中国利郎(01234) - 2021 - 中期财报

Financial Highlights The group's key financial indicators for the six months ended June 30, 2021, show revenue growth and improved gross profit margin, despite a slight decrease in net profit margin Key Financial Indicators for the Six Months Ended June 30 | Indicator | 2021 (RMB million) | 2020 (RMB million) | Change (%) | | :------------- | :-------------------- | :-------------------- | :------- | | Revenue | 1,354.3 | 1,093.3 | +23.9 | | Gross Profit | 670.8 | 431.0 | +55.6 | | Operating Profit | 307.8 | 306.7 | +0.4 | | Profit for the Period | 271.5 | 268.9 | +0.9 | | | | | | | Earnings Per Share (Basic) | 22.7 (RMB cents) | 22.5 (RMB cents) | +0.9 | | Interim Dividend Per Share | 13 (HK cents) | 12 (HK cents) | +8.3 | | Special Interim Dividend Per Share | 5 (HK cents) | 5 (HK cents) | — | | | | | | | Gross Profit Margin | 49.5% | 39.4% | +10.1 | | Operating Profit Margin | 22.7% | 28.1% | -5.4 | | Net Profit Margin | 20.0% | 24.6% | -4.6 | | Average Inventory Turnover Days | 208 | 185 | +23 | | Average Trade Receivables Turnover Days | 69 | 135 | -66 | | Average Trade Payables Turnover Days | 93 | 114 | -21 | Management Discussion and Analysis This section provides an overview of the company's performance, industry trends, financial results, business operations, future outlook, and financial management policies Industry Review China's economy showed robust growth in H1 2021 with a 12.7% GDP increase, driven by strong consumer market recovery, particularly in apparel retail - China's GDP grew by 12.7% year-on-year in H1 2021, with strengthening consumer market recovery[7] - Total retail sales of consumer goods increased by 23.0% year-on-year, with apparel, footwear, and textile retail sales growing by 33.7%, indicating continued recovery in apparel retail demand[7] Financial Review H1 revenue grew by 23.9% to RMB 1,354.3 million, driven by light business direct-to-consumer model and double-digit wholesale growth, with gross margin up 10.1 percentage points to 49.5%, but net profit margin declined to 20.0% due to increased expenses and delayed government subsidies Revenue Group revenue increased by 23.9% to RMB 1,354.3 million, primarily due to the light business shift to direct-to-consumer sales and double-digit growth in the main series wholesale business - Group revenue increased by 23.9% to RMB 1,354.3 million for the period[9] - Revenue growth was primarily driven by the shift of most light business stores to direct operation, recognizing sales at retail value, and double-digit growth in the main series wholesale business[9] - Approximately 40% of main series stores converting to consignment sales led to delayed revenue recognition, slightly impacting overall sales growth[9] Revenue by Product Category Tops remained the primary revenue source, contributing 55.2% of total revenue with 30.1% sales growth, while accessories sales declined by 18.4% due to lower footwear sales - Tops accounted for 55.2% of total revenue (H1 2020: 52.3%), with sales increasing by 30.1%[9] - Accessories sales decreased by 18.4%, primarily due to a decline in footwear product sales[9] Revenue by Region East China sales grew 57.3% due to direct-operated light business stores and online shops, while Northeast China performed weakest, affected by population outflow - Total retail sales of "LILANZ" products increased by 25% to 30% year-on-year in the first half[8] Revenue by Region (For the six months ended June 30) | Region | 2021 (RMB million) | % of Revenue | 2020 (RMB million) | % of Revenue | Change (%) | | :--- | :-------------------- | :------- | :-------------------- | :------- | :------- | | North China | 110.6 | 8.2% | 92.1 | 8.4% | 20.1% | | Northeast China | 38.2 | 2.8% | 42.9 | 3.9% | -11.0% | | East China | 523.5 | 38.6% | 332.7 | 30.5% | 57.3% | | Central South China | 328.7 | 24.3% | 312.4 | 28.6% | 5.2% | | Southwest China | 231.3 | 17.1% | 200.3 | 18.3% | 15.5% | | Northwest China | 122.0 | 9.0% | 112.9 | 10.3% | 8.1% | | Total | 1,354.3 | 100.0% | 1,093.3 | 100.0% | 23.9% | - Sales in East China increased by 57.3%, primarily due to light business stores and online shops converting to direct operation, recognizing sales at retail value[10] - Sales in Northeast China decreased by 11.0%, making it the worst-performing region, continuously affected by population outflow[10][11] Cost of Sales and Gross Profit Margin Cost of sales slightly increased by 3.2% to RMB 683.5 million, while gross profit margin significantly rose by 10.1 percentage points to 49.5%, driven by higher product mark-ups and better light business direct-to-consumer margins - Cost of sales slightly increased by 3.2% to RMB 683.5 million year-on-year[11] - Gross profit margin significantly increased by 10.1 percentage points to 49.5%, primarily benefiting from higher product mark-ups and a higher gross profit margin from light business retail[11] Net Other Income Net other income significantly decreased to RMB 17.3 million from RMB 46.4 million, mainly due to reduced government subsidies and delayed recognition for a key operating subsidiary - Net other income was RMB 17.3 million (H1 2020: RMB 46.4 million), a year-on-year decrease[11] - The decrease was primarily due to reduced government subsidies, as a major operating subsidiary's H1 government subsidies were received and recognized after the period end[11] Selling and Distribution Expenses Selling and distribution expenses increased by RMB 206.2 million to RMB 317.3 million, representing 23.4% of total revenue, primarily due to store operating costs from the light business direct-to-consumer model - Selling and distribution expenses increased by RMB 206.2 million to RMB 317.3 million[11] - Representing 23.4% of total revenue, an increase of 13.2 percentage points from the same period last year[11] - The significant increase in expenses was mainly due to store operating costs after the light business converted to direct operation in H2 2020[11] Administrative Expenses Administrative expenses were RMB 61.7 million, representing 4.6% of sales, an increase of RMB 14.8 million, primarily due to increased depreciation and property management costs from the new headquarters' Q1 activation - Administrative expenses were RMB 61.7 million, representing 4.6% of sales (H1 2020: 5.0%)[12] - The amount increased by RMB 14.8 million year-on-year, mainly due to increased depreciation and property management expenses from the new headquarters' activation[12] Other Operating Expenses Other operating expenses included RMB 0.4 million in charitable