Xinjiang La Chapelle Fashion : ANNOUNCEMENT IN RELATION TO THE PROVISION FOR ASSET IMPAIRMENT

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新 疆 拉 夏 貝 爾 服 飾 股 份 有 限 公 司

Xinjiang La Chapelle Fashion Co., Ltd.

(formerly known as "Shanghai La Chapelle Fashion Co., Ltd. （上海拉夏貝爾服飾股份有限公司）")

(a joint stock company incorporated in the People's Republic of China with limited liability)

(Stock code: 06116)

ANNOUNCEMENT IN RELATION TO THE PROVISION

FOR ASSET IMPAIRMENT

This announcement is made by Xinjiang La Chapelle Fashion Co., Ltd. (the "Company") pursuant to Rule 13.09(2) and Rule 13.10B of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (the "Listing Rules") and the Inside Information Provisions (as defined in the Listing Rules) under Part XIVA of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong).

The Company convened the eighteenth meeting of the fourth session of the board of directors and

the eleventh meeting of the fourth session of the supervisory committee on 29 April 2021, at which a resolution in relation to the provision for asset impairment (《關於計提資產減值準備的議案》) was

considered and approved, details of which are as follows:

1. SUMMARY OF THE PROVISION FOR ASSET IMPAIRMENT
   In order to objectively and accurately reflect the asset impairment and financial position of the Company, the Company reviewed and conducted impairment tests in respect of inventories, accounts receivable, and other current assets that were showing indications of asset impairment for
   the year ended 31 December 2020 in accordance with the provisions of the "Accounting Standards for Business Enterprises"* 《( 企業會計準則》) and the accounting policies of the Company. Upon

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testing by the Company and auditing by the Company's auditor, the Company made a RMB499.742 million provision for asset impairment for the year ended 31 December 2020. The details are as follows:

1. DESCRIPTION OF PROVISION FOR ASSET IMPAIRMENT
2. 1. Provision for bad debts of accounts receivable
      As at 31 December 2020, the Company's balance of accounts receivable was RMB361.514 million. The Company's policy for the provision for bad debts is as follows: When there is objective evidence that the Company will be unable to recover its accounts receivable in accordance with the original terms of the accounts receivable, the Company will make provision for bad debts for such accounts receivable separately. On the balance sheet date, the Company conducted impairment tests on each of the accounts receivable of individually significant amounts separately, and made provision for bad debts based on the lifetime expected credit loss. For the accounts receivable which are classified into combinations, the Company considered its experience of historical credit loss, the current situation and its forecast of the future economic condition in compiling a table which compares the number of overdue days of the accounts receivable against the rate of the expected credit loss of the duration of the accounts receivable to calculate the expected credit loss. Taking into account the test results, the Company made a RMB13.622 million provision for bad debts of accounts receivable.
   2. Provision for bad debts of other receivables
      As at 31 December 2020, the balance of other receivables of the Company was RMB302.113 million, mainly including deposits and deposits receivable from customers, and accounts current from LaCha Fashion I Limited ("LaCha Fashion I") and Naf Naf SAS. Since LaCha Fahsion I was taken over by HTI Advisory Company Limited, the Company lost control of it and of of its subsidiary, Naf Naf SAS, and therefore made a full provision for impairment of its

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investment of RMB11.4173 million. The Company also made a full provision for bad debts of RMB108.8617 million arising from the debts receivable and financial support provided to Naf Naf SAS. For other receivables which are classified into combinations, the Company considered its experience of historical credit loss, the current situation and its forecast of the future economic condition to calculate the expected credit loss with reference to default risk and the expected credit loss in the next 12 months or lifetime expected credit loss. Taking into account the test results, the provision for bad debts in respect of such other receivables amounted to RMB15.699 million. The total provision for bad debts of other receivables amounted to RMB135.978 million for the reporting period.

1. Provision for bad debts of prepayments
   As at 31 December 2020, the balance of prepayments of the Company was RMB122.926 million, mainly including prepayments made to suppliers. The Company considered its experience of historical credit loss, the current situation and its forecast of the future economic condition in compiling a table which compares the age of prepayments against the rate of the expected credit loss of the duration of the prepayments to calculate the expected credit loss. Taking into account the test results, the provision for bad debts in respect of prepayments amounted to RMB2.628 million for the reporting period.
2. Provision for impairment of inventories
   As at 31 December 2020, the balance of the book value of inventories of the Company amounted to RMB917.336 million, including raw materials, finished goods inventory, goods sold and low-value consumables. The provision for the decline in the value of inventories of the Company was determined at the excess value of the carrying value of the inventories over their net realisable value. The net realisable value of the inventories was determined based on the estimated selling price in the ordinary course of business, less the estimated selling expenses and related taxes and levies. The provision for inventories was made in respect of each of the categories for raw materials, finished goods inventory and goods sold, and was calculated according to a certain estimated percentage of inventory procurement costs and increases with the aging of the inventories. Based on the principle of prudence, the Company conducted an impairment test on the categories of inventories in which the inventory costs were higher than their net realisable values during the reporting period. Taking into account the test results, the provision for the decline in the value of inventories amounted to RMB341.184 million for the reporting period.

