ordinary stocks | 16,550,361 |
| National Social Security Fund Portfolio 602 | 7,926,311 | RMB ordinary stocks | 7,926,311 |
| Basic Endowment Insurance Fund Portfolio 15041 | 7,623,568 | RMB ordinary stocks | 7,623,568 |
| National Social Security Fund Portfolio 503 | 6,999,773 | RMB ordinary stocks | 6,999,773 |
| Basic Endowment Insurance Fund Portfolio 807 | 5,133,343 | RMB ordinary stocks | 5,133,343 |
| Bank of China Co., Ltd. – Harvest Mixed Type Securities Investment Fund LOF with 3Y closed operation through private placements with strategic investors and flexible allocation | 4,266,168 | RMB ordinary stocks | 4,266,168 |
| Description for affiliated relationship or concerted action among the top 10 shareholders holding tradable stocks without trading restriction conditions and between the top 10 shareholders holding tradable stocks without trading restriction conditions and | The Company does not know whether the above-mentioned shareholders are related parties or whether they are acting-in-concert parties with one another. | ||
| Description of the participation in margin trading business of the top 10 common shareholders (if any) (see Note 4) | The second major shareholder of the Company, Hangzhou Huadong Medicine Group Co., Ltd., holds 288,000,000 shares of the Company, accounting for 16.46% of the Company’s total capitalization. As of the end of the reporting period, 9,380,000 shares thereof were subject to refinancing securities lending transactions in China Securities Finance Corporation Limited. | ||
Whether the Company’s Top 10 common shareholders or the Top 10 common shareholders without trading restriction have carried out any agreement to repurchase transaction during thereporting period
□ Yes √ No
No such case during the reporting period.
2. Particulars about controlling shareholder of the Company
Nature of controlling shareholder: Natural individual holdingType of controlling shareholder: Corporation
Name of controllingshareholder
| Name of controlling shareholder | Legal representative/person in charge | Date of establishment | Organization code | Main business |
| China Grand Enterprises, Inc. | Hu Kaijun | October 27, 1993 | 91110000101690952K | Investment management |
| Shares held by the controlling shareholder in other listed companies through controlling or holding during the reporting period | The other two listed companies controlled by China Grand Enterprises, Inc. are Grand Industrial Holding Co., Ltd. and China Grand Pharmaceutical and Healthcare Holdings Limited. | |||
Change of the controlling shareholder during the reporting period
□ Applicable √ N/A
No such case during the reporting period.
3. Particulars about the Company’s actual controller & concerted parties
Nature of actual controller: Domestic natural individual holdingType of actual controller: Natural individual
| Name of actual controller | Relationship with the actual controller | Nationality | Whether the actual controller has obtained the right of abode in another country or region |
| Hu Kaijun | Hu Kaijun | China | Yes |
| Main occupation and position | Chairman of the Board and General Manager of China Grand Enterprises, Inc.; Chairman of the Board and General Manager of Beijing Yuanda Huachuang Investment Co., Ltd. | ||
| Share held by the actual controlling shareholder in domestic or overseas listed companies in the past the years | The three listed companies controlled by actual controller are Huadong Medicine Co., Ltd., Grand Industrial Holding Co., Ltd., and China Grand Pharmaceutical and Healthcare Holdings Limited. | ||
Change of the actual controller during the reporting period
□ Applicable √ N/A
No such case during the reporting period.
The ownership and controlling relationship between the actual controller of the Company and the Company is detailed as follows:
The actual controller controls the Company through a trust or other way of assets management
□ Applicable √ N/A
4. Other corporate shareholders with a shareholding ratioover 10%
√ Applicable □ N/A
Name of corporateshareholders
| Name of corporate shareholders | Legal representative/person in charge | Date of establishment | Registered capital | Main business or management activities |
| Hangzhou Huadong Medicine Group Co., Ltd. | Jin Xuhu | December 21, 1992 | 60 million yuan | The production and processing of compound wine, bagged tea, and donkey-hide glue products (the branches can operate only with licenses), and the state-owned asset operation within the authorized scope of the municipal government; industrial investment; wholesale and retail: chemical raw materials and products (except dangerous chemicals and precursor chemicals), package materials, medical intermediates (except dangerous chemicals and precursor chemicals); other legal items that need no submission for approval. |
5. Reduction of restricted shares held by controlling shareholder, actual controller, restructuring partiesand other commitment subjects
□ Applicable √ N/A
Section VIII. Convertible Corporate Bonds
□ Applicable √ N/A
No such case during the reporting period.
Section VIII. Convertible Corporate Bonds
□ Applicable √ N/A
No such case during the reporting period.
Section IX. Directors, Supervisors, Senior Managers and EmployeesI. Changes in shareholding of directors, supervisors and senior managers
Name
| Name | Title | Tenure staturs | Gender | Age | Commencement of term of duty | Commencement of term of duty | Shares held at the beginning of the period (shares) | Shares increased during the Period(shares) | Shares decreased during the Period(shares) | Other changes(shares) | Shares held at the end of the Period (shares) |
| Lv Liang | Chairman | Incumbent | Male | 47 | June 06, 2019 | June 05, 2022 | 0 | 0 | 0 | 0 | 0 |
| Li Bangliang | Honorary Chairman | Incumbent | Male | 75 | June 06, 2019 | June 05, 2022 | 0 | 0 | 0 | 0 | 0 |
| Li Yuedong | Director, General Manager(CEO) | Incumbent | Male | 49 | June 06, 2019 | June 05, 2022 | 0 | 0 | 0 | 0 | 0 |
| Niu Zhanqi | Director | Incumbent | Male | 54 | June 03, 2016 | June 05, 2022 | 0 | 0 | 0 | 0 | 0 |
| Kang Wei | Director | Incumbent | Female | 53 | December 05, 2016 | June 05, 2022 | 0 | 0 | 0 | 0 | 0 |
| Jin Xuhu | Director | Incumbent | Male | 58 | June 06, 2019 | June 05, 2022 | 0 | 0 | 0 | 0 | 0 |
| Zhu Liang | Director | Incumbent | Male | 44 | June 06, 2019 | June 05, 2022 | 0 | 0 | 0 | 0 | 0 |
| Zhong Xiaoming | Independent Director | Incumbent | Male | 59 | January 6, 2016 | June 05, 2022 | 0 | 0 | 0 | 0 | 0 |
| Yang Lan | Independent Director | Incumbent | Female | 52 | April 27, 2017 | June 05, 2022 | 0 | 0 | 0 | 0 | 0 |
Yang Jun
| Yang Jun | Independent Director | Incumbent | Female | 49 | June 06, 2019 | June 05, 2022 | 0 | 0 | 0 | 0 | 0 |
| Bai Xinhua | Supervisor | Incumbent | Female | 55 | January 20, 1998 | June 05, 2022 | 0 | 0 | 0 | 0 | 0 |
| Liu Chengwei | Supervisor | Incumbent | Male | 48 | January 6, 2016 | June 05, 2022 | 0 | 0 | 0 | 0 | 0 |
| Qin Yun | Supervisor | Incumbent | Female | 51 | May 19, 2006 | June 05, 2022 | 0 | 0 | 0 | 0 | 0 |
| Hu Baozhen | Supervisor | Incumbent | Female | 48 | June 06, 2019 | June 05, 2022 | 0 | 0 | 0 | 0 | 0 |
| He Rufen | Supervisor | Incumbent | Female | 53 | June 06, 2019 | June 05, 2022 | 33,660 | 0 | 0 | 0 | 33,660 |
| Xu Zhifeng | Supervisor | Incumbent | Male | 46 | June 06, 2019 | June 05, 2022 | 0 | 0 | 0 | 0 | 0 |
| Zhou Shunhua | Deputy General Manager | Incumbent | Male | 61 | June 30, 2009 | June 05, 2022 | 0 | 0 | 0 | 0 | 0 |
| Wu Hui | Deputy General Manager | Incumbent | Male | 52 | June 06, 2019 | June 05, 2022 | 0 | 0 | 0 | 0 | 0 |
| Zhu li | Deputy General Manager | Incumbent | Male | 46 | October 12, 2020 | June 5, 2022 | 30,000 | 0 | 0 | 0 | 30,000 |
| Chen Bo | Board Secretary | Incumbent | Male | 49 | June 30, 2009 | June 05, 2022 | 0 | 0 | 0 | 0 | 0 |
| Qiu Renbo | Person in Charge of Finance | Incumbent | Male | 39 | November 28, 2019 | June 05, 2022 | 0 | 0 | 0 | 0 | 0 |
| Total | -- | -- | -- | -- | -- | -- | 63,660 | 0 | 0 | 0 | 63,660 |
II. Change of directors, supervisors and senior managers of the Company
√ Applicable □ N/A
Name
| Name | Title | Type | Date | Reason |
| Zhu li | Deputy General Manager | Incumbent | October 12, 2020 | Elected by the Board of Directors |
III. Positions and IncumbencyProfessional background, main working experiences and main responsibilities of the Company’s incumbent directors, supervisors andsenior managers
(1) Profile of directors
Chairman –Mr. Lv Liang: born in 1974, holds a master’s degree. He has served as Project Manager of Grand Asset ManagementCo., Ltd. from July 1997 to July 2001; Deputy General Manager and General Manager of Changshu Leiyunshang Pharmaceutical Co.,Ltd. from July 2001 to March 2010; Director and Deputy General Manager of the Company from April 2010 to January 2016;Director and General Manager of the Company from January 6, 2016 to June 5, 2019; and Chairman of the Board of the Companysince June 6, 2019.Director and General Manager – Mr. Li Yuedong: born in 1972, holds a master’s degree. He has served as clerk and section chiefof Zhejiang Pharmaceutical Supply and Marketing Company and Zhejiang Int’l Medicine Co., Ltd.; General Manager of AibangHealth Care Products Company; Deputy General Manager and General Manager of Hangzhou Zhuyangxin Pharmaceutical Co., Ltd.;Deputy General Manager of Hangzhou Huadong Medicine Group Co., Ltd; Director of the Company since April 2014, and DeputyGeneral Manager of the Company from August 17, 2016 to June 5, 2019; and Director and General Manager of the Company sinceJune 6, 2019.Director – Mr. Niu Zhanqi: born in 1967, Doctor of Pharmacy. He has served as technical researcher of Chengde TechnicalSupervision Bureau; Deputy Director of Hebei Pharmaceutical Group Research Institute; Manager of Technical DevelopmentDepartment of China Shijiazhuang Pharmaceutical Group; Manager of Medicine Department of CSPC Ouyi Pharmaceutical Co. Ltd.;Deputy General Manager of CSPC NBP Pharmaceutical Co., Ltd.; senior R&D director of CSPC; Vice President of PharmaceuticalManagement Head Office and General Manager of R&D Management Department of China Grand Enterprises, Inc. from March2013 to June 2016; CEO of Pharmaceutical Management Head Office of China Grand Enterprises, Inc. from June 2016 to November2018; President of Pharmaceutical Management Head Office of China Grand Enterprises, Inc. since November 2018; and Director ofthe Company since June 2016.Director – Ms. Kang Wei: born in 1968, holds a master’s degree. She has served as Manager of the Trade Division, Manager of theCapital Division and Manager of Financial Management of the Financial Management Department of China Grand Enterprises, Inc.;Chief Financial Officer and Deputy General Manager of Heilongjiang Grand Shopping Center; currently Chief Financial Officer ofChina Grand Enterprises, Inc.; and Director of the Company since December 2016.Director - Mr. Jin Xuhu: born in 1963, holds a bachelor’s degree. He has served as Chairman and General Manager of HangzhouHuadong Medicine Group Co., Ltd.; Party Secretary and Chairman of Hangzhou State-owned Capital Investment and Operation Co.,Ltd., Executive Director & Manager of Hangzhou Huadong Medicine Group Co., Ltd., since January 2019; and Director of theCompany since June 2019.Director - Mr. Zhu Liang: born in 1977, holds a bachelor’s degree. He has served as Director of the Labor Union of HangzhouHuadong Medicine Group Co., Ltd., Vice Chairman of the Labor Union of Hangzhou Huadong Medicine Group Co., Ltd., Chairmanof the Labor Union of Hangzhou Huadong Medicine Group Co., Ltd. and Huadong Medicine Co., Ltd.; Supervisor of the Companyfrom April 2017 to June 2019; and Director of the Company since June 2019.