donations, a decrease from RMB 3.7 million in the prior year - Other operating expenses included charitable donations of RMB 0.4 million (H1 2020: RMB 3.7 million)[12] Operating Profit Operating profit slightly increased by 0.4% to RMB 307.8 million, but the operating profit margin decreased by 5.4 percentage points to 22.7% due to higher selling expenses and delayed government subsidies - Operating profit slightly increased by 0.4% to RMB 307.8 million[12] - Operating profit margin decreased by 5.4 percentage points to 22.7%, primarily affected by increased selling expenses and delayed government subsidy receipts[12] Net Finance Income Net finance income slightly decreased to RMB 19.4 million, primarily due to a RMB 5.3 million reduction in interest income from lower average cash balances and deposit rates - Net finance income was RMB 19.4 million, a slight decrease from the same period last year[12] - Interest income decreased by RMB 5.3 million to RMB 19.0 million, due to lower average cash balances and deposit interest rates[12] Income Tax The effective income tax rate for the period was 17.0%, a slight decrease of 0.6 percentage points, benefiting from preferential tax rates for high-tech and Tibet-registered subsidiaries - The effective income tax rate for the period was 17.0%, a slight decrease of 0.6 percentage points from the same period last year[12] - The group's subsidiaries enjoy tax incentives, including high-tech enterprise qualification (15% preferential tax rate) and Tibet-registered subsidiaries (15% preferential tax rate)[12] Net Profit Net profit for the period slightly increased by 0.9% to RMB 271.5 million, but the net profit margin decreased by 4.6 percentage points to 20.0% due to higher expenses and delayed government subsidies - Net profit for the period was RMB 271.5 million, a slight increase of 0.9%[12] - Net profit margin decreased by 4.6 percentage points to 20.0%, primarily affected by increased expenses and delayed recognition of government subsidies[12] Earnings Per Share Earnings per share increased by 0.9% to RMB 22.7 cents - Earnings per share were RMB 22.7 cents, an increase of 0.9%[12] Interim Dividend The Board resolved to declare an interim dividend of HK 13 cents and a special interim dividend of HK 5 cents per share, totaling approximately HKD 215.5 million - The Board resolved to declare an interim dividend of HK 13 cents per share (H1 2020: HK 12 cents) and a special interim dividend of HK 5 cents per share (H1 2020: HK 5 cents)[12] - The total dividend payout amounted to approximately HKD 215.5 million (equivalent to approximately RMB 179.5 million)[12] Business Review The group optimized sales channels, reducing net stores by 53 to 2,708, converting 40% of main series stores to consignment and most light business stores to direct operation, while new retail saw 15-20% growth in online direct sales and enhanced product design Sales Channel Management The group optimized its retail network, reducing net stores by 53 to 2,708, converting 40% of main series stores to consignment and most light business stores to direct operation to enhance channel control and reduce inventory risk - As of end-June 2021, "LILANZ" had 2,708 retail stores nationwide, with a net decrease of 53 stores during the period[13] - Approximately 40% of main series stores converted to consignment sales, while most light business stores shifted to direct operation to further control retail channels and reduce inventory risk[13] "LILANZ" Brand Store Count Changes by Region | Region | As at January 1, 2021 | Stores opened | Stores closed | As at June 30, 2021 | | :--- | :------------- | :------- | :------- | :--------------- | | North China | 294 | 10 | 30 | 274 | | Northeast China | 185 | 2 | 23 | 164 | | East China | 790 | 46 | 57 | 779 | | Central South China | 727 | 52 | 49 | 730 | | Southwest China | 494 | 25 | 26 | 493 | | Northwest China | 271 | 19 | 22 | 268 | | Total | 2,761 | 154 | 207 | 2,708 | - Shopping mall stores increased to 821, accounting for 30.3% of total stores; outlet stores increased to 40[14] - There were 279 direct-operated stores, first-tier distributors decreased from 90 to 69, and second-tier distributors numbered 734[15][16] - The seventh-generation store image for the main series was promoted to existing stores, with approximately 100 renovations completed in H1, and 500 planned for the full year[17] - Light business stores will launch a new store image in the second half of the year[17] - In inventory management, after light business converted to direct operation and main series to consignment, inventory allocation became more flexible, improving spring/summer product sell-through rates[17] New Retail Development The group prioritized new retail, achieving 15-20% growth in online direct sales, expanding new product offerings, and leveraging in-house factories for quick response and WeChat platforms for customer engagement - The group prioritizes new retail development, integrating online services, offline experiences, and optimized logistics[18] - Online store retail sales increased by 15% to 20% year-on-year after converting to direct operation, with new products introduced for online sales in H1[18] - By leveraging in-house factories for quick response, seven production lines were added to support e-commerce special pants production, demonstrating rapid small-batch production capability[18] - Actively promoting the use of WeChat platforms for customer relationship management and micro-store openings to drive store efficiency growth[18] Product Design, Development and Supply Chain Management The group enhanced product personalization and original design, maintaining 70% originality and 50% unique fabric products, with 75% projected for winter, while developing new suppliers and leveraging in-house factories for e-commerce fast-fashion - The group continues to enhance product personalization and original design to improve cost-effectiveness and differentiation[19] - Among products sold during the period, the original design ratio remained at approximately 70%, and products using unique fabrics accounted for about 50%, with the original design ratio for winter products expected to increase to approximately 75%[19] - Actively developing new suppliers for fast-fashion materials, combined with in-house factories' rapid small-batch production capabilities, to launch more e-commerce fast-fashion products[19] - The fashionability and design of the light business series products were enhanced in the Spring/Summer 2021 season, and gross