Contents

page(s)

CORPORATE INFORMATION

2

FINANCIAL HIGHLIGHTS

3

MANAGEMENT DISCUSSION AND ANALYSIS

4

REPORT ON REVIEW OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 16

CONDENSED CONSOLIDATED STATEMENT OF PROFIT AND LOSS

18

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND

  OTHER COMPREHENSIVE INCOME

19

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

20

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

22

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

24

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

26

OTHER INFORMATION

55

Interim Report 2020

1

Corporate Information

Board of Directors

Executive Directors

CAI Dongchen (Chairman and CEO) ZHANG Cuilong (Vice-Chairman and

Rotating CEO)

WANG Zhenguo

PAN Weidong

WANG Huaiyu

LI Chunlei

WANG Qingxi

CHAK Kin Man

Non-executive Director

LEE Ka Sze, Carmelo

Independent Non-executive Directors

CHAN Siu Keung, Leonard

WANG Bo

LO Yuk Lam

YU Jinming

CHEN Chuan

Audit Committee

CHAN Siu Keung, Leonard (Chairman)

LEE Ka Sze, Carmelo

WANG Bo

Nomination Committee

CAI Dongchen (Chairman)

CHAN Siu Keung, Leonard

LO Yuk Lam

Remuneration Committee

CHAN Siu Keung, Leonard (Chairman)

LEE Ka Sze, Carmelo

WANG Bo

Auditor

Deloitte Touche Tohmatsu

Registered Public Interest Entity Auditors

Company Secretary

LEE Ka Sze, Carmelo

Registered Office

Suite 3206

32nd Floor

Central Plaza

18 Harbour Road

Wan Chai

Hong Kong

Share Registrar

Tricor Secretaries Limited

Level 54

Hopewell Centre

183 Queen's Road East

Hong Kong

Website

www.cspc.com.hk

2 CSPC PHARMACEUTICAL GROUP LIMITED

Financial Highlights

For the six months

ended 30 June

2020

2019

Change

RMB'000

RMB'000

(Unaudited)

(Unaudited)

Revenue by business units:

Finished drugs

10,231,025

8,766,117

+16.7%

Vitamin C

1,004,964

1,157,854

-13.2%

Antibiotics

478,020

531,272

-10.0%

Others

875,588

722,753

+21.1%

Total revenue

12,589,597

11,177,996

+12.6%

Gross profit

9,437,353

7,812,611

+20.8%

Operating profit

2,618,639

2,339,895

+11.9%

Profit attributable to shareholders

2,313,996

1,878,284

+23.2%

Basic earnings per share

RMB30.97 cents

RMB25.11 cents

+23.3%

Interim dividend per share

HK6 cents

-

Turnover (RMB million)

Profit attributable to shareholders (RMB million)

9

15000

.

%

12000

24

CAGR:

11178

9000

8759

6365

6000

5169

3000

0

2016

2017

2018

2019

8

2500

.

%

2314

27

12590

2000

CAGR:

1878

1500

1505

1161

1000

869

500

2020

0

2016

2017

2018

2019

2020

Interim Report 2020

3

MANAGEMENT DISCUSSION AND ANALYSIS

Results

For the six months ended 30 June 2020, the Group achieved revenue of RMB12,590 million, representing an increase of 12.6% year-on-year; and profit attributable to shareholders of RMB2,314 million, representing an increase of 23.2% year-on-year. Basic earnings per share for the first half of 2020 amounted to RMB30.97 cents (first half of 2019: RMB25.11 cents).

Dividend

The Board has declared an interim dividend of HK6 cents per share for 2020. The interim dividend will be payable on 9 October 2020 to shareholders whose names appear on the register of members of the Company on 15 September 2020.

Bonus Issue of Shares

The Board has also proposed a bonus issue of three new shares for every five existing shares held by shareholders of the Company whose names appear on the register of members of the Company on 21 October 2020, which is subject to shareholders' approval at the forthcoming extraordinary general meeting of the Company. Details of the bonus issue will be disclosed in the circular to be published by the Company in due course.

Industry Review

The first half of 2020 has witnessed the continuous deepening of the national healthcare reform and the accelerated implementation of policies regulating the pharmaceutical industry. Following the second batch of nationwide centralised medicines procurement, which was held in January and implemented in April, a new round of centralised procurement of drugs has been held in August, offering opportunities for enterprises that have competitive edges on passing consistency evaluations and cost control capability to achieve volume gain with price reduction. The policy of consistency evaluation of generic drugs was formally extended to injectable formulations in May, which will drive enterprises to improve drug quality and prepare for the gradual inclusion of injectable formulations into the scope of centralised procurement. The regular adjustment of the national reimbursement drug list and rolling out of pilot trials of Diagnosis Related Groups (DRGs) will generate a positive effect on improving the structure of reimbursement drugs, reducing the burden of patients and enhancing the accessibility of medication. While these policies will pose challenges to the industry, they will also promote market consolidation and shift industry's focus from generic drugs to innovative drugs, which are favourable to the development of the industry in the long run.

4 CSPC PHARMACEUTICAL GROUP LIMITED

Business Review

With the outbreak of COVID-19 pandemic, hospital visit rate dropped sharply and market activities were disrupted during the first quarter, making a negative impact on the operation. The Group actively implemented online promotion and flexible sales strategies to reduce the impact on sales. Since the beginning of the second quarter, the pandemic in China has been gradually brought under control, hospital visit rate has recovered and various marketing activities have resumed. The overall operation of the Group has returned to normal.

In the first half of 2020, the results of the Group maintained a steady growth. With the efforts put in professional academic-based promotion, hospital development, lower-tier market penetration, clinical application extension and professional sales force expansion, major finished drug products were able to sustain rapid growth, and market coverage was further enhanced (reaching medical institutions of various levels in city, county, town and community). During the period, market development of the newly launched products was also carried out smoothly, which have brought in new sales contribution and further facilitated a more balanced product mix of the finished drugs. Owing to the pandemic, the overseas market has seen a substantial increase in demand for healthcare products, resulting in a significant improvement in the operating results of vitamin C business in the second quarter.

Good progress has also been made in respect of R&D:

  1. Obtained drug registration approvals for rivaroxaban tablets, montelukast sodium tablets, montelukast sodium chewable tablets, ornithine aspartate injections, bortezomib for injection, celecoxib capsules, acarbose tablets, memantine hydrochloride tablets and duloxetine hydrochloride enteric capsules in China;
  2. Obtained ANDA approval for omega-3-acid ethyl esters 90 soft capsules in the U.S.;
  3. New Drug Application for mitoxantrone hydrochloride liposome injection (new preparation) in China was submitted and accepted;
  4. Completed patient enrolment of the bridging trial of Duvelisib (innovative drug) in China, currently under follow-up;
  5. Passed the preliminary assessment of the application of Jinyouli and its related technology for the Second Prize of State Scientific and Technological Progress Award;

Interim Report 2020

5

  1. Obtained clinical trial approvals for irinotecan liposome injection, docetaxel for injection (albumin-bound), SYHA1805 tablets, SYHA1815 tablets and recombinant anti-IgE monoclonal antibody for injection in China, ALMB-0168 in Australia and Y150 (CD38/CD3 bispecific antibody) developed by Wuhan YZY in the U.S.; and
  2. 12 generic drug products (18 specifications) have passed or been deemed to have passed the consistency of quality and efficacy evaluation of generic drugs.

Finished Drug Business

The finished drug business recorded sales of RMB10,231 million in the first half of 2020, representing an increase of 16.7% over the same period of last year. The sales performance of products by major therapeutic area is as follows.

Nervous System Disease Products

Major products include NBP（恩必普）(butylphthalide soft capsules and injections), Oulaining （歐來寧）(oxiracetam capsules and lyophilised powder injections) and Enxi（恩悉）(pramipexole dihydrochloride tablets).

NBP is a Class 1 new chemical drug in China and a patent-protected exclusive product mainly used for the treatment of acute ischemic stroke. Its efficacy has been widely recognised with its being listed as one of the recommended drugs in various editions of "Guidelines for Acute Ischemic Stroke Treatment in China" as well as in more than ten other guidelines and expert consensuses. Both formulations of NBP are national reimbursement drugs, which are favourable for the promotion of sequential treatment (injections for emergency use and soft capsules for recovery use). Active exploration in new therapeutic areas for butylphthalide has been conducted as well, with 153 research projects in progress, including 75 fundamental and 78 clinical projects. In particular, the clinical trial of butylphthalide soft capsules for the treatment of vascular dementia has been approved to proceed to phase III directly in China. The phase II clinical trial of butylphthalide soft capsules in the U.S. has completed patient enrolment and is in the process of data analysis. The development of new indications and markets will be able to bring new growth opportunities to NBP.

Oulaining is mainly used for the treatment of mild to moderate memory and mental impairment resulting from vascular dementia, senile dementia and brain trauma. The promulgation of the National Key Drug List for Monitoring and Prescription Control and removal from the provincial supplementary reimbursement lists had significant impact on the sales of Oulaining. Nevertheless, Oulaining has been marketed in China for over 16 years and has also been included in a number of authoritative guidelines with a relatively large user base of doctors and patients. The Group adopted a combined sales model with direct and cooperative sales during the period, strengthened control over each level of end-user market and increased efforts in academic-based promotion, striving to achieve stable sales of Oulaining within its reasonable scope of use.

6 CSPC PHARMACEUTICAL GROUP LIMITED

Enxi is the first product launched by the Group for the therapeutic area of Pakinson's disease. It obtained drug registration approval in December 2019 and is the first and currently the only product of pramipexole dihydrochloride tablets that has passed the consistency evaluation in China. Since launch in April this year, Enxi has successfully registered for online tender in 23 provinces across the country and has developed more than 360 tiered hospitals.

In the first half of 2020, nervous system disease products recorded sales of RMB3,806 million, representing a year-on-year increase of 6.4%. Among which the sales of NBP increased by 29.7% and the sales of Oulaining decreased by 64.7%.

Oncology products

Major products include Duomeisu（多美素）(doxorubicin hydrochloride liposome injections), Jinyouli（津 優 力 ）(PEG-rhGCSF injections) and Keaili（克 艾 力 ）(paclitaxel for injection (albumin-bound)).

Duomeisu was developed by the "National Key Laboratory for New Pharmaceutical Preparations and Excipients" of the Group and supported by the "Major New Drug Development" projects in China. It has been recommended by the U.S. "National Comprehensive Cancer Network (NCCN) Guidelines" for the first-line treatment of lymphoma, ovarian cancer, relapsed or metastatic breast cancer, soft tissue sarcoma and AIDS-related Kaposi sarcoma. Duomeisu has considerable advantages in terms of efficacy and safety (especially cardiac safety of patients) as compared to traditional anthracyclines. On the basis of strengthening the existing sales areas such as haematological cancer, breast cancer, gynecologic cancer and bone cancer, the Group will continue to explore new areas such as leukemia, liver cancer, bladder cancer, lung cancer and gastric cancer, with an aim of sustaining a steady sales growth of Duomeisu.

