Xtep International : 2020 ANNUAL RESULTS ANNOUNCEMENT

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

Xtep International Holdings Limited तӉ਷ყછٰϞࠢʮ̡

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1368)

2020 ANNUAL RESULTS ANNOUNCEMENT

The Board of Directors (the "Board") of Xtep International Holdings Limited (the "Company") is pleased to announce the audited results of the Company and its subsidiaries (together referred to as the "Group") for the year ended 31 December 2020. This announcement, containing the full text of the 2020 Annual 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 annual results. The printed version of the Company's 2020 Annual Report will be delivered to the shareholders of the Company and will be available for viewing on the websites of Hong Kong Exchanges and Clearing Limited atwww.hkexnews.hkand of the Company atwww.xtep.com.hk.

- 1 -

ABOUT

THE GROUP

Xtep International Holdings Limited (SEHK stock code: 1368) is a leading multi-brand sportswear company listed on the Main Board of the Hong Kong Stock Exchange on 3 June 2008. The Group engages mainly in the design, development, manufacturing, sales, marketing and brand management of sports products, including footwear, apparel and accessories. Established since 2001, its own signature brand "Xtep" is a leading professional sports brand with an extensive distribution network of over 6,000 stores covering 31 provinces, autonomous regions and municipalities across the PRC and overseas. In 2019, the Group has further diversified its brand portfolio which now includes four internationally acclaimed brands, namely K-Swiss, Palladium, Saucony and Merrell.

CORPORATE INFORMATION

CONTENTS

• 2 Annual Results at a Glance

• 4 Five-year Financial Summary

• 5 Corporate Information

• 6 Chairman's Statement

• 8 Management Discussion and Analysis

• 38 Investor Relations Report

• 44 Directors and Senior Management

• 49 Corporate Governance Report

• 65 Report of the Directors

• 77 Independent Auditor's Report

• 83 Consolidated Income Statement

• 84 Consolidated Statement of Comprehensive Income

• 85 Consolidated Statement of Financial Position

• 87 Consolidated Statement of Changes in Equity

• 88 Consolidated Statement of Cash Flows

• 90 Notes to Financial Statements

• 175 Glossary

Mass marketProfessional sportsAthleisure

ANNUAL RESULTS AT A GLANCE

Note 1: Signature brands under different brand nature are as follows:

• ƫ đƫƫ //ƫ) .'!0ƫ- Xtep

• ƫ đƫƫ .+"!//%+* (ƫ/,+.0/ƫ-ƫ

• ƫ đƫƫ 0$(!%/1.!ƫ-ƫ ġ 3%//Čƫ

Note 2: * (1 %*#ƫ *ƫ%*0!.%)ƫ %2% !* ƫ+"ƫ ćċĆƫ !*0/ƫ ,!.ƫ $ .!ƫ * ƫ ƫ,.+,+/! ƫü* (ƫ %2% !* ƫ+"ƫ

ĈċĆƫ !*0/ƫ,!.ƫ $ .!Čƫ0$!ƫ"1((ƫ5! .ƫ %2% !* ƫ )+1*0! ƫ0+ƫ āąċĀƫ !*0/ƫ,!.ƫ/$ .!

FIVE-YEAR FINANCIAL SUMMARY

For the year ended 31 December	2020	2019	2018	2017	2016
Profitability data (RMB million)
Revenue	8,171.9	8,182.7	6,383.2	5,113.4	5,396.6
Gross profit	3,198.4	3,550.4	2,828.3	2,244.5	2,331.3
Operating profit	918.2	1,234.0	1,044.3	724.5	917.0
Profit attributable to ordinary equity holders	513.0	727.7	656.5	408.1	527.9
Basic earnings per Share (RMB cents) (Note 1)	20.83	30.72	30.19	18.81	23.89
Profitability ratios (%)
Gross profit margin	39.1	43.4	44.3	43.9	43.2
Operating profit margin	11.2	15.1	16.4	14.2	17.0
Net profit margin	6.3	8.9	10.3	8.0	9.8
Effective tax rate	33.7	34.8	31.4	33.5	33.8
Return on average total equity holders' equity (Note 2)	7.3	11.9	12.4	8.0	10.8
Operating ratios (as a percentage of revenue) (%)
Advertising and promotional costs	11.2	14.4	15.2	12.9	11.8
Staff costs	12.1	11.0	11.6	12.1	10.5
R&D costs	2.7	2.4	2.6	2.8	2.6
As at 31 December	2020	2019	2018	2017	2016
Assets and liabilities data (RMB million)
Non-current assets	3,544.4	3,056.7	1,139.0	1,051.9	956.9
Current assets	9,027.3	9,265.9	8,059.6	7,881.8	7,217.0
Current liabilities	3,334.3	3,671.1	3,277.8	2,488.8	3,029.4
Non-current liabilities	1,938.7	1,691.2	589.8	1,116.3	121.7
Non-controlling interests	75.4	69.8	4.7	107.7	69.3
Total equity holders' equity	7,223.3	6,890.5	5,326.3	5,220.9	4,953.5
Asset and working capital data
Current asset ratio	2.7	2.5	2.5	3.2	2.4
Gearing ratio (%) (Note 3)	17.2	19.1	21.1	20.7	18.4
Net asset value per Share (RMB) (Note 4)	2.87	2.77	2.38	2.4	2.26
Average inventory turnover days (days) (Note 5) (Note 8)	74	77	80	75	51
Average trade receivables turnover days (days) (Note 6) (Note 8)	120	96	105	130	119
Average trade payables turnover days (days) (Note 7) (Note 8)	107	88	98	122	107
Overall working capital days (days)	87	85	87	83	63
NOTES:

• 1 The calculation of basic earnings per Share is based on the profit attributable to ordinary equity holders of the Company divided by the weighted average number of ordinary shares in issue during the relevant year.

• 2 Return on average total equity holders' equity is equal to the profit attributable to ordinary equity holders of the Company for the year divided by the average of opening and closing total equity holders' equity.

• 3 The calculation of gearing ratio is based on the total borrowings divided by the total assets of the Group at the end of the year.

• 4 The calculation of net asset value per Share is based on the total number of Shares in issue at the end of the year.

• 5 Average inventory turnover days is equal to the average of opening and closing inventory divided by costs of sales and multiplied by 365 days (or 366 days in 2016 and 2020).

• 6 Average trade receivables turnover days is equal to the average of opening and closing trade receivables divided by revenue and multiplied by 365 days (or 366 days in 2016 and 2020).

• 7 Average trade payables turnover days is equal to the average of opening and closing trade payables divided by cost of sales and multiplied by 365 days (or 366 days in 2016 and 2020).

• 8 When calculating the average inventory turnover days, trade receivables turnover days and trade payable turnover days for 2019, the opening balances of inventories, trade receivables and trade payables include the respective consolidated balances of K-Swiss Holdings, Inc. (previously known as E-Land Footwear USA Holdings Inc.) and its subsidiaries as if it had been part of the Group since 1 January 2019, and the revenue and cost of sales used for the calculations include the annualised consolidated revenue and cost of sales of K-Swiss Holdings, Inc. and its subsidiaries recorded since the Group's acquisition on 1 August 2019.

CORPORATE INFORMATION

Board of Directors
Executive Directors
Ding Shui Po (Chairman)
Ding Mei Qing	Suite 3204, Unit 2A, Block 3
Ding Ming Zhong	Building D, P.O. Box 1586
Gardenia Court, Camana Bay
Independent Non-executive Directors	Grand Cayman, KY1-1100, Cayman Islands
Tan Wee Seng
Gao Xian Feng	Hong Kong Branch Share Registrar
Bao Ming Xiao	and Transfer Office
Computershare Hong Kong
Board Committees	Investor Services Limited
Audit Committee	Shops 1712-1716
Tan Wee Seng (Chairman)	17/F, Hopewell Centre
Gao Xian Feng	183 Queen's Road East
Bao Ming Xiao	Wanchai, Hong Kong
Remuneration Committee	Principal Bankers
Gao Xian Feng (Chairman)	Bank of China
Ding Mei Qing	Bank of East Asia
Bao Ming Xiao	China Construction Bank
China Minsheng Bank
Nomination Committee	Hang Seng Bank
Ding Shui Po (Chairman)	HSBC
Tan Wee Seng	Industrial Bank
Gao Xian Feng
Company Website
Sustainability Committee	www.xtep.com.hk
Tan Wee Seng (Chairman)
Ding Shui Po
Ding Mei Qing

Yeung Lo Bun

Company Secretary

Yeung Lo Bun, FCPA

Authorized Representatives

Ding Shui Po

Registered Office

Cricket Square, Hutchins Drive

P.O. Box 2681, Grand Cayman KY1-1111 Cayman Islands

Principal Place of Business in Hong Kong

Unit A, 27/F, Tower A

Billion Centre, 1 Wang Kwong Road Kowloon Bay, Kowloon, Hong Kong

Head Office in the PRC

Xiamen Xtep Tower, No. 89 Jiayi Road Guanyinshan, Siming District, Xiamen Fujian Province, PRC

Postal Code 361008

Legal Adviser as to Hong Kong Laws

Loeb & Loeb LLP

Auditor

Ernst & Young

Cayman Islands Principal Share Registrar and Transfer Office

Suntera (Cayman) Limited

CHAIRMAN'S STATEMENT

Dear Shareholders,

2020 was a challenging year as the COVID-19 pandemic coupled with escalating geopolitical tensions caused disruption to the economic and trade activities across the globe. Despite the headwinds, the Group's revenue remained stable at RMB8,171.9 million (2019: RMB8,182.7 million). Revenue from the core Xtep brand decreased by 7.9% to RMB7,101.1 million (2019: RMB7,706.7 million). The gross profit margin of the Group was 39.1% (2019: 43.4%). Operating profit of the Group amounted to RMB918.2 million (2019: RMB1,234.0 million). Profit attributable to ordinary equity holders of the Company decreased by 29.5% to RMB513.0 million (2019: RMB727.7 million). Basic earnings per Share amounted to RMB20.8 cents (2019: RMB30.7 cents). The Board has proposed a final dividend of HK7.5 cents per Share, with an option to receive scrip shares in lieu of cash. Together with an interim dividend of HK6.5 cents per Share, the full year dividend payout ratio was approximately 60.0% (2019: 60.0%).

With Challenge Comes Opportunity

China was the first country in the world to recover from the COVID-19 pandemic. Mainland China's GDP and total retail sales of consumer goods resumed positive growth since the second half of 2020, respectively, and that momentum has continued to date. Given the continual increase in disposable income, rising health awareness of Chinese people in the aftermath of the pandemic, as well as the Chinese government's advocacy of internal circulation to expand domestic demand and proposal to promote sports and health in their latest 14th Five-Year Plan in 2020, our optimism over the medium-term to long-term prospects of the sportswear industry in Mainland China has remained unchanged.

Throughout the year, we focused on fostering product and technology innovation, which included the launch of our signature "Ultra Fast" collection and "Xtep x Shaolin" collection in June 2020, and provided an extraordinary experience to our customers with the opening of our first multi-brand collection store "X-STREET" in Xiamen in November 2020. These successful initiatives contributed to the solid business recovery of our core Xtep brand, particularly in the second half of 2020. Consumer behavior in Mainland China also changed, with a shift in spending towards online shopping amid the pandemic. To this end, we swiftly adjusted our strategies to capture the enormous sales opportunities from e-commerce and private traffic channels. We leveraged effective marketing channels

CHAIRMAN'S STATEMENT

such as WeChat Mini Programs and live streaming to boost online sales and sponsored online marathons to maintain our leading position within the running world. These offered the Group a fresh impetus to achieve record high online retail sales of over RMB520 million for all our brands during the Double 11 Global Shopping Festival in 2020, representing a year-on-year growth of approximately 50%.

In addition, we seized the opportunity to grow our market share by offering a comprehensive product portfolio. Since May 2020, we accelerated the store openings of Saucony and Merrell in the higher-tier cities in Mainland China, in order to cater to the evolving demand of sophisticated customers for internationally acclaimed professional sports products.

In stark contrast, the pandemic in overseas countries, particularly the Americas and Europe, remained uncontainable in 2020, which hampered the recovery of our overseas business of the newly acquired brands, K-Swiss and Palladium. The U.S. continued to see a record number of new COVID-19 cases, while several European countries returned to lockdown during the fourth quarter in 2020. The course of the pandemic and the progress of vaccine development will be critical to the overseas business recovery of K-Swiss and Palladium. To mitigate the impact of the overseas pandemic and lockdowns to the Group's operations, stringent cost control measures were put in place, coupled with our increasing efforts in e-commerce and various online marketing campaigns to drive sales. The online retail sales of K-Swiss and Palladium in the Americas and EMEA registered robust year-on-year growth of 45% and 52%, respectively, in 2020.

In the meantime, our pragmatic development plan for K-Swiss and Palladium was in full swing despite the pandemic. During the second half of 2020, we began stepping up our efforts to increase Palladium's high-street presence, with 21 self-operated stores opened in prime locations in higher-tier cities in Mainland China. More store openings are expected in 2021. As for K-Swiss, the brand revamp and business restructuring aimed at targeting customers in Asia-Pacific is still underway, with the grand opening of its first self-operated store expected to take place in Mainland China by early 2022.