Independent Director - Mr. Zhong Xiaoming: born in 1962, holds a master’s degree. He has been Deputy Director of the NewDrugs Office, professor, postgraduate student and doctoral supervisor of Zhejiang Chinese Medical University since 1985; chiefscientist of Zhejiang University since 2013; and Independent Director of the Company since January 2016.Independent Director - Ms. Yang Lan: born in 1969, holds a master’s degree. She has served in Guiyang Audit Bureau, ZhuhaiLixin Certified Public Accountants, Shanghai Lixin Changjiang Certified Public Accountants Zhuhai Branch, and Guangdong LixinChangjiang Certified Public Accountants. Senior Manager of Pan-China Certified Public Accountants Guangdong Branch;Investment Director of Guangzhou Securities Innovation Investment Co., Ltd.; Deputy Director of Guangdong Pujin XinghuaCertified Tax Agent Co., Ltd.; Deputy Director of Guangdong Lixin Jiazhou Certified Public Accountants; and Independent Directorof the Company since April 27, 2017.Independent Director - Ms. Yang Jun: born in 1972, holds a bachelor’s degree, Canadian citizenship. She has served as ChiefFinancial Officer of Freedom Foundation of Ontario, Canada; Chief Knowledge Officer and lecturer partner of ShanghaiEasyFinance Management Consulting Co., Ltd.; Chief Financial Officer of Dookbook Culture Co., Ltd.; founding partner and chiefconsultant of Shanghai Yuecheng Information Technology Co., Ltd. since June 2018; and Independent Director of the Companysince June 2019.
(2) Profile of supervisors
The Chairman of Board of Supervisors - Ms. Bai Xinhua: born in 1966, holds a master’s degree. She has served as AssistantAuditor of Beijing Municipal Bureau of Audit; Accounting Manager of the Financial Management Head Office and Audit Managerof the Supervision and Audit Department of China Grand Enterprises, Inc.; now Deputy General Manager of the FinancialManagement Head Office of China Grand Enterprises, Inc.; Supervisor of the Company since 2003;Supervisor - Ms. Qin Yun: born in 1970, holds a bachelor’s degree. She has served as attending physician in the Internal MedicineDepartment of Beijing Shougang Hospital; medical representative in the Beijing Office of Tianjin Takeda Pharmaceuticals Co., Ltd.,senior medical representative in the Beijing Office of Lilly Asia; and head of product department in the sales branch of ChinaNational Pharmaceutical Foreign Trade Corporation. She worked for China Grand Enterprises, Inc. in 2002 and has served as ProjectManager of Pharmaceutical Business Division, Business Director of Operation Department of Pharmaceutical Management HeadOffice; now Business Director of Bidding and Procurement Management Center of China Grand Enterprises, Inc.; and Supervisor ofthe Company since 2006;Supervisor – Mr. Liu Chengwei: born in 1973, holds a master’s degree. He has served as Financial Services Manager and ChiefFinancial Officer of GE Medical Systems China; Financial Manager of ECG monitoring of GE Healthcare Asia. In 2001, he joinedChina Grand Enterprises, Inc., where he served as Director of Supervision and Audit, Deputy General Manager of the Investment andOperation Head Office, Deputy General Manager and General Manager of the Pharmaceutical Business Division, and head of thepreparatory group of CGE Life & Health Insurance Company. He served as Deputy General Manager of Grandpharma (China) Co.,Ltd. from August 2016 to September 2018; Assistant President of China Grand Enterprises, Inc. since September 2018; Director ofthe Company from 2003 to January 2016; and Supervisor of the Company since January 2016.Supervisor - Ms. Hu Baozhen: born in 1973, holds a bachelor’s degree. She served as Chief Financial Officer and dispatchedfull-time supervisor of Hangzhou State-owned Assets Supervision and Administration Commission from March 2009 to March 2019;Head of the Risk Control and Legal Department of Hangzhou State-owned Capital Investment and Operation Co., Ltd. since April2019; Supervisor of the Company from June 2012 to April 2014; Supervisor of the Company since June 2019.Employee Supervisor – Ms. He Rufen: born in 1968, holds a bachelor’s degree, senior certified public accountant. AssistantManager of the Financial Department of Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd. from July 1990 to March 1998;Manager of the Financial Department of the Company from April 1998 to December 1998; officer in charge of financial affairs of theCompany from January 1999 to June 2010; Deputy General Manager of Business of the Company since July 2010; EmployeeSupervisor of the Company since June 2019.Employee Supervisor - Mr. Xu Zhifeng: born in 1975, holds a bachelor’s degree, economist. Commissioner of the BusinessAdministration Office and Director Assistant of the General Manager Office of Hangzhou Zhongmei Huadong Pharmaceutical Co.,
Ltd. from August 1997 to July 2011; Manager of the Risk Management and Audit Department of the Company from August 2011 toJanuary 2018; Director of the Risk Management and Audit Department of the Company since February 2018; Employee Supervisorof the Company since June 2019.
(3) Profile of senior managers
Deputy General Manager - Mr. Zhou Shunhua: born in 1960, holds a master’s degree, economist. He worked in the Company inDecember 1978, and has served as Publicity Officer, Manager of the Operation Department, Director of Shanghai Office, andShanghai Regional Manager of the Company; Deputy General Manager of Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd.;Deputy General Manager of the Company since 2009.Deputy General Manager - Mr. Wu Hui: born in April 1969, holds a master’s degree, professor-level senior engineer. He workedin the Company in July 1991, and has served as technician, workshop director and chief engineer of Hangzhou Zhongmei HuadongPharmaceutical Co., Ltd.; Deputy General Manager of Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd. since 2015; DeputyGeneral Manager of the Company since June 2019.Deputy General Manager – Ms. Zhu Li :born in 1975, has obtained a master’s degree, and serves as an accountant. She has servedas the accountant, deputy general manager, general manager, deputy director, and director of the Procurement and ManagementDepartment for Chinese and Western Medicine in the Chinese patent medicine branch of Huadong Pharmaceutical DistributionCompany since August 1997. From September 2019 to September 2020, she served as the Deputy General Manager of HuadongPharmaceutical Distribution Company (responsible for the overall work), and from October 2020, she serves as the Deputy GeneralManager (responsible for the commercial matters) of the Company and concurrently as the General Manager of HuadongPharmaceutical Distribution Company.。Secretary of the Board of Directors - Mr. Chen Bo: born in 1972, holds a master’s degree, economist. He joined the Company in2002, and has served as investment commissioner and Deputy Manager of the Financing Department; Secretary of the Board ofDirectors since June 2009.Officer in Charge of Financial Affairs - Mr. Qiu Renbo: born in 1982, holds a master’s degree. He has served as commissioner ofthe Financial Management Head Office and Chief of the Finance Section of the Manufacturing Branch of the Company from August2004 to July 2010; Manager of the Financial Department of Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd. from August2010 to April 2015; Chief Financial Officer of Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd. since May 2015; Officer inCharge of Financial Affairs of the Company since December 2019.Positions in shareholders’ entities
√ Applicable □ N/A
Name
| Name | Shareholders’ entity | Position in shareholders’ entities | Commencement of the term | Termination of the term | Compensation and allowance from the shareholders’ entity |
| Niu Zhanqi | China Grand Enterprises, Inc. | President of the Pharmaceutical Management Head Office of China Grand Enterprises, Inc. | Yes | ||
| Kang Wei | China Grand Enterprises, Inc. | CFO of China Grand Enterprises, Inc. | Yes | ||
| Bai Xinhua | China Grand Enterprises, Inc. | Deputy General Manager of the Financial Management Head Office of China Grand Enterprises, Inc. | Yes |
Liu Chengwei
| Liu Chengwei | China Grand Enterprises, Inc. | Assistant President of China Grand Enterprises, Inc. | Yes | ||
| Qin Yun | China Grand Enterprises, Inc. | Business Director of the Pharmaceutical Management Head Office China Grand Enterprises, Inc. | Yes | ||
| Jin Xuhu | Hangzhou Huadong Medicine Group Co., Ltd. | Executive Director and Manager of Hangzhou Huadong Medicine Group Co., Ltd. | No |
Position in other entities
√ Applicable □ N/A
| Name | Name of other entity | Position in other entity | Commencement of the term | Termination of the term | Compensation and allowance from the shareholders’ entity |
| Niu Zhanqi | Sichuan Yuanda Shuyang Pharmaceutical Co., Ltd. and other wholly/partially owned subsidiaries of China Grand Enterprises, Inc. | Director | No | ||
| Kang Wei | Western Securities Co., Ltd. | Supervisor | Yes | ||
| Kang Wei | Leiyunshang Pharmaceutical Co., Ltd. and other wholly/partially owned subsidiaries of China Grand Enterprises, Inc. | Director | No | ||
| Bai Xinhua | Grand Industrial Holding Co., Ltd. and other wholly/partially owned subsidiaries of China Grand Enterprises, Inc. | Director | No | ||
| Qin Yun | Yunnan Leiyunshang Lixiang Pharmaceutical Co., Ltd. | Director | No | ||
| Liu Chengwei | Sichuan Yuanda Shuyang Pharmaceutical Co., Ltd. and other wholly/partially owned subsidiaries of China Grand Enterprises, Inc. | Director | No | ||
| Jin Xuhu | Hangzhou State-owned Capital Investment and Operation Co., Ltd. | Chairman | Yes | ||
| Jin Xuhu | Hangzhou Oxygen Plant Group Co., Ltd. | Executive Director | No |
Incumbent and off-office directors, supervisors and senior management personel during the reporting period that have been imposed
administrative penalties by the SCRC during the last three years.
□ Applicable √ N/A
IV. Remuneration of directors, supervisors and senior managers
The decision-making procedure, determination basis and actual remuneration for directors, supervisors and senior managersThe remuneration plan of independent directors on the ninth Board of Directors of the Company was preliminarly approved bythe Board of Directors. The final decision would be made by the general meeting of shareholders.In 2020, the annual allowance for the independent directors of the Company was 80,000 yuan (before tax), paid in a lump sumat the end of the year. The directors and supervisor appointed by shareholders will receive allowance of 30,000yuan (before tax),paidin a lump sum at the end of the year. Other directors, supervisors and senior managers of the Company will receive benefits inaccordance with the Company’s current Salary System and Performance Appraisal Schemes.
