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CHINA LILANG LIMITED

中國利郎有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1234)

ANNOUNCEMENT OF INTERIM RESULTS

FOR THE SIX MONTHS ENDED 30 JUNE 2020

The Board of Directors (the "Board") of China Lilang Limited (the "Company") is pleased to announce the unaudited consolidated results of the Company and its subsidiaries (together referred to as the "Group") for the six months ended 30 June 2020. This announcement, containing the full text of the 2020 Interim Report of the Company, complies with the relevant requirements of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited in relation to information to accompany preliminary announcements of interim results.

CONTENTS

  1. Financial Highlights
  2. Management Discussion and Analysis
  1. Review Report of the Auditor
  2. Consolidated Statement of Profit or Loss and   Other Comprehensive Income
  3. Consolidated Statement of Financial Position
  1. Consolidated Statement of Changes in Equity
  2. Condensed Consolidated Statement of Cash Flows
  3. Notes to the Interim Financial Report

32 Other Information

FINANCIAL

HIGHLIGHTS

Six months ended 30 June

2020

2019

Changes

(RMB million)

(RMB million)

(%)

Revenue

1,093.3

1,540.0

-29.0

Gross profit

431.0

638.2

-32.5

Profit from operations

306.7

464.8

-34.0

Profit for the period

268.9

388.5

-30.8

(RMB cents)

(RMB cents)

(%)

Earnings per share

- Basic

22.5

32.5

-30.8

- Diluted

22.5

32.5

-30.8

Interim dividend per share

HK12 cents

HK18 cents

-33.3

Special interim dividend per share

HK5 cents

HK8 cents

-37.5

(%)

(%)

(% points)

Gross profit margin

39.4

41.4

-2.0

Operating profit margin

28.1

30.2

-2.1

Net profit margin

24.6

25.2

-0.6

Return on average shareholders' equity(1)

7.5

11.3

-3.8

Effective tax rate

17.6

21.2

-3.6

Advertising and promotional expenses and renovation subsidies

  (as percentage of revenue)

7.5

9.1

-1.6

Six months

Six months

ended

Year ended

ended

30 June

31 December

30 June

2020

2019

2019

Average inventory turnover days(2)

185

111

129

Average trade receivables turnover days(3)

135

78

87

Average trade payables turnover days(4)

114

91

102

Notes:

  1. Return on average shareholders' equity is equal to profit for the period divided by the average of the beginning and closing balance of total shareholders' equity.
  2. Average inventory turnover days is equal to the average of the beginning and closing inventory balance divided by cost of sales and multiplied by the number of days in the relevant period.
  3. Average trade receivables turnover days is equal to the average of the beginning and closing trade and bills receivables balance divided by revenue (including value-added tax) and multiplied by the number of days in the relevant period.
  4. Average trade payables turnover days is equal to the average of the beginning and closing trade and bills payables balance divided by cost of sales and multiplied by the number of days in the relevant period.

02 CHINA LILANG LIMITED

MANAGEMENT DISCUSSION

AND ANALYSIS

INDUSTRY REVIEW

In the first half of 2020, the trade friction between China and the United States continued, and the tension between the two countries intensified, which imposed downward pressure on the global economy. At the same time, the novel coronavirus pandemic ("COVID-19" or the "Pandemic") hit consumer and retail markets hard. Faced with various challenges, China undertook initiatives to prevent and control the Pandemic as well as promote economic and social development, implementing measures to support trade and investment, and accelerating the restoration of social operations. According to the National Bureau of Statistics of China, the country's gross domestic product (GDP) for the first half of the year declined by 1.6% year-on-year, and the total retail sales of consumer goods for the same period decreased by 11.4% year-on-year. By consumption type, total retail sales of apparel, footwear, headwear and knitwear for the first half of the year decreased by 19.6% year-on-year.

As the Pandemic started to ease in March, apparel retail stores in China gradually resumed business. Promotional sales with deep discounts were offered to attract consumers. Noticing that consumers are paying more attention to the convenience and safety of shopping, retail companies are more actively resorting to the online sales channels. This drives further adjustments to the retail business model.

During the period under review, China Lilang Limited (the "Company" or "China Lilang", together with its subsidiaries, the "Group") adopted active measures against the challenges brought by the Pandemic. Although retail stores had gradually resumed business since March, it would take some time for the traffic of stores to recover. To alleviate the impact of the decline in consumer traffic of physical stores on retail sales and also the distributors, the Group stepped up its efforts to promote e-commerce business, driving up online retail sales by more than

1.5 times as compared to the same period last year. Sales by the physical stores to VIP customers via the customer relationship management system on the WeChat platform also increased substantially. However, total retail sales of LILANZ products for the first half of the year still inevitably recorded a relatively large

INTERIM REPORT 2020 03

MANAGEMENT DISCUSSION

AND ANALYSIS (CONTINUED)

decline and dropped by 30%-35% as compared to the same period last year. To support the distributors, the Group extended the credit periods granted to distributors, and also cancelled some of the spring and summer orders to reduce the channel inventory pressures of distributors. The Group also strictly controlled the pre-order levels of the 2020 fall and winter trade fairs held in the second quarter to reduce the risk of further inventory backlog. In addition, the Group continued to optimize the physical retail store network. During the period, the number of retail stores decreased by 98 to 2,717, of which 268 were stores for the smart casual collection.

For the six months ended 30 June 2020, revenue decreased by 29.0% year-on-year to RMB1,093.3 million. Net profit amounted to RMB268.9 million, down by 30.8%. Net profit margin declined by 0.6 percentage point to 24.6%. Earnings per share were RMB22.5 cents, down by 30.8%.

The Group maintained a healthy financial position during the period and expects that operating cash flows would be improved in the second half of the year. The Board of Directors resolved to pay an interim dividend of HK12 cents per share and a special interim dividend of HK5 cents per share, once again maintaining a relatively high payout ratio.

FINANCIAL REVIEW

REVENUE

The Group's revenue for the period decreased by 29.0% to RMB1,093.3 million. To reduce the inventory pressure of the distributors, the Group cancelled some of the spring and summer orders of approximately RMB140.0 million (at wholesale value) during the period. In addition, the Group also reduced the pre- orders of 2020 fall trade fair to control inventory risk and to facilitate the destocking of inventories from spring in the second half of the year. Coupled with the fact that the fall trade fair held in the second quarter had been delayed by more than a month compared to last year, sales of fall products during the first half of the year were significantly lower than the same period last year.

By product category, tops remained the major contributor to revenue, accounting for 52.3% of revenue (first half of 2019: 53.6%), with a 30.8% drop in sales. During the period, the Group organized various online promotional sales events of footwear products to boost consumer traffic. As a result, sales of accessories for the period dropped by 10.7%, a more moderate rate as compared to the other product categories. Sales of footwear products accounted for over 10% of total revenue for the period.

04 CHINA LILANG LIMITED

MANAGEMENT DISCUSSION

AND ANALYSIS (CONTINUED)

REVENUE BY REGION

Sales in the North-Eastern China region had the worst performance during the period and fell by 44.8% year-on-year. The region reported a number of imported cases of COVID-19 in the second quarter, affecting the recovery of the retail industry. In addition, the issue of population outflow of the region continued. As for the Northern China region, currently most of the stores in markets such as Beijing, Hebei and Shanxi are street stores, hence the realignment of store network is needed so as to have more stores in shopping malls. As part of the process, the number of stores in that region decreased during the period. In addition, as Beijing adopted more rigorous prevention and control measures for the Pandemic in the second quarter, the recovery of retail industry in the city was relatively slower than in the other regions. As a result, sales of the region for the period

fell by 36.1% year-on-year. Sales in Central and Southern China region fell by 21.7% during the period. Although Hubei, the province hardest hit by the Pandemic, recorded a sharp decline in sales during the period, for other major markets in the region, including Henan, Hunan and Guangdong, sales recovered well in the second quarter. Sales in the North-Western China region fell by 13.2% for the period, a relatively small decline. Sales in Shaanxi, the major market of the region, recovered rapidly in the second quarter.

The Eastern China and the Central and Southern China regions remained the top contributors to revenue, accounting for 59.1% (first half of 2019: 58.7%) of the total. The retail stores in these two regions accounted for 54.3% (31 December 2019: 54.1%) of the total number of stores.