Outlook

Looking ahead, the Group anticipates that resumption of business activities and gradual recovery of consumer sentiment in Mainland China will continue to lead to positive economic growth in 2021, which will in turn be beneficial to the consumer sector. The core Xtep brand has witnessed a solid recovery in its retail sales since the second half of 2020, with the growth momentum sustained at the beginning of 2021. The greater domestic demand, supported by national policies together with the rising health awareness of the Chinese public following the pandemic, will further fuel the growth of the sportswear sector and the market share of domestic sportswear brands. Meanwhile, expansion plans for the four new brands in Mainland China also fit perfectly with the latest national policies, and it is expected that they will become another major driver of growth in the future. We will expedite store openings in Mainland China for Saucony, Merrell and Palladium, and concentrate on K-Swiss's rebranding process in 2021. Although there are mounting uncertainties over the economic recovery of the Americas and Europe in 2021 due to the COVID-19 pandemic, the Group envisages that the resumption of business in these continents will progress gradually. The Group is well-prepared to grasp the enormous business opportunities through its comprehensive market segments in its portfolio, namely the mass market segment, professional sports segment and athleisure segment.

Lastly, on behalf of the Board, I would like to extend my deepest gratitude to our shareholders, investors and business partners for their unwavering trust and support, and to our Directors, management and staff for their invaluable contributions during the year. We will stay on the path of high-quality sustainable development to achieve steady growth, so as to bring satisfactory returns to all shareholders.

Mr. Ding Shui Po

Chairman

Hong Kong, 18 March 2021

MANAGEMENT DISCUSSION AND ANALYSIS

Market Development

The COVID-19 pandemic adversely impacted the Chinese economy in 2020. Nonetheless, China became the first country to bring the pandemic under control. Following the adoption of timely and drastic containment measures, Mainland China was pulling ahead among major economies in post-pandemic recovery. The GDP of Mainland China grew by 2.3% year on year in 20201, the growth further accelerated in the second half from the first half of 2020. Meanwhile, the total retail sales of consumer goods in Mainland China gradually improved to a mid-single digit year-on-year growth in the fourth quarter versus a double-digit year-on-year decline in the first quarter of 20201, solidly demonstrated a strengthened consumer spending along with its economic recovery.

COVID-19 as a Catalyst for Demand Growth in Sportswear and Athleisure Wear

The COVID-19 pandemic has certainly served as a catalyst for an increased focus on health and fitness around the world. In a time when travelling plans were put on hold and social distancing measures were enforced, exercise became one of the few pleasures left. More people in Mainland China have turned into avid joggers and runners even after the pandemic was well under control. In addition, as millions of Chinese employees were working from home when the pandemic emerged, they adapted to dressing comfortable though casual athleisure basics at home, which led to a long-lasting change in their daily work styles and contributed to the growth in both sportswear and athleisure wear. These far-reaching changes coupled with the Chinese government's long-term agenda to promote public health, boost household incomes and expand domestic demand in the 14th Five-Year Plan will continue to bode well for the sportswear sector.

New Digital Shopping Ecosystem in Mainland China

Pressure on brick-and-mortar stores in Mainland China intensified when lockdown and social distancing measures were enacted during the pandemic to curb the spread of the virus. Domestic sportswear companies have expedited their digitalization efforts in order to alleviate the hardship since then. In particular, live streaming-driven online shopping became prevalent as it enables companies to make real-time customer engagement that improves user experience and maximizes conversion rate. More sales are now directed from live streams. According to Alibaba, the total GMV driven by live streaming during the Double 11 Global Shopping Festival in 2020 surged over 100% year on year, with approximately 300 million Taobao users watched live streams during the festive sales period. Furthermore, a report released by KPMG and Ali Research revealed that the total scale of China's live streaming e-commerce industry reached RMB433.8 billion in 2019. As live streaming e-commerce has emerged as a pivotal driver for Mainland China's online consumption, companies with efficient omni-channel retail strategies are better equipped to cope with the new digital shopping ecosystem.

1 Source: National Bureau of Statistics of China

Athleisure

Business Review

Multi-Brand Business Model

As Chinese consumers aspire to enhance wellness and achieve health goals, sports-inspired athleisure wear and fashion-infused sportswear have gained immense popularity and seen incremental demand among Chinese consumers. Our multi-brand business model has boosted our flexibility to adjust to different market segments, namely mass market, professional sports and athleisure.

Each of our unique market segments is designed to cater to the needs of a diversified customer base. The core Xtep brand provides the mass market with trendy and stylish sportswear of excellent value, while Saucony and Merrell offer high-quality professional sportswear to enhance athletes' performance. Lastly, K-Swiss and Palladium which aim to tap into the prevailing athleisure trend will continue to introduce athleisure wear to the younger generation that speaks their personalities.

Mass Market

Professional Sports

Mass Market

Our core Xtep brand secured its leading market position as the Chinese Runners' Favorite Brand. In 2020, we ranked first among the domestic brands in international class marathon in Mainland China2. Guided by our mission to provide consumers in the mass market with value-for-money professional and stylish sportswear products, we persisted in scaling up innovation and proactively collaborating with popular IPs.

Products

Performance collection

Signature running collection - "Ultra Fast"

Since the launch of our signature running shoes "160X" in December 2019, we have celebrated 26 championships in marathons and running events with eight sponsored athletes who wore the 160X shoes. These outstanding records are persuasive testimonials of our state-of-the-art technology and dedicated efforts to facilitate professional athletes to break through previous speed. In addition to the "160X" model, the collection also features the "Ultra FastX" and "Ultra Fast" model to satisfy the needs of elite and recreational runners at different levels.

160X

• 2 Source: Joyrun (January 2020) - footwear worn by participants who finished the 2020 Xiamen Marathon within five hours

• 2 Source: Joyrun (December 2020) - footwear worn by participants who finished the 2020 Shanghai Marathon within five hours

• 2 Source: Joyrun (December 2020) - footwear worn by participants who finished the 2020 Guangzhou Marathon

Jeremy Lin's first signature basketball shoes - "XTEP JLIN ONE"

To deepen our roots in the basketball market, we announced the launch of Jeremy Lin's first signature basketball shoes "XTEP JLIN ONE" in October 2020. The shoes which express the "Nothing Stops Me" and "Greater Belief, Greater Confidence" basketball spirit drew tremendous attention from basketball fans. Limited-edition "XTEP JLIN ONE" shoes were made available via the Poizon App and at the well-known sneaker store WZK Shop in Beijing Sanlitun. All of these limited-edition shoes were sold out promptly on the launch day. This successful partnership with Jeremy Lin demonstrated Xtep's capability to develop professional and fashionable basketball products. We will continue to implement the "Basketball Product Co-Creation Plan" to develop basketball products from multiple perspectives, so as to further consolidate Xtep's prominent image in professional sports among the younger generation in Mainland China.

XTEP JLIN ONE

Jeremy Lin's first signature basketball shoes released in WZK Shop in Beijing Sanlitun

Crossover collection

"Xtep x Shaolin (ˇ؍ )" collection

We took our existing partnership with Shaolin Temple to the next level with the debut of our "Xtep x Shaolin" collection at Shanghai Fashion Week in October 2020. The collection which displays the traditional and ancient elements of Shaolin martial arts in a modern way received widespread attention in the fashion show. Concurrently, the collection continued to resonate in our pop-up store in Shanghai's bustling shopping area, Xintiandi. Numerous fans and consumers gathered at the store during the presence of our young celebrity endorser, Fan Chengcheng, and famous rappers. The collection was also showcased at Sneaker Con, the premium sneaker event held in December 2020, and complemented with breathtaking martial arts performance by the Shaolin monks. Our promotional initiatives and social media marketing efforts successfully increased the exposure and popularity of the "Xtep x Shaolin" collection among younger consumers, especially Generation Z. As the first sportswear brand to cooperate with Shaolin Temple, we will continue to tap into the China chic trend with products representing the beautiful elements of Chinese culture and fashion.

Pop-up store at Shanghai Xintiandi

Xtep x Shaolin collection debuted at Shanghai Fashion Week

Showcase at Sneaker Con

Riding on the huge success of "Jiang Ziya: Legend of Deification", one of the highest-grossing animated movies in Mainland China in 2020, we launched a series of crossover collections inspired by the main characters in the movie. As a staple of Chinese legend, Jiang Ziya is known by locals and popular among youngsters. Encapsulating Chinese traditional culture in modernistic athleisure wear, this collection continuously created trending topics on various social media platforms and marked another successful foray of Xtep into the China chic fashion.

"Xtep x Jiang Ziya: Legend of Deification (۴ɿ˫: ɓ኷܆ग़ )" collection

160XUltra FastX

Adopts Dynamic Foam PB elastic midsole, which has ultimate propulsion and excellent rebound capability. Its full-length carbon fiber plate futures a Y-shaped 3D structure design to help runners make breakthroughs in their top speed.

Adopts a unique double-layer midsole design which combines the X-Dynamic Foam and Dynamic Foam LITE to offer supreme cushioning and energy return during running and cross-training. Its full-length arc-shaped TPU plate allows greater support and propulsion for every step.

Uses ETPU foam materials that offer more eco-friendly elements, better heat resistance and shock absorption, higher rebound capability and compression durability than traditional EVA foam.

Uses a new composite high-resilience EVA foam formula to deliver a soft and gentle rebound experience during shock absorption.

Uses a special hollow structuring design to effectively provides cushioning, flexible and comfortable sports experience.

Utilizes an air-cushion system around part or the entire sole, resulting in soft yet supportive shock absorption.

Uses soft cube modules at the sole and arrange them according to the dynamic pressure distribution of the sole, providing a comfortable stepping experience.

Uses high-elastic TPU foam particles, which can absorb and release more energy during sports and make running easier.

Ultra Fast

A lightweight running shoe that combines a full-length TPU plate and Dynamic Foam Lite midsole to offer excellent rebound and energy consumption of forefoot propulsion.

Applies uni-body three-dimensional double-layer weaving technique, with mesh arrangement based on foot form and pressure points to improve breathability and achieve a seamless fit.

A key shoe insole technology the Group co-developed with the Dow Chemical Company. The insole provides memory foam-like comfort by fully conforming with the shape of the foot.

XTEP - DRY

Quick-drying Cotton

Extraordinary, sweat-wicking and breathable cotton fabric to provide dry comfort during exercise

Moisture Absorption and Quick Drying

Rapid sweat absorption and drying technology to keep dry and comfortable, to enhance athletic performance

XTEP - COOL

Ice Fiber Family

Innovative silky material with rapid heat conduction and dissipation technologies to provide cool comfort

XTEP - WARM

Warmth Retention

Combines tight outer layer with fluffy inner layer and retains air in the interlayers to provide warmth and shape-distortion resistance of clothes

Far-infrared Heating

Applies special material which can effectively absorb and reflect the far-infrared of the human body to provide warmth

Heat Reflection

Applies heat reflection technique to form heat currents and reflect body temperature to increase warmth

Seamless Down

Adopts tubular stuffing technique, which can effectively control down leakage and avoid heat loss through stitch, to provide better warmth

XTEP - SHIELD

Water-resistant

Water-resistant to offer dryness and comfort to you in wet conditions

Antistatic

The use of antistatic fabric technology to effectively avoid or reduce the adverse effects of static on clothes to the human body

XTEP - COMFORT

Smooth and skin-friendly fabric

Selectively adopts even and flat fiber, which is delicate and soft, smooth to touch, and reduces skin friction

Distortion Resistance

Unique spatial 3D structure to maintain the shape of clothes

X-SEAMLESS-TECH

Seamless and soft lightweight clothes to perfectly match body shape and bring comfortable experience

Sports Elasticity - Basic

A special fiber and composition structure of weaving for natural comfort to enhance comfort in sports

Sports Elasticity - Intermediate

A special material with enhanced woven elasticity to improve sports performance

Sports Elasticity - Advanced

Utilizes the principle of human mechanics to enhance the protection and sports performance in multi-dimensions

LYCRA

A Soft, smooth, delicate and comfortable material with excellent elasticity and can be stretched repeatedly without deformation

Sorona

Unique and environmental-friendly plant fiber with excellent elasticity, natural moisture absorption, sweat-wicking and delicate feeling

Retail management and branding

There were 6,021 Xtep branded stores mainly operated by authorized distributors of the Group in Mainland China and overseas as at 31 December 2020. In light of the COVID-19 pandemic, optimizing retail management as well as enhancing store productivity and customer experience became our key focuses.

Customer experience

X-STREET at SM City in Xiamen

In November 2020, the first multi-brand collection store X-STREET was unveiled at SM City in Xiamen. Occupying an area of 1,500 square meters, the X-STREET store accommodates four major brands, including Xtep, Palladium, Saucony and Merrell. This signature store boasts a combination of industrial design style with the characteristics of southern Fujian culture that rhyme with the pursuit of young consumers for trendy shopping experience. With the appearance of our spokesperson, Nicholas Tse, at the grand opening, the event attracted thousands of people to join and celebrate together. The atmosphere of the scene was brought to its peak and impressive retail sales were recorded during the opening.

The retail store format is constantly upgraded to deliver superior in-store experience. In 2020, a portion of the existing retail stores were revamped and upgraded to the ninth-generation retail store format. The ninth-generation retail stores were designed to offer our customers immersive retail experiences which encourage them to experience the breadth and depth of the core Xtep brand. With a larger gross floor area on average, the newly revamped stores are expected to uplift the store productivity and efficiency.

Ninth-generation

store in Shenzhen

Dongmen

Marathon and running event sponsorship

Although restrictions on outdoor recreation were in place in the first half of 2020 due to the COVID-19 pandemic, physical marathons and road races gradually resumed in the second half. The disruption faced by marathon events did not hinder our determination to sponsor large-scale marathons and races and promote public health. During the year, the 12 physical marathons and nine virtual races we sponsored in Mainland China attracted over 1.5 million participants.

