Download - Shenguan Holdings (Group) Limited
2017 March 2018
Shenguan Holdings (Group) Limited (incorporated in the Cayman Islands with limited liability)
Stock Code: 00829
The information contained in this presentation is intended solely for your personal reference. Such information is subject to change without notice, its accuracy is not guaranteed and it may not contain all material information concerning the Company. The Company makes no representation regarding, and assumes no responsibility or liability for, the accuracy or completeness of, or any errors or omissions in, any information contained herein. In addition, the information contains projections and forward-looking statements that reflect the Company’s current views with respect to future events and financial performance. These views are based on current assumptions which are subject to various risks and which may change over time. No assurance can be given that future events will occur, that projections will be achieved, or that the Company’s assumptions are correct. It is not the intention to provide, and you may not rely on this presentation as providing, a complete or comprehensive analysis of the Company's financial or trading position or prospects. This presentation does not constitute an offer or invitation to purchase or subscribe for any securities or financial instruments or to provide any investment service or investment advice, and no part of it shall form the basis of or be relied upon in connection with any contract, commitment or investment decision in relation thereto.
Disclaimer
1
2
Outlook 3
Open Forum 4
Agenda
Business Review and Financial Performance
Results Highlights
Revenue for 2017 increased by 2.8% to RMB 1,008 million, with sales volume growth of 15%, but this is insufficient to offset the price decrease Profit attributable to owners decreased by 55.4% to approximately RMB 68.8 million, and earnings per share was RMB 2.1 cents Cash inflow from operating activities amounted to approximately RMB421.6 million, increased by 35.1% Sound and stable financial position with cash and cash equivalents (incl. pledged deposit) at approximately RMB 671.2 million, and net cash increased by RMB249.1 million to RMB480.5 million as at 31 December 2017 Board of directors recommended the payment of final dividend of 2.0 HK cents and special final dividend of 1.6 HK cents per share, total dividend per share is more than that of 2016 Consumer products - collagen chips under “Meday” brand and collagen piece facial masks under “COLL-FULL” brand have commenced sales. Appointed Miss. Xu Lu, an attention-grabbing rising Chinese actress as the ambassador for its “COLL- FULL” brand in May during the Year to step up market planning and marketing operation accordingly
Results Highlights
Results Highlights (in RMB million, unless otherwise stated) 2017 2016 Change
Revenue 1,008.0 980.6 +2.8%
Gross profit margin 23.9% 29.9% -6.0 ppt
Profit attributable to owners of the Company 68.8 154.2 -55.4%
Net margin (%) 6.8 15.7 -8.9 ppt
Cash inflow from operating activities 421.6 312.0 +35.1%
Capital expenditure 31.8 144.9 -78.1%
Basic earnings per share (RMB cents) 2.1 4.7 -55.3%
Final dividend and special final dividend per share (HK cents)
3.6 3.0 +20.0%
Total assets 3,294.0 3,503.8 -6.0%
Gearing ratio (Total bank borrowings / total equity) 6.7% 11.9% -5.2 ppt
Current ratio (times) (Current assets / current liabilities)
4.5 3.3 +1.2
F o r t h e y e a r e n d e d 3 1 D e c e m b e r
Business Review and Financial Performance
Gross Profit & Gross Margin (RMB million)
Revenue Trend
Sales volume of collagen sausage casing products increased by about 15%
The overall decrease in product price in the industry and the Group’s commitment to reduce the inventory level led to the decline in the average selling price. The average selling price still dropped slightly in the first quarter of 2017 when comparing with the fourth quarter of 2016, but started to rebound from the second quarter of 2017 as inventory pressure eased. The average selling price for the second half of 2017 was approximate to that of the first half of 2017.
The gross profit margin decreased from approx. 29.9% to approx. 23.9% for the Year. If the written-off and provision of inventory was excluded, the gross profit margin of the Year and the Prior Year were 25.1% and 31.6%, respectively.
The decrease in gross profit margin is mainly due to the overall decrease in product price in the industry and the Group’s effort in reducing inventory level by boosting sales of outdated inventories, which had led to a decline in the average selling price.
Reasons of gross margin decrease Reasons of Revenue decrease
Revenue (RMB million) (RMB million)
Revenue and Gross Margin Analysis
980.6
1008
2016 2017
+2.8% 670.9
435.7 430.7 429.9
732.1 618.9
549.9 578.1
2014 2015 2016 2017
1H 2H
293.1 240.7
2016 2017
29.90% 23.90
%
-17.9%
Raw materials & consumables
Water, electricity & coal
Salary & employee benefit
(RMB ‘000) (RMB ‘000)
Cost of sales increased by approx. 11.6% to approx. RMB767.3 million for the Year from approx. RMB687.5 million for the Prior Year, including the written-off and provision of inventory in aggregate of approx. RMB12.6 million
If the written-off and provision of inventory was excluded, the cost of sales increased by approx. 12.6%, which was slightly lower than the increase in sales volume
During the Year, the Group also adopted various measures to control costs
2016 2017
Cost of Sales Analysis
Raw materials & Consumables
276,608 34.9% 259,214 38.7%
Water, electricity & coal
180,888 23.6% 153,474 22.9%
Salary &
employee Benefit
156,792 18.6% 132,232 19.7%
Others 162,015 21.1%
142,622 18.7%
2017 2016
259,214
153,474 132,232
267,608
180,888 156,792
3.2%
17.9% 18.6%
Other income and gains
Other income and gains decreased by approx. 60.5% to approx. RMB34.9 million. In 2016, the Group entered into a settlement agreement with such independent third party, pursuant to which, such independent third party refund the Group’s Contract Costs together with the accrued return of 10 per cent per annum. As a result, the Group recorded the return from contract in progress of approx. RMB25.6 million in the Prior Year whereas no similar return was recorded for the Year.
