Pharmaron Beijing : ANNUAL RESULTS ANNOUNCEMENT FOR THE YEAR ENDED DECEMBER 31, 2020

About this update from Pharmaron Beijing Co., Ltd. Class A

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement. Pharmaron Beijing Co., Ltd.* ੰᎲʷϓ€̏ԯอᖹҦஔٰ΅Ϟࠢʮ̡ (A joint stock company incorporated in the People's Republic of China with limited liability) (Stock Code: 3759) ANNUAL RESULTS ANNOUNCEMENT FOR THE YEAR ENDED DECEMBER 31, 2020 FINANCIAL SUMMARY AND HIGHLIGHTS Year ended December 31, 2020 2019 RMB' 000 RMB' 000 Change % Revenue 5,133,597 3,757,160 36.6 Gross profit 1,916,113 1,331,701 43.9 Profit attributable to owners of the parent 1,172,383 547,190 114.3 Non-IFRSs adjusted net profit attributable to owners of the parent 1,064,029 549,133 93.8 Net cash flows generated from operating activities 1,648,610 938,585 75.6 - During the Reporting Period, the Group recorded aggregate revenue of approximately RMB5,133.6 million, representing an increase of approximately RMB1,376.4 million, or 36.6%, as compared to the year ended December 31, 2019. - During the Reporting Period, the profit attributable to owners of the parent was approximately RMB1,172.4 million, representing an increase of approximately 114.3% as compared to the year ended December 31, 2019. - During the Reporting Period, the net cash flows generated from operating activities was approximately RMB1,648.6 million, representing an increase of approximately 75.6% as compared to the year ended December 31, 2019. - The Board proposed to declare a final dividend of RMB3.00 (inclusive of tax) per 10 shares or an aggregate of approximately RMB238.3 million for the year ended December 31, 2020. The board of directors of Pharmaron Beijing Co., Ltd. is pleased to announce the consolidated results of the Group for the year ended December 31, 2020, together with the comparative figures for the corresponding period in 2019. CONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED DECEMBER 31, 2020 2020 2019 Notes RMB' 000 RMB' 000 REVENUE 5 5,133,597 3,757,160 Cost of sales (3,217,484) (2,425,459) Gross profit 1,916,113 1,331,701 Other income and gains 6 493,006 70,153 Other expenses 6 (143,814) (11,761) Selling and distribution expenses (92,643) (72,989) Administrative expenses (684,705) (526,408) Research and development costs (105,345) (62,872) Impairment losses on financial and contract assets, net of reversal (14,823) (5,495) Finance costs 7 (23,854) (82,476) Share of losses of associates (24,565) (7,303) Profit before tax 8 1,319,370 632,550 Income tax expense 9 (172,378) (101,878) Profit for the year 1,146,992 530,672 Attributable to: Owners of the parent 1,172,383 547,190 Non-controlling interests (25,391) (16,518) 1,146,992 530,672 EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT Basic For profit for the year 11 RMB1.4825 RMB0.8284 Diluted For profit for the year 11 RMB1.4781 RMB0.8282 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2020 2020 2019 RMB' 000 RMB' 000 Profit for the year 1,146,992 530,672 OTHER COMPREHENSIVE INCOME Other comprehensive (loss)/income that may be reclassified to profit or loss in subsequent periods: Exchange differences on translation of foreign operations (40,578) 11,847 Net other comprehensive (loss)/income that may be reclassified to profit or loss in subsequent periods (40,578) 11,847 Other comprehensive (loss)/income for the year, net of tax (40,578) 11,847 Total comprehensive income for the year 1,106,414 542,519 Attributable to: Owners of the parent 1,131,835 558,937 Non-controlling interests (25,421) (16,418) 1,106,414 542,519 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT DECEMBER 31, 2020 2020 2019 Notes RMB' 000 RMB' 000 NON-CURRENT ASSETS Property, plant and equipment 3,841,445 2,973,354 Right-of-use assets 567,630 498,989 Investment properties 43,889 46,013 Goodwill 1,166,172 203,286 Other intangible assets 189,976 35,352 Investments in associates 280,474 131,246 Equity investments at fair value through profit or loss 121,230 59,054 Deferred tax assets 8,436 6,372 Other non-current assets 149,162 36,921 Total non-current assets 6,368,414 3,990,587 CURRENT ASSETS Inventories 128,757 97,050 Contract costs 152,860 60,347 Trade receivables 12 1,076,614 857,069 Contract assets 133,764 89,105 Prepayments, other receivables and other assets 196,020 197,576 Financial assets at fair value through profit or loss 825,312 169,762 Derivative financial instruments 84,698 13,689 Pledged deposits 7,263 17,634 Cash and cash equivalents 2,935,090 4,442,218 Total current assets 5,540,378 5,944,450 CURRENT LIABILITIES Interest-bearing bank and other borrowings 386,146 300,654 Trade payables 13 191,497 117,978 Other payables and accruals 819,313 486,702 Contract liabilities 473,289 271,547 Lease liabilities 83,925 64,150 Tax payable 27,620 28,649 Total current liabilities 1,981,790 1,269,680 NET CURRENT ASSETS 3,558,588 4,674,770 TOTAL ASSETS LESS CURRENT LIABILITIES 9,927,002 8,665,357 4 NON-CURRENT LIABILITIES Interest-bearing bank and other borrowings Deferred tax liabilities Financial liabilities at fair value through profit or loss Deferred income Lease liabilities Total non-current liabilities NET ASSETS EQUITY Share capital Treasury shares Reserves Equity attributable to owners of the parent Non-controlling interests Total equity 2020 2019 Notes RMB' 000 RMB' 000 394,811 543,791 106,906 40,782 146,810 - 158,128 111,606 186,608 131,160 993,263 827,339 8,933,739 7,838,018 794,387 794,387 (45,475) (72,781) 8,121,407 7,045,457 8,870,319 7,767,063 63,420 70,955 8,933,739 7,838,018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 1. GENERAL INFORMATION Pharmaron Beijing Co., Ltd. was incorporated and registered in the People's Republic of China ("PRC") on July 1, 2004. With the approval of the China Securities Regulatory Commission, the Company completed its initial public offering and was listed on the Shenzhen Stock Exchange (stock code: 300759.SZ) on January 28, 2019. On November 28, 2019, the Company was listed on the Main Board of the Stock Exchange of Hong Kong Limited (the "HKSE") (stock code: 3759.HK). The address of the registered office is 8th Floor, Block 1, 6 Taihe Road, Beijing Economic Technological Development Area, Beijing, China. The Company is a leading fully-integrated pharmaceutical R&D services platform with global operations to accelerate drug innovation for our customers. The principal activity of the Company and its subsidiaries (together, the "Group") is to provide contract research, development and manufacturing services for innovative pharmaceutical products throughout the research and development cycle and the services are organised in three major categories: laboratory services, chemistry, manufacturing and controls ("CMC") (small molecule CDMO) services and clinical development services. 2. BASIS OF PREPARATION The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS), which comprise all standards and interpretations approved by the International Accounting Standards Board (the "IASB"), and International Accounting Standards and Standing Interpretations Committee interpretations approved by the International Accounting Standards Committee and the disclosure requirements of the Hong Kong Companies Ordinance. The consolidated financial statements have been prepared under the historical cost convention, except for equity investments at fair value through profit or loss, derivative financial instruments, financial assets and financial liabilities at fair value through profit or loss which have been measured at fair value. The consolidated financial statements are presented in Renminbi ("RMB") and all values are rounded to the nearest thousand except when otherwise indicated. 3. ISSUED BUT NOT YET EFFECTIVE INTERNATIONAL FINANCIAL REPORTING STANDARDS The Group has not adopted the following standards that have been issued but are not yet effective in the consolidated financial statements: Amendments to IFRS 3 Reference to the Conceptual Framework 2 Amendments to IFRS 9, IAS 39, IFRS 7, Interest Rate Benchmark Reform - Phase 2 1 IFRS 4 and IFRS 16 Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture 4 IFRS 17 Insurance Contracts 3 Amendments to IFRS 17 Insurance Contracts 3,5 Amendments to IAS 1 Classification of Liabilities as Current or Non-current 3 Amendments to IAS 1 Disclosure of Accounting Policies 3 Amendments to IAS 16 Property, Plant and Equipment: Proceeds before Intended Use 2 Amendments to IAS 37 Onerous Contracts - Cost of Fulfilling a Contract 2 Amendments to IAS 8 Definition of Accounting Estimates 3 Annual Improvements to IFRS 2018-2020 Amendments to IFRS 1, IFRS 9, Illustrative Examples accompanying IFRS 16, and IAS 41 2 1 Effective for annual periods beginning on or after January 1, 2021 2 Effective for annual periods beginning on or after January 1, 2022 3 Effective for annual periods beginning on or after January 1, 2023 4 No mandatory effective date yet determined but available for adoption 5 As a consequence of the amendments to IFRS 17 issued in June 2020, IFRS 4 was amended to extend the temporary exemption that permits insurers to apply IAS 39 rather than IFRS 9 for annual periods beginning before 1 January 2023 The Group is in the process of making an assessment of the impact of these new and revised IFRS upon initial application. So far, the Group considers that, these new and revised IFRSs are unlikely to have significant impact on the Group's results of operations and financial position. 4. OPERATING SEGMENT INFORMATION For management purposes, the Group is organised into business units based on their services and has four reportable operating segments as follows: - The laboratory services segment includes laboratory chemistry and bioscience (including DMPK/ADME, in vitro biology and in vivo pharmacology, safety assessment, discovery biologics and U.S. laboratory services) services - The CMC (small molecule CDMO) services segment includes process development and manufacturing, materials science/pre-formulation, formulation development and manufacturing, and analytical development services - The clinical development services segment includes clinical research services, site management services, regulatory bioanalysis and radiolabelled science services - The "Others" segment Segment revenue and results The following is an analysis of the Group's revenue and results by reportable segments. CMC (small molecule Clinical Laboratory services RMB' 000 CDMO) development services services RMB' 000 RMB' 000 Others RMB' 000 Total RMB' 000 Year ended December 31, 2020 Segment revenue 3,262,714 1,221,985 Segment results 1,389,079 397,979 629,350 118,209 19,548 5,133,597 10,846 1,916,113 Unallocated amounts: Other income and gains 493,006 Other expenses (143,814) Selling and distribution expenses (92,643) Administrative expenses (684,705) Research and development costs (105,345) Impairment losses on financial and contract assets, net of reversal (14,823) Finance costs (23,854) Share of losses of associates (24,565) Group's profit before tax 1,319,370 Year ended December 31, 2019 Segment revenue 2,379,509 Segment results 956,085 901,576 249,690 456,265 113,919 19,810 3,757,160 12,007 1,331,701 Unallocated amounts: Other income and gains 70,153 Other expenses (11,761) Selling and distribution expenses (72,989) Administrative expenses (526,408) Research and development costs (62,872) Impairment losses on financial and contract assets, net of reversal (5,495) Finance costs (82,476) Share of losses of associates (7,303) Group's profit before tax 632,550 Management monitors the results of the Group's operating segments separately for the purpose of making decisions about resource allocation and performance assessment. No analysis of segment assets and liabilities is presented as management does not regularly review such information for the purposes of resource allocation and performance assessment. Therefore, only segment revenue and segment results are presented. Geographical information (a) Revenue 2020 RMB' 000 2019 RMB' 000 North America Europe Asia (except Mainland China) Mainland China 3,271,385 2,208,691 979,762 869,541 142,924 149,937 700,218 478,402 Others 39,308 50,589 5,133,597 The revenue information above is based on the locations of the customers. (b) Non-current assets 3,757,160 2020 RMB' 000 2019 RMB' 000 China North America Europe 4,529,104 3,200,346 1,278,656 319,903 430,988 404,912 6,238,748 3,925,161 The non-current asset information above is based on the locations of the assets and excludes equity investments at fair value through profit or loss and deferred tax assets. Information about major customers No revenue from sales to a single customer amounted to 10% or more of the Group's revenue during each reporting period. 