Electronic certificate of Chongqing Marathon (Virtual) (November 2020)

List of marathons and running events organized or sponsored by Xtep:

11. Chongqing Marathon (Virtual)

Changsha Red Half Marathon (December 2020)

4. Chengdu Marathon (Virtual)

9. Xtep China Speed Elite Classic and

First Duolun Marathon (September 2020)

8. Taiyuan Marathon (Virtual)

(September 2020)

7. Hengshui Lake Marathon (September 2020)

6. Jiangsu Cloud Run (Virtual)

(June 2020)

5. Xiamen Marathon (Virtual)

(June 2020)

(June 2020)

3. Wuhan Marathon (Virtual)

2. Chongqing Marathon (Virtual)

(April 2020)

(March 2020)

1. Xiamen Marathon (January 2020)

10. Wuhan Marathon (Virtual)

(October 2020)

12. Taiyuan Marathon

(October 2020)

13. Chongqing Marathon

(November 2020)

• 14. China Annual Ranking Marathon (November 2020)

  15. Chengdu Marathon

  (November 2020)

  16. Nanjing Marathon

  (November 2020)

• 17. Xiamen (Haicang) International Half Marathon (December 2020)

  18. Xiamen East Rim Half Marathon (Virtual)

(December 2020)

19. Xiamen East Rim Half Marathon

(December 2020)

20. Fuzhou Marathon

(December 2020)

21. Changsha Red Half Marathon

(December 2020)

Celebrity spokespersons

Following Nicholas Tse's first subscription for 5,000,000 shares of the Company in 2016, we delightedly announced that he had subscribed for 5,000,000 shares of the Company again during the year. As our first celebrity spokesperson since 2001, Nicholas's investment in Xtep revealed his confidence in our long-term business development. Moving forward, he will also become more involved in the product design, development and marketing of Xtep.

In addition, we appointed Chinese singer and actor, Fan Chengcheng, as our spokesperson in August 2020. With over 22 million followers on Weibo, he is one of the most popular millennial celebrities among the younger generations. We believe that his positive and energetic image will captivate youngsters who also identify with our brand's image. Lastly, Xtep teamed up with Jeremy Lin, our spokesperson and charity ambassador, to launch a charity project in the 2019-2020 season. For every three-pointer Lin shot in the CBA games, Xtep donated RMB3,000 worth of sportswear products to Dandelion School in Beijing, a non-profit school for children from low-income migrant families. The collaboration with Lin helped raise our brand affinity and demonstrated our efforts in social responsibility.

Sports celebrities

We continued to engage acclaimed sports celebrities in Mainland China to strengthen our influence in the sports industry. These celebrities in various sports were seen wearing professional Xtep sportswear when they won their championships, further solidifying the connection between our sportswear and professional athletes.

Dong Guojian

China's fastest active professional marathoner who set the best Chinese marathon record in the last 13 years in Berlin Marathon in September 2019

Other entertainment marketing

China's second fastest active professional marathoner

Gold medalist of men's 110 metres hurdles at 2018 Asian Games

We collaborated with street dancers to promote our "Street" series to the younger generation through the new marketing campaign "Tebufu 3.0". The campaign which symbolizes boldness and perseverance strategically increased our appeal to the younger consumers. Additionally, we continued to serve as the official designated apparel sponsor of "Boys and Girls Run Forward", a highly sought-after variety show in Mainland China.

"Boys and Girls Run Forward" TV show sponsorship

Gold medalist of women's shot put at 2019 IAAF Diamond League

E-commerce

As the COVID-19 pandemic has reshaped the retail landscape and consumer behaviors, e-commerce has become a vital retail channel for us to reach out to our customers. Although lockdown measures were lifted gradually in the second half of 2020, consumers continued to increase their engagement in online shopping. The growth of our e-commerce business accelerated and it accounted for about a quarter of the Group's revenue in 2020.

The one-year restructuring of our e-commerce business came to an end in the first half of 2020.

After a smooth integration of our supply chain operations with our offline business, the design and quality of the online exclusive products were vastly improved to align with that of the offline products. Consequently, we witnessed a speedier growth in our e-commerce in the second half of 2020. During the year, we continued to leverage private traffic such as WeChat Mini Programs and live streaming to boost our exposure online. 151 live streams were produced together with 135 influencers on various online platforms. These initiatives significantly contributed to an eye-catching growth in our online sales. During the Double 11 Global Shopping Festival, the Group's online sales spiked by approximately 50% year on year to over RMB520 million, driven by a 40% year-on-year growth in Xtep's Tmall flagship store.

In the future, we will further integrate our online and offline business and increase the proportion of our O2O products to maximize the O2O synergies and achieve sustainable growth in our e-commerce business.

Xtep Kids

There were approximately 800 POS for Xtep Kids as at 31 December 2020. Despite the adverse impacts of the COVID-19 outbreaks in Mainland China, the retail sales of the Kids business remained stable in 2020. Online sales of our Kids business doubled during the Double 11 Global Shopping Festival. The strong performance was mainly attributable to higher brand awareness, enhanced product design and quality, and more refined retail management following the successful restructuring from 2015 to 2017. Considering the recurring coronavirus outbreaks and highly fragmented childrenswear market in Mainland China, we will continue to take a cautious approach when expanding our Kids business in the years ahead.

Xtep Kids store in Lijiang, Yunnan

Professional Sports

As Saucony and Merrell are still in an early stage of development in Mainland China, revenue from the professional sports segment remained minimal in 2020 at RMB71.7 million, contributing 0.9% of the Group's revenue.

Retail management

The retail network of Saucony and Merrell was significantly expanded as we kick-started the store openings for both brands in Mainland China in May and April 2020, respectively. As at 31 December 2020, there were 32 and six self-operated stores for Saucony and Merrell in tier I and tier II cities in Mainland China, respectively.

As a premium global sportswear brand which offers top-notch products with cutting-edge technology, Saucony has proved to be very well accepted by Chinese runners. In 2020, Saucony ranked 4th and 7th among international brands in Shanghai Marathon3 and Guangzhou Marathon4, respectively.

Witnessing our initial success in Saucony's self-operated retail stores, we will continue to unleash the potential of Saucony through more store openings in higher-tier cities in 2021.

To further amplify the competitive advantage of Merrell as one of the best outdoor sportswear brands in the world, we will continue to ride on the growing popularity of urban outdoor activities and open more new stores for Merrell in 2021 in Mainland China.

E-commerce

Dedicated online marketing efforts were invested for Saucony and Merrell to spur their online sales during the year. For instance, we engaged premium influencers to attract attention to our products and raise awareness of the two brands on a wide range of social media platforms. During the Double 11 Global Shopping Festival 2020, Saucony achieved a threefold year-on-year increase in online sales, while Merrell's online sales grew by 38% year on year.

Afew x Saucony Shadow 5000

3: Source: Joyrun (December 2020) - footwear worn by participants who finished the 2020 Shanghai Marathon within five hours 4: Source: Joyrun (December 2020) - footwear worn by participants who finished the 2020 Guangzhou Marathon

Athleisure

Revenue from the athleisure segment was RMB999.1 million, contributing 12.2% of the Group's revenue.

Retail management

The COVID-19 pandemic continued to impede the business operations of K-Swiss and Palladium in the Americas and Europe, it is expected that gradual recovery of the overseas business will require some time and patience. Meanwhile, we will shift the business focus of K-Swiss and Palladium to Asia-Pacific.

The strategic planning for K-Swiss's brand revamp was set out with precision and its progress did not stagnate amid the pandemic. Its first self-operated store in a higher-tier city in Mainland China is expected to debut by early 2022. As at 31 December 2020, there were 43 self-operated stores for K-Swiss in Asia-Pacific. On the other hand, we successfully solidified Palladium's brand awareness in Asia-Pacific by tapping into the burgeoning athleisure trend with new store openings. We will further accelerate Palladium's business expansion by launching more self-operated stores in higher-tier cities in Mainland China. As at 31 December 2020, there were 54 and 3 self-operated stores for Palladium in Asia-Pacific and Europe, respectively, of which 21 stores were in Mainland China.

Palladium

Earth collectionK-Swiss X Harry Potter collection

E-commerce

To mitigate the impact from the suspension of most of our operations in overseas markets since the first quarter in 2020, we employed extensive online marketing campaigns which encompassed social media marketing, email marketing and digital advertising for K-Swiss and Palladium. Our outstanding digital marketing capabilities in global markets successfully led to magnificent results. Online retail sales in the Americas and EMEA registered robust year-on-year growth of 45% and 52%, respectively.

Palladium Limited edition of Year of the OX

Palladium X FINISTERRE collection

K-Swiss X EleVen by Venus Williams collection

Operations Management

Supply chain management

We remain fully committed to operating a seamless and vertically integrated business with the support of an efficiently managed supply chain. Apart from in-house production, we utilize outsourced suppliers to produce footwear and apparel products, and sourced materials for production collectively.

Group's production capacity allocation

FOOTWEAR APPAREL

Supplier management

All of the outsourced suppliers were constantly monitored by our quality control team to uphold high quality standards. We perform thorough assessments regarding the capabilities and performance of new and existing suppliers before we engage them and continue our partnership. To ensure the suppliers' Environment, Social and Governance performance is in alignment with our standards, all suppliers are required to comply with our Supplier Code of Conduct. The code covers aspects including product quality, environmental compliance, labor standards, employee welfare and human rights. Every six months, our supply chain management department would also perform assessments on the suppliers' compliance with the code. Any violation of the code will be handled in accordance with our internal policies and guidelines, which may lead to warnings or fines for minor violations and disqualification of suppliers for major violations.

Logistics park and in-house production facility

The construction of our logistics park with a gross floor area of approximately 200,000 square meters in Jinjiang, Fujian Province, was in full swing. Upon completion, the automated park will ship products manufactured in our in-house factories directly to our branded retail stores in the five neighboring provinces of Fujian, greatly shortening the lead time and accelerating replenishment cycle process.

To accommodate our growing business, we also kicked off the construction of our new in-house production facility with a gross floor area of approximately 85,000 square meters in Shishi, Fujian Province, in the second half of 2020. The facility will mainly be used to manufacture our footwear products.

Human resources management

Xtep regards its employees as the most valuable asset. During the year, we continued to assist our employees advance in their careers and achieve personal growth. Our Xtep University which was established in 2014 offers comprehensive trainings to our employees, including ongoing training and development programs ranging from corporate culture, leadership, professional skill, e-commerce, retail to manufacturing. As of 31 December 2020, Xtep University provided over 420,000 hours of online and offline training to employees. In addition, a two-year XMBA program created in collaboration with Xiamen University also allowed 70 staff to sharpen their management skills.

Preventive measures for COVID-19

A flexible work from home policy was first adopted when the COVID-19 pandemic struck in January 2020. When the pandemic restrictions were easing, we spared no effort in assisting every employee from our headquarters and factories to return to their workplace. Residence histories and return itinerary plans were collected from each of them and necessary communications were made with their residential communities to ensure a smooth return. We also implemented precautionary measures to protect employees' health and ensure a safe working environment. For instance, our headquarters in Xiamen and five in-house factories underwent thorough disinfections regularly and each employee was offered personal protective equipment, such as masks, disinfecting wipes and hand sanitizers.

Prospect

Despite the devastating impact of the COVID-19 pandemic, we believe that the consumer sector will benefit from both the economic growth in Mainland China and the national policies that aim at boosting household incomes and consumptions in 2021. It is also expected that the increase in health awareness and participation in sports of the Chinese people will result in higher sportswear consumption post pandemic.

Our core Xtep brand will remain to be the stable growth driver of the Group. Looking ahead, we will continue to improve our brand awareness among the mass market and appeal to the younger generation, such as leveraging the crossover collaboration with Shaolin Temple to ride on the widespread China chic trend and closely partner with famous IPs. Furthermore, we will expand our investment in R&D and production innovation to upgrade our functional and sustainable products, as well as to strengthen our store productivity through uplifting store image and offering exceptional customer experience.

Our four brands in the professional and athleisure segments will become the sustainable growth drivers of our Group. For Saucony and Merrell, we will continue to offer comprehensive lines of professional sports products by increasing the proportion of apparel items and localized products to target to more sophisticated consumers. The stronger demand for professional and premium sportswear products in Mainland China has presented an enticing prospect for Saucony and Merrell, more store openings for the two brands are expected in 2021.

We expect that the recovery of the overseas business of K-Swiss and Palladium will be a gradual process. We will closely monitor the development of the pandemic and geopolitical tensions and strive to get our business to return to normal. As part of our strategy, we will progressively shift the business focus of the two brands to Asia Pacific, especially Mainland China, to capture the enormous athleisure market. We will hasten the expansion of Palladium and expedite its store openings in Mainland China in 2021, while focusing on the brand makeover for K-Swiss and its store opening by early 2022.

Although the COVID-19 pandemic brought upon short-term impacts to the Group, we remain optimistic about the future of the sportswear sector in Mainland China in the long run. Our well-placed multi-brand portfolio has enhanced our capabilities to satisfy the demands of mass market consumers and more sophisticated consumers. Through strengthening our core competitiveness, accelerating growth and unlocking business efficiency, we are committed to bolstering our market share to take a favorable position in the intensified industry consolidation triggered by the pandemic.

