Earnings Call: H1 2016

Aug 17, 2016

Ladies and gentlemen, thank you for standing by, and welcome to the Shandong Weigao conference call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question and answer session. At which time, if you wish to ask a question, you will need to press star one on your telephone. I must advise you that this conference is being recorded today, Wednesday, the 17th of August 2016. I would now like to hand the conference over to your first speaker today, Ms. Iris Wang. Thank you. Please go ahead, ma'am. Thank you, operator. Good morning, and good evening, everyone. This is Iris Wang, the China Healthcare Analyst at Credit Suisse. Today it is our great honor to have Weigao management team to review the first half results, including the CEO and Chairman, Mr. Zhang, and CFO, Mr. Cui, and Phyllis Chen, the Director of Business Development, and Phyllis Wang, the Director of Investor Relations. Without further ado, I will pass the call to the management to start the business review. So Phyllis, please. Thank you, Iris. Good evening, and good morning to investors on the other side of the world. We have the pleasure of our Chairman Zhang, joining us, and he would like to give you opening remarks. Zhang, to you. Welcome everyone in participating in the 2016 first half conference call. I would like to report a few of the group's development before I pass over to Jason and myself for the rest of the briefing. As a whole, it was very challenging to the medical industry with the slowdown in GDP growth in China. Issues relating to payment of reimbursement and tendering. Certain hospitals in second cities and above fully suspended infusion for outpatients, and that negatively impact on the infusion market. We already foresaw these issues when we gave out the sales guidance last year. Conventional infusion sales was down by 4%. However, Weigao has always focused on the concept of safety infusion through non-PVC infusion, specialized infusions, sterilization using irradiation, infusion pumps. Weigao has branded and positioned itself in safety infusion. Sales growth for specialized infusion products had been encouraging. Continued growth was also registered in pre-filled flush syringe. Sales of which exceeds CNY 100 million, an increase of over 72% in the first half of the year. Product registration has also been obtained for the next generation syringe, which record over CNY 10 million sales in the first half, representing over 200% increase. New products has played a very important part in meeting our turnover guidance in the first half, and it consolidate our leading positions in China. Dialysis continues its growth momentum. In 2005, we launched a new generation of dialysis machines, and restructured the two sales teams in dialyzer consumables and dialysis machines. These measures have led to continuous growth in dialysis machine and dialyzer consumable sales. We are in the process of acquiring the fifth and the sixth production lines. In view of the potential growth in the dialysis market, we are actively reviewing capacity expansion. We review of taking 30% market shares in the dialysis market in China. 第三个就是骨科。骨科授予了管理层10%的股权，实现了对管理层的激励。所有相关工商与法律手续已经完成，对于稳定管理层起到了重要作用。我们也积极推动骨科的借壳上市工作，为骨科业务发展寻求更大的资本平台。 Weigao also has finally granted 10% incentive shares to the management. All necessary registrations and legal documentations have been completed. This is really important to retain management in Weigao Ortho. We are also following up on the reverse takeover of an A-share listed company to pave the way for Weigao Ortho to have its own platform in the capital market. 第四个就是集团大客户销售取得了积极的进展。Weigao自2012年以来一直寻求如何利用现有的渠道优势拓展输注产品以外的产品销售模式，基本成立。集团设立了大客户部，筛选有优势的大客户，由大客户部统一协调客户关系，各产品线进行专业销售，并建立内部模拟市场结算体制。这种机制积极推动了输注类以外产品的销售。 We are making progress with the key account sales. Since 2012, we have been looking at how best to utilize our advantage in our extensive sales channel to expand sales in products in addition to products in infusions and injections. The sales model is now in place. By focusing on selected key hospitals, the key account manager would manage the relationship and coordinate with dedicated professional sales teams from other business units. There is internal incentive arrangement between the business units and the relevant key account managers. This system has promoted sales of product other than infusions and injection syringe products. 