Lam Soon Hong Kong : Announcement of Final Results for the Year Ended 30 June 2017

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LAM SOON (HONG KONG) LIMITED

(Incorporated in Hong Kong with limited liability)

(Stock Code: 411) ANNOUNCEMENT OF FINAL RESULTS FOR THE YEAR ENDED 30 JUNE 2017

• Revenue: HK$4,814 million

• Profit attributable to equity shareholders: HK$273 million

• Cash balance: HK$823 million

• Basic and diluted earnings per share: HK$1.15 and HK$1.12 respectively

• Proposed final dividend per share: HK$0.23

The Board of Directors (the "Board") of Lam Soon (Hong Kong) Limited (the "Company") is pleased to announce its consolidated results of the Company and its subsidiaries (collectively the "Group") for the financial year ended 30 June 2017.

FINANCIAL RESULTS

The Group's revenue in the year grew 2% to HK$4,814 million, impacted by the depreciation of Renminbi ("RMB"), in which the bulk of our revenues are denominated. Gross profit increased from 20% to 21% of revenue or HK$926 million of the past year to HK$1,023 million. Group's profit after-tax was up 35% at HK$273 million against HK$202 million recorded in the previous year. The better profit can be traced to the improvement of our core brands' performances, the favourable wheat costs, and the stability of higher bran prices. Operating expenses increased 7.2% to HK$731 million from last year as we further invested in key markets and channels to fuel higher growth.

With the benefit of ongoing improvements in the Group's performance and continued strict financial discipline in inventory management and capital expenditure, the Group's cash position increased 24% to HK$823 million at 30 June 2017 from last year's HK$664 million.

DIVIDENDS

The Directors are recommending a final dividend of HK$0.23 per share at the forthcoming Annual General Meeting. In addition to the interim dividend of HK$0.12 per share paid earlier this year (2016: interim dividend of HK$0.10 and final dividend of HK$0.18 per share), total dividend for the year amounts to HK$0.35 per share. Subject to shareholders' approval, the final dividend will be payable on Thursday, 7 December 2017 to the shareholders whose names appear on the register of members on Friday, 24 November 2017.

REVIEW OF OPERATIONS OVERVIEW

With strengthened brand positions and wider product portfolios in the Food and Detergent segments, the Group continued to expand its coverage in mainland China and Hong Kong across all channels of e-Commerce, supermarkets / hypermarkets, industrial accounts and distributors. With our focus to provide solutions and products that meet the needs and wants of our customers, our product portfolios are increasingly differentiated and our core brands continued to gain traction across key markets. We believe the Group is poised to unlock further growth and profit opportunities.

The Group continues to invest and upgrade our production infrastructure and capability. In the later part of the new financial year, work will commence on the construction of a new factory at Yixing, Jiangsu to replace the existing aging factory in the same area. Upon completion, this new factory will be capable of producing new and higher quality products to meet the growing demand of an increasing affluent consumer base. Meanwhile, our other production facilities continued to be improved during the year. For the Group to deliver long-term sustainability and competitiveness, we will ensure that our facilities always keep pace with growth and customer demands while satisfying regulatory and environmental requirements.

BUSINESS REVIEW

In spite of the challenging market conditions, the Group sustained revenue and volume growth in both our Food and Detergent Segments. Our core brands, Flour's Golden Statue and American Roses, Edible Oil's Knife, and Detergent's AXE continued to record healthy volume growth.

The Group remained focused this year on expediting the PRC nationwide thrust and coverage of our brands via channel development including e-Commerce and traditional distribution channel expansion for Oil and Detergent businesses in our stronghold of Guangdong Province. Our Flour business further developed its existing business-to-consumer (B2C) model using various distribution channels to supplement our traditional strong business-to-business (B2B) model paving the way for future sales and profitable growth.

Food Segment

Although favourable wheat costs and bran prices were partially offset by increased peanut oil prices, manpower and logistics cost increases, this segment enjoyed a net positive gain. The Food segment continued its strong momentum from last year and continued to deliver revenue, volume, and profit growth. It is noteworthy that year-on-year operating profit growth rate of 40% significantly outpaced the 2% revenue and 3% volume increases because of significant product mix shift to our core brands.

BUSINESS REVIEW (continued) Food Segment (continued)

In Hong Kong, Knife Peanut Oil maintained its leadership position for the year with a 45.5%

market value share, Knife Peanut Oil sales value posted a 1% growth, outpacing the category's growth of 0.6%. Knife overall value market share across all oil types, however, dropped slightly from last year's 27.5% to this year's 27.1%.1 This was the result as management balanced its priority of delivering long-term sustainable profit and gaining market position without compromising Knife's pricing integrity.