Financial Review

Group Revenue Breakdown by Product Category

The following table sets out the contributions to the Group's revenue by product category for the year:

For the year ended 31 December

Group Revenue Breakdown by Brand Nature

The following table sets out the contributions to the Group's revenue by brand nature for the year:

For the year ended 31 December

Footwear Apparel Accessories	5,046.7 61.7 2,963.9 36.3 161.3 2.0	4,653.1 3,344.4 56.8 8.5 40.9 -11.4 185.2 2.3 -12.9
Total	8,171.9 100.0	8,182.7 100.0 -0.1

2020

Revenue

(RMB Million) (% of Revenue)

2019	Change
Revenue	in revenue
(RMB Million) (% of Revenue)	(%)
2020	2019	Change
Revenue	Revenue	in revenue
(RMB Million) (% of Revenue)	(RMB Million) (% of Revenue)	(%)

Mass market Athleisure Professional sports	7,101.1 86.9 999.1 12.2 71.7 0.9	7,706.7 94.2 -7.9 465.9 10.1 5.7 114.4 0.1 608.6
Total	8,171.9 100.0	8,182.7 100.0 -0.1

The Group's total revenue can be analysed into mass market, athleisure and professional sports. The signature brands are:

Brand Nature	Signature Brands
Mass market	Xtep
Athleisure	K-Swiss, Palladium
Professional sports	Saucony, Merrell

The Group's total revenue for the year ended 31 December 2020 remained stable at around RMB8.2 billion (2019: RMB8.2 billion). There is a slight decrease in the revenue of mass market due to the decrease in price and number of products sold, which was partially offset by the revenue contribution from athleisure and professional sports.

Gross Profit and Gross Profit Margin Breakdown by Product Category

The following table sets out the gross profit and the gross profit margin by product category for the year:

For the year ended 31 December

2020	2019	Change in
Gross profit	Gross profit	Change in	gross profit
Gross profit	margin	Gross profit	margin	gross profit	margin point
(RMB Million)	(%)	(RMB Million)	(%)	(%)	(% point)

Footwear Apparel Accessories	1,998.5 39.6 1,146.8 38.7 53.1 32.9	2,011.9 1,469.4 69.1 43.2 43.9 37.3 -0.7 -3.6 -22.0 -5.2 -23.2 -4.4
Total	3,198.4 39.1	3,550.4 43.4 -9.9 -4.3

The Group's overall gross profit margin decreased by 4.3 percentage points to 39.1% (2019: 43.4%). The decrease in the overall gross profit margin was mainly contributed by the change in product mix, margin contributions from new brands and e-commerce channel; and inventory buy-back of fourth-quarter 2019 and first-quarter 2020 products which were subsequently donated or resold at a lower gross profit margin during the first half of 2020.

Gross Profit and Gross Profit Margin Breakdown by Brand Nature

The following table sets out the gross profit and gross profit margin by brand nature for the year:

For the year ended 31 December

2020	2019	Change in
Gross profit	Gross profit	Change in	gross profit
Gross profit	margin	Gross profit	margin	gross profit	margin
(RMB Million)	(%)	(RMB Million)	(%)	(%)	(% point)

Mass market Athleisure Professional sports	2,761.5 38.9 407.0 40.7 29.9 41.6	3,375.0 171.0 4.4 43.8 36.7 43.2 -18.2 -4.9 137.9 +4.0 583.3 -1.6
Total	3,198.4 39.1	3,550.4 43.4 -9.9 -4.3

Other Income and Gains

For the year ended 31 December 2020, other income and gains of the Group mainly represented the subsidy income from the PRC government, which amounted to approximately RMB170.5 million (2019: RMB126.3 million); the income derived from financial investments, term deposits and structured bank deposits was approximately RMB96.6 million (2019: RMB96.8 million), which was the interest income derived from treasury deposit products. There was an one-off gain on disposal of a subsidiary of RMB53.2 million in 2019. Overall, the Group's other income and gains remained stable.

Selling and Distribution Expenses

For the year ended 31 December 2020, the Group's selling and distribution expenses amounted to approximately RMB1,537.3 million (2019: RMB1,718.4 million), representing approximately 18.8% (2019: 21.0%) of the Group's total revenue. Excluding the impact arising from athleisure and professional sports of approximately RMB376.2 million, there was a decrease in selling and distribution expenses of approximately RMB410.2 million, which was mainly arising from the decrease in advertising and promotional costs. The Group's advertising and promotional costs for the year amounted to approximately RMB917.1 million (2019: RMB1,178.2 million), representing approximately 11.2% (2019: 14.4%) of the Group's total revenue. The decrease in the Group's advertising and promotional costs was mainly due to the decrease in running events promotion.

General and Administrative Expenses

For the year ended 31 December 2020, the Group's general and administrative expenses amounted to approximately RMB1,050.3 million (2019: RMB906.3 million), which represented approximately 12.9% (2019: 11.1%) of the Group's total revenue. The increase in general and administrative expenses was mainly attributed to:

• 1) an increase in R&D cost - the R&D cost for the year amounted to approximately RMB223.5 million (2019: RMB195.4 million), representing approximately 2.7% (2019: 2.4%) of the Group's total revenue. The R&D cost was mainly related to the salary costs of the research and design team, material costs for research and development of new products and equipment costs for new production technology; and

• 2) an impairment for trade receivables amounted to RMB35.7 million (2019: write-back of impairment of trade receivables amounted to RMB79.4 million).

Net Finance Costs

The total net finance cost of the Group for the year ended 31 December 2020 amounted to approximately RMB139.5 million (2019: RMB110.9 million). The increase in net finance costs was mainly due to the increase in fair value loss on interest rate swaps amounted to RMB23.0 million (2019: Nil) and decrease in bank interest income to RMB4.3 million (2019: RMB29.4 million) which was primarily caused by the decrease in time deposits during the year, but partially offset by the decrease in interest expenses on discounted bills receivables (2020: RMB49.5 million; 2019: RMB63.8 million) and on bank loans (2020: RMB58.9 million; 2019: RMB66.0 million).

Operating Profit and Operating Profit Margin Breakdown

The following table sets out the contributions to the operating profit and operating profit margin for the year:

For the year ended 31 December

2020	2019	Change in
Operating	Operating	Change in	operating
Operating	profit/(loss)	Operating	profit/(loss)	operating	profit/(loss)
profit/(loss)	margin	profit/(loss)	margin	profit/(loss)	margin
(RMB Million)	(%)	(RMB Million)	(%)	(%)	(% point)

Mass market Athleisure Professional sports	1,106.3 15.6 (103.8) (10.4) (30.0) (41.7)	1,386.0 (46.5) (7.5) 18.0 (10.0) (73.7) -20.2 -2.4 123.6 -0.4 301.4 +32.0
972.5 11.9	1,332.0 16.3 -27.0 -4.4
Corporate	(54.3) N/A	(98.0) N/A -44.6 N/A
Total	918.2 11.2	1,234.0 15.1 -25.6 -3.9

The operating profit margin decreased by 3.9 percentage points due to the decrease in operating profit from mass market and the increase in operating losses arising from athleisure and professional sports during the year.

Income Tax Expenses

Income tax provision of the Group for the year ended 31 December 2020 was approximately RMB256.6 million (2019: RMB389.7 million). The income tax provision included profit tax provision relating to operating companies, which amounted to approximately RMB254.6 million (2019: RMB336.9 million). Also, there were an over-provision of income tax of approximately RMB0.6 million (2019: an under-provision of income tax of approximately RMB5.9 million), and a deferred tax credit amounting to RMB15.0 million (2019: RMB1.1 million) due to the fair value adjustments arising from acquisition of subsidiaries. The Company holds certain PRC subsidiary companies which have retained profits that can be distributed to the Company in the future. In this connection, the Group had provided a provision of withholding tax amounted to RMB17.6 million (2019: RMB48.0 million) during the year.

Profit Attributable to Ordinary Equity Holders and Net Profit Margin

For the year ended 31 December 2020, the profit attributable to ordinary equity holders was approximately RMB513.0 million (2019: RMB727.7 million), representing a decrease of 29.5% over last year. The decrease was mainly due to the decrease in operating profit, but partially offset by the decrease in income tax expenses during the year.

The Group's net profit margin amounted to 6.3% (2019: 8.9%).

Dividend

The Group maintained a high level of cash and bank balances. The Board continued to maintain high Shareholders' dividend return and therefore recommended a final dividend of HK7.5 cents per Share (2019: a final dividend of HK7.5 cents per Share). The proposed final dividend will be offered with a scrip dividend option to the Shareholders, which will allow them to receive new shares of the Company in lieu of cash. Participation in the scrip dividend scheme will be optional. The scrip dividend scheme is subject to the Hong Kong Stock Exchange's granting the listing of and permission to deal in the new Shares to be issued pursuant thereto. A circular containing details of this scrip dividend scheme will be dispatched to the Shareholders for the scrip dividend. Together with the interim dividend of HK6.5 cents (2019: HK12.5 cents) per Share payable in cash with a scrip dividend alternative, the total dividend for 2020 is HK14.0 cents (2019: HK20.0 cents), equivalent to a dividend payout ratio of 60.0% (2019: 60.0%).

Working Capital Cycle

For the year ended 31 December 2020, the Group's overall working capital turnover days was 87 days (2019: 85 days).

For the year ended 31 December

2020	2019	Changes
WORKING CAPITAL TURNOVER DAYS	Days	Days	Days
Inventories	74	77	-3
Trade receivables	120	96	+24
Trade payables	107	88	+19
Overall working capital turnover days	87	85	+2

The turnover days for inventories decreased by 3 days, while the turnover days for trade receivables and trade payables increased by 24 days and 19 days respectively resulting in an increase in overall working capital turnover days by 2 days.

Bills Receivables

In order to have more flexibilities in utilising working capital facilities, the Group utilised the acceptance and usage of bills receivables. As of 31 December 2020, the bills receivables amounted to approximately RMB475.5 million (2019: RMB313.5 million). For the year ended 31 December 2020, the number of turnover days of bills receivables was 18 days (2019: 10 days).

Liquidity and Capital Resources

As of 31 December 2020, the Group's cash and cash equivalents amounted to RMB3,471.9 million (2019: RMB2,969.5 million), representing an increase of RMB502.4 million. This was mainly attributable to:

• (a) net cash inflow from operating activities that amounted to RMB320.1 million, which was due to the cash generated from operations of RMB748.8 million, but offset by the payment of income and withholding tax amounting to RMB324.5 million and the payment of net interest expenses of RMB104.1 million;

• (b) net cash inflow from investing activities that amounted to RMB573.4 million, which was mainly due to the net decrease in pledged deposits, structured bank deposits and term deposits amounting to RMB579.7 million, but partially offset by the increase in investment in associates and equity instrument amounting to RMB12.4 million and RMB20.0 million, respectively; and

• (c) net cash outflow from financing activities that amounted to RMB380.4 million, which was mainly due to the dividends paid amounting to RMB279.1 million and the net repayment of bank borrowings amounting to RMB76.7 million.

The net cash and cash equivalents (including pledged deposits, structured bank deposits and term deposits minus bank borrowings) were approximately RMB2,251.4 million as at 31 December 2020 (2019: RMB2,131.6 million).

2020 RMB million

2019 RMB million

Cash and cash equivalents Bank deposits	3,471.9 937.3	2,969.5 1,517.0
Total bank deposits and bank balances Less: Bank borrowings	4,409.2 (2,157.8)	4,486.5 (2,354.9)
Net cash and cash equivalents	2,251.4	2,131.6

As of 31 December 2020, the Group's gearing ratio was 17.2% (2019: 19.1%), which is defined as the total bank borrowings divided by the Group's total assets.

As of 31 December 2020, the total assets of the Group amounted to RMB12,571.7 million (2019: RMB12,322.6 million), represented by non-current assets of RMB3,544.4 million (2019: RMB3,056.7 million) and current assets of RMB9,027.3 million (2019: RMB9,265.9 million). The total liabilities of the Group amounted to RMB5,273.0 million (2019: RMB5,362.3 million), represented by non-current liabilities of RMB1,938.7 million (2019: RMB1,691.2 million) and current liabilities of RMB3,334.3 million (2019: RMB3,671.1 million). The total non-controlling interests of the Group amounted to RMB75.4 million (2019: RMB69.8 million). Hence, the total net assets of the Group amounted to RMB7,298.7 million (2019: RMB6,960.3 million), representing an increase of 4.9%. Net assets per Share as at 31 December 2020 were approximately RMB2.87 (2019: RMB2.77), representing an increase of 3.6%.

Impairment for Trade Receivables

During the year ended 31 December 2020, the Group recorded an impairment for trade receivables amounted to RMB35.7 million (2019: write-back of impairment of trade receivables amounted to RMB79.4 million).

Impairment Provision for Inventories

During the year ended 31 December 2020, the Group recorded an impairment provision for inventories amounted to RMB23.0 million (2019: RMB5.6 million).

Commitments

Details of the Group's commitments are stated in note 39 of the financial statements.

Contingent Liabilities

As of 31 December 2020, the Group did not have any material contingent liabilities.

Charge of Assets

Save as disclosed in notes 25 and 28 of the financial statements relating to certain amounts of bank deposits pledged to secure certain bank loans, none of the Group's assets were pledged as at 31 December 2020.

Foreign Currency Risks

The Group mainly operates in the PRC with most of its transactions settled in RMB. The Group's assets and liabilities, and transactions arising from operation are mainly denominated in RMB. Accordingly, it is believed that the Group does not have any material foreign currency risks that would affect its operation. However, the management team will continue to monitor foreign currency risks and adopt prudent measures as appropriate.