第五个是在制造方面，针对管理效率的提升，改进工作取得了持续有效的结果。血液透析分部通过对采购流程的规范，加强供应商比价环节，成功地降低了材料采购成本，提高了血液部分分部的毛利水平。而一次性耗材团队除了延续每年的管理改进的政策外，在内部建立了配件、模具等共享中心，成功地整合了内部资源，大大地降低了制造成本。 We continue to effectively streamline the production process in improving efficiency. Weigao Blood business unit has strengthened its procurement process and price comparison from suppliers. It effectively lower raw material costs and improve in gross margin. In single-use consumable business unit, it continues to improve efficiencies and also establish centralized parts and accessories and mold-making centers to better utilize and sharing of internal resources among various product lines, and it significantly lower manufacturing costs. 接下来是上半年的情况，跟大家说明两个问题。第一个就是骨科目前借壳上市状态。我们目前已经在6月份按照中国法律向深圳交易所提供了资料，目前正在受理当中。骨科业绩历史也与我们与A股公司签订的业绩指标都有差距。下半年增量的举措，一个是通过建立20个地区仓库进行渠道下沉，增加新的分销商，覆盖原有经销商没有覆盖的空白区域。同时计划增加相应销售人员，使我们的新产品能够被更多的客户接受并使用。二是建立一个地区分销中心，就近补货，减少当地代理商资金占用，让现有代理商能够有更多的资金投入到市场和销售活动中。目前任务已经完成了一半左右。三是骨科与海星公司合作的关键产品下半年会有更多的注册证拿到，新产品增加也会带来销售的增长。另外，我们也同时利用集团的大客户平台和耗材事业部现有的渠道优势，配合上市战略举措的实现，并且大幅拉动销售的增长。 Right. In view of the development in the first half, Chairman Zhang would like to further discuss two points here. Firstly is in relation to Weigao Ortho. Weigao Ortho has started the reverse takeover of an A-share listed company, and it has, in accordance with the PRC legal requirements, submitted information to the Shenzhen Stock Exchange and is waiting for their assessment. Weigao Ortho has several ways to increase sales in the second half. Firstly, Weigao Ortho has and will continue to establish a total of 20 regional warehouses to further penetrate the market, adding new distributors to cover areas which were not currently covered by existing distributors, recruit salesperson to increase customer coverage. Secondly, to establish a distribution center to facilitate supply to distributors. Previously, distributor will have to pay Weigao Ortho upfront to have sufficient inventory in stock. With Weigao Ortho having a centralized distribution center, it will lessen the financial burden on the distributors, and these distributors will have more financial resources in marketing and sales activities. Nearly half of the work network has been established. Thirdly, new product registration for joint are expected to be obtained by our partners and will have sales contributions in the second half. Finally, we also leverage the key account of single-use consumable to generate significant sales growth for Weigao Ortho products. Finally, despite the overall rate of growth for IV catheters was below expectations in the first half, the sales of safety IV catheter actually increased by 13%. The group put in place measures to stamp out selling price variations among the distributors in different regions in the first half. It has affected the sales of IV catheter. In addition, moving to the new production plant, and also adjusting the production process has affected productions, and in turn, negatively impact on sales. We believe the growth of IV catheters will resume in the second half as the above two adjustment process have already been completed. Finally, Chairman Zhang would like to thank you for participating in the call, and also your continuous support of Weigao. I will now begin with the brief prepared notes on the results before I pass over to Jason for financial highlights. All the amounts to be mentioned in this call will be in CNY, unless otherwise stated, and the usual disclaimer will apply to the call. Revenue for the group for the first half amounts to CNY 3.2 billion, an 11.1% increase compared to the first half of last year. As you recall, in April 2006, 10% of the enlarged issued share capital of Weigao Ortho was issued to the management of Weigao Ortho. On 15th of June, Weigao and the management of Weigao Ortho, among others, entered into agreement to sell the interest in Weigao Ortho to an A-share listed company. For the 10% shares held by the Weigao Ortho management, a share-based