Jinyouli is the first long-acting white blood cell booster drug in China. It is used to decrease the incidence of infection and pyrexia due to low neutrophil count in patients during chemotherapy, thus ensuring the administration of standardised dosage of chemotherapy. Jinyouli is well supported by clinical evidence with its phase IV clinical study having the largest sample size in respect of clinical study of long-acting granulocyte stimulating factor in China, covering lung cancer, breast cancer, lymphoma, ovarian cancer, colorectal cancer, gastric cancer and nasopharyngeal carcinoma, earning unanimous recommendations from domestic and foreign guidelines. In addition to existing therapeutic areas, the Group will further expand into areas such as head and neck cancer and genitourinary cancer. In addition, the Group will gradually release data of clinical studies on leukemia, concurrent chemoradiotherapy and immunotherapy in order to establish sufficient medical evidence for promoting the leading position of Jinyouli in the long-acting white blood cell booster drug market.

Interim Report 2020

7

Keaili is the first-to-market generic of new generation of paclitaxel chemotherapy drug in China with the consistency evaluation passed. It is made of stable nanoparticles formed by the integration of paclitaxel and human serum albumin (endogenous). The product has the distinctive features of convenience, high efficacy and safety. It can enhance the efficacy of paclitaxel drugs and is convenient to use. Toxic solvents and pre-treatment are not required and the administration only takes 30 minutes. The clinical trials and medical projects conducted since the launch of Keaili have generated phased data for various cancers. 6 articles have been published in "Science Citation Index (SCI)" and domestic core journals and 5 articles have been submitted to conferences such as CSCO, ESMO-ASIA and ASCO. It also assisted in formulating a guideline for pancreatic cancer. In 2020, Keaili won the national centralised procurement tender with the lowest price. By leveraging on the policy advantage, the Group will put effort in covering all cancer types, hospital development and market penetration, and continue to adopt the strategy of professional academic-based promotion in order to achieve rapid sales growth for Keaili.

In the first half of 2020, oncology products recorded sales of RMB3,131 million, representing a year-on-year increase of 44.4%. Among which the sales of Keaili, Jinyouli and Duomeisu increased by 70.9%, 53.5% and 23.7% respectively.

Anti-infective products

Major products include Shuluoke（舒羅克）(meropenem for injection), Nuomoling（諾莫 靈）(amoxicillin capsules), Xianqu/Shiyao（先曲╱石藥）(ceftriaxone sodium for injection), Zhongnuo Lixin（中 諾 立 新 ）(cefuroxime sodium for injection), Xinweihong（新 維 宏 ） (azithromycin tablets) and Weihong（維 宏 ）(azithromycin dispersible tablets/capsules/ enteric tablets).

Affected by the restrictive use of antibiotics policy, the market of anti-infective products was relatively weak. In addition, the adoption of infection control measures to fight the pandemic by the public during the period has led to a drop in the number of infection, and the demand for related medicines has also decreased accordingly. In the first half of 2020, anti-infective products recorded sales of RMB1,371 million, representing a year- on-year decrease of 17.3%.

Cardiovascular disease products

Major products include Xuanning（玄寧）(maleate levamlodipine tablets and dispersible tablets), Encun（恩 存 ）(clopidogrel bisulfate tablets), Daxinning（達 新 寧 ）(dronedarone hydrochloride tablets), Abikang（阿比康）(aspirin enteric tablets) and Meiluolin（美洛林） (ticagrelor tablets).

8 CSPC PHARMACEUTICAL GROUP LIMITED

Xuanning is mainly used for the treatment of hypertension, chronic stable angina and variant angina, and is a product in the national reimbursement drug list and essential drug list. In December 2019, Xuanning received marketing approval from the U.S. Food and Drug Administration (FDA), becoming the first Chinese innovative drug granted full approval by the U.S. FDA. It is also included in certain authoritative guidelines such as the "Guidelines for Hypertension Prevention" and "Guidelines for the Rational Use of Drugs for Hypertension" in China. During the period, the Group stepped up effort in boosting the sales of Xuaning by adopting an integrated sales model with direct, cooperative and retail sales, proactively strengthening the clinical applications in China and developing overseas market.

Encun is the only domestic clopidogrel bisulfate tablets with approval by the U.S FDA. It has won the nationwide extended tender of the "4+7" centralised procurement with a reasonable price in 2019. It is a preferred drug for treating coronary heart disease and secondary prevention for stroke with high quality and reasonable price. With the guaranteed procurement volume in the markets with tender won and effective marketing development and academic-based promotion strategies, Encun achieved rapid sales volume ramp-up in the first half of the year with sales revenue in line with expectation.

In the first half of 2020, cardiovascular disease products recorded sales of RMB1,107 million, representing a year-on-year increase of 54.0%. In addition to the new sales revenue contributed by Encun, the sales growth of Xuanning has also returned to a more desirable level of 30.6%.

Respiratory disease products

Major products include Qixiao（琦效）(arbidol hydrochloride tablets), Zhongnuo Like（中諾立 克）(ambroxol hydrochloride oral solution), Zhongnuoping（中諾平）(ambroxol hydrochloride extended-release tablets) and Nuoyian（諾 一 安 ）(montelukast sodium tablets/chewable tablets) newly approved during the period.

As a broad-spectrum antiviral drug, Qixiao is mainly used for the treatment of viral infections represented by influenza. With its good clinical efficacy and outstanding performance in the treatment of novel coronavirus pneumonia, arbidol has been included into the national "Guidelines for Diagnosis and Treatment of Influenza" and "Guidelines for Diagnosis and Treatment of Novel Coronavirus Pneumonia". The Group will increase efforts in medical research on Qixiao in various therapeutic areas, establish evidence of efficacy comparable to oseltamivir and actively promote clinical applications of the product in emergency, pediatrics, respiratory and infection departments. Driven by the pandemic outbreak, Qixiao achieved rapid sales volume ramp-up and satisfactory sales revenue in the first half of the year.

In the first half of 2020, respiratory disease products recorded sales of RMB256 million, representing a year-on-year increase of 50.4%.

Interim Report 2020

9

Diabetes products

Major products include Linmeixin（林美欣）(glimepiride dispersible tablets) and Shuanglexin （雙樂欣）(metformin hydrochloride tablets/extended-release tablets). In addition, acarbose tablets has been approved in the first half of this year. It is expected to enter the market quickly through the existing strong OTC coverage of the Group and bring new growth driver to this therapeutic area. In the first half of 2020, diabetes products recorded sales of RMB173 million, representing a year-on-year increase of 32.6%.

Products in other therapeutic areas

Major products include Gubang（固邦）(alendronate sodium tablets/enteric tablets), Debixin/ Ouyi（得必欣╱歐意）(omeprazole enteric capsules), Xianpai（先派）(omeprazole injections) and Qimaite（奇邁特）(tramadol hydrochloride tablets). In the first half of 2020, products in other therapeutic areas recorded sales of RMB387 million, representing a year-on-year increase of 12.9%.

Vitamin C Business

In the first half of 2020, the business recorded sales revenue of RMB1,005 million, representing a year-on-year decrease of 13.2%. Driven by the pandemic, product prices increased in the second quarter and export volume reached a record high. However, following the slow-down of demand in the export market, product prices have currently seen a rapid decline. It is expected that the business will face a greater market pressure in the second half of the year. The Group will ensure a steady development of the business through measures such as continuous improvement of product qualities, cost cutting and expenses reduction, focusing on the development of untapped market and optimizing the proportion of end-user customers.

Antibiotics Business

In the first half of 2020, the business recorded sales revenue of RMB478 million, representing a year-on-year decrease of 10.0%. The market demand and product prices have remained at a low level as a result of the policy of restricting the use of antibiotics over the years. However, due to the pandemic outbreak, the demand from the export market increased in the second quarter. The Group will keep improving product qualities, accelerating accreditation in the high-end market, developing end-user customers as well as making use of the product chain advantage.

10 CSPC PHARMACEUTICAL GROUP LIMITED

Other Businesses

In the first half of 2020, the business recorded sales revenue of RMB876 million, representing a year-on-year increase of 21.1%. The functional food business (including caffeine additives and vitamin supplements) maintained a steady growth. The competition in the caffeine market has intensified due to entrant of new participant. The Group will continue to maintain a steady growth of the results through technology upgrade, cost reduction and market development.

Research and Development

The Group has a leading R&D team of more than 2,000 people in China with over 200 talents with doctorate or overseas experience. Research and development bases are located in Shijiazhuang, Shanghai, Beijing and the United States, focusing on the discovery, research and development of small molecule target drugs, nano-drugs, monoclonal antibody drugs, bispecific antibody drugs, antibody-drug conjugates and biological drugs in the immune field.

The Group firmly believes in the importance of investing in research and development so that the Group can have strong product and technology innovation capability as well as a rich pipeline of drugs under development. The R&D expenses for the period amounted to RMB1,452 million (charged to profit or loss statement), representing a year-on-year increase of 54.2% and accounting for approximately 14.2% of the finished drug business revenue. At present, there are more than 300 projects in the pipeline, of which over 40 are innovative small molecule drugs, over 50 are innovative macromolecule drugs and over 20 are drugs of new preparation, primarily focusing on the therapeutic areas of oncology, autoimmunity, psychiatry and neurology, digestion and metabolism, cardio- cerebrovascular system and anti-infectives.

Currently, there are 25 drug candidates pending drug registration approvals, 42 products under clinical trials (including 31 innovative drugs and 11 new preparations), 9 products under bioequivalence tests and 7 products pending clinical trial approvals (6 in China and 1 in the U.S.).

Interim Report 2020

11

The major products under development of the Group are as follows:

Therapeutic Area

Product under Development

Oncology

Duvelisib capsules

SKLB1028 capsules

HA121-28 tablets

SYHA1801 capsules

SYHA1807 capsules

Simmitinib hydrochloride tablets

SYHA1803 capsules

JMT103

SYSA1802

DP303c

JMT101

M802*

M701*

ALMB0168

Y150(CD38/CD3)*

Mitoxantrone hydrochloride

liposome injection

Docetaxel for injection (albumin-

Paclitaxel cationic liposome for

bound)

injection

Irinotecan liposome injection

Anti-infectives

Baicalein tablets

Amphotericin B liposome for

injection

Amphotericin B cholesteryl

sulfate complex for injection

Digestion &

DBPR108 tablets

SYHA1402 tablets

Metabolism

SYHA1805 tablets

SYSA1803(TG103)

Psychiatry & Neurology

Butylphthalide soft capsules

ALMB0166

Ammuxetine hydrochloride

Propofol medium and long chain

enteric tablets

fat emulsion injection

Cardio-cerebrovascular

SYHA136 tablets

Alprostadil liposome for injection

Immunity System

Omalizumab

Ustekinumab biosimilar

NR18006

Toll-like receptor agonist

liposome

Others

CSPCHA115 capsules

JMT103

Aprepitant injectable emulsions

*  Product developed by Wuhan YZY Biopharma Co. Ltd.

12 CSPC PHARMACEUTICAL GROUP LIMITED

The Group's R&D innovation capabilities and projects have received great support from the government. The projects receiving government funding support since the beginning of this year include: 16 major scientific and technological projects for the "13th Five- Year" major new drug innovation projects, 10 scientific and technological plan projects in Hebei Province, 8 scientific and technological plan projects in Shijiazhuang City and a number of high-tech zone policy support projects. In the first half year, government funding received amounted to approximately RMB60 million.