Significant Investments and Material Acquisitions and Disposals of Subsidiaries

During the year, the Group did not have any significant investments or acquisitions or sales of subsidiaries. No plans have been authorized by the Board for any material investments or additions of capital assets as at the date of this annual report.

Human Resources

As of 31 December 2020, the Group had approximately 8,000 employees (31 December 2019: 8,500 employees). The Group provides introductory orientation programs and continuous training to its employees. Topics covered included industry knowledge, technology and product knowledge, industry quality standards and work safety standards to enhance the service quality and standards of our staff. The Group will strive to strengthen human resources management to provide strong support for the development of its business through staff recruitment initiatives, optimization of the organizational structure and promotion of our corporate culture to ensure that it can maintain sustainable development in the future.

INVESTOR RELATIONS REPORT

To foster effective and long-term relationships with our stakeholders and the investment community, the Group endeavors to promote effective two-way communication. We ensure the accuracy, transparency, and timeliness of any disclosures of the Group. At the same time, we cherish feedback from our investors and analysts and would relay them to our senior management and Board of Directors regularly.

Unconventional Investor Relations Approach under COVID-19 Pandemic

Traditional ways of communications such as face-to-face events and meetings with the investors were impacted by the social distancing measures amid the COVID-19 pandemic in 2020. As such, proactive disclosure, transparency and responsiveness to the inquiries are exceptionally important for the investment community to make informed investment decisions.

During the year, we announced our financial results in March and August via conference call and live webcast as opposed to physical press conferences and analyst briefings to avoid the spread of COVID-19. When the epidemic situation became more contained in May 2020, we conducted a physical Annual General Meeting while adopting stringent preventive measures, such as setting limitation on the number of participants, to protect the health and safety of our shareholders and employees.

In addition, voluntary announcements of our business operations during the first outbreak in February 2020 and quarterly operational performance were published in a timely manner. Constitutional documents and financial reports were made available on the websites of the Hong Kong Stock Exchange and the Company. In early 2020, we also completed the upgrade of our corporate website with a more energetic design and interactive interface to better serve the investment community. Financial information, presentations, and webcasts were updated and uploaded to our corporate website promptly to enable instant and easy access from any device.

Our investor relations program is highly supported by the senior management and the Board of Directors. To ensure timely communications with both local and overseas investors and foster their confidence, our senior management and the investor relations team organized and attended meetings, investor conferences and non-deal roadshows frequently to maintain a regular dialogue with them.

INVESTOR RELATIONS REPORT

Analyst coverage and investor activities in 2020:

INVESTOR RELATIONS REPORT

Non-deal roadshows and investor conferences:

During the year, we participated in physical and virtual non-deal roadshows and investor conferences which covered the cities where majority of the institutional investors are located.

21

18

non-deal roadshows and investor conferences covering major cities in North America, Europe and Asia-Pacific, including but not limited to Mainland

China, Hong Kong, Taiwan and Singapore.

List of investor conferences attended during the year:

Date Jan 2020 Jan 2020 Jan 2020 Jan 2020	Event Goldman Sachs Consumer Corporate Day (HK) Citi Hong Kong and China Consumer Corporate Day 2020 J.P. Morgan Consumer Corporate Day UBS Greater China Conference 2020	Format Physical - Hong Kong Physical - Hong Kong Physical - Hong Kong Physical - Shanghai
May 2020 May 2020 May 2020 May 2020	Daiwa Consumer & Gaming Conference Jefferies Asia Sportswear & Supply Chain Corporate Days 2020 J.P. Morgan Asia Consumer Forum CICC Investment Strategy Conference 2020	Virtual Virtual Virtual Virtual
Jun 2020 Jun 2020 Jun 2020 Jun 2020 Jun 2020	Credit Suisse 2020 Asia Consumer Virtual Conference Citi Consumer Corporate Day Goldman Sachs Greater China Corporate Day BofA Securities 2020 Innovative China Virtual Conference Huatai Mid-Year Investment Summit 2020	Virtual Virtual Virtual Virtual Virtual
Sep 2020 Sep 2020 Sep 2020	Jefferies Asia Forum 2020 ICBCI 2nd Consumer Corporate Day RBC Luxury Asia trip	Virtual Virtual Virtual
Nov 2020 Nov 2020	11th Credit Suisse China Investment Conference Citi China Investor Conference 2020	Virtual Virtual

INVESTOR RELATIONS REPORT

Reverse roadshows:

In January 2020, we organized reverse roadshows for our analysts and investors to deepen their understanding of our Xiamen headquarters' operations, the first running research laboratory in Mainland China and the new retail experiences in our Run Clubs and retail stores.

Site visit to our headquarters' running laboratory in

Xiamen in January 2020

Site visit to our Palladium store in Shanghai in

January 2020

INVESTOR RELATIONS REPORT

Awards and recognitions in 2020:

Our strides in Investor Relations have been well acknowledged by various industry awards.

HKIRA 6th IR Awards 2020

Hong Kong Investor Relations Association

• • Best IR by Chairman/CEO - Mid Cap

• • Best IR by CFO - Mid Cap

• • Best IRO - Mid Cap

• • Best IR Team - Mid Cap

• • Best IR Company - Mid Cap

• • Best Annual Report - Mid Cap

2020 8th Top 100 Hong Kong Listed Companies Selection

Top 100 Hong Kong Listed Companies Research Centre, Finet Group and Atlantis Investment Management

• • Outstanding Brand Value Award

2019 4th Hong Kong Golden Stocks Awards

Zhitong Finance and Hithink RoyalFlush Finance

• • Best Value Award for Large Consumer and Service Companies

3rd China Excellent IR Awards

Roadshow China

• • Best Leader Award

InnoESG Prize 2020

SocietyNext Foundation and co-organized enterprises

• • ESG Prize

INVESTOR RELATIONS REPORT

Information for Investors

Share information

Company name: Xtep International Holdings Limited Listing: Hong Kong Stock Exchange

Stock code: 1368

Listing date: 3 June 2008 Board lot size: 500 shares

Number of issued shares as at 31 December 2020: 2,546,965,472

Market capitalization as at 31 December 2020: HK$9,856,756,377

Index constituent:

• • Hang Seng Composite Index Series

• • MSCI Emerging Market Small Cap Index

• • MSCI All Country Far East Ex Japan Small Cap Index

• • MSCI China Small Cap Index

Key dates for investors

18 March 2021

7 May 2021

12 May 2021

14 to 18 May 2021

25 June 2021

2020 annual results announcement Annual general meeting

Dividend ex-entitlement for Shares

Basic earnings per Share for 2020:

• • Interim: RMB10.1 cents

• • Final: RMB20.8 cents

Dividend per Share for 2020:

• • Interim: HK6.5 cents

• • Final: HK7.5 cents

• • Full year total: HK14.0 cents

Closure of the register of shareholders (both days inclusive) Proposed payment of 2020 final dividend

Registrar & Transfer Offices

Enquiries

Cayman Islands Principal Suntera (Cayman) Limited Suite 3204, Unit 2A, Block 3 Building D, P.O. Box 1586 Gardenia Court, Camana Bay

For information about the Group, please visit our corporate website:www.xtep.com.hk

or contact our Investor Relations and Corporate Communications Department:

Grand Cayman, KY1-1100, Cayman Islands

Unit A, 27/F, Tower A

Billion Centre, 1 Wang Kwong Road

Hong Kong Branch

Kowloon Bay, Kowloon, Hong Kong

Computershare Hong Kong Investor Services Limited

Tel: [phone]

Shops 1712-1716

Fax: [phone]

17/F, Hopewell Centre

Investors enquiries:[e-mail]

183 Queen's Road East

Media enquiries:[e-mail]

Wanchai, Hong Kong

General enquiries:[e-mail]

DIRECTORS AND SENIOR MANAGEMENT

Directors

Executive Directors

Mr. Ding Shui Po (ɕ˥ت), aged 50, is the founder, chairman and chief executive officer of the Group. Mr. Ding has over 30 years of experience in the sportswear industry and is primarily responsible for the overall corporate strategies, planning and business development of the Group. Mr. Ding founded the Group in 1999 and is currently also the chairman of the Board of Directors and the president of various subsidiaries of the Group.

Mr. Ding participated in entrepreneurship programs offered by Peking University (̏ԯɽኪ) and Tsinghua University (૶ശɽኪ) in 2004 and 2006, respectively, and studied for the China CEO/Finance CEO Program offered by Cheung Kong Graduate School of Business (ڗϪਠኪ৫) in 2011. He also completed the CEO Program of the China Europe International Business School (ʕᆄ਷ყʈਠኪ৫) and the EMBA program offered by Xiamen University (ขژɽኪ) in 2014 respectively. He started attending China Europe International Business School's Sport and Leisure Management Program in 2015, Shanghai Advanced Institute of Finance's "CEO Program: Leading the Future" in 2016, Harvard University's "Global CEO Program" in 2018 and Executive Education - SEM-Tsinghua University's "Seventh Class of Entrepreneur Scholar Program" in 2019. He is a brother of Ms. Ding Mei Qing and Mr. Ding Ming Zhong.

Mr. Ding personally obtained the following awards in the past 10 years:

Year	Award
2011	The "Seeding of Hope, Contribution to Brightness" medal, presented by All-China Federation of Returned Overseas Chinese
2011	Most Innovative Entrepreneur of Quanzhou City
2013	Quanzhou Top Talent
2013	Outstanding Contribution Award on Community Donation by a Businessman in the Private Sector in Fujian Province
2013	Outstanding Contribution Award on Western Taiwan Straits Economic Zone Construction
2013	Top Ten Outstanding Young Persons in Quanzhou
2015	2nd China Footwear Industry Ceremony - Annual Leading Figure of 2015
2016	Top Ten Teaching Entrepreneurs in China 2016 presented by Enterprise Education Top 100 in China Committee
2016	Outstanding Entrepreneur in China 2015-2016 presented by China Enterprise Confederation
2017	Next Generation Education and Charity Motivation Award 2017 by the China Next Generation Education Foundation
2018	China Footwear Grand Ceremony 2018, 40th anniversary of the Chinese Economic Reform - Ingenious Person Award

Mr. Ding held the following public offices in the past 10 years:

Year	Public Office
2011	Founding Chairman of the Hong Kong China Chamber of Commerce
2013	Committee Member of the 11th Fujian Provincial Committee of the Political Consultative Conference
2013	Executive Vice President of the 4th Congress of the China Federation of Overseas Chinese Entrepreneurs
2014	Chairman of the 2nd World Quanzhou Youth Friendship Association
2015	Committee Member of Marathon Committee of Chinese Athletic Association
2016	Chief Expert in the Sportswear Industry, for the Sports Economy Research Center of the Research Institute of Sports Science of the
General Administration of Sport of China
2017	Deputy Director of Marathon Committee of Chinese Athletic Association
2017	Permanent Honorary Chairman of the Fourth Session of the Board of Education Fund Council of Quanzhou City
2018	Deputy President of the Seventh Session of the Board of the China National Garment Association
2019	Honorary President of Quanzhou Business Development Association
2019	Specially Invited Vice President of Chinese Athletic Association
2020	Vice-Chairman of the China Next Generation Education Foundation
2020	Listed on the 2020 Forbes China Philanthropy List

Ms. Ding Mei Qing (ɕߕ૶), aged 48, is an executive Director of the Company and the group vice president of the Group. Ms. Ding has over 20 years of experience in the sportswear industry, and is primarily responsible for the management of the product design and development as well as supply chains business of the Group. She is mainly responsible for consolidating the position and reputation of the footwear category in the industry, and is directly responsible for product innovation, research and development of technical standards, flexible supply chain platforms, intelligent manufacturing, vertical auxiliary systems and information technology and intelligent management. She is also a deputy general manager, a director and a vice president of various subsidiaries. Ms. Ding is the sister of Mr. Ding Shui Po and Mr. Ding Ming Zhong.

Mr. Ding Ming Zhong (ɕ׼׀), aged 44, is an executive Director of the Company and the group vice president of the Group. He has over 20 years of experience in the sportswear industry and is primarily responsible for the management of the accessories business of the Group. Mr. Ding joined the Group in 1999 and is currently also a deputy general manager and a vice president of various subsidiaries of the Group. Mr. Ding participated in entrepreneurship programs offered by Peking University (̏ԯɽኪ) and Tsinghua University (૶ശɽኪ) in 2004 and 2006, respectively. He is a brother of Mr. Ding Shui Po and Ms. Ding Mei Qing.

Independent Non-executive Directors

Mr. Tan Wee Seng (௓ਃϓ), aged 65, an independent non-executive director and chairman of the audit committee of Sa Sa International Holdings Limited, an independent non-executive director and chairman of the remuneration committee of Health and Happiness (H&H) International Holdings Limited, an independent non-executive director and chairman of the audit committee of CIFI Holdings (Group) Company Limited, and an independent non-executive director, chairman of the audit committee and remuneration committee of Shineroad International Holdings Limited, all of these companies are listed on the Main Board of the Hong Kong Stock Exchange. He is also an independent director and chairman of the audit committee of ReneSola Ltd. whose shares are listed on the NYSE, and a board member of Beijing City International School, an academic institution in Beijing. Mr. Tan has been an independent director and chairman of audit committee for Sinopharm Group Company Limited from September 2014 to September 2020 listed on Hong Kong Stock Exchange Main Board and 7 Days Group Holdings Limited listed on the NYSE from November 2009 to July 2013 until it was privatized. Mr. Tan was also the chairman of special committee for privatization of the 7 Days Group Holdings Limited from October 2012 to July 2013.