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1. 1. Provision for impairment of non-current assets due within one year
      In 2017, the Company granted a loan of RMB6.5 million to a former controlled subsidiary, Shanghai Jiuwo Fashion Co., Ltd.* (上海九蝸服飾有限公司) (due to the Company's disposal of 60% of its equity interest, Jiuwo was no longer included in the Company's consolidated financial statements as at 30 April 2018). The loan was further extended for 2 years after it became due on 30 November 2018. During the 2-year extension period, the interest rate was 5.77%. Due to the poor performance of Jiuwo, the Company expected that it would be difficult to recover the loan on the due date. As at 31 December 2020, the principal and interest of the loan that remain unrecovered amounted to RMB7.547 million. Given that the Company had already made provision for bad debts based on the lifetime expected credit loss of RMB7.287 million for the year ended 31 December 2019, the provision for bad debts based on the lifetime expected credit loss in respect of its loan to Jiuwo amounted to RMB260 thousand for the reporting period.
   2. Provision for impairment of other current assets
      As at 31 December 2020, the Company granted loans totalling RMB40 million to its associate company, Hongche Industry (Shanghai) Co., Ltd.* (泓澈實業（上海）有限公司) ("Hongche"). Due to the poor performance of Hongche, the Company already made provision for bad debts in respect of RMB39.5 million for the year ended 31 December 2019. As Hongche continued to record losses and its operating conditions did not improve during the reporting period, the Company made a full provision for bad debts in respect of the remaining RMB500,000.
   3. Provision for impairment of other non-current assets
      As at 31 December 2020, the balance of other non-current assets was RMB14.161 million, mainly including advance payments for store renovation and props. Due to various factors such as the fact that the Company closed down a large number of offline stores and that store renovation and props would no longer be required for such closed stores, the Company made a provision for impairment of RMB5.57 million accordingly.
2. IMPACT ON THE COMPANY
   For the year ended 31 December 2020, the Company made an aggregate provision for asset impairment of RMB499.742 million. After combining the impact of factors such as disposal of subsidiaries, reversal and write-off, the corresponding impairment loss of RMB149.409 million and credit impairment losses recognised of RMB341.184 million for the year ended 31 December 2020 are included in the profit and loss account for the year ended 31 December 2020.

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IV. STATEMENT OF THE AUDIT COMMITTEE OF BOARD OF DIRECTORS ON THE JUSTIFICATION OF THE PROVISION FOR ASSET IMPAIRMENT

The audit committee of the board of directors is of the view that the provision for assets impairment complies with and is in line with the "Accounting Standards for Business Enterprises" and the actual situation of the Company. After the provision for asset impairment, the financial position and operating results of the Company would be more fairly reflected, and make the accounting information on the asset value of the Company more accurate, reliable and reasonable, and hence the audit committee of the board of directors agrees with the provision for asset impairment.

1. OPINION OF INDEPENDENT DIRECTORS
   The independent directors of the Company are of the view that the provision for assets impairment made by the Company is in line with the "Accounting Standards for Business Enterprises" and the relevant provisions of the Company's accounting policies, and can give a fair view of the financial position and operating results of the Company without prejudicing the interests of the Company and its shareholders as a whole, in particular the interests of the minority shareholders of the Company. In respect of the provision, appropriate decision-making procedures have been performed and the relevant voting procedure is in compliance with the requirements of relevant laws and regulations and the articles of association of the Company.

VI. OPINION OF SUPERVISORY COMMITTEE

The supervisory committee of the Company is of the view that the provision for asset impairment of the Company is made in accordance with the "Accounting Standards for Business Enterprises" and related requirements, is in line with the Company's actual situation and can fairly reflect the financial position and operating results of the Company as at 31 December 2020; the decision- making procedures of the board of directors of the Company on such matters are in compliance with the laws and regulations. The supervisory committee therefore agrees with the provision for asset impairment of the Company.

Shareholders and potential investors of the Company are advised to exercise caution when dealing in the securities of the Company.

By Order of the Board

Xinjiang La Chapelle Fashion Co., Ltd.

Mr. Wu Jinying

Chairman

Shanghai, the People's Republic of China

29 April 2021

As of the date of this announcement, the executive directors of the Company are Mr. Wu Jinying, Ms. Zhang Ying and Ms. Zhang Danling; the non-executive director of the Company is Mr. Yin Xinzai; the independent non-executive directors of the Company are Mr. Xing Jiangze, Ms. Wong Sze Wing and Mr. Zhu Xiaozhe.

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