The Group also attaches great importance to the protection of intellectual property rights and actively files patent applications for its research and development projects. Since the beginning of the year, the Group has filed 102 patent applications (70 domestic and 32 overseas) and received 54 authorisations (43 domestic and 11 overseas).

In the three years ahead, the Group is expected to launch more than 50 new products, over 15 of which will be key products with a market potential exceeding RMB1 billion each, providing strong support for the high quality growth of the Group in the future.

Financial Review

Results

For the six months

ended 30 June

2020

2019

Change

RMB'000

RMB'000

(unaudited)

(unaudited)

Revenue:

Finished drugs

10,231,025

8,766,117

+16.7%

Vitamin C

1,004,964

1,157,854

-13.2%

Antibiotics

478,020

531,272

-10.0%

Others

875,588

722,753

+21.1%

Total

12,589,597

11,177,996

+12.6%

Operating profit

2,618,639

2,339,895

+11.9%

Operating profit margin

20.8%

20.9%

Profit attributable to shareholders

2,313,996

1,878,284

+23.2%

Finished drug business is the major growth driver to the Group, with sales increasing by 16.7% to RMB10,231 million in the current period. Key products such as NBP, Xuanning, Duomeisu, Jinyouli and Keaili continued to maintain robust growth.

Interim Report 2020

13

Operating profit margin slightly decreased from 20.9% in the first half of 2019 to 20.8% in the current period. It is the mixed results of the following factors: (i) higher proportion of sales from key finished drug products which have a higher profit margin; (ii) higher selling expense to revenue ratio of the finished drug business in the current period resulting from the Group's increased efforts in market development; (iii) higher ratio of research and development expense to revenue of finished drug business; and (iv) lower average selling prices of Vitamin C products as compared with the same period of last year.

Selling and Distribution Expenses

Selling and distribution expenses amounted to RMB4,876 million for the current period as compared to RMB4,227 million in the corresponding period last year. The increase in selling and distribution expenses was primarily attributable to (i) continued expansion of sales force of the finished drug business; (ii) increased efforts in marketing and academic promotion for key and newly launched finished drug products.

Administrative Expenses

Administrative expenses amounted to RMB561 million in the current period as compared to RMB383 million in the corresponding period last year. The increase in administrative expenses was primarily attributable to the expansion of the scale of operation of the Group and the administrative function.

Research and Development Expenses

R&D expenses amounted to RMB1,452 million in the current period as compared to RMB942 million in the corresponding period last year. The increase in R&D expenses was primarily attributable to (i) increased number of drug candidates under development;

  1. increased spending on ongoing and newly initiated clinical trials; and (iii) increased spending on quality and efficacy consistency evaluation of generic drugs.

Liquidity and Financial Position

For the first half of 2020, the Group's operating activities generated a cash inflow of RMB2,429 million (first half of 2019: RMB1,599 million). Average turnover period of trade receivables (ratio of balance of trade receivables to sales, inclusive of value added tax for sales in China) increased from 35 days in 2019 to 39 days in the current period. Average turnover period of inventories (ratio of balance of inventories to cost of sales) decreased from 149 days in 2019 to 121 days in the current period. Current ratio of the Group was

2.1 as at 30 June 2020, slightly lower than 2.2 half year ago. Capital expenditure for the current period amounted to RMB746 million, which were mainly spent to construct production capacities and improve production efficiency.

14 CSPC PHARMACEUTICAL GROUP LIMITED

The Group's financial position remained solid. As at 30 June 2020, the Group's bank balances and cash amounted to RMB5,948 million (31.12.2019: RMB4,118 million); structured bank deposits amounted to RMB1,536 million (31.12.2019: RMB1,838 million); and bank borrowings amounted to RMB99 million (31.12.2019: RMB23 million).

All of the Group's borrowings are denominated in Renminbi. The Group's sales revenue are denominated in Renminbi for domestic sales in China and in US dollars for export sales. The Group manages its foreign exchange risks by closely monitoring its foreign exchange exposures and mitigating the impact of foreign currency fluctuations by using appropriate hedging arrangements when considered necessary.

Pledge of Assets

As at 30 June 2020, restricted bank deposits and structured bank deposits of RMB118 million (31.12.2019: RMB195 million) in total have been pledged to secure certain banking facilities of the Group.

Employees

As at 30 June 2020, the Group had approximately 17,292 employees. The majority of them are employed in mainland China. The Group will continue to offer competitive remuneration packages, share options, share awards and bonuses to staff based on the performance of the Group and individual employee.

Interim Report 2020

15

REPORT ON REVIEW OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

TO THE BOARD OF DIRECTORS OF

CSPC PHARMACEUTICAL GROUP LIMITED 石藥集團有限公司

(incorporated in Hong Kong with limited liability)

Introduction

We have reviewed the condensed consolidated financial statements of CSPC Pharmaceutical Group Limited (the "Company") and its subsidiaries (collectively referred to as the "Group") set out on pages 18 to 54, which comprise the condensed consolidated statement of financial position as of 30 June 2020 and the related condensed consolidated statement of profit or loss, condensed consolidated statement of profit or loss and other comprehensive income, condensed consolidated statement of changes in equity and statement of cash flows for the six-month period then ended, and certain explanatory notes. The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited require the preparation of a report on interim financial information to be in compliance with the relevant provisions thereof and Hong Kong Accounting Standard 34 "Interim Financial Reporting" ("HKAS 34") issued by the Hong Kong Institute of Certified Public Accountants. The directors of the Company are responsible for the preparation and presentation of these condensed consolidated financial statements in accordance with HKAS 34. Our responsibility is to express a conclusion on these condensed consolidated financial statements based on our review, and to report our conclusion solely to you, as a body, in accordance with our agreed terms of engagement, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

Scope of Review

We conducted our review in accordance with Hong Kong Standard on Review Engagements 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Hong Kong Institute of Certified Public Accountants. A review of these condensed consolidated financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

16 CSPC PHARMACEUTICAL GROUP LIMITED

REPORT ON REVIEW OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated financial statements are not prepared, in all material respects, in accordance with HKAS 34.

Deloitte Touche Tohmatsu

Certified Public Accountants

Hong Kong

26 August 2020

Interim Report 2020

17

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS

For the six months ended 30 June 2020

For the six months

ended 30 June

NOTES

2020

2019

RMB'000

RMB'000

(Unaudited)

(Unaudited)

Revenue

3

12,589,597

11,177,996

Cost of sales

(3,152,244)

(3,365,385)

Gross profit

9,437,353

7,812,611

Other income

90,401

73,300

Other gains or losses

10,558

25,758

Selling and distribution expenses

(4,875,740)

(4,227,175)

Administrative expenses

(561,288)

(383,206)

Research and development expenses

(1,452,498)

(941,694)

Other expenses

(30,147)

(19,699)

Operating profit

2,618,639

2,339,895

Finance costs

(5,549)

(26,908)

Share of results of associates

(9,942)

-

Share of results of joint ventures

16,736

24,573

Gain on disposal of subsidiaries

28a

314,901

-

Loss on deemed disposal of a subsidiary

28b

(19,038)

-

Profit before tax

4

2,915,747

2,337,560

Income tax expense

5

(565,273)

(449,293)

Profit for the period

2,350,474

1,888,267

Profit for the period attributable to:

2,313,996

Owners of the Company

1,878,284

Non-controlling interests

36,478

9,983

2,350,474

1,888,267

RMB cents

RMB cents

(Unaudited)

(Unaudited)

(Restated)

Earnings per share

7

30.97

- Basic

25.11

- Diluted

30.96

25.11

18 CSPC PHARMACEUTICAL GROUP LIMITED

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the six months ended 30 June 2020

For the six months

ended 30 June

2020

2019

RMB'000

RMB'000

(Unaudited)

(Unaudited)

Profit for the period

2,350,474

1,888,267

Other comprehensive income:

Item that will not be reclassified to profit or

loss:

Fair value gain on investments in financial

assets measured at fair value through other

comprehensive income, net of income tax

323,429

9,030

Item that may be reclassified subsequently to

profit or loss:

Exchange differences on translation of foreign

operations

(1,471)

(5,127)

Other comprehensive income for the period, net of

income tax

321,958

3,903

Total comprehensive income for the period

2,672,432

1,892,170

Total comprehensive income for the period

attributable to:

Owners of the Company

2,635,954

1,882,187

Non-controlling interests

36,478

9,983

2,672,432

1,892,170

Interim Report 2020

19

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 June 2020

As at

As at

30 June

31 December

NOTES

2020

2019

RMB'000

RMB'000

(Unaudited)

(Audited)

Non-current assets

7,912,649

Property, plant and equipment

8

8,459,176

Right-of-use assets

9

1,097,808

823,202

Goodwill

149,983

188,964

Other intangible assets

10

508,740

1,135,662

Interests in associates

472,423

231,135

Interests in joint ventures

243,437

176,639

Amount due from an associate

24,731

-

Amounts due from joint ventures

15

708,931

150,432

Financial assets measured at fair value

1,417,938

through other comprehensive income

11

1,077,932

Deferred tax assets

30,012

34,843

Deposits

13

110,370

343,380

12,677,022

12,621,365

Current assets

2,103,449

Inventories

2,535,743

Trade receivables

12

2,907,951

2,258,844

Deposits, prepayments and other

986,871

receivables

13

567,252

Bills receivables

14

2,665,871

1,993,083

Trade receivables due from related

99,324

companies

15

140,183

Amounts due from joint ventures

15

172,151

58,628

Other financial assets

387

536

Structured bank deposits

16

1,536,176

1,838,159

Restricted bank deposits

17

69,489

186,293

Bank balances and cash

17

5,948,368

4,118,236

16,490,037

13,696,957

20 CSPC PHARMACEUTICAL GROUP LIMITED

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Continued)

As at 30 June 2020

As at

As at

30 June

31 December

NOTES

2020

2019

RMB'000

RMB'000

(Unaudited)

(Audited)

Current liabilities

1,169,971

Trade payables

18

1,110,883

Other payables

19

5,544,761

3,691,652

Contract liabilities

197,580

503,755

Bills payables

20

397,075

316,137

Contingent consideration payable

19,013

18,130

Amounts due to related companies

15

25,938

10,854

Amount due to an associate

15

64,627

124,627

Amount due to a joint venture

15

33,511

104,678

Lease liabilities

81,779

74,235

Tax liabilities

270,856

258,823

Borrowing

21

99,000

23,000

7,904,111

6,236,774

Net current assets

8,585,926

7,460,183

Total assets less current liabilities

21,262,948

20,081,548

Non-current liabilities

155,519

Other payables

19

154,733

Contingent consideration payable

-

13,923

Lease liabilities

108,570

90,300

Deferred tax liabilities

293,334

304,427

557,423

563,383

Net assets

20,705,525

19,518,165

Capital and reserves

10,899,412

Share capital

22

10,899,412

Reserves

9,068,566

7,562,311

Equity attributable to owners of the

19,967,978

Company

18,461,723

Non-controlling interests

737,547

1,056,442

Total equity

20,705,525

19,518,165

Interim Report 2020

21

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2020

Equity attributable to owners of the Company

Treasury

Share

Capital

Investments

Non-

Share

share

awards

Other

Statutory

contribution

revaluation

Translation

Accumulated

controlling

capital

reserve

reserve

reserve

reserves

reserve

reserve

reserve

profits

Sub-total

interests

Total

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

(note i)