Remuneration of directors, supervisors and senior managers of the Company during the reporting period
Unit: RMB ten thousand yuan
Name
| Name | Title | Gender | Age | Holding of positions | Total pretax renumeration received from the Company | Receive remuneration from related parties of the Company or not |
| Lv Liang | Chairman of the Board | Male | 47 | Incumbent | 240 | No |
| Li Yuedong | Director, General Manager | Male | 49 | Incumbent | 150 | No |
| Niu Zhanqi | Director | Male | 54 | Incumbent | 3 | Yes |
| Kang Wei | Director | Female | 53 | Incumbent | 3 | Yes |
| Jin Xuhu | Director | Male | 58 | Incumbent | 3 | Yes |
| Zhu Liang | Director | Male | 44 | Incumbent | 65 | No |
| Zhong Xiaoming | Independent Director | Male | 59 | Incumbent | 8 | No |
| Yang Lan | Independent Director | Female | 52 | Incumbent | 8 | No |
| Yang Jun | Independent Director | Female | 49 | Incumbent | 8 | No |
| Bai Xinhua | Supervisor | Female | 55 | Incumbent | 3 | Yes |
| Qin Yun | Supervisor | Female | 51 | Incumbent | 3 | Yes |
| Liu Chengwei | Supervisor | Male | 48 | Incumbent | 3 | Yes |
Hu Baozhen
| Hu Baozhen | Supervisor | Female | 48 | Incumbent | 3 | Yes |
| He Rufen | Supervisor | Female | 53 | Incumbent | 100 | No |
| Xu Zhifeng | Supervisor | Male | 46 | Incumbent | 65 | No |
| Zhou Shunhua | Deputy General Manager | Male | 61 | Incumbent | 130 | No |
| Wu Hui | Deputy General Manager | Male | 52 | Incumbent | 120 | No |
| Zhu Li | Deputy General Manager | Male | 46 | Incumbent | 120 | No |
| Chen Bo | Secretary of the Board of Directors | Male | 49 | Incumbent | 120 | No |
| Qiu Renbo | Officer in Charge of Financial Affairs | Male | 39 | Incumbent | 120 | No |
| 合计 | -- | -- | -- | -- | 1275 | -- |
Equity incentives granted to the Company’s directors and senior managers during the reporting period
□ Applicable √ N/A
V. Employees of the Company
1. Number of employees, profession composition and education level
| Number of incumbent employees in the parent company (person) | 900 |
| Number of incumbent employees in major subsidiaries (person) | 10,459 |
| Total number of incumbent employees (person) | 11,359 |
| Total number of employees receiving salaries in the current period (person) | 11,359 |
| Number of retired employees requiring the parent Company and its subsidiaries to bear costs (person) | 13 |
| Professional structure | |
| Category | Number (person) |
| Category | 1039 |
| Production staff | 6367 |
| Sales staff | 2022 |
Technical staff
| Technical staff | 214 |
| Financial staff | 1323 |
| Administrative staff | 394 |
| Total | 11,359 |
| Educational background | |
| Category | Number (person) |
| Master’s degree or above | 764 |
| Bachelor’s degree | 4,695 |
| Junior college (professional training) | 5,004 |
| Other | 896 |
| Total | 11,359 |
Note: (1) Sales staff include those engaged in academic promotion, retail promotion, pharmaceutical service,marketing, aesthetic medicine business development, etc.
(2) Technical staff include those directly engaged in R&D and other R&D support personnel
2. Staff remuneration policy
Based on its strategic development plan, the Company strives to create a high-quality talent team with thecharacteristics of Huadong Medicine, and stimulates employees’ innovation and creativity through flexible anddiversified benefit policies.
3. Training program
In order to meet the requirements of the sustainable development and international strategies of the Company,speed up the talent transformation, further improve the cultivation and development system for various talents, theCompany’s Learning and Development Department has formulated the relevant training program for 2021 on abasis of comprehensively collecting the demands of training from the Company’s middle and senior managementand employees. The Department divided various talent cultivation projects into four major categories with theguiding concept of “cost control, project refinement, focusing on actual effectiveness, and resource sharing”,including mature cultivation projects, new business cultivation projects, official cultivation projects, and systemestablishment projects.
For mature cultivation projects, the goal of which is to follow the 2025 development strategy planning, theCompany strictly controls the costs and realizes delicacy project implementation so as to ensure that theproduction costs and various expenses in 2021 will only decrease rather than increase. These projects mainlycover business capacity and leadership promotion in the sectors such as production, quality, and marketing.
For new business projects, given that the Company is at the key stage of strategic transformation andscientific innovation, it is an urgent task to cultivate scientific research teams and management trainees. Inaddition, the Company will put forward higher requirements for such new businesses to match the demands ofbusiness departments in a more accurate manner, and focus on the R&D personnel inventory projects, R&D PMcultivation projects, and management trainee projects.
The cultivation of officials will be carried out in the form of internal cultivation such as management case
study, on-duty development and cultivation, and rotation and assignment in conjunction with certain advancedmanagement concepts of external industries, so as to guide the officials to realize management innovation andconcept innovation, and assist in the establishment of reserve teams for officials. The cultivation will mainlyinvolve young managers.
In the system establishment, in order to better connect all project resources of various companies, theCompany will consider the system establishment and the implementation of various cultivation projects at thelevel of the entire Company, continuously improve teams of internal trainers and tutors and various courses, makeoverall planning for the demands of the subsidiaries, and provide branches and subsidiaries with courses andteaching resources to create the sharing culture and promote the establishment of collectivized andlearning-oriented organizations. Besides, Jiangdong Company plans to take the lead in integrating the learningresources to cultivate the key primary-level personnel who are responsible for the production and quality of theindustrial subsidiaries, and the online course resources will be open to all employee platforms of branches andsubsidiaries。
4. Labor outsourcing
□ Applicable √ N/A
The Annual Report 2020 of Huadong Medicine Co., Ltd.
Section X. Corporate Governance
I. Basic situation of corporate governance
During the reporting period, the Company strictly complied with the requirements of the regulatory documents on corporategovernance issued by the CSRC and the Shenzhen Stock Exchange, such as “Company Law”, “Securities Law”, “GovernanceGuidelines for Listed Companies”, and “Rules for Stock Listing of Shenzhen Stock Exchange”. In order to realize its strategicdevelopment goals and safeguard the interests of all shareholders, the Company carried out comprehensive internal control andstandardized management, strengthened system construction and internal management, standardized information disclosure andimproved the corporate governance structure. There is no difference between corporate governance and the requirements of“Company Law” and the relevant provisions of the CSRC.According to the regulatory documents on the governance of listed companies issued by the CSRC, the Company has formed asystem that is legally compliant and in line with the actual operation of the Company. By the end of the reporting period, the actualcorporate governance was basically consistent with the regulatory documents on corporate governance issued by the CSRC and theShenzhen Stock Exchange, and there were no outstanding governance issues.
Whether the actual corporate governance of the Company is significantly different from the normative documents on corporategovernance issued by the CSRC
□ Yes √ No
No such case during the reporting period.II. The Company’s independence in Businesses, Management, Assets, Institutions andFinance from Controlling shareholders
During the reporting period, the Company continuously strengthened the corporate governance structure and implementedstandardized operation in accordance with the requirements of regulatory authorities. The Company and its controlling shareholderrealized the separation of management and independent operation in terms of personnel, assets, finance, institutions and business.
| Category | Independent or not | Note |
| Independence in business | Yes | The Company is mainly engaged in the production and operation of pharmaceutical products, and has its own independent production and sales systems. The Company’s business activities are completely independent from its controlling shareholder. Although the subsidiaries of the Company and the controlling shareholder are engaged in pharmaceutical business, they focus on different medical fields and different customer groups. Therefore, there is no competition between the Company, controlling shareholdersand related parties. |
| Independence in personnel | Yes | The company is completely independent in the management of labor, personnel and salaries, and has an independent human resources department and a sound personnel management system. |
| Independence in assets | Yes | The Company has various independent assets, such as independent production systems, auxiliary production systems and supporting facilities; independent purchasing and sales systems; independent industrial property rights, trademarks, non-patented |
The Annual Report 2020 of Huadong Medicine Co., Ltd.
| technologies and other intangible assets. | ||
| Independence in institutions | Yes | The Company has establishedindependent Board of Directors, management and other internal organizations, and each functional department is independent from controlling shareholders in duty and personnel. There is no superior-subordinate relation between functional departments of controlling shareholders and those of the Company, which would have an impact on the Company’s independent operations. |
| Independence in finance | Yes | The Financial Management Head Office is responsible for the financial accounting and budget management of the Company, and has established independent and sound financial, accountingand budget management systems according to relevant laws and regulations. |
Note: The Company is independent in Businesses, Management, Assets, Institutions and Finance from Controlling shareholders.TheCompany does not have peer competition or related transactions caused by partial restructuring, industry characteristics, nationalpolicies or mergers and acquisitions.
III. Horizongtal competition
□ Applicable √ N/A
IV. Annual and extraordinary general meetings held during the reporting period
1. Shareholders’ meetings in the reporting period
| Meeting | Meeting type | Proportion of investors present | Convene date | Disclosure date | Disclosure index |
| 2019 annual General Meeting | annual General Meeting | 59.61% | June 5, 2020 | June 5, 2020 | China Securities Journal, Securities Times, Shanghai Securities News, and cninfo (www.cninfo.com.cn) |
2. Extraordinary general meetings convened at the request of preferred shareholders with resumed votingrights:
□ Applicable √ N/A
V. Performance of duties of independent directors during the reporting period
1. Attendance of independent directors at Board meetings and general meetings
The Annual Report 2020 of Huadong Medicine Co., Ltd.
| Name of independent directors | Name of independent directors | Name of independent directors | Name of independent directors | Name of independent directors | Name of independent directors | Name of independent directors | Name of independent directors |
| Zhong Xiaoming | 8 | 1 | 7 | 0 | 0 | Zhong Xiaoming | 1 |
| Yang Lan | 8 | 1 | 7 | 0 | 0 | Yang Lan | 1 |
| Yang Jun | 8 | 1 | 7 | 0 | 0 | Yang Jun | 1 |
2. Objections from independent directors on relevant issues of the Company
Whether the independent directors have raised any objection to relevant issues of the Company
□ Yes √ No
No such case during the reporting period.
3. Other details aboutthe performance of duties by independent directors
Whether the independent directors’ suggestions were adopted or not
√ Yes □ No
Note on the adoption or non-adoption of the independent directors’ suggestionsN/A
VI. Performance of duties by special committees under the Board during the reporting period
1. Strategic Committee
During the reporting period, the Strategic Committee, based on the domestic and foreign conditions and thecharacteristics of the industry,conducted an in-depth analysis of the Company’s current operating situation andmade an effective guidance for the Company to respond to market changes in a timely manner. In addition, theStrategic Committee put forward valuable opinions and suggestions for the Company to ensure its sustainable androbust development.
2. Audit Committee
During the reporting period, the Audit Committee strictly abided the rules of the CSRC, Shenzhen StockExchange and the Company’s “Rules of Procedure for the Audit Committee of the Board of Directors”. It listenedto the reports of the internal audit department and deliberated on the external audit reports of the Company’s 2020financial report.
During the annually external auditing period, the Audit Committee held three regular meetings to fulfilled itsobligation of fully communicating with the external auditors, carefully reviewing the external auditing plan,scrutinizing the financial statement data and effectively supervising the preparation of the annual report.
3. Remuneration and Appraisal Committee
During the reporting period, the Remuneration and Appraisal Committee carefully investigated theimplementation of the Company’s remuneration system in accordance to “Rules of Procedure for theRemuneration and Assessment Committee of the Board of Directors”.
4. Nomination Committee
During the reporting period, the Nomination Committee fully performed its duties to exam and audit the criteria
The Annual Report 2020 of Huadong Medicine Co., Ltd.
and procedure of selecting directors, senior managerial staff and other personnel. The Committee strickly acted inaccordance with the relevant rules of the Articles of Association and “Rules of Procedure for the NominationCommittee of the Board of Directors” .。
VII. Performance of duties by the Board of SupervisorsWhether the Board of Supervisors found any risks of the Company in the supervision activities during the reporting period
□ Yes √ No
No such case during the reporting period.VIII. Assessment and incentive mechanism for senior managersDuring the reporting period, the Company established a market-oriented assessment and incentive mechanism for seniormanagers.Based on their personal abilities, annual target achievements, market and industry salary level, the Company implementeda competitive renumeration policy and set up a sound renumeration management system to retain and attract talent.
