[Notice to shareholders] Celltrion Healthcare’s Statement on press release from YTN
The following is an official response by Celltrion Healthcare to the press release from YTN titled “The Financial Supervisory Services(FSS) investigation at Celltrion’s affiliate in regards to accounting fraud suspicion” On Dec.11, 2018.
1. Celltrion Healthcare informs you regarding the phrase “In 2Q18, Celltrion Inc. paid \21.8bn to Celltrion Healthcare for purchasing domestic distribution rights. Celltrion Healthcare recognized it as sales, barely avoided operating loss in 2Q18.”
Regarding transfer of domestic distribution rights, revenues by transferring the rights can be recognized as sales since Celltrion Healthcare has been creating revenues through utilizing global exclusive sales rights and this accounting complies with K-IFRS.
1) Celltrion Healthcare has been discussing with Celltrion Inc. in regards to transfer of domestic distribution rights since 2017 to simplify intercompany business structure and concentrate on overseas marketing and distributing business. And Celltrion Healthcare transferred domestic distribution rights to Celltrion Inc. through approval of the board of directors in 2018.
2) Our company recognized transfer of domestic distribution rights as sales revenues on the grounds as below.
① Accounting standards application statement 12-1
(1) Statement of operating profit or loss
At this point, operating profit or loss occurs through a company’s major operating activities that equals to sales in manufacturing industry, and sales is calculated by deduction of sales discount, returns and allowance from the gross sales.
② Article 2 of the articles of association [purpose]
1. manufacturing, processing, and selling of medicines, raw material medicines, and chemicals
12. collateral business at every clause
According to K-IFRS, sales appropriated to operating profit(loss) is defined as revenues through major operating activities(refer to ① above). Consequently, judgement whether revenues from transfer of sales rights is resulted from our major operating activities is essential.
Our company’s business purpose in the articles of association is defined as “manufacturing, processing, and selling of medicines, raw material medicines, and chemicals,” “collateral business at every clause.”(Refer to ② above)
Celltrion Healthcare is creating revenues through marketing and distributing Celltrion Inc.’s products at global biosimilar market by utilizing global exclusive sales rights (which includes exclusive purchasing rights from Celltrion Inc.).
Celltrion Healthcare is operating business through sub-licensing and selling products to domestic and international pharmaceuticals and receiving license fees in return using exclusive sales rights, and therefore disposal of sales rights also can be occurred. In practice, our company is receiving license fees for granting exclusive sales rights from several distributors.
2. Celltrion Healthcare informs you regarding the phrase “Sales increased due to increases in account receivables, however, collection period is gradually prolonged to more than 6 months. It led increases in operating profit while worsening cash flow with delay of collection,” and “this circumstantially indicates that false sales could exist.”
Celltrion Healthcare has no account receivables which couldn’t be collected from partners in recent 5 years. Additionally, no false sales is in place at our account receivables.
1) Collection period of account receivables differs from every partners, and Celltrion Healthcare prolonged collection period in the process of changing contract conditions with certain distributors for managing profitability as our company secured financial sustainability by listing in 2H 2017.
2) Celltrion Healthcare has no false sales, and account receivables are consistently collected in accordance with given period. There is no account receivables delayed or not be collected.
※ Average collect rate is calculated differently from the practice as approximately 50% of annual sales is concentrated at year-end and quarterly sales portion to partners is changing.
3) Though collection period of account receivable becomes longer, Celltrion Healthcare clearly has no liquidity issues as our company has no financial liabilities while maintaining \700~800bn of cash and cash equivalents.
We thank you, our shareholders, for your continued support.