(note ii)

(note iii)

At 1 January 2019 (Audited)

10,899,412

-

-

(4,689,903)

1,495,111

46,794

53,423

(2,403)

7,249,826

15,052,260

477,340

15,529,600

Profit for the period

-

-

-

-

-

-

-

-

1,878,284

1,878,284

9,983

1,888,267

Other comprehensive income for

the period, net of income tax

-

-

-

-

-

-

9,030

(5,127)

-

3,903

-

3,903

Dividends recognised as

distribution (note 6)

-

-

-

-

-

-

-

-

(965,385)

(965,385)

-

(965,385)

Dividends paid to non-controlling

interests

-

-

-

-

-

-

-

-

-

-

(2,000)

(2,000)

Recognition of equity-settled share

based payments

-

-

3,198

-

-

-

-

-

-

3,198

-

3,198

Purchase of shares under share

award scheme (note 23)

-

(100,706)

-

-

-

-

-

-

-

(100,706)

-

(100,706)

Transfer to statutory reserves

-

-

-

-

637,112

-

-

-

(637,112)

-

-

-

Disposal of investments in equity

investments at fair value through

other comprehensive income

-

-

-

-

-

-

(511)

-

511

-

-

-

Capital contribution from non-

controlling interests

-

-

-

-

-

-

-

-

-

-

8,150

8,150

Dilution of interests in a subsidiary

-

-

-

595,003

-

-

-

-

-

595,003

547,406

1,142,409

(note iv)

At 30 June 2019 (Unaudited)

10,899,412

(100,706)

3,198

(4,094,900)

2,132,223

46,794

61,942

(7,530)

7,526,124

16,466,557

1,040,879

17,507,436

At 1 January 2020 (Audited)

10,899,412

(100,706)

6,721

(4,094,900)

1,789,312

46,794

237,134

(26,906)

9,704,862

18,461,723

1,056,442

19,518,165

Profit for the period

-

-

-

-

-

-

-

-

2,313,996

2,313,996

36,478

2,350,474

Other comprehensive income for

-

-

-

-

-

-

323,429

(1,471)

-

321,958

-

321,958

the period, net of income tax

Dividend recognised as

-

-

-

-

-

-

-

-

(1,133,194)

(1,133,194)

-

(1,133,194)

distribution (note 6)

Dividends paid to non-controlling

-

-

-

-

-

-

-

-

-

-

(7,000)

(7,000)

interests

Recognition of equity-settled share

-

-

3,495

-

-

-

-

-

-

3,495

-

3,495

based payments

Transfer to statutory reserves

-

-

-

-

20,991

-

-

-

(20,991)

-

-

-

Disposal of subsidiaries (note 28)

-

-

-

-

-

-

-

-

-

-

(1,756)

(1,756)

Deemed disposal of a subsidiary

-

-

-

-

-

-

-

-

-

-

(346,617)

(346,617)

(note 28)

At 30 June 2020 (Unaudited)

10,899,412

(100,706)

10,216

(4,094,900)

1,810,303

46,794

560,563

(28,377)

10,864,673

19,967,978

737,547

20,705,525

22 CSPC PHARMACEUTICAL GROUP LIMITED

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Continued)

For the six months ended 30 June 2020

Notes:

  1. The balance in other reserve at 1 January 2019 mainly included an amount of RMB4,030,633,000 which represents the difference between the fair value of the deemed consideration under the reverse acquisition of RMB2,631,198,000 and the fair value of the consideration paid by the Company of RMB6,661,831,000 in the reverse acquisition on 29 October 2012.
  2. The statutory reserves were appropriated from the profit after tax of the Company's subsidiaries in the People's Republic of China (the "PRC") under the laws and regulations of the PRC.
  3. The balance in capital contribution reserve mainly included the deemed contribution by CSPC Holdings Company Limited ("CHL"), a related company as defined in note 15, which comprise
    1. the difference between the carrying amount of the net assets of entities comprising Robust Sun Holdings Limited ("Robust Sun") and its subsidiaries (collectively referred to as the "Robust Sun Group") and the consideration paid to CHL and its subsidiaries during group reorganisation under Robust Sun Group in 2012; (2) the imputed interest arising on a non- interest bearing loan from CHL in 2012 and (3) deemed capital contribution arising from the acquisition of CSPC Shengxue Glucose Co. Ltd. from CHL in 2016.
  5. CSPC Innovation Pharmaceutical Co., Ltd. ("CSPC XNW"), an indirect wholly-owned subsidiary of the Company as at 31 December 2018, listed its shares on the Shenzhen Stock Exchange with effect from 22 March 2019. On the same date, 50,000,000 ordinary shares of CSPC XNW with a par value of RMB1.00 each were issued by way of public offering and placing (the "Share Offer"). The net proceeds received by CSPC XNW, after deducting the expenses relating to the Share Offer, was RMB1,142,409,000. The Group's percentage of equity interest in CSPC XNW and its subsidiaries (collectively referred to as the "XNW Group") was then diluted from 100% to 75% upon completion of the Share Offer. The difference between the share of net assets of XNW Group by the non-controlling interests and the net proceeds from the Share Offer of RMB595,003,000 was recognised in other reserve.

Interim Report 2020

23

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months ended 30 June 2020

For the six months

ended 30 June

NOTES

2020

2019

RMB'000

RMB'000

(Unaudited)

(Unaudited)

Net cash from operating activities

2,428,998

1,598,511

Net cash used in investing activities:

Purchase of property, plant and

equipment

(839,961)

(1,304,328)

Disposal of subsidiaries

28a

(591,503)

9,075

Payments for right-of-use assets

(195,278)

(6,211)

Purchase of financial assets measured

at fair value through other

comprehensive income

(108,444)

(215,462)

Investment in an associate

(60,000)

-

Payment of contingent consideration

(18,130)

(12,374)

Advance to an associate

(16,500)

-

Purchase of intangible assets

(11,046)

(119)

Deemed disposal of a subsidiary

28b

(9,753)

-

Advances to joint ventures

(606)

(17,608)

Acquisition of subsidiaries and assets

27

-

(367,291)

Placement of restricted bank deposits

-

(10,000)

Deposits paid for acquisition of

property, plant and equipment

-

(10,000)

Repayment from joint ventures

548,600

-

Withdrawal of structured bank deposits

333,246

980,706

Distributions received from financial

assets measured at fair value through

other comprehensive income

136,660

16,977

Withdrawal of restricted bank deposits

59,282

-

Interest received

26,449

38,060

Receipt of government grants related

to acquisition of property, plant and

equipment

13,821

6,894

Proceeds on disposal of property, plant

and equipment

963

82,923

(732,200)

(808,758)

24 CSPC PHARMACEUTICAL GROUP LIMITED

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)

For the six months ended 30 June 2020

For the six months

ended 30 June

2020

2019

RMB'000

RMB'000

(Unaudited)

(Unaudited)

Net cash from (used in) financing activities:

Payment of lease liabilities

(44,635)

(31,386)

Dividends paid to non-controlling

interests

(7,000)

(2,000)

Settlement of bills payables

-

(1,134,357)

Dividends paid

-

(958,326)

Purchase of shares under the share

award scheme

-

(100,706)

Listing expenses from the Share Offer

of CSPC XNW

-

(81,091)

Repayment of borrowings

-

(20,589)

Repayment to related parties

-

(8,240)

New borrowings raised

169,000

10,000

Advance from related parties

15,084

-

Proceeds from the Share Offer of CSPC

XNW

-

1,223,500

Capital injection from non-controlling

interests

-

8,150

132,449

(1,095,045)

Net increase (decrease) in cash and cash

equivalents

1,829,247

(305,292)

Cash and cash equivalents at 1 January

4,118,236

4,335,613

Effect of foreign exchange rate changes

885

1,154

Cash and cash equivalents at 30 June,

represented by bank balances and cash

5,948,368

4,031,475

Interim Report 2020

25

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June 2020

1. BASIS OF PREPARATION

CSPC Pharmaceutical Group Limited (the "Company") is a public limited company incorporated in Hong Kong and its shares are listed on the Stock Exchange.

The condensed consolidated financial statements have been prepared in accordance with Hong Kong Accounting Standard ("HKAS") 34 "Interim Financial Reporting" issued by the Hong Kong Institute of Certified Public Accountants (the "HKICPA") as well as with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on the Stock Exchange.

The financial information relating to the year ended 31 December 2019 that is included in these condensed consolidated financial statements as comparative information does not constitute the Company's statutory annual consolidated financial statements for that year but is derived from those financial statements. Further information relating to these statutory financial statements is as follows:

The Company has delivered the financial statements for the year ended 31 December 2019 to the Registrar of Companies as required by section 662(3) of and Part 3 of Schedule 6 to the Hong Kong Companies Ordinance.

The Company's auditor has reported on those financial statements. The auditor's report was unqualified; did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying its report; and did not contain a statement under sections 406(2), 407(2) or (3) of the Hong Kong Companies Ordinance.

Significant event and transaction in the current interim period

On 9 January 2018, the Group acquired 39.56% equity interest of Wuhan YZY Biopharma Co., Ltd. ("YZY Biopharma"). As a result of a contractual arrangement with certain shareholders of YZY Biopharma (the "Agreement"), the Group was given the power to control the majority of the votes in shareholders' and board of directors' meetings of YZY Biopharma that direct the relevant activities of YZY Biopharma. After assessment, the Directors considered that the Group had obtained control over YZY Biopharma upon acquisition and YZY Biopharma was accounted for as a subsidiary.

On 1 April 2020, the Group and the other shareholders entered into an agreement to cancel the Agreement after considering the future development plan of YZY Biopharma. Based on the assessment of facts and circumstances, the Directors considered that the Group has lost control over YZY Biopharma on 1 April 2020. As such, YZY Biopharma became an associate of the Group with effect from the same date and has since been accounted for using the equity method of accounting. Disclosure on the deemed disposal has been made in note 28(b).

26 CSPC PHARMACEUTICAL GROUP LIMITED

2. PRINCIPAL ACCOUNTING POLICIES

The condensed consolidated financial statements have been prepared on the historical cost basis, except for certain financial instruments, which are measured at fair values, as appropriate.

Other than changes in accounting policies resulting from application of amendments to Hong Kong Financial Reporting Standards ("HKFRSs"), the accounting policies and methods of computation used in the condensed consolidated financial statements for the six months ended 30 June 2020 are the same as those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2019.

Application of amendments to HKFRSs

In the current interim period, the Group has applied the Amendments to References to the Conceptual Framework in HKFRS Standards and the following amendments to HKFRSs issued by the HKICPA, for the first time, which are mandatorily effective for the annual period beginning on or after 1 January 2020 for the preparation of the Group's condensed consolidated financial statements:

Amendments to HKAS 1 and HKAS 8

Definition of Material

Amendments to HKFRS

3

Definition of a Business

Amendments to HKFRS

9, HKAS 39 and HKFRS 7

Interest Rate Benchmark Reform

The application of the Amendments to Reference to the Conceptual Framework in HKFRS Standards and the amendments to HKFRSs in the current period has had no material impact on the Group's financial positions and performance for the current and prior periods and/on the disclosures set out in these condensed consolidated financial statements.

