CK Life Sciences Intl : Annual Results for 2018

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(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 0775)

THE CHAIRMAN'S STATEMENT FOR 2018

For the year ended 31 December 2018, CK Life Sciences Int'l., (Holdings) Inc. ("CK Life Sciences" or the "Company") reported profit attributable to shareholders of HK$263 million, an increase of about 2% as compared to that of 2017. Had the profit been reported in Australian dollars, on which around 70% of our businesses are based, the result would have been an increase of approximately 9% year on year.

The Board of Directors has recommended a final dividend of HK$0.01 per share for the year ended 31 December 2018 (2017: HK$0.01 per share), same as the previous year. The proposed dividend will be paid on Friday, 31 May 2019 following approval at the 2019

Annual General Meeting to those shareholders whose names appear on the Register of Members of the Company at the close of business on Wednesday, 22 May 2019.

AGRICULTURE-RELATED BUSINESS

The agriculture-related business recorded good revenue growth of 12%.

The Company's vineyard portfolio recorded higher rental income as well as increases in the valuation of properties. Helped by decent growth in international demand for Australian wine, grape prices remained strong. Market sentiments for the wine industry were buoyant.

In December 2018, CK Life Sciences completed the acquisition of the Nangiloc Colignan Farms, one of the largest grape and citrus farms in Australia at an aggregate price of A$50 million (approximately HK$283 million). The acquisition is well positioned to deliver stable recurrent cashflows on the back of a long-term tenancy agreement.

Australian Agribusiness (Holdings) Pty Ltd comprises businesses in home gardening, pest management, professional turf, specialty agriculture and plant protection manufacturing. The business reported satisfactory sales despite persistent drought conditions in Australia. It successfully registered several new formulations which will stand us in good stead when weather conditions improve.

Cheetham Salt Limited ("Cheetham") recorded satisfactory growth during the year under review. 2018 marked the first full year of profit contribution from the completion of an asset swap in 2017 which involved an acquisition of the remaining 50% share of the salt field operations in New Zealand that the Company did not own and a disposal of shares in the salt company's retail and distribution operations. It also made headway in opening new export markets.

NUTRACEUTICAL BUSINESS

Revenue generated from the nutraceutical business segment was an increase of 11% from that of last year.

Lipa Pharmaceuticals Limited ("Lipa"), one of Australia's largest contract manufacturer of complementary healthcare medicines, vitamins, and nutritional supplements, recorded improved sales performance in 2018. Lipa's production volume rose as its customers' export sales to China increased, generating satisfactory income for the Company.

Vitaquest International Holdings LLC ("Vitaquest"), an industry-leading development and commercialisation partner for the nutraceutical and functional food markets in the United States, experienced strong growth in sales as it capitalised on increased market demand for powder products by installing more effective and efficient equipment.

In Canada, Santé Naturelle A.G. Ltée, one of the largest and longest established natural health companies in Québec, maintained its position in the domestic retail market despite strong competition and continued to progress development of new export markets.

PHARMACEUTICAL RESEARCH AND DEVELOPMENT

CK Life Sciences' pharmaceutical operations in Hong Kong, Canada and the United States of America are focused on conducting Research & Development in the areas of oncology and pain management.

• 1) Polynoma LLC

  Our wholly-owned US subsidiary, Polynoma LLC ("Polynoma"), is developing a proprietary polyvalent therapeutic cancer vaccine (seviprotimut-L) for melanoma. Seviprotimut-L is intended for the adjuvant treatment of patients with early stages (Stages IIb, IIc & III) of melanoma after their cancer has been surgically resected. The ongoing Phase III clinical trial has progressed well, with approximately 350 enrolled patients being monitored for recurrence, and is on schedule for an interim analysis soon. Preparations for the interim analysis have already commenced.

  Seviprotimut-L is comprised of a combination of multiple melanoma-associated antigens and works by triggering the body's immune system to develop antibodies and antigen-specific T lymphocytes against melanoma cells, thereby delaying recurrence and extending survival in patients. In clinical trials to date, seviprotimut-L has been found to have few adverse effects. With the advent of cancer immunotherapy in recent years, the global market of melanoma already exceeds US$1 billion and is projected to continue exponential growth over the next 5 years. Seviprotimut-L presents a potential new form of cancer immunotherapy for melanoma, much safer than the currently-approved options.

• 2) WEX Pharmaceuticals Inc.

  Despite many pain management options being available to patients, uncontrolled chronic pain remains a major unmet medical need globally. WEX Pharmaceuticals Inc. ("WEX Pharma"), our wholly-owned Canadian subsidiary, is developing an analgesic based on

the puffer fish toxin, tetrodotoxin. WEX Pharma's product, HalneuronTM, acts by blocking Nav1.7 voltage-gated sodium channels and is potentially a first-in-class drug approved for the treatment of pain.