INTERIM REPORT 2020 05

MANAGEMENT DISCUSSION

AND ANALYSIS (CONTINUED)

Revenue by region for the period is set out below:

Six months ended 30 June

2020

2019

Changes

Region

RMB million

% of revenue

RMB million

% of revenue

(%)

Northern China1

92.1

8.4%

144.2

9.4%

-36.1%

North-Eastern China2

42.9

3.9%

77.7

5.0%

-44.8%

Eastern China3

332.7

30.5%

504.7

32.8%

-34.1%

Central and Southern China4

312.4

28.6%

399.1

25.9%

-21.7%

South-Western China5

200.3

18.3%

284.2

18.5%

-29.5%

North-Western China6

112.9

10.3%

130.1

8.4%

-13.2%

Total

1,093.3

100.0%

1,540.0

100.0%

-29.0%

  1. Northern China includes Beijing, Hebei, Shanxi, Tianjin and Inner Mongolia.
  2. North-EasternChina includes Heilongjiang, Jilin and Liaoning.
  3. Eastern China includes Jiangsu, Zhejiang, Shanghai, Anhui, Fujian, Shandong and Jiangxi.
  4. Central and Southern China includes Henan, Hubei, Hunan, Guangdong, Guangxi and Hainan.
  5. South-WesternChina includes Chongqing, Sichuan, Guizhou, Yunnan and Tibet.
  6. North-WesternChina includes Shaanxi, Gansu, Qinghai, Ningxia and Xinjiang.

COST OF SALES AND GROSS PROFIT MARGIN

Cost of sales decreased by 26.6% year-on-year to RMB662.4 million. As sales revenue decreased, subcontracting charges dropped by 37.9% to RMB115.3 million.

Gross profit margin was 39.4%, down by 2.0 percentage points year-on-year. This was mainly attributable to the higher fixed production overhead (including research and development costs) to revenue ratio as sales revenue declined.

OTHER NET INCOME

Other net income amounted to RMB46.4 million (first half of 2019: RMB53.0 million), which comprised mainly government grants of RMB39.1 million (first half of 2019: RMB41.8 million). The Group's entitlement to the government grants was unconditional and under the discretion of relevant authorities.

SELLING AND DISTRIBUTION EXPENSES

Selling and distribution expenses decreased by 35.7% to RMB111.1 million, accounting for 10.2% of the total revenue, down by 1.0 percentage point compared with the same period last year. Advertising expenses and renovation subsidies decreased by RMB58.0 million to RMB81.4 million, equivalent to 7.5% (first half of 2019: 9.1%) of the total revenue. During the period, advertising expenses increased, while renovation subsidy expenses decreased significantly as there were substantially fewer new store openings during the period. Other sales and distribution expenses decreased, mainly because less was spent on organizing trade fairs.

ADMINISTRATIVE EXPENSES

Administrative expenses amounted to RMB54.3 million, up by RMB4.3 million compared with the same period last year, equivalent to 5.0% (first half of 2019: 3.3%) of the total revenue. Administrative expenses for the period included additional provision of RMB7.4 million for trade receivables, made in accordance with the Group's provision policy.

06 CHINA LILANG LIMITED

MANAGEMENT DISCUSSION

AND ANALYSIS (CONTINUED)

OTHER OPERATING EXPENSES

Other operating expenses mainly comprised charitable donations of RMB3.7 million (first half of 2019: RMB3.5 million).

PROFIT FROM OPERATIONS

Profit from operations dropped by 34.0% to RMB306.7 million, which was mainly attributable to the decrease in sales revenue. The higher ratio of fixed cost of sales to sales revenue resulted in a drop in gross profit margin by 2.0 percentage points. Operating profit margin fell by 2.1 percentage points to 28.1%.

INTERIM DIVIDEND

The Board has resolved to distribute payment of an interim dividend of HK12 cents (first half of 2019: HK18 cents) per ordinary share and a special interim dividend of HK5 cents (first half of 2019: HK8 cents) per ordinary share in respect of this financial year, making a total dividend payment of approximately HK$203.6 million (equivalent to approximately RMB185.8 million). The interim dividend and special interim dividend will be paid in cash on or around 18 September 2020 to shareholders whose names appear on the register of members of the Company on 4 September 2020.

NET FINANCE INCOME

Net finance income was RMB19.8 million, down by RMB8.7 million year-on-year. Both the cash balance and the bank deposit interest rate decreased during the period.

INCOME TAX

The effective income tax rate was 17.6% for the period, down by

3.6 percentage points compared to the same period last year. This was mainly due to the recognition of the tax benefits of certain prior year's expense deductions confirmed by the relevant tax authorities during the period. One of the Group's PRC subsidiaries has obtained the "Advanced and New Technology Enterprise" status. Together with the two subsidiaries established in Xizang, these subsidiaries are eligible to a preferential tax rate of 15% in 2020.

NET PROFIT

Net profit was RMB268.9 million for the period, down by 30.8%, which was mainly attributable to the decrease in sales revenue for the period. Net profit margin declined by 0.6 percentage point to 24.6%.

EARNINGS PER SHARE

Earnings per share were RMB22.5 cents, down by 30.8%.

BUSINESS REVIEW

SALES CHANNEL MANAGEMENT

Through the LILANZ retail stores operated by distributors, the Group establishes a distinctive brand image, provides professional retail services, and raises the spending desire of consumers so as to drive sales. A wholesale model has been adopted for the sales of the core collection while a consignment model for most of the sales of the smart casual collection.

During the period, retail industry was severely hit by the Pandemic. On the one hand, the Group pragmatically worked with distributors to optimize the retail network, closing under- performing stores and opening stores in carefully selected high- quality shopping malls to increase store sales. On the other hand, the Group took active measures to support distributors in coping with the Pandemic to ensure the health of sales channels.

As at the end of June 2020, LILANZ had a total of 2,717 retail stores nationwide, representing a net decrease of 98 stores during the period, and the aggregate retail floor area decreased by 3.9% compared to the end of 2019 to about 390,400 square meters (31 December 2019: 406,400 square meters). Among them, there were 268 specialty stores for the smart casual collection, down by 22 stores during the period.

INTERIM REPORT 2020 07

MANAGEMENT DISCUSSION

AND ANALYSIS (CONTINUED)

Changes in the number of LILANZ stores in different regions are as follows:

Number of Stores

As at

Opened during

Closed during

As at

Region

1 January 2020

the period

the period

30 June 2020

Northern China

299

5

26

278

North-Eastern China

199

2

6

195

Eastern China

810

10

65

755

Central and Southern China

714

36

29

721

South-Western China

505

16

31

490

North-Western China

288

6

16

278

Total

2,815

75

173

2,717

As at the end of June 2020, the number of stores in shopping malls was 768 (31 December 2019: 780), the percentage to total store count and the related percentage to total retail area remained at about 28% and 31% respectively.

The Group has established stable relations with its distributors. As at 30 June 2020, LILANZ had 77 distributors and 768 sub-distributors. The number of stores is analyzed as follows:

30 June 2020

31 December 2019

Number of

Number of

Number of

Number of

distributors

stores

distributors

stores

Self-operated stores

-

1

-

1

Distributors

77

1,585

78

1,663

Sub-distributors

768

1,131

768

1,151

Total number of stores

2,717

2,815

Street stores and stores in shopping malls

2,418

2,509

Shop-in-shops in department stores

299

306

Total number of stores

2,717

2,815

During the period, to support distributors in coping with the Pandemic and alleviate channel inventory pressure, the Group extended the credit periods granted to distributors and cancelled some of the spring and summer orders. Also, the Group reduced products of the fall collection as planned to facilitate the destocking of the spring inventory in the second half of the year. In addition, the Group implemented the reduction of pre-order levels of distributors in the 2020 fall and winter trade fairs to reduce the risk of further backlog of channel inventory. Sufficient production capacity was in place to cope with possible supplementary orders.

At present, past-season inventories are slightly above the target level, inventory clearance will be the top priority in the second half of the year.

08 CHINA LILANG LIMITED

MANAGEMENT DISCUSSION

AND ANALYSIS (CONTINUED)

NEW RETAIL DEVELOPMENT

New retail remains one of the Group's top priorities for future business development. The Group promotes the business of its LILANZ core collection and smart casual collection by actively integrating online services with offline in-store experiences and its comprehensive logistics services.

Online stores have been set up on major online sales platforms for both the LILANZ core collection and smart casual collection. The Group also provides customer relationship management services via the WeChat platform. After the outbreak of the Pandemic earlier this year, consumer traffic of physical retail stores has declined. To alleviate the impact on retail sales and the distributors, the Group actively encouraged the distributors to fully utilize the customer relationship management system on the WeChat platform to increase sales to VIP customers. The Group also stepped up its efforts to promote e-commerce business by increasing online advertising activities to boost e-commerce traffic and organizing online sales promotion, driving online retail sales to increase by more than 1.5 times year- on-year.