In Guangdong Province, Knife overall annual value market share of 6.7% or a 14.9% growth versus last year continued to outpace the oil category growth of 7.1%.2 This growth reflected a good performance for Knife in the key cities of Shenzhen and Guangzhou where the category growth was relatively flat. Moving forward, we will continue to strengthen our support to grow these two strategically important markets.

Riding on the back of the success of our Supreme Peanut Oil Product since its October 2014 launch, we continued to leverage on consumer insights to develop new products to meet the consumers' increasing demand for high quality, safe, and healthy products.

Planning for a new oil bottling line in our Hong Kong Tai Po site was undertaken in the year under review and is expected to be commissioned towards the end of the new financial year. Once completed, it will enhance our efficiency and cost effectiveness in serving the Hong Kong and Macau retail markets. Along with the existing bulk oil line, we are well positioned to strengthen our overall oil business in Hong Kong and Macau.

The Group's flour business continued its strong volume growth, especially in our core brands, Golden Statue and American Roses. Other than benefiting from the favourable wheat costs and bran prices, our persistent and targeted approach over the past few years in driving our core brand growth beyond the first and second-tier cities has yielded results as we recorded in the year meaningful growth in the third and fourth-tier cities.

Our focus on product and customer rationalisation has helped us to transform our product mix towards the premium and more profitable products. Utilisation at our production facilities continued to increase, driving cost down to mitigate our risk of operating in a heavily commoditised industry.

To complement the strength of our traditional B2B model, our efforts in building a long-term B2C business gradually gained traction, especially in the e-Commerce space. We will further build our presence and performance in this area through acquisition of more expertise and brand-building investments in the various social media platforms in mainland China. While growing this business requires time, investment and patience, the Group is committed to this strategic initiative to deliver long-term success.

1 Lam Soon's calculation based in part on data reported by Nielsen through its Retail Index Service for the Edible Oil category from July 2015 to June 2017 for Total Supermarkets & Convenience Stores in Hong Kong. (Copyright © 2017, The Nielsen Company.)

2 Lam Soon's calculation based in part on data reported by Nielsen through its Retail Index Service for the Edible Oil (Consumer Pack) Category for the rolling year June 2016 (from July 2015 to June 2016) and the rolling year June 2017 (from July 2016 to June 2017), for the China Guangdong market total. (Copyright © 2017, The Nielsen Company.)

BUSINESS REVIEW (continued) Detergent Segment

In the Detergent segment, although our inability to fully pass on the material cost increases in this increasingly competitive environment led to lower margins and profitability, our flagship brand AXE continued to gain in distribution and volume. The severe price competition in this segment further exacerbated the problem when trade spending significantly outpaced revenue growth. Through improved efficiency and allocation of resources, we are optimistic that the counter-measures taken will help this segment to rebound.

In Hong Kong, the Group maintained its leadership position with 36.9% annual market value share in the sluggish dish wash detergent category. While market value shares of both AXE (25.5% versus last year's 25.7%) and Labour (11.4% versus last year's 11.5%) suffered slight drops for the year, the April - June 2017 quarterly market share data showed a strong rebound for AXE with a value market share of 27.0% as opposed to 25.1% the same period last year.3 In the coming year, the Detergent segment will focus on driving our core brands with more efficacious trade spending.

In Guangdong Province, the annual market value shares of AXE and Labour (17.4% and 5.7%, respectively) by and large, remained unchanged versus a year ago (17.3% and 5.9%). The overall dish wash detergent category in Guangdong Province registered an annual value growth rate of only 2.9%.4 Severe price competition was observed during the year in this category in Guangdong Province. While this trend showed no signs of abating, we will nevertheless adopt cost effective approaches in our marketing and selling initiatives in order to improve this segment's profitability.

In the new financial year, the Detergent segment will place more emphasis in increasing both AXE and Labour's distribution in Guangdong Province and expedite growth of its fast-growing AXE e-Commerce business to lift the brand into the national scene. Efforts to further strengthen Labour in its traditionally strong general trade market (e.g. smaller cities where modern trade is not dominated by large supermarket or hypermarket chains) will also intensify.

OUTLOOK

Our Group will continue the emphasis on our core premium brands in our new channel and product development initiatives to widen and deepen their coverage. We will allocate our resources accordingly to support and stay on course with such a strategy.

3 Includes market shares of AXE and Labour; Lam Soon's calculation based in part on data reported by Nielsen through its Retail Index Service for the Dishwashing Detergent category from July 2015 to June 2017 for Total Supermarkets, Convenience Stores and Drug Stores in Hong Kong. (Copyright © 2017, The Nielsen Company.)

4 Lam Soon's calculation based in part on data reported by Nielsen through its Retail Index Service for the Dish Washing Liquid Category for the rolling year June 2016 (from July 2015 to June 2016) and the rolling year June 2017 (from July 2016