5. REVENUE An analysis of revenue is as follows: 2020 2019 RMB' 000 RMB' 000 Revenue from contracts with customers 5,114,049 3,737,350 Revenue from other sources Revenue from investment property operating lease 19,548 19,810 5,133,597 3,757,160 9 Revenue from contracts with customers (a) Segments 2020 2019 RMB' 000 RMB' 000 Types of services Laboratory services 3,262,714 2,379,509 CMC (small molecule CDMO) services 1,221,985 901,576 Clinical development services 629,350 456,265 Total revenue from contracts with customers 5,114,049 3,737,350 Timing of revenue recognition Services transferred at a point of time 2,731,623 2,028,539 Services transferred over time 2,382,426 1,708,811 Total revenue from contracts with customers 5,114,049 3,737,350 (b) Performance obligations Disaggregated revenue information The Group has different contractual arrangements with different customers under two different charge methods: Full-Time-Equivalent ("FTE") or Fee-For-Service ("FFS") model. All services under the FTE model, revenue is recognised over time at the amount to which the Group has the right to invoice for services performed. Therefore, under practical expedients allowed by IFRS 15, the Group does not disclose the value of unsatisfied performance obligations under the FTE model. Similarly, for certain services under the FFS model, revenue is recognised over time and contracts are generally within an original expected length of one year or less. Therefore, the practical expedients are also applied. 6. 2020 2019 RMB' 000 RMB' 000 Other income Interest income 74,064 9,614 Government grants and subsidies related to - Assets 11,232 9,427 - Income 34,303 25,576 119,599 44,617 Other gains Foreign exchange gains, net - 1,882 Gains on fair value change of equity investment at fair value through profit or loss 75,460 10,179 Gains on disposal of equity investment at fair value through profit or loss 78,039 - Gains on disposal of an associate - 124 Gains on termination of lease contracts 46 - Gains on financial assets at fair value through profit or loss 55,496 2,033 Gains on derivative financial instruments 140,797 - Gains on fair value re-measurement of existing equity in business combination not under common control 23,123 10,363 Others 446 955 373,407 25,536 493,006 70,153 Other expenses Foreign exchange loss, net (131,226) - Losses on disposal of property, plant and equipment (7,326) (667) Losses on derivative financial instruments - (8,663) Others (5,262) (2,431) (143,814) (11,761) 7. FINANCE COSTS 2020 2019 RMB' 000 RMB' 000 Interest expenses on bank and other borrowings 17,024 75,856 Interest expenses on lease liabilities 11,486 9,318 Total interest expense on financial liabilities not at fair value through profit or loss 28,510 85,174 Less: Interest capitalised (4,656) (2,698) 23,854 82,476 OTHER INCOME AND GAINS AND OTHER EXPENSES 8. PROFIT BEFORE TAX 2020 2019 RMB' 000 RMB' 000 Depreciation of property, plant and equipment 348,662 307,199 Depreciation of right-of-use assets 77,566 61,910 Depreciation of investment property 817 812 Amortisation of other intangible assets 10,971 4,661 Staff costs (including directors' and chief executive's remuneration): Salaries and other benefits 1,796,881 1,192,315 Pension scheme contributions, social welfare and other welfare 391,658 368,206 Share-based compensation expenses 62,458 11,524 Gains on fair value re-measurement of existing equity in business combination not under common control (23,123) (10,363) Gains on fair value change of equity investment at fair value through profit or loss (75,460) (10,179) Gains on disposal of equity investment at fair value through profit or loss (78,039) - Impairment losses on inventories, net of reversal 4,622 1,021 Impairment losses on financial and contract assets, net of reversal 14,823 5,495 Foreign exchange loss/(gains), net 131,226 (1,882) (Gains)/losses on derivative financial instruments (140,797) 8,663 Auditor's remuneration 4,300 3,480 The Group's profit before tax is arrived at after charging/(crediting): * The staff costs for the year are included in "Cost of sales", "Administrative expenses", "Selling and distribution expenses" and "Research and development costs" in the consolidated statement of profit or loss. 9. INCOME TAX EXPENSE 2020 2019 RMB' 000 RMB' 000 Current tax 143,934 85,479 Deferred tax 28,444 16,399 172,378 101,878 Under the Law of the PRC on Enterprise Income Tax (the "EIT Law") and Implementation Regulation of the EIT Law, the EIT rate of the PRC subsidiaries is 25% unless subject to tax exemption set out below. The Company was accredited as a "High and New Technology Enterprise" in 2017 which was subsequently renewed in 2020 and as an "Advanced Technology Enterprise" in 2015 which was subsequently renewed in 2020, and therefore the Company was entitled to a preferential EIT rate of 15% for each reporting period. These qualifications are subject to review by the relevant tax authority in the PRC for every three years. Pharmaron Xi'an Co., Ltd. was accredited as an "Advanced Technology Enterprise" in 2018 and the qualification was subsequently renewed in 2020, and therefore Pharmaron Xi'an Co., Ltd. was entitled to a preferential EIT rate of 15% for each reporting period. This qualification is subject to review by the relevant tax authority in the PRC for every two years. Pharmaron (Beijing) TSP Service Co., Ltd. was accredited as an "Advanced Technology Enterprise" in 2015 and the qualification was renewed in 2020 and as an "High and New Technology Enterprise" in 2020, and therefore Pharmaron (Beijing) TSP Service Co., Ltd. was entitled to a preferential EIT rate of 15% for each reporting period. These qualifications are subject to review by the relevant tax authority in the PRC for every three years. Pharmaron (Ningbo) Technology Development Co., Ltd. was accredited as an "Advanced Technology Enterprise" in 2019 and the qualification was renewed in 2020, and therefore Pharmaron (Ningbo) Technology Development Co., Ltd. was entitled to a preferential EIT rate of 15% for each reporting period. This qualification is subject to review by the relevant tax authority in the PRC annually. Pharmaron Shanghai Co., Ltd. was accredited as an "Advanced Technology Enterprise" in 2019, and therefore Pharmaron Shanghai Co., Ltd. was entitled to a preferential EIT rate of 15% for each reporting period. This qualification is subject to review by the relevant tax authority in the PRC for every three years. Pharmaron (Tianjin) Process Development and Manufacturing Co., Ltd. was accredited as an "High and New Technology Enterprise" in 2020, and therefore Pharmaron (Tianjin) Process Development and Manufacturing Co., Ltd. was entitled to a preferential EIT rate of 15% for the year ended December 31, 2020. This qualification is subject to review by the relevant tax authority in the PRC for every three years. Beijing Link Start Biotechnology Co., Ltd. was accredited as an "High and New Technology Enterprise" in 2020, and therefore Beijing Link Start Biotechnology Co., Ltd. was entitled to a preferential EIT rate of 15% for the year ended December 31, 2020. This qualification is subject to review by the relevant tax authority in the PRC for every three years. RAMED (Beijing) Medical Technology Co., Ltd. was accredited as an "High and New Technology Enterprise" in 2020, and therefore RAMED (Beijing) Medical Technology Co., Ltd. was entitled to a preferential EIT rate of 15% for the year ended December 31, 2020. This qualification is subject to review by the relevant tax authority in the PRC for every three years. The group entities incorporated in the U.S. were subject to the federal corporate tax at a rate of 21% and the state income tax at a rate ranging from 5% to 10 % as at December 31, 2019 and 2020. The group entities incorporated in the United Kingdom were subject to tax at a rate of 19% for the years ended December 31, 2019 and 2020. The group entities incorporated in Hong Kong were subject to Hong Kong profits tax at a rate of 16.5% on the estimated assessable profits for the years ended December 31, 2019 and 2020. The Group's tax provision in respect of other jurisdictions has been calculated at the applicable tax rates in accordance with the prevailing practices of the jurisdictions in which the Group operates. 10. DIVIDENDS 2020 2019 RMB' 000 RMB' 000 Proposed final - RMB0.30 (2019: RMB0.15) per ordinary share 238,316 119,158 On May 28, 2020, the Company's shareholders approved the 2019 Profit Distribution Plan at annual general meeting, pursuant to which a final dividend of RMB0.15 (inclusive of tax) per share in respect of the year ended December 31, 2019 was declared to both holders of A shares and H shares and aggregate dividend amounted to RMB119,158,000 (inclusive of tax). Except for the dividend declared to the holders of restricted A shares that would be paid no earlier than the unlocking date, the rest of the dividend was paid in July 2020. The proposed final dividend for the year ended December 31, 2020 is subject to the approval of the Company's shareholders at the forthcoming annual general meeting. 11. EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT The calculation of basic earnings per share is based on the profit for the year attributable to ordinary equity holders of the parent, and the weighted average number of ordinary shares of 790,435,853 (2019: 660,535,750) in issue during the year, as adjusted to reflect the rights issue during the year. The weighted average number of ordinary shares used in the calculation is based on the number of ordinary shares used in the basic earnings per share calculation adjusted for the dilutive effect of share options and restricted A shares issued by the Company. For the year ended December 31, 2020, the calculation of the diluted earnings per share is based on the profit for the year attributable to ordinary equity holders of the parent, adjusted to reflect the dilutive impact of the share options issued by the Group's subsidiaries, where applicable. The calculations of basic and diluted earnings per share are based on: 2020 RMB' 000 2019 RMB' 000 Earnings: Profit attributable to ordinary equity holders of the parent 1,172,383 547,190 Less: Cash dividends attributable to the shareholders of restricted shares expected to be unlocked in the future (591) Earnings for the purpose of calculating basic earnings per share 1,171,792 - 547,190 Effective of diluted potential ordinary shares: Add: Cash dividends attributable to the shareholders of restricted shares expected to be unlocked in the future Earnings for the purpose of calculating diluted earnings per share 591 1,172,383 - 547,190 2020 2019 Number of shares: Weighted average number of ordinary shares in issue during the year, used in the basic earnings per share calculation 790,435,853 660,535,750 Effect of diluted potential ordinary shares: Effective of restricted shares units and share awards issued by the Company 2,752,261 139,694 Weighted average number of ordinary shares in issue during the year, used in the diluted earnings per share calculation 793,188,114 660,675,444 12. TRADE RECEIVABLES 2020 2019 RMB' 000 RMB' 000 Trade receivables - third parties 1,110,720 876,344 Allowance for impairment (34,106) (19,275) 1,076,614 857,069 The Group's trading terms with its customers are mainly on credit. The credit period is generally one month, extending up to three months for major customers. Each customer has a maximum credit limit. The Group seeks to maintain strict control over its outstanding receivables to minimise credit risk. Overdue balances are reviewed regularly by senior management. In view of the aforementioned and the fact that the Group's trade receivables related to various diversified customers, there is no significant concentration of credit risk. The Group does not hold any collateral or other credit