Sun Art Retail : 2021/2022 Interim Report

Sun Art Retail Group Ltd.

(Incorporated in Hong Kong with limited liability) Stock Code: 6808

Offline Experience Center and

Logistics Fulfillment Center of Online Business

Multi format and Omni-channel • Digital Transformation • Restructuring Hypermarkets

CORPORATE INFORMATION

Sun Art Retail Group Limited 1

Interim Report 2021

HIGHLIGHTS OF INTERIM RESULTS

Notes:

1. The calculation of basic and diluted EPS for the six months ended 30 September 2021 and 2020 is based on the weighted average number of 9,539,704,700 ordinary shares in issue during the periods.

2 Sun Art Retail Group Limited

Interim Report 2021

MANAGEMENT DISCUSSION AND ANALYSIS

BUSINESS REVIEW

Operating Environment

In the first three quarters of 2021, China's gross domestic product ("GDP") achieved positive growth and rebounded significantly from the previous year. With the stable recovery trend since 2021 and the lower comparison base in the same period last year, China's GDP in the first three quarters of 2021 increased by 9.8% year-on-year to approximately RMB82,313 billion. China's GDP for the second quarter increased by 7.9%, and that for the third quarter increased by 4.9%.

The overall consumer Price Index ("CPI") increased by 0.6% compared to first three quarters of 2020, of which the food CPI decreased by 1.6% due to the decline in pork prices and the non-food CPI increased by 1.1%. In the first three quarters of 2021, the pork CPI decreased by 28.0% year-on-year. As of September 2021, the pork CPI decreased by 46.9%, and the decline continued to expand month by month. Due to the high contribution of pork sales to the Group's revenue, it has a negative impact on same store sales growth.

In the first three quarters of 2021, China's total retail sales of consumer goods amounted to RMB31,805.7 billion, representing a year-on-year increase of 16.4%, but the general trend of slow growth of consumer demand has not changed. The year-on-year growth rate gradually declined quarter by quarter. Especially in August 2021, due to the recurrence of the pandemic and severe weather, the total retail sales of consumer goods growth only increased by 2.5% year-on-year. The total retail sales of consumer goods in September increased by 4.4%, which was slightly higher than last month. The national online retail sales amounted to RMB7,504.2 billion for the first three quarters of 2021, contributing 23.6% of the total retail sales. Online retail sales of physical goods increased by 15.2% year-on-year, which is 1.2 percentage points lower than the growth rate of total retail sales of consumer goods.

Customers' offline experience centers and logistics fulfillment centers of online business

The Group will focus on the categories of goods that cannot be replaced by online sales. The display area of the core categories of goods has been increased in our stores. The Group always strives to provide quality goods and pleasant shopping experience to create incentives for customers to shop offline.

The Group will create irreplaceable offline experience. The good-neighbourliness shopping scenario and services will be provided from the perspective of customers with the purpose of creating a pleasant shopping atmosphere by bringing visible, touchable and flavourful experience to customers.

The gallery remodeling will be included into the hypermarket remodeling version 2.0, aiming to attract customers rather than acquire traffic fed by hypermarkets as was the case previously. As of 30 September 2021, the gallery vacancy rate was controlled below 2%. The Group will adjust and optimize the tenant structure actively, empower the gallery with self-contained traffic, and ensure the continuous and stable rental income.

B2C business has steadily improved, representing an increase of more than 25% in the order volume. The average daily order per store ("DOPS") is close to 1,400 and the ticket size continues to rise month by month.

Sun Art Retail Group Limited 3

Interim Report 2021

MANAGEMENT DISCUSSION AND ANALYSIS

The one-hour delivery business shares the same conveyor-belt system with Tmall half-day-delivery, aiming to improve picking efficiency and reduce the risk of stock running out. At present, the initiative of sharing the quick-picking warehouse has been implemented in nearly 100 stores.

B2B business is impacted by community group buying. The Group actively adjusts B2B customer structure. It is expected that the B2B business will return to the growth trajectory in the next fiscal year.

Feasibility and development of superstores and mini stores

During the reporting period, the Group has a total of six superstores without increase. The Group plans to open four new superstores this fiscal year. Superstores are allowed to share hypermarkets' supply chain system to source selected products and improve product efficiency. The superstore model will focus on upgrading and innovating products from the perspective of customers to form a respective supply chain system and then support the business of hypermarkets. The Group expects that the operation model of superstore will be matured in this fiscal year.

The Group has 68 mini stores, a net increase of 36 stores during the reporting period. The mini stores are mainly located in Nantong, Huai'an and Ma'anshan. At present, the mini stores' revenue gradually steps up on a monthly basis while the loss continues to decrease and the gross profit margin continues to be improved. At present, most of the non-standard fresh products of RT-Mini have adopted the model combined with "direct sourcing from farms and fresh products processing centers". Three processing centers of fresh products have been built and the operation has been gradually on track. At the same time, by leveraging the scale advantage of hypermarkets' fresh product processing demand, the Group can maximize the production capacity, quickly improving processing centers' efficiency and facilitating the fresh processing capability. Moreover, the product costs can be optimized and labor costs can be saved. In addition, the Group can also effectively control the loss and improve the standardization of fresh products.

Cooperation with Alibaba Group on community group buying ("CGB")

The Group has become one of the core suppliers of this initiative since its launching in March this year. As of the date of this announcement, the new business cooperation between the two large systems has been running for more than six months. During this period, the two parties mainly focused on the integration of supply chains and channels, establishment of buying and selling systems, and sharing the resources of warehouse networks. The Group also quickly established the logistics capability of Distribution Center ("DC"), shared warehouses and fresh product processing centers for the business in the short run, which provides strong supports to the high revenue growth for Alibaba Group's CGB business.

4 Sun Art Retail Group Limited

Interim Report 2021