IX. Evaluation report on internal control
1. Details of major internal control deficiencies found during the reporting period
□ Yes √ No
2. Self-evaluation report on internal control
| Disclosure date of the full text of self-evaluation report on internal control | April 21, 2021 | |
| Disclosure index of the full text of self-evaluation report on internal control | www.cninfo.com.cn | |
| Proportion of assets evaluated in total assets | 95.00% | |
| Proportion of revenue evaluated in total revenue per consolidated financial statement | 90.00% | |
| Recognition standard of deficiencies | ||
| Category | Category | Category |
| Qualitative criteira | ||
The Annual Report 2020 of Huadong Medicine Co., Ltd.
| over unconventional or unsystematic transactions; internal control over the selection and application of accounting policies in relation to GAAP; internal control over the end-of-period financial reporting process. | addition to policy reasons, the Company has been losing money for years, and its continuous operation has been challenged; lack of system control or systematic failure in important business; M&A and restructuring failure; the operation of newly expanded subordinate units is unsustainable; lack of internal control construction and disorderly management in subsidiaries; middle and senior managers have left their posts, or serious staff turnover in key positions; frequent exposure of negative news in the media; internal control evaluation results, especially major or significant deficiencies have not been corrected. | |
| Quantitative criteria | Potential misstatement of total profit; potential misstatement of total assets | Impact on total assets; significant negative impact |
| Number of material deficiencies in financial reporting | 0 | |
| Number of material deficiencies in non-financial reporting | 0 | |
| Number of important deficiencies in financial reporting | 0 | |
| Number of important deficiencies in non-financial reporting | 0 | |
X. Audit report on internal control
√ Applicable □ N/A
| Comments of Internal Control Audit Reprot | |
| On December 31, 2020, Huadong Medicine has maintained effective internal control over financial reporting in all major respects in accordance with the “Basic Norms for Enterprise Internal Control” and relevant regulations. | |
| Disclosure of internal control audit report | Disclosure |
| Disclosure date of the full audit report on internal control | April 21, 2021 |
| Disclosure index of the full audit report on internal control | cninfo (www.cninfo.com.cn) |
The Annual Report 2020 of Huadong Medicine Co., Ltd.
| Type of opinions in the internal control audit report | Unmodified unquialified opinions |
| Whether there are material deficiencies in non-financial reporting | None |
Whether the accounting firm has issued the auditor’s report on internal control with non-standard opinions
□ Yes √ No
Whether the auditor’s report on internal control issued by the accounting firm is consistent with the self-evaluation report of theBoard of Directors
√ Yes □ No
The Annual Report 2020 of Huadong Medicine Co., Ltd.
Section XI. Information about Corporate Bonds
Whether the Company have any corporate bonds that are publicly issued and listed on the stock exchange and have not expired onthe approval date of the annual report or have not been fully paid upon maturityNo
The Annual Report 2020 of Huadong Medicine Co., Ltd.
Section XII. Financial ReportI. Audit report
| Audit Opioion | Unmodified unqualified audit opinion |
| Audit Reprot sign-off Date | April 19, 2021 |
| Audit Institution Name | Pan-China Certified Public Accountants (special general partnership) |
| Auidt Report Number | T. J. S. (2021) No. 3608 |
| Certified Public Accounts Name | Wang Fukang, Xu Ping |
Main body of the audit report
Audit ReportT. J. S. (2021) No. 3608
Shareholders of Huadong Medicine Co., Ltd.:
I. Audit opinionWe audited the financial statements of Huadong Medicine Co., Ltd. (hereinafter referred to as“Huadong Medicine”), including the consolidated and the parent company’s balance sheets as atDecember 31, 2020, the consolidated and the parent company’s income statements for the year2020, the consolidated and the parent company’s cash flow statements, the consolidated and theparent company’s statements of changes in ownership interest, and the notes to relevant financialstatements.In our opinion, the attached financial statements are prepared in accordance with theaccounting standards for business enterprises in all material aspects and fairly reflect theconsolidated and the parent company’s financial condition of Huadong Medicine as at December 31,2020, as well as the consolidated and the parent company’s operating results and cash flows in2020.
II. Basis opinionWe conducted our audit in accordance with the auditing standards for certified publicaccountants of China. Our responsibilities under these standards are further elaborated in the section“CPA’s responsibility to audit the financial statements” of the auditor’s report. In accordance withthe code of professional ethics for certified public accountants in China, we are independent ofHuadong Medicine and have fulfilled other responsibilities in respect of professional ethics. Webelieve that the audit evidence we have obtained is sufficient and appropriate, providing a basis forauditor’s opinion.
III. Key audit matters
The Annual Report 2020 of Huadong Medicine Co., Ltd.
The key audit matters are those we consider most important to the audit of the financialstatements for the current period in our professional judgment. The response to these items is basedon an audit of the financial statements as a whole and the formation of auditor’s opinion. We do notcomment on these items separately.(I) Revenue recognition
1. Description
The relevant information disclosure is detailed in Notes III (XXIV) and V (II) 1 to the financialstatements.
The operating revenue of Huadong Medicine mainly comes from the production and sales ofdrugs. The operating revenue of Huadong Medicine in 2020 is RMB 336.83 hundred million yuan.
The medicine sales business of Huadong Medicine is a performance obligation to beperformed at a certain time.The recognition of revenue from domestic sales of products of HuadongMedicine shall meet the following conditions: the products have been delivered to the buyeraccording to the contract, and the amount of product sales revenue has been determined, thepayment for goods has been recovered or the receipt certificate has been obtained, and the relevanteconomic benefits are likely to flow in, and the costs related to the products can be measuredreliably. The recognition of revenue from overseas sales of products shall meet the followingconditions: the products have been declared at the customs according to the contract, the bill oflading has been obtained, the amount of product sales revenue has been determined, the paymentfor goods has been recovered or the receipt certificate has been obtained, and the relevant economicbenefits are likely to flow in, and the costs related to the products can be measured reliably.
As the operating revenue is one of the key performance indicators of Huadong Medicine, theremay be inherent risks for the management of Huadong Medicine (hereinafter referred to as the“Management”) to achieve specific goals or expectations through inappropriate revenue recognition.Therefore, we identified revenue recognition as a key audit matter.
2. Audit response
For revenue recognition, the audit procedures we implemented mainly include:
(1) Understanding the key internal controls related to revenue recognition, evaluating thedesign of these controls, determining whether they are implemented, and testing the operatingeffectiveness of relevant internal controls;
(2) Reviewing the sales contract, understanding the main contract terms or conditions, andevaluating whether the revenue recognition method is appropriate;
(3) Analyzing the operating revenue and gross profit rate by month, product, region, etc.,identifying whether there are significant or abnormal fluctuations, and ascertaining the reasons forthe fluctuations;
(4) For domestic sales revenue, checking the supporting documents related to revenuerecognition by sampling, including sales contracts, orders, sales invoices, outbound delivery orders,shipping orders, shipping documents and payment receipts. For overseas revenue, obtaining e-portinformation and checking with the accounting records, and checking the sales contracts, exportdeclaration forms, bills of lading, sales invoices and other supporting documents by sampling;
(5) In combination with accounts receivable confirmation, confirming the current sales withmajor customers by sampling;
(6) Carrying out a cut-off test for the operating revenue recognized before and after the balancesheet date, and evaluating whether the operating revenue is recognized within an appropriate period;
The Annual Report 2020 of Huadong Medicine Co., Ltd.
and
(7)The medicine sales business of Huadong Medicine is a performance obligation to beperformed at a certain time.
(8) Checking whether the information relating to operating revenue has been properlypresented in the financial statements.
(II) Impairment of accounts receivable
1. Description
The relevant information disclosure is detailed in Notes III (X) and V (I) 2 to the financialstatements.
As of December 31, 2020, the book balance of accounts receivable of Huadong Medicine wasRMB 64.90 hundred million yuan, the bad debt reserve was 3.52 hundred million yuan, and thebook value was 61.38 hundred million yuan.
Based on the credit risk characteristics of various accounts receivable and the individualaccount receivable or the combination of accounts receivable, the Management measured its lossreserve according to the expected credit loss equivalent to the entire duration. For the accountsreceivable with expected credit loss measured based on an individual item, the Managementcomprehensively considered the reasonable and reliable information about the past items, currentconditions and future economic conditions, estimated the expected cash flow, and determined thebad debt reserve that should be accrued. For the accounts receivable with expected credit lossmeasured based on the combined items, the Management divided the accounts receivable based onage, made adjustments according to historical credit loss and prospective estimates, compiled acomparison table of accounts receivable ages and expected credit loss rates, and determined the baddebt reserve that should be accrued.
Due to the significant amount of accounts receivable and significant management judgmentinvolved in the impairment of accounts receivable, we determined the impairment of accountsreceivable as a key audit matter.
2. Audit response
For the impairment of accounts receivable, the audit procedures we implemented mainlyinclude:
(1) Understanding the key internal controls related to the impairment of accounts receivable,evaluating the design of these controls, determining whether they are implemented, and testing theoperating effectiveness of relevant internal controls;
(2) Reviewing the follow-up actual write-off or reversal of accounts receivable for which thebad debt reserve has been accrued in previous years, evaluating the accuracy of the Management’spast forecasts;
(3) Reviewing the relevant considerations and objective evidence of the Management’s creditrisk assessment of accounts receivable, and evaluating whether the Management has properlyidentified the credit risk characteristics of various accounts receivable;
(4) For the accounts receivable with expected credit loss measured based on an individual item,obtaining and checking the Management’s forecast of the expected cash flow received, evaluatingthe rationality of the key assumptions used in the forecast and the accuracy of data, and checkingwith the external evidence obtained;
(5) For the accounts receivable with expected credit loss measured based on the combineditems, evaluating the rationality of the Management’s division of combinations according to the
The Annual Report 2020 of Huadong Medicine Co., Ltd.
credit risk characteristics; evaluating the rationality of the comparison table of accounts receivableages and expected credit loss rates determined by the Management based on historical credit lossexperience and prospective estimates; testing the accuracy and completeness of the Management’sdata (including the age of accounts receivable, historical loss rate, migration rate, etc.) and whetherthe calculation of bad debt reserve is accurate;
(6) Checking the subsequent collection of accounts receivable, and evaluating the reasonabilityof the Management’s accrual of bad debt reserve for accounts receivable; and
(7) Checking whether the information relating to the impairment of accounts receivable hasbeen properly presented in the financial statements.
(III) Goodwill impairment
1. Description
The relevant information disclosure is detailed in Notes III (V), III (XIX) and V (I) 14 to thefinancial statements.
As of December 31, 2020, the original book value of goodwill of Huadong Medicine was
14.72 hundred million yuan, the impairment reserve was 0.03 hundred million yuan, and the bookvalue was 14.69 hundred million yuan.
When there is any sign of impairment in the asset group or asset portfolio related to goodwill,and at the end of each year, the Management shall conduct a goodwill impairment test. TheManagement conducted the goodwill impairment test in combination with the relevant asset groupor asset portfolio, and the recoverable amount of the relevant asset group or asset portfolio wasdetermined by the present value of the expected future cash flow. The key assumptions used in theimpairment test include: revenue growth rate in the detailed forecast period, growth rate in theperpetual forecast period, gross profit rate, related expenses and discount rate.
Due to the significant amount of goodwill and the significant management judgment involvedin the goodwill impairment test, we determined the goodwill impairment as a key audit matter.
2. Audit response
For the goodwill impairment, the audit procedures we implemented mainly include:
(1) Reviewing the Management’s forecast of the present value of future cash flows in previousyears and actual operating results, and evaluating the accuracy of the Management’s past forecasts;
(2) Understanding and evaluating the competence, professional quality and objectivity ofexternal valuation experts employed by the Management;
(3) Evaluating the rationality and consistency of the Management’s methods in the impairmenttest;
(4) Evaluating the rationality of the key assumptions adopted by the Management in theimpairment test, and verifying whether the relevant assumptions are consistent with the overalleconomic environment, industry conditions, operating conditions, historical experience, operatingplans, approved budgets, meeting minutes, and other assumptions used by the Management inrelation to the financial statements;
(5) Testing the accuracy, completeness and relevance of the data used by the Management inthe impairment test, and rechecking the internal consistency of the relevant information in theimpairment test;
(6) Testing whether the Management’s calculation of the present value of expected future cashflows is accurate;
The Annual Report 2020 of Huadong Medicine Co., Ltd.