enhancements over its trade receivable balances. The balances of trade receivables are non-interest-bearing. Included in the trade receivables was an amount due from related parties of RMB7,339,000 as at December 31, 2020 (2019: Nil), which was repayable on credit terms similar to those offered to the major customers of the Group. An ageing analysis of gross carrying amount of the trade receivables as at the end of each reporting period, based on the invoice date, is as follows: 2020 RMB' 000 2019 RMB' 000 Within 1 year 1 year to 2 years More than 2 years 1,072,221 855,276 22,216 14,547 16,283 6,521 1,110,720 876,344 The movements in the loss allowance for impairment of trade receivables are as follows: 2020 RMB' 000 2019 RMB' 000 At beginning of year Impairment losses, net Exchange realignment 19,275 13,758 15,056 5,447 (225) 70 34,106 19,275 The Group applies the simplified approach to providing for expected credit losses prescribed by IFRS 9, which permits the use of the lifetime expected credit loss provision for all trade receivables. An impairment analysis is performed at the end of each reporting period using a provision matrix to measure expected credit losses. The provision rates are based on days past due for groupings of various customer segments with similar loss patterns. The calculation reflects the probability-weighted outcome, the time value of money and reasonable and supportable information that is available at the end of each reporting period about past events, current conditions and forecasts of future economic conditions. Generally, trade receivables are written off if past due for more than two years and are not subject to enforcement activity. Set out below is the information about the credit risk exposure on the Group's trade receivables using a provision matrix: 2020 13. Expected credit Gross carrying Expected loss rate amount credit losses RMB' 000 RMB' 000 Within 1 year 0.65% 1,072,221 7,018 1 to 2 years 48.64% 22,216 10,805 Over 2 years 100.00% 16,283 16,283 1,110,720 34,106 2019 Expected credit Gross carrying Expected loss rate amount credit losses RMB' 000 RMB' 000 Within 1 year 0.65% 855,276 5,585 1 to 2 years 49.28% 14,547 7,169 Over 2 years 100.00% 6,521 6,521 876,344 19,275 TRADE PAYABLES Trade payables are non-interest-bearing and normally settled on terms of one to three months. An ageing analysis of the trade payables as at the end of each reporting period, based on the invoice date, is as follows: 2020 2019 RMB' 000 RMB' 000 Within 1 year 187,369 114,897 Over 1 year 4,128 3,081 191,497 117,978 Included in the trade payables was an amount due to a related party of RMB804,000 as at December 31, 2020 (2019: RMB4,000), which was repayable within 30 days, which represents credit terms similar to those offered by the related party to their major customers. MANAGEMENT DISCUSSION AND ANALYSIS Business Review Principal Business The Company is a leading fully-integrated pharmaceutical R&D services platform with global operations to accelerate drug innovation for our customers. The Company's research, development and manufacturing services platform of small molecule drugs evolved from laboratory chemistry where we are able to design a broad range of small molecule compounds for various major therapeutic areas and synthesize such compounds in scale. Leveraging on our core laboratory chemistry business, the Company has established a comprehensive discovery bioscience platform covering biology, DMPK and pharmacology to provide customers with integrated drug discovery services. The Company's fully-integrated pharmaceutical R&D services platform is in the industry leading position and has accumulated a broad customer base. In addition to further strengthening the existing services, the Company will continue to expand its capabilities downstream, including clinical development and commercial stage manufacturing services. Also, the Company will accelerate the establishment of R&D service capabilities for biologics and CGT products as Pharmaron is committed to becoming a global leader in pharmaceutical R&D services across multiple therapeutic modalities. The Company has a well-established R&D services platform for the discovery stage of small molecule innovative drugs, based on which the Company has expanded its expertise to various stages of drug development and manufacturing. In order to meet customers' need for pharmaceutical R&D services, the Company expands its service scope to clinical development and CMC (small molecule CDMO) services. The Company's drug development services platform mainly provides drug safety assessment services with GLP compliance accredited by NMPA, FDA and OECD, chemical and formulations development services, GMP manufacturing services for chemical APIs and finished dosages, comprehensive radiolabelled science services that combine radioisotope based compound synthesis, clinical trial and analysis, as well as clinical development services including drug & device registration and application, medical affairs, clinical operation, data management and biostatistics and bioanalysis in both China and U.S.. In terms of biologics and CGT products, the Company has accelerated the establishment of the team and facilities in China. Also, through the acquisition of Absorption Systems LLC and its wholly-owned subsidiaries, Absorption Systems California LLC and Absorption Systems Boston LLC (together, "Absorption Systems") in November 2020 for the team's world-class drug evaluation capabilities in the emerging field of CGT, the Company has begun to develop a service platform for CGT products. To further enhance our CGT services platform and enable the Company to better meet the needs of our customers, the Company has entered into a definitive agreement with AbbVie in February 2021 to acquired Allergan Biologics Limited which operates a manufacturing facility in Liverpool, U.K.. The Company has built a fully-integrated pharmaceutical R&D services platform with 16 facilities in China, U.S. and U.K. and over 1,500 customers worldwide. The Company has more than 11,000 employees, of which, over 9,800 R&D, production technology and clinical services staff. This world-class talent pool and their high-quality R&D services have been widely recognized by the industry. Operating Models The Company provides fully-integrated drug research, development and manufacturing services throughout the research and development cycle. Our principal businesses can be categorized into three service segments: laboratory services, CMC (small molecule CDMO) services and clinical development services. 1. Laboratory services Laboratory services of the Company include laboratory chemistry and bioscience (including DMPK/ADME, in vitro biology and in vivo pharmacology, safety assessment, discovery biologics and U.S. laboratory services) services. Laboratory chemistry is the core and cornerstone of small molecule drug discovery, and it's also the starting point for the Company's business. The Company has accumulated extensive experiences and established a core talent pool in the field of compound design and synthesis, providing target selection, compound design and synthesis, and compound screening services according to the needs of the customers. As the important components of our laboratory services , in vitro and in vivo DMPK/ADME, in vitro biology and in vivo pharmacology provide customers with drug discovery services including target validation, structure activity relationship studies, candidate compound identification, drugability studies (from aspects of biology, DMPK/ADME, pharmacology and safety assessment). With the advantage of global GLP compliance (FDA, NMPA, OECD), the Company's drug safety assessment services provide a comprehensive IND support to our global customers by performing all the related safety assessment studies to support their IND filing in different jurisdictions. With our global R&D team and validated quality standards and systems, our drug discovery and development services assists our customers in accelerating their R&D projects from preclinical R&D to clinical phases in a number of countries. To further strengthen the fully-integrated services platform and continue expand the global footprint, the Company acquired Absorption Systems in November 2020 and launched U.S. laboratory services through such acquisition. U.S. laboratory services mainly includes DMPK/ ADME and bioanalysis for both small and large molecules, particularly in transporters, human PK prediction and translational pharmaceutics. With the global network of laboratory services capabilities, the Company will further strengthen and consolidate its leading position in discovery and development DMPK platform. In addition, the U.S. laboratory services also include drug evaluation services for CGT products and laboratory services in the areas of ophthalmology and medical devices. 2. CMC (small molecule CDMO) services Our experienced CMC (small molecule CDMO) services team delivers customized and cost-efficient solutions to customers in drug development and manufacturing, including process development and manufacturing, materials science/pre-formulation, formulation development and manufacturing, and analytical development services to support pre-clinical and clinical development. The CMC (small molecule CDMO) services of the Company mainly provide pharmaceutical companies with chemical and formulation process development and clinical scale manufacturing services during the drug development stage with capabilities and capacities to cover the process development and manufacturing needs throughout clinical Phase I to III. The cGMP API and drug product manufacturing facilities of the Company are qualified to manufacture products to support clinical trials in global markets, including the U.S., China and EU. Our quality assurance system follows guidelines of the International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use (ICH Guidelines) and supports the development and manufacture regulation of APIs and pharmaceuticals in compliance with FDA, NMPA and EMA, and can also support the preparation of complete regulatory data packages and documentation for regulatory filings and cGMP audits in the U.S., EU, and Asia. For the capability's improvement, the Company keeps investing on cutting-edge technologies of small molecule to provide value-added process optimization and manufacture services to domestic and foreign customers to meet their needs at different drug development stages. In providing CMC (small molecule CDMO) services, the Company practiced the concept of green chemistry and vigorously applies new technologies such as flow chemistry and biocatalysis to develop safer and more efficient chemical processes for the customers. In addition, the chemistry team further strengthened the competitive advantage of CMC (small molecule CDMO) full service jointly with the teams of material science, crystallization R&D and formulation. In terms of R&D and manufacturing capacity, the Company has facilities in Tianjin, Shaoxing, Ningbo and the U.K., and will continue to increase capacity to provide customers with services that consistently meeting their global quality standards and production requirement. In terms of customer services, leveraging on the integrated services platform and the technical experience accumulated over the years, the Company's development and manufacturing services get involved at the early stage of the drug development projects, the solid foundation of the early stage projects has paved the way for the development of our commercial manufacturing business. 