Modern Chinese Medicine Announces Year 2021 Annual Results

Solid growth driven by extensive distribution network and strong R&D

PERFORMANCE HIGHLIGHTS

The Group posted a consolidated revenue of approximately RMB360.7 million for the year ended 31 December 2021,representing an increase of approximately 16.8%

For the year ended 31 December 2021,the gross profit increased 15.8% to RMB158.4 million

Profit before tax largely increased by 26.2% to approximately RMB114.2 million

The increase in revenue was primarily driven by the surge in revenue generated from the sales of Vigour and Vitality Supplement Pill (補腎填精丸) and Kidney Invigoration Pill (金匱腎氣丸)

Northeast,the PRC remained as the largest contributor (53.5%) to the Group's total revenue

The Group has currently established a distribution network for 79 distributors covering about 40 cities in the PRC

The directors recommended the payment of a final dividend of HK$0.0167 per ordinary share

HONG KONG,March 24,2022 --Modern Chinese Medicine Group Co.,Ltd. ("the Company" or "Modern Chinese Medicine",together with its subsidiaries,the "Group",HKEX stock code: 1643) announced its annual results for the year ended 31 December 2021. The Group has risen to the challenges brought by the COVID-19 pandemic and the headwinds it caused and recorded remarkable growth. The Group posted a consolidated revenue of approximately RMB360.7 million for the year ended 31 December 2021,representing an increase of approximately 16.8% as compared to the corresponding year in 2020. The gross profit was approximately RMB158.4 million,representing an increase of approximately 15.8% while the overall gross profit margin decreased slightly to approximately 43.9%. Profit before tax largely increased by 26.2% to approximately RMB114.2 million. Total comprehensive income for the year reached RMB81.4 million,representing an increase of approximately 24.9% as compared to the corresponding year in 2020. The directors recommended the payment of a final dividend of HK$0.0167 per ordinary share.

BUSINESS REVIEW

The Group is considered as one of the leading companies engaged in the production of PCM in terms of the sales of Qi (氣) – deficiency and blood-stasis PCM pills (補氣補血類中成藥丸)and cardio cerebrovascular PCM capsules (心腦血管中成藥膠囊)in Heilongjiang,Jilin and Liaoning provinces (collectively referred to as "Northeast,the PRC"). The Group currently has about 60 types of PCM products,including some major products which are believed to be having the intended therapeutic effect for the treatment of the symptoms of COVID-19 and/or similar illness.

The year 2021 marks the start of the "14th Five-Year Plan" and the beginning of the visionary goal of building a modern society and "Healthy China". Favorable policies for the traditional Chinese medicine ("TCM") industry have been introduced by the PRC government intensively. During the year ended 31 December 2021,the Group seized the development opportunities of the industry,enhanced research and development ("R&D") capabilities,continued to expand sales network,and actively explored the possibility of future development. The Group is committed to becoming the pioneer of Chinese traditional medicine modernization.

Well established distribution network to support further development

Although the repeated epidemic outbreaks in some provinces haves brought challenges to sales,the Group continues to strategically expand distribution network leveraging on its rich industry experience and reputation. The Group has currently established a distribution network for 79 distributors covering about 40 cities in the PRC,which are in turn served and administered by over 35 marketing staff members with relevant experience in the TCM industry. The distribution network would not only help to develop the business operations geographically from Northeast and Huanan to other areas in the PRC,but also allow the Group to penetrate in reasonably extensive width and breadth both in Northeast and Huanan,the PRC,where the Group is strategically targeting at in view of the Group's established footprint and the large population there. The Group's distribution network and distributorship model will continue to support further development of the Group's business operations in the foreseeable future.

R&D as core competitiveness

R&D is crucial in maintaining the Group's competitiveness. The Group mainly develops new products by collaborating with research institutes,for example the collaboration with Heilongjiang University of Chinese Medicine (黑龍江中醫藥大學) to develop Stroke Prevention Capsule (耆丹禦風膠囊). During the year ended 31 December 2021,the R&D expenses amounted to approximately RMB10.5 million,representing approximately 2.9% of the Group's total revenue. Addition to outsourcing,the Group's R&D Department also played a vital role in quality control and quality assurances of the products.

Financial performance

The Group posted a consolidated revenue of approximately RMB360.7 million for the Year 2021,representing an increase of approximately RMB52.0 million or 16.8% as compared to the year ended 31 December 2020. The increase in revenue was primarily driven by the surge in revenue generated from the sales of Vigour and Vitality Supplement Pill (補腎填精丸) and Kidney Invigoration Pill (金匱腎氣丸) which have an intended therapeutic effect of,amongst others,replenishing Qi (氣); and improving kidney. Vigour and Vitality Supplement Pill (補腎填精丸) and Circulation Enhancement Pill (氣血雙補丸) were the top selling products for both the Year 2021 and the year ended 31 December 2020. These two products contributed approximately 42.6% and 38.3% of the Group's total revenue for the Year 2021 and the year ended 31 December 2020,respectively.

Northeast remained the largest contributor to the Group's total revenue for the Year 2021. It contributed over 50% of the Group's total revenue for both the Year 2021 and the year ended 31 December 2020. In terms of absolute dollar amount,performance for all other regions for the Year 2021 has,nevertheless,shown an increase in revenue over that of the year ended 31 December 2020. The increase in total revenue was mainly due to the growth from Northeast,and Huanan (華南) by approximately RMB27.9 million and RMB9.4 million,respectively.

For the Year 2021,the overall gross profit margin decreased slightly to approximately 43.9% as compared to approximately 44.3% for the year ended 31 December 2020. This was mainly due to the increase in revenue generated from sales of Vigour and Vitality Supplement Pill (補腎填精丸),which had a relatively lower gross profit margin than those of the other PCM products.

Looking ahead,Ms. Zhang Hongli,Executive Director of Modern Chinese Medicine Group Co.,Ltd. said,「looking forward,benefiting from consumption upgrades,the demand for medical care and traditional Chinese medicines will continue to grow. It is expected that in 2022,the PRC Government will continue to deepen the reform of the medical and health system. In line with the development trend of the PCM market in the PRC China,the Group shall persistently adhere to our development strategies,strengthen our R&D,continue to expand sales network,and to complement the country's implementation of favorable policies,in order to further promote the industry development.」

About the Group

Modern Chinese Medicine principally engages in the production of proprietary Chinese medicine and offers both over-the-counter and prescribed medicines intended for use by the Middle-aged and the Elderly in the PRC. According to the Euromonitor International Report,the Group was one of the leading non-listed companies engaged in the production of PCM in 2019 in terms of the sales of Qi-deficiency and blood-stasis (補氣補血)PCM pills and cardio-cerebrovascular (心腦血管) PCM capsules in Northeast,the PRC.