3. REVENUE AND SEGMENT INFORMATION

Information reported to the board of directors (the "Board"), being the chief operating decision maker ("CODM"), for the purpose of resources allocation and assessment of segment performance focuses on types of goods delivered.

The Group's reportable segments under HKFRS 8 Operating Segments are as follows:

  1. Finished drugs - research and development, manufacture and sale of pharmaceutical products;
  2. Vitamin C - manufacture and sale of vitamin C products in bulk form;
  3. Antibiotics - manufacture and sale of antibiotic products in bulk form; and
  4. Others - manufacture and sale of functional food products (including caffeine additives and vitamin supplements), glucose products and provision of healthcare services.

Interim Report 2020

27

3. REVENUE AND SEGMENT INFORMATION (Continued)

Revenue is recognised at a point of time upon control of the goods has transferred, being when the goods have been delivered to the customer's specific location. Following delivery, the customer bears the risks of obsolescence and loss in relation to the goods.

The following is an analysis of the Group's revenue and results by operating and reportable segments.

For the six months ended 30 June 2020 (Unaudited)

Finished

Segment

drugs

Vitamin C

Antibiotics

Others

total

Eliminations

Consolidated

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

SEGMENT REVENUE

External sales

10,231,025

1,004,964

478,020

875,588

12,589,597

-

12,589,597

Inter-segment sales

-

3,263

81,682

8,108

93,053

(93,053)

-

TOTAL REVENUE

10,231,025

1,008,227

559,702

883,696

12,682,650

(93,053)

12,589,597

SEGMENT PROFIT

2,188,973

204,562

52,321

195,558

2,641,414

Unallocated income

73,249

Unallocated expenses

(96,024)

Operating profit

2,618,639

Finance costs

(5,549)

Share of results of

associates

(9,942)

Share of results of joint

ventures

16,736

Gain on disposal of

subsidiaries

314,901

Loss on deemed disposal of

a subsidiary

(19,038)

Profit before tax

2,915,747

28 CSPC PHARMACEUTICAL GROUP LIMITED

3. REVENUE AND SEGMENT INFORMATION (Continued) For the six months ended 30 June 2019 (Unaudited)

Finished

Segment

drugs

Vitamin C

Antibiotics

Others

total

Eliminations

Consolidated

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

SEGMENT REVENUE

External sales

8,766,117

1,157,854

531,272

722,753

11,177,996

-

11,177,996

Inter-segment sales

-

2,910

45,155

2,245

50,310

(50,310)

-

TOTAL REVENUE

8,766,117

1,160,764

576,427

724,998

11,228,306

(50,310)

11,177,996

SEGMENT PROFIT

1,865,211

299,561

29,614

127,196

2,321,582

Unallocated income

85,941

Unallocated expenses

(67,628)

Operating profit

2,339,895

Finance costs

(26,908)

Share of results of joint

ventures

24,573

Profit before tax

2,337,560

Segment profit represents the profit earned by each segment without allocation of interest income, fair value changes on structured bank deposits, finance costs, central administrative expenses, share of results of associates, share of results of joint ventures, gain on disposal of subsidiaries and loss on deemed disposal of a subsidiary. This is the measure reported to the CODM for the purposes of resources allocation and performance assessment.

Inter-segment sales are charged at prevailing market rates.

Segment assets and liabilities are not regularly provided to the CODM for review.

Interim Report 2020

29

4. PROFIT BEFORE TAX

For the six months

ended 30 June

20202019

RMB'000 RMB'000

(Unaudited) (Unaudited)

Profit before tax has been arrived at after charging

(crediting):

Depreciation of property, plant and equipment

331,595

288,967

Depreciation of right-of-use assets

51,069

37,995

Amortisation of other intangible assets

6,387

10,631

Total depreciation and amortisation

389,051

337,593

Fair value gain on structured bank deposits (included

in other gains or losses)

(31,263)

(48,087)

Government grant income (included in other income)

(36,169)

(30,686)

Impairment losses recognised (reversed) under

expected credit loss model (included in other gains

or losses)

30,222

(1,759)

Interest income on bank balances (included in other

income)

(26,449)

(37,854)

Loss on disposal of property, plant and equipment

(included in other gains or losses)

4,195

5,531

Net foreign exchange (gain) loss (included in other

gains or losses)

(14,111)

6,429

Note: For the six months ended 30 June 2019 and 2020, cost of inventories recognised as an expense approximated cost of sales as shown in the condensed consolidated statement of profit or loss and other comprehensive income.

30 CSPC PHARMACEUTICAL GROUP LIMITED

5.

INCOME TAX EXPENSE

For the six months

ended 30 June

2020

2019

RMB'000

RMB'000

(Unaudited)

(Unaudited)

The tax charge comprises:

Current taxation

- PRC Enterprise Income Tax

511,374

406,430

- United States of America ("USA") Federal and

State Income Tax

8,008

1,984

519,382

408,414

Deferred taxation

45,891

40,879

565,273

449,293

The calculation of Hong Kong Profits Tax for the Company and its subsidiaries incorporated in Hong Kong is based on the prevailing tax rates in Hong Kong. No Hong Kong Profits Tax has been recognised as the Company and its subsidiaries incorporated in Hong Kong had no assessable profits for both periods.

The basic tax rate of the Company's PRC subsidiaries is 25% under the Law of the PRC on Enterprise Income Tax (the "EIT Law") and implementation regulations of the EIT Law. Certain subsidiaries of the Company are qualified as advanced technology enterprises and have obtained approvals from the relevant tax authorities for the applicable tax rate reduced to 15% for a period of 3 years up to 2020.

The calculation of USA Federal and State Income Tax is based on the prevailing tax rates in the USA.

Under the EIT Law of the PRC, withholding tax is imposed on dividends distributed in respect of profits earned by the PRC subsidiaries from 1 January 2008 onwards. PRC withholding tax is applicable to dividends payable to investors that are "non-PRC tax resident enterprises", which do not have an establishment or place of business in the PRC, or which have such establishment or place of business but the relevant income is not effectively connected with the establishment or place of business, to the extent such dividends have their sources within the PRC. Under such circumstances, dividends distributed from the PRC subsidiaries in respect of profits earned from 1 January 2008 onwards to non-PRC tax resident entities shall be subject to the withholding income tax at 10% or a lower tax rate, if applicable.

Interim Report 2020

31

  1. INCOME TAX EXPENSE (Continued)
    Deferred tax liabilities of RMB200,730,000 (31 December 2019: RMB160,124,000) has been provided for in the condensed consolidated financial statements in respect of temporary differences attributable to accumulated profits of the PRC subsidiaries amounting to approximately RMB4,014,600,000 (31 December 2019: 3,202,480,000). Deferred taxation has not been provided for the remaining accumulated profits of the PRC subsidiaries amounting to approximately RMB8,696,950,000 (31 December 2019: RMB6,879,928,000) as the Group is able to control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future.
  2. DIVIDENDS
    1. Interim dividend
      The Board has declared the payment of an interim dividend of HK6 cents per share for 2020 amounting to HK$449,016,000 (2019: Nil) after the end of the reporting period, which has not been recognised as a liability at the end of the reporting period.
    2. Final dividend approved during the reporting period

For the six months

ended 30 June

2020

2019

RMB'000

RMB'000

(Unaudited)

(Unaudited)

2019 final dividend of HK20 cents (equivalent

to RMB18.2 cents) (2019: 2018 final

dividend of HK18 cents (equivalent to

RMB15.5 cents)) per share

1,135,014

966,935

Less: Dividend for shares held by share award

scheme

(1,820)

(1,550)

1,133,194

965,385

The 2019 final dividend, which was paid on 3 July 2020, has been recognised as a liability at the end of the reporting period. The 2018 final dividend was paid during the six months ended 30 June 2019.

32 CSPC PHARMACEUTICAL GROUP LIMITED

7. EARNINGS PER SHARE

The calculation of the basic and diluted earnings per share attributable to the owners of the Company is based on the following data:

For the six months

ended 30 June

2020

2019

RMB'000

RMB'000

(Unaudited)

(Unaudited)

Earnings

Earnings for the purposes of basic and diluted

earnings per share

2,313,996

1,878,284

For the six months

ended 30 June

2020

2019

'000

'000

(Restated)

Number of shares

Weighted average number of ordinary shares for the

purpose of basic earnings per share

7,471,606

7,480,123

Effect of dilutive potential ordinary shares:

Unvested shares under share award scheme

1,711

425

Weighted average number of ordinary shares for the

purpose of diluted earnings per share

7,473,317

7,480,548

The weighted average number of ordinary shares for the calculation of basic earnings per share has been adjusted for the effects of the bonus issue that took place on 3 July 2020 and the shares held by the trustee pursuant to the share award scheme.

Interim Report 2020

33

8.

PROPERTY, PLANT AND EQUIPMENT

For the six months

ended 30 June

2020

2019

RMB'000

RMB'000

(Unaudited)

(Unaudited)

At beginning of the period:

Cost

11,749,281

9,495,941

Accumulated depreciation

(3,290,105)

(2,803,721)

Net carrying amount

8,459,176

6,692,220

At beginning of the period, net of accumulated

depreciation

8,459,176

6,692,220

Additions

746,121

1,212,929

Acquisition of subsidiaries and assets

-

196,043

Disposals

(5,158)

(88,454)

Disposal of subsidiaries

(879,921)

(4,020)

Deemed disposal of a subsidiary

(77,170)

-

Depreciation provided during the period

(331,595)

(288,967)

Exchange adjustments

1,196

574

At end of the period, net of accumulated

depreciation

7,912,649

7,720,325

At end of the period:

Cost

10,890,777

10,469,088

Accumulated depreciation

(2,978,128)

(2,748,763)

Net carrying amount

7,912,649

7,720,325

9.

Right-of-use Assets

For the six months

ended 30 June

2020

2019

RMB'000

RMB'000

(Unaudited)

(Unaudited)

CARRYING VALUES

At beginning of the period

823,202

723,977

Additions

483,914

105,851

Acquisition of subsidiaries and assets

-

68,703

Disposal of subsidiaries

(149,418)

(10,645)

Deemed disposal of a subsidiary

(9,711)

-

Depreciation provided during the period

(51,069)

(37,995)

Exchange adjustments

890

(476)

At end of the period

1,097,808

849,415

34 CSPC PHARMACEUTICAL GROUP LIMITED

10. OTHER INTANGIBLE ASSETS

For the six months

ended 30 June

2020

2019

RMB'000

RMB'000

(Unaudited)

(Unaudited)

At beginning of the period:

Cost

1,306,363

959,565

Accumulated amortisation

(170,701)

(152,579)

Net carrying amount

1,135,662

806,986

At beginning of the period, net of accumulated

amortisation

1,135,662

806,986

Additions

11,046

119

Acquisition of subsidiaries

-

280,048

Deemed disposal of a subsidiary

(631,906)

-

Amortisation provided during the period

(6,387)

(10,631)

Exchange adjustments

325

196

At end of the period, net of accumulated

amortisation

508,740

1,076,718

At end of the period:

Cost

685,428

1,243,090

Accumulated amortisation

(176,688)

(166,372)

Net carrying amount

508,740

1,076,718

Interim Report 2020

35

11. FINANCIAL ASSETS MEASURED AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME ("FVTOCI")

As at

As at

30 June

31 December

2020

2019

RMB'000

RMB'000

(unaudited)

(audited)

Listed equity investments (note i)

40,530

42,120

Unlisted equity investments in partnerships (note ii)

910,595

603,290

Unlisted equity investments (note iii)

466,813

432,522

1,417,938

1,077,932

These investments are not held for trading but for long-term strategic purposes. The Directors have elected to designate these investments in financial assets measured at FVTOCI as they believe that recognising short-term fluctuations in these investments' fair value in profit or loss would not be consistent with the Group's strategy of holding these investments for long-term purposes and realising their performance potential in the long run.