3. Clinical development services Our clinical development services include overseas and domestic clinical development services. The overseas clinical development services includes clinical trial services, site management services, regulatory bioanalysis and radiolabelled science services. Our independent early clinical R&D center with 96 beds in Maryland, the U.S., has an experienced medical and support team in clinical pharmacology, specializing in comprehensive FIH studies, vaccine development/infection challenge studies, comprehensive 14 C human ADME studies, TQT/ cardiac safety, cross-ethnic bridging studies and patient recruitment. Meanwhile, the Company has the global bioanalytical capabilities in China, the U.S. and the U.K., which is available for use by clinical trials around the world. Our regulatory bioanalysis includes small molecule bioassays, biologics bioassays, and 14 C-API and 14 C metabolism bioassays. The Company's experienced scientists in synthetic chemistry, analytical and DMPK/ADME of radiolabelled compounds help our customers synthesize 14 C and 3H radiolabelled compounds and use for the DMPK/ADME studies of various compounds during clinical, preclinical and discovery stages, so as to accelerate their clinical development process. Domestic clinical development services are mainly provided through our subsidiaries, CR Medicon and Beijing LinkStart, which include clinical research services, site management services, biostatistics and bioanalysis, covering different service needs of clinical research. CR Medicon focuses on providing clinical research services in China, mainly including: regulatory and registration services, medical affairs, clinical operations, data management and statistics, bioanalysis and pharmacovigilance, etc.; Beijing LinkStart focuses on providing one-stop shop services for clinical site management, including CRC services, hospital selection, SSU (Study Start Up) rapid start-up, recruitment and management, quality assurance and training and post-marketing studies, etc. With the establishment of domestic and overseas clinical development services platforms, it enables our customers to submit IND application for their drug candidates in China, the U.S. or EU in parallel, building an integrated platform for clinical development services. With the synergetic effect of the integrated services approach and the continuous improvement of our capabilities, the Company's clinical development service business expands rapidly. Financial Review Despite the COVID-19 pandemic in 2020, the Company, adhering to the pragmatic and prudent work culture and efficient collaboration of our global integrated services platform, not only achieved the development and business targets set out in early 2020 and further strengthened the integrated services platform through both internal development and external acquisition. Risks always come with opportunities. While the Company put in great effort to fight against COVID-19 pandemic, the Company also seized the opportunities of rapid growth of the pharmaceutical industry and deepen the collaboration with both the overseas and China pharmaceutical communities. Furthermore, Pharmaron is committed to becoming a global leader in pharmaceutical R&D services across multiple therapeutic and is accelerating the establishment of R&D service capabilities for biologics and CGT products. During the Reporting Period, all business segments of the Company maintained strong growth momentum. The Company recorded total revenue of RMB5,133.6 million, representing an increase of 36.6% over the same period of last year. With the benefit from economies of scale and the growth in revenue, the Company achieved gross profit of RMB1,916.1 million and gross profit margin of 37.3%, net profits attributable to owners of the parent of RMB1,172.4 million, representing an increase of 114.3% over the same period of last year, and the Non-IFRSs adjusted net profit attributable to owners of the parent of RMB1,064.0 million, representing an increase of 93.8% over the same period of last year. The Company continue to implement its established growth strategies to further strengthen the laboratory and CMC (small molecule CDMO) services and at the same time strategically expand the clinical and biologics services. During the Reporting Period, each services segment achieved high quality development in terms of services capabilities and business growth which in turn further strengthened our fully integrated pharmaceutical R&D services platform. With the growth in business demand, the Company continuously expanding its talent pool. As of December 31, 2020, The Company had over 11,000 employees, of which, over 9,800 R&D, production technology and clinical services staff, accounting for 89% of the total headcount. As of December 31, 2020, the headcount of R&D, production technology and clinical services staff increased by 3,426 as compared with 31 December, 2019 (including the increase in headcount due to the acquisition of Absorption Systems and Beijing LinkStart). Overall Operation Results 1. Customer services Our R&D services platform offered services to over 1,500 customers with a total of 721 new customers introduced in 2020. While we had significant growth in number of customers in 2020, over 90% of the revenue was contributed by the Company's large, diverse and loyal repeat customer base which including the world's top 20 pharmaceutical companies. Our end-to-end R&D services platform with seamless integration approach further enhance the synergies of our different service segments and gained more and more customer recognition. During the Reporting Period, over 80% of the revenue of our discovery stage bioscience services contributed by our existing laboratory chemistry customers, and 77% of CMC (small molecule CDMO) revenue contributed by our existing customers from drug discovery services (laboratory chemicals and bioscience services). During the Reporting Period, with our strengths in providing high-quality services through our global service network, our discovery stage laboratory services gained more and more customer recognition with significant increase in customer numbers as well as deepen collaboration with customers. In addition, the Company conducted extensive scientific collaboration with customers and jointly published research findings. In 2020, a total of 15 papers were published on J. Med. Chem., Bioorg. Med. Chem. Lett. and Synlett and other international academic journals, together with 19 patented inventorship at home and abroad (with intellectual properties owned by customers). During the Reporting Period, the Company contributed to the development of global innovative drug R&D by applying our long-accumulated expertise in pharmaceutical R&D to support our customers' R&D projects, the Company contributed to the global pharmaceutical R&D community and conducted studies for 58 investigational new drugs (IND) or new drug applications filing for our Chinese customers, of which, 46 projects applied simultaneously in multiple jurisdictions (including China, the U.S. and EU) with the support of our integrated IND enabling service. With the strengthening of both capability and capacity of the pharmaceutical process development and manufacturing services, the Company worked on 739 APIs or intermediates in 2020, including 487 preclinical stage, 202 Phase I-II clinical stage, 47 Phase III clinical stage and 3 in commercial stage. We continuously strengthen our service capabilities of our clinical development service by integrating and coordinating resources at home and abroad. Following the acquisition of Beijing LinkStart in June 2020, the Company was in a position to offer comprehensive clinical development services in China including both CRO and SMO services. With international operation as one of our core competitiveness and long-term strategy, it strengthen the capabilities of our fully integrated services platform and provided customized service solutions with the cutting-edge technology to our customer by utilizing the R&D resources of our global service network. In 2020, we further strengthen our international operation despite the impact from COVID-19 pandemic. In particular, our process chemistry and drug discovery team in U.K. and China worked closely together to provide customized solutions with hybrid model which continued to gain recognition from customers. Furthermore, leveraging on our expertise in international R&D services and our understanding of the Chinese customers' needs, we continuously tailored our service offerings for the Chinese customers and bridged them with our overseas operations (such as, our early clinical center in Maryland). 2. Capacity expansion The Company continued expanding capacity to meet the growing business demand. During the Reporting Period, the Company increased 22,500 m 2 of laboratory spaces in Beijing to further enhance the capacity of the laboratory services. In addition, during the Reporting Period, the Company was about to complete the construction of phase III of Tianjin plant (40,000 m 2 ) and schedule to be operational in the first quarter of 2021 which will increase the process development capacity of our CMC (small molecule CDMO) services. During the Reporting Period, the Company continued the construction of Phase II of Ningbo Hangzhou Bay R&D service center. The first 120,000 m 2 of laboratory space of phase II of Ningbo Hangzhou Bay R&D service center was about to complete and expected to be operational in the first quarter of 2021. The remaining 42,000 m 2 of phase II of Ningbo Hangzhou Bay R&D service center was under construction and expected to complete the main structure and start internal installation in 2021. Once completed, phase II of Ningbo Hangzhou Bay R&D service center can provide additional laboratory space for up to 2,500 scientists and technician for our laboratory and CMC (small molecule CDMO) services. Furthermore, with our strategy to expand our CMC (small molecule CDMO) service downstream to late-stage clinical and commercial manufacturing, we accelerated the construction of Shaoxing Phase I facility with an area of 81,000 m 2 and reactor volume of 600 m 3 , of which, reactor volume of 200 m 3 was expected to be operational in the second half of 2021 and the remaining 400 m 3 will be completed in 2022. In 2020, the Company continued to develop the discovery biologics service capability and accelerated the build up of the biologics CDMO service platform. In early 2020, we started the construction of 70,000 m 2 of our biologics product development and manufacturing facility at our Ningbo Hangzhou Bay service center II phase I and was expected to start internal installation in June 2021 and become operational for GMP production in the second half of 2022. 3. Technological investment Continuous advancement of our technology and scientific platform is a key to maintain the leading position in the industry and the Company putting great emphasis on technological investment during the Reporting Period. In the chemical synthesis and manufacturing technology area, we focused on the application of the high throughput chemical reaction screening platform, flow chemical technology and biocatalysis technology. Using infinitesimal reaction materials to attempt a reaction condition, the high throughput chemical reaction screening platform can assess dozens or even hundreds of catalytic reaction conditions in a short time, to assist in finding the best synthetic solutions. In 2020, it assisted the chemistry departments in resolving nearly 2,000 challenging chemical reactions. The flow chemistry team completed more than 50 different types of flow reaction projects with the largest scale up to 140kg. Furthermore, the Company established a dedicated biocatalysis department in 2020, which had developed nearly 1,000 biocatalytic enzymes for a wide range of organic synthesis reactions, including oxidation, reduction, transamination, esterification and ester hydrolysis. In the discovery and bioscience area, the Company had established and improved Pharmaron DNA-encoded Library (DEL) screening platform, chemopoteomics platform, in vivo imaging technology platform and 3D spheroid and organoid screening platform. In 2020, the Company conducted hit screening campaigns using Pharmaron DEL against the new biological target of interest and successfully identified several novel hit compound series for the customers, which not only helped our customers to speed up their drug discovery programs, but also laid concrete foundation for attracting more customers for Pharmaron DEL services. The chemopoteomics platform using activity and reactivity-based probes together with proteomics profiling allows quick identification of interacting proteins and targets within the cells or tissues. The in vivo imaging technology platform can provide valuable data to support drugability evaluation with respect to the efficacy and safety of drug candidates. Our image technology platform can quantify drug candidates' tissue distribution dynamically in rodent tumor model using radioistope labelled compounds. In addition, we had developed a simplified method that could conduct isotopic tracing and assess the qualitative and quantitative distribution of compounds in animal at different time points in a faster, more efficient and low-cost manner which can further promote the application of such technology in early drug discovery programs. Also, we are in the process of building up 3D spheroids and organoid screening platform which are closer to the complex in vivo conditions as compared to traditional 2D culture. Using 3D spheroids and organoids as in vitro assay platform to investigate the efficacy and safety of drug candidates has more clinical significance. 