Tong Ren Tang Tech [HongKong Shares] 8069

February 16, 2008 – 12:16 pm

The Group is an enterprise specializing in Chinese medicine technology which is principally engaged in the manufacturing and sales of Chinese Patent Medicine.

In line with the management target of ¨striving for excellence on a prudent and practical basis〃 set by the Board in 2006 the Company has upheld two major priorities of ¨reform〃 and ¨management〃 and adhered to an operating philosophy which is centred on profit making and focused on cash flow control. We have worked out a revenue generating and cost reducing principle as a leading idea setting up a cost-saving and highly-efficient enterprise in order to further improve the profitability and management standards of the Company. For the year ended 31 December 2006 revenue of the Company amounted to RMB1034768000 representing a decrease of 8.89% as compared with that for the corresponding period last year. The decrease in sales was due to our efforts to restoring market order by limiting supply of certain products. Profit before income tax was RMB171236000 representing a decrease of 32.04% as compared with that for the corresponding period last year it was mainly due to the decease in gross profit margin which was in turn caused by the decrease in revenue increase in costs of raw and supplementary materials increase in depreciation of fixed assets and so on. Profit attributable to equity holders of the Company was RMB148327000 representing a decrease of 35.84% as compared with that for the corresponding period last year. The decrease in profit attributable to equity holders of the Company was due to the expiration of the preferential income tax treatment previously enjoyed by the Company in 2005.

SALES

During 2006 the marketing efforts of the Company were mainly made in changing the operating mode. The Company has made concerted efforts in strengthening ultimate points of distribution. With a goal of upgrading our operation quality we have streamlined management flows and channel maintenance in order to enhance the Companyˇs overall marketing strengths.

Basing on the existing sales networks the Company strengthened its overall marketing planning and reinforced the establishment maintenance and management of its ultimate points of distribution. In this regard the Company further restructured its marketing framework. A branch company specialized in marketing was set up for dealing with the establishment and maintenance of the retail points and with the marketing and promotion of products. By conducting site visit and marketing research the marketing branch company has collected such information as the distribution of ultimate drugstores and accessibility of the Companyˇs products in Tianjin Shijiazhuang Chongqing Jinan and Xian. And the marketing branch company also established exclusive counters for Tongrentang products over various regions in order to reinforce the promotion amongst ultimate drugstores to enhance brand recognition of the Companyˇs products and to create demand from end users.

To cope with the fiercely competitive market in respect of the sale of mainstream products the Company regulated the activities of distributors strengthened monitoring enhanced integrated management of pricing system and market order so as to maintain orderly market operation. Sales policies were stringently implemented; penalties were imposed on some distributors for noncompliance thereof. This measure helped maintaining market order and cultivating healthy business environment. We also kept eye on cash flow control in a way of managing the good balance between deliveries and cash receipts and enhancing budgetary control on sale costs in order to maximize profits with committed sale costs.

The Company continued to enrich its product portfolio and organize promotional campaigns and healthcare seminars for different types of products in a timely manner. To satisfy the demand of different consumers we continued to refine and innovate forms of medicine packaging and specifications and to promote products with market potentials. In 2006 the Company produced and sold more than a hundred types of products. Of which one product exceeded sales of RMB100000000 two products between RMB50000000 and RMB100000000 and 15 products between RMB10000000 and RMB50000000. Sales of mainstream products decreased as compared with those for the corresponding period last year of which series of Liuwei Dihuang Pill せ独decreased by 9.78% each of Ganmao Qingre Granule稰玙睲荐聋采and Niuhuang JieduTablet 独秆瑀decreased by more than 20%. Leveraging on the diversification strategies ofproduct series sales of certain other series including Niuhuang Jiangya Pill 独溃 TracheitisPill 恨and Banlangen Granule狾屡聋采Qiju Dihuang Pill 碘独 increasedas compared with those for the corresponding period last year.

In respect of overseas market because of divergence and non-recognition of medical policies and regulations between China and other countries registration of Chinese patent medicine progress with obstacles in overseas. The Company has conducted active investigations into the prevailing policies made new product series and innovated operating modes in order to timely and promptly respond to the increasing legalization of medical policies and regulations and the stricter supervision on medicinal products in different countries. In 2006 to catch up the rapidly changing demands of the international markets the Company has introduced over 10 product series of concentrated tablets to the non-traditional markets in such western countries as Australia the United States and Canada. During the period under review the Company recorded export sales of approximately USD3980000 representing an increase of 15.03% as compared with those for the corresponding period last year.

PRODUCTION

In such a dynamic product market production has to keep up with sales. Each and every production base and production control division of the Company is dedicated to fulfill orders through proactive and initiative coordination among various sections namely production quality control supply and distribution. Smooth flows from craftsmanship material procurement product packaging equipment selection production supervision and product inspection to logistic distribution were achieved through a perfect match among the quality control R&D as well as engineering divisions. Thus the market supply of products was sufficiently guaranteed. During the period under review the production lines of pill and soft capsules in the Companyˇs production bases have passed the GMP re-test. Certain production lines have also gone through the GMP re-test by TGA of Australia.