Notes:

  1. The amount represents equity securities listed in Hong Kong and the fair value of the investment is determined based on the quoted market bid prices available on the relevant exchange. The investment is not intended to be held in the short-term to earn a profit.
  2. The amount represents unlisted equity investments in limited partnership enterprises (the "Partnership Enterprise(s)") which specialise in making equity investment. The Group has an intention of holding them as long-term investments.
    According to the Partnership Enterprise agreements, each Partnership Enterprise is managed by a general partner. The Group participates in the Partnership Enterprises as one of the limited partners who does not have the power on selection nor removal of assets manager or general partner of the Partnership Enterprises. In addition, the Group does not have any right on making operating, investing and financing decision of the Partnership Enterprises. The Directors are of the opinion that the Group does not have any control nor significant influence to affect the variable returns through its investment in the Partnership Enterprises.
  3. The amount represents investments in unlisted equity interests in entities established in the PRC.

36 CSPC PHARMACEUTICAL GROUP LIMITED

12. TRADE RECEIVABLES

As at

As at

30 June

31 December

2020

2019

RMB'000

RMB'000

(Unaudited)

(Audited)

Trade receivables

2,927,608

2,273,530

Less: allowance for impairment

(19,657)

(14,686)

2,907,951

2,258,844

The Group allows a general credit period of 90 days (31 December 2019: 90 days) to its trade customers. The following is an aged analysis of trade receivables (net of allowance for impairment) at the end of the reporting period presented based on invoice dates which approximated the respective revenue recognition dates:

As at

As at

30 June

31 December

2020

2019

RMB'000

RMB'000

(Unaudited)

(Audited)

0 to 90 days

2,612,353

2,124,588

91 to 180 days

283,115

125,010

181 to 365 days

7,855

2,830

More than 365 days

4,628

6,416

2,907,951

2,258,844

Interim Report 2020

37

13. DEPOSITS, PREPAYMENTS AND OTHER RECEIVABLES

As at

As at

30 June

31 December

2020

2019

RMB'000

RMB'000

(Unaudited)

(Audited)

Prepayments for purchase of raw materials

108,234

176,471

Deposits paid for right-of-use assets

110,370

333,380

Deposits and prepayment for utilities

44,455

51,646

Consideration receivable for disposal of a subsidiary

(note 28)

447,478

-

Other tax recoverable

128,026

114,453

Others

258,678

234,682

1,097,241

910,632

Analysed as:

Current

986,871

567,252

Non-current

110,370

343,380

1,097,241

910,632

14. BILLS RECEIVABLES

Bills receivables represent bills on hand. All bills receivables of the Group are with a maturity period of less than 365 days (31 December 2019: less than 365 days) and not yet due at the end of the reporting period. The management considers the default rate is low based on historical information, experience and forward-looking information that is available without undue cost of effort.

38 CSPC PHARMACEUTICAL GROUP LIMITED

15. RELATED PARTY DISCLOSURES

During the period, the Group had significant transactions and balances with related parties with details as follows:

  1. Related Companies

For the six months

ended 30 June

Name of company

Nature of transactions/balances

2020

2019

RMB'000

RMB'000

(Unaudited)

(Unaudited)

CHL and its

Sales of pharmaceutical products

237,191

172,522

subsidiaries and

Rental expenses

483

9,155

associates (note a)

Recharge of utility expenses

1,009

1,000

(the "CHL Group")

Purchase of steam

15,785

13,932

Warehouse service income

759

4,296

Payment of lease liabilities

39,241

28,620

As at

As at

30 June

31 December

2020

2019

RMB'000

RMB'000

(Unaudited)

(Audited)

Balance due from/to the CHL Group

- trade receivables (note b)

    aged 0 - 90 days

99,324

140,183

- other payables (note c)

25,938

10,854

- lease liabilities

123,590

159,683

Interim Report 2020

39

15. RELATED PARTY DISCLOSURES (Continued)

  1. Joint Ventures

For the six months

ended 30 June

Name of company

Nature of transactions/balances

2020

2019

RMB'000

RMB'000

(Unaudited)

(Unaudited)

Hebei Huarong

Purchase of raw materials

126,321

47,261

Pharmaceutical Co.,

Recharge of utility expenses

-

73,296

Ltd. ("Huarong")

Sales of raw materials

44,340

140,066

As at

As at

30 June

31 December

2020

2019

RMB'000

RMB'000

(Unaudited)

(Audited)

Balance due from/to Huarong

- other receivable (note c)

18,581

17,975

- other payable (note c)

33,511

104,678

As at

As at

30 June

31 December

2020

2019

RMB'000

RMB'000

(Unaudited)

(Audited)

Yantai Jiashi

Balance due from Yantai Jiashi Group

Pharmaceutical

- other receivable (note c)

40,653

40,653

Technology Co.,

Ltd. and its

subsidiaries ("Yantai

Jiashi Group")

40 CSPC PHARMACEUTICAL GROUP LIMITED

15. RELATED PARTY DISCLOSURES (Continued)

  1. Joint Ventures (Continued)

For the six months

ended 30 June

Name of company

Nature of transactions/balances

2020

2019

RMB'000

RMB'000

(Unaudited)

(Unaudited)

Bioworkshops Limited

Provision of research and development

and its subsidiaries

services

4,770

-

("Bioworkshops

Group")

As at

As at

30 June

31 December

2020

2019

RMB'000

RMB'000

(Unaudited)

(Audited)

Balance due from Bioworkshops Group

- other receivable (note d)

260,428

150,432

For the six months

ended 30 June

Name of company

Nature of transactions/balances

2020

2019

RMB'000

RMB'000

(Unaudited)

(Unaudited)

CSPC Zhongcheng

Purchase of raw materials

406,625

-

Pharmaceutical

Recharge of utility expenses

469

-

Logistics

Sales of raw materials

187,464

-

Co., Limited and its

subsidiaries

("Zhongcheng

Logistics Group")

Interim Report 2020

41

15. RELATED PARTY DISCLOSURES (Continued)

(II)

Joint Ventures (Continued)

As at

As at

30 June

31 December

2020

2019

RMB'000

RMB'000

(Unaudited)

(Audited)

Balance due from Zhongcheng

Logistics Group

- other receivable (note e)

561,420

-

(III)

Associates

As at

As at

30 June

31 December

Name of company

Nature of balances

2020

2019

RMB'000

RMB'000

(Unaudited)

(Audited)

Beijing Guoxinhuijin

Balance due to Guoxin

Co., Ltd. ("Guoxin")

- capital injection payable (note f)

64,627

124,627

Notes:

  1. Mr. Cai Dongchen, the Chairman and Chief Executive Officer of the Company, has significant influence over the Company and exercises control over CHL through a series of controlled corporations. Accordingly, CHL and its subsidiaries and associates are related parties of the Group.
  2. The Group allows a general credit period of 90 days (2019: 90 days) to its trade customers.
  3. Amounts are unsecured, non-interest bearing and repayable on demand.
  4. Amount is unsecured and with imputed interest computed using the prevailing market interest rate of 4.75% per annum for comparable long term borrowings.
  5. Amount is unsecured, non-interest bearing and repayable on demand except for a balance of RMB448,503,000 (net of impairment of RMB22,397,000) which bears interest rate of 4.00% per annum with terms of two to three years.
  6. On 12 December 2019, CSPC XNW subscribed for 26 million shares of Guoxin for a consideration of RMB156,062,000, of which RMB64,627,000 remained unsettled as at 30 June 2020 (31 December 2019: RMB124,627,000), which is unsecured, non-interest bearing and repayable by instalments within one year.

42 CSPC PHARMACEUTICAL GROUP LIMITED

15. RELATED PARTY DISCLOSURES (Continued)

(IV) Compensation of key management personnel

The remuneration of key management personnel, which represents the Company's directors during the period is as follows:

For the six months

ended 30 June

20202019

RMB'000 RMB'000

(Unaudited) (Unaudited)

Short-term benefits

6,667

6,370

Post-employment benefits

494

623

7,161

6,993

The remuneration of key management personnel is determined by the remuneration committee having regard to the performance of individuals and market trends.

  1. STRUCTURED BANK DEPOSITS
    Structured bank deposits of RMB150,000,000 carry no guaranteed return and have a total expected return up to 3.7% per annum (31 December 2019: RMB93,700,000 carried no guaranteed return and had total expected return up to 3.5% per annum), depending on the performance of the underlying financial investments or the changes in the interest rates as specified in the terms of relevant deposits.
    Structured bank deposits of RMB1,386,176,000 carry guaranteed return ranging from 1.00% to 1.75% per annum and have a total expected return up to 4.1% per annum (31 December 2019: RMB1,744,459,000 carried guaranteed return of 3.8% per annum and had total expected return up to 5.7% per annum), depending on the market prices of the underlying commodities quoted in the market as specified in the terms of relevant deposits.
    The structured bank deposits are designated at fair value through profit or loss on initial recognition as they contain non-closely related embedded derivatives.
  2. RESTRICTED BANK DEPOSITS/BANK BALANCES AND CASH
    Restricted bank deposits and bank balances carry interest at market interest rates ranging from 0.01% to 1.15% (31 December 2019: 0.01% to 3.00%) per annum.
    The restricted bank deposits represent deposits required to be placed in banks for securing certain banking facilities of the Group and are classified as current assets. The restricted bank deposits will be released upon settlement of the relevant short-term bank facilities.

Interim Report 2020

43

18. TRADE PAYABLES

The following is an aged analysis of trade payables at the end of the reporting period presented based on the invoice dates:

As at

As at

30 June

31 December

2020

2019

RMB'000

RMB'000

(Unaudited)

(Audited)

0 to 90 days

1,033,746

941,700

91 to 180 days

29,225

34,626

More than 180 days

107,000

134,557

1,169,971

1,110,883

The general credit period on purchases of goods is up to 90 days.