payment expenses of CNY 238.9 million was recognized by Weigao Ortho during the period. The share-based payment expenses is a non-cash one-off item. Excluding extraordinary item relating to the Weigao Ortho and non-controlling interest, net profit attributable to the owners of the company amount to CNY 632.5 million, an increase of 7.6% compared to the same period last year. The reconciliation of after-tax profit showing these items is shown on page 12 of the presentation. We'll now turn to the performance of the three major business unit and profit loss for the two joint ventures. Firstly, is single-use consumable. Sales of single-use consumable product as a whole increased by 10.7% in the first half. Sales of infusion sets amount to CNY 873.2 million, an increase of 14%. The group strategy of focusing on specialized safety infusions has positive impact on its performance, despite challenging environment. When excluding sales of pre-filled flush syringe, despite sales of commoditized infusion set decreased by about 4%, sales of specialized infusion sets actually increased by about 12%. In fact, despite accounting for only 27% by volume, specialized infusion sets account for 80% of overall infusion set sales, up from 78% for the same period last year. Within infusion sets, sales of pre-filled flush syringe continue to register strong growth. Sales has exceeded CNY 100 million, amount to CNY 116.9 million, comparing to CNY 68.3 million in the first half, a 71% increase. The product was first launched in the first half of 2014. There's a continuous acceptance of using pre-filled flush syringe in flushing out IV catheters. With a strong base of sales of IV catheters, strong growth is expected for pre-filled flush syringe going forward. Next is needle. Sales of needle amount to CNY 426.8 million, an increase of 3.4% over the first half of 2015. Again, the strategy of focusing on safety infusion and injections has counteract the negative impact from intense competitions in the market and factors as mentioned by Chairman Zhang just now. Despite sales of conventional IV catheters decreased by about 10%, sales of safety IV catheter actually increased in value by about 19%. The third item is syringe. Sales of syringe increased by 10.3% to CNY 368.6 million. The growth is very encouraging given the headwind in the market. Next, sales of prefilled syringe increased by 6.4% to CNY 176.4 million. The growth is slower than expected. As you might have read in the news that some distributors in the market failed to store prefilled vaccine in proper temperature. As a result, the government authorities have clamped down on them and result in a large-scale closure of vaccine distributors. This has caused lower demand on prefilled syringe from the vaccine manufacturer to Weigao. Sales of blood bag decreased by 17.3% to CNY 132.7 million. In the first half of last year, there was an export sale to Venezuela, and as a result, the comparative base was higher in 2015. It was not a recurring sales order. Sales of wound management product amount to CNY 84 million, an increase of 86% compared to the first half of 2015. The group was able to leverage on its key account and generate sales of wound management products. Last year, there was initial short-term impact from the alignment of suture sales force to team up with the sales force for selling wound dressing. As planned, there would be synergy between the two product teams and the potential to explore new accounts not being currently covered by the team. The effect has now been gradually felt during the first half of 2016. Sales of our prepared product amount to CNY 340.5 million for the first half, a decrease of 4.4%. Government initiative in certain provinces, such as Zhejiang, have caused a significant tender price reduction. Weigao also had decided not to participate in such tenders. Uncertainty from price reduction had also affected orders from distributors. Going forward, Weigao will use dual brands policy in targeting economy segments and continue to grow its premium segment. Finally, for the third business segment, sales of blood purification consumable amount to CNY 405 million, a 25.8% increase. The growth