Mr. Tan has over 40 years of experience in financial management, corporate finance, merger and acquisition, business management and strategy development. He has also held various management and senior management positions in a number of multi-national and Chinese corporations. From 2003 to 2008, he was an executive director, chief financial officer and company secretary of Li Ning Company Limited, the shares of which are listed on the Main Board of the Hong Kong Stock Exchange. From 1999 to 2002, he was the senior vice president of Reuters for China, Mongolia and North Korea regions, and the chief representative of Reuters in China. Prior to that, he had served as the managing director of AFE Computer Services Limited, a Reuters subsidiary in Hong Kong mainly engaged in domestic equity and financial information services, and as the director of Infocast Pty Limited, a Reuters subsidiary in Australia and as the regional finance manager of Reuters East Asia. Mr. Tan is a professional accountant and a fellow member of both the Chartered Institute of Management Accountants in the United Kingdom and the Hong Kong Institute of Directors.

Dr. Gao Xian Feng (৷ሬࢤ), aged 58, was the executive officer of the Human Resources Management Research Centre at Peking University (̏ԯɽኪɛ͉၍ଣ޼Ӻʕː), and a guest professor of entrepreneurship programs at Peking University (̏ԯɽኪ), Tsinghua University (૶ശɽኪ), Party School of the Central Committee of Communist Party of China (ʕ̯ᙣࣧ) and Fudan University (ూ͇ɽኪ). Dr. Gao previously served as an associate professor at Shandong Economic University (ʆ؇຾᏶ኪ৫). He holds a bachelor's degree in enterprise management from Shandong Economic University (ʆ؇຾᏶ኪ৫) and a doctor of law degree from the Peking University (̏ԯɽኪ).

Dr. Bao Ming Xiao (Ꭹ׼ወ), aged 59, has over 33 years of experience in physical education. Dr. Bao was a professor of physical education theory at the Capital Institute of Physical Education from 1998 to 2000. He has been a researcher and the chairman of the Research Center of Physical Education Sociology and Science at the Research Institute of Physical Education and Science (᜗ԃ߅ኪ޼Ӻה᜗ԃٟึ߅ኪ޼Ӻʕː) of the General Administration of Sport of China (਷࢕᜗ԃᐼ҅) since 2001. In 2011, Dr. Bao was appointed as deputy chairman of the Second Sport Committee of China Sport Science Society (ʕ਷᜗ԃ߅ኪኪึ). Dr. Bao graduated from Anhui Normal University (τᏏࢪᇍɽኪ) with a bachelor's degree in physical education in 1983. Dr. Bao then obtained a master's degree in education and a doctoral degree in education from Shanghai University of Sport (ɪऎ᜗ԃኪ৫) in 1988 and 2005, respectively. Dr. Bao was appointed as director of the China Sports Economy Research Center (ʕ਷᜗ԃ຾᏶޼Ӻʕː) in 2016 and was appointed as the head of China Sports Policy

Research Institute (ʕ਷᜗ԃ݁ഄ޼Ӻ৫) in 2018.

Senior Management

The senior management of the Company is composed of all the executive Directors of the Company, namely, Mr. Ding Shui Po, Ms. Ding Mei Qing and Mr. Ding Ming Zhong. Please refer to the above section headed "Executive Directors" for their biographical details.

Company Secretary

Mr. Yeung Lo Bun (เ᜼੸), aged 43, is the company secretary and authorized representative of the Company as well as the chief financial officer and group vice president of the Group. He is responsible for the overall financial and accounting affairs, treasury, merger and acquisition, investor relations and company secretarial matters of the Group. He has over 20 years of experience in the field of audit, corporate finance and financial management. Mr. Yeung joined the Group on 20 September 2010. Prior to joining the Group, Mr. Yeung worked in DaChan Food (Asia) Limited (stock code: 3999), a company listed on the Main Board of the Hong Kong Stock Exchange, from 2003 to 2010 and his last position was senior finance manager. Mr. Yeung also worked for an international audit firm from 2001 to 2003.

Mr. Yeung graduated from The University of Melbourne with a bachelor's degree in commerce in 2000. He is a fellow member of the Hong Kong Institute of Certified Public Accountants.

CORPORATE GOVERNANCE REPORT

The Company is committed to the establishment of good corporate governance practices and procedures with a view to being a transparent and responsible organization that is open and accountable to the Shareholders. The Board strives to adhere to the principles of corporate governance and has adopted sound corporate governance practices to meet the legal and commercial standards, focusing on areas such as internal control, fair disclosure and accountability to all Shareholders to ensure the transparency and accountability of all operations of the Company. The Company believes that effective corporate governance is an essential factor for creating more value for its Shareholders. The Board will continue to review and improve the corporate governance practices of the Group from time to time to ensure that the Group is led by an effective Board, in order to optimize the returns for Shareholders.

Compliance with Corporate Governance Code

Throughout the year ended 31 December 2020, the Company complied with all code provisions and, where appropriate, adopted the recommended best practices as set out in the Corporate Governance Code, with the exception of code provision A.2.1 (chairman and chief executive).

Under code provision A.2.1 of the Corporate Governance Code, the roles of the chairman and chief executive should be separate and should not be performed by the same individual. The Group does not at present separate the roles of the chairman and the chief executive. Mr. Ding Shui Po is the chairman and chief executive officer of the Group. He has extensive experience in the sportswear industry and is responsible for the overall corporate strategies, planning and business management of the Group. The Board believes that vesting the roles of chairman and chief executive officer in the same individual is beneficial to the business prospects and management of the Group. The balance of power and authorities is ensured by the operation of the Board and the senior management, which is comprised of experienced and high caliber individuals. The Board currently consists of three executive Directors and three independent non-executive Directors and has a strong independence element in its composition.

Compliance with Model Code

The Company has also adopted the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 of the Listing Rules as its code of conduct regarding securities transactions by the Directors. Having made specific enquiry with all Directors of the Company, all Directors have confirmed that they have complied with the required standards set out in the Model Code for the year ended 31 December 2020.

Board of Directors

Board Composition

As at 31 December 2020 and the date of this annual report, the Board is comprised of three executive Directors and three independent non-executive Directors.

The followings are the members of the Board:

Executive Directors

Mr. Ding Shui Po (Chairman and Chief Executive Officer) Ms. Ding Mei Qing

Mr. Ding Ming Zhong

Independent Non-Executive Directors Mr. Tan Wee Seng

Dr. Gao Xian Feng Dr. Bao Ming Xiao

Among members of the Board, Mr. Ding Shui Po is the elder brother of Ms. Ding Mei Qing and Mr. Ding Ming Zhong. Save as disclosed herein, to the best knowledge of the Directors, there is no other financial, business or family relationship among the members of the Board.

All Directors have given sufficient time and attention to the affairs of the Group. Each executive Director is suitably qualified for his/her position, and has sufficient experience to hold the position so as to carry out his/her duties effectively and efficiently. Biographical information of the Directors is set out in the section headed "Directors and Senior Management" of this annual report.

Meetings of the Board

Board meetings were held from time to time to discuss the business strategies of the Group, to monitor financial and operational performance, to approve the annual and interim results of the Group, and to discuss the corporate governance functions of the Board.

Directors may participate either in person or through electronic means of communications. The individual attendance record of each Director at the meetings of the Board and the general meetings during the year ended 31 December 2020 is set out below:

Attendance/Number of	Attendance/Number of
board meeting(s)	general meeting
Name of Director	held during a director's tenure	held during a director's tenure
Executive Directors
Mr. Ding Shui Po	8/8	1/1
Ms. Ding Mei Qing	8/8	1/1
Mr. Ding Ming Zhong	8/8	1/1
Independent Non-Executive Directors
Mr. Tan Wee Seng	8/8	1/1
Dr. Gao Xian Feng	8/8	1/1
Dr. Bao Ming Xiao	8/8	1/1

All Directors are provided with relevant materials relating to the matters brought before the meetings. They have separate and independent access to the senior management and the company secretary of the Company at all times and may seek independent professional advice at the Company's expense. When queries are raised by Directors, steps would be taken to respond as promptly and as fully as possible. All Directors have the opportunity to include matters in the agenda of board meetings. Notices of at least 14 days of board meetings are given to the Directors and the board procedures comply with the articles of association of the Company, as well as relevant rules and regulations.

Functions and Duties of the Board

The overall management of the Company's operations is vested in the Board. The Board carries out its functions according to the powers conferred upon it by the memorandum and articles of association of the Company which is uploaded onto the websites of the Hong Kong Stock Exchange and the Company, and since the date of uploading, no significant change has been made.

The main functions and duties conferred on the Board include:

• - management of the overall business and strategic development;

• - deciding business plans and investment plans;

• - convening general meetings and reporting to the Shareholders;

• - exercising other powers, functions and duties conferred by the Shareholders in general meetings; and

• - performing corporate governance duties in compliance with the terms of reference set out in the Corporate Governance Code.

The day-to-day management, administration and operations of the Company are delegated to the chief executive officer and the senior management of the Company. The delegated functions and work tasks are periodically reviewed. Approvals must be obtained from the Board prior to any significant transactions entered into by the aforesaid officers.

The Directors may have access to the advice and services of the company secretary of the Company to ensure that the board procedures, and all applicable rules and regulations, are followed. In addition, the Directors may, upon reasonable request, seek independent professional advice under appropriate circumstance at the Company's expenses. The Board shall resolve to provide separate, appropriate, independent and professional advice to the Directors to assist the relevant Directors in discharging their duties.

Independent Non-Executive Directors

Independent non-executive Directors have played a significant role in the Board by bringing their independent judgement to the Board meeting and scrutinizing the Group's performance. Their views carry significant weight in the Board's decisions; in particular, they bring an impartial view to issues relating to the Group's strategy, performance and control. All independent non-executive Directors possess extensive academic, professional and industry expertise and management experience and have provided their professional advice to the Board. The independent non-executive Directors provide independent advice on the Group's business strategy, results and management to ensure that all interests of Shareholders are taken into account, and the interests of the Company and its Shareholders are protected.

The Board has three independent non-executive Directors in compliance with Rule 3.10(1) of the Listing Rules, which requires that every board of directors of a listed issuer must include at least three independent non-executive Directors. In addition, at least one independent non-executive Director, namely, Mr. Tan Wee Seng, possesses appropriate professional accounting qualifications or financial management expertise in accordance with Rule 3.10(2) of the Listing Rules. The Company has appointed three independent non-executive Directors, representing more than one-third of the Board, in compliance with Rule 3.10A of the Listing Rules.

The Company has received annual confirmations of independence from each of the existing independent non-executive Directors in accordance with Rule 3.13 of the Listing Rules. Based on the contents of such confirmations, the Company considers that all the independent non-executive Directors are independent and that they have met the specific independence guidelines as set out in Rule 3.13 of the Listing Rules.

Training and Support for Directors

All Directors must keep abreast of their collective responsibilities. Any newly appointed Director would receive an induction package covering the Group's operations, businesses, governance policies and the statutory regulatory obligations and responsibilities of a director of a listed company.

The Directors have been informed of the requirement under code provision A.6.5 of the Corporate Governance Code regarding continuous professional development. According to the records maintained by the Company, the current Directors received the following trainings with an emphasis on the roles, functions and duties of a director of a listed company in compliance with the requirement of the Corporate Governance Code on continuous professional development during the year ended 31 December 2020:

Corporate Governance/Updates on laws, rules and regulations

Accounting/Financial/Management or other professional skills

Attended

AttendedName of Director

Read materials seminars/briefings

Read materials seminars/briefings

Executive Directors Mr. Ding Shui Po Ms. Ding Mei Qing Mr. Ding Ming Zhong

Independent Non-Executive Directors Mr. Tan Wee Seng

Dr. Gao Xian Feng Dr. Bao Ming Xiao

Directors' and Officers' Insurance

The Company has arranged appropriate insurance cover in respect of potential legal actions against its Directors and officers.

Appointments and Re-Election of Directors

Each of the executive Directors and independent non-executive Directors has entered into a service contract with the Company for a specific term, and is subject to retirement by rotation and re-election at an annual general meeting at least once every three years in accordance with the articles of association of the Company.

The articles of association of the Company provide that any Director appointed by the Board to fill a casual vacancy in the Board shall hold office until the first general meeting of the Company after his/her appointment and be subject to re-election at such meeting, and any Director appointed by the Board as an addition to the existing Board shall hold office only until the next following annual general meeting of the Company and shall then be eligible for re-election.

Chairman and Chief Executive

Mr. Ding Shui Po is the chairman and chief executive officer of the Group. He has extensive experience in the sportswear industry and is responsible for the overall corporate strategies, planning and business management of the Group. The Board believes that vesting the roles of chairman and chief executive officer in the same individual is beneficial to the business prospects and management of the Group. The balance of power and authorities is ensured by the operation of the Board and the senior management, which is comprised of experienced and high caliber individuals. The Board currently consists of three executive Directors and three independent non-executive Directors and has a strong independence element in its composition.

Term of Appointment of Independent Non-executive Directors

Dr. Gao Xian Feng had entered into a service contract with the Company for an initial term of two years commencing on 3 June 2008. Mr. Tan Wee Seng had entered into a service contract with the Company for an initial term of three years commencing on 29 March 2010. Dr. Bao Ming Xiao had been appointed as a Director effective from 21 December 2012 and had entered into a service contract with the Company for an initial term of two years commencing on the same date.

All the service contracts of independent non-executive Directors are automatically renewed upon expiration and may be terminated by either party with a three-month's prior written notice.