profit margin was improved by increasing mark-ups on individual products[20] - The group's R&D department has approximately 440 employees, comprehensively enhancing product competitiveness[20] Brand Management and Promotion The group enhanced brand awareness and youth appeal through influencer marketing, brand ambassador Han Han's campaigns, IP collaborations with China Daily and "The Three-Body Problem," and continued partnership with Shanghai True Love Dream Foundation - Employed multiple influencers to showcase new products on platforms like Douyin and Xiaohongshu, attracting market attention[20] - Continued brand promotion activities with ambassador Han Han, including sponsoring New Year's Eve speeches and filming positive post-pandemic short videos[20] - The main series and light business launched IP collaboration series with China Daily and the sci-fi novel "The Three-Body Problem" respectively, contributing to brand rejuvenation[20] - Continued participation in the China University Student Advertising Art Festival to enhance brand reputation among young consumers[20] - Collaborated with Shanghai True Love Dream Foundation to launch student-designed apparel and donate sales proceeds, enhancing corporate image[20] Awards The group's advertisement "I'm a good fit for the world" won the 10th ADMEN International Award and IAI International Advertising Award gold prizes, and the "Innovative Upgraded Retail Enterprise of the Year" award - The advertisement "I'm a good fit for the world" won the "Creative Communication Practical Gold Case" award at the 10th ADMEN International Awards 2021 and a gold award at the 2021 IAI International Advertising Awards[20] - Awarded the "Innovative Upgraded Retail Enterprise of the Year 2020-2021" award[20] Outlook The group is cautiously optimistic for H2, planning to optimize its store network with a revised net increase target of 50-100 stores, expand new retail with WeChat platform training and eco-friendly products, and enhance logistics with the new headquarters and logistics park - For H2 2021, the group is cautiously optimistic about the Chinese retail market, despite ongoing uncertainties in the broader environment[21] - The group will continue a cautious store opening strategy, focusing on optimizing the existing store network, revising the full-year net store increase target to 50 to 100 (original target: 100 to 150)[21] - In new retail, distributors will be trained to use WeChat platforms to enhance store efficiency, and new products and e-commerce fast-fashion items will be increasingly launched through e-commerce channels[21] - Plans to launch special edition eco-friendly products for online sales in Fall/Winter 2021, utilizing fabrics made from recycled plastics and fast-growing non-edible plants[21] - The new headquarters officially opened in February 2021, and the first phase of the new logistics park aims to be operational before the 11.11 shopping festival, enhancing inventory management and logistics efficiency[22] - For long-term development, the group will continue its multi-brand strategy, striving to enhance product competitiveness and cost-effectiveness, and consolidate its leading position in the menswear industry[22] Liquidity and Financial Resources The group maintains a strong financial position with RMB 1,353.7 million in cash and bank balances, though cash and equivalents decreased by RMB 385.2 million due to capital expenditures and financing activities, while working capital turnover days reflect improved channel control and inventory management Cash and Bank Balances and Cash Flows As of June 30, 2021, total cash and bank balances were RMB 1,353.7 million, primarily in RMB, with a RMB 385.2 million decrease in cash and equivalents due to net cash outflows from investing and financing activities - As of June 30, 2021, total cash and bank balances were RMB 1,353.7 million, primarily denominated in RMB (95.0%)[23][24] - Cash and cash equivalents balance decreased by RMB 385.2 million[24] - Net cash generated from operating activities was RMB 123.4 million[24] - Net cash outflow from investing activities was RMB 156.3 million, primarily comprising capital expenditures of RMB 170.1 million[25] - Net cash outflow from financing activities was RMB 351.6 million, mainly for dividend payments of RMB 267.9 million and lease principal and interest payments of RMB 83.7 million[25] Trade Working Capital Turnover Days Average inventory turnover days increased by 23 to 208, while average trade receivables turnover days decreased to 69, and average trade payables turnover days decreased to 93, reflecting channel control and adjusted production schedules Trade Working Capital Turnover Days | Indicator | For the six months ended June 30, 2021 | For the year ended December 31, 2020 | For the six months ended June 30, 2020 | | :------------- | :-------------------- | :------------------- | :-------------------- | | Average Inventory Turnover Days | 208 | 168 | 185 | | Average Trade Receivables Turnover Days | 69 | 101 | 135 | | Average Trade Payables Turnover Days | 93 | 115 | 114 | - Average inventory turnover days were 208, an increase of 23 days compared to the prior interim period, mainly due to approximately 40% of main series stores operating under a consignment model[27] - Average trade receivables turnover days were 69, a decrease from 75 days in 2020, primarily because approximately 40% of main series stores converted to a consignment model[27] - Average trade payables and bills payable turnover days were 93, a decrease from 84 days in 2020, as the group adjusted production and delivery schedules for some autumn/winter products after light business converted to direct operation and main series to consignment[27] Pledged Assets Pledged bank deposits, serving as security for bills payable, will be released upon repayment; as of June 30, 2021, they significantly decreased to RMB 30 thousand from RMB 1,710 thousand at December 31, 2020 - Pledged bank deposits serve as security for bills payable and will be released upon repayment of the relevant bills[58] Pledged Bank Deposits | Item | As at June 30, 2021 (RMB thousand) | As at December 31, 2020 (RMB thousand) | | :--------------- | :------------------------- | :-------------------------- | | Pledged bank deposits | 30 | 1,710 | Capital Commitments and Contingent Liabilities As of June 30, 2021, total capital commitments were RMB 302.0 million, primarily for logistics center construction, expected to be funded by internal resources, with no significant contingent