met the management expectations. The group is on track for further expansions of dialyzer production capacity. With a more comprehensive range of dialysis machine, with the launching of new dialysis machine during the first half, sales of dialysis machine increased by 32% to CNY 98.2 million in the first half. Next, we will move on to the joint ventures. For the first half, the Nikkiso joint venture contribute CNY 2.8 million profit to the group. Similar level profit contribution of CNY 2.6 million was recorded in the first half of 2015. A loss of CNY 1.3 million is recognized by Weigao for the Terumo JV in the first half, compared to CNY 0.7 million in the first half of 2015. The JV is still in the process of obtaining product registration and is not expected to be operational until 2017. Our last part, over to Jason for financial highlights. Hello, everyone. Let me introduce some financial highlights. First, we talk about GP margin. GP margin for the first half look very good, and we increased our GP margin by 0.9%, and the GP across all the three divisions. For the one-time consumables, it is mostly contributed by the upgrading conventional product to the high-end product. As President Zhang mentioned, that our conventional products are down by 4%, but high-end products growth over 10%. So this is successively upgrade our product matrix. The second is management initiative to control the cost and improve the efficiency as usual. So this is the one-time consumables. For the Ortho, it is caused by the mix change and the churn for the direct sales models. For the blood purifications, it is quite successfully to improve their procurement process and get more suppliers to successfully reduce on the current purchasing price. Also, we see some leverage in the manufacturer side for blood purification segment. Second, we talk about the selling expense. For selling expense, it is just a 0.4% increase versus the same period last year. It is mainly due to the Ortho segment. First, the Ortho is slowing down, so this caused a mix change between the Ortho segment and the blood purification segment. Blood purification segment, their selling expense general levels is higher than the Ortho segment. Another is that Ortho hire almost 30 sales reps to enlarge their sales and also churn out some of the existing models. So their expense level is higher than the last year. Next, we move to the general and its administration expense. If you look at the figures, it is 6.1% versus 6.3% last year. But we need to of course exclude the share-based payment for the also management 10% shares. The amount is $295 million. If we excluding the share-based payment, it's 6.8%. What is 6.3%? It increased by 0.5%. One reason is that we incurred 6 million additional IPO expense for the Ortho backdoor listing, and the rest is contributed by the salary increase and bonus accrue. The rest items is other revenue and finance cost. Other revenue is lower down by $6 million due to the interest income reduced versus the same period last year. Finance cost, we have increased by $17 million for the loans we learned from the International Finance Corporation. Next, we talk about our account receivables and inventory. We successfully reduced inventory days by 12 days. Unfortunately, we just increased our DSO by 9 days. As we mentioned in the previous meetings, we have some hard positions right now for collection the receivables from the hospital. As you know that hospital is suffer from the financial burdens in the recent years. Our management also puts a focus on that, and we successfully launched a plan to charge the overdue expense for the sales rep and reduce their commissions if they cannot successfully run the collections. We also link the collection target with their options and bonus. This is help us to control the DSO, but we will be continue focused on monitor the situation for the account receivables. In the first half, we spent the CapEx for CNY 340 million, mostly for the one-time consumable segment, and we enlarge some capital expenditures for the facilities and for some automation equipment. We also increased the CapEx spendings for the 5 and 6 production lines in the blood