4. External expansion During the Reporting Period, the Company continued to expand its global footprint. In addition to strengthen our service capabilities and capacities with our existing U.S. and U.K. operations, the Company completed the acquisition of Absorption Systems in November 2020. The principal business of Absorption Systems are to provide non-clinical in vitro and in vivo analytical services, bioassays testing and animal testing services for biologics, small molecule drugs, CGT and medical device products to support the discovery, development and regulatory approval of the products. Combining with Absorption Systems' core expertise in DMPK/ADME and bioanalysis for both small and large molecules and its strategic presence in life science hubs in the U.S., it further strengthened the Company's global service networks and strengthen Pharmaron's leading position in discovery and development DMPK services. In addition, the Company is able to create additional value to its customers with Absorption Systems' established services in the areas of ophthalmology and medical devices. Also, leveraging on Absorption Systems' expertise in evaluating CGT products, the Company further strengthens its CGT services platform to better serve our customers and entered into definitive agreement to acquire Allergan Biologics Limited in Liverpool, U.K. from AbbVie for establishing CDMO services of CGT products. In order to expand and strengthen our clinical service offering in China, the Company completed the acquisition of Beijing LinkStart during the Reporting Period and made bolt-on acquisitions of Beijing S&Q Healthcare Co., Ltd and RAMED (Beijing) Medical Technology Co., Ltd. to further strengthen the service offering in site management, recruitment and medical device regulatory and clinical services. Operation results of each business sector 1. Laboratory services The Company's laboratory services consists of laboratory chemistry and bioscience (including DMPK/ADME, in vitro biology and in vivo pharmacology, safety assessment, discovery biologics and U.S. laboratory services) services. As global pharmaceutical R&D investment continues to grow and the penetration rate for pharmaceutical R&D outsourcing continues to increase, the business volume from high quality customers and projects is on the rising trend. During the Reporting Period, the Company, through it's global resources allocation and long-accumulated laboratory service capabilities, supported our customers to continue their pharmaceutical R&D programs during the pandemic and have undertaken more research works from customers, which contributed to the rapid growth of laboratory service revenue. The Company recorded revenue of RMB3,262.7 million in laboratory services, which representing an increase of 37.1% as compared to 2019, with the gross profit margin of 42.6%, representing an increase of 2.4% compared with last year. Laboratory chemistry represents the core and cornerstone of small molecule drug discovery, as well as the starting point of the Company's business. The Company had nearly 4,000 scientists and technicians in laboratory chemistry area which is one of the world leading chemistry groups in terms of size and expertise. During the Reporting Period, whilst our laboratory chemistry services achieved steady growth, bioscience services entered the fast lane of development with the bioscience revenue contribution to the laboratory service increased to 41.3% in 2020 (including the revenue contribution of U.S. laboratory services following the acquisition of Absorption Systems in November 2020), as a result of the seamless integration with laboratory chemistry services. With over 1,600 scientists and technicians in the bioscience areas, we gradually established our expertise in the bioscience area in terms of service capabilities and coverages with in vitro and in vivo DMPK/ADME services covered the entire process of drug discovery. Our in vivo DMPK/ADME service cover DMPK screening for animals in different sizes, including rodents, canines and monkeys. Our in vitro DMPK/ADME service developed nearly 20 non-regular in vitro drug metabolism assays in 2020 and is now establishing a 3D cell model and physiology-based pharmacokinetic model. During the Reporting Period, the Company continued the team building and technology innovation of our in vitro biology and in vivo pharmacology services platform which has rapid business growth and increased customer recognition. Our in vitro biology department had established leading expertise in vitro drug efficacy and preliminary toxicity assessment and further expands its capabilities in target validation, high throughput screening, cell-based target specific assays and resistance model, the development of specific and diversified enzyme-based and cell-based screening platform. The team has also been working on the application of emerging RNA editing technique in our lab with high throughput screening capability. All of these have enriched our in vitro biology services platform. Through continued strengthening of its technology and building up new disease models, our in vivo pharmacology team further expands its service offering to provide customers with efficient and quality pharmacology and efficacy services and is on track to become one of the world leading pharmacology service teams. During the Reporting Period, the Company acquired U.S. Absorption Systems and launched U.S. laboratory services through such acquisition. U.S. laboratory services mainly includes DMPK/ADME and bioanalysis for both small and large molecules, particularly in transporters, human PK prediction and translational pharmaceutics. With the global network of laboratory services capabilities, the Company further strengthen its leading position in discovery and development DMPK platform. In addition, the U.S. laboratory services also include drug evaluation services for CGT products and laboratory services in the areas of ophthalmology and medical devices. In order to meet the increasing business demand, the Company continued to expand its services capacity. At the same time, in order to meet the business needs, the Company continues to expand its R&D team and improve the caliber of its personnel. As of December 31, 2020, the staff for the laboratory service business were 5,685, representing an increase of 1,384 as compared to December 31, 2019. 2. CMC (small molecule CDMO) services Our experienced CMC (small molecule CDMO) team delivers customized and cost-efficient solutions to customers in drug development and manufacturing, including process development and manufacturing, materials science/pre-formulation, formulation development and manufacturing, and analytical development services to support pre-clinical and clinical development, which can help our customers significantly reduce R&D costs and expedite the R&D process. During the Reporting Period, the Company recorded revenue of RMB1,222.0 million in CMC (small molecule CDMO) services, representing an increase of 35.5% as compared to 2019, with the gross profit margin of 32.6%, representing an increase of 4.9% as compared to last year. The increase in revenue from CMC (small molecule CDMO) services was mainly due to more drug discovery projects accumulated over the years progressing to the development stage, the expanded CMC (small molecule CDMO) services offering, the improvement of technical capabilities, and the continuous expansion of manufacturing capacity and the increased demand from the domestic innovative drug development market. During the Reporting Period, the Company continuously strengthens the CMC (small molecule CDMO) service platform with the U.K. and Chinese teams worked more closely together which in turn contributing to the continuous improvement in the business quality in the CMC (small molecule CDMO) services. During the Reporting Period, the Company worked on 739 APIs or intermediates, including 487 in preclinical stage, 202 in Phase I-II clinical stage, 47 in Phase III clinical stage and 3 in commercial stage. In terms of technology, the Company practiced the concept of green chemistry and vigorously applies new technologies such as flow chemistry and biocatalysis to develop safer and more efficient chemical processes for the customers. In addition, the chemistry team further strengthened the competitive advantage of full CMC (small molecule CDMO) services jointly with the teams of material science, crystallization R&D and formulation. Our material science and crystallization R&D services continued improving market competitiveness and contributed to high-quality growth of CMC (small molecule CDMO) services. We continued to develop capabilities for our formulation development and manufacturing services which completed 26 GMP projects in 2020. In 2020, the Company continued to strengthen its quality management by adhering to the highest-level international quality control standards to pave the way for the further development of CMC (small molecule CDMO) service. In view of the COVID-19 pandemic and the restriction from our customers for the onsite audit, our QA team promptly launched remote audit function and worked flexibility with our customers to carry out the audit by the combination of online and offline measures. During the Reporting Period, we successfully completed and passed a total of 55 audits including audits from the global top 20 pharmaceutical companies. The implementation of electronic quality management system further improved the accessibility and data integrity of our quality system. In addition, the Company was committed to continuously improve our EHS management by setting higher standard for employee's health protection and safety operation which is essential for the growth of the business. With the implementation of China's Drug Marketing Authorization Holder System and the rise of a large number of biotech start-ups, the focus of pharmaceutical R&D in China is shifting from generic drug R&D to innovative drug R&D, and it is expected that the Chinese CMC (small molecule CDMO) market will continue to grow. In order to meet the growing demand for CMC (small molecule CDMO) services, the Company is actively expanding its CMC (small molecule CDMO) service team. As of December 31, 2020, the Company had 1,934 employees engaged in CMC (small molecule CDMO) services, representing an increase of 390 employees as compared to December 31, 2019. 