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(Incorporated in the Cayman Islands with limited liability)
(Stock Code: 0775)
THE CHAIRMAN'S STATEMENT FOR 2015For the year ended 31 December 2015, CK Life Sciences Int'l., (Holdings) Inc. ("CK Life Sciences" or the "Company") reported a turnover of HK$4.92 billion, a marginal decrease of 1% compared with last year. Profit attributable to shareholders was HK$284.9 million, an 8% increase as compared to 2014.
The Board of Directors has recommended a final dividend of HK$0.009 per share for the year ended 31 December 2015 (HK$0.008 per share in 2014), a 13% increase over the previous year. The proposed dividend will be paid on Monday, 30 May 2016 following approval at the 2016 Annual General Meeting to those shareholders whose names appear on the Register of Members of the Company at the close of business on Thursday, 19 May 2016.
AGRICULTURE-RELATED BUSINESSCK Life Sciences' agriculture-related business recorded a turnover of HK$2,098.8 million, a 5% decrease compared to last year. This result was impacted by a lower Australian dollar exchange rate against the Hong Kong dollar during the period under review. Had the results been recorded in local currencies, a growth of approximately 13% would have been reported.
In January 2015, CK Life Sciences further broadened its vineyard portfolio through the acquisition of three of McWilliam's vineyards in Australia. Total consideration for the acquisition was A$15.7 million (approximately HK$100 million). Like our other vineyard investments, these vineyards are backed by the security of long-term tenancy agreements, and are poised to provide an immediate and steady recurrent income for the Company.
In May 2015, Accensi Pty Ltd ("Accensi"), the leading toll manufacturer of crop protection products in Australasia, opened a new manufacturing facility in Victoria. With this new facility in the south, and the existing facilities in Queensland in the north and Western Australia in the west, Accensi's customer base has been widened, local transportation cost optimised, and customer service in the different regions enhanced.
Other operations reported steady progress and growth in 2015.
NUTRACEUTICAL BUSINESSDuring the year under review, CK Life Sciences' nutraceutical business reported a 3% increase in turnover, amounting to HK$2,810.3 million. This result has been impacted by the weakening of the Australian dollar. Had the results been recorded in local currencies, a growth of approximately 11% would have been reported.
Businesses in the portfolio performed well during the year:
In Canada, Santé Naturelle A.G. Ltée introduced new products and started implementing plans to upgrade packaging, storage and air handling capabilities at its manufacturing site. It reported encouraging growth and improvement in market position.
In the United States, Vitaquest International Holdings LLC ("Vitaquest") responded to increased customer demand and began implementing plans to automate its powder and packaging operations, as well as to increase capacity to handle proprietary products. This improvement in manufacturing capability has enabled Vitaquest to capture a bigger share of the market and achieve satisfactory margin and profit improvement.
In Australia, Lipa Pharmaceuticals Limited ("Lipa") has further moved to vertically integrate its materials sourcing business. During the year, it also benefited from increased customer demand in overseas markets, particularly China, reporting solid growth in sales and profit contribution. It also commenced its initiative to increase the capacity for the manufacturing of tablets and to expand the packaging capabilities. Lipa was also named by Complementary Medicines Australia in 2015 as the "Manufacturer of the Year" for the third time in the last four years.
CK Life Sciences' R&D initiatives continued to make steady progress in 2015. During the year, an expenditure of HK$183.1 million of research funding was incurred to support these activities; the expenses of which were reflected in the Consolidated Income Statement for the year under review.
Polynoma LLC commenced the second part of Phase III US FDA-approved clinical trial
Polynoma LLC has commenced the second part of the Phase III US FDA (United States Food and Drug Administration)-allowed clinical trial for the cancer vaccine which was developed for the treatment of melanoma. The first patient was dosed in January 2015, and approximately 200 patients have been enrolled to date in this part of the trial.
WEX Pharma's discussions with Health Canada on Phase III clinical trial data are in progress
In regards to WEX Pharmaceuticals Inc.'s tetrodotoxin ("TTX")-based cancer pain management product, advanced discussions with Health Canada on the Phase III clinical trial data are in progress.
WEX Pharma commenced planning for TTX's Phase III clinical trial in the United States for the treatment of chemotherapy-induced neuropathic pain
In the United States, subsequent to an End-of-Phase II clinical trial meeting with the FDA, the overall planning for TTX's Phase III clinical trial has begun.
PROSPECTSWe are optimistic about the future prospects of CK Life Sciences.
The recent acquisitions of the vineyards in the agriculture-related business have strengthened our investment portfolio and boosted our income flow.
The continued organic growth and stable performance of our existing businesses are poised to continue to strengthen our revenue stream.
On the R&D front, research activities have progressed well. Adequate funding will continue to be deployed to support our R&D projects.
Going forward, we will carry on leveraging our sound fundamentals to strengthen our investment portfolio and enhance our profitability. In addition, we will seek new opportunities to acquire assets that will further propel our growth.
I would like to take this opportunity to thank our shareholders, Board of Directors and staff for their confidence and continued support over the years.
Li Tzar Kuoi, VictorChairman
Hong Kong, 14 March 2016
FINANCIAL REVIEW Financial Resources, Liquidity and Treasury PoliciesIn 2015, the financial and liquidity position of the Group continued to be sound and healthy. It was financed mainly from internal sources such as cash generated from business activities as well as other sources such as borrowings from banks and major shareholders.
The financing from banks and major shareholders was mainly for the acquisition of the Group's overseas businesses as well as providing general working capital. As at 31 December 2015, the total borrowings from banks and major shareholders amounted to HK$2,834.9 million and HK$1,356.0 million, respectively. Most of these borrowings were made on a floating interest rate basis and were granted based on some committed terms by, with or without the guarantees of, the Company. As at 31 December 2015, certain assets of the Group's overseas subsidiaries with carrying value of HK$1,113.5 million were pledged as part of the security for bank borrowings totalling HK585.9 million. The total finance costs of the Group for the year were HK$104.9 million.
At the end of 2015, the total assets of the Group were about HK$9,596.1 million, of which bank balances and time deposits were about HK$840.8 million and treasury investments were about HK$223.1 million. The bank interest generated for the year was HK$3.1 million. The total gain arising from the Group's investment segment for the year was HK$45.0 million.
The total net assets of the Group as at 31 December 2015 were HK$4,338.6 million, representing HK$0.45 per share. The net debt to net total capital ratio of the Group as at 31 December 2015 was approximately 43.58%, which is calculated as the Group's net borrowings over the aggregate of the Group's total equity and net borrowings. For this purpose, the Group defines net borrowings as total borrowings (including bank borrowings, finance lease obligations and other borrowings) less cash, bank balances and time deposits.
The Group's treasury function operates as a centralised service for managing financial risks, including interest rate and foreign exchange risks, and for providing cost efficient funding to the Group. The Group manages its interest rate exposure with a focus on reducing the Group's overall cost of debt and exposure to interest rates fluctuation. It would monitor its overall net debt position closely, review its funding costs and maturity profile regularly and take necessary actions to facilitate refinancing whenever appropriate.
Material Acquisitions/Disposals and Significant InvestmentsThere was no material acquisition/disposal of investments during the year under review.
The Group has always been investing significantly in research and development activities. Such investment amounted to about HK$183.1 million in 2015.
Capital Commitments and Future Plans for Material Investments or Capital AssetsAs of 31 December 2015, the total capital commitments by the Group amounted to HK$60.6 million which were mainly made up of contracted/authorised commitments in respect of the acquisition of plant and equipment, and maintenance of vineyards.