PRODUCT DESIGN, DEVELOPMENT AND SUPPLY CHAIN MANAGEMENT

The Group continued to enhance the personality-themed and original design of its products to provide better value-for-money and differentiate itself from its peers. The proportion of originally- designed products maintained at the target level of about 70% among products available for sale during the period and the proportion of these products utilizing proprietary fabrics was also around the target level of approximately 50%. At the same time, commencing from the 2020 summer collection, the Group has started enhancing the fashion elements and design of smart casual products in stages as planned. This is expected to improve the profitability of smart casual collection in the long run.

To support environmental protection, the Group has launched an environmental-friendly jeans collection in its 2020 spring and summer collections. Such jeans are made with blended fabrics of cotton yarn and polyester yarn extracted from recycled plastic bottles. On average, each pair of jeans uses seven plastic bottles. Besides, the Group has adopted the latest washing technology in the washing process of jeans products to effectively reduce waste and significantly save labor, water and energy consumption.

The Group's international and local research and development teams have continued to keep abreast of the popularity trends in the international market. With the objective of meeting fashion needs of mainland China's consumers, the teams design value- for-money menswear products that are simple yet fashionable in style. There are currently about 440 staff members in the Group's research and development department engaged in areas such as product design, material development and sample creation, all striving to increase the overall competitiveness of its products.

INTERIM REPORT 2020 09

MANAGEMENT DISCUSSION

AND ANALYSIS (CONTINUED)

BRAND MANAGEMENT AND PROMOTION

China Lilang owns and operates the LILANZ brand and currently sells menswear products in two collections - the core collection and the smart casual collection. The core collection, principally targeting consumers between the ages of 25 and 45, has been well-received in traditional third- and fourth-tier city markets and is gradually expanding into first- and second-tier city markets. The smart casual collection, targeting consumers between the ages of 20 and 30 in first- and second-tier city markets, comprises more classically-styled products than the core collection.

The Group's brand management mainly focuses on products and the Group continued to launch targeted brand advertising and promotion campaigns. In the 2020 spring and summer collections, the Group launched a number of IP crossover series and carried out promotional campaigns to complement the launches. In particular, to promote the launch of the LILANZ × CHINA DAILY crossover products, the Group commissioned a number of influencers to showcase the new products on various online platforms such as Tik Tok, Xiaohongshu.com, Weibo and Douyu.com, attracting market attention and enhancing brand value.

During the period, the Group sponsored the costumes of actors in the urban hit drama "Get Married or Not" (誰說我結不了婚), showcasing the fashionable image of the LILANZ brand through costume designs that matched the characters and the plot. The drama was broadcast simultaneously on CCTV8 and several online stations in the second quarter and attracted a huge audience, greatly enhancing the brand awareness and reputation of LILANZ.

During the period, the Group also continued to participate in the Advertising Festival of Chinese College Students to solicit publicity plans and ideas for its brand and products from college students. Owing to the Pandemic, the creative theme solicitation tour was held online instead. The activity had engaged more than one million college students, further enhancing the brand awareness of "LILANZ" among the young consumer demographic.

PROSPECTS

Looking into the second half of 2020, Sino-US trade issues remain unresolved while the Pandemic fluctuates, adding uncertainties to the global economy. China's retail market will also be affected. As a well-established menswear enterprise, China Lilang has distinctive advantages in areas such as products, retail management, cost control, and financial position. The Group will continue to improve operating efficiency, inventory management, e-commerce business and brand promotion, and is confident that it will continue to outperform other industry peers. The target total retail sales growth of LILANZ products for the second half of the year remains at no less than mid-single- digit.

Maintaining the channels healthy and reducing inventory to a reasonable level will be a focus for the second half of the year. In addition to clearing inventories via online stores and the outlet sales event held in the headquarters at year end, the Group has reduced products for the 2020 fall collection to facilitate the destocking of the 2020 spring products in the second half of the year. It has also reduced the pre-order levels of the 2020 fall and winter trade fairs and prepared sufficient production capacity to cope with additional orders, thus reducing the risk of further backlog of channel inventory. In addition, the plan for the distributors to open stores in outlet malls will be carried out in the second half of the year to accelerate inventory clearance. The Group will continue to monitor the inventory level through the ERP system, and targets to reduce inventories to a more reasonable level through the aforementioned measures and organizing appropriate promotional and marketing events when necessary.

The Group remains cautious in expanding its store network in the second half of the year and expects that the total number of stores by the end of 2020 will be largely the same as that at the end of 2019. In addition to opening stores in outlet malls as planned, the Group will continue to encourage distributors to open more stores in premium shopping malls. However, it is expected that some stores with low profitability will be closed.

10 CHINA LILANG LIMITED

MANAGEMENT DISCUSSION

AND ANALYSIS (CONTINUED)

With respect to the smart casual collection, as disclosed in the 2019 annual report, the Group would replace the consignment model with a direct-retail model to strengthen inventory management, market expansion, brand marketing and training of retail personnel. On 1 July 2020, 228 existing stores of the smart casual collection have been converted to direct-retail model. Other 40 stores will continue to be operated by distributors, and some of which are expected to be closed when the existing sales agreements expire. The total consideration for the transfer is approximately RMB143.0 million (including fixed assets, and rental deposits and prepayments), of which compensation for market development expenses amounting to RMB50.1 million will be recognised as expense in the second half of the year.

Regarding the new retail, the Group will continue to conduct brand advertising and promotion on Baidu, Weibo, Tik Tok, and other portals and will organize various promotional sales events to attract more traffic to the online stores. The Group will also encourage distributors to fully utilize the customer relationship management system via WeChat as a sales platform.

As for brand promotion, the Group will launch a number of crossover collections in the second half of the year, including crossover products with American graffiti artist Jean Michel Basquiat. The Group has also appointed a new brand ambassador and will start a new round of brand promotion in the fourth quarter. The store image upgrade for the core collection will be undertaken in stages. In 2020, the plan for rolling out the seventh-generation store image to existing stores will be adjusted to cover 10 to 20 stores. Different decorative materials will be used subject to different market positions of the stores to achieve a better cost efficiency.

As for product positioning, the Group will continue to adhere to the strategy of providing products of excellent value-for-money and ensure that product design and quality would gain the favor of customers. The Group has started enhancing the fashion elements and design of a small portion of the 2020 summer products of the smart casual collection, and will gradually increase the proportion of these products in the fall and winter collections. This would help improve the profitability of the smart casual collection in the long run.

The renovation work of the new headquarters in Fujian had been suspended early this year due to the Pandemic. The work has now been resumed. It is expected that the headquarters will begin operation in the beginning of next year and hopefully the 2021 fall trade fair could be held there. Phase I of the new logistics park is still targeted for opening in late 2021.

In the long run, China Lilang will retain its multi-brand strategy, as it endeavors to strengthen its product competitiveness and value-for-money to further consolidate its leading position in the menswear industry in China and realize sustainable long-term growth to reward its shareholders, staff and customers for their support.

INTERIM REPORT 2020 11

MANAGEMENT DISCUSSION

AND ANALYSIS (CONTINUED)

LIQUIDITY AND FINANCIAL RESOURCES

CASH AND BANK BALANCES AND CASH FLOWS

As at 30 June

As at 31 December

2020

2019

RMB million

RMB million

Amounts pledged as security for bills payable

3.1

8.9

Cash and cash equivalents

1,733.5

1,750.6

Total cash and bank balance

1,736.6

1,759.5

Less: Bank loans

(273.8)

-

Net cash

1,462.8

1,759.5

As at 30 June 2020, the Group's total cash and bank balance was mainly denominated in Renminbi (97.8%).

The bank loans as at 30 June 2020 were denominated in Hong Kong Dollars, unsecured, repayable within one year or on demand and carried interest at floating rates.

The decrease in cash and cash equivalents balance by RMB17.1 million during the period was reconciled as follows:

  • Net cash generated from operating activities amounting to RMB117.3 million. The major reconciling items between the amount of net operating cash inflow and the net profit for the period of RMB268.9 million were the decreases in trade and other payables. Trade and bills payables balance decreased by RMB208.6 million over the period as trade fair orders for 2020 fall and winter collections dropped year-on-year. Other payables and accruals decreased by about RMB49.3 million as expenses for the period, in particular renovation subsidies, and the related payables dropped. The effect of decreases in trade and other payables on cash flows for the period was partly offset by the decreases in trade and bills receivables, and inventories by RMB75.1 million and RMB35.4 million respectively.
  • Net cash outflows from investing activities amounting to RMB63.3 million, comprising mainly capital expenditure totalling RMB87.7 million, less interest income of RMB24.3 million.
  • Net cash outflows from financing activities amounting to RMB71.7 million, mainly attributable to the payments of the final dividends totalling RMB341.7 million in respect of the year ended 31 December 2019, less the proceeds from bank loans totalling RMB273.8 million.