purification segment. Last, we talk about cash and bank balance. Right now, we have RMB 3.8 billion cash on hand, and as we said before, some cash flow generated from the selling the interest of Biosensors and received by the legal overseas entities is subject to PRC foreign exchange control regulations. Weigao right now currently want to retain the cash to have more flexibilities to oversee M&A opportunities, and we also keep the cash for the deal of backdoor listing of the Ortho. Right now, we have some cases in the negotiations. We hope so we can have some deals in the future. I think that's all for my part. Thank you. That concludes our prepared remarks. Iris? Thank you, Chris and Mr. Zhang and Jason. We will start the Q&A session. Firstly, I want to ask three questions. One is for the dialysis consumables. The sales growth seems stronger than the previous guidance. What are the drivers behind that? My second question is about the orthopedics. This year, the sales revenue is flat, and even with excluding the management incentive-related compensation cost, the EBIT of the dialysis is decline. Do you still think the net profit growth target of 40% mentioned in the backdoor listing filing is still achievable? My last question is about the average production capacity utilization rate in the new facility versus the utilization rate in the old facility. Thank you. Iris, let me just handle your three questions. First, your question regarding the positive variance for the blood purification consumables. I think it's contributed by two reasons. The first reason is when we do the guidelines, we think the key product dialyzers grow something of 28% because we have keep growth for several years and maybe a little bit slow down for late year. But good thing is that we continue to keep the growth for 30%. The rest is contributed by the tubing products. In the past two years, blood purification consumables is suffering from a slowdown for the tubing, because we are not putting too much focus on the tubing. But in the last year, the sales team has just done some efforts to promote the tubing products, and we do some cost reduction in the production side to have the tubing more competitive in the cost advantage. So this tubing has grown by 15% in the first half. It gave a positive contribution to the results of the blood purification consumables. Secondly, regarding your question about the Ortho growth. First, I think just the 40% you got is from the result. You compare the target for the backdoor listing versus the actual results for the last year. But in the last year, the profit, we have deducted by about CNY 30 million IPO expense. If you hike back the IPO expense, it almost grows by 20%. You are right, and we have some slowdown in the first half. But as President Zhang mentioned, we have several matters in the rest of the year to cover the incremental sales for the Ortho. So if these measures are successful and we can achieve incremental sales by almost CNY 100 million, so if we can keep the same margins for the Ortho, we can have the confidence to achieve the result. Your last question regarding the utilization rate for the manufacturer, it's roughly 90% for the utilizations of the new facilities. So that's all the answers for your questions. Okay. Thank you, Jason. Operator will now open the line to all the investors and analysts. Thank you, ma'am. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star one on the telephone and wait for your name to be announced. If you wish to cancel your request, please press the pound or the hash key. Our first question come from the line of Mark Kong from DBS. Please ask your question. Hi. Thank you for taking my questions. I have basically two questions. Number one, guidance on revenue growth of different segments and different cost to income ratio guidance. This is number one. Number two, on page five of your announcement, the balance sheet, there is an item called other receivables, receivable after one year. That increased from CNY 30 million to CNY 4.8 billion. What is that? Thank you. Oh, the guidance. We sort of gave out the guidance last year, but I may just sort of quickly Mark, your first question