liabilities - As of June 30, 2021, the group's total capital commitments were RMB 302.0 million, primarily related to the construction of a logistics center[27] - The first phase of the logistics center is expected to be completed in H2 2021, and these capital commitments are anticipated to be paid from the group's internal resources[27] - As of June 30, 2021, the group had no significant contingent liabilities[28] Financial Management Policies The group prudently monitors financial risks; while its functional currency is HKD, primary business transactions are in RMB, resulting in minor operational exchange rate risk - The group continues to prudently monitor financial risks[28] - The company's functional currency is HKD, but as the group primarily conducts business transactions in RMB, operational exchange rate risk is minor[28] Human Resources As of June 30, 2021, the group had 3,874 employees with total staff costs of approximately RMB 172.5 million, focusing on talent acquisition, training, competitive compensation, and an employee share option scheme - As of June 30, 2021, the group had 3,874 employees, with total staff costs of approximately RMB 172.5 million for the period[28] - The group emphasizes recruiting and training high-quality talent, providing pre-job and continuous training and development opportunities[28] - The group offers competitive remuneration packages to employees and has adopted a share option scheme to recognize, reward, and encourage employee contributions[28] Auditor's Review Report KPMG reviewed the interim financial report for the six months ended June 30, 2021, noting no material non-compliance with IAS 34 - KPMG has reviewed the interim financial report of China Lilang Limited for the six months ended June 30, 2021[29] - The scope of a review is substantially less than that of an audit, and accordingly, no audit opinion is expressed[30] - Based on the review, nothing has come to the auditor's attention that causes them to believe the interim financial report is not prepared, in all material respects, in accordance with International Accounting Standard 34 "Interim Financial Reporting"[31] Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income This statement presents the group's financial performance, including revenue, expenses, profit for the period, and other comprehensive income for the six months ended June 30 Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income (For the six months ended June 30) | Indicator | 2021 (RMB thousand) | 2020 (RMB thousand) | | :------------------- | :------------------ | :------------------ | | Revenue | 1,354,299 | 1,093,336 | | Cost of sales | (683,479) | (662,354) | | Gross profit | 670,820 | 430,982 | | Net other income | 17,286 | 46,372 | | Selling and distribution expenses | (317,344) | (111,054) | | Administrative expenses | (61,688) | (54,337) | | Other operating expenses | (1,246) | (5,265) | | Operating profit | 307,828 | 306,698 | | Net finance income | 19,385 | 19,839 | | Profit before taxation | 327,213 | 326,537 | | Income tax | (55,757) | (57,595) | | Profit for the period | 271,456 | 268,942 | | Other comprehensive income for the period | (4,109) | 6,940 | | Total comprehensive income for the period | 267,347 | 275,882 | | Basic earnings per share (cents) | 22.7 | 22.5 | | Diluted earnings per share (cents) | 22.6 | 22.5 | Condensed Consolidated Statement of Financial Position This statement outlines the group's assets, liabilities, and equity as of June 30, detailing non-current and current financial positions Condensed Consolidated Statement of Financial Position (As at June 30) | Indicator | 2021 (RMB thousand) | 2020 (RMB thousand) | | :------------------- | :------------------ | :------------------ | | Non-current assets | | | | Property, plant and equipment | 1,093,818 | 923,727 | | Investment properties | 120,485 | 122,198 | | Right-of-use assets | 286,466 | 279,407 | | Intangible assets | 7,938 | 7,914 | | Deferred tax assets | 24,787 | 24,310 | | Total non-current assets | 1,561,460 | 1,393,525 | | | | | | Current assets | | | | Inventories | 901,222 | 667,054 | | Trade and other receivables | 731,725 | 1,210,168 | | Cash and cash equivalents | 1,353,722 | 1,738,934 | | Total current assets | 2,986,699 | 3,617,866 | | | | | | Current liabilities | | | | Trade and other payables | 566,460 | 1,036,022 | | Lease liabilities | 57,424 | 62,003 | | Current tax payable | 161,948 | 152,489 | | Total current liabilities | 813,739 | 1,287,977 | | Net current assets | 2,172,960 | 2,329,889 | | Net assets | 3,654,581 | 3,653,525 | | | | | | Total equity | 3,654,581 | 3,653,525 | Condensed Consolidated Statement of Changes in Equity This statement details the group's equity changes, including profit for the period, other comprehensive income, and dividend payments, for the six months ended June 30 Condensed Consolidated Statement of Changes in Equity (For the six months ended June 30) | Indicator | 2021 (RMB thousand) | 2020 (RMB thousand) | | :------------------- | :------------------ | :------------------ | | Total equity as at January 1 | 3,653,525 | 3,606,279 | | Profit for the period | 271,456 | 268,942 | | Other comprehensive income for the period | (4,109) | 6,940 | | Total comprehensive income for the period | 267,347 | 275,882 | | Equity-settled share-based payment expense | 1,645 | — | | Dividends approved for prior year | (267,936) | (341,671) | | Transfer to statutory reserve | — | — | | Total equity as at June 30 | 3,654,581 | 3,540,490 | Condensed Consolidated Statement of Cash Flows This statement presents the group's cash flows from operating, investing, and financing activities for the six months ended June 30 Condensed Consolidated Statement of Cash Flows (For the six months ended June 30) | Activity | 2021 (RMB thousand) | 2020 (RMB thousand) | | :------------------- | :------------------ | :------------------ | | Net cash generated from operating activities | 123,389 | 117,265 | | Net cash used in investing activities | (156,296) | (63,333) | | Net cash used in financing activities | (351,634) | (71,656) | | Net decrease in cash and cash equivalents | (384,541) | (17,724) | | Cash and cash equivalents as at January 1 | 1,738,934 | 1,750,609 | | Effect of foreign exchange rate changes | (671) | 642 | | Cash and cash equivalents as at June 30 | 1,353,722 | 1,733,527 | Notes to the Unaudited Interim Financial Report This section provides detailed notes and disclosures supporting the unaudited interim financial statements, covering accounting policies, changes, and