Increase in fair value of the put option related to Guangdong Victory of approx. RMB1.6 million recorded during the Year, as compared to RMB17.7 million for the Prior Year.
(RMB ‘000)
Other Income and Gains
88,500
34,900
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
2016 2017
-60.5%
Selling and distribution expenses
Selling and distribution expenses increased by approx.34.2% from approximately RMB32.5 million for the Prior Year to approx. RMB43.6 million for the Year
Increase in marketing costs for the promotion of various new products including the “Meday” Collagen Chips and the “COLL-FULL” Collagen Piece Facial Mask, as well as the increase in wages due to the expansion in sales team
Selling and distribution expenses as a percentage of revenue increased to approx. 4.3% for the Year from approx. 3.3 % for the Prior Year
(RMB ‘000)
Selling and Distribution Expenses
32,500
43,600
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
2016 2017
+34.2%
Administrative expenses Technologies acquired through Guangdong Victory acquisition will be amortized over 5 years and related amortization expense was approx. RMB50.8 million; After deducting minority interest and deferred taxation of Guangdong Victory, effect of related amortization expense on net profit was approx. RMB 26.8 million
During the Prior Year, the Group has incurred an impairment loss of approx. RMB24.7 million on the goodwill recognized as a result of the acquisition Guangdong Victory , while no impairment loss on goodwill was recorded for the Year. The impairment loss on goodwill recorded last year was mainly due to the slower-than-expected approval progress of various permits for new products of Guangdong Victory and its development of the sales network of, which resulted in a downward adjustment and delay in achieving the profit as set out in Guangdong Victory’s financial forecast.
Both factors above which had a relatively material impact on net profit for the Year were non-cash items and cash flow of the Group was not affected
(RMB ‘000)
Administrative expenses
177,900
158,100
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
2016 2017
-11.2%
Net Profit and Margin
Net Profit and Margin Major reasons:
Decrease in ASP led to decline in gross margin
Decrease in other Income and gains
Increase in selling and distribution expense
Marketing costs for the promotion of various new products,as well as the increase in wages due to the expansion in sales team
If the return of approx. RMB25.6 million received by the Group from the contract in progress, the fair value gain of RMB17.7 million (decreased to RMB 1.6 million for the Year) and impairment of goodwill of approx. RM24.7 million (no impairment of goodwill was recorded for the year) recorded in the Prior Year were excluded, the profit attributable to owners of the Company decreased by approx. 50.4% as compared with the same period of the Prior Year
The selling and distribution expenses and administrative expenses for the exploration of new products, including facial masks and instant edible solid collagen, for the Year and the Prior Year totaled to RMB35.2 million and RMB13.7 million, respectively
(RMB ‘000)
154,200 15.7%
68,800 6.8%
0
50,000
100,000
150,000
200,000
250,000
2016 2017
110.4 107.3
131.9 153.7
0
20
40
60
80
100
120
140
160
1H16 FY16 1H17 FY17
(Day )
* Calculated as the average of the opening and closing balance of the period
Trade and Bills Payable Turnover Days *
64.6 73.9
89.9 92.2
0
20
40
60
80
100
120
1H16 FY16 1H17 FY17
(Day)
Trade and Bills Receivables Turnover Days *
Trade payable turnover days increased by approximately 22 days from the mid-term, and the Group made full use of the credit period provided by the suppliers.
Trade receivable turnover days increased by approx. 18.3 days; the Group closely monitors the operating situation of China’s meat products industry and strictly controls customer credit; The credit period is generally for a period of one month, extending up to three months for certain customers
For the year, impairment of trade and bills receivables was approx. RMB 4 million
Working Capital Analysis
Working Capital Analysis
40.2 33.7 34.1
24.9
0
20
40
60
80
1H16 FY16 1H17 FY17
Inventory Turnover Days – Raw Materials *
553.6
422.0 406.1
300.8
0
200
400
600
800
1H16 FY16 1H17 FY17
(Day)
Inventory Turnover Days – FG & WIP * (Day)
Turnover days of raw materials, finished goods and work in progress all decreased from interim results as well as from last year end
Took into account seasonality factor in planning production schedule to reduce energy consumption
Adjust utilization and lengthen maintenance period to increase product quality while decrease inventory level
Through stock taking, classification and grading, the Group implemented a grade-specific sales strategy with differentiated pricing, leading to a destocking success and lower inventory risk and significantly higher operating cash inflow
* Calculated as the average of opening and ending inventory balance of the year
Cash and cash equivalents together with the pledged deposits amounted to
approx. RMB 671.2 million
Total bank and other borrowings amounted to about RMB 190.7 million, which
includes:
RMB 150 million denominated in Renminbi
HKD 48.7 million denominated in Hong Kong Dollars
(equivalent to RMB 40.7 million)
Net cash position of RMB 480.5 million, representing an increase of approx.