(7) Based on the methods and assumptions used by the Management, estimating the presentvalue range of future cash flows and evaluating whether it differs significantly from the rangeestimated by the Management; and
(8) Checking whether the information relating to the goodwill impairment has been properlypresented in the financial statements.
IV. Other information
The Management is responsible for other information, including information covered in theannual report, but not the financial statements and the auditor’s report.
The auditor’s opinion on the financial statements does not cover other information, and we donot publish any form of corroborating conclusions on other information.
In conjunction with our audit of the financial statements, it is our responsibility to read otherinformation and, in doing so, consider whether other information is materially inconsistent with thefinancial statements or what we learned during the audit or appears to be materially misrepresented.
Based on the work we have performed, if we determine that other information is materiallymisrepresented, we should report that fact. In this connection, we have nothing to report.
V. Responsibility of the Management and Governance for the Financial Statements
The Management is responsible for preparing the financial statements in accordance with theaccounting standards for business enterprises to achieve fair presentation and for designing,implementing and maintaining the necessary internal controls so that the financial statements arefree from material misstatement due to fraud or error.
In preparing the financial statements, the Management is responsible for assessing HuadongMedicine’s competence for continuing operations, disclosing matters relating to continuingoperations (if applicable) and applying the going concern assumption, unless liquidation andtermination are planned or there is no other realistic alternative.
Those charged with governance of Huadong Medicine is responsible for overseeing theCompany’s financial reporting process.
VI. Responsibility of Certified Public Accountants on the audit of the financialstatements
Our objectives are to obtain reasonable assurance about whether the financial statements as awhole are free from material misstatement due to fraud or error, and to issue an auditor’s report thatincludes our opinions. Reasonable assurance is a high level of assurance, but is not a guarantee thatan audit performed in accordance with the audit standards will always detect a materialmisstatement when it exists. Misstatements can arise from fraud or error and are consideredmaterial when it is reasonably expected that misstatements, individually or collectively, may affectthe economic decisions made by users based on the financial statements.
As part of the audit in accordance with the audit standards, we exercise professional judgmentand maintain professional skepticism throughout the process. We also:
(I) Identify and assess the risks of material misstatement of the financial statements, whetherdue to fraud or error, design and perform audit procedures responsive to those risks, and obtainaudit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of notdetecting a material misstatement resulting from fraud is higher than the risk of not detecting one
The Annual Report 2020 of Huadong Medicine Co., Ltd.
resulting from error, as fraud may involve collusion, forgery, omissions, misrepresentations, or theoverride of internal control.
(II) Understand the internal control associated with the audit to design appropriate auditprocedures.
(III) Evaluate the appropriateness of accounting policies used and the rationality of accountingestimates and related disclosures made by the Management.
(IV) Conclude on the appropriateness of using the going concern assumption by theManagement, and conclude, based on the audit evidence obtained, whether a material uncertaintyexists related to events or conditions that may cast significant doubt on Huadong Medicine’s abilityto continue as a going concern. If we conclude that a material uncertainty exists, we are required todraw the attention of users to relevant disclosures in the financial statements in our auditor’s report;if such disclosures are inadequate, we should offer qualified opinion. Our conclusions are based onthe audit evidence obtained up to the date of our auditor’s report. However, future events orconditions may cause Huadong Medicine to cease to continue as a going concern.
(V) Evaluate the overall presentation, structure and content of the financial statements,including whether the financial statements represent the underlying transactions and events in amanner that achieves fair presentation.
(VI) Obtain sufficient and appropriate audit evidence on the financial information of entities orbusiness activities of Huadong Medicine to express auditor’s opinions on the financial statements.We are responsible for the guidance, supervision and implementation of group audits and take fullresponsibility for the auditor’s opinions.
We communicate with those charged with governance regarding, among other matters, theplanned scope and timing of the audit and significant audit findings, including any significantdeficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied withthe professional ethical requirements associated with our independence, and communicate to thosecharged with governance all relationships and other matters that may reasonably be deemed toaffect our independence, as well as relevant precautions (if applicable).
From the matters communicated to those charged with governance, we determine whichmatters are most important to the current financial statement audit and thus constitute key auditmatters. We describe these matters in our auditor’s report, unless laws and regulations prohibit theirpublic disclosure or, in rare cases, if it is reasonably expected that the negative consequences ofcommunicating a matter in the auditor’s report outweigh the benefits in the public interest, wedetermine that the matter should not be communicated in the auditor’s report.
| Pan-China Certified Public Accountants (special general partnership) | Chinese Certified Public Accountant: Wang Fukang (Project partner) |
| Hangzhou, China April 19, 2021 | Chinese Certified Public Accountant: Xu Ping |
The Annual Report 2020 of Huadong Medicine Co., Ltd.
II. Financial statementsThe unit of statements in the financial notes is: RMB yuan.
1. Consolidated balance sheet
Prepared by: Huadong Medicine Co., Ltd.
December 31, 2020
Unit: RMB yuan
| Item | December 31, 2020 | December 31, 2019 |
| Current assets: | ||
| Cahs and bank balances | 3,198,080,997.82 | 2,402,730,395.39 |
| Settlement reserve | ||
| Lending to other banks and other financial institutions | ||
| Financial assets for trade | ||
| Derivative financial assets | ||
| Notes receivable | ||
| Accounts receivable | 6,137,675,568.82 | 6,092,305,184.47 |
| Accounts receivable for financing | 828,659,217.25 | 683,884,625.14 |
| Prepayments | 250,916,482.07 | 363,246,612.94 |
| Premiums receivable | ||
| Reinsurance accounts receivable | ||
| Reinsurance contract reserve receivable | ||
| Other receivables | 87,269,489.82 | 92,201,271.22 |
| Including: Interests receivable | ||
| Dividends receivable | 4,195,666.37 | 815,965.44 |
| Financial assets purchased for resale | ||
| Inventories | 4,067,635,254.80 | 4,038,975,496.93 |
| Contract assets | ||
| Assets held for sale | ||
| Non-current assets due within one year | ||
| Other current assets | 85,654,691.58 | 62,526,471.96 |
| Total current assets | 14,655,891,702.16 | 13,735,870,058.05 |
The Annual Report 2020 of Huadong Medicine Co., Ltd.
| Non-current assets: | ||
| Loans and prepayments issuance | ||
| Debt investments | ||
| Other debt investments | ||
| Long-term receivables | ||
| Long-term equity investments | 850,072,053.02 | 222,595,018.54 |
| Other equity instrument investments | 225,453,120.05 | 241,675,712.05 |
| Other non-current financial assets | ||
| Real estate properties for investment | 17,792,735.95 | 21,701,908.75 |
| Fixed assets | 2,420,366,582.92 | 2,175,216,842.65 |
| Constructions in progress | 2,240,201,926.65 | 1,829,808,233.19 |
| Biological assets for production | ||
| Oil & gas assets | ||
| Right-of-use assets | ||
| Intangible assets | 1,463,242,463.99 | 1,454,900,160.45 |
| Development expenditures | ||
| Goodwill | 1,469,617,262.10 | 1,469,617,262.10 |
| Long-term unamortized expenses | 8,811,339.43 | 12,289,677.31 |
| Deferred tax assets | 137,829,774.40 | 116,157,614.47 |
| Other non-current assets | 712,069,194.08 | 184,141,659.07 |
| Total non-current assets | 9,545,456,452.59 | 7,728,104,088.58 |
| Total assets | 24,201,348,154.75 | 21,463,974,146.63 |
| Current liabilities: | ||
| Short-term borrowing | 1,416,932,884.87 | 655,549,973.27 |
| Borrowing from the central bank | ||
| Borrowing from other banks and other financial institutions | ||
| Financial liabilities for trade | ||
| Derivative financial liabilities | ||
| Notes payable | 554,336,058.71 | 613,374,356.61 |
| Accounts payable | 3,947,044,331.68 | 3,789,054,234.58 |
| Receipts in Advance | 951,926.56 | 254,888,911.30 |
| Contract liabilities | 94,384,629.77 |
The Annual Report 2020 of Huadong Medicine Co., Ltd.
| Financial assets sold for repurchase | ||
| Absorbing deposits and due from banks | ||
| Receipts for buying and selling securities as proxy | ||
| Receipts for underwriting securities as proxy | ||
| Payroll payable | 152,106,819.91 | 132,584,982.71 |
| Taxes payable | 571,792,475.80 | 532,802,157.61 |
| Other payables | 1,817,529,820.99 | 1,365,152,290.99 |
| Including: Interests payable | ||
| Dividends payable | 224,219.60 | 224,219.60 |
| Handling fees and commissions payable | ||
| Reinsurance accounts payable | ||
| Liabilities held for sale | ||
| Non-current liabilities due within one year | 67,813,886.68 | 1,053,231,727.73 |
| Other current liabilities | 10,786,034.37 | |
| Total current liabilities | 8,633,678,869.34 | 8,396,638,634.80 |
| Non-current liabilities: | ||
| Insurance policy reserve | ||
| Long-term borrowing | 151,611,367.86 | |
| Bonds payable | ||
| Including: Preferred shares | ||
| Perpetual bonds | ||
| Lease liabilities | ||
| Long-term payables | 26,812,354.90 | 48,080,030.00 |
| Long-term employee benefits payable | ||
| Provisions | 39,467,829.23 | 52,066,643.01 |
| Deferred income | 81,628,032.54 | 60,960,255.68 |
| Deferred tax liabilities | 88,738,187.41 | 39,604,343.27 |
| Other non-current liabilities | ||
| Total non-current liabilities | 388,257,771.94 | 200,711,271.96 |
The Annual Report 2020 of Huadong Medicine Co., Ltd.
| Total liabilities | 9,021,936,641.28 | 8,597,349,906.76 |
| Owners’ Equity: | ||
| Share capital | 1,749,809,548.00 | 1,749,809,548.00 |
| Other equity instruments | ||
| Including: Preferred shares | ||
| Perpetual bonds | ||
| Capital reserves | 2,158,080,661.07 | 2,158,080,661.07 |
| Less: Treasury shares | ||
| Other comprehensive income | -2,191,069.45 | 22,792,488.80 |
| Special reserve | ||
| Surplus reserves | 861,680,578.42 | 710,359,967.51 |
| General risk reserve | ||
| Retained earnings | 9,852,441,590.56 | 7,668,434,642.62 |
| Total owners’ equity attributable to owner of the Company | 14,619,821,308.60 | 12,309,477,308.00 |
| Minority interest | 559,590,204.87 | 557,146,931.87 |
| Total owners’ equity | 15,179,411,513.47 | 12,866,624,239.87 |
| Total liabilities & owners’ equity | 24,201,348,154.75 | 21,463,974,146.63 |
Legal representative: Lv LiangPerson in charge of accounting work: Lv LiangPerson in charge of the Accounting Department: Qiu Renbo
2. Balance sheet of the parent company
Unit: RMB yuan
| Item | December 31, 2020 | December 31, 2019 |
| Current assets: | ||
| Cash and bank balances | 1,889,264,142.30 | 893,939,724.56 |
| Financial assets for trade | ||
| Derivative financial assets | ||
| Notes receivable | ||
| Accounts receivable | 3,287,882,027.51 | 3,601,796,850.84 |
| Accounts receivable for financing | 214,871,707.01 | 102,285,661.94 |
| Prepayments | 121,268,106.62 | 183,776,687.98 |
The Annual Report 2020 of Huadong Medicine Co., Ltd.