specific financial items 1. Basis of Preparation This interim financial report, authorized for issue on August 23, 2021, is prepared in accordance with IAS 34 and reviewed by KPMG, using consistent accounting policies with the 2020 annual financial statements - This interim financial report is prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" and was authorized for issue on August 23, 2021[40] - The accounting policies adopted in the preparation of this interim financial report are consistent with those applied in the preparation of the annual financial statements for 2020[40] - This interim financial report is unaudited but has been reviewed by the company's auditor, KPMG, in accordance with Hong Kong Standard on Review Engagements 2410[40] 2. Changes in Accounting Policies Certain IFRS amendments issued by the IASB became effective this period but were not relevant to the group's interim financial statements, and no new standards not yet effective were applied - Certain amendments to International Financial Reporting Standards issued by the IASB became effective for the group's current accounting period for the first time, but these amendments are not relevant to the group's interim financial statements[41] - The group has not applied any new standards or interpretations that are not yet effective for the current accounting period[41] 3. Revenue The group's primary business is manufacturing and selling branded menswear and accessories in China, with revenue defined as sales of goods net of returns, discounts, and VAT - The group's principal activities are the manufacture and sale of branded menswear and related accessories in China[42] - Revenue represents the sales value of goods sold, net of returns, discounts, and value-added tax[42] 4. Net Finance Income For the six months ended June 30, 2021, net finance income slightly decreased to RMB 19,385 thousand from RMB 19,839 thousand, primarily due to lower interest income Net Finance Income (For the six months ended June 30) | Indicator | 2021 (RMB thousand) | 2020 (RMB thousand) | | :--------------- | :------------------ | :------------------ | | Interest income | 19,001 | 24,298 | | Interest on bank borrowings | (19) | (499) | | Interest on lease liabilities | (3,872) | (67) | | Net exchange gains/(losses) | 4,275 | (3,893) | | Total | 19,385 | 19,839 | 5. Profit Before Taxation Profit before taxation is stated after deducting various expenses, including amortization of intangible assets, depreciation of property, plant and equipment, right-of-use assets, short-term lease expenses, R&D costs, subcontracting fees, inventory write-downs, and trade receivables impairment losses Profit Before Taxation Deductions (For the six months ended June 30) | Item | 2021 (RMB thousand) | 2020 (RMB thousand) | | :------------------- | :------------------ | :------------------ | | Amortization of intangible assets | 1,807 | 1,613 | | Depreciation of owned property, plant and equipment | 36,416 | 13,359 | | Depreciation of investment properties | 1,713 | 1,909 | | Depreciation of right-of-use assets | 58,054 | 3,741 | | Rental expenses for short-term leases | 7,946 | 34 | | Research and development costs | 47,222 | 56,239 | | Subcontracting fees | 114,197 | 115,330 | | Write-down of inventories | 5,174 | 3,380 | | Impairment losses on trade receivables | — | 7,443 | 6. Income Tax For the six months ended June 30, 2021, total income tax was RMB 55,757 thousand, with Chinese subsidiaries benefiting from preferential tax rates, and deferred tax liabilities provided for dividends distributed to non-Chinese resident enterprises Income Tax (For the six months ended June 30) | Item | 2021 (RMB thousand) | 2020 (RMB thousand) | | :------- | :------------------ | :------------------ | | Current tax | 46,749 | 38,310 | | Deferred tax | 9,008 | 19,285 | | Total | 55,757 | 57,595 | - The group's PRC subsidiaries enjoy tax incentives, including high-tech enterprise qualification (15% preferential tax rate) and Tibet-registered subsidiaries (15% preferential tax rate)[45] - Deferred tax liabilities have been provided for dividends distributed by PRC enterprises to non-PRC resident enterprises out of profits earned from January 1, 2008 onwards[46] 7. Earnings Per Share For the six months ended June 30, 2021, basic earnings per share were RMB 22.7 cents, and diluted earnings per share were RMB 22.6 cents, reflecting the potential dilutive effect of share options A) Basic Earnings Per Share%20Basic%20Earnings%20Per%20Share) Basic earnings per share were RMB 22.7 cents, calculated based on profit for the period of RMB 271,456 thousand and a weighted average of 1,197,485 thousand ordinary shares outstanding - Basic earnings per share were RMB 22.7 cents (2020: RMB 22.5 cents)[47] - Calculated based on profit for the period of RMB 271,456 thousand and a weighted average of 1,197,485 thousand ordinary shares outstanding[47] B) Diluted Earnings Per Share%20Diluted%20Earnings%20Per%20Share) Diluted earnings per share were RMB 22.6 cents, calculated based on profit for the period of RMB 271,456 thousand and a weighted average of 1,199,330 thousand ordinary shares, adjusted for the potential dilutive effect of share options - Diluted earnings per share were RMB 22.6 cents (2020: RMB 22.5 cents)[48] Weighted Average Number of Ordinary Shares (Diluted) | Item | 2021 (Thousand shares) | 2020 (Thousand shares) | | :------------------- | :------------ | :------------ | | Weighted average number of ordinary shares | 1,197,485 | 1,197,485 | | Effect of share options deemed to be issued | 1,845 | — | | Weighted average number of ordinary shares (diluted) | 1,199,330 | 1,197,485 | 8. Property, Plant and Equipment As of June 30, 2021, the net book value of property, plant and equipment increased to RMB 1,093,818 thousand from RMB 923,727 thousand at year-end, primarily due to additions of RMB 207,816 thousand Property, Plant and Equipment Net Book Value Movement | Item | 2021 (RMB thousand) | 2020 (RMB thousand) | | :--------------- | :------------------ | :------------------ | | Net book value as at January 1 | 923,727 | 713,892 | | Additions | 207,816 | 40,087 | | Disposals (net book value) | (1,309) | (305) | | Depreciation charge for the period | (36,416) | (13,359) | | Net book value as at June 30 | 1,093,818 | 740,315 | 9. Investment Properties As of June 30, 2021, the net book value of investment properties slightly decreased to RMB 120,485 thousand from RMB 122,198 thousand at year-end, primarily due to depreciation of RMB 1,713 thousand Investment Properties