IHS Global Insight Perspective | |
Significance | Sinopharm (China)'s operating and net profits remained higher as well, at 35.7% and 31% year-on-year respectively, sustaining the growth trajectory established in the topline. |
Implications | The firm's financial performance was solid in the first half, optimising its pharmaceutical distribution business. Since early this year, Sinopharm has entered into eight transactions acquiring additional equity stakes in existing associate firms, joint ventures, and new companies. |
Outlook | The above investments, coupled with expanding its core businesses, will reflect on a higher cost-structure in the following financial quarters for Sinopharm. The firm is expected to press ahead with opportunities such as marketing alliances with Big Pharma to maintain its growth trajectory in the ensuing period. |
Sinopharm—or China National Pharmaceutical Group—has announced robust financial results for the first half year ended 30 June 2010, with revenues of 31.568 billion yuan (US$4.64 billion). The firm capitalised on opportunities generated from the macro-economic environment in terms of pharma industry development, hinting at government policies to boost the sector. For the first half year, Sinopharm's expenditure structure remained high, with cost of sales at 28.956 billion yuan, representing increased sales and distribution activity. Despite this, operating profit registered a 35.7% year-on-year (y/y) growth. Net profit stood at 911 million yuan.
Selected Results of Sinopharm, H1 2010 | ||
Six Months Ended 30 June 2010 (in Mil. Yuan) | % Change Y/Y | |
Revenue | 31,568 | 35.52 |
Cost of Sales | 28,965 | 35.12 |
General and administrative expenses | 606 | 33.2 |
Operating Profit | 1,223 | 35.7 |
Operating Profit Margin | 3.88% | 0.01 pp higher |
Net profit | 911 | 31 |
Net Profit Margin | 1.99 | 0.13 pp lower |
Source: Sinopharm | ||
In terms of segment-wise performance, the firm's pharmaceutical distribution operations dominated, contributing the majority of total revenues. The firm said that as of 30 June 2010, it had expanded its distribution network to a total of 39 distribution centres across 29 provinces, municipalities, and autonomous regions in China through inorganic means such as acquisitions, as well as setting up new establishments. Expansion continued into second- and third-tier cities, with the firm's direct customers at 7,058 hospitals including 985 class three hospitals, representing approximately 54.46% of all hospitals in China. Pharmaceutical distributors, retail pharmacies, and other healthcare institutions comprised of 42,553 customers for Sinopharm in the given period. In the retail pharmacy segment, too, the firm reported a 33.53% y/y rise, with 819 directly owned stores and 164 franchised stories. Other business operations mainly constituted manufacturing or selling of pharmaceutical products, chemical reagents, and laboratory supplies.
Segment-Wise Revenues | ||
Segment | Six Months Ended 30 June 2010 (in Mil. Yuan) | % Change Y/Y |
Pharmaceutical Distribution | 29,511 | 35.09 |
Retail Pharmacy Operations | 876 | 33.53 |
Other Business Operations | 1,415 | 41.5 |
Source: Sinopharm | ||
Outlook and Implications
Sinopharm's financial performance for the first half of 2010 represents expansion of its core business activities, as well as growth in its smaller business interests. The firm has not provided a forecast for the performance for the full-year period but it is expected that the pace of growth set in the first half of the year could be replicated for the rest of year period as well. This is so because Sinopharm has accelerated its inorganic growth activities, with particular focus on expanding its pharmaceutical distribution business. In the past six months, the firm was associated with several acquisition, merger, and reorganisation initiatives. These include a 51% equity in Beijing Tianxin, and entire equity in Hebei Traditional & Herbal Medicine; the acquisition of Guangdong Dong Fang, and a 51% equity interest in Shenzhen Yanfeng; a 67% equity interest in Sinopharm Jiangxi; an 80% equity stake in Xinjiang Pharma; the establishment of Sinopharm Holding Gansu, a joint venture with Gansu Weikang Medical Co; 41% equity in China National Pharmaceutical Group Shanghai Likang medicine Co; a 70% equity in Sinopharm Holding Jilin Co; and an additional 21% equity interest in Liaoning Guoda Accord Pharmacy Chain Store, among others.
For the rest of the year, the firm will be engaged in integrating and reorganising these initiatives into its existing business. It is expected that, the firm's cost structure will increase as a result, but the topline growth trajectory may be able to offset some of these costs.
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