12 CHINA LILANG LIMITED

MANAGEMENT DISCUSSION

AND ANALYSIS (CONTINUED)

TRADE WORKING CAPITAL TURNOVER DAYS

Six months

Year ended

Six months

ended 30 June

31 December

ended 30 June

2020

2019

2019

Average inventory turnover days

185

111

129

Average trade receivables turnover days

135

78

87

Average trade payables turnover days

114

91

102

Inventory turnover days

The Group's average inventory turnover days was 185 days for the period.

Inventory balance dropped by RMB35.4 million during the period to RMB653.9 million. When compared to the interim period last year, the balance increased by RMB44.0 million. Inventory balance at the period end included 2020 spring and summer inventories of the core collection of about RMB78.0 million as the Group cancelled some of the trade fair orders to reduce the inventory pressure of distributors.

In the second half of the year, in addition to destocking through the online channel, the Group plans to open more stores in outlet malls to accelerate inventory clearance.

As at 30 June 2020, a provision of RMB3.4 million was made in accordance with the Group's inventory provision policy.

Trade receivables turnover days

The Group's average trade and bills receivables turnover days was 135 days for the period. This compared to 87 days for the interim period last year.

Trade and bills receivables balance decreased by RMB75.1 million during the period to RMB882.3 million. When compared to the interim period last year, the balance increased by RMB7.6 million.

Impacted by the Pandemic, total retail value of the Group's products decreased by 30% to 35% year-on-year in the first half of the year. As part of the measures to support the distributors, credit periods granted to distributors were extended during the period. However, the Group expects that retail business would further pick up and channel inventory clearance would accelerate in the second half of the year, and that liquidity of distributors as well as the ageing of the Group's trade receivables would improve as a result.

As at 30 June 2020, a provision of RMB16.6 million was made in accordance with the Group's trade receivables provision policy.

Trade payables turnover days

The Group's average trade and bills payables turnover days was 114 days for the period. The turnover days based on the period end balance was 85 days which compared to 81 days for the interim period last year.

Trade and bills payables balance dropped by RMB208.6 million during the period to RMB309.2 million. When compared to the interim period last year, the balance decreased by RMB96.6 million, which was mainly due to the drop in the 2020 fall and winter trade fair orders.

PLEDGE OF ASSETS

As at 30 June 2020, deposits with banks totalling RMB3.1 million (31 December 2019: RMB8.9 million) were pledged as securities for bills payable. The pledged bank deposits will be released upon the settlement of relevant bills payable.

INTERIM REPORT 2020 13

MANAGEMENT DISCUSSION

AND ANALYSIS (CONTINUED)

CAPITAL COMMITMENTS AND

CONTINGENCIES

As at 30 June 2020, the Group had total capital commitments of RMB374.2 million, primarily related to the construction of the new headquarters and the logistics center, which are expected to be completed in early and late 2021 respectively.

These capital commitments are expected to be financed by internal resources of the Group.

As at 30 June 2020, the Group had no material contingent liabilities.

FINANCIAL MANAGEMENT POLICIES

The Group continues to control financial risks in a prudent manner. The functional currency of the Company is the Hong Kong Dollars and the Company's financial statements are translated into Renminbi for reporting and consolidation purposes. Foreign exchange differences arising from the translation of financial statements are directly recognized in equity as a separate reserve. As the Group conducts business transactions principally in Renminbi, the exchange rate risk at the Group's operational level is not significant.

HUMAN RESOURCES

As at 30 June 2020, the Group had 2,689 staff. Total staff costs for the period amounted to approximately RMB115.2 million (first half of 2019: RMB109.1 million).

The Group places great emphasis on recruiting and training quality personnel. We recruit talents from universities and technical schools and provide pre-employment and on-going training and development opportunities to our staff members. Our training programs cover areas such as sales and production, customer service, quality control, trade fairs planning, work place ethics and other areas relevant to the industry.

The Group offers competitive remuneration packages to our employees based on factors such as market rates, workload, responsibility, job complexity as well as the Group's performance. The Group has also adopted a share option scheme to recognize, reward and promote the contribution of the employees to the growth and development of the Group. On 3 July 2020, the Group granted options to subscribe for a total of 11,500,000 shares of the Company to its employees under the share option scheme at an exercise price of HK$4.31 per share. The options will be vested during the period from 3 July 2022 to 3 July 2024.

14 CHINA LILANG LIMITED

REVIEW REPORT OF

THE AUDITOR

REVIEW REPORT TO THE BOARD OF DIRECTORS OF CHINA LILANG LIMITED

(Incorporated in the Cayman Islands with limited liability)

INTRODUCTION

We have reviewed the interim financial report set out on pages 16 to 31 which comprises the consolidated statement of financial position of China Lilang Limited (the "Company") as of 30 June 2020 and the related consolidated statement of profit or loss and other comprehensive income, statement of changes in equity and condensed consolidated statement of cash flows for the six-month period then ended and explanatory notes. The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited require the preparation of an interim financial report to be in compliance with the relevant provisions thereof and International Accounting Standard 34, Interim financial reporting, issued by the International Accounting Standards Board. The directors are responsible for the preparation and presentation of the interim financial report in accordance with International Accounting Standard 34.

Our responsibility is to form a conclusion, based on our review, on the interim financial report and to report our conclusion solely to you, as a body, in accordance with our agreed terms of engagement, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

SCOPE OF REVIEW

We conducted our review in accordance with Hong Kong Standard on Review Engagements 2410, Review of interim financial information performed by the independent auditor of the entity, issued by the Hong Kong Institute of Certified Public Accountants. A review of the interim financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

CONCLUSION

Based on our review, nothing has come to our attention that causes us to believe that the interim financial report as at 30 June 2020 is not prepared, in all material respects, in accordance with International Accounting Standard 34, Interim financial reporting.

KPMG

Certified Public Accountants 8th Floor, Prince's Building 10 Chater Road

Central, Hong Kong

19 August 2020

INTERIM REPORT 2020 15

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND

OTHER COMPREHENSIVE INCOME

For the six months ended 30 June 2020 - unaudited (Expressed in Renminbi)

Six months ended 30 June

2020

2019

Note

RMB'000

RMB'000

Revenue

3

1,093,336

1,539,993

Cost of sales

(662,354)

(901,791)

Gross profit

430,982

638,202

Other net income

46,372

52,956

Selling and distribution expenses

(111,054)

(172,601)

Administrative expenses

(54,337)

(50,072)

Other operating expenses

(5,265)

(3,714)

Profit from operations

306,698

464,771

Net finance income

4

19,839

28,457

Profit before taxation

5

326,537

493,228

Income tax

6

(57,595)

(104,701)

Profit for the period

268,942

388,527

Other comprehensive income for the period

Item that may be reclassified subsequently to profit or loss:

Exchange differences on translation of financial statements of the Company

  and subsidiaries outside the mainland of the People's Republic of China

  (the "PRC")

6,940

2,044

Total comprehensive income for the period

275,882

390,571

Earnings per share

7

Basic (cents)

22.5

32.5

Diluted (cents)

22.5

32.5

The notes on pages 21 to 31 form part of this interim financial report. Details of dividends payable to shareholders of the Company are set out in note 17.

