Chairman's Statement

Chairman's Statement

Dear shareholders,

I would like to express my heartfelt gratitude to the shareholders and the community for your consistent support to the Group. In 2019, against the backdrop where macroeconomic policies emphasized stable growth, China’s economy maintained steady growth. Many industries were faced with the challenges andopportunities of transformation and upgrade. Under the guidance and push of national policies, the pharmaceutical and healthcare industry also underwent profound changes.

In the past few years, with the successive issue and implementation of policies such as the “Two-invoice System”, “Zero Mark up for Drug Sales at Public Hospitals”, “Negotiation for Medical Insurance Catalog”, “Centralized Procurement of Drugs”, and “Diagnosis Related Groups (DRGs)”, the government departments’ intention to “implement value-oriented strategic purchases of medical insurance” became very clear, and the supervision continued to tighten at the same time, exerting a broad and far-reaching impact on the entire pharmaceutical industry. As competition intensified, the prices of pharmaceutical and medical device products further declined, and the profit margin of traditional distribution business was also under pressure. Meanwhile, these policies also brought about development opportunities as industry concentration continuously raised and leading enterprises became increasingly competitive. Business scale and efficiency have become the core competitiveness for the survival and development of pharmaceutical distribution companies in the future.

Faced with the challenges and opportunities from intensified changes in the industry and intensive transformation of the market, the Group, with the great support of the SASAC, CNPGC and shareholders and the leadership of the Board, continuously optimized its corporate development strategy and accelerated the overall transformation and upgrade of its business, and improved its operating quality, thus achieving satisfactory annual results in 2019. With the continuous efforts and dedication of the Company’s management and all employees, Sinopharm closely focused on the three core businesses of “pharmaceutical distribution, pharmaceutical retail and medical devices” to alleviate the pressure brought by policy changes. We undauntedly explored new approaches to continually overcome new challenges, and created a one-stop, integrated service system through top-down design and model innovation based on our strategic planning and development strategy, achieving rapid growth for various businesses. For the year 2019, the Group’s business revenue exceeded RMB420 billion and the net profit attributable to parent Company reached RMB6.253 billion. The Group’s business structure was further diversified, further consolidating its core competitive advantage to adapt to the new situation.

Giving full play to the leading role and supervisory functions of a professional and highly-capable Board and special committees, Sinopharm carefully formulated the Company’s development plans and pro-actively built an internal control and governance system that was in line with the Company’s development targets. In 2019, the Group continued to improve system construction, strengthen risk management and control, focus on safety and quality, fulfil social responsibilities, and step up efforts to complete the Company’s tasks to improve quality and efficiency, so as to consolidate the business foundation for long-term and high-quality development of the Company and effectively foster the transformation and upgrade of the comprehensive service capabilities of the supply chain.

The outstanding performance of Sinopharm has also been highly recognized by the general public. The Group won the “Best Listed Company” award at both the 9th China Securities “Golden Bauhinia” awards and the “2019 China Financial Market Awards”. It ranked 25th in the “Fortune China 500” in 2019, and ranked 32nd in the “Top 100 Hong Kong Listed Companies” in 2019. These awards and rankings demonstrate Sinopharm’s achievements in business development and social value and other aspects.

2020 marks the closing of the implementation of the Group’s last five-year strategy, and sets the tone for its next five-year plan. Faced with an increasingly complicated market environment, the Board of the Company will firmly grasp the strategic opportunities of building a “Healthy China”, thoroughly research and evaluate the industry development trends and opportunities, make proper strategic plans based on the advantages and disadvantages of the Group, and continue to promote the supply chain innovation and digital transformation, so as to lay a solid foundation for the high-quality development and core competitiveness enhancement of the Company.

At the beginning of 2020, China encountered a sudden outbreak of “novel coronavirus pneumonia” pandemic, which put people’s lives in grave danger and affected the social economy. “All for Health, Health for All” has always been the corporate culture of Sinopharm. As a central and local reserve enterprise, Sinopharm leveraged the superior network of its nationwide pharmaceutical distribution business to actively coordinate various resources to perform the tasks of emergency collection, storage and allocation of pharmaceutical and protective supplies as instructed by central and local governments, effectively supporting the smooth progress of combatting the pandemic nationwide.

The impact of the pandemic on economic activities is temporary. The long-term positive development trend of China’s pharmaceutical distribution industry will not change, neither will the business fundamentals of the Group. We believe that under the leadership of the Board, with the efforts of the management team and all employees, and by focusing on the key tasks of “stabilising growth, increasing efficiency, fostering reform, promoting innovation, and controlling risks”, Sinopharm will continue to leverage the Group’s competitive advantages, achieve the mid and long term business development goals, contribute to China’s pharmaceutical system reform, and create value for shareholders. We will also continue to make relentless efforts to build a world first-class comprehensive medical service company with global competitiveness. Once again, I would like to thank the shareholders and people from all walks of life for your long-term support and help to Sinopharm.

Shanghai, the People’s Republic of China 29 March 2020