19. OTHER PAYABLES

As at

As at

30 June

31 December

2020

2019

RMB'000

RMB'000

(Unaudited)

(Audited)

Customers' deposits

255,984

238,748

Other tax payable

152,538

126,489

Selling expense payable and other accrued charges

2,604,193

1,512,130

Payables arising from construction and acquisition of

property, plant and equipment

821,622

1,157,020

Government grants

384,196

359,841

Staff welfare payable

249,975

244,848

Dividend payable (note 6)

1,133,194

-

Others

98,578

207,309

5,700,280

3,846,385

Analysed as:

Current

5,544,761

3,691,652

Non-current - government grants

155,519

154,733

5,700,280

3,846,385

44 CSPC PHARMACEUTICAL GROUP LIMITED

  1. BILLS PAYABLES
    All bills payables of the Group are aged within 365 days (31 December 2019: within 365 days) and not yet due at the end of the reporting period. As at 30 June 2020, bills payable of RMB390,918,000 (31 December 2019: RMB198,649,000) are secured by certain structured bank deposits and restricted bank deposits of the Group.
  2. BORROWING
    The amount represents fixed-rate RMB bank loan which is repayable within one year and carries an effective interest rate (representing contractual interest rate) of 2.05% (31 December 2019: 5.22%) per annum.
    As at 30 June 2020, the loan is secured by the corporate guarantee of CHL.
    As at 31 December 2019, the loan was secured by the pledge of the Group's right-of-use assets and property with carrying amount of RMB34,142,000.
  3. SHARE CAPITAL

Number of

Share

shares

capital

RMB'000

Issued and fully paid

At 1 January 2019, 30 June 2019,

31 December 2019 and 30 June 2020

6,236,338,403

10,899,412

23. LONG TERM INCENTIVE PROGRAM

  1. 2015 share option scheme
    The share option scheme was adopted on 9 December 2015 and is valid and effective for a period of 10 years from its adoption. No share options have been granted under the scheme since its adoption.
  2. 2018 share award scheme
    The share award scheme was adopted on 20 August 2018 and is valid and effective for a period of 10 years from its adoption.
    The trustee of the scheme has purchased an aggregate of 10,000,000 shares of the Company on the Stock Exchange in January 2019. On 15 January 2019, the Company granted 2,394,000 award shares ("Award Shares") under the scheme to employees of the Group. A total of 1,200,000, 597,000 and 597,000 of the Award Shares will vest on 14 January 2022, 14 January 2023 and 14 January 2024 respectively, subject to the accomplishment of certain non-market conditions. The fair value of the Award Shares amounted to RMB25,113,000 and was determined with reference to the share price of the Company on date of grant of HK$11.92 (equivalent to RMB10.49).
    During the six months ended 30 June 2020, share-based payment expense of RMB3,495,000 (six months ended 30 June 2019: RMB3,198,000) has been recognised in profit or loss and no awarded shares were forfeited.

Interim Report 2020

45

24. CAPITAL AND OTHER COMMITMENTS

At the end of the reporting period, the Group had the following capital commitments:

As at

As at

30 June

31 December

2020

2019

RMB'000

RMB'000

(Unaudited)

(Audited)

Capital expenditure in respect of acquisition of

property, plant and equipment contracted for but

not provided in the financial statements

1,626,101

1,494,280

Other commitments arising from unlisted equity

investments in partnerships

359,671

395,324

Other commitments arising from research and

development projects

156,200

164,700

  1. Pledge of assets
    As at 30 June 2020, restricted bank deposits and structured bank deposits of RMB118 million in total (31 December 2019: restricted bank deposits and structured bank deposits of RMB195 million in total and buildings and right-of-use assets of RMB34 million) have been pledged to secure certain banking facilities of the Group.
  2. FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS
    Some of the Group's financial assets and financial liabilities are measured at fair value at the end of each reporting period. The following table gives information about how the fair values of these financial assets and financial liabilities are determined (in particular, the valuation technique(s) and inputs used), as well as the level of the fair value hierarchy into which the fair value measurements are categorised (Levels 1 to 3) based on the degree to which the inputs to the fair value measurements are observable.
    • Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active market for identical assets or liabilities;
    • Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
    • Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

46 CSPC PHARMACEUTICAL GROUP LIMITED

26. FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS (Continued)

Significant

Relationship of

Financial assets/

Fair value

unobservable

unobservable inputs

financial liability

Fair value as at

hierarchy

Valuation techniques and key input(s)

input(s)

to fair value

30

31

June

December

2020

2019

RMB'000

RMB'000

(Unaudited)

(Audited)

Equity securities listed

387

536

Level 1

Quoted bid prices in an active market.

N/A

N/A

in the PRC

Equity securities listed in

40,530

42,120

Level 1

Quoted bid prices in an active market.

N/A

N/A

Hong Kong

Unquoted equity

1,377,408

1,035,812

Level 3

Valuation based on recent transaction prices

Recent transaction

The higher the recent

investments

of underlying investments.

prices of underlying

transaction prices of

investments

underlying investment,

the higher the fair

value, vice versa.

Discount cash flows - in this approach, the

Estimated discount rate

The higher the estimated

discounted cash flow method was used

discount rate, the

to capture the present value of future

lower the fair value,

expected cash flows to be derived from

vice versa

the underlying assets.

Long-termpre-tax

The higher the long-

operating margin

term pre-tax operating

margin, the higher the

fair value, vice versa.

Structured bank deposits

1,536,176

1,838,159

Level 2

Discounted cash flows - future cash flows

N/A

N/A

are estimated based on estimated return,

and discounted at a rate that reflects the

credit risks of various counterparties.

Contingent consideration in

19,013

32,053

Level 3

Discounted cash flow method was used to

Estimated discount rate

The higher the estimated

a business combination

capture the present value of the expected

discount rate, the

future economic benefits that will flow out

lower the fair value,

of the Group arising from the contingent

vice versa.

consideration.

Probability of the

The higher the probability,

achievement of certain

the higher the fair

milestone events

value, vice versa.

Interim Report 2020

47

  1. FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS (Continued)
    The pre-tax unrealised fair value gain of RMB368,222,000 included in other comprehensive income related to financial assets at FVTOCI held at the end of the reporting period and is reported as changes of 'investments revaluation reserve'.
    Fair value measurements and valuation processes
    In estimating the fair value of an asset or a liability, the Group uses market-observable data to the extent it is available. Where Level 1 inputs are not available, the Group estimates the valuation of unquoted equity investments by making reference to valuation based on recent transactions of underlying investments, if any and performs discounted cash flow to determine the present value of structured bank deposits, contingent consideration in a business combination and unquoted equity instruments without any recent transactions of underlying investments. There were no transfers between levels in the current period. The management reports to the Directors every quarter to explain the cause of fluctuations in the fair value of the assets and liabilities.
    Information about the valuation techniques and inputs used in determining the fair value of various assets and liability are disclosed above.
    The Directors consider that the carrying amounts of other financial assets and financial liabilities recorded at amortised cost in the condensed consolidated financial statements approximate their fair values.
  2. ACQUISITION OF SUBSIDIARIES
    For the six months ended 30 June 2019
    1. Business combination
      On 4 January 2019, the Group entered into an agreement with an independent third party to acquire 100% interest in Yong Shun Technology Development Limited ("Yong Shun") and its wholly-owned subsidiaries (hereinafter collectively referred to as "Yong Shun Group") for a cash consideration of RMB252,880,000. The acquisition was completed on 11 January 2019. Yong Shun Group is principally engaged in research and development of innovative biological drugs.
      The above acquisition has been accounted for using the acquisition method of accounting.

48 CSPC PHARMACEUTICAL GROUP LIMITED

27. ACQUISITION OF SUBSIDIARIES (Continued)

For the six months ended 30 June 2019 (Continued)

  1. Business combination (Continued)
    Assets acquired and liabilities recognised at the date of acquisition
    Fair value of assets and liabilities recognised at the date of acquisition:
    Non-current assets Property, plant and equipment Intangible assets (note)
    Current assets Trade receivables
    Deposits, prepayment and other receivables Bank balances and cash
    Current liabilities Trade payables Other payables
    Non-current liabilities Deferred tax liabilities
    Total identifiable net assets acquired

RMB'000

8,698

280,048

143

4,663

1,293

(3,674)

(44,496)

(42,007)

204,668

Note: The intangible assets mainly represent the IPR&Ds acquired. IPR&Ds are not yet available for use and are not amortised but tested individually for impairment annually until the completion or abandonment of the related research and development efforts.

The fair values of trade and other receivables of the acquired entities at the date of acquisition amounted to approximately RMB2,911,000 which represent the gross contractual amounts at the date of acquisition.

Interim Report 2020

49

27. ACQUISITION OF SUBSIDIARIES (Continued)

For the six months ended 30 June 2019 (Continued)

(a)

Business combination (Continued)

Goodwill arising from acquisition

RMB'000

Consideration transferred

252,880

Less: Recognised amount of identifiable net assets acquired

(204,668)

Goodwill arising on acquisition

48,212

Goodwill arose in the acquisition of Yong Shun Group because of the expected synergies, revenue growth, future market development and the assembled workforce of Yong Shun Group. These benefits are not recognised separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets.

None of the goodwill arising on these acquisitions is expected to be deductible for tax purpose.

Net cash outflow on acquisition of subsidiaries

RMB'000

Cash consideration paid

252,880

Bank balances and cash acquired

(1,293)

Net cash outflow

251,587

Yong Shun Group does not have any significant contribution to the Group's revenue or results for the six months ended 30 June 2019.

The acquisition of Yong Shun Group was completed on 11 January 2019. Accordingly, the impact to the Group's revenue and profit for the period would have been immaterial had the acquisition been completed on 1 January 2019.

50 CSPC PHARMACEUTICAL GROUP LIMITED

27. ACQUISITION OF SUBSIDIARIES (Continued)

For the six months ended 30 June 2019 (Continued)

  1. Assets acquisitions
    During the six months ended 30 June 2019, the following assets acquisitions have been accounted for as acquisitions of assets as they did not operate any business prior to the date of acquisitions.
    1. On 1 February 2019, the Group entered into an agreement to acquire 100% equity interest in 上海聯寅物業管理有限公司 ("Shanghai Lianyin") from independent third parties for a cash consideration of RMB96,899,000. The acquisition, which was completed on 6 March 2019, enabled the Group to acquire leasehold land and property for its research and development centre in Shanghai; and
    2. On 28 March 2019, the Group entered into an agreement to acquire 100% equity interest in 蘇州久富電子有限公司 ("Suzhou Jiufu") from independent third parties for a consideration of RMB18,941,000. The acquisition, which was completed on 9 April 2019, enabled the Group to acquire leasehold land and property for its research and development centre in Suzhou.