3. Clinical development services Our clinical development services include overseas and domestic clinical development services. During the Reporting Period, with the help of our unique integrated services platform of radioisotope compound "synthesis-clinical-analysis", our overseas operations achieved steady growth despite the fact that the operation of our early phase clinical center in the U.S. was significant affected by the COVID-19 pandemic. For the China-based operations, with the effective control of the COVID-19 pandemic in China, our clinical development service in China gradually recovered since second quarter. During the Reporting Period, the Company recorded revenue of RMB629.4 million in clinical development services, representing an increase of 37.9% over the same period of last year, and a gross profit margin of 18.8%. With the acquisition of Beijing LinkStart in June 2020 and CR Medicon in 2019, respectively, the Company established an integrated clinical development services platform in China with comprehensive service offering for both CRO and SMO services. The Company continuously develop the clinical development services and increased the talent pool in clinical development services. As of December 31, 2020, the Company had 2,208 employees engaged in clinical development services, representing an increase of 1,652 as compared to December 31, 2019. Gross Profit and Gross Profit Margin During the Reporting Period, our gross profit was approximately RMB1,916.1 million, as compared to RMB1,331.7 million for the year ended December 31, 2019. Gross profit margin increased from 35.4% to 37.3% as compared to the year ended December 31, 2019. Gross profit of our laboratory services increased from RMB956.1 million for the year ended December 31, 2019 to RMB1,389.1 million for the Reporting Period. Gross profit margin of our laboratory services increased from 40.2% for the year ended December 31, 2019 to 42.6% for the Reporting Period, primarily due to the higher operating efficiency due to economy of scale as a results of increase in laboratory services revenue. Gross profit of our CMC (small molecule CDMO) services increased from RMB249.7 million for the year ended December 31, 2019 to RMB398.0 million for the Reporting Period primarily due to the increased demand for our CMC (small molecule CDMO) services. Gross profit margin of our CMC (small molecule CDMO) services increased from 27.7% for the year ended December 31, 2019 to 32.6% for the Reporting Period, primarily due to the successful production ramp-up since second quarter. Gross profit of our clinical development services increased from RMB113.9 million for the year ended December 31, 2019 to RMB118.2 million for the Reporting Period. Gross profit margin of our clinical development services decreased from 25.0% for the year ended December 31, 2019 to 18.8% for the Reporting Period, representing a decrease of 6.2% over the same period last year. Other Income and Gains During the Reporting Period, other income and gains was approximately RMB493.0 million, representing an increase of approximately 602.8% or RMB422.9 million as compared to the year ended December 31, 2019. The increase was mainly due to: (1) the listing of our equity investment, Zentalis Pharmaceuticals, Inc. ("Zentalis"), on the Nasdaq Global Market on April 3, 2020 (U.S. local time) (stock code: ZNTL). In December 2020, the Company sold 285,062 shares of Zentalis and recognized gains on disposal from Zentalis of RMB78.0 million. As of December 31, 2020, the Company still holds 285,062 shares of Zentalis, the Group recognized gains on fair value change from Zentalis of RMB75.5 million; (2) increase in interest income of RMB64.5 million; (3) increase in government grants of RMB10.5 million; (4) increase in gains on financial assets at fair value through profit or loss of RMB53.5 million, which was mainly from the investments in some medium-risk and low-risk wealth management products purchased from a number of reputable international banks for cash management purpose; (5) increase in gains on derivative financial instruments at fair value through profit or loss of RMB140.8 million, which was mainly from foreign exchange forward contracts and collar contracts with banks in order to manage the Group's foreign currency exposure in relation to USD against RMB; (6) one-off fair value gain of RMB23.1 million resulted from re-measurement of our equity interest in LinkStart when it became our subsidiary in June 2020. Other Expenses During the Reporting Period, other expense was approximately RMB143.8 million, representing an increase of approximately 1,122.8% or RMB132.1 million as compared to the year ended December 31, 2019. The increase was mainly due to the foreign exchange loss of RMB131.2 million in 2020. Selling and Distribution Expenses The selling expenses in the Reporting Period were approximately RMB92.6 million, increased by approximately 26.9% or approximately RMB19.7 million as compared to the year ended December 31, 2019. The increase was primarily due to increase in headcount of our business development staff to support our expansion of operation. Administrative Expenses The administrative expenses of the Group in the Reporting Period were approximately RMB684.7 million, as compared to approximately RMB526.4 million for the year ended December 31, 2019. The increase was mainly due to our continued business expansion. Our administrative expenses as a percentage to revenue decreased from 14.0% in the year ended December 31, 2019 to 13.3% in the Reporting Period, which was mainly due to the economies of scale and our expense control effort. Research and Development Costs The research and development expenses of the Group in the Reporting Period were approximately RMB105.3 million, representing an increase of approximately 67.6% or RMB42.5 million as compared to the year ended December 31, 2019. The increase was primarily due to our increased internal R&D activities for exploring and expanding into new service offerings. Finance Costs During the Reporting Period, finance costs was approximately RMB23.9 million, representing a decrease of approximately 71.1% or RMB58.6 million as compared to the year ended December 31, 2019. The decrease was primarily due to the repayments of interest-bearing bank and other borrowings in the Reporting Period. Income Tax Expense The income tax expense in the Reporting Period was approximately RMB172.4 million, representing an increase of 69.2% or approximately RMB70.5 million as compared to the year ended December 31, 2019. It was due to the increase in profit before tax as a result of the growth of the Group's business operations. Profit in the Reporting Period As a result of the foregoing, the profit attributable to owners of the parent in the Reporting Period was RMB1,172.4 million, increased by 114.3% as compared to RMB547.2 million for the year ended December 31, 2019. Non-IFRSs Adjusted Net Profit for the Year Attributable to Owners of the Parent To supplement the financial statements prepared by us, we use non-IFRSs adjusted net profit attributable to owners of the parent as an additional financial measure. We define non-IFRSs adjusted net profit attributable to owners of the parent as net profit before certain expenses/(gains) as set out in the table below. The Company believes that the consideration of the non-IFRSs adjusted net profit attributable to owners of the parent by eliminating the impact of certain incidental, non-cash or non-operating items is useful for better understanding and assessing underlying business performance and operating trends for the Company's management, shareholders and potential investors. The non-IFRSs adjusted net profit attributable to owners of the parent is not an alternative to (i) profit before tax or net profit (as determined in accordance with IFRSs) as a measure of our operating performance, (ii) cash flows from operating, investing and financing activities as a measure of our ability to satisfy our cash needs, or (iii) any other measures of performance or liquidity. In addition, the presentation of the non-IFRSs adjusted net profit attributable to owners of the parent is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with the IFRSs. Shareholders and potential investors should not view the non-IFRSs adjusted net profit attributable to owners of the parent on a stand-alone basis or as a substitute for results under the IFRSs, or as being comparable to results reported or forecasted by other companies. Year ended Year ended December 31, December 31, 2020 2019 RMB' 000 RMB' 000 Profit attributable to owners of the parent 1,172,383 547,190 Add: Share-based compensation expenses 51,949 9,496 Foreign exchange related losses/(gains) 111,431 (1,579) (Gains)/losses on derivative financial instruments related to foreign exchange (119,678) 7,364 Non-IFRS net profit attributable to owners of the parent 1,216,085 562,471 Add: Realized and unrealized (gains)/losses from equity investments (152,056) (13,338) Non-IFRS adjusted net profit attributable to owners of the parent 1,064,029 549,133 Cash Flows During the Reporting Period, net cash flows generated from operating activities of the Group amounted to RMB1,648.6 million, representing an increase of RMB710.0 million or 75.6% over the year ended December 31, 2019. The increase was mainly due to the increase in our revenue and profit during the Reporting Period. During the Reporting Period, net cash flows used in investing activities of the Group amounted to RMB3,371.1 million, representing an increase of RMB2,325.8 million or 222.5% over the year ended December 31, 2019. The net cash flows used in investing activities during this Reporting Period was mainly from (1) net cash outflows used in purchase of time deposits over three months and some medium-risk and low-risk wealth management products purchased from a number of reputable international banks of RMB1,124.8 million; (2) construction of our Phase II of Ningbo Hangzhou Bay R&D service center, Phase I of Shaoxing Shangyu manufacturing facility, Phase III of Tianjin CMC (small molecule CDMO) facility and purchases of other property, plant and equipment of RMB1,308.4 million; (3) cash outflows used in acquisition of subsidiaries and capital injection in associates of RMB1,082.9 million; (4) net of cash inflows from disposal of equity investments at fair value through profit or loss of RMB96.8 million. During the Reporting Period, net cash flows used in financing activities of the Group amounted to RMB280.2 million, which was due to (1) payment of dividends of RMB118.6 million; (2) payment of lease liabilities of RMB90.7 million; (3) net repayment of bank loans and other borrowings of RMB46.8 million. Liquidity and Financial Resources The Group has maintained a sound financial position during the Reporting Period. As at December 31, 2020, the Group's cash and bank balance amounted to approximately RMB2,935.1 million. For the Reporting Period, net cash flows generated from operating activities of the Group amounted to approximately RMB1,648.6 million. The Group recorded total current assets of approximately RMB5,540.4 million as at December 31, 2020 (December 31, 2019: approximately RMB5,944.5 million) and total current liabilities of approximately RMB1,981.8 million as at December 31, 2020 (December 31, 2019: approximately RMB1,269.7 million). The current ratio (calculated by dividing the current assets by the current liabilities) of the Group was approximately 2.8 as at December 31, 2020 (December 31, 2019: approximately 4.7). Borrowings and Gearing Ratio As at December 31, 2020, the Group aggregated interest-bearing bank and other borrowings of RMB781.0 million. Among the total borrowings, RMB386.1 million will be due within one year and RMB394.8 million will be due after one year. As at December 31, 2020, the gearing ratio, calculated as total liabilities over total assets, was 25.0%, as compared with 21.1% as at December 31, 2019. Pledge of Assets As at December 31, 2020, the Group mortgaged property, plant and equipment with a net carrying amount of approximately RMB405.6 million (December 31, 2019: approximately RMB1,333.2 million); and the mortgaged right-of-use assets had a net carrying amount of approximately RMB180.5 million (December 31, 2019: approximately RMB81.7 million). Those pledged assets above have been used to secure the Group's interest-bearing bank borrowings. Besides, as at December 31, 2020, the Group pledged deposits of approximately RMB7.3 million (December 31, 2019: approximately RMB17.6 million) to issue letters of credit and for environmental protection. Contingent Liabilities As at December 31, 2020, the Group did not have any material contingent liabilities. Miscellaneous Evaluation on the impact of the 2020 Novel Coronavirus In 2020, under the backdrop of the COVID-19 pandemic, the importance and social value of healthcare industry has been further heightened. The Company was at a critical moment of development with both opportunities and challenges existed. In the face of the pandemic, the Company took various prevention and control measures to vigorously protect the health of its employees, and ensure the Company continued its rapid growth strategy as set at the beginning of the year. Since the outbreak of the COVID-19 pandemic, the Company postponed the