is guidance for full year 2016. Yes. Yeah. Yeah. We only give out guidance for top-line sales. We do not give guidance on cost items. We gave out the guidance last year. I will just quickly run through the numbers. For single-use consumable, it is 9%. Orthopedic is 13%. Blood purifications consumable- 23 is 23%, and dialysis machine is 25%. So that is the guidance. Jason, up- Yeah. Yeah. Your second question regards the increase for the other receivables. It is contributed by two factors. The first factor is just the loans to the Ortho management. As President Zhang mentioned, we gave the 10% shares to the management, and the group company gave the loans for them to subscribe the 10% shares, and we already made an announcement, I think, two months ago. The second is that we have set up a new entity handling the leasing business. It is leasing medical equipment to the hospitals and to facilities our sales in the three segments. So this leasing asset we recorded into the other receivables is longer than one year. So that is the reason for the increase. Thanks. Just a quick follow-up. The guidance on orthopedic device sales growth is 13%, 13%, correct? That's right. My follow-up is that based on the announcement made about the injection of orthopedic business into Asia Arms, there's a target earnings growth for this segment in next 2 years, and the target earnings growth in the announcement is over 20% each year. My question is, why the target earnings growth in the announcement is 20% over, but the guidance on orthopedic device now is 13% only? Thank you. I'll just sort of quickly translate the questions for information to our Chairman. 咱们的利润增长是20%，为什么有这个差距？谢谢。因为我们在今年后期，我们认为我们的大客户平台能给今年的增长带来一个很大的帮助，这是第一。第二个，今年在新产品的推广上，我们觉得后期还是有很大的力度去做，所以这个至于我们觉得是可以调整。另外就是如果可以放到一个A股公司，它有自己的平台，这个可能也很大地推动整个队伍销售。对。 To answer your questions, Chairman Zhang said that, as he mentioned just now, we have key account management, whereby the key account managers for our single-use consumables, they will work with other business units including Weigao Orthopedics and Weigao Blood. We expect that how we are going to generate significant sales for the Weigao Orthopedics. The other part is on new product promotions. It's actually quite a good initiative. Finally, if the entity is going to have its own capital market platform, it would be quite an incentive for Weigao Orthopedics sales team. That's how it generate the top line sales will exceed our previous guidance. Thank you. Thank you, Mark. Our next question is coming from the line of Richard Ye from Goldman Sachs. Please ask your question. Thank you, management. 谢谢张总，管理层回答我的问题。我有几个问题想问一下。一个，张总刚才跟我们提到，血液净化这一部分产能扩张，达到30%的市场份额。能不能跟我们说一下，您觉得30%的产能大概是在多长时间之内能够达到，然后扩张的量大概是多大？第二个问题，我就想问一下，我们整个的一次性耗材的竞争格局，尤其是在中低端和高端的，现在的市场竞争格局大概是一个什么情况？当然有控费的因素，那么从价格的这个角度来讲，我们是不是看到了价格还在受到很大的压力，还是价格现在开始比较稳定了？还有一些影响价格最大的因素是什么？我想问第三个问题，从骨科产品来说，我们在关节的产品后面会有多少新的产品，比如说三到五年之内可以上市？谢谢。谢谢。你提到了这几个问题，我一个一个看能不能说清楚。我们现在血液净化，进行到现在，在中国市场大约占到24%左右。但是我们现在中国市场的整个患者也是在增加，所以市场也在增加。这样我们预计到2020年，我们的产能想做到2200万透析器，2200万透析器接近于40万患者的一个服务，所以基本上就能完成到30%以上的市场占有率，大概是这样一个数字。第二个，就关于高低单产品在市场的格局和竞争。现在我们面临着很大的一个压力，就是政府招标。政府招标，大家都知道，可能政府是想通过招标的手段，把整个在市场里边的水分挤掉，所以这时候对我们的压力还是蛮大的。但是对于微创现在最大的优势，就是微创的创新产品。微创一年不断地推向市场20到30个新的产品，也把原来的不断地新产品做升级，这样我们就避免了常规产品受的一些压力。所以我们想在高单产品占比维持不变的前提下，高单毛利也是给了很大支撑，所以维持现在的毛利率，我们想还是没有问题，这主要取决于微创的创新能力和在行业的一个引领。第三个是什么？我们未来的骨科关节新产品。对，骨科的新产品这一块。现在骨科市场也有很多的争，但是骨科的争，现在是以微创这个品牌为主要的一个，这个亚华和威高为主要品牌的一个证。我们下一步就是利用海新的合作，想通过海新做一个高端品牌。这样它不是挣得多少，是把原来低端品牌所有的证，在高端品牌也要取得。这样呢，就是覆盖原来的证。所以就有两个品牌，一个是低端品牌，一个是高端品牌。所以高端品牌上，我们也是想全部覆盖现在的所有的证和新的创新的证。关节下的，半年应该有五到六个。就是今年到年底。到年底。六个。六个证。今年到年底，我们高端的能取到六个证。 