Board Committees

The Board has established the (i) Audit Committee, (ii) Remuneration Committee, (iii) Nomination Committee, and (iv) Sustainability Committee with defined terms of reference. The terms of reference of the board committees, which explain their respective role and the authority delegated to them by the Board, are available on the websites of the Company and the Hong Kong Stock Exchange. The board committees are provided with sufficient resources to discharge their duties and, upon reasonable request, are able to seek independent professional advice and other assistance under appropriate circumstances, at the Company's expenses.

Audit Committee

The Audit Committee was established on 7 May 2008, in compliance with Rules 3.21 and 3.22 of the Listing Rules and with written terms of reference in compliance with the Corporate Governance Code. The Audit Committee consists of three members, namely, Mr. Tan Wee Seng, Dr. Gao Xian Feng and Dr. Bao Ming Xiao, all of whom are independent non-executive Directors. The chairman of the Audit Committee is Mr. Tan Wee Seng, who has appropriate professional qualifications and experience in accounting matters. None of the members of the Audit Committee have any financial interest in or is a former partner of the existing external auditor of the Company, Ernst & Young.

The primary duties of the Audit Committee are to make recommendation to the Board on the appointment, re-appointment and removal of external auditor, review the financial statements and material advice in respect of financial reporting, and oversee the risk management and internal control procedures of the Company.

During the year ended 31 December 2020, the Audit Committee mainly performed the following duties:

• - reviewed the Group's audited annual results for the year ended 31 December 2019 and the unaudited interim results for the six months ended 30 June 2020, met with the external auditors to discuss such interim results and annual results without the presence of the Company's management, and was of the opinion that the preparation of the relevant financial statements complied with the applicable accounting standards and requirements and that adequate disclosure has been made;

• - reviewed the accounting principles and practices adopted by the Group, and recommended the appointment of the external auditors; and

• - assisted the Board in meeting its responsibilities for maintaining an effective system of internal control and risk management.

During the year ended 31 December 2020, two meetings were held by the Audit Committee. The attendance record of each member of the Audit Committee at the meetings of the Audit Committee is set out below:

Attendance/Number of
Audit Committee meeting(s)
Name of Director	held during a director's tenure
Mr. Tan Wee Seng	2/2
Dr. Gao Xian Feng	2/2
Dr. Bao Ming Xiao	2/2

There had been no disagreement between the Board and the Audit Committee during the financial year ended 31 December 2020.

Remuneration Committee

The Remuneration Committee was established on 7 May 2008, with written terms of reference in compliance with the Corporate Governance Code. The Remuneration Committee consists of three members, namely Dr. Gao Xian Feng, Ms. Ding Mei Qing and Dr. Bao Ming Xiao, the majority of whom are independent non-executive Directors. Dr. Gao Xian Feng is the chairman of the Remuneration Committee.

The primary duties of the Remuneration Committee are to make recommendations to the Board on the remuneration packages of individual executive Directors and senior management, including benefits in kind, pension rights and compensation payments (including any compensation payable for loss or termination of their office or appointment), and make recommendations to the Board on the remuneration of non-executive Directors.

During the year ended 31 December 2020, the Remuneration Committee mainly performed the following duties:

- reviewed the Group's remuneration policy and reviewed the remuneration package of the executive Directors and senior management for the year of 2020.

During the year ended 31 December 2020, one meeting was held by the Remuneration Committee. The attendance record of each member of the Remuneration Committee at the meeting of the Remuneration Committee is set out below:

Attendance/Number of

Remuneration Committee meeting

Name of Director	held during a director's tenure
Ms. Ding Mei Qing	1/1
Dr. Gao Xian Feng	1/1
Dr. Bao Ming Xiao	1/1
Nomination Committee

The Nomination Committee was established on 7 May 2008, with written terms of reference in compliance with the Corporate Governance Code. The Nomination Committee consists of three members, namely, Mr. Ding Shui Po, an executive Director and the chairman of the Board, and two independent non-executive Directors, namely, Mr. Tan Wee Seng and Dr. Gao Xian Feng. Mr. Ding Shui Po is the chairman of the Nomination Committee.

The primary duties of the Nomination Committee are to review the structure, size and composition of the Board at least once a year and to identify individuals suitably qualified to become Board members and select or make recommendations to the Board on the selection of individuals nominated for directorships. In identifying suitable director candidates and making such recommendations to the Board, the Nomination Committee would also take into account various aspects of a candidate, including but not limited to his/her education background, professional experience, experience with the relevant industry and past directorships.

During the year ended 31 December 2020, the Nomination Committee mainly performed the following duties:

• - reviewed the annual confirmations of independence submitted by the independent non-executive Directors and assessed their independence; and

• - reviewed the structure, size and composition of the Board during the year of 2020.

The Nomination Committee will also give consideration to the Board Diversity Policy when identifying suitably qualified candidates to become members of the Board, and the Board will review the Board Diversity Policy on a regular basis to ensure its effectiveness.

A "Nomination Policy" for Directors was formally adopted and this incorporated the nomination criteria and principles for Directors that are set out in the Nomination Committee's terms of reference. The Nomination Policy applies to the directors of the Company and where applicable, senior management prepared for Board positions under the succession planning of the Company.

The Nomination Policy aims to (i) set out the criteria and process in the nomination and appointment of directors of the Company; (ii) ensure that the Board of the Company has a balance of skills, experience and diversity of perspectives appropriate to the Company; and (iii) ensure the Board continuity and appropriate leadership at Board level.

In evaluating and selecting any candidate for directorship, the following criteria should be considered:

• • character and integrity;

• • qualifications including professional qualifications, skills, knowledge and experience and diversity aspects under the Board Diversity Policy that are relevant to the Company's business and corporate strategy;

• • any measurable objectives adopted for achieving diversity on the Board;

• • requirement for the Board to have independent directors in accordance with the Listing Rules and whether the candidate would be considered independent with reference to the independence guidelines set out in the Listing Rules;

• • any potential contributions the candidate can bring to the Board in terms of qualifications, skills, experience, independence and gender diversity;

• • willingness and ability to devote adequate time to discharge duties as a member of the Board and/or Board committee(s) of the Company; and

• • such other perspectives that am appropriate to the Company's business and succession plan and where applicable, may be adopted and/or amended by the Board and/or the Nomination Committee from time to time for nomination of directors and succession planning.

Nomination Process

Appointment of New Director i. The Nomination Committee and/or the Board may select candidates for directorship from various channels, including but not limited to internal promotion, re-designation, referral by other member of the management and external recruitment agents.

• ii. The Nomination Committee and/or the Board should, upon receipt of the proposal on appointment of new director and the biographical information (or relevant details) of the candidate, evaluate such candidate based on the criteria as set out above to determine whether such candidate is qualified for directorship.

• iii. If the process yields one or more desirable candidates, the Nomination Committee and/or the Board should rank them by order of preference based on the needs of the Company and reference check of each candidate (where applicable).

• iv. The Nomination Committee should then recommend to the Board to appoint the appropriate candidate for directorship, as applicable.

• v. For any person that is nominated by a shareholder for election as a director at the general meeting of the Company, the Nomination Committee and/or the Board should evaluate such candidate based on the criteria as set out above to determine whether such candidate is qualified for directorship.

Where appropriate, the Nomination Committee and/or the Board should make recommendation to shareholders in respect of the proposed election of director at the general meeting.

Re-election of Director at General Meeting i. The Nomination Committee and/or the Board should review the overall contribution and service to the Company of the retiring director and the level of participation and performance on the Board.

• ii. The Nomination Committee and/or the Board should also review and determine whether the retiring director continues to meet the criteria as set out above.

• iii. The Nomination Committee and/or the Board should then make recommendation to shareholders in respect of the proposed re-election of director at the general meeting.

Where the Board proposes a resolution to elect or re-elect a candidate as director at the general meeting, the relevant information of the candidate will be disclosed in the circular to shareholders and/or explanatory statement accompanying the notice of the relevant general meeting in accordance with the Listing Rules and/or applicable laws and regulations.

Board Diversity Policy

Pursuant to code provisions of the Corporate Governance Code, the Board approved a new board diversity policy (the "Board Diversity Policy") in August 2013. The Company recognises and embraces the benefits of diversity of Board members. While all Board appointments will continue to be made on a merit basis, the Company will ensure that the Board has a balance of skills, experience and diversity of perspectives appropriate to the needs of the Company's business. Selection of candidates will be based on a range of diversity perspectives, including but not limited to gender, age, cultural and educational background, experience (professional or otherwise), skills and knowledge.

During the year ended 31 December 2020, one meeting was held by the Nomination Committee. The attendance record of each member of the Nomination Committee at the meeting of the Nomination Committee is set out below:

Attendance/Number of
Nomination Committee meeting
Name of Director	held during a director's tenure
Mr. Ding Shui Po	1/1
Mr. Tan Wee Seng	1/1
Dr. Gao Xian Feng	1/1
Sustainability Committee

The Sustainability Committee was established on 1 January 2021 and consists of three members, namely Mr. Tan Wee Seng, Mr. Ding Shui Po and Ms. Ding Mei Qing, the majority of whom are executive Directors. Mr. Tan Wee Seng is the chairman of the Sustainability Committee.

The primary duties of the Sustainability Committee are to assist the Board in overseeing the development and implementation of the sustainability initiatives of the Company.

Auditor's Remuneration

The Company has re-appointed Ernst & Young as its external auditor during the year ended 31 December 2020. The external auditor is refrained from engaging in non-audit services except for specific approved items, such as review of interim results of the Group. The Audit Committee reviews the external auditor's statutory audit scope and non-audit services and approves its fees. Details of the fees paid/payable to Ernst & Young during the year are as follows:

HK$
Review of interim results	870,000
Annual audit services	5,968,000
Other non-audit service	50,000
Total	6,888,000
Financial Reporting

The Board, supported by the chief financial officer and the finance department, is responsible for the preparation of the financial statements of the Company and the Group for each financial year which shall give a true and fair view of the financial position, performance and cash flow of the Company and its subsidiaries for that financial year. The Directors acknowledge their responsibilities for preparing the accounts of the Company. As at 31 December 2020, the Board is not aware of any material uncertainties relating to events or conditions that may cast significant doubt upon the Group's ability to continue as a going concern.

The responsibilities of Ernst & Young, the Company's external auditor, are set out in the section headed "Independent Auditor's Report" in this annual report.

Risk Management and Internal Control

The Board recognises its overall responsibility for the Group's risk management and internal control systems and reviewing their effectiveness on an ongoing basis.

The risk management and internal control systems of the Group are featured with a defined management structure with limits of authority and well-rounded policies and procedures, and are designed to facilitate effective and efficient operations, to ensure reliability of financial reporting and compliance with applicable laws and regulations, to identify and manage potential risks, and to safeguard assets of the Group. The Group's risk management and internal control system are designed to provide reasonable, though not absolute, assurance against material misstatement or loss and to manage rather than eliminate the risk of failure to achieve business objectives. The senior management reviews and evaluates the control process, monitors any risk factors on a regular basis, and reports to the Audit Committee on any findings and measures taken to address such variances and identified risks. The Company has established policies and procedures applicable to all operating units to ensure the effectiveness of risk management and internal controls systems. The Company also has a process for identifying, evaluating, and managing the significant risks associated with the achievement of its operational objective. This process is subject to continuous improvement and was in place throughout 2020. The day-to-day operations are entrusted to individual departments, which are accountable for their own conducts and performance, and are required to strictly adhere to the policies set by the Board. The Company carries out reviews of the effectiveness of the risk management and internal control systems from time to time in order to ensure that they are able to meet and deal with the dynamic and ever changing business environment.

In addition, the procedures on disclosure of inside information were in place to ensure that all relevant facts and circumstances that may have material effect on the share price of the Company is promptly assessed and that any material information which comes to the knowledge of any one or more officers of the Group be promptly identified, assessed and, if appropriate, escalated for the attention of the Board to determine whether a disclosure is required.

During the year ended 31 December 2020, the Board and the Audit Committee have reviewed the effectiveness of the Group's risk management and internal control systems on all major operations of the Group, with assistance from the Group's risk management and internal audit department. The Group's risk management and internal audit department has reported major risk management and internal control review findings to the Board and Audit Committee. No major issues but areas for improvement have been identified. All of the recommendations from the Group's risk management and internal audit department will be properly followed up to ensure that they are implemented within a reasonable period of time. The Board and the Audit Committee considered that the key areas of the Group's risk management and internal control systems, including the adequacy of resources, qualifications and experience of our accounting, internal audit and financial reporting staff, and their training programs and budget, are reasonably implemented and the Group has fully complied with provisions of the Corporate Governance Code regarding risk management and internal control systems in general for the year ended 31 December 2020.

Objectives

The Board acknowledges its overall responsibility for overseeing the Group's risk management and internal control systems and ensures that a review of their effectiveness on ongoing basis. The Board has delegated and authorized its responsibilities of risk management to the Audit Committee, which is responsible for assisting the Board to evaluate and determine the nature and extent of the risks that the Group is willing to take to achieve its business strategic objectives and to ensure that the Group establishes and maintains appropriate and effective risk management and internal control systems and oversees the design, implementation and supervision of risk management and internal control systems. The Group's risk management and internal control systems are designed to manage rather than eliminate the risk of failure to meet its business strategic objectives and to provide a reasonable, but not absolute, assurance against material misstatement or loss.

The management has confirmed to the Audit Committee and the Board that risk management and internal control systems were effective for the year ended 31 December 2020.

Main Features of the Risk Management and Internal Control Systems

The Company has established a risk governance organization structure with clear responsibilities and authorities.