resumption of China operations for one week in the first quarter, which slightly delays in meeting the delivery schedules for some of the orders in the first quarter of 2020. Starting from the second quarter, with the pandemic in China under effective control, our China-based laboratories and manufacturing facilities resumed to normal rapidly. With the strong demand from laboratories and CMC (small molecule CDMO) services, the revenue of the Company continuously to grow. Although the COVID-19 pandemic in EU and the U.S. has certain impact on the company's overseas clinical development services, the domestic clinical development services have gradually recovered in the second half of the year; At the same time, with the unique radioisotope compound "synthesis-clinical-analysis" integrated services platform, the overall clinical development services also achieved steady growth in 2020. The COVID-19 pandemic had no significant adverse impact on the Company's business, operation and cashflow, and the Company had successfully achieved its business goals in 2020. CORE COMPETITIVENESS ANALYSIS The Company provides customers with fully-integrated services covering drug research, development and manufacturing services for innovative pharmaceutical products throughout the research and development cycle, which lead to significant competitive advantages in the business model, R&D service capabilities, customer collaboration and supporting domestic and foreign pharmaceutical/biotech companies in innovative drug R&D. 1. Leading fully-integrated pharmaceutical R&D services platform with strong capabilities and comprehensive service offerings across the globe The Company has a well-established pharmaceutical R&D services platform for the discovery stage of small molecule innovative drugs, based on which the Company has expanded its expertise to various stages of drug development and manufacturing. The Company is in a leading position in drug discovery, preclinical and early clinical-stage research, and is committed to expanding its capabilities downstream to late clinical-stage development and commercial manufacturing. In the process of expanding R&D services, the Company has successfully evolved from a pure laboratory chemistry service provider to an end-to-end pharmaceutical R&D services platform with operations in China, the U.S. and the U.K. The Company has established comprehensive expertise in different R&D stages, so as to assist customers in accelerating their R&D programs and cater to a full spectrum of customers' needs. The Company has established a good reputation in the global pharmaceutical R&D service industry and a strong partnership with top pharmaceutical and biotech companies. Through the comprehensive early-stage drug R&D services, we have accumulated a profound understanding of the unique scientific challenges facing their new pharmaceutical R&D projects, which better positions the Company to press ahead with such projects in the late development stage. The Company's profound industry knowledge, strong execution capability and end-to-end solutions will shorten the drug discovery and development cycle and reduce the associated risks, thereby creating value for customers. As a fully-integrated pharmaceutical R&D service provider, the Company's comprehensive pharmaceutical R&D services platform has the following three core competences: (1) Comprehensive chemistry platform throughout the entire drug R&D and commercial stages As a fully-integrated service provider for the research, development and manufacturing of small molecule pharmaceutical products, the Company's expertise and advantage in chemistry technology is crucial throughout the whole drug R&D process. With the comprehensive chemical technology platform covering compound design (including CADD), design and synthesis of a compound library, medicinal chemistry, synthetic chemistry, analytical chemistry, early process chemistry, and process chemistry and GMP API manufacturing, the Company can satisfy customers' demand for pharmaceutical R&D and manufacturing in each stage of the pharmaceutical R&D process, including laboratory synthesis process at the drug discovery stage, small- scale process and GLP/GMP manufacturing at the preclinical drug development stage, mid-scale process and GMP manufacturing at the clinical stage as well as process development for GMP commercial manufacturing, which fully cater to the diversified needs of different types of customers. In addition to providing R&D services for the compound synthesis process, combined with its formulation development services, the Company is able to provide customers with fully-integrated pharmaceutical R&D and manufacturing solutions from initial compounds to finished dosages. (2) DMPK/ADME service platform throughout the entire drug R&D process The Company provides DMPK/ADME services covering the whole R&D process from drug discovery to development. The early DMPK/ADME studies are of great importance as they can provide a key basis for our customers to determine their late-stage drug development strategy. Radioisotopic analysis technology is critical as an important drug metabolism analysis technology during the clinical stage. Following the approval of the radioisotopic use license at the Company's clinical center in the U.S. in early 2018, the Company is the only pharmaceutical R&D service provider that offers integrated pharmaceutical R&D solutions, which cover radioisotope compound synthesis and human ADME studies using regular isotope analysis technology or high-sensitivity AMS technology. In addition, with acquisition of Absorption Systems, the Company broadened its global service network and further strengthen its leading position in discovery and development DMPK platform. (3) Comprehensive integrated platform from drug discovery to POC ("proof of concept") From inception, the Company has committed to the establishment of integrated services platform from drug discovery to proof of concept stage, which covers compound design, compound library synthesis, synthetic and medicinal chemistry, biology, DMPK, pharmacology, toxicology, drug safety assessment, radiolabelled chemistry and DMPK, clinical pharmacology, clinical bioanalysis, clinical data statistics, chemical process development and API manufacturing and formulation and drug product manufacturing. With this comprehensive integrated services platform, the Company has undertaken many integrated research projects, and achieved a considerable number of milestones. In addition, the Company can also provide a customized service package at a particular stage of drug R&D process, such as an integrated service package for IND enabling which includes preclinical safety assessment, early process development and manufacturing, pharmacology, DMPK and clinical proposal. With this comprehensive IND enabling solutions and the ability to support IND filing for different jurisdictions, it provides flexibility to the customers, accelerates their drug development process and reduces their overall R&D costs. 2. Global operations, profound experience in pharmaceutical R&D and state-of-the-art technologies to provide customized solutions The Company operates globally through our 16 laboratories, clinical and manufacturing facilities in China, the U.S. and the U.K., of which 8 operating facilities from overseas. The Company's profound experience in global pharmaceutical R&D, together with its global operations and world-class technical capabilities, allow us to offer our customers a unique proposition that combines our technical expertise in different geographic location and efficient services with seamless integration. The Company has a proven track record of offering customized solutions to customers to address their specific needs by integrating the expertise from our global operations. It is the Company's core strategy for each international acquisition to effectively integrate with our global services platform and brought in the world class talent and facilities into our integrated services platform to further strengthen our overall services capabilities and increase the efficiency of our services. These strategies complement each other to effectively improve the Company's international operation capability and bring high value-added services to customers. For example, our process chemistry and drug discovery team in U.K. and China worked closely together to provide customized solutions with hybrid model which continued to gain recognition from customers. Through our global operation, the Company has established a services network and strategic presence in global life science hubs which enhance the customer communication and understanding of customer needs. Also, by carrying out our R&D services under different jurisdictions, it provides flexibility to customize our services solutions that best suit our customers' geographic and strategic needs. The clinical pharmacology team in the U.S. has worked seamlessly with our Chinese team to help customers in China for the preparation and filing of IND application and conducted the first-in-human (FIH) studies in the U.S.. In addition, the Company's experience in regulatory filings in various jurisdictions and its service model of providing customers with total solution enable our customers to file IND applications for their drug candidates in China, the U.S., or EU in parallel, which makes the IND applications of our customers more flexible and efficient. 3. Committed to utilizing innovative technologies to meet evolving R&D needs and increase efficiency Since inception, the Company has put great emphasis on technology and innovation to fuel the constant grow of the business and satisfy the evolving R&D needs. It develops new technologies through multiple measures such as internal research and development, collaboration with academic and professional institutions, customer collaboration and acquisitions. In recent years, the Company has been strategically developing new technologies and capabilities in chemistry and bioscience areas, and committed to further strengthening of the integrated services platform. In the chemical synthesis and manufacturing technology area, we focused on the application of the high throughput chemical reaction screening platform, flow chemical technology and biocatalysis technology. Using infinitesimal reaction materials to attempt a reaction condition, the high throughput chemical reaction screening platform can assess dozens or even hundreds of catalytic reaction conditions in a short time, to assist in finding the best synthetic solutions. In 2020, it assisted the chemistry departments in resolving nearly 2,000 challenging chemical reactions. The flow chemistry team completed more than 50 different types of flow reaction projects with the largest scale up to 140kg. Furthermore, the Company established a dedicated biocatalysis department in 2020, which had developed nearly 1,000 biocatalytic enzymes for a wide range of organic synthesis reactions, including oxidation, reduction, transamination, esterification and ester hydrolysis. In the discovery and bioscience area, the Company had established DNA-encoded Library (DEL) screening platform, chemopoteomics platform, in vivo imaging technology platform and 3D spheroid and organoid screening platform. In 2020, the Company conducted hit screening campaigns using Pharmaron DEL against the new biological target of interest and successfully identified several novel hit compound series for the customers, which not only helped our customers to speed up their drug discovery programs, but also laid concrete foundation for attracting more customers for our DEL services. The chemopoteomics platform using activity and reactivity-based probes together with proteomics profiling allows quick identification of interacting proteins and targets within the cells or tissues. The in vivo imaging technology platform can provide valuable data to support drugability evaluation with respect to the efficacy and safety of potential drugs. Our image technology platform can quantify potential drugs' tissue distribution dynamically in rodent tumor model using radioistope labelled compounds. In addition, we had developed a simplified method that could conduct isotopic tracing and assess the qualitative and quantitative distribution of compounds in animal at different time points in a faster, more efficient and low-cost manner which can further promotion the application of such technology in early drug discovery programs. Also, we are in the process of building up 3D spheroids and organoid screening platform which are closer to the complex in vivo conditions as compared to traditional 2D culture. Using 3D spheroids and organoids as in vitro assay platform to investigate the potential efficacy and safety of drugs has more clinical significance. 