Net Book Value Movement | Item | 2021 (RMB thousand) | 2020 (RMB thousand) | | :--------------- | :------------------ | :------------------ | | Net book value as at January 1 | 122,198 | 142,403 | | Depreciation charge for the period | (1,713) | (1,909) | | Net book value as at June 30 | 120,485 | 140,494 | - Investment properties are stated at cost less accumulated depreciation and impairment losses, with depreciation recognized in profit or loss on a straight-line basis over the shorter of the unexpired lease term and their estimated useful lives (not exceeding 40 years from the date of completion)[51] 10. Right-of-Use Assets As of June 30, 2021, the net book value of right-of-use assets increased to RMB 286,466 thousand from RMB 279,407 thousand at year-end, primarily due to additions of RMB 77,877 thousand, offset by disposals and depreciation Right-of-Use Assets Net Book Value Movement | Item | 2021 (RMB thousand) | 2020 (RMB thousand) | | :--------------- | :------------------ | :------------------ | | Net book value as at January 1 | 279,407 | 139,506 | | Additions | 77,877 | 53,462 | | Disposals | (12,764) | — | | Depreciation charge for the period | (58,054) | (3,741) | | Net book value as at June 30 | 286,466 | 189,227 | - The group's right-of-use assets include land use rights and properties leased for own use, with initial lease terms typically ranging from one to five years[52] - As of June 30, 2021, rental deposits of RMB 39,446 thousand were paid for leases[52] 11. Inventories As of June 30, 2021, total inventories increased to RMB 901,222 thousand from RMB 667,054 thousand at December 31, 2020, primarily due to increased balances from main series stores converting to consignment, with RMB 683,479 thousand recognized as expense, including RMB 5,174 thousand in write-downs a) Inventories in the Consolidated Statement of Financial Position%20Inventories%20in%20the%20Consolidated%20Statement%20of%20Financial%20Position) As of June 30, 2021, inventories totaled RMB 901,222 thousand, comprising RMB 119,512 thousand in raw materials, RMB 68,070 thousand in work-in-progress, and RMB 713,640 thousand in finished goods Inventories in the Consolidated Statement of Financial Position | Item | As at June 30, 2021 (RMB thousand) | As at December 31, 2020 (RMB thousand) | | :----- | :------------------------- | :-------------------------- | | Raw materials | 119,512 | 97,927 | | Work-in-progress | 68,070 | 66,502 | | Finished goods | 713,640 | 502,625 | | Total | 901,222 | 667,054 | b) Amount of Inventories Recognized as an Expense in Profit or Loss%20Amount%20of%20Inventories%20Recognized%20as%20an%20Expense%20in%20Profit%20or%20Loss) For the six months ended June 30, 2021, inventories recognized as an expense in profit or loss totaled RMB 683,479 thousand, including the carrying amount of inventories sold of RMB 678,305 thousand and inventory write-downs of RMB 5,174 thousand Amount of Inventories Recognized as an Expense in Profit or Loss | Item | 2021 (RMB thousand) | 2020 (RMB thousand) | | :--------------- | :------------------ | :------------------ | | Carrying amount of inventories sold | 678,305 | 658,974 | | Write-down of inventories | 5,174 | 3,380 | | Total | 683,479 | 662,354 | 12. Trade and Other Receivables As of June 30, 2021, total trade and other receivables significantly decreased to RMB 731,725 thousand from RMB 1,210,168 thousand, with trade receivables (net of loss allowance) at RMB 453,015 thousand, primarily due to reduced turnover days from 40% of main series stores converting to consignment Trade and Other Receivables | Item | As at June 30, 2021 (RMB thousand) | As at December 31, 2020 (RMB thousand) | | :------------------- | :------------------------- | :-------------------------- | | Trade receivables, net of loss allowance | 453,015 | 711,694 | | Other assets in respect of refund liabilities | — | 309,089 | | Prepayments to suppliers | 34,517 | 1,103 | | Prepaid advertising expenses | 39 | 5,658 | | Recoverable value-added tax | 139,742 | 130,752 | | Prepaid current tax | 8,429 | — | | Other deposits, prepayments and receivables | 95,983 | 51,872 | | Total | 731,725 | 1,210,168 | Ageing Analysis of Trade Receivables (Net of Loss Allowance) | Ageing | As at June 30, 2021 (RMB thousand) | As at December 31, 2020 (RMB thousand) | | :------------------- | :------------------------- | :-------------------------- | | Within 3 months | 252,335 | 554,283 | | Over 3 months but within 6 months | 142,770 | 135,979 | | Over 6 months but within 1 year | 57,910 | 21,432 | | Total | 453,015 | 711,694 | - The credit period granted by the group to its distributors is 180 to 240 days (December 31, 2020: 90 to 240 days)[56] - There was no movement in the loss allowance account for trade receivables during the period, remaining at RMB 16,597 thousand[57] 13. Pledged Bank Deposits Pledged bank deposits, serving as security for bills payable, will be released upon repayment; as of June 30, 2021, they significantly decreased to RMB 30 thousand from RMB 1,710 thousand at December 31, 2020 - Pledged bank deposits serve as security for bills payable and will be released upon repayment of the relevant bills[58] Pledged Bank Deposits | Item | As at June 30, 2021 (RMB thousand) | As at December 31, 2020 (RMB thousand) | | :--------------- | :------------------------- | :-------------------------- | | Pledged bank deposits | 30 | 1,710 | 14. Trade and Other Payables As of June 30, 2021, total trade and other payables significantly decreased to RMB 566,460 thousand from RMB 1,036,022 thousand, with trade and bills payable at RMB 289,095 thousand, mostly due within three months Trade and Other Payables | Item | As at June 30, 2021 (RMB thousand) | As at December 31, 2020 (RMB thousand) | | :------------------- | :------------------------- | :-------------------------- | | Trade payables | 288,995 | 404,632 | | Bills payable | 100 | 5,700 | | Refund liabilities | — | 390,000 | | Accrued salaries and wages | 25,366 | 40,286 | | Payables for purchase of property, plant and equipment | 110,742 | 66,563 | | Payables for retirement benefit contributions | 25,524 | 25,524 | | Value-added tax payable | 4,993 | — | | Other payables and accrued charges | 110,740 | 103,317 | | Total | 566,460 | 1,036,022 | - All trade and other payables are expected to be settled or recognized as income within one year, or repayable on demand[60] Ageing Analysis of Trade and Bills Payable | Ageing | As at June 30, 2021 (RMB thousand) | As at December 31, 2020 (RMB