OK, maybe we quickly summarize the questions and reply from Chairman Zhang. The first question is about our blood purification expansion, how and when we are going to achieve the 30% market share as mentioned by Chairman earlier. Chairman Zhang said we currently have around 24% market share in dialyzer. The expansion of achieving 30% market share is by 2020. By then, we will expect our capacity to be about 22 million dialyzer to serve 400,000 patients, and that will roughly so about 30% of market share by then. The second question is single use consumable competition and pricing pressure. Chairman Zhang said that the main pressure is actually coming out from government tendering. As you know, the government is trying to lower the cost by squeezing out any margin between the ex factory price and end selling price. The main way Weigao actually counteract those measures is by launching new products. The fact that Weigao launch on average 20 to 30 new products each year, or upgrading existing products, that is how we actually support our profit growth and also maintaining our margin. The third question is about orthopedic joints. How many new products we are going to launch? Currently our joint product, we currently have three brands Weigao, Yahua and Bangde, and in terms of artificial joints, it is under the Yahua brand, which is more of an economy segment. We have collaborations with a joint company and we expect to get six product registrations by the end of this year. That actually positions in the high-end market. So by then again, focus on our high-end and dual brand policy to penetrate market. I hope that answers your question, Richard. Thank you very much. [Foreign language]. Thank you. Thanks, Richard. Our next question is coming from the line of Jack Hu from Deutsche Bank. Please ask your question. Thank you for taking my question。那我先用中文先问一下，我第一个问题是在还是关于我们的研发这一块，我有两个小问题，第一个问题是能不能帮我们把最近的这个审批的环境帮我们说一下，因为好像在药这一块有非常多的一个推迟吧，看一看在您的这一块，我们在耗材这一块或者是骨科这一块，有没有一些推迟的迹象？那第二个问题，在研发这一块是说我们在下半年或者是明年会不会有一些在一次性耗材这一块，会不会有一些大的产品会被批准吧？您帮我们介绍一下，特别是张总刚才说有可能过上亿的这种产品线，新的产品会出来。那第二个问题是对于我们销售的效率这一块，我们看到的就是说，其实公司在14年的时候，在渠道里面投入是比较多的，然后在15年我们看到这个费用在百分占比上要少很多，但是我们看到今年上半年好像又增加到26.4%了，那能不能帮我们介绍一下，我们以前在渠道里面的投入的回报，是不是已经在2015年基本上都已经都释放完了，然后往前走的话，我们应该怎样看这个问题？谢谢。谢谢。第一个研发的问题，由我来回答。费用的方面，崔总你来解释一下。现在研发的审批环境，应该说中国的审批环境是越来越严格了，像我们现在很多的临床，它已经超出美国的FDA的标准了，而且他们审查的时候，审查人员又是为了免单子，所以有很多的问题。但是相对于威高这样的一个企业来说，它最大的好处一个是它管道里边有很多的审批，所以它已经形成了一个比较良性的循环，这是一个。第二个，我们很多的高新产品现在可以申请绿色通道，而且现在的绿色通道申请，尤其像这种行业的大企业，申请不是很——只要你是引领行业新产品，申请这种通道，你不是复制的，你是常规的，只要是超越、创新的，申请这个渠道还是比较畅通的。所以在整个大的周期上来看是越来越长。但是对于威高来说，第一个是退还，第二个，我们可以通过这样的一个绿色通道，也会帮助我们提高很多。但反过来说，它在竞争当中，它的门槛越高，可能对我们这种大的企业越有一个保护的作用，竞争对手越不容易去做这件事儿。所以这是我看来。但是对于整个威高大的方面，在注册方面，一个是我们会在骨科，尤其是关节和脊柱，加大推新产品的力度还是很大的，这一块我们是不断地在做这方面的投放、研发以及申请。第二个，是我们在医用导管，就是PICC这个方面，静脉导管这个方面，我们做得也是大力推。第三个就是在辅料方面，我们也是大力推。最大的一个就是我们在整个的灭菌，改变灭菌方式，做这种耐辐射产品的申请，这个还是力度蛮大的，因为我们要把原来的常规的环氧乙烷灭菌，全部地逐步地改向辐射灭菌，引领中国在整个这个行业的方向。所以所有的证件的覆盖是原来产品是个全覆盖的，这个工作量也是非常大的。我们现在像注射器、采血管，现在逐步地都已经投放市场，后面输血器、输液器、血袋等等的，也是逐步地开始申请投放市场，这个也是比较大的。然后在血净化这块，主要就是高通透的和设备这一块，也是在推。所以我们现在在整个开发的力度和在管道里申请的产品，现在据我们了解还是中国最多的。 OK。Jack 的三个问题，第一个是关于 R&D 审批过程，因为他注意到，在制药方面，这个过程比以前长得多，也严格得多。第二个问题是关于一次性消耗新产品，预计不久的将来就会得到批准。张总说，在中国的医疗器械临床试验中，在某些情况下，它超过了美国 FDA 的要求。威高如果有创新产品，可以走绿色通道。所以对于市场上的主要领先企业来说，我们可以利用绿色通道。张董事长也认为，严格的 R&D 审批过程在某种程度上实际上创造了进入的壁垒，因为它需要更长的时间，需要更大的财务支持。至于新产品，张总提到了如 PICC 伤口管理。另一个主要项目实际上，正如我们之前提到的，使用一种新的灭菌方式，而不是使用 ETO，这是一种有毒的介质，在中国是一种常见的做法。但威高正在带领方式，并与政府合作，使用非毒性介质，而不是使用辐射。到目前为止，我们有一些产品已经在推出，并且在这一期间产生了相当大的增长。我们期待材料将需要修改，到目前为止，我们有已经批准的静脉注射针头，但在管道里，我们还有血液采样针头，还有血液袋，这些都需要更换材料，以及新的注册过程。 Jack，我来回答你第二个问题，关于费用上的问题。销售费用，如果单看占比的话是增加0.4个percent。但是对于我们的业务模式来讲的话，一次性耗材是以直销为主的这样一个业务模式，所以在今年上半年，因为高端产品卖的比重占比更大以后，那么关于这种促销费用，还有给销售员的佣金也会高，所以应该要把毛利水平，因为毛利增长了0.9%，和费用率水平合起来看，可能才是一个比较fair的picture。另外一个原因，就像我刚才在电话会议开始的时候讲到，这里头有骨科的原因，因为骨科今年上半年是增加销售人手，但同时它的销售额又低于去年同期，所以这样有些不average。我相信下半年如果骨科能够赶上去的话，我们这个费用率的水平还是会那个控制住。所以总体来讲的话，费用率水平并没有什么特别的迹象要突破，而且我们还是说管理层在仔细关注费用率的水平，让它能够跟我们过去一直沟通的一样，让我们的费用率水平能够低于销售的一个增长。OK, maybe I just make a brief translation. Because our sales model is 90% direct sales for the one-time consumables, so it's higher and product sales, we incur more promotion expense and sales commission. You should link the gross margin with the sales expense percentage. The margin we grow by 0.9%, and we grow the sales event by 0.4%, so it is still reasonable. Another reason is just the Ortho segment slow down, and we cannot leverage the sales expense, and also they increase some sales reps to have more area to cover. I believe if the Ortho can catch up in the rest of second year, our expense level can reach normal. We will target is grow the expense lower than the sales growth. That is our target. We will keep closing for that. 谢谢刘经理。 Thank you, Jack. Operator, do we have next question? Our next question is coming from the line of Sean Wu from Morgan Stanley. Please ask your question. Hello。