4. Dedicated, stable and visionary management teams, experienced talent pools with progressive corporate culture The Company's management team is led by Dr. LOU Boliang, our chairman and chief executive officer. With over 30 years of experience in the pharmaceutical industry, he is highly respected in the industry for his excellent leadership that contributes to the Company's rapid development. The Company's senior management team has been with us for more than 10 years. The Company has nearly 100 senior scientific and technical leaders, 3 of whom were named as National Talents and 15 named as Beijing Talents. Members of our highly skilled, experienced and international management team possess diverse expertise and extensive knowledge, and have significantly contributed to the growth of the Company's institutional knowledge base. The Company focuses on its home-grown scientific team consisting of selected, young and promising scientists, which enables us to form a cohesive and vibrant mid-level management team composed of nearly 2,000 technical managers and high-caliber scientific research talents across all scientific disciplines of the Company. In addition, the Company's visionary management team has established a highly experienced and skilled talent pool with strong execution efficiency. As of December 31, 2020, the Company had over 9,800 R&D, production technology and clinical services staff in China, the U.K. and the U.S.. The highly professional technical team ensures the Company's continuous provision of high-quality R&D services for customers. The open platform for talent development ensures that the Company will continuously attract talents from around the globe. The Company is committed to its corporate philosophy of "Employee First and Customer Centric" which put strong emphasis on employee training and improves all mechanisms so as to integrate their career development into the Company's overall development strategy. In order to develop and train our talents, the Company provides training to our employees through our in-house training system including the "Pharmaron College", visiting scholar programs at renowned laboratories and institutions and holds various seminars, forums and academic symposiums regularly, through which our team members acquire updates on the most advanced technology and techniques of the industry. In addition, the Company has developed training programs with the world renowned universities and research institutes for high-caliber scientific research talent. The above measures have greatly improved the scientific research capabilities and cohesion of the Company and its employees. Furthermore, we respect and value every single customer so as to ensure R&D quality by tackling each technical challenges and complete every single tasks with integrity and scientific rigor. Our dedicated, stable and visionary management team, experienced talent pool and outstanding corporate culture lay a solid foundation for the Company's long-term success. 5. Reputable, loyal and expanding customer base that contributes to our sustainable growth and business collaboration The Company has a large, diverse and loyal customer base consisting of more than 1,500 customers, including the global top 20 pharmaceutical companies and numerous reputable biotech companies. In 2020, the Company introduced 721 new customers, with over 90% of revenue contributed by the Company's large, diverse and loyal repeat customers The Company's fully-integrated solution and deep understanding of customers' needs allow it to provide customized pharmaceutical R&D services for customers according to their needs. With further progress made in the existing customers' projects, the loyal and growing customer base will enable us to develop new services in drug development and at the early clinical stage. The Company benefits from its strategic partnership with specific customers. Through know-how sharing and training provided during our deep collaboration with these customers, the Company is able to further improve technical capabilities and enhance service excellence, thereby creating a virtuous cycle. With our strong technical expertise, advanced technological infrastructure, profound industry knowledge, strong execution capability and quality customer services, the Company is able to become our customers' strategic partner and help them form their drug development or R&D outsourcing strategies, which in turn reinforces our close relationships with such customers. In addition to our strong scientific capabilities, the Company puts emphasis on areas like environmental protection, health, safety and intellectual property protection. The Company takes such measures as establishing the intellectual property protection system and building the information system to ensure that our customers' intellectual properties are well protected, and is widely recognized and trusted by customers in this respect. The Company's high-quality services enable us to accumulate a good reputation among our existing customers, and to further expand our customer base by acquiring new customers through word-of-mouth referrals. 6. Insight into industry trends and well positioned to capture growth opportunities arising from industry evolution The Company, with profound industry accumulation, large customer base and close partnership, keeps abreast of the global pharmaceutical R&D trends. It's strong awareness and understanding of evolving R&D needs allow the Company to be adaptive and expand into new emerging fields and implement innovative technology to better serve our customers. It is a trend for pharmaceutical R&D companies to enter into deeper collaborations with their pharmaceutical R&D service providers that provide end-to-end services with good track records to achieve higher R&D efficiency. In addition, the number of biotech start-ups and their R&D investments increase rapidly. Out of consideration of costs and time efficiency, these biotech start-ups more extensively use the fully-integrated R&D services platform to support their pharmaceutical R&D programs. Through long-term collaboration with customers, the Company will contribute to transforming the drug R&D industry in a more efficient way and continuously benefit from the growing demand for pharmaceutical R&D services. Along with the trend of the Chinese pharmaceutical industry shifting from generic drugs to innovative drugs and the rapidly increasing number of biotech start-ups in China, making it the fastest-growing pharmaceutical R&D services market across the world. The Company is well-positioned to capitalize on the strong growth drivers in China's pharmaceutical R&D industry and further strengthen its leadership in such a market. Outlook for 2021 Discussion and Analysis of Future Development 1. Industry competition and development The Company is engaged in drug research, development and manufacturing services, and provides customers with fully-integrated services for innovative pharmaceutical products throughout the research and development cycle. Its business is closely related to the development of the pharmaceutical industry and pharmaceutical R&D outsourcing market. (1) Market conditions of pharmaceutical R&D and outsourcing services Under the pressure of increasing R&D costs and patent cliff, as well as limited by their own R&D capacity, pharmaceutical companies gradually turn to pharmaceutical R&D and manufacturing outsourcing services with an aim to reduce their R&D costs of drugs and improve their R&D efficiency. The increasing investment in pharmaceutical R&D also provides a solid foundation for the market development of outsourcing services for R&D and manufacturing. In the future, the size of global pharmaceutical research, development and manufacturing service market and the size of China's pharmaceutical service market are expected to maintain solid growth. According to Frost & Sullivan's forecast, the size of global pharmaceutical service market is expected to be US$99.9 billion in 2020. It is estimated that the size of global pharmaceutical service market will increase to US$149.8 billion by 2024, representing an excepted CAGR of 10.7% from 2020 to 2024. Compared to global pharmaceutical service market, China's pharmaceutical service market is smaller in size but is growing at a faster growth rate. According to Frost & Sullivan's forecast, the size of China's pharmaceutical service market is expected to reach US$12 billion in 2020, and it is expected to increase to US$32.7 billion by 2024, twice the growth rate of global pharmaceutical service market. According to Frost & Sullivan's forecast, the size of global pharmaceutical R&D outsourcing services market was US$67.2 billion in 2020, representing a market penetration rate (the proportion of the size of the total CRO services market in the total R&D investment) of 35.2%; meanwhile, the size of Chinese pharmaceutical R&D outsourcing services market is expected to be US$8 billion in 2020, representing a market penetration rate of 31.7%. In 2024, the size of global pharmaceutical R&D outsourcing services market is expected to be US$96 billion, and the market penetration rate will further climb to 42.3%; the Chinese market is expected to reach US$22.2 billion and the market penetration rate is expected to be 46.6%. (2) Market conditions of drug discovery R&D services Drug discovery is a multidisciplinary and systematic work and process. According to Frost & Sullivan's forecast, the size of global drug discovery service market is expected to be US$14.2 billion in 2020, representing a market penetration rate (the proportion of the revenue from services in the total R&D investment) of 35.5%. It is estimated that the size of global drug discovery service market will increase to US$20.4 billion by 2024, representing a CAGR of 9.5% from 2020 to 2024, far exceeding the growth rate of investment in drug discovery R&D in the same period, and the penetration rate of global drug discovery R&D service market will reach 43.3%; meanwhile, the size of China's drug discovery service market is estimated to be US$1.6 billion in 2020, accounting for 43.2% of the entire drug discovery R&D market. It is estimated that the size of China's drug discovery R&D service market will increase to US$4.3 billion by 2024, exceeding the growth rates of both the investment in drug discovery and the global drug discovery R&D services in the same period. The market penetration rate of China's drug discovery R&D services will also rise to 62.1%. (3) Market conditions of pharmaceutical development and manufacturing services Pharmaceutical development and manufacturing services cover the whole process of preclinical research, clinical research, drug registration and commercial manufacturing. According to Frost & Sullivan's forecast, the size of global pharmaceutical CMO service market is expected to be US$32.7 billion in 2020. It is estimated that the size of global pharmaceutical CMO service market will increase to US$53.8 billion by 2024, representing a CAGR of 13.3% from 2020 to 2024; meanwhile, the size of China's pharmaceutical CMO service market is expected to be US$4 billion in 2020, accounting for 12.2% of the entire pharmaceutical CMO service market. It is estimated that the size of China's pharmaceutical CMO service market will increase to US$10.5 billion by 2024, 14.0% higher than the growth rate of global pharmaceutical CMO service in the same period. (4) Market conditions of clinical development services Drug clinical development services cover phase I to III of clinical trials and post-commercialization research of drugs. With the steady growth in investments in drug research and ...

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