thousand) | | :------------------- | :------------------------- | :-------------------------- | | Within 3 months | 271,138 | 341,568 | | Over 3 months but within 6 months | 11,205 | 62,668 | | Over 6 months but within 1 year | 4,471 | 3,472 | | Over 1 year | 2,281 | 2,624 | | Total | 289,095 | 410,332 | 15. Lease Liabilities As of June 30, 2021, the present value of lease liabilities was RMB 119,815 thousand, with RMB 57,424 thousand due within one year, representing a slight decrease from RMB 123,929 thousand at December 31, 2020 Lease Liabilities Remaining Contractual Maturity | Maturity | As at June 30, 2021 Present value of minimum lease payments (RMB thousand) | As at June 30, 2021 Total minimum lease payments (RMB thousand) | As at December 31, 2020 Present value of minimum lease payments (RMB thousand) | As at December 31, 2020 Total minimum lease payments (RMB thousand) | | :----------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Within 1 year | 57,424 | 59,192 | 62,003 | 66,546 | | After 1 year but within 2 years | 46,280 | 49,606 | 42,848 | 44,923 | | After 2 years but within 5 years | 16,111 | 18,313 | 19,078 | 19,351 | | Total | 119,815 | 127,111 | 123,929 | 130,820 | | Less: Total future interest expenses | | (7,296) | | (6,891) | | Present value of lease liabilities | | 119,815 | | 123,929 | 16. Dividends For the six months ended June 30, 2021, declared interim dividends were HK 13 cents per ordinary share and special interim dividends were HK 5 cents per ordinary share, with RMB 267,936 thousand in prior year final and special final dividends approved and paid Dividends Declared and Payable After Interim Period (For the six months ended June 30) | Dividend type | 2021 (RMB thousand) | 2020 (RMB thousand) | | :--------------- | :------------------ | :------------------ | | Interim dividend (HK 13 cents/12 cents) | 129,614 | 126,742 | | Special interim dividend (HK 5 cents) | 49,851 | 52,809 | - The interim dividend and special interim dividend were not recognized as liabilities as at June 30, 2021[63] Dividends Approved and Paid for Prior Financial Year During the Period (For the six months ended June 30) | Dividend type | 2021 (RMB thousand) | 2020 (RMB thousand) | | :--------------- | :------------------ | :------------------ | | Final dividend (HK 19 cents/21 cents) | 188,548 | 231,455 | | Special final dividend (HK 8 cents/10 cents) | 79,388 | 110,216 | | Total | 267,936 | 341,671 | 17. Equity-Settled Share-Based Transactions The company adopted a share option scheme on April 23, 2019, granting 11,500,000 share options to employees on July 3, 2020, with an exercise price of HKD 4.31, vesting between July 3, 2022, and July 3, 2024, all unexercised as of June 30, 2021 - The company adopted a share option scheme on April 23, 2019, to provide incentives and rewards to eligible participants for their contributions to the group[65] - On July 3, 2020, the group granted share options to its employees to subscribe for a total of 11,500,000 shares of the company, with an exercise price of HKD 4.31 per share[65] - These share options will vest between July 3, 2022, and July 3, 2024[65] - As of June 30, 2021, the number of outstanding share options was 11,500,000, with a weighted average remaining contractual life of 9 years[65] 18. Commitments As of June 30, 2021, total capital commitments not provided for in the interim financial report amounted to RMB 302,025 thousand, comprising RMB 210,203 thousand contracted and RMB 91,822 thousand authorized but not contracted Capital Commitments | Item | As at June 30, 2021 (RMB thousand) | As at December 31, 2020 (RMB thousand) | | :----------- | :------------------------- | :-------------------------- | | Contracted | 210,203 | 258,336 | | Authorized but not contracted | 91,822 | 170,119 | | Total | 302,025 | 428,455 | 19. Material Related Party Transactions Total key management personnel compensation for the period was RMB 3,933 thousand, and a lease agreement with related party Jinlang (Fujian) Investment Co., Ltd. terminated on March 31, 2021, with RMB 858 thousand in rent paid A) Key Management Personnel Remuneration%20Key%20Management%20Personnel%20Remuneration) Total remuneration for the group's key management personnel for the period was RMB 3,933 thousand, including short-term employee benefits, contributions to defined contribution retirement plans, and share-based payments Key Management Personnel Remuneration (For the six months ended June 30) | Item | 2021 (RMB thousand) | 2020 (RMB thousand) | | :--------------- | :------------------ | :------------------ | | Short-term employee benefits | 3,723 | 3,919 | | Contributions to defined contribution retirement benefit plans | 56 | 52 | | Share-based payments | 154 | — | | Total | 3,933 | 3,971 | B) Other Related Party Transactions%20Other%20Related%20Party%20Transactions) The group's lease agreement with Jinlang (Fujian) Investment Co., Ltd., a related party, terminated on March 31, 2021, with RMB 858 thousand in rent paid or payable during the period - The group's lease agreement with Jinlang (Fujian) Investment Co., Ltd. (a related party) terminated on March 31, 2021[68] - During the period, the group paid or was payable to Jinlang Fujian a total of RMB 858 thousand for the lease agreement[68] Other Information This section provides additional disclosures including directors' and major shareholders' interests, share option scheme details, corporate governance, and investor relations contact Directors' and Chief Executive's Interests and Short Positions in Shares, Underlying Shares and Debentures As of June 30, 2021, several directors and chief executives held long positions in the company's shares and underlying shares, with Messrs. Wang Dongxing, Wang Liangxing, and Wang Congxing each beneficially owning 1.917% of the company's shares Directors' and Chief Executive's Interests and Short Positions in Shares, Underlying Shares and Debentures | Name of Shareholder | Name of Associated Corporation | Capacity/Nature of Interest | Number of Shares (L) | Number of Relevant Shares (L) | Approximate % of Shareholding | | :--------- | :----------- | :------------- | :----------- | :--------------- | :------------- | | Mr. Wang Dongxing | The Company | Beneficial owner | 22,950,000 | — | 1.917% | | Mr. Wang Liangxing | The Company | Beneficial owner | 22,950,000 | — | 1.917% | | Mr. Congxing Wang | The Company | Beneficial owner | 22,950,000 | — | 1.917% | | Mr. Cai Ronghua | The Company | Beneficial owner | 1,810,000 | — | 0.151% | | Mr. Cai Ronghua | The Company | Settlor of discretionary trust | 7,200,000 | — | 0.601% | | Mr. Hu Chengchu | The Company | Settlor of discretionary trust | 4,500,000 | — | 0.376% | | Mr. Pan Rongbin | The Company | Beneficial owner | 3,171,000 | — | 0.264% | | Mr. Pan Rongbin | The Company | Interest of spouse | — | 150,000 | 0.013% | - Interests in underlying shares refer to interests in share options granted under the company's share option scheme[73] Substantial Shareholders' Interests and Short Positions As of June 30, 2021, Rising International Limited was the largest substantial shareholder with 55.24% of shares, and Minglang Investment Limited held 6.26%, with both indirectly owned by various directors and shareholders Substantial Shareholders' Interests and Short Positions | Name of Shareholder | Capacity/Nature of Interest | Number of Shares (L) | Approximate % of Shareholding | | :--------------- | :------------- | :----------------- | :------------- | | Rising International Limited | Beneficial owner | 661,500,000 shares | 55.24% | | Minglang Investment Limited | Beneficial owner | 74,905,000 shares | 6.26% | - Rising International is equally owned by Mr. Wang Dongxing, Mr. Wang Liangxing, and Mr. Wang Congxing, each holding 26.289% equity[75] - Minglang Investment is equally owned by Mr. Wang Dongxing, Mr. Wang Liangxing, and Mr. Wang Congxing, each holding 26.289% equity[75] Share Option Scheme The company adopted a share option scheme on April 23, 2019, granting 11,500,000 options to employees and associates on July 3, 2020, at an exercise price of HKD 4.31, all unexercised as of June 30, 2021, with phased vesting - The company adopted a share option scheme pursuant to an ordinary resolution passed by shareholders on April 23, 2019[77] Details of Movements in Share Options During the Period | Name or Category of Participant | As at January 1, 2021 | Exercised | Cancelled | Lapsed | As at June 30, 2021 | Exercise Price | Grant Date | Exercise Period | | :--------------- | :------------- | :----- | :----- | :----- | :-------------- | :-------- | :----------------- | :-------- | | Mr. Chan Wai Chun | 433,000 | — | — | — | 433,000 | HKD 4.31 | July 3, 2020 | Note 2(a) | | Mr. Wang Junhong | 350,000 | — | — | — | 350,000 | HKD 4.31 | July 3, 2020 | Note 2(b) | | Mr. Wang Zhiyong | 350,000 | — | — | — | 350,000 | HKD 4.31 | July 3, 2020 | Note 2(b) | | Ms. Chen Zhimei | 150,000 | — | — | — | 150,000 | HKD 4.31 | July 3, 2020 | Note 2(b) | | Employees | 10,217,000 | — | — | — | 10,217,000 | HKD 4.31 | July 3, 2020 | Note 2(c) | | Total | 11,500,000 | — | — | — | 11,500,000 | | | | - The share options are exercisable from the date two years after the grant date up to ten years after the grant date, with phased exercise proportions[80] Corporate Governance For the six months ended June 30, 2021, the company fully complied with all code provisions of the Corporate Governance Code and Report in Appendix 14 of the Listing Rules, with all directors confirming adherence to the standard code - The company has complied with all code provisions of the Corporate Governance Code and Report set out in Appendix 14 to the Listing Rules[81] - All directors confirm their compliance with the required standards set out in the standard code for the six months ended June 30, 2021[81] Review of Interim Results The Audit Committee, comprising three independent non-executive directors, reviewed and oversaw the financial reporting process and internal control systems, and the group's interim results for the six months ended June 30, 2021, were reviewed by KPMG and the Audit Committee - The Audit Committee, comprising three independent non-executive directors, is primarily responsible for reviewing and overseeing the group's financial reporting process and internal control systems[82] - The group's interim results for the six months ended June 30, 2021, are unaudited but have been reviewed by the company's auditor, KPMG, and the Audit Committee[82] Purchase, Sale or Redemption of the Company's Listed Securities For the six months ended June 30, 2021, neither the company nor any of its subsidiaries purchased, sold, or redeemed any of the company's listed securities - For the six months ended June 30, 2021, neither the company nor any of its subsidiaries purchased, sold, or redeemed any of the company's listed securities[83] Closure of Register of Members To determine eligibility for interim and special interim dividends, the company will suspend its register of members from September 9 to September 10, 2021, requiring shareholders to register by 4:30 p.m. on September 8, 2021 - The company's register of members will be closed from Thursday, September 9, 2021, to Friday, September 10, 2021, during which no transfer of shares will be registered[84] - To qualify for the proposed interim dividend and special interim dividend, shareholders must register their transfers by 4:30 p.m. on Wednesday, September 8, 2021[84] Acknowledgements Chairman Mr. Wang Dongxing expressed gratitude to the directors, management, staff, shareholders, customers, suppliers, and business partners for their contributions and support during the period - Chairman Mr. Wang Dongxing expressed gratitude to the directors, management, and staff for their contributions and efforts[85] - The Chairman extended sincere thanks to the group's shareholders, customers, suppliers, and business partners[85] Board of Directors The Board of Directors comprises executive directors Mr. Wang Dongxing (Chairman), Mr. Wang Liangxing (CEO), Mr. Wang Congxing, Mr. Cai Ronghua, Mr. Hu Chengchu, Mr. Pan Rongbin, and independent non-executive directors Dr. Lu Hongde, Mr. Nie Xing, and Mr. Lai Shixian - Executive Directors include Mr. Wang Dongxing (Chairman), Mr. Wang Liangxing (Chief Executive Officer), Mr. Wang Congxing, Mr. Cai Ronghua, Mr. Hu Chengchu, and Mr. Pan Rongbin[86] - Independent Non-executive Directors include Dr. Lu Hongde, Mr. Nie Xing, and Mr. Lai Shixian[86] Share Information The company was listed on September 25, 2009, with a board lot size of 1,000 shares, and 1,197,484,919 shares issued as of June 30, 2021 - Listing Date: September 25, 2009[86] - Board Lot Size: 1,000 shares[86] - Number of Issued Shares: 1,197,484,919 shares (as at June 30, 2021)[86] Investor Relations Contact Provides contact details for China Lilang Limited in Hong Kong, including address, phone, fax, email, and website, for investor inquiries - Contact Address: Unit 3402, 34/F, Lippo Centre, Tower 1, 89 Queensway, Admiralty, Hong Kong[87] - Email: ir@lilanz.com.hk, Website: www.lilanz.com[87](index=87&type=chunk)