WEX Pharma has made significant headway in its discussion with the USFDA to allow the start of a Phase III clinical trial of HalneuronTM for chemotherapy-induced neuropathic pain ("CINP"). GMP (Good Manufacturing Practice)-compliant manufacturing of HalneuronTM is progressing well, and preparations are underway for the Phase III clinical trial to begin as soon as practicable after the FDA confirms acceptance of our Special Protocol Assessment (SPA) proposal. An SPA agreement facilitates discussions with the FDA on product registration, by reducing uncertainty regarding the acceptability of the proposed clinical study design and analytical methods.

There is currently no specific FDA-approved medication for CINP; doctors often prescribe analgesics, including opioids, which have significant adverse effects and may not be efficacious. Once demonstrated effective for CINP, HalneuronTM can be developed for other more common types of chronic pain and other methods of application can also be explored. Market potential for such pain management solutions is significant.

Our in-house scientists in the Hong Kong head office conduct non-clinical R&D to support the activities at Polynoma and WEX Pharma, and are also actively engaged in evaluating new healthcare opportunities.

PROSPECTS

In 2019, the global macro-environment is expected to be faced with a number of challenges. We do not anticipate the businesses of CK Life Sciences to be materially affected. In view of the Company's diverse commercial operations and steady progress of our pharmaceutical R&D, we are cautiously optimistic about CK Life Sciences' prospects.

As we continue to pursue strategically beneficial acquisitions and bolster our performance through organic growth, we are uniquely positioned to tap into the abundant capital resources and vast operating experience of the CK Group, enabling the Company to take full advantage of synergistic business opportunities with the rest of the Group.

We will also continue to support R&D projects to facilitate the process of solution-driven research that leads to the development and commercialisation of ground-breaking products that address underserved market needs.

As always, I would like to thank our shareholders, Board of Directors and staff for their continued support.

Victor T K Li

Chairman

Hong Kong, 19 March 2019

FINANCIAL REVIEW

Financial Resources, Liquidity and Treasury Policies

In 2018, the financial and liquidity position of the Group continued to be sound and healthy. It was financed mainly from internal sources such as cash generated from business activities as well as other sources such as borrowings from banks and major shareholders.

The Group's bank and other borrowings were mainly for the acquisition of the Group's overseas businesses as well as providing general working capital. As at 31 December 2018, the bank and other borrowings amounted to HK $4,816.2 million. All these borrowings were made on a floating interest rate basis and were granted based on some committed terms by, with or without the guarantees of, the Company. As at 31 December 2018, certain assets of the Group's overseas subsidiaries with carrying value of HK$870.5 million were pledged as part of the security for bank borrowings totalling HK$324.2 million. The total finance costs of the Group for the year were HK$129.7 million.

At the end of 2018, the total assets of the Group were about HK$10,438.5 million, of which bank balances and time deposits were about HK$773.4 million and treasury investments were about HK$141.2 million. The bank interest generated for the year was HK$10.5 million.

The total net assets of the Group as at 31 December 2018 were HK$4,419.8 million, representing HK$0.46 per share. The net debt to net total capital ratio of the Group as at 31 December 2018 was approximately 47.78%, which is calculated as the Group's net borrowings over the aggregate of the Group's total equity and net borrowings. For this purpose, the Group defines net borrowings as total borrowings (including bank borrowings, finance lease obligations and other borrowings) less cash, bank balances and time deposits.

The Group's treasury function operates as a centralised service for managing financial risks, including interest rate and foreign exchange risks, and for providing cost efficient funding to the Group. The Group manages its interest rate exposure with a focus on reducing the Group's overall cost of debt and exposure to interest rates fluctuation. It monitors its overall net debt position closely, reviews its funding costs and maturity profile regularly and takes necessary actions to facilitate refinancing whenever appropriate.

Material Acquisitions/Disposals and Significant Investments

In December 2018, the Group completed a vineyard acquisition of Nangiloc Colignan Farms in Australia with a consideration of approximately HK$283.0 million. The transaction constitutes a discloseable transaction under the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited. Details of the transaction were disclosed in the Company's announcement dated 15 November 2018.

Other than the aforementioned, there was no material acquisition/disposal during the year under review.

The Group has always been investing significantly in research and development activities. Such investment amounted to about HK$151.8 million in 2018.

Capital Commitments and Future Plans for Material Investments or Capital Assets

As of 31 December 2018, the total capital commitments by the Group amounted to HK$47.0 million which were mainly made up of contracted/authorised commitments in respect of the acquisition of plant and equipment, and maintenance of vineyards.

Information on Employees

The total number of full-time employees of the Group was 1,785 as at 31 December 2018 (2017: 1,688). The total staff costs, including directors' emoluments, amounted to approximately HK$1,012.3 million for the year under review, which represents an increase of 4% as compared to the previous year.

The Group's remuneration policies and fringe benefits remained basically the same as before. The Group would ensure the pay levels of its employees are competitive and its employees are rewarded on a performance related basis within the general framework of the Group's salary and bonus system.

Contingent Liabilities

The Group did not have any significant contingent liabilities as at 31 December 2018 (2017: Nil).