| Other receivables | 798,152,353.96 | 857,127,207.17 |
| Including: Interests receivable | ||
| Dividends receivable | 3,363,380.00 | |
| Inventories | 1,845,977,070.46 | 1,726,815,773.41 |
| Contract assets | ||
| Assets held for sale | ||
| Non-current assets due within one year | ||
| Other current assets | 4,529,331.87 | |
| Total current assets | 8,157,415,407.86 | 7,370,271,237.77 |
| Non-current assets: | ||
| Debt investments | ||
| Other debt investments | ||
| Long-term receivables | ||
| Long-term equity investments | 4,847,172,288.65 | 4,809,521,228.65 |
| Other equity instrument investments | 94,312,742.49 | 92,108,957.26 |
| Other non-current financial assets | ||
| Real estate properties for investment | 8,125,576.54 | 8,591,809.18 |
| Fixed assets | 159,486,234.04 | 144,102,366.02 |
| Constructions in progress | 342,161.41 | 15,728,406.26 |
| Biological assets for production | ||
| Oil & gas assets | ||
| Right-of-use assets | ||
| Intangible assets | 56,448,575.54 | 45,226,361.12 |
| Development expenditures | ||
| Goodwill | ||
| Long-term unamortized expenses | 645,902.07 | 975,689.14 |
| Deferred tax assets | 45,918,388.57 | 48,849,165.52 |
| Other non-current assets | 96,882,664.08 | 8,076,419.28 |
| Total non-current assets | 5,309,334,533.39 | 5,173,180,402.43 |
| Total assets | 13,466,749,941.25 | 12,543,451,640.20 |
| Current liabilities: | ||
| Short-term borrowing | 930,813,369.36 | 55,000,000.80 |
The Annual Report 2020 of Huadong Medicine Co., Ltd.
| Financial liabilities for trade | ||
| Derivative financial liabilities | ||
| Notes payable | 180,042,270.63 | 81,036,745.94 |
| Accounts payable | 2,421,476,904.57 | 2,469,675,798.54 |
| Receipts in advance | 52,914,932.34 | |
| Contract liabilities | 32,577,236.92 | |
| Payroll payable | 8,530,961.48 | 3,203,215.95 |
| Taxes payable | 154,676,067.87 | 32,881,935.68 |
| Other payables | 518,390,330.44 | 638,551,969.04 |
| Including: Interests payable | ||
| Dividends payable | 224,219.60 | 224,219.60 |
| Liabilities held for sale | ||
| Non-current liabilities due within one year | 1,028,002,952.88 | |
| Other current liabilities | 4,273,258.99 | |
| Total current liabilities | 4,250,780,400.26 | 4,361,267,551.17 |
| Non-current liabilities: | ||
| Long-term borrowing | ||
| Bonds payable | ||
| Including: Preferred shares | ||
| Perpetual bonds | ||
| Lease liabilities | ||
| Long-term payables | ||
| Long-term employee benefits payable | ||
| Provision | ||
| Deferred income | 40,698,910.95 | 43,264,785.87 |
| Deferred tax liabilities | 10,888,106.00 | |
| Other non-current liabilities | ||
| Total non-current liabilities | 51,587,016.95 | 43,264,785.87 |
| Total liabilities | 4,302,367,417.21 | 4,404,532,337.04 |
| Owners’ Equity: | ||
| Share capital | 1,749,809,548.00 | 1,749,809,548.00 |
| Other equity instruments | ||
| Including: Preferred shares |
The Annual Report 2020 of Huadong Medicine Co., Ltd.
| Perpetual bonds | ||
| Capital reserves | 2,168,451,528.01 | 2,168,451,528.01 |
| Less: Treasury shares | ||
| Other comprehensive income | 3,051,311.29 | 847,526.06 |
| Special reserve | ||
| Surplus reserves | 939,536,337.86 | 788,215,726.95 |
| Retained earnings | 4,303,533,798.88 | 3,431,594,974.14 |
| Total owners’ equity | 9,164,382,524.04 | 8,138,919,303.16 |
| Total liabilities & owners’ equity | 13,466,749,941.25 | 12,543,451,640.20 |
3. Consolidated income statement
Unit: RMB yuan
| Item | 2020 | 2019 |
| I. Total operating income | 33,683,058,759.75 | 35,445,698,216.15 |
| Including: Operating revenue | 33,683,058,759.75 | 35,445,698,216.15 |
| Interests received | ||
| Premiums earned | ||
| Handling fees and commissions received | ||
| II. Total operating cost | 30,666,230,281.53 | 32,236,584,319.28 |
| Including: Operating cost | 22,550,481,690.73 | 24,086,722,961.73 |
| Interests paid | ||
| Handling fees and commissions paid | ||
| Surrender value | ||
| Net payment of insurance claims | ||
| Net appropriation of policy reserve | ||
| Policy dividends paid | ||
| Reinsurance expenses | ||
| Business taxes and surcharges | 185,461,334.65 | 181,986,722.36 |
| Selling expenses | 5,970,614,819.26 | 5,797,236,883.02 |
| Administrative expenses | 998,746,330.35 | 1,095,227,423.65 |
The Annual Report 2020 of Huadong Medicine Co., Ltd.
| Research and Development(R&D) expenses | 926,725,468.93 | 1,072,937,182.39 |
| Financial expenses | 34,200,637.61 | 2,473,146.13 |
| Including: Interests expenses | 68,639,542.18 | 107,193,977.78 |
| Interests income | 60,990,405.57 | 30,593,316.38 |
| Add: Other income | 191,999,829.91 | 113,635,429.90 |
| Investment income (Losses are indicated by “-”) | -27,525,224.08 | -15,006,715.14 |
| Including: Investment gains (losses) in associated enterprise and joint-venture enterprise | -10,825,814.85 | 11,058,408.16 |
| Gains on the derecognition of financial assets measured at amortized cost | ||
| Gains on exchange (Losses are indicated by “-”) | ||
| Gains on net exposure hedging (Losses are indicated by “-”) | ||
| Gains on changes in fair value (Losses are indicated by “-”) | ||
| Credit impairment losses (Losses are indicated by “-”) | -22,826,566.73 | -28,581,461.03 |
| Impairment losses of assets (Losses are indicated by “-”) | -4,537,552.17 | 3,726,044.53 |
| Gains on assets disposal (Losses are indicated by “-”) | 322,636,323.26 | 114,154,941.45 |
| III. Operating profit (Losses are indicated by “-”) | 3,476,575,288.41 | 3,397,042,136.58 |
| Add: Non-operating income | 12,497,148.79 | 118,292,148.72 |
| Less: Non-operating expenses | 35,681,896.22 | 45,068,060.85 |
| IV. Total profit (Total losses are indicated by “-”) | 3,453,390,540.98 | 3,470,266,224.45 |
| Less: Income tax expenses | 543,673,981.58 | 544,863,569.56 |
| V. Net profit (Net losses are indicated by “-”) | 2,909,716,559.40 | 2,925,402,654.89 |
| (I) Classification by continuous operations |
The Annual Report 2020 of Huadong Medicine Co., Ltd.
| 1. Net profit from continued operations (Net losses are indicated by “-”) | 2,909,716,559.40 | 2,925,402,654.89 |
| 2. Net profit from terminational operations (Net losses are indicated by “-”) | ||
| (II) Classification by attribution of ownership | ||
| 1. Net profit attributable to owners of the parent company | 2,819,861,203.63 | 2,813,118,702.11 |
| 2. Profit or loss attributable to minority shareholders | 89,855,355.77 | 112,283,952.78 |
| VI. Other comprehensive income, net of income tax | -19,570,529.59 | 45,218,643.39 |
| Other comprehensive income attributable to owners of the parent company, net of tax | -19,570,529.59 | 45,218,643.39 |
| (I) Other comprehensive income that cannot be reclassified into gains/losses | -7,557,508.15 | 22,649,380.85 |
| 1.Changes in remeasurement on the defined benefit plan | ||
| 2. Other comprehensive income that cannot be reclassified into gains/losses under equity method | ||
| 3. Changes in fair value of other equity instrument investments | -7,557,508.15 | 22,649,380.85 |
| 4. Changes in fair value of credit risk of the enterprise | ||
| 5. Others | ||
| (II) Other comprehensive income to be reclassified into gains/losses | -12,013,021.44 | 22,569,262.54 |
| 1. Other comprehensive income that can be reclassified into gains/losses under equity method | ||
| 2. Changes in fair value of other debt investments | ||
| 3. Amount of financial assets reclassified into other comprehensive income |
The Annual Report 2020 of Huadong Medicine Co., Ltd.
| 4. Credit impairment reserve of other debt investments | ||
| 5. Cash flow hedging reserve | ||
| 6. Exchange differences arising on conversion of financial statements denominated in foreign currencies | -12,013,021.44 | 22,569,262.54 |
| 7. Others | ||
| Net amount after tax of other comprehensive income attributable to minority shareholders | ||
| VII. Total comprehensive income | 2,890,146,029.81 | 2,970,621,298.28 |
| Total comprehensive income attributable to owners of the parent company | 2,800,290,674.04 | 2,858,337,345.50 |
| Total comprehensive income attributable to minority shareholders | 89,855,355.77 | 112,283,952.78 |
| VIII. Earnings per share (EPS): | ||
| (I) Basic EPS | 1.6115 | 1.6077 |
| (II) Diluted EPS | 1.6115 | 1.6077 |
As for enterprise merger under the same control in the current period, the net profit generated by the merged party before the mergeris 0.00 yuan, and that generated during the previous period is 0.00 yuan.
Legal representative: Lv LiangPerson in charge of accounting work: Lv LiangPerson in charge of the Accounting Department: Qiu Renbo
4. Income statement of the parent company
Unit: RMB yuan
| Item | 2020 | 2019 |
| I. Total operating income | 16,872,181,187.37 | 18,615,152,475.02 |
| Less: Total operating cost | 15,944,922,632.47 | 17,632,559,302.99 |
| Business taxes and surcharges | 22,247,894.47 | 18,316,448.01 |
| Selling expenses | 376,745,334.88 | 405,018,833.52 |
| Administrative expenses | 149,533,857.93 | 144,525,622.55 |
The Annual Report 2020 of Huadong Medicine Co., Ltd.
| Research and Development (R&D) expenses | 7,744,972.45 | |
| Financial expenses | 16,997,550.09 | 61,561,281.10 |
| Including: Interests expenses | 55,351,840.15 | 74,457,880.50 |
| Interests income | 42,365,020.49 | 17,378,641.11 |
| Add: Other income | 12,869,243.56 | 6,736,329.43 |
| Investment income (Losses are indicated by “-”) | 1,230,298,386.30 | 884,134,498.88 |
| Including: Investment gains (losses) in associated enterprise and joint-venture enterprise | ||
| Gains on the derecognition of financial assets measured at amortized cost (Losses are indicated by “-”) | ||
| Gains on net exposure hedging (Losses are indicated by “-”) | ||
| Gains from changes in fair values (Losses are indicated by “-”) | ||
| Credit impairment losses (Losses are indicated by “-”) | 20,604,531.85 | -51,632,880.16 |
| Impairment gains (losses) of assets (Losses are indicated by “-”) | ||
| Asset disposal income (Losses are indicated by “-”) | -6,255.56 | 114,473,031.50 |
| II. Operating profit (Losses are indicated by “-”) | 1,625,499,823.68 | 1,299,136,994.05 |
| Add: Non-operating income | 1,052,923.08 | 1,634,235.90 |
| Less: Non-operating expenses | 8,012,091.67 | 1,291,907.34 |
| III. Total profit (Total losses are indicated by “-”) | 1,618,540,655.09 | 1,299,479,322.61 |
| Less: Income tax expenses | 105,334,546.00 | 124,909,727.27 |
| IV. Net profit (Net losses are indicated by “-”) | 1,513,206,109.09 | 1,174,569,595.34 |
| (I) Net profit from continuous operations (Net losses are indicated by “-”) | 1,513,206,109.09 | 1,174,569,595.34 |
The Annual Report 2020 of Huadong Medicine Co., Ltd.