16 CHINA LILANG LIMITED

CONSOLIDATED STATEMENT OF

FINANCIAL POSITION

At 30 June 2020 - unaudited (Expressed in Renminbi)

30 June

31 December

2020

2019

Note

RMB'000

RMB'000

Non-current assets

Property, plant and equipment

8

740,315

713,892

Investment properties

9

140,494

142,403

Right-of-use assets

10

189,227

139,506

Intangible assets

7,865

7,776

Deposits for purchases of plant and equipment

46,679

8,280

Deferred tax assets

10,987

20,823

1,135,567

1,032,680

Current assets

Inventories

11

653,882

689,243

Trade and other receivables

12

1,013,979

1,081,849

Pledged bank deposits

13

3,066

8,946

Cash and cash equivalents

1,733,527

1,750,609

3,404,454

3,530,647

Current liabilities

Bank loans

14

273,840

-

Trade and other payables

15

489,224

755,828

Lease liabilities

16

22,633

537

Contract liabilities

27,019

26,724

Current tax payable

130,892

152,156

943,608

935,245

Net current assets

2,460,846

2,595,402

Total assets less current liabilities

3,596,413

3,628,082

Non-current liabilities

Deferred tax liabilities

31,252

21,803

Lease liabilities

16

24,671

-

55,923

21,803

Net assets

3,540,490

3,606,279

INTERIM REPORT 2020 17

CONSOLIDATED STATEMENT OF

FINANCIAL POSITION (CONTINUED)

At 30 June 2020 - unaudited (Expressed in Renminbi)

30 June

31 December

2020

2019

Note

RMB'000

RMB'000

Capital and reserves

Share capital

105,517

105,517

Reserves

3,434,973

3,500,762

Total equity

3,540,490

3,606,279

Authorised for issue by the board of directors in Hong Kong on 19 August 2020.

Mr. Wang Dong Xing

Mr. Wang Liang Xing

Mr. Wang Cong Xing

Chairman

Chief Executive Officer

Executive Director

The notes on pages 21 to 31 form part of this interim financial report.

18 CHINA LILANG LIMITED

CONSOLIDATED STATEMENT OF

CHANGES IN EQUITY

For the six months ended 30 June 2020 - unaudited (Expressed in Renminbi)

Share

Share

Statutory

Capital

Exchange

Retained

Total

capital

premium

reserve

reserve

reserve

profits

equity

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

As at 1 January 2019

105,517

31,411

257,038

23,176

(43,161)

3,025,878

3,399,859

Changes in equity for the six months

  ended 30 June 2019:

Profit for the period

-

-

-

-

-

388,527

388,527

Other comprehensive income

for the period

-

-

-

-

2,044

-

2,044

Total comprehensive income

for the period

-

-

-

-

2,044

388,527

390,571

Dividends approved in respect

  of the previous year

-

-

-

-

-

(328,196)

(328,196)

As at 30 June 2019

105,517

31,411

257,038

23,176

(41,117)

3,086,209

3,462,234

As at 1 January 2020

105,517

31,411

263,467

23,176

(37,369)

3,220,077

3,606,279

Changes in equity for the six months

  ended 30 June 2020:

Profit for the period

-

-

-

-

-

268,942

268,942

Other comprehensive income

for the period

-

-

-

-

6,940

-

6,940

Total comprehensive income

for the period

-

-

-

-

6,940

268,942

275,882

Dividends approved in respect

  of the previous year

-

-

-

-

-

(341,671)

(341,671)

As at 30 June 2020

105,517

31,411

263,467

23,176

(30,429)

3,147,348

3,540,490

The notes on pages 21 to 31 form part of this interim financial report.

INTERIM REPORT 2020 19

CONDENSED CONSOLIDATED STATEMENT OF

CASH FLOWS

For the six months ended 30 June 2020 - unaudited (Expressed in Renminbi)

Six months ended 30 June

2020

2019

RMB'000

RMB'000

Operating activities

Cash generated from operations

176,839

273,037

Tax paid

(59,574)

(101,757)

Net cash generated from operating activities

117,265

171,280

Investing activities

Payments for the purchases of property, plant and equipment, and intangible assets

(87,681)

(50,877)

Payment for purchase of right-of-use assets

-

(18,653)

Interest income received

24,298

28,510

Other cash inflows arising from investing activities

50

12

Net cash used in investing activities

(63,333)

(41,008)

Financing activities

Proceeds from bank loans

273,840

237,411

Dividends paid

(341,671)

(328,196)

Interest expense paid

(499)

(765)

Capital element of lease rentals paid

(3,259)

(646)

Interest element of lease rentals paid

(67)

(30)

Net cash used in financing activities

(71,656)

(92,226)

Net (decrease)/increase in cash and cash equivalents

(17,724)

38,046

Cash and cash equivalents at 1 January

1,750,609

1,842,850

Effect of foreign exchange rate changes

642

(29)

Cash and cash equivalents at 30 June

1,733,527

1,880,867

The notes on pages 21 to 31 form part of this interim financial report.

20 CHINA LILANG LIMITED

NOTES TO THE

INTERIM FINANCIAL REPORT

(Expressed in Renminbi)

1. BASIS OF PREPARATION

This interim financial report has been prepared in accordance with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, including compliance with International Accounting Standard ("IAS") 34, Interim financial reporting, issued by the International Accounting Standards Board ("IASB"). It was authorised for issue on 19 August 2020.

The interim financial report has been prepared in accordance with the same accounting policies adopted in the 2019 annual financial statements, except for the accounting policy changes that are expected to be reflected in the 2020 annual financial statements. Details of these changes in accounting policies are set out in note 2.

The preparation of an interim financial report in conformity with IAS 34 requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses on a year to date basis. Actual results may differ from these estimates.

The interim financial report contains condensed consolidated financial statements and selected explanatory notes which do not include all of the information required for a full set of financial statements prepared in accordance with International Financial Reporting Standards ("IFRSs"). The notes include an explanation of events and transactions that are significant to an understanding of the changes in financial position and performance of the Group since the 2019 annual financial statements.

The 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, Review of interim financial information performed by the independent auditor of the entity, issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA"). KPMG's independent review report to the Board of Directors is included on page 15.

The financial information relating to the financial year ended 31 December 2019 that is included in the interim financial report as being previously reported information does not constitute the Company's statutory financial statements for that financial year but is derived from those financial statements. Statutory financial statements for the year ended 31 December 2019 are available from the Company's registered office. The auditor has expressed an unqualified opinion on those financial statements in their report dated 19 March 2020.

2. CHANGES IN ACCOUNTING POLICIES

The IASB has issued a few amendments to IFRSs that are first effective for the current accounting period of the Group and the Company. None of those developments are relevant to the Group's interim financial statements.

The Group has not applied any new standard or interpretation that is not yet effective for the current accounting period.

INTERIM REPORT 2020 21

NOTES TO THE

INTERIM FINANCIAL REPORT (CONTINUED)

(Expressed in Renminbi)

3. REVENUE

The principal activities of the Group are manufacturing and sale of branded menswear and related accessories in the PRC. Revenue represents the sales value of goods sold less returns, discounts and value added taxes ("VAT").

4. NET FINANCE INCOME

Six months ended 30 June

2020

2019

RMB'000

RMB'000

Interest income

24,298

28,510

Interest on bank borrowings

(499)

(875)

Interest on lease liabilities

(67)

(39)

Net foreign exchange (loss)/gain

(3,893)

861

19,839

28,457

5. PROFIT BEFORE TAXATION

Profit before taxation is arrived at after charging:

Six months ended 30 June

2020

2019

RMB'000

RMB'000

Amortisation of intangible assets

1,613

1,464

Depreciation

  - owned property, plant and equipment

13,359

15,177

- investment properties

1,909

1,555

- right-of-use assets

3,741

1,956

Short term lease rental expenses

34

1,561

Research and development costs

56,239

58,135

Subcontracting charges (Note (i))

115,330

185,626

Impairment losses on trade receivables (Note 12)

7,443

-

Inventory write-down (Note 11(b))

3,380

-

Note:

  1. Subcontracting charges include service charges and auxiliary raw material costs payable to subcontractors.

22 CHINA LILANG LIMITED

NOTES TO THE

INTERIM FINANCIAL REPORT (CONTINUED)

(Expressed in Renminbi)

6. INCOME TAX

Six months ended 30 June

2020

2019

RMB'000

RMB'000

Current tax - PRC Corporate Income Tax

38,310

98,641

Deferred tax

19,285

6,060

57,595

104,701

Notes:

  1. Pursuant to the rules and regulations of the Cayman Islands and British Virgin Islands ("BVI"), the Group is not subject to any income tax in the Cayman Islands and the BVI.
  2. No provision for Hong Kong Profits Tax has been made as the Group did not have assessable profits subject to Hong Kong Profits Tax for the six months ended 30 June 2020 and 2019.
  3. Taxation for the Group's PRC subsidiaries is calculated using the income tax rates applicable to the subsidiaries. In accordance with the relevant PRC Corporate Income Tax Law, regulations and implementation guidance notes, one of the subsidiaries had been granted Advanced and New Technology Enterprise status and was entitled to a reduced income tax rate at 15% for 2020. In addition, two of the Group's subsidiaries incorporated in the Tibet Autonomous Region of the PRC are entitled to a reduced income tax rate of 15% in 2020.
  4. According to the Corporate Income Tax Law and its implementation rules, dividends receivable by non-PRC corporate residents from PRC enterprises are subject to withholding tax at a rate of 10%, unless reduced by tax treaties or arrangements, for profits earned since 1 January 2008. In addition, under the Sino-Hong Kong Double Tax Arrangement and its relevant regulations, a qualified Hong Kong tax resident will be liable for withholding tax at the rate of 5% for dividend income derived from the PRC if the Hong Kong tax resident is the "beneficial owner" and holds 25% or more of the equity interests of the PRC company. Deferred tax liabilities have been provided for in this regard based on the expected dividends to be distributed from these subsidiaries in the foreseeable future in respect of the profits generated since 1 January 2008.

