Win Hanverky : PROFIT WARNING AND BUSINESS UPDATE

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Win Hanverky Holdings Limited ͑ྗණྠછٰϞࠢʮ̡

(incorporated in the Cayman Islands with limited liability)

(Stock code: 3322)

PROFIT WARNING AND BUSINESS UPDATE

This announcement is made by Win Hanverky Holdings Limited (the ''Company'', together with its subsidiaries, the ''Group'') pursuant to Rule 13.09 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the ''Listing Rules'') and the Inside Information Provisions (as defined under the Listing Rules) under Part XIVA of the Securities and Future Ordinance (Chapter 571 of the Laws of Hong Kong).

The board of directors (the ''Board'') of the Company wishes to inform the shareholders of the Company and potential investors that based on the information currently available and the unaudited consolidated management accounts of the Group for the year ended 31 December 2020, despite the Group has generated profit after taxation of approximately HK$16 million in the second half of 2020, it could not fully cover the loss after taxation of HK$211 million incurred in the first half of 2020 and therefore, it is estimated that the Group would record an overall loss after taxation of approximately HK$195 million for the year ended 31 December 2020 as compared to profit after taxation of HK$74 million for the year ended 31 December 2019.

The Group has divested and discontinued e.dye Business during the year ended 31 December 2020. Excluding the discontinued operations, loss after taxation from continuing operations would be approximately HK$90 million for the year ended 31 December 2020 as compared to profit after taxation from continuing operations of HK$125 million for the year ended 31 December 2019.

The estimated loss after taxation for the year ended 31 December 2020 was mainly attributable to the following reasons:

(i) decrease in revenue from continuing operations by approximately HK$1,013 million or 20% to HK$4,021 million (2019: HK$5,034 million), as a result of the severe impact of the outbreak of COVID-19 pandemic (''COVID-19'');

(ii) decrease in gross profit from continuing operations by approximately HK$497 million or 34% to HK$956 million (2019: HK$1,453 million) and decrease in gross profit margin by approximately 5 percentage points to 24% (2019 : 29%), mainly as a result of decreased operating efficiencies of Sportswear Manufacturing Business and High-end Functional Outerwear Manufacturing Business due to wide-ranging impact of COVID-19 and also increased promotional activities and higher retail discounts offered to motivate customer spending for High-end Fashion Retailing Business;

(iii) increase in loss attributable to the discontinued operations due to divestment of e.dye Business by approximately HK$54 million to HK$105 million (2019 : loss of HK$51 million); and

(iv) partially offset by cost reduction initiatives enforced by the Group including but not limited to applications for government subsidies, social security exemption and reduction, negotiation with landlords for rental reductions, adjustment on factory operation mode and size of workforce, implementation of staff no pay leaves, as well as a 30% temporary salary reduction for all directors of the Company.

Manufacturing Business

Our Manufacturing Business comprises ''Sportswear Manufacturing Business'' and ''High-end Functional Outerwear Manufacturing Business''.

Manufacturing Business had been impacted by the global economic uncertainties and exacerbated by the outbreak of COVID-19 around the world. Since the global outbreak of COVID-19, many shopping malls and retail stores were temporarily closed, with areas in lockdown and implementation of social distance as part of the precautionary measurements. These situations remained intermittently in 2020 and affected our business as a consequence of shrinking market demand for sportswear and high-end functional outerwear products.

Productions of the factories situated in Mainland China were temporarily suspended due to lockdowns and other social distancing measures imposed following COVID-19 in early 2020 though the production activities were resumed in late March 2020. The supply of raw materials for production from certain major suppliers was unstable throughout 2020 as their operations and logistic had been severely affected by COVID-19. The reduced orders from our major customers due to shrinking market demand have created unavoidable idle capacity in all ourfactories. As a result, the operating activities of Sportswear Manufacturing Business and High-end Functional Outerwear Manufacturing Business were hindered throughout 2020.

Sportswear Manufacturing Business

Revenue from Sportwear Manufacturing Business decreased by approximately HK$450 million to HK$2,390 million (2019: HK$2,840 million), representing a decrease of 16%. The decrease was mainly due to the reduction of orders received from a major customer in the third quarter of 2020 attributable to the global outbreak of COVID-19, in particular demand from the United States market dropped significantly though the orders received gradually picked up in the fourth quarter of 2020 as compared with the third quarter of 2020. It was partially mitigated by additional revenue brought in by certain customers who were newly introduced to the Group in the second quarter of 2019.

In response to the operational challenges, we were very cautious on deployment of our resources by adjusting factory operation mode and size of workforce and holding up all major capital expenditure projects since the second quarter of 2020. Nevertheless, an operating loss of HK$45 million was incurred in the first half of 2020 due to the decrease of operating efficiencies mentioned above though the situation was alleviated and an operating loss of approximately HK$22 million was recorded in the second half of 2020 mainly as a result of the cost reduction initiatives enforced despite the fact that sales orders received in the second half reduced significantly. As such, a total operating loss of approximately HK$67 million was inescapably recorded for the year ended 31 December 2020 (2019: operating profit of HK$98 million).

