Best Food : INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2017 (in PDF)

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BEST FOOD HOLDING COMPANY LIMITED

百 福 控 股 有 限 公 司

(Formerly known as Lee & Man Handbags Holding Limited 理文手袋集團有限公司)

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 01488)

INTERIM RESULTS

FOR THE SIX MONTHS ENDED 30 JUNE 2017

FINANCIAL HIGHLIGHTS

• Revenue of RMB338.69 million for the period, increased by 42.26% as compared to the last corresponding period.

• Net profit of RMB16.06 million for the period, increased by 1,169.49% as compared to the last corresponding period

• Gross profit margin increased from 33.78% to 47.78%.

• Net profit margin increased from 0.53% to 4.74%.

• Basic earnings per share increased from RMB0.15 cents to RMB1.64 cents.

COMMENTARY ON THE BUSINESS DEVELOPMENT

Business Review

For the six months ended 30 June 2017, Best Food Holding Company Limited (the ''Company'') and its subsidiaries (the ''Group'') recorded revenue of RMB338.69 million, increased by 42.26% as compared to last corresponding period, and a net profit of RMB16.06 million, increased by 1,169.49% as compared to last corresponding period.

For the six months ended 30 June 2017, for the food and beverage segment, the total revenue of invested companies amounted to RMB261.90 million. The revenue attributed to the Group amounted to RMB184.60 million. The gross margin of the food and beverage segment is 63.79%.

For the six months ended 30 June 2017, the manufacturing and sales of handbags segment recorded revenue of RMB154.09 million, representing a decrease of 35.28%, as compared to RMB238.07 million in the last corresponding period. The gross margin of the manufacturing and sales of handbags segment is 28.60%.

Food and Beverage Segment

Industry Review and Prospects

According to the National Bureau of Statistics of China, the domestic revenue of food and beverage industry exceeded RMB1.8 trillion in the first half year of 2017, with a growth of 11.2% compared to that of the last corresponding period. The year-on-year growth from January to June kept increasing and reached a peak of 11.9% in June, showing a strong growth momentum.

The Group believes that the food and beverage industry in China, especially the mass market of fast food and fast leisure catering business, will keep growing in the long run, due to the increasing per capita disposable income and urbanization level, as well as the accelerating pace of life.

We observed that although the overall market size keeps growing, the competition of the food and beverage industry intensifies, which indicates the significance of brands in the food and beverages industry, the core of which is built upon the products and consumer experience. Only the companies with strong brand power will shine out and keep improving their competitiveness. Meanwhile, in the trend of consumption upgrade, consumers still pursue products featuring safety, convenience, reasonable price and high quality. Thus, it is key for catering brands to competitively differentiate themselves by meeting the consumers' growing demands regarding their experience on this basis.

In the meantime, there are accelerating changes of food and beverage industry in China in the following areas:

Higher barriers to entry: With the rising requirements of the food hygiene management and the standardized supply chains in the food and beverage industry, individual restaurants mainly competing with low quality and low price are gradually replaced by chain catering brands with competitive strengths.

Upgrade of operating model promoted by internet technology: As delivery services become a key part of business, it is necessary for catering brands to bring the development of delivery services to a strategic level. Besides, along with the further concentration of the delivery services platform and the further increase of online traffic costs, the sole online catering brands become harder to survive. The integration and interaction of online and offline businesses will become one of the key factors for catering brands, especially for fast-food and quasi fast-food businesses, to succeed in the future.

Upgrade of core operations brought by technological innovation: The overall improvement of information dissemination speed and methods, the maturing technology of mobile payment, and the application of big data will jointly facilitate the food and beverage industry to innovate around costs, efficiency and consumer experience in the aspects of marketing, store operation, channel expansion and supply chain.

To conclusion, the nature of the food and beverage industry that centers on products and consumer experience does not change, neither does the Consumers' demand for products featuring safety, convenience, quality with upgrading consumer experience. Nevertheless, in the context of rapid technological innovation, only the catering brands with sufficient sensitivity to new trends, adequate size, integrating resources capabilities and continuous devotion will win the possibility of staying ahead.

Strategic Planning Review and Prospects

Since Hony Capital acquired Lee & Man Handbags Holding Limited through Sonic Tycoon Limited in August 2016, and changed its name to Best Food Holding Company Limited in December 2016, the Group set its core direction to the development of multi-brand catering business. Going forward, the Group will develop into a chain catering group with Controlling Brands and large Joint-Stock Brands.

Referring to the current development status of the food and beverage industry in China, the strategy of the Group in the current stage is to complete the construction of the chain catering operations and to promote continuous growth of the corporate value through a two-wheel drive of investment management and operation management.

For the brand that owned by the Group, Hehegu (''HHG'') (''Controlling Brand''), the Group improves its profitability and accelerates its development through support of operational management. The revenue and the net profit of the holding brand are the key sources of income, forming the foundation of the Group as a multi-brand catering group.

For a number of brands with potential that the Group held non-controlling or minority interests (the ''Joint-Stock Brands'') of, the Group assists their fast development by synergies and resources-sharing inside the Group, and will benefit from the equity appreciation in the future.

Regarding the investment targets selection, the Group will continue focusing on chain catering brands among fast food, quasi fast food, casual dining categories and those representing emerging life styles, all of which are easy to standardize and able to be fast copied, while keeping a close eye on the emerging models brought by the technological innovations in the food and beverage industry.

In respect of the operational management, the Group and its brands will build core competitiveness in aspects of internet operation and information platforms development, brand marketing, supply chain management, channel expansion, as well as human resources and training, applying and converting the new internet technologies as the core measure to reduce costs, improve efficiency and improve consumer experience, while supporting its brands through resources-sharing.

Going forward, based on the powerful operation and management capabilities, the Group will build itself into a chain catering group integrating the Controlling Brand and the large Joint-Stock Brands, and polishes its investment management capacity to discover and invest in qualified brands with potential.

Business Progress

Development in Investment and Investment Management

In 2016, the Group acquired the controlling interest of HHG, a leading fast food chain in Beijing featuring rice meals, and acquired a non-controlling interest in Yujian Xiaomian, a prominent emerging brand, and West Master, a leading Chinese fast food brand in Beijing. In addition, the Group entered into an investment contract with Sexy Salad, a rapidly emerging and prominent brand of salad within the food and beverage industry in China, in March 2017 and completed the first round of investment in April. It entered into investment contracts with Yuepin in March 2017, who owns two iconic brands of Vietnamese cuisine, Muine and Pho Nam, with Clay Pot King in April 2017, a typical brand of Canton soup rice, and further with Dafulan in May 2017, an prominent emerging brand featuring Hunan rice noodle and traditional snacks. The Group completed investments in all these three brands in July 2017. In May 2017, the Group entered into an investment contract with Seesaw Coffee, a typical specialty coffee brand. Other than the above brands, the Group also has abundant project source in all major categories among the food and beverage industry.

Establishment of Management Platform

During the first half year of 2017, the platform management team of the Group has already been preliminarily formed with elementary management and value-added service ability in all key aspects of the operation. In respect of human resources and training, for example, the Group has successfully recommended a number of senior executives for key posts of its various brands, and has basically set up a management talent pool for the catering operation, and will continue to push forward this in the future. Regarding channel expansion, the Group provided support to store expansion for its brands by