7. EARNINGS PER SHARE

(A) BASIC EARNINGS PER SHARE

The calculation of basic earnings per share is based on the profit for the period of RMB268,942,000 (2019: RMB388,527,000)

and the weighted average number of ordinary shares in issue of 1,197,485,000 (2019: 1,197,485,000).

(B) DILUTED EARNINGS PER SHARE

There were no dilutive potential ordinary shares during each of the six months ended 30 June 2020 and 2019, and therefore, diluted earnings per share is the same as the basic earnings per share.

INTERIM REPORT 2020 23

NOTES TO THE

INTERIM FINANCIAL REPORT (CONTINUED)

(Expressed in Renminbi)

8. PROPERTY, PLANT AND EQUIPMENT

2020

2019

RMB'000

RMB'000

Net book value, as at 1 January

713,892

699,124

Additions

40,087

51,437

Transfer to investment properties (note 9)

-

(24,176)

Disposals (net carrying amount)

(305)

(12)

Depreciation charge for the period

(13,359)

(15,177)

Net book value, as at 30 June

740,315

711,196

9.

INVESTMENT PROPERTIES

2020

2019

RMB'000

RMB'000

Net book value, as at 1 January

142,403

98,811

Transfer from property, plant and equipment (note 8)

-

24,176

Depreciation charge for the period

(1,909)

(1,555)

Net book value, as at 30 June

140,494

121,432

The investment properties are located in the PRC under medium-term leases.

Investment properties are stated at cost less accumulated depreciation and impairment losses. Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of the shorter of the respective unexpired terms of the leases and their estimated useful lives, being no more than 40 years after the date of completion.

24 CHINA LILANG LIMITED

NOTES TO THE

INTERIM FINANCIAL REPORT (CONTINUED)

(Expressed in Renminbi)

10. RIGHT-OF-USE ASSETS

2020

2019

RMB'000

RMB'000

Net book value, as at 1 January

139,506

104,796

Additions

53,462

11

Depreciation charge for the period

(3,741)

(1,956)

Net book value, as at 30 June

189,227

102,851

The Group's right-of-use assets contain the land use rights, properties leased for own use and retail stores leased for upcoming direct-retail of smart casual collection. The interest of land use rights in the PRC are prepaid upon acquisition. The leases related to properties and retail stores are typically run for an initial period of one to five years. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions.

11. INVENTORIES

  1. Inventories in the consolidated statement of financial position comprise:

30 June

31 December

2020

2019

RMB'000

RMB'000

Raw materials

143,502

137,739

Work in progress

62,280

69,551

Finished goods

448,100

481,953

653,882

689,243

  1. An analysis of the amount of inventories recognised as an expense and included in profit or loss is as follows:

Six months ended 30 June

2020

2019

RMB'000

RMB'000

Carrying amount of inventories sold

658,974

901,791

Write-down of inventories (Note 5)

3,380

-

662,354

901,791

INTERIM REPORT 2020 25

NOTES TO THE

INTERIM FINANCIAL REPORT (CONTINUED)

(Expressed in Renminbi)

12. TRADE AND OTHER RECEIVABLES

30 June

31 December

2020

2019

RMB'000

RMB'000

Trade receivables

898,658

965,872

Less: Loss allowance

(16,597)

(9,154)

882,061

956,718

Bills receivable

196

600

Trade and bills receivables, net of loss allowance

882,257

957,318

Prepayments to suppliers

20,834

6,420

Prepaid advertising expenses

3,596

6,868

Rental prepayment to a related party

-

3,432

VAT deductible

85,660

94,719

Other deposits, prepayments and receivables

21,632

13,092

1,013,979

1,081,849

Trade and other receivables net of loss allowance are expected to be recovered or recognised as expense within one year.

An ageing analysis of the trade and bills receivables, based on the invoice date and net of loss allowance, is as follows:

30 June

31 December

2020

2019

RMB'000

RMB'000

Within 3 months

459,104

854,708

Over 3 months but within 6 months

330,268

96,993

Over 6 months but within 1 year

92,885

5,617

882,257

957,318

The Group grants a credit period of 90 to 240 days to its customers.

26 CHINA LILANG LIMITED

NOTES TO THE

INTERIM FINANCIAL REPORT (CONTINUED)

(Expressed in Renminbi)

12. TRADE AND OTHER RECEIVABLES (CONTINUED)

The movement in the loss allowance account for trade receivables during the period is as follows:

2020

2019

RMB'000

RMB'000

As at 1 January

9,154

9,154

Impairment losses for the period (Note 5)

7,443

-

As at 30 June

16,597

9,154

The Group measures loss allowance for trade receivables at an amount equal to lifetime expected credit losses, which is calculated using a provision matrix.

The Group keeps assessing the expected loss rates based on the Group's historical credit loss experience over the past years, adjusted for factors that are specific to the debtors, and an assessment of both the current and forecast general economic conditions at the end of the reporting period over the expected lives of the receivables.

Normally, the Group does not obtain collateral from customers.

13. PLEDGED BANK DEPOSITS

Bank deposits have been pledged as security for bills payable (see note 15). The pledged bank deposits will be released upon the settlement of the relevant bills payable.

14. BANK LOANS

As at 30 June 2020, bank loans were unsecured and were repayable within one year or on demand.

15. TRADE AND OTHER PAYABLES

30 June

31 December

2020

2019

RMB'000

RMB'000

Trade payables

298,946

487,899

Bills payable

10,220

29,820

Trade and bills payables

309,166

517,719

Accrued salaries and wages

29,208

37,088

Payables for purchase of property, plant and equipment

59,316

66,809

Retirement benefit contribution payable

25,524

25,524

VAT payables

6,845

228

Other payables and accruals

59,165

108,460

489,224

755,828

All of the trade and other payables are expected to be settled or recognised as income within one year or are repayable on demand. Bills payable were secured by pledged bank deposits (see note 13).

INTERIM REPORT 2020 27

NOTES TO THE

INTERIM FINANCIAL REPORT (CONTINUED)

(Expressed in Renminbi)

15. TRADE AND OTHER PAYABLES (CONTINUED)

An ageing analysis of the Group's trade and bills payables based on the invoice date is as follows:

30 June

31 December

2020

2019

RMB'000

RMB'000

Within 3 months

274,952

464,589

Over 3 months but within 6 months

23,918

37,912

Over 6 months but within 1 year

8,040

3,550

Over 1 year

2,256

11,668

309,166

517,719

16. LEASE LIABILITIES

The remaining contractual maturities of the Group's lease liabilities at the end of the reporting period are as follows:

At 30 June 2020

At 31 December 2019

Present value

Present value

of the

Total

of the

Total

minimum

minimum

minimum

minimum

lease

lease

lease

lease

payments

payments

payments

payments

RMB'000

RMB'000

RMB'000

RMB'000

Within 1 year

22,633

24,464

537

548

After 1 year but within 2 years

19,048

19,879

-

-

After 2 years but within 5 years

5,623

5,801

-

-

47,304

50,144

537

548

Less: Total future interest expenses

(2,840)

(11)

Present value of lease liabilities

47,304

537

28 CHINA LILANG LIMITED

NOTES TO THE

INTERIM FINANCIAL REPORT (CONTINUED)

(Expressed in Renminbi)

17. DIVIDENDS

Dividends payable to shareholders of the Company attributable to the period:

Six months ended 30 June

2020

2019

RMB'000

RMB'000

Declared and payable after interim period:

  Interim dividend of HK12 cents per ordinary share

    (2019: HK18 cents per ordinary share)

131,168

196,170

  Special interim dividend of HK5 cents per ordinary share

    (2019: HK8 cents per ordinary share)

54,653

87,186

185,821

283,356

The interim dividend and special interim dividend have not been recognised as liabilities as at 30 June 2020.

