China Lilang : Financial Statements - – INTERIM REPORT 2022

INDUSTRY REVIEW

In the first half of 2022, the international environment was complex and severe, with frequent domestic outbreaks of the novel coronavirus pandemic ("COVID-19" or the "Pandemic"). This put pressure on consumer market operations and caused market sales to fall from March to May1. The overall offline retail of the apparel industry was inevitably hit hard, and coupled with last year's high base, resulted in a significant

decline in retail sales. According to the National Bureau of Statistics of China, in the first half of 2022, the total retail sales of consumer goods decreased by 0.7% year-on-year, with the total retail sales of apparel, footwear, headwear and knitwear falling by 6.5% year-on-year.2,3 However, as the Pandemic prevention and control situation improved and the policies to promote consumption took effect, consumer demand was gradually released and the consumer market gradually recovered, with the domestic

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During the period under review, China Lilang Limited (the "Company" or "China Lilang", together with its subsidiaries, the "Group") actively responded to the challenges posed by the Pandemic, and steadily implemented a series of reform initiatives. Affected by the Pandemic and supply chain disruptions, the overall inventory level in the apparel industry was relatively high. The Group stepped up its efforts to clear the inventories, and the book balance was reduced by the end of June. The Group continuously optimised its retail channels to enhance store efficiency. During the period, there were 2,627 stores, representing a net decrease of 106 stores. Currently, there are 920 consignment core collection stores, representing 39% of the total number of core collection stores. In the first half of the year, the total retail sales of the Group's products maintained positive growth, achieving low single-digit growth year-on-year.

During the period, the Group also continued to promote its new retail business. After the conversion of the e-commerce to a direct-to-retail model, sales promotion and e -commerce l i v e s t r e a m i n g w e r e o r g a n i s e d i n a m o re f l e x i b l e m a n n e r, a n d e-commerce became a more effective channel for inventory clearance. The complementary advantages of online and offline services were leveraged through the WeChat Mall business. Starting from the first half of the year, the Group also increased the proportion of seasonal product sales and launched hot products during the 618 shopping festival, showcasing its rapid replenishment capability.

For the first half year ended 30 June 2022, revenue increased by 3.2% year- on-year to RMB1,397.8 million. While adhering to the strategy of providing products that represent excellent value for money, the Group increased the markup rate of certain products based on product design and market competitiveness during the period and the gross profit of the smart casual business has improved during the period. However, due to the impact of the delayed recognition of sales resulting from the shift from the core collection distribution model to the consignment model, which drives up the proportion in total retail sales with a gross profit margin lower than that of smart casual collection, and the rise in raw material prices during the period, hence overall gross profit margin decreased by 0.8 percentage points year-on-year to 48.7%. Net profit decreased by 5.3% to RMB257.0 million. Net profit margin declined by 1.6 percentage points to 18.4%. Earnings per share were RMB21.5 cents, a decline of 5.3%.

D u r i n g t h e p e r i o d , t h e G r o u p maintained a healthy financial position with sufficient cash flow. The Board of Directors resolved to pay an interim dividend of HK13 cents per share and a special interim dividend of HK5 cents per share, maintaining a stable payout ratio.

FINANCIAL REVIEW

Revenue

The Group's revenue for the period increased by 3.2% to RMB1,397.8 million. As 39% of the core collection s t o r e s w e r e c o n v e r t e d t o t h e consignment model, the recognition of certain sales taking place under the previous distributor model at the end of last year delayed to this year under the consignment model, coupled with the Group's vigorous efforts in off-season inventory clearance at the beginning of the year, resulting in a significant growth in the sales for the first quarter compared with the same period last year. On the other hand, certain stores were temporarily suspended due to the Pandemic from March to May and the shipment of fall items was delayed. Meanwhile, the consumer market was hit by the spread of the Pandemic and the ensuing lockdowns and suspension of certain business operations. As a result, the contribution of sales from conversion to consignment model in the first quarter was largely offset.