RMB249.1 million as compared to that at the end of 2016
Debt-to-equity ratio reduced to approx. 6.7% (11.9% as at 31 Dec 2016)
Operating cash inflow was approx. RMB 421.6 million, increased by approx. 35.1%
from last year
Note: Debt-to-equity ratio was calculated by dividing total borrowings by the total equity
Cash & Bank Borrowings
Gradually Achieve Product Diversification Collagen chips under brand “Meday” and collagen piece facial masks under brand “COLL-FULL” were launched for sale Appointed Miss. Xu Lu, attention-grabbing rising Chinese actress in May 2017, as ambassador for the “COLL-FULL” brand, and will further strengthen market planning and marketing accordingly so as to capture a larger market share Guangdong Victory Biotech Co., Ltd. is also lodging a number of applications for patents, of which the patents for “artificial bone structure” were granted by the State Intellectual Property Office of the PRC and the Taiwan Intellectual Property Office and “preparation process for low endotoxin collagen” was accepted by the State Intellectual Property Office of the PRC, Taiwan Intellectual Property Office and United States Patent and Trademark Office, as at the date of this announcement Ferguson (Wuhan) Biotech Company Limited (“Ferguson Wuhan”) is putting efforts in research and development of health food, general food and special food for medical purposes, including lutein soft capsules, glucosamine tablets, calcium and zinc oral liquid, nutrition packs, sports drinks, whey protein powder, balanced nutrition powder, etc. Ferguson (Wuhan) has made initial achievement in market channel building
Increased Equity Interests in New Businesses The Group is increasing its equity interests in Guangdong Victory Biotech Co., Ltd. And Ferguson (Wuhan) Biotech Company Limited during 2017
Interests in Guangdong Victory has increased to 80% as at the end of May 2017
The acquisition of equity interest in Ferguson Wuhan have been completed in August, 2017, now holds 25% equity interest
Collagen Casings & Foods Medical Use
100% equity interest
Wuzhou Shenguan 100% equity interest
Sanjian Pharmaceutical
100% equity interest
Nanning Nuyou
80% equity interest
Guangdong Victory
100% equity interest
Guangxi Luxianna
100% equity interest
Nanning Shangguan
25% equity interest
Ferguson Wuhan
Beauty & Healthcare
100% equity interest (80% indirect)
Wuzhou Victory
Outlook
Outlook As noted in the work report of the 19th National Congress of the CPC, to achieve the goal of well-off society by 2020, the private sector should be encouraged and supported in addition to the stronger public sector. The recent Central Economic Work Conference also stressed that as socialism with Chinese characteristics has marched into a new era along with the national economy, the PRC’s economy is downshifting towards a quality-minded pattern.
The 13th Five-Year Plan promulgated by the government and the relevant departments have added the collagen biotechnology industry into the list of strategic emerging industries with national support, which includes: The “Thirteenth Five-Year Development Plan on the National Strategic Emerging Industry” 《「十三五」国家战略性新兴产业发展规划》 The “Thirteenth Five-Year plan on National Science and Technology Innovation” 《「十三五」国家科技创新规划》 The “Catalogue of Key Products and Services in Strategic Emerging Industries” 《战略性新兴产业重点产品和服务指导目录》 “Pharmaceutical Industry Development Planning Guide “ 《医药工业发展规划指南》
Continue to use collagen technologies as the core, collagen sausage casing business as the foundation, and set collagen-based products such as foods, healthcare products, cosmetic products, medical products and medical materials as the development direction
Strategy and Plan Adhere to the mission of “de-stocking, adjusting structure, maintaining stable growth”, to enhance development in setting up the Group’s management model, and sales and marketing system so as to maintain leading position in collagen sausage casing market
The Group will continue to improve its management mechanism and structure. We will upgrade and incorporate strategy origination, investment decisions, financial monitoring and central procurement into a group-wide framework for higher management efficiency and performance
For collagen food products, the Group will continue to improve the technical and operational standards for instant edible solid collagen and rice noodles with ingredients including collagen to ensure product quality
Efforts will also be taken to bolster up promotional and marketing activities for achieving mass production and sales volume soon
“Type III Wound Dressing” and “Type III In Vivo Hemostatic Cotton”, which have passed clinical trials, are in the process of application for production permit. Accelerating the research and development of artificial bone and are applying for its clinical trial
The Wuzhou sterile production facility of the newly established Wuzhou Victory Biotech Co., Ltd. for collagen medical materials, with its fitting-out completed, is in the process of application for relevant certificates and permits to target commencing production in the second half of 2018.
Open Forum