Beijing Tong Ren Tang Tongke Pharmaceutical Company Limited (ㄊく绑硄媚穨Τ砫ヴそ) is located at Tongzhou district of Beijing City. Given the completion of all constructionworks of the Chinese medicine raw materials preprocessing workshop and plant and the completion of the installation adjustment and trial runs of equipment production operation will commence in 2007. The workshop will produce semi-finished goods for different forms of medicine of the Company further enhancing the overall productivity of the Company.

Beijing Tong Ren Tang Chinese Medicine Company Limited (ㄊく绑瓣媚Τそ) locatedat Hong Kong was jointly invested and established by the Company and Tongrentang Ltd.. Its total investment was HK$150000000 under the original plan and later was further increased by HK$28000000 as working capital replenishment. Of the total investment the Company has contributed HK$90780000 for 51% interest while Tongrentang Ltd. has contributed HK$87220000 for 49% interest. The production base of Tongrentang Chinese Medicine in Tai Po Industrial Estate has been fully completed by the end of 2006 and will be put into trial production in the first half of 2007. Such production base upon completed will focus on producing products for overseas markets so as to flourish sales of overseas markets.

MANAGEMENT AND RESEARCH AND DEVELOPMENT

To realize our philosophy of building up a cost-effective enterprise in particular to tackle a number of profit-shrinking pressures the Company has set up a ¨Reducing 5 Heights Task Force〃 in a move to reduce costs and expenses in every aspect the operation including raw material procurement production sales transport and storage by adopting strengthened cost budgeting and stricter control on approval of over-budgeted funds. The profitability of the Company will thus be improved.

Scientific researches represented our steadfast vision for exploring market foothold optimizing production process and meeting prospective challenges. The R&D of new products was speeded up and the development of the existing products was fostered in order to capture market changes and respond to customersˇ needs for fresh forms of drugs brand new packages and innovative specifications. In 2006 through repeated screening of the existing product series and based on market researches feasibility analyses and analyses of competitors the Company has selected more than 10 potential products to launch in the market to compete with others.

SALES NETWORK

As a prudent-minded enterprise seeking for stable growth the Company endeavours to steadily expand our sales network.

Currently the Companyˇs investments in four joint ventures namely Peking Tongrentang (M) Sdn. Bhd. Beijing Tong Ren Tang Canada Co. Ltd. Beijing Tong Ren Tang (Macau) Company Limited and Beijing Tong Ren Tang (Indonesia) Company Limited are expected to boost our distribution operations and drug retail outlets in the regions thus pushing up the sales volume of the Companyˇs products.

All of these four joint ventures located at Malaysia Canada Macau Special Administrative Region and Indonesia respectively have set up local drug retail outlets with good operating performance. The company in Malaysia has achieved higher profitability by further strengthening its internal management streamlining business flows and developing distribution business. It is currently operating two drug retail outlets in Malaysia. The company in Canada has realized increased sales income through activities such as recommendation of doctors sale promotion of herbal medicine and patent medicine and free medical diagnoses and decoction during public holidays. The company in Macau has promoted Chinese medicine and Tongrentang products through organizing social welfare activities. The company in Indonesia has continued to rationalize its operation and management by dedicating itself to become a reputable medicine clinic equipped with excellent doctors and high-quality medicine. In 2006 the above four joint ventures realized sales income of RMB10603300 RMB5691900 RMB7781400 and RMB7903900 respectively.

Beijing Tong Ren Tang Nansanhuan Zhonglu Drugstore Co. Limited (ㄊく绑玭吏い隔媚┍Τそ) a retail drugstore located at Nansanhuan Zhonglu Fengtai District Beijing (ㄊ伦跋玭吏い隔) attained good operating performance. In 2006 while drugstore medical serviceswere personalized control on purchase costs and assessment on consolidated profit margin were reinforced. Realized sales income of RMB13953700 for the period under review representing a 16% growth over the last corresponding figure.

CHINESE MEDICINAL RAW MATERIALS PRODUCTION BASES

Currently the Companyˇs six joint ventures in Hebei Henan Hubei Zhejiang Anhui Jilin respectively are capable of providing the Company with major Chinese medicinal raw materials such as cornel (点) tuckahoe (蝇璬) catnip () and isatis root. In 2006 Other thanproducing collecting and processing medicinal materials some production bases cooperated with research institutions and achieved fruitful breakthroughs in the research of Chinese herbs production techniques. The ¨tuckahoc inducement growing〃 (蝇璬护ま蚌) technique invented by the Hubeiproduction base has been authenticated and examined. Basing on the stateˇs GAP (Good Agriculture practice) each production base established their technical standards accordingly to further improve their quality control systems so as to fully guarantee the quality of raw materials. In 2006 the Companyˇs production bases of Chinese medicinal raw materials achieved sales income of RMB15880000. The production bases of Chinese medicinal raw materials played an important part in securing supply and quality of Chinese medicinal raw materials required for the production of the Companyˇs products.

Tags: HongKong Shares, Tongrentang