Dividends payable to shareholders of the Company attributable to the previous financial year, approved and paid during the period:

Six months ended 30 June

2020

2019

RMB'000

RMB'000

Final dividend in respect of the previous financial year of HK21 cents per

  ordinary share (2019: HK21 cents per ordinary share)

231,455

222,326

Special final dividend in respect of the previous financial year of HK10 cents per

  ordinary share (2019: HK10 cents per ordinary share)

110,216

105,870

341,671

328,196

18. EQUITY SETTLED SHARE-BASED TRANSACTIONS

The Company has adopted a share option scheme (the "Share Option Scheme") pursuant to an ordinary resolution passed by the shareholders on 23 April 2019 for the purposes of providing incentives and rewards to eligible participants who contribute to the Group. As at 30 June 2020, no share option had been granted under the Share Option Scheme.

On 3 July 2020, the Group granted options to subscribe for a total of 11,500,000 shares of the Company to its employees under the Share Option Scheme at an exercise price of HK$4.31 per share. The options will be vested during the period from 3 July 2022 to 3 July 2024.

INTERIM REPORT 2020 29

NOTES TO THE

INTERIM FINANCIAL REPORT (CONTINUED)

(Expressed in Renminbi)

19. COMMITMENTS

As at 30 June 2020, capital commitments not provided for in the interim financial report are as follows:

30 June

31 December

2020

2019

RMB'000

RMB'000

Contracted for

286,982

104,016

Authorised but not contracted for

87,235

318,062

374,217

422,078

20. MATERIAL RELATED PARTY TRANSACTIONS

(A) KEY MANAGEMENT PERSONNEL REMUNERATION

Remuneration of key management personnel of the Group for the period, including amounts paid to the Directors, was as follows:

Six months ended 30 June

2020

2019

RMB'000

RMB'000

Short-term employee benefits

3,919

3,805

Contributions to defined contribution retirement benefit scheme

52

56

3,971

3,861

(B) OTHER RELATED PARTY TRANSACTION

Six months ended 30 June

20202019

RMB'000 RMB'000

Lease of land and properties from Jinlang (Fujian)

  Investments Co., Ltd. ("Jinlang Fujian")

1,716

1,620

Jinlang Fujian is effectively 33.3%, 33.3% and 33.4% owned by Mr. Wang Dong Xing, Mr. Wang Liang Xing and Mr. Wang Cong Xing respectively, who are Directors and Controlling Shareholders of the Group, and therefore is considered a related party of the Group.

The Directors are of the opinion that the above related party transaction was conducted on normal commercial terms and in the ordinary course of business.

30 CHINA LILANG LIMITED

NOTES TO THE

INTERIM FINANCIAL REPORT (CONTINUED)

(Expressed in Renminbi)

21 IMPACTS OF THE 2019 NOVEL CORONAVIRUS PANDEMIC

The 2019 novel coronavirus pandemic (the "Pandemic") since early 2020 has brought about additional uncertainties in the Group's operating environment and has impacted the Group's operations and financial position.

As far as the Group's businesses are concerned, the Pandemic has materially and adversely impacted the Group's financial results in the first half of 2020, including areas such as sales, certain customers' payment schedules and turnover of inventory.

The Group has been closely monitoring the impact of the developments on the Group's business and has put in place contingency measures. These contingency measures include cancelling some of the 2020 spring and summer orders to reduce the channel inventory pressure of the distributors. The Group also strictly controlled the pre-order levels of the 2020 fall and winter trade fairs held in the second quarter to reduce the risk of further inventory backlog. In addition, the Group stepped up its efforts to promote e-commerce business to accelerate inventory clearance. The Group also extended credit periods to certain customers.

22 NON-ADJUSTING EVENTS AFTER THE REPORTING PERIOD

  1. In July 2020, the Group entered into agreements with its consignees ("Agreements") to turn 228 retail stores of the smart casual collection operated by these consignees into the Group's self-operated stores at a total consideration of RMB143.0 million. Pursuant to the Agreements, the Group acquired fixed assets in these retail stores, assumed the existing lease arrangements and compensated the consignees for the termination of consignment agreements.
  2. On 3 July 2020, the Group granted options to subscribe for a total of 11,500,000 shares of the Company to its employees under the Share Option Scheme at an exercise price of HK$4.31 per share. Further details are disclosed in note 18.

INTERIM REPORT 2020 31

OTHER

INFORMATION

DISCLOSURE OF INTERESTS

DIRECTORS' AND CHIEF EXECUTIVES' INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES

As at 30 June 2020, the interests and short positions of the Directors and chief executives of the Company in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance ("SFO")), as recorded in the register required to be kept by the Company under Section 352 of the SFO or as otherwise notified to the Company and The Stock Exchange of Hong Kong Limited (the "Stock Exchange") pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers ("Model Code") contained in Appendix 10 to the Rules Governing the Listing of Securities on the Stock Exchange (the "Listing Rules") were as follows:

Approximate

Name of

Name of Group company/

Capacity/

Number and

percentage of

shareholder

associated corporation

nature of interest

class of securities

shareholding

(Note 1)

Mr. Wang Dong Xing

The Company

Beneficial owner

22,950,000 shares (L)

1.917%

Xiao Sheng International Limited

Beneficial owner

2,550 shares of

26.289%

  ("Xiao Sheng International") (Note 2)

US$1.00 each (L)

Mr. Wang Liang Xing

The Company

Beneficial owner

26,031,000 shares (L)

2.174%

Xiao Sheng International (Note 2)

Beneficial owner

2,550 shares of

26.289%

US$1.00 each (L)

Mr. Wang Cong Xing

The Company

Beneficial owner

22,950,000 shares (L)

1.917%

Xiao Sheng International (Note 2)

Beneficial owner

2,550 shares of

26.289%

US$1.00 each (L)

Mr. Cai Rong Hua

The Company

Beneficial owner

1,810,000 shares (L)

0.151%

The Company

Settlor of a

7,200,000 shares (L)

0.601%

discretionary trust

(Note 3)

Xiao Sheng International (Note 2)

Settlor of a

800 shares of

8.247%

discretionary trust

US$1.00 each (L)

(Note 3)

Mr. Hu Cheng Chu

The Company

Settlor of a

4,500,000 shares (L)

0.376%

discretionary trust

(Note 4)

Xiao Sheng International (Note 2)

Settlor of a

500 shares of

5.155%

discretionary trust

US$1.00 each (L)

(Note 4)

Mr. Pan Rong Bin

The Company

Beneficial owner

3,051,000 shares (L)

0.255%

Xiao Sheng International (Note 2)

Beneficial owner

300 shares of

3.093%

US$1.00 each (L)

32 CHINA LILANG LIMITED

OTHER

INFORMATION (CONTINUED)

Notes:

  1. The letter "L" denotes the Directors' long position in the shares of the Company or the relevant associated corporation.
  2. As at 30 June 2020, Xiao Sheng International was owned as to 26.289% by each of Mr. Wang Dong Xing, Mr. Wang Liang Xing and Mr. Wang Cong Xing, 8.247% by Jia Fa International Limited (note 3), 5.155% by Luxuriant Treasure Global Limited (note 4), 3.093% by Mr. Pan Rong Bin, 2.062% by Mr. Chen Wei Jin, 1.031% by Mr. Wang Qiao Xing and 0.515% by each of Mr. Xu Tian Min, Ms. Wang Cui Rong and Ms. Wang Hui Rong.
  3. The interests of Mr. Cai Rong Hua in 7,200,000 shares of the Company and 800 shares of Xiao Sheng International is held through Jia Fa International Limited ("JFIL"). The entire issued share capital of JFIL is held by Vistra Trust (Singapore) Pte. Limited in its capacity as the trustee of an irrevocable discretionary trust set up by Mr. Cai as the settlor. The beneficiaries under the trust are Mr. Cai and his family members. Mr. Cai is deemed to be interested in these shares as the settlor of the discretionary trust.
  4. The interests of Mr. Hu Cheng Chu in 4,500,000 shares of the Company and 500 shares of Xiao Sheng International is held through Luxuriant Treasure Global Limited ("LTGL"). The entire issued share capital of LTGL is held by Vistra Trust (Singapore) Pte. Limited in its capacity as the trustee of an irrevocable discretionary trust set up by Mr. Hu as the settlor. The beneficiaries under the trust are Mr. Hu and his family members. Mr. Hu is deemed to be interested in these shares as the settlor of the discretionary trust.