Thank you very much for taking my question。各位老总大家好，我有一个问题，一个是骨科的块，因为你们全年的这个guidance 30%增长，那么上半年就是说还下降了4%，那下半年准备怎么样？就是说要做多少能够去赶上这个30%的guidance。因为像这个multinational他们都是在说中国的骨科市场现在很难做，有好多distribute restocking，你们上半年比如说下降是什么原因？可以跟大家说得更清楚一点吗？因为我可能就dial一点，就说不清楚。比如说你们这几个，spine、trauma跟那个方面有什么，各个增长如何？另外当然我们很恭喜你们在A股，recognition还蛮高的，反正咱们管理层也有很好的鼓励机制吧，也给了比较强的指引，各年的利润增长都蛮快的，这方面主要是考哪方面增长能够做到这么好？谢谢。非常感谢。这个可能也是很多投资者非常关注的一个话题。今年骨科上半年应该说业绩比去年稍微低了，主要内部也是有问题，因为我们去年大家知道上市，上市原来在分拆H股的时候给管理层期权，结果做来做去也没做成功，大家的心还是比较散的。散的上半年我们就不管不顾，也不管你上市不上市，我们果断地就给了管理层10%，而且这个手续已经上半年刚刚办完。办完也就说管理层你先不用管上不上市，你这10%的期权我现在是给了。所以管理层现在是比较安定的，我来之前还跟他们做了一个会议，大家现在还是信心满满，而且是口口相传。我对骨科这样的一年多，包括去年下半年到今年上半年，团队的不稳定还是让我有所担心的。期权给了以后，我觉得管理层的团队稳定对下半年的业绩增长有很大的帮助。再一个，上半年的业绩，刚才提到招标的事。中国国内招标可能大家都分析得很透，反正有些地区还是挺恶心的。我们上半年在几个地区是弃标了，弃标的目的就是说它的价格降到你要中标的话，可能影响到其他区域的销售了，或者价格。所以我们上半年没办法，几个地方弃标。这一弃标以后，影响了很大一块销售收入。但是我们现在下半年在调整，调整什么呢？因为威高跟其他的企业不同，威高是在每个领域里边，关节、创伤，还有脊柱都是多品牌的一个公司，就是我们手里每一个品种有好多品牌。这样我们现在就把品牌可以拉成高端、低端。如果遇到价格低的招标，我们会用低端品牌去中标，不影响高端品牌在其他区域的销售，也能够把中国的市场牢牢地控制住。所以这是我们现在在做的策略。这个策略一旦做上去以后，我们补弃标，能把弃标的那些销售给补回来。这是。第三个，我们现在母公司从应该很长时间就在做大客户平台，想通过输注产品的大客户平台来帮助输注以外产品，因为输注产品是支架，帮助输注以外产品的销售来拉动。应该说现在有所显现，下半年应该对组合这一块的拉动是有一定的贡献的。所以这一块是一个增长的因素。然后最后一个，就是我们现在针对着现代供应商竞争的格局，对整个的全物流，就是整个的物流全物流的整合。也就是说，把供应商的物流和仓库做一个全物流的整合。整合现在已经进行到一半了。如果整合完了以后，我们严格控制终端客户，这样就扩大了供应商的加速。这样呢，我们想下半年做好了，扩大了，也会对销售有一个很大的拉动。所以基于上面我说的这些因素，我想上半年虽然比去年上半年低了点，但是由于我去年下半年就团队的原因等等的原因，它的业绩还是蛮低的。如果从全年看的话，增长20%以上，我还是有信心的。因为这个业务是一个太难，它的基数也不是太大，所以我们还是有信心的。 Right. Okay. Maybe I will just do a brief summary of the questions and Chairman Zhang's reply. The first question is being lower than expected. The guidance for Ortho was 13%, but first half actually decreased by 4%. Chairman Zhang said, as you know, Weigao Ortho was going through the IPO process in Hong Kong last year, and one of the principal reasons for the H share listing is to have an incentive scheme for the Weigao Ortho management. Eventually, that did not eventually for regulatory reasons, and that is why it affected the morale of the sales team. But as you know, we have actually granted 10% Ortho shares to management, and that was announced in May this year. So that is, in fact, has actually stabilized the management. The next question is about how we are going to achieve the sales target for the full year. Oh, sorry. The other point about not meeting the expected first half growth, the fact that Chinese government is trying to lower the cost by putting pressure on price reductions for the tender. In the first half, when Weigao Ortho tender, if the price reduction is too significant, Weigao Ortho actually gave up on the tender. The reason to give it up is because if you win a tender and you start supplying goods at, say, a price which is 50% less than what you supply to other regions, the fact that all those successful tender, the price are being open and on the internet, so it would affect our tendering for other regions. That was the reason why Weigao Ortho decided to actually give up on those tenders. So that affected our sales. But going forward, what will happen is because Weigao has multiple brands, and there are certain brands which target economy segment. So going forward on those tenders, Weigao would position various brands for the tendering process so as to target both the premium and economy segments. The reason why Weigao would be able to achieve some target for high growth for the second half is because, as Mr. Zhang mentioned about key account management, the fact that Weigao single-use consumable products in infusions and injections, we got quite an extensive sales team, and we have key account management having very close relationship with hospitals. So these key account managers would coordinate with the Ortho team so as to increase sales for orthopedic product. That is actually already in place, and we expect further leverage in the second half of this year. Right。 Thank you. Thank you. Sean? Yes。 Iris, I think if there's no other questions, we might conclude the conference call. Sure. Thank you everyone, and thank you for your time today, and especially to the Weigao management. Thank you, Iris, and thank you to everyone attending the call.