| (II) Net profit from discontinued operations (Net losses are indicated by “-”) | ||
| V. Other comprehensive income, net of income tax | 2,203,785.23 | 847,526.06 |
| (I) Other comprehensive income that cannot be reclassified into gains/losses | 2,203,785.23 | 847,526.06 |
| 1. Changes in remeasurement on the defined benefit plan | ||
| 2. Other comprehensive income that cannot be reclassified into gains/losses under equity method | ||
| 3. Changes in fair value of other equity instrument investments | 2,203,785.23 | 847,526.06 |
| 4. Changes in fair value of credit risk of the enterprise | ||
| 5. Others | ||
| (II) Other comprehensive income to be reclassified into gains/losses | ||
| 1. Other comprehensive income that can be reclassified into gains/losses under equity method | ||
| 2. Changes in fair value of other debt investments | ||
| 3. Amount of financial assets reclassified into other comprehensive income | ||
| 4. Credit impairment reserve of other debt investments | ||
| 5. Cash flow hedging reserve | ||
| 6. Exchange differences from translation of foreign currency financial statements | ||
| 7. Others | ||
| VI. Total comprehensive income | 1,515,409,894.32 | 1,175,417,121.40 |
| VII. Earnings per share (EPS): |
The Annual Report 2020 of Huadong Medicine Co., Ltd.
| (I) Basic EPS | ||
| (II) Diluted EPS |
5. Consolidated cash flow statement
Unit: RMB yuan
| Item | 2020 | 2019 |
| I. Cash flows from operating activities： | ||
| Cash received from sale of goods or rendering of services | 36,213,324,706.96 | 37,765,481,069.45 |
| Net increase in customer deposits and due from banks | ||
| Net increase in borrowing from the central bank | ||
| Net increase in borrowing from other financial institutions | ||
| Cash from the premium of the original insurance policy | ||
| Net cash from reinsurance | ||
| Net increase in deposits and investment of the insured | ||
| Cash from interests, handling fees and commissions | ||
| Net increase in borrowing from other banks and other financial institutions | ||
| Net increase in funds for repurchase | ||
| Net cash received for buying and selling securities as proxy | ||
| Receipts of tax refunds | 21,366,495.17 | 36,489,238.81 |
| Other cash receipts to operating activities | 875,802,744.84 | 999,312,116.21 |
| Sub-total of Cash inflows from operating activities | 37,110,493,946.97 | 38,801,282,424.47 |
| Cash payments for goods purchased and services received | 23,428,048,137.78 | 26,049,853,576.88 |
| Net increase in customer loans and |
The Annual Report 2020 of Huadong Medicine Co., Ltd.
| prepayments | ||
| Net increase in deposits of central bank and due from banks | ||
| Cash payments for original insurance claims | ||
| Net increase in lending to other banks and other financial institutions | ||
| Cash payments for interests, handling fees and commissions | ||
| Cash payments for policy dividends | ||
| Cash payments to and on behalf of employees | 2,292,509,541.65 | 2,290,705,739.73 |
| Payments of various types of taxes | 2,186,582,342.29 | 2,151,909,142.04 |
| Other cash payments in relation to operating activities | 5,791,906,177.69 | 6,307,115,795.15 |
| Sub-total of cash outflows for operating activities | 33,699,046,199.41 | 36,799,584,253.80 |
| Net cash flow from operating activities | 3,411,447,747.56 | 2,001,698,170.67 |
| II. Cash flows from investing activities | ||
| Cash receipts from recovery of investments | 1.00 | |
| Cash receipts from investment income | 900,000.00 | 6,375,600.00 |
| Net cash from disposal of fixed assets, intangible assets and other long-term assets | 373,808,641.84 | 57,931,687.55 |
| Net cash from disposal of subsidiaries and other business units | ||
| Other cash receipts in relation to investing activities | 10,970,083.85 | 10,330,000.00 |
| Sub-total of cash inflows from investing activities | 385,678,726.69 | 74,637,287.55 |
| Cash payments for purchase and construction of fixed assets, intangible assets and other long-term assets | 1,472,983,747.79 | 1,353,444,334.16 |
| Cash payments for investment | 638,463,000.00 | 256,944,900.00 |
| Net increase in pledge loans |
The Annual Report 2020 of Huadong Medicine Co., Ltd.
| Net cash paid for acquisition of subsidiaries and other business units | 11,199,793.01 | |
| Other cash payments in relation to investing activities | 12,869,402.84 | 35,656,157.15 |
| Sub-total of cash outflows for investing activities | 2,124,316,150.63 | 1,657,245,184.32 |
| Net cash flow from investing activities | -1,738,637,423.94 | -1,582,607,896.77 |
| III. Cash flows from financing activities: | ||
| Cash receipts from capital contributions | 9,800,000.00 | |
| Including: Cash receipts from capital contributions from minority owners of subsidiaries | 9,800,000.00 | |
| Cash from borrowing | 2,194,671,377.21 | 1,908,287,327.51 |
| Other cash receipts in relation to financing activities | 16,376,100.00 | 4,450,000.00 |
| Sub-total of cash inflows from financing activities | 2,211,047,477.21 | 1,922,537,327.51 |
| Cash repayment of borrowings | 2,258,202,628.26 | 1,880,308,079.71 |
| Cash payments for distribution of dividends or profits or settlement of interet expenses | 655,696,970.33 | 621,755,092.32 |
| Including: Dividends and profits paid by subsidiaries to minority shareholders | 89,969,437.98 | 51,128,000.00 |
| Other cash payments in relation to financing activities | 22,877,889.85 | 29,071,651.48 |
| Sub-total of cash outflows from financing activities | 2,936,777,488.44 | 2,531,134,823.51 |
| Net cash flows from financing activities | -725,730,011.23 | -608,597,496.00 |
| IV. Effect of foreign exchange rate changes on Cash and Cash Equivalents | -21,444,785.63 | 22,569,262.54 |
| V. Net increase in cash and cash equivalents | 925,635,526.76 | -166,937,959.56 |
| Add: Opening balance of cash and cash equivalents | 2,231,771,546.50 | 2,398,709,506.06 |
| VI. Closing balance of cash and cash | 3,157,407,073.26 | 2,231,771,546.50 |
The Annual Report 2020 of Huadong Medicine Co., Ltd.
6. Cash flow statement of the parent company
Unit: RMB yuan
equivalentsItem
| Item | 2020 | 2019 |
| I. Cash flows from operating activities： | ||
| Cash receipts from the sale of goods and the rendering of services | 18,468,734,907.54 | 19,888,765,400.12 |
| Receipts of tax refund | 62.38 | |
| Other cash receipts in relation to operating activities | 75,204,158.10 | 72,672,145.56 |
| Sub-total of cash inflows from operating activities | 18,543,939,128.02 | 19,961,437,545.68 |
| Cash payments for goods acquired and services received | 17,189,413,934.83 | 19,392,421,016.77 |
| Cash payments to and on behalf of employees | 221,958,975.19 | 215,213,920.34 |
| Payments of various types of taxes | 141,082,140.82 | 304,160,143.98 |
| Other cash payments in relation to operating activities | 305,941,397.18 | 293,133,338.39 |
| Sub-total of cash outflows for operating activities | 17,858,396,448.02 | 20,204,928,419.48 |
| Net cash flow from operating activities | 685,542,680.00 | -243,490,873.80 |
| II. Cash flows from investing activities | ||
| Cash receipts from recovery of investments | 4,277,665.48 | |
| Cash receipts from investment income | 252,569,238.79 | 854,192,000.00 |
| Net cash receipts from disposal of fixed assets, intangible assets and other long-term assets | 51,043.55 | 56,648,621.75 |
| Net cash from disposal of subsidiaries and other business units | ||
| Other cash receipts in relation to investing activities | 1,008,662,454.55 | 719,862,834.59 |
| Sub-total of cash inflows from investing | 1,265,560,402.37 | 1,630,703,456.34 |
The Annual Report 2020 of Huadong Medicine Co., Ltd.
| activities | ||
| Cash payments for purchase and construction of fixed assets, intangible assets and other long-term assets | 117,614,594.72 | 76,886,709.15 |
| Cash payments for investment | 45,563,072.00 | 292,607,400.00 |
| Net cash paid for acquisition of subsidiaries and other business units | 45,000,000.00 | |
| Other cash payments in relation to investing activities | 883,840,800.00 | 1,025,893,964.54 |
| Sub-total of cash outflows for investing activities | 1,047,018,466.72 | 1,440,388,073.69 |
| Net cash flows from investing activities | 218,541,935.65 | 190,315,382.65 |
| III. Cash flows from financing activities: | ||
| Cash receipts from absorbing investments | ||
| Cash receipts from borrowing | 1,290,651,754.99 | 804,466,686.17 |
| Other cash receipts in relation to financing activities | 8,284,000,000.00 | 352,692,483.11 |
| Sub-total of cash inflows from financing activities | 9,574,651,754.99 | 1,157,159,169.28 |
| Cash repayments of borrowings | 1,415,656,441.26 | 769,466,685.37 |
| Cash payments for distribution of dividends or profits or settlement of interest expenses | 555,848,349.12 | 536,573,346.34 |
| Other cash payments in relation to financing activities | 7,511,907,162.52 | 288,574,038.04 |
| Sub-total of cash outflows fromfinancing activities | 9,483,411,952.90 | 1,594,614,069.75 |
| Net cash flow from financing activities | 91,239,802.09 | -437,454,900.47 |
| IV. Effect of foreign exchange rate changes on Cahs and Cash Equivalents | ||
| V. Net increase in cash and cash equivalents | 995,324,417.74 | -490,630,391.62 |
| Add: Opening balance of cash and cash equivalents | 893,929,724.56 | 1,384,560,116.18 |
| VI. Closing balance of cash and cash equivalents | 1,889,254,142.30 | 893,929,724.56 |
The Annual Report 2020 of Huadong Medicine Co., Ltd.
7. Consolidated statement of changes in owners’ Equity
Amount in the current period
Unit: RMB yuan
| Item | 2020 | ||||||||||||||
| Ownership interest attributable to the parent company | Minority interest | Total ownership interest | |||||||||||||
| Share capital | Other equity instruments | Capital reserve | Less: Treasury shares | Other comprehensive income | Special reserve | Surplus reserve | General risk reserve | Undistributed profit | Others | Total | |||||
| Preferred shares | Perpetual bonds | Others | |||||||||||||
| I. Balance at the end of the period of the prior year | 1,749,809,548.00 | 2,158,080,661.07 | 22,792,488.80 | 710,359,967.51 | 7,668,434,642.62 | 12,309,477,308.00 | 557,146,931.87 | 12,866,624,239.87 | |||||||
| Add: changes in accounting policies | |||||||||||||||
| Error correction in the prior periods | |||||||||||||||
| Merger of enterprises under the same control | |||||||||||||||
| Others | |||||||||||||||
| II. Balance at the beginning of the period of the current year | 1,749,809,548.00 | 2,158,080,661.07 | 22,792,488.80 | 710,359,967.51 | 7,668,434,642.62 | 12,309,477,308.00 | 557,146,931.87 | 12,866,624,239.87 | |||||||
| III. Amount of change in the current period (Decreases are indicated by “-”) | -24,983,558.25 | 151,320,610.91 | 2,184,006,947.94 | 2,310,344,000.60 | 2,443,273.00 | 2,312,787,273.60 | |||||||||
| (I) Total | -19,57 | 2,819, | 2,800, | 89,855 | 2,890, | ||||||||||
The Annual Report 2020 of Huadong Medicine Co., Ltd.