High-end Functional Outerwear Manufacturing Business

Revenue from High-end Functional Outerwear Manufacturing Business decreased by approximately HK$50 million to HK$391 million (2019: HK$441 million), representing a decrease of 11%. Sport Field Group, being a major revenue driver of High-end Functional Outerwear Manufacturing Business, has successfully developed its business with domestic customer in Mainland China but regretfully the export sales to European countries were significantly impacted by the outbreak of COVID-19 in 2020.

An operating loss of HK$10 million was incurred in the first half of 2020 and an operating profit of approximately HK$2 million had been achieved in the second half of 2020, resulting in a total operating loss of approximately HK$8 million being recorded for the year ended 31 December 2020 (2019: operating loss of HK$62 million). The improvement of this segment's operating results was driven by the continuous enhancement of cost control in our production lines in Mainland China and Vietnam.

High-end Fashion Retailing Business

Revenue from High-end Fashion Retailing Business decreased by approximately HK$513 million to HK$1,240 million (2019: HK$1,753 million), representing a decrease of 29% which was mainly attributable to the temporary closure of stores, drop in store traffic and dampened consumption sentiment amid COVID-19 starting from the first quarter of 2020. In Mainland China, 170 stores were temporarily closed at the beginning of February 2020. Although COVID-19 had been rapidly under control and revenue had gradually recovered in the Mainland China market after re-opening of the stores since the second quarter of 2020, revenue generated from the Mainland China market in 2020 decreased by approximately 27% as compared to the year 2019. In other markets, the impact arising from COVID-19 to our stores was severe as cities such as Hong Kong, Macau and Singapore were not opened to tourists for almost the entire year and therefore, total revenue generated from other markets in 2020 decreased by approximately 38% when compared with 2019.

Despite the revenue from Mainland China market had picked up since the second quarter of 2020, gross profit margin of High-end Fashion Retailing Business was under high pressure due to increased promotional activities and higher retail discounts offered to motivate customer spending in order to avoid inventory pile up and to clear the aged items. In Hong Kong retail market, in light of the expected longer-term adverse impact on the performance as a consequence of COVID-19, an impairment loss was provided mainly for the retail store assets in Hong Kong.

As a result, an operating loss of HK$41 million was incurred in the first half of 2020 and due to the revenue pick-up in the Mainland China market, an operating profit of approximately HK$60 million had been achieved in the second half of 2020. Despite certain inventory provision made in prior years was reversed upon clearance sales of aged items together with reduction in rental and staff expenses of retail stores offset part of the impact arising from COVID-19, total operating profit for the year ended 31 December 2020 inevitably decreased to approximately HK$19 million (2019: HK$173 million).

Discontinued operations - e.dye Business

As part of the cost reduction initiatives, the Group re-assessed its strategic investments and decided to divest e.dye Business after a comprehensive review. It was considered that e.dye Business, being a non-core business operation of the Group, had been underperforming for a number of years and the outlook was gloomy. It has triggered the Group's decision in discontinuing this investment in order to stop further losses and for better deployment of the Group's resources. The discontinuance of e.dye Business could stop cash burn and reserve cash resources for other core businesses which would still face strong headwind in the near future. As a result, a one-off non-cash impairment in a total of approximately HK$74 million had been provided for on the assets of e.dye Business, together withoperating loss and disposal loss in an aggregate amount of approximately HK$28 million incurred in 2020 till the disposal of the business on 20 August 2020, it resulted in an aggregate operating loss for this business segment of approximately HK$102 million (2019 : operating loss of HK$46 million).

Financial Position and Liquidity

The unprecedented pandemic of COVID-19 that is raging worldwide has made the operating environment extremely difficult. In view of the challenges and uncertainties ahead, the Group will continue to proactively monitor the situation and impose strict cost control measures and focus on its cash flow management to ensure that it remains a healthy liquidity position. Against the backdrop of the challenging business environment, the Group's financial and liquidity position remains stable. As of 31 December 2020, the Group had cash and bank balances of approximately HK$695 million (2019 : HK$487 million) and net borrowings (bank borrowings and loans from non-controlling interests of subsidiaries less cash and bank balances) of approximately HK$202 million (2019 : HK$539 million), together with available undrawn banking facilities of approximately HK$693 million.

The information contained in this announcement is only a preliminary assessment by the management of the Company based on the consolidated management accounts of the Group which have not yet been audited or reviewed by the auditor and audit committee of the Company. The shareholders of the Company and potential investors are advised to refer to the details in the annual results announcement of the Company for the year ended 31 December 2020, which is expected to be published by the end of March 2021. There may be changes or adjustments following the review of the consolidated management accounts by the auditor and audit committee of the Company.

The shareholders of the Company and potential investors are advised to exercise caution when dealing in the shares of the Company.

By order of the Board Win Hanverky Holdings Limited

Li Kwok Tung Roy

Chairman

Hong Kong, 24 February 2021

As at the date of this announcement, the directors are Li Kwok Tung Roy, Lai Ching Ping, Lee Kwok Leung, Wong Chi Keung, Chan Kwong Fai#, Ma Ka Chun#, Kwan Kai Cheong# and Chan Ka Kui#.

#

Independent non-executive directors