Mr. Ho Kuk Sing, Chairman of IVD Medical, said "The year 2019 is important in the Group's development history. The Group successfully listed on the Main Board of HKEX to be the first IVD Company listed on HKEX. It not only marked an important milestone in the development of the Group's business, but also enhanced the brand recognition of "IVD Medical" and laid a solid foundation for the Group's future development. At the same time, we also achieved outstanding performance during this year. The Group acquired the remaining 60% equity interest in Vastec in January 2019. After completing the acquisition of Vastec, we will be able to further integrate our distribution value chain, which will help drive the Group's future development."
In view of the satisfactory operating results in 2019, the Board recommends a final dividend of HK$ 5.366 cent per share for the year ended 31 December 2019.
Business Review
The Group is a leading distributor of IVD products in the PRC. In 2018, Vastec was the fourth largest Tier-1 IVD distributor in the PRC, and the Original Group was the third largest distributor in the Shanghai IVD market. The Group also engages in the research, development, manufacturing and sale of its self-branded IVD products under the brand name "IVD".
Distribution business
The distribution of IVD products forms the cornerstone of the Group's business. It primarily is involved in the trading of IVD analysers, reagents and other consumables to customers such as distributors, hospitals and healthcare institutions, and logistics providers.
The Group acquired the remaining 60% equity interest in Vastec in January 2019. Vastec was an associated company of the Original Group before the Acquisition, and was under the same core management team including the founders of the Group. After Vastec became the Group's wholly-owned subsidiary, revenue from the distribution of IVD products through Vastec was consolidated into the Group. Vastec is the sole national distributor of Sysmex' haemostasis products with exclusive distribution rights in the PRC since 1997. It also procures a diverse portfolio of IVD products from other leading international brands and distributes them in the PRC. On 1 April 2019, Vastec and Sysmex entered into a new distribution agreement which extended the term until 2022. This newly signed agreement will further stabilize relations between Vastec and Sysmex. During the Period, there were approximately 7,186 Sysmex haemostasis analysers (2018: 6,359 unit) installed by the Group at hospitals and healthcare institutions accumulatively. The existing and rising installation will create continuous demand for reagents, thus generating stable recurring income for the Group.
At the same time, Vastec began to provide 4 Thrombotic Markers to the market. These new products are manufactured by Sysmex with high sensitive chemiluminesence technology, which may help the early diagnose of thrombosis and fibrinolysis, and they are aimed at further expanding the Group's product portfolio. During the Period, there were approximately 64 Sysmex analysers installed by the Group at the hospitals and healthcare institutions, and the use of 4 Thrombotic Markers has commenced.
In addition, the Group provides solution services to the clinical laboratories of hospitals through Dacheng Medical Equipments (Shanghai) Co., Ltd. ("Dacheng"), a wholly-owned subsidiary of the Group. This has enabled the Group to establish and maintain direct relations with local medical practitioners so as to keep the Group close to the frontlines of the medical practice and the market demand for IVD products. During the Period, Dacheng actively expanded its business and provided solution services to three new hospitals in the PRC (located in Shanghai and Shandong) and has successfully recognized revenue. Solution services contributed revenue of RMB 132,798,000 for the year ended 31 December 2019 (2018: RMB 108,705,000), representing an increase of 22.2% compared to the last year.
Through years of operations, the Group has established an expansive distribution network across 29 provinces, municipalities and autonomous regions in the PRC with an extensive hospital coverage. As of 31 December 2019, the Group had 265 direct customers, including hospitals and healthcare institutions, and 903 distributors in its established distribution network. As of 31 December 2019, the Group also covered 1,315 Class III hospitals mainly through its sub-distribution networks in the PRC, which further enhanced the competitiveness of the Group.
Maintenance services
Apart from distributing IVD products in the PRC, the Group also derives revenue by providing maintenance services to end customers of Sysmex' haemostasis analysers in the PRC. In 2017, Vastec entered into a maintenance services agreement with Sysmex to provide maintenance services for the haemostasis analysers of its end customers. The maintenance services provided by Vastec generally include maintenance and repair services, installation services and end customer training. Vastec primarily provides its maintenance services to hospitals and healthcare institutions. During the reporting period, the maintenance services business was able to sustain steady development.
Self-branded products business
During the years ended 31 December 2017 and 2018, the factory of the Group undertook the re-setting, adjustment and calibration of self-branded IVD analysers of the Group, for adapting the self-branded IVD analysers of the Group that are originally designed for use in the outpatient department to now operate in the emergency department of hospitals. The factory reset for the upgrade of self-branded IVD analysers of the Group can improve users' satisfaction and will have positive effects on the self-branded business of the Group in the long run. The manufacturing and sale of such IVD analysers re-commenced in 2019.
Outlook
In the future, the Group will consolidate its leading position in the IVD industry in the PRC and adopt active development strategies. To realize this goal, the Group aims to continuously expand its product portfolio by diversifying product categories, increasing brand coverage and further expand the breadth of distribution network and hospital coverage. In this way, the Group will be able to capitalize on the high growth potential of the IVD market.
Concurrently, the Group will continue to develop its distribution business by enhancing its capacity to provide solution services. By being the general supplier of their clinical laboratory department, the Group is involved laboratory layout design, provides centralized procurement of IVD products, conducts real-time inventory monitoring and delivers other after-sale services to clinical laboratories. It also plans to provide solution services for two new hospitals in 2020. Moreover, the Group will continue participating in national and local IVD symposiums, as well as academic conferences to raise brand awareness.
In addition, the Group believes that strong research and development capabilities are critical for securing its future development and sustainable growth. It will therefore invest more resources in improving its research and development capabilities, including acquiring equipment and instruments, and hiring experts from relevant fields. The Group will also engage in research projects to further develop self-branded IVD products that hold promising market potential. The Group is keen as well to further strengthen product quality management, and optimize the performance and applicability of its self-developed products to enhance the Group's competitiveness in the market.
Mr. Leung King Sun, COO of the Group, added, "There will be a significant growth potential for the healthcare and medical device market, especially the IVD market in PRC with the aggravating trend of ageing population, the growth of medical expenses per capita and the progress of technology development. Looking ahead, we will continue to diversify our product mix, distribution network and hospital coverage so as to enhance our capacity to provide solution services to hospitals and further improve our product research and development capabilities. We will also seize opportunities that allow us to realize sustainable business growth and boost shareholder value."
About IVD Medical Holding Limited
IVD Medical Holding Limited ("IVD Medical" or the "Group") is a leading distributor of IVD products in the PRC. Its key subsidiaries include Vastec Medical Limited, Dacheng Medical Equipments (Shanghai) Co., Ltd., IVD China Limited and Suzhou DiagVita Biotechnology Co., Ltd. The Group's distribution network covers 29 provinces, municipalities and autonomous regions across the PRC. It is the sole national distributor of Sysmex' haemostasis products in the PRC and provides maintenance services to its end customers. It also engages in the R&D, manufacturing and sales of self-branded IVD analysers and reagents and provides solution services to clinical laboratories of hospitals for centralised procurement.
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