| comprehensive income | 0,529.59 | 861,203.63 | 290,674.04 | ,355.77 | 146,029.81 | ||||||||||
| (II) Capital contributed by owners and capital decreases | 4,900,000.00 | 4,900,000.00 | |||||||||||||
| 1. Common shares invested by owners | 4,900,000.00 | 4,900,000.00 | |||||||||||||
| 2. Capital invested by holders of other equity instruments | |||||||||||||||
| 3. Amount of share-based payment included in ownership interest | |||||||||||||||
| 4. Others | |||||||||||||||
| (III) Profit distribution | 151,320,610.91 | -641,267,284.35 | -489,946,673.44 | -89,969,437.98 | -579,916,111.42 | ||||||||||
| 1. Withdrawal of surplus reserve | 151,320,610.91 | -151,320,610.91 | |||||||||||||
| 2. Withdrawal of general risk reserve | |||||||||||||||
| 3. Distribution to owners (or shareholders) | -489,946,673.44 | -489,946,673.44 | -89,969,437.98 | -579,916,111.42 | |||||||||||
| 4. Others | |||||||||||||||
| (IV) Internal conversion of ownership interest | -5,413,028.66 | 5,413,028.66 | |||||||||||||
| 1. Capital (or share capital) |
The Annual Report 2020 of Huadong Medicine Co., Ltd.
| increase from capital reserve conversion | |||||||||||||||
| 2. Capital (or share capital) increase from surplus reserve conversion | |||||||||||||||
| 3. Recovery of losses by surplus reserve | |||||||||||||||
| 4. Retained earnings from transfer of changes in the defined benefit plan | |||||||||||||||
| 5. Retained earnings from transfer of other comprehensive income | -5,413,028.66 | 5,413,028.66 | |||||||||||||
| 6. Others | |||||||||||||||
| (V) Special reserve | |||||||||||||||
| 1. Withdrawal in the current period | |||||||||||||||
| 2. Use in the current period | |||||||||||||||
| (VI) Others | -2,342,644.79 | -2,342,644.79 | |||||||||||||
| IV. Balance at the end of the current period | 1,749,809,548.00 | 2,158,080,661.07 | -2,191,069.45 | 861,680,578.42 | 9,852,441,590.56 | 14,619,821,308.60 | 559,590,204.87 | 15,179,411,513.47 |
Amount in the prior period
Unit: RMB yuan
| Items | 2019 | ||
| Ownership interest attributable to the parent company | Minorit | Total | |
The Annual Report 2020 of Huadong Medicine Co., Ltd.
| Share capital | Other equity instruments | Capital reserve | Less: Treasury shares | Other comprehensive income | Special reserve | Surplus reserve | General risk reserve | Undistributed profit | Others | Total | y interest | ownership interest | |||
| Preferred shares | Perpetual bonds | Others | |||||||||||||
| I. Balance at the end of the period of the prior year | 1,458,174,624.00 | 2,455,526,993.18 | -22,426,154.59 | 592,903,007.98 | 5,453,970,525.96 | 9,938,148,996.53 | 487,379,570.98 | 10,425,528,567.51 | |||||||
| Add: Changes in accounting policies | |||||||||||||||
| Error correction in the prior periods | |||||||||||||||
| Merger of enterprises under the same control | |||||||||||||||
| Others | |||||||||||||||
| II. Balance at the beginning of the period of the current year | 1,458,174,624.00 | 2,455,526,993.18 | -22,426,154.59 | 592,903,007.98 | 5,453,970,525.96 | 9,938,148,996.53 | 487,379,570.98 | 10,425,528,567.51 | |||||||
| III. Amount of change in the current period (Decreases are indicated by “-”) | 291,634,924.00 | -297,446,332.11 | 45,218,643.39 | 117,456,959.53 | 2,214,464,116.66 | 2,371,328,311.47 | 69,767,360.89 | 2,441,095,672.36 | |||||||
| (I) Total comprehensive income | 45,218,643.39 | 2,813,118,702.11 | 2,858,337,345.50 | 112,283,952.78 | 2,970,621,298.28 | ||||||||||
| (II) Capital contributed by owners and | 9,800,000.00 | 9,800,000.00 | |||||||||||||
The Annual Report 2020 of Huadong Medicine Co., Ltd.
| capital decreases | |||||||||||||||
| 1. Common shares invested by owners | 9,800,000.00 | 9,800,000.00 | |||||||||||||
| 2. Capital invested by holders of other equity instruments | |||||||||||||||
| 3. Amount of share-based payment included in ownership interest | |||||||||||||||
| 4. Others | |||||||||||||||
| (III) Profit distribution | 117,456,959.53 | -598,654,585.45 | -481,197,625.92 | -51,128,000.00 | -532,325,625.92 | ||||||||||
| 1. Withdrawal of surplus reserve | 117,456,959.53 | -117,456,959.53 | |||||||||||||
| 2. Withdrawal of general risk reserve | |||||||||||||||
| 3. Distribution to owners (or shareholders) | -481,197,625.92 | -481,197,625.92 | -51,128,000.00 | -532,325,625.92 | |||||||||||
| 4. Others | |||||||||||||||
| (IV) Internal conversion of ownership interest | 291,634,924.00 | -291,634,924.00 | |||||||||||||
| 1. Capital (or share capital) increase from capital reserve conversion | 291,634,924.00 | -291,634,924.00 | |||||||||||||
| 2. Capital (or share capital) |
The Annual Report 2020 of Huadong Medicine Co., Ltd.
| increase from surplus reserve conversion | |||||||||||||||
| 3. Recovery of losses by surplus reserve | |||||||||||||||
| 4. Retained earnings from transfer of changes in the defined benefit plan | |||||||||||||||
| 5. Retained earnings from transfer of other comprehensive income | |||||||||||||||
| 6. Others | |||||||||||||||
| (V) Special reserve | |||||||||||||||
| 1. Withdrawal in the current period | |||||||||||||||
| 2. Use in the current period | |||||||||||||||
| (VI) Others | -5,811,408.11 | -5,811,408.11 | -1,188,591.89 | -7,000,000.00 | |||||||||||
| IV. Balance at the end of the current period | 1,749,809,548.00 | 2,158,080,661.07 | 22,792,488.80 | 710,359,967.51 | 7,668,434,642.62 | 12,309,477,308.00 | 557,146,931.87 | 12,866,624,239.87 |
8. Statement of changes in ownership interest of the parent company
Amount in the current period
Unit: RMB yuan
| Item | 2020 | |||||||||
| Share capital | Other equity instruments | Capital reserve | Less: Treasury | Other compreh | Special reserve | Surplus reserve | Undistributed | Others | Total ownership | |
The Annual Report 2020 of Huadong Medicine Co., Ltd.
| Preferred shares | Perpetual bonds | Others | shares | ensive income | profit | interest | ||||||
| I. Balance at the end of the period of the prior year | 1,749,809,548.00 | 2,168,451,528.01 | 847,526.06 | 788,215,726.95 | 3,431,594,974.14 | 8,138,919,303.16 | ||||||
| Add: Changes in accounting policies | ||||||||||||
| Error correction in the prior periods | ||||||||||||
| Others | ||||||||||||
| II. Balance at the beginning of the period of the current year | 1,749,809,548.00 | 2,168,451,528.01 | 847,526.06 | 788,215,726.95 | 3,431,594,974.14 | 8,138,919,303.16 | ||||||
| III. Amount of change in the current period (Decreases are indicated by “-”) | 2,203,785.23 | 151,320,610.91 | 871,938,824.74 | 1,025,463,220.88 | ||||||||
| (I) Total comprehensive income | 2,203,785.23 | 1,513,206,109.09 | 1,515,409,894.32 | |||||||||
| (II) Capital contributed by owners and capital decreases | ||||||||||||
| 1. Common shares invested by owners | ||||||||||||
| 2. Capital invested by holders of other equity instruments | ||||||||||||
| 3. Amount of share-based payment |
The Annual Report 2020 of Huadong Medicine Co., Ltd.
| included in ownership interest | ||||||||||||
| 4. Others | ||||||||||||
| (III) Profit distribution | 151,320,610.91 | -641,267,284.35 | -489,946,673.44 | |||||||||
| 1. Withdrawal of surplus reserve | 151,320,610.91 | -151,320,610.91 | ||||||||||
| 2. Distribution to owners (or shareholders) | -489,946,673.44 | -489,946,673.44 | ||||||||||
| 3. Others | ||||||||||||
| (IV) Internal conversion of ownership interest | ||||||||||||
| 1. Capital (or share capital) increase from capital reserve conversion | ||||||||||||
| 2. Capital (or share capital) increase from surplus reserve conversion | ||||||||||||
| 3. Recovery of losses by surplus reserve | ||||||||||||
| 4. Retained earnings from transfer of changes in the defined benefit plan | ||||||||||||
| 5. Retained earnings from transfer of other comprehensive |
The Annual Report 2020 of Huadong Medicine Co., Ltd.
| income | ||||||||||||
| 6. Others | ||||||||||||
| (V) Special reserve | ||||||||||||
| 1. Withdrawal in the current period | ||||||||||||
| 2. Use in the current period | ||||||||||||
| (VI) Others | ||||||||||||
| IV. Balance at the end of the current period | 1,749,809,548.00 | 2,168,451,528.01 | 3,051,311.29 | 939,536,337.86 | 4,303,533,798.88 | 9,164,382,524.04 |
Amount in the prior period
Unit: RMB yuan
| Item | 2019 | |||||||||||
| Share capital | Other equity instruments | Capital reserve | Less: Treasury shares | Other comprehensive income | Special reserve | Surplus reserve | Undistributed profit | Others | Total ownership interest | |||
| Preferred shares | Perpetual bonds | Others | ||||||||||
| I. Balance at the end of the period of the prior year | 1,458,174,624.00 | 2,460,086,452.01 | 670,758,767.42 | 2,855,679,964.25 | 7,444,699,807.68 | |||||||
| Add: Changes in accounting policies | ||||||||||||
| Error correction in the prior periods | ||||||||||||
| Others | ||||||||||||
| II. Balance at the beginning of the period of the current year | 1,458,174,624.00 | 2,460,086,452.01 | 670,758,767.42 | 2,855,679,964.25 | 7,444,699,807.68 | |||||||
The Annual Report 2020 of Huadong Medicine Co., Ltd.
| III. Amount of change in the current period (Decreases are indicated by “-”) | 291,634,924.00 | -291,634,924.00 | 847,526.06 | 117,456,959.53 | 575,915,009.89 | 694,219,495.48 | ||||||
| (I) Total comprehensive income | 847,526.06 | 1,174,569,595.34 | 1,175,417,121.40 | |||||||||
| (II) Capital contributed by owners and capital decreases | ||||||||||||
| 1. Common shares invested by owners | ||||||||||||
| 2. Capital invested by holders of other equity instruments | ||||||||||||
| 3. Amount of share-based payment included in ownership interest | ||||||||||||
| 4. Others | ||||||||||||
| (III) Profit distribution | 117,456,959.53 | -598,654,585.45 | -481,197,625.92 | |||||||||
| 1. Withdrawal of surplus reserve | 117,456,959.53 | -117,456,959.53 | ||||||||||
| 2. Distribution to owners (or shareholders) | -481,197,625.92 | -481,197,625.92 | ||||||||||
| 3. Others | ||||||||||||
| (IV) Internal conversion of ownership | 291,634,924.00 | -291,634,924.00 |
The Annual Report 2020 of Huadong Medicine Co., Ltd.
| interest | ||||||||||||
| 1. Capital (or share capital) increase from capital reserve conversion | 291,634,924.00 | -291,634,924.00 | ||||||||||
| 2. Capital (or share capital) increase from surplus reserve conversion | ||||||||||||
| 3. Recovery of losses by surplus reserve | ||||||||||||
| 4. Retained earnings from transfer of changes in the defined benefit plan | ||||||||||||
| 5. Retained earnings from transfer of other comprehensive income | ||||||||||||
| 6. Others | ||||||||||||
| (V) Special reserve | ||||||||||||
| 1. Withdrawal in the current period | ||||||||||||
| 2. Use in the current period | ||||||||||||
| (VI) Others | ||||||||||||
| IV. Balance at the end of the current period | 1,749,809,548.00 | 2,168,451,528.01 | 847,526.06 | 788,215,726.95 | 3,431,594,974.14 | 8,138,919,303.16 |
Huadong Medicine Co., Ltd.
The Annual Report 2020 of Huadong Medicine Co., Ltd.
Chairman of the Board: Lv Liang
April 21, 2021