Save as disclosed above, as at 30 June 2020, none of the Directors and chief executives of the Company had or was deemed to have any interests or short position in the shares, underlying shares or debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which was recorded in the register maintained by the Company pursuant to section 352 of the SFO or which had otherwise been notified to the Company and the Stock Exchange pursuant to the Model Code.

INTERESTS AND SHORT POSITIONS OF SUBSTANTIAL SHAREHOLDERS

As at 30 June 2020, the persons or corporations (not being a Director or chief executive of the Company) who had an interest or short position in the shares and underlying shares of the Company as recorded in the register required to be kept by the Company under section 336 of the SFO were as follows:

Approximate

Number and

percentage of

Name of shareholder

Capacity/nature of interest

class of securities

shareholding

(Note 1)

Xiao Sheng International

Beneficial owner

661,500,000 shares (L)

55.24%

(Note 2)

Ming Lang Investments Limited

Beneficial owner

74,905,000 shares (L)

6.26%

  ("Ming Lang Investments")

(Note 3)

INTERIM REPORT 2020 33

OTHER

INFORMATION (CONTINUED)

Notes:

  1. The letter "L" denotes the person's long position in the shares of the Company.
  2. These shares were held by Xiao Sheng International. As at 30 June 2020, Xiao Sheng International was owned as to 26.289% by each of Mr. Wang Dong Xing, Mr. Wang Liang Xing and Mr. Wang Cong Xing, 8.247% by Jia Fa International Limited (note 4), 5.155% by Luxuriant Treasure Global Limited (note 5), 3.093% by Mr. Pan Rong Bin, 2.062% by Mr. Chen Wei Jin, 1.031% by Mr. Wang Qiao Xing and 0.515% by each of Mr. Xu Tian Min, Ms. Wang Cui Rong and Ms. Wang Hui Rong.
  3. These shares were held by Ming Lang Investments. As at 30 June 2020, Ming Lang Investments was owned as to 26.289% by each of Mr. Wang Dong Xing, Mr. Wang Liang Xing and Mr. Wang Cong Xing, 8.247% by Jia Fa International Limited (note 4), 5.155% by Luxuriant Treasure Global Limited (note 5), 3.093% by Mr. Pan Rong Bin, 2.062% by Mr. Chen Wei Jin, 1.031% by Mr. Wang Qiao Xing and 0.515% by each of Mr. Xu Tian Min, Ms. Wang Cui Rong and Ms. Wang Hui Rong.
  4. The entire issued share capital of Jia Fa International Limited is held by Vistra Trust (Singapore) Pte. Limited in its capacity as the trustee of an irrevocable discretionary trust set up by Mr. Cai Rong Hua as the settlor . The beneficiaries under the trust are Mr. Cai and his family members. Mr. Cai is deemed to be interested in these shares as the settlor of the discretionary trust.
  5. The entire issued share capital of Luxuriant Treasure Global Limited is held by Vistra Trust (Singapore) Pte. Limited in its capacity as the trustee of an irrevocable discretionary trust set up by Mr. Hu Cheng Chu as the settlor. The beneficiaries under the trust are Mr. Hu and his family members. Mr. Hu is deemed to be interested in these shares as the settlor of the discretionary trust.

Save as disclosed above, as at 30 June 2020, the Directors were not aware of any other person or corporation having an interest or short position in shares and underlying shares of the Company as recorded in the register required to be kept by the Company pursuant to section 336 of the SFO.

SHARE OPTION SCHEME

The Company has adopted a share option scheme (the "Share Option Scheme") pursuant to an ordinary resolution passed by the shareholders on 23 April 2019 for the purposes of providing incentives and rewards to eligible participants who contribute to the Group. Details of the Share Option Scheme are set out in the 2019 Annual Report of the Company.

As at 30 June 2020, no share option had been granted under the Share Option Scheme.

On 3 July 2020, the Group granted options to subscribe for a total of 11,500,000 shares of the Company to its employees under the Share Option Scheme at an exercise price of HK$4.31 per share. The options are exercisable by the grantees during the period commencing from the day immediately following the expiry of two year period after 3 July 2020 (the "Date of Grant"), and ending on the day falling ten years after the Date of Grant, during which, (a) up to 3,417,000 options granted may be exercised on or prior to the end of the third year after the Date of Grant; (b) subject to (a), up to 6,882,000 options granted may be exercised on or prior to the end of the fourth year after the Date of Grant; and (c) subject to (a) and (b), all outstanding options may be exercised prior to the expiry of the said exercise period, failing which the options will lapse and no longer be exercisable.

34 CHINA LILANG LIMITED

OTHER

INFORMATION (CONTINUED)

CORPORATE GOVERNANCE

The Company had complied with all code provisions of the Corporate Governance Code and Corporate Governance Report as set out in Appendix 14 to the Listing Rules during the six months ended 30 June 2020.

The Company has adopted the Model Code as the Company's code of conduct regarding securities transactions by Directors. The Company has made specific enquiries of all the Directors, who confirmed their compliance with the required standards set out in the Model Code during the six months ended 30 June 2020.

REVIEW OF INTERIM RESULTS

The Audit Committee comprises three independent non-executive Directors. The principal responsibilities of the Audit Committee are to review and supervise the financial reporting process and internal control systems of the Group. The interim results of the Group for the six months ended 30 June 2020 have not been audited but they have been reviewed by KPMG, the auditor of the Company, and the Audit Committee.

PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S LISTED SECURITIES

Neither the Company nor any of its subsidiaries had purchased, sold or redeemed any of the Company's listed securities during the six months ended 30 June 2020.

CLOSURE OF REGISTER OF MEMBERS

In order to determine the entitlements to the proposed interim dividend and special interim dividend, the register of members will be closed from Thursday, 3 September 2020 to Friday, 4 September 2020 (both days inclusive) during which period no transfer of shares will be effected. In order to qualify for the proposed interim dividend and special interim dividend, all transfers accompanied by the relevant share certificate must be lodged with the Company's share registrar and transfer office in Hong Kong, Computershare Hong Kong Investor Services Limited at Shops 1712-1716, 17/F., Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong not later than 4:30 p.m. on Wednesday, 2 September 2020 for registration.

APPRECIATION

I would like to thank our fellow Directors for their contribution and support throughout the period, and our management and staff for their dedication and hard work.

I would like to express our sincere appreciation to our shareholders, customers and suppliers as well as our business associates for their continuing support.

By Order of the Board

WANG DONG XING

Chairman

Hong Kong, 19 August 2020

INTERIM REPORT 2020 35

OTHER

INFORMATION (CONTINUED)

BOARD

EXECUTIVE DIRECTORS

Mr. Wang Dong Xing (Chairman)

Mr. Wang Liang Xing (Chief Executive Officer)

Mr. Wang Cong Xing

Mr. Cai Rong Hua

Mr. Hu Cheng Chu

Mr. Pan Rong Bin

INDEPENDENT NON-EXECUTIVE DIRECTORS

Dr. Lu Hong Te

Mr. Nie Xing

Mr. Lai Shixian

SHARE INFORMATION

Listing date: 25 September 2009

Board lot size: 1,000 shares

Number of shares in issue: 1,197,484,919 shares (as at 30 June 2020)

IR CONTACT

IF YOU HAVE ANY INQUIRIES, PLEASE CONTACT:

China Lilang Limited

Suite 3402, 34F, Tower One, Lippo Center, 89 Queensway, Hong Kong Telephone: (852) 2526-6968

Fax: (852) 2526-6655

Email: ir@lilanz.com.hk

Website: www.lilanz.com

36 CHINA LILANG LIMITED

PUBLICATION OF INTERIM RESULTS ANNOUNCEMENT AND INTERIM REPORT

The 2020 Interim Report of the Company will be dispatched to shareholders and published on the website of The Stock Exchange of Hong Kong Limited at www.hkexnews.hk and the Company's website at www.lilanz.com in due course. This announcement can also be accessed on the above websites.

GENERAL

As at the date of this announcement, the Board comprises:

Executive Directors:

Independent Non-executive Directors:

Mr. Wang Dong Xing (Chairman)

Dr. Lu Hong Te

Mr. Wang Liang Xing (Chief Executive Officer)

Mr. Nie Xing

Mr. Wang Cong Xing

Mr. Lai Shixian

Mr. Cai Rong Hua

Mr. Hu Cheng Chu

Mr. Pan Rong Bin

By order of the Board

China Lilang Limited

Ko Yuk Lan

Company Secretary

Hong Kong, 19 August 2020

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China Lilang Limited published this content on 19 August 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 19 August 2020 04:06:09 UTC