Lam Soon Hong Kong : Announcement of Interim Results for the Six Months Ended 31 December 2016

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LAM SOON (HONG KONG) LIMITED

(Incorporated in Hong Kong with limited liability)

(Stock Code: 411) ANNOUNCEMENT OF INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2016

The Board of Directors (the "Board") of Lam Soon (Hong Kong) Limited (the "Company") is pleased to present the unaudited consolidated interim results of the Company and its subsidiaries (collectively the "Group") for the six months ended 31 December 2016.

OVERVIEW

The Group achieved stable revenue growth amid a weakening global macroeconomic environment. Favourable raw material costs, growth of core brand products and wider geographic coverage continued to improve our profitability.

We remain steadfast in our longstanding commitment to deliver premium, high quality, and safe products in the Food and Detergent segments to our customers in Hong Kong, Macau, and Mainland China. During this period, we further solidified our fundamentals and pushed ahead with strategic programmes aimed at reducing our sensitivity to fluctuating commodity prices and at sustaining growth.

FINANCIAL RESULTS

The Group's volume grew 6%, while revenue increased 4% to HK$2,555 million in this period. The increase has absorbed the negative impact of the depreciation of RMB, in which a majority of our revenues are denominated. Excluding impact of foreign exchange, revenue increased by 9%. Gross margin improved by 2.8 percentage points to 22%, driven by growth of higher-margin core brand products and favourable raw material costs. Selling and distribution expenses of HK$281 million were 8% higher than last year but remain unchanged at 11% as a percentage of sales. The increase is in line with the overall expansion of the Group into new geographic locations in Mainland China, and ongoing brand building and promotional activities to drive sales. Net profit attributable to shareholders increased by 52% to HK$166 million, mostly due to sales growth and gross profit improvements. As at 31 December 2016, the Group has a cash balance of HK$853 million, a 29% increase from 30 June 2016.

DIVIDENDS

The Board has declared an interim dividend of HK$0.12 per share for the six months ended 31 December 2016 (six months ended 31 December 2015: HK$0.1 per share), which will be payable on Wednesday, 15 March 2017 to the shareholders whose names appear on the register of members of the Company on Tuesday, 7 March 2017.

BUSINESS REVIEW Food Segment

Food segment's revenue and operating profit grew 4% and 75% to HK$2,242 million and HK$207 million, respectively, compared to the same period last year. Excluding the impact of foreign exchange, revenue increased by 10%.

The Group's edible oil business posted strong revenue growth. Targeted marketing and distribution initiatives to enhance Knife brand's leadership and penetration in Hong Kong and Mainland China continued to show results. Looking ahead, we will enhance Knife's consumer brand value via product differentiation, further penetrate into selected oil segments and geographic regions, strengthen our sales force, and bolster our supply chain capabilities. Our new packaging line in Tai Po is expected to be up and running by the end of FY17/18. This will support the existing Shekou line in catering for Hong Kong and Macau's retail oil markets.

The Group's flour business posted significant margin improvements on steady revenue and volume growth, driven by sales momentum of our premium higher-margin products, favourable wheat costs and gradual recovery in bran prices. Management remained focused on our institutional business' core competencies in product, sales, research and development, and technical services to sustain growth. Systemic risks within the flour industry still exist, in the form of limited supply of imported wheat in Mainland China due to quota restrictions and the Group's limited ability to adequately pass on higher wheat costs to customers. Ongoing efforts to optimize wheat formulation and operations, sales of higher margin specialty flour products in Mainland China, and an enlarged presence beyond first and second-tier cities should soften the impact of these external factors on our business.

We have made progress in the development of flour division's business-to-consumer segment over the last four years. However, we remain cognisant of the long-term nature of this project and the persistence needed to establish a brand in a relatively young and unbranded space. We will continue to assess opportunities in this segment to create capital value.

In light of prevailing market volatilities, management is monitoring closely market conditions and will exercise a prudent approach in the procurement of raw materials so as to safeguard the gross profit margin of our Food segment. Given the importance of e-Commerce in increasing the exposure of our retail brands across Mainland China, management will further refine its online business model and allocate resources accordingly to achieve balanced and sustainable growth.

BUSINESS REVIEW (continued) Detergent Segment

Detergent segment's volume grew by 8% but revenue increased only by 1% to HK$312 million in this period. Operating profit declined 48% to HK$26 million, attributed to the increased promotional advertising support and packaging revamp amid heightened competition and softer consumer sentiment, and unfavourable raw material costs. Excluding the impact of foreign exchange, revenue grew by 6%.

In the Hong Kong dishwashing detergent market, AXE and Labour maintained their leading positions in a mature market. In order to strengthen brand loyalty among existing consumers and boost our image among younger consumers, we launched an "AXE Restage" marketing campaign in Hong Kong in November 2016. The campaign will help us communicate our revamp in product packaging and drive consumer offtake in key distribution channels. Similar programmes will be rolled out in key South China markets. Despite our established presence in the highly competitive South China market, we see room to further bolster our sales and marketing efforts and reinforce our brands' image and value proposition.

Looking ahead, we aim to retain AXE and Labour's status as household names in the dishwashing detergent category in Hong Kong and key cities in South China. To achieve meaningful incremental value, we will continue to strengthen and leverage our brand equity in the dishwashing segment and widen the geographic reach of our franchise across Mainland China. Management will step up ongoing efforts to develop and refine a cohesive sales and marketing strategy across traditional and e-Commerce channels to achieve these objectives.

OUTLOOK

The slowdown in Mainland China's economy and the changes expected in global politics and trade relationships will add further uncertainty to the global growth outlook. Such uncertainties further underscore the need for the Group to stay focused on accelerating existing programmes to capture opportunities in one of the largest and fastest-growing consumer markets in the world.

We are working on our fundamentals to keep pace with business growth. We will strive for continuous improvement in the areas of people and infrastructure across all key functions: marketing, sales and distribution, research and development, information systems, and production. We remain cautiously optimistic of achieving a healthy performance for FY16/17 against last year.

FINANCIAL REVIEW Liquidity and Financial Resources

At 31 December 2016, the Group had a cash balance of HK$853 million (30 June 2016: HK$664 million). This was mainly attributable to the increased net cash generated from operating activities. About 68% of the balance was denominated in Renminbi ("RMB"), 21% in Hong Kong dollars ("HK$"), 10% in United States dollars ("USD") and 1% in Macau Pataca ("MOP").

As at 31 December 2016, the Group had HK$716 million available bank facilities (30 June 2016: HK$824 million).

The Group centralises all the financing and treasury activities at the corporate level. There are internal controls over the application of financial and hedging instruments which can only be employed to manage and mitigate the commodities price risk and currency risk for trade purposes.

As at 31 December 2016, the inventory turnover days improved from 55 days at the end of last financial year to 50 days. The trade receivable turnover days remained at a stable level of 23 days (30 June 2016: 23 days).

In view of the strong liquidity and financial position, management believes the Group will have sufficient resources to fund its daily operations and capital expenditure commitments.

The Group has operations in Mainland China, Hong Kong and Macau. Local costs and revenue are primarily denominated in RMB, HK$, and MOP.

The Group is exposed to currency risk primarily through sales, purchases and deposits that are denominated in currencies other than the functional currency of the entity to which they relate. The Group will monitor its exposure by considering factors including, but not limited to, exchange rate movement of the relevant foreign exchange currencies as well as the Group's cash flow requirements to ensure that its foreign exchange exposure is kept at an acceptable level.

Capital Expenditure

During the period, the Group invested a total sum of HK$17 million on acquisition of plant and office equipment and construction of new production lines.