Assets acquired and liabilities recognised at the dates of acquisitions

Shanghai

Suzhou

Lianyin

Jiufu

Total

RMB'000

RMB'000

RMB'000

Non-current assets

Property, plant and equipment

116,043

71,302

187,345

Right-of-use assets

59,005

9,698

68,703

Current assets

Bank balances and cash

136

-

136

Current liabilities

Other payables

(78,285)

(62,059)

(140,344)

96,899

18,941

115,840

Net cash outflow on acquisition of

assets

Cash consideration

96,899

18,941

115,840

Bank balances and cash acquired

(136)

-

(136)

Net cash outflow

96,763

18,941

115,704

Interim Report 2020

51

28. DISPOSAL OF SUBSIDIARIES

  1. Disposal of subsidiaries
    1. On 10 March 2020, the Group entered into an agreement with an independent third party to dispose of its entire 99.39% equity interest in Shijiazhuang Zhongrun Pharmaceutical Technology Limited ("Zhongrun Technology") for a consideration of RMB503,046,000. The disposal was completed on 10 March 2020 with the Group losing control in Zhongrun Technology. The net assets of Zhongrun Technology at the date of disposal were as follows:
      Net cash outflow arising on disposal:

RMB'000

Cash consideration received

50,304

Less: bank balance and cash disposed of

(243,632)

(193,328)

Analysis of assets and liabilities over which control was lost:

RMB'000

Property, plant and equipment

52,743

Right-of-use assets

31,606

Other receivables

58,438

Bank balance and cash

243,632

Other payables

(169,604)

Net assets disposed of

216,815

Gain on disposal of a subsidiary:

RMB'000

Consideration

503,046

Non-controlling interest

1,316

Net assets disposed of

(216,815)

Gain on disposal

287,547

52 CSPC PHARMACEUTICAL GROUP LIMITED

28. DISPOSAL OF SUBSIDIARIES (Continued)

  1. Disposal of subsidiaries (Continued)
    1. On 16 April 2020, the Group entered into an agreement with an independent third party to dispose of its 49.5% equity interest in CSPC Zhongcheng Pharmaceutical Logistic Co., Limited and its subsidiary ("Zhongcheng Logistics Group") for a consideration of RMB34,650,000. The disposal was completed on 30 April 2020 with the Group losing control in Zhongcheng Logistics Group. Pursuant to the relevant agreements and revised articles of association of Zhongcheng Logistics, the Group has joint control over the strategic financial and operating decisions relating to the relevant activities of Zhongcheng Logistics Group. Accordingly, Zhongcheng Logistics Group became a joint venture of the Group with effect from 1 May 2020 and has since been accounted for using the equity method of accounting. The net assets of Zhongcheng Logistics Group at the date of disposal were as follows:
      Net cash outflow arising on disposal:

RMB'000

Cash consideration

34,650

Less: bank balance and cash disposed of

(432,825)

(398,175)

Analysis of assets and liabilities over which control was lost:

RMB'000

Property, plant and equipment

827,178

Right-of-use assets

117,812

Interest in a joint venture

257

Inventories

67,254

Trade receivables

295,744

Other receivables

91,534

Bills receivables

133,744

Trade receivables due from related companies

101,409

Restricted bank deposits

57,522

Bank balance and cash

432,825

Trade payables

(230,682)

Other payables

(340,703)

Contract liabilities

(40,759)

Bills payables

(267,610)

Amount due to intergroup companies

(1,131,492)

Borrowing

(70,000)

Net assets disposed of

44,033

Gain on disposal of a subsidiary:

RMB'000

Consideration

34,650

Non-controlling interest

440

Fair value of equity interest retained in

Zhongcheng Logistics Group at the date of disposal

36,297

Net assets disposed of

(44,033)

Gain on disposal

27,354

Interim Report 2020

53

28. DISPOSAL OF SUBSIDIARIES (Continued)

  1. Deemed disposal of a subsidiary
    As set out in note 1, the Group lost control over YZY Biopharma upon the cancellation of the Agreement on 1 April 2020. Accordingly, YZY Biopharma became an associate of the Group with effect from 1 April 2020 and has since been accounted for using the equity method of accounting. The net assets of YZY Biopharma at the date of deemed disposal were as follows:
    Analysis of assets and liabilities over which control was lost:

RMB'000

Property, plant and equipment

77,170

Right-of-use assets

9,711

Goodwill

38,981

Other intangible assets

631,906

Inventories

4,129

Other receivables

8,998

Bank balances and cash

9,753

Trade payable

(13,341)

Other payables

(21,383)

Amount due to intergroup companies

(9,118)

Borrowing

(23,000)

Deferred tax liabilities

(96,921)

Net assets disposed of

616,885

Loss on deemed disposal of a subsidiary:

RMB'000

Net assets disposed of

(616,885)

Non-controlling interest

346,617

Fair value of equity interest retained in YZY Biopharma at the date of

deemed disposal

251,230

Loss on deemed disposal

(19,038)

29. EVENT AFTER THE END OF THE REPORTING PERIOD

On 3 July 2020, the Company issued 1,247,267,680 ordinary shares pursuant to a bonus issue of one new share for every five existing shares held by shareholders of the Company.

54 CSPC PHARMACEUTICAL GROUP LIMITED

Other Information

Directors' Interests in Shares, Underlying Shares and Debentures

As at 30 June 2020, the interests of the directors and their associates in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the Securities and Future Ordinance ("SFO")), as recorded in the register maintained by the Company pursuant to Section 352 of the SFO, or as otherwise notified to the Company and The Stock Exchange of Hong Kong Limited pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the "Model Code"), were as follows:

Long Positions

Percentage of the

issued shares of

the Company as

Number of issued

at 30 June

Name of director

Capacity

ordinary shares held

2020

Cai Dongchen

Beneficial owner

87,538,000

Interest of controlled corporation

1,356,619,120

(Note)

1,444,157,120

23.16%

Chak Kin Man

Beneficial owner

4,000

0.00006%

Note: Mr. Cai Dongchen is deemed to be interested in 1,356,619,120 shares, comprising (i) 213,929,500 shares directly held by Key Honesty Limited, a direct wholly-owned subsidiary of True Ally Holdings Limited ("True Ally"), (ii) 634,809,620 shares directly held by Massive Giant Group Limited, a direct wholly-owned subsidiary of True Ally, (iii) 493,880,000 shares directly held by True Ally, which is directly wholly-owned by Mr. Cai Dongchen and (iv) 14,000,000 shares directly held by Harmonic Choice Limited by virtue of his interests in a chain of corporations holding Harmonic Choice Limited, namely Massive Top Limited, of which March Rise Limited, Beijing Zhongyihe Hezhong Investment Management Centre (Limited Partnership) （北京中宜和合眾投資管理中心（有限合夥））("Zhongyihe") and True Ally own 75%, 15% and 10%, respectively. March Rise Limited in turn is owned as to 40% by True Ally and 60% by Zhongyihe, the general partner of which is Mr. Cai Dongchen.

Other than as disclosed above, none of the directors or their associates had any interests or short positions in the shares, underlying shares or debentures of the Company or any of its associated corporations as at 30 June 2020.

Interim Report 2020

55

Other Information

Arrangements to Purchase Shares or Debentures

Other than the share option scheme and share award scheme disclosed below, at no time during the period was the Company or any of its subsidiaries a party to any arrangements to enable the directors of the Company to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate.

Substantial Shareholders

As at 30 June 2020, the register of substantial shareholders maintained by the Company pursuant to Section 336 of the SFO shows that the following shareholders had notified the Company of relevant interests in the shares in issue of the Company.

Long Positions

Percentage of the

issued shares of

the Company

Number of issued

as at 30 June

Name of substantial shareholder

Capacity

ordinary shares held

2020

Cai Dongchen

Beneficial owner

87,538,000

Interest in controlled corporation

1,356,619,120

(Note)

1,444,157,120

23.16%

True Ally Holdings Limited

Beneficial owner

493,880,000

Interest in controlled corporation

862,739,120

(Note)

1,356,619,120

21.75%

Massive Giant Group Limited

Beneficial owner

634,809,620

10.18%

Common Success International Limited

Beneficial owner

423,206,414

6.79%

Citigroup Inc.

Person having a security interest in shares

12,450,021

Interest in controlled corporation

27,477,368

Approved lending agents

393,768,033

433,695,422

6.95%

UBS Group AG

Interest in controlled corporation

456,592,457

7.32%

56 CSPC PHARMACEUTICAL GROUP LIMITED

Other Information

Substantial Shareholders (Continued)

Short Positions

Percentage of

the issued share

Number of issued

of the Company

Name of substantial shareholder

Capacity

ordinary shares held

as at 30 June 2020

Citigroup Inc.

Interest in controlled corporation

4,559,891

0.073%

Note: Mr. Cai Dongchen is deemed to be interested in 1,356,619,120 shares, comprising (i) 213,929,500 shares directly held by Key Honesty Limited, a direct wholly-owned subsidiary of True Ally Holdings Limited ("True Ally"), (ii) 634,809,620 shares directly held by Massive Giant Group Limited, a direct wholly-owned subsidiary of True Ally, (iii) 493,880,000 shares directly held by True Ally, which is directly wholly-owned by Mr. Cai Dongchen and (iv) 14,000,000 shares directly held by Harmonic Choice Limited by virtue of his interests in a chain of corporations holding Harmonic Choice Limited, namely Massive Top Limited, of which March Rise Limited, Beijing Zhongyihe Hezhong Investment Management Centre (Limited Partnership) （北京中宜和合眾投資管理中心（有限合夥））("Zhongyihe") and True Ally own 75%, 15% and 10%, respectively. March Rise Limited in turn is owned as to 40% by True Ally and 60% by Zhongyihe, the general partner of which is Mr. Cai Dongchen.

Other than as disclosed above, the Company has not been notified of any other relevant interests or short positions in the issued shares of the Company as at 30 June 2020.

Share Option Scheme

The Company has adopted a share option scheme on 9 December 2015. No options have been granted under the share option scheme since its adoption.

Share Award Scheme

The Company has adoped a share award scheme on 20 August 2018. A total of 2,394,000 shares has been granted on 15 January 2019 under the share award scheme.

Corporate Governance

The Company has complied with all the code provisions in the Corporate Governance Code (the "Code") contained in Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Listing Rules") throughout the six months ended 30 June 2020 except the deviation from code provision A.2.1 as set out below.

Interim Report 2020

57

Other Information

Corporate Governance (Continued)

Code provision A.2.1 of the Code stipulates that the roles of chairman and chief executive officer should be separate and should not be performed by the same individual. Mr. Cai Dongchen, the Company's Chairman, has also assumed the role as the chief executive officer of the Company. The Company believes that vesting both roles in Mr. Cai will allow for more effective planning and execution of business strategies. As all major decisions are made in consultation with members of the Board, the Company believes that there is adequate balance of power and authority in place.

Review of Interim Results

The interim results and the interim report have been reviewed by the external auditor and audit committee of the Company.

Closure of Register of Members

The register of members of the Company will be closed from Monday, 14 September 2020 to Tuesday, 15 September 2020, both days inclusive, during which period no transfer of shares will be effected. In order to qualify for the interim dividend, all share transfer documents accompanied by the relevant share certificates must be lodged with the Company's share registrar, Tricor Secretaries Limited, at Level 54, Hopewell Centre, 183 Queen's Road East, Hong Kong for registration not later than 4:30 p.m. on Friday, 11 September 2020.

Directors' Securities Transactions

The Company has adopted the Model Code as set out in Appendix 10 of the Listing Rules. Having made specific enquiry, all directors confirmed that they have complied with the required standard set out in the Model Code throughout the six months ended 30 June 2020.

Purchase, Sale or Redemption of the Company's Listed Securities

There was no purchase, sale or redemption by the Company or any of its subsidiaries of the Company's listed securities during the six months ended 30 June 2020.

Update on Director's information under Rule 13.51b(1) of the Listing Rules

Mr. Lee Ka Sze, Carmelo, a non-executive director of the Company, has ceased to be an independent non-executive director of China Pacific Insurance (Group) Co., Ltd. (listed on the Stock Exchange of Hong Kong Limited) with effect from 12 May 2020.

58 CSPC PHARMACEUTICAL GROUP LIMITED

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CSPC Pharmaceutical Group Ltd. published this content on 17 September 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 17 September 2020 09:04:07 UTC