Risk Governance Organization Structure

The primary responsibilities of each parties of the Group's risk governance structure are summarized as follows:

• (a) Board

  It determines the business strategic objectives of the Group, and evaluates the nature and extent of the risks that the Group is willing to take to achieve the strategic objectives of the Group. It also ensures that the Group appropriately and effectively establishes and maintains risk management and internal control systems and oversees the overall design, implementation and supervision of risk management and internal control systems.

• (b) Audit Committee

  It is responsible for supervising and guiding the risk management and internal audit department and the management to establish and operate the internal control systems, regularly supervising the Group's risk management and internal control systems, and making recommendations to the Board. The risk management and internal control systems are reviewed, at least annually, for its effectiveness and the review includes all major aspects of control, including financial, operational and compliance controls.

  During the annual review, it ensures the effective risk management and internal control systems have the adequacy of resources, budget, adequate staff qualifications and experience and staff training programs of the Group's accounting, internal audit and financial reporting functions.

• (c) Risk Management and Internal Audit Department

  It assesses the effectiveness and adequacy of the Group's risk management and internal control systems and reports the findings to the Audit Committee for improvement of the identified control weaknesses or material systems deficiencies.

• (d) Management

  It is delegated and authorized to (i) design, implement and maintain risk management and internal control systems appropriately and effectively; (ii) identify, evaluate, manage and control the risks that may have potential and material impacts on the processes of the operations; (iii) monitor risks and take appropriate methods to mitigate risks; (iv) respond promptly to and follow up the findings of the risk management and internal control issues raised by the risk management and internal audit department; and (v) provide confirmation to the Board and the Audit Committee on the effectiveness of the risk management and internal control systems.

Process for Identification, Assessment and Management of Material Risks

The processes used by the Group for identification, assessment and management of material risks are summarized as follows:

Risk Identification: The Group identifies risks that may potentially and materially affect its strategies, business, operations and finance.

Risk Evaluation: Evaluates the identified risks by using the designated risk assessment criteria developed by the management; and evaluates the potential impacts and the likelihood of their occurrence.

Risk Response: Prioritizes the material risks by comparison of the risk assessment results; and determines the risk control strategies and internal control processes to avoid, prevent or mitigate the identified risks.

Risk Reporting and Monitoring: Discusses about the results of risk management to the Board, the Audit Committee and the management regularly; continuously monitors the identified risks and ensures that internal control system processes appropriately; and reassesses the risk control strategies and internal control processes in case of any material changes in business and the external environment.

Process Used to Review the Effectiveness of the Risk Management and Internal Control Systems

During the year ended 31 December 2020, the Board have conducted annual review of the effectiveness of the Group's risk management and internal control systems on all major operations of the Group, with assistance from the Group's Audit Committee, risk management and internal audit department and the management. The Group's risk management and internal audit department has reported major risk management and internal control review findings to the Audit Committee. The Board considered that all recommendations from the Audit Committee will be properly followed up to ensure that the effectiveness of risks control and proper internal control systems.

Annual Review

A comprehensive review on the effectiveness of the Group's risk management and internal control system is conducted by the Board and the Audit Committee annually, covering all material controls including financial, operational and compliance monitoring.

The Group has conducted regular review of the effectiveness of the risk management and internal control systems for the year ended 31 December 2020. The Board and the Audit Committee discussed the risk management and internal control systems with management, which includes the adequacy of resources, staff qualifications and experience, training programs and budget to the Group's accounting, internal audit and financial reporting function, to ensure that management has performed its duty to have effective systems. The Board and the Audit Committee also considered the scope and quality of management's ongoing monitoring of risks and of the internal control systems, and the work of the risk management and internal audit department.

During the year ended 31 December 2020, the Board and the Audit Committee considered that the adequacy of resources, qualifications and experience of our accounting, internal audit and financial reporting staff, and their training programs and budget, are reasonably implemented and considered that the risk management and internal audit department and the management are competent to carry out their roles and responsibilities. In accordance with such results, the Board and the Audit Committee are of the view that the Group has adequate workforce to satisfy with accounting and financial reporting duties and to comply with the Listing Rules. The Board and the Audit Committee also discussed the extent and communication of monitoring results annually to enables for the assessment of the Group's control and the effectiveness of risk management.

In the annual review, the Group's risk management and internal control system is subject to continuous review and improvement to enable timely responses to any changes of risks facing by the Group. The Board and the Audit Committee have considered major findings on risk management and internal control matters from the risk management and internal audit department and the management. No material control failure or weaknesses to the extent that have resulted in unforeseen outcomes or contingencies in the future which may have material impacts on the Group's financial performance or conditions have been identified by the Group.

The Board confirms that the Group has complied with provisions of the Corporate Governance Code regarding risk management and internal control systems for the year ended 31 December 2020. The Group therefore considers that the risk management and internal control systems are effective and adequate.

Internal Audit Function

The Group's internal audit function is performed by its risk management and internal audit department, which plays an important role in the assessment of the effectiveness of the risk management and internal control systems of the Group and reports regularly. The Board and the Audit Committee considered that the risk management and internal audit department had been provided with adequate resources and budget and comprised qualified staff with sufficient experience and training programs to perform its internal audit function. For the year ended 31 December 2020, the risk management and internal audit department implemented the internal audit functions and reports findings regularly to the Audit Committee, which makes recommendations based on the findings to the Board.

Whistle-blowing

The Group is committed to achieving and maintaining the highest possible standards of openness, integrity and accountability. To prevent as far as possible violations and ensure compliance and operation by the highest ethical standards, the Group has designated specific whistle-blowing policies to allow employees, business partners and other relevant stakeholders to report illegal or non-compliant activities involving the Group to the risk management and internal audit department and the Audit Committee confidentially. The identity of the whistle-blower and the relevant records of the whistle-blowing are treated with the strictest confidential.

Inside Information and Information Disclosure

The Group has established a policy for ensuring that inside information is disclosed to the public in an equal and timely manner in compliance with the relevant laws and regulations. The policy regulates the handling and dissemination of inside information, including designates specific persons to be the main spokesperson of the Group to respond to external enquiries; designates reporting paths to facilitate each party to give an account of potential inside information to the designated responsible personnel; and designates responsible persons and departments to make decision about further actions to be taken and the ways to be disclosed.

Company Secretary

The company secretary of the Company is Mr. Yeung Lo Bun, whose biography details are set out in the section headed "Directors and Senior Management" in this annual report.

Mr. Yeung has been informed of the requirement of the Rule 3.29 of the Listing Rules, and he has confirmed that he had attained no less than 15 hours of relevant professional training during the year ended 31 December 2020.

Shareholders' Rights

Procedures for Shareholders to Convene an Extraordinary General Meeting and to Put Forward Proposals at Shareholders' Meeting

Pursuant to the Article 58 of the articles of association of the Company, any one or more Shareholders holding at the date of deposit of the requisition not less than one-tenth of the paid up capital of the Company carrying the right of voting at general meetings of the Company shall at all times have the right, by written requisition to the Board or the company secretary of the Company by mail at Unit A, 27/F, Tower A, Billion Centre, 1 Wang Kwong Road, Kowloon Bay, Kowloon, Hong Kong to require an extraordinary general meeting to be called by the Board for the transaction of any business specified in such requisition, and such meeting shall be held within two months after the deposit of such requisition. If within 21 days of such deposit the Board fails to proceed to convene such meeting, the requisitionist(s) himself (themselves) may do so in the same manner, and all reasonable expenses incurred by the requisitionist(s) as a result of the failure of the Board shall be reimbursed to the requisitionist(s) by the Company.

Procedures by Which Enquiries May Be Put to the Board

Shareholders may send their enquiries and concerns to the Board by addressing them to the company secretary of the Company by mail at Unit A, 27/F, Tower A, Billion Centre, 1 Wang Kwong Road, Kowloon Bay, Kowloon, Hong Kong. The company secretary of the Company is responsible for forwarding communications relating to matters within the Board's direct responsibilities to the Board and communications relating to ordinary business matters, such as suggestions and inquiries, to the chief executive officer of the Company.

Investor Relations

Constitutional Documents

There has been no significant change in the Company's constitutional documents during the year ended 31 December 2020.

Communication with Shareholders

The Board recognizes the importance of maintaining clear, timely and effective communication with Shareholders of the Company and its investors. Therefore, the Group is committed to maintaining a high degree of transparency to ensure that the investors and the Shareholders receive accurate, clear, comprehensive and timely information of the Group by the publication of annual reports, announcements and circular. The Company also publishes all corporate correspondence on the Company's websitewww.xtep.com.hk. The Board maintains regular dialogues with institutional investors and analysts to keep them informed of the Group's strategy, operations, management and plans. Members of the Board and of the various board committees will attend the annual general meeting of the Company and answer questions raised during the meeting. At the general meeting, separate resolutions are proposed to resolve each substantially separate issue.

The chairman of the general meetings of the Company would explain the procedures for conducting poll before putting a resolution to vote. The results of the voting by poll will be declared at the meeting and published on the websites of the Hong Kong Stock Exchange and the Company.

Dividend Policy

On 19 February 2019, the Board has approved and adopted a dividend policy that, in recommending or declaring dividends, the Company shall maintain adequate cash reserves for meeting its working capital requirements, future business growth and its shareholding value.

REPORT OF THE DIRECTORS

The Directors are pleased to present their report together with the audited financial statements for the year ended 31 December 2020.

Principal Activities

The Company and its subsidiaries are principally engaged in the design, development, manufacturing and marketing of sportswear, including footwear, apparel and accessory products, sold mainly under the self-owned Xtep brand and four internationally acclaimed brands, namely K-Swiss, Palladium, Saucony and Merrell.

Subsidiaries

Details of the principal subsidiaries of the Group as at 31 December 2020 are set out in note 1 to the financial statements.

Financial Statements

The profit of the Group for the year ended 31 December 2020 and the Group's financial position as at that date are set out in the financial statements on pages 83 to 174 of this annual report.

Dividends

An interim dividend of HK6.5 cents (equivalent to approximately RMB5.9 cents) per Share was declared and paid during the year, with an option to receive new fully paid shares of the Company in lieu of cash. The Board recommended a final dividend of HK7.5 cents (equivalent to approximately RMB6.2 cents) per Share for the year ended 31 December 2020, subject to approval by the Shareholders at the annual general meeting to be held on 7 May 2021. The proposed final dividend will be offered with a scrip dividend option to the Shareholders, which will allow them to receive new shares of the Company in lieu of cash. Participation in the scrip dividend scheme will be optional. The scrip dividend scheme is subject to the Hong Kong Stock Exchange's granting the listing of and permission to deal in the new Shares to be issued pursuant thereto. A circular containing details of this scrip dividend scheme will be dispatched to the Shareholders for the scrip dividend.

The total dividends for the year ended 31 December 2020, which included the interim dividend and final dividend, amount to HK14.0 cents (equivalent to approximately RMB12.1 cents) per Share and they represented a dividend payout ratio of approximately 60.0%. Details of the dividends for the year ended 31 December 2020 are set out in note 11 to the financial statements.

Distributable Reserves of the Company

As at 31 December 2020, the Company's reserves available for distribution, calculated in accordance with the Companies Law, Chapter 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands, amounted to approximately RMB1,739.5 million (2019: RMB1,391.3 million). Details of the reserves of the Company as at 31 December 2020 are set out in note 46 to the financial statements.

Charitable Donations

Charitable donations made by the Group during the year ended 31 December 2020 amounted to approximately RMB36.5 million.

REPORT OF THE DIRECTORS

Share Capital

Details of the movements in share capital of the Company during the year ended 31 December 2020 are set out in note 31 to the financial statements.

Directors

The Directors during the year ended 31 December 2020 were:

Executive Directors

Ding Shui Po (Chairman) Ding Mei Qing

Ding Ming Zhong

Independent Non-Executive Directors

Tan Wee Seng

Gao Xian Feng Bao Ming Xiao

The Company has received annual confirmations of independence from each of the existing independent non-executive Directors in accordance with Rule 3.13 of the Listing Rules. The Company considers that all the independent non-executive Directors are independent in accordance with the Listing Rules.

Each of the executive Directors on the Board had entered into a service contract with the Company for an initial term of three years commencing on 3

June 2008.

For the independent non-executive Directors, Dr. Gao Xian Feng had entered into a service contract with the Company for an initial term of two years commencing on 3 June 2008. Mr. Tan Wee Seng had entered into a service contract with the Company for an initial term of three years commencing on 29 March 2010. Dr. Bao Ming Xiao had been appointed as a Director effective from 21 December 2012 and had entered into a service contract with the Company for an initial term of two years commencing on the same date.

All the service contracts of Directors are automatically renewed upon expiration and may be terminated by either party with a three-month's prior written notice.

In accordance with article 87 of the Company's articles of association, Mr. Ding Ming Zhong, Dr. Bao Ming Xiao and Dr. Gao Xian Feng will retire from the Board by rotation at the forthcoming annual general meeting. Mr. Ding Ming Zhong and Dr. Bao Ming Xiao, being eligible, offer themselves for re-election. Dr. Gao Xian Feng, after serving as an independent non-executive director of the Company for 12 years since the Company's listing on 3 June 2008, will not offer himself for re-election.

None of the Directors proposed for re-election at the forthcoming annual general meeting has an unexpired service contract which is not determinable by the Company or any of its subsidiaries within one year without payment of compensation, other than statutory compensation.

Directors' and Senior Management's Biographies

Biographical details of the Directors and senior management are set out on pages 44 to 48 of this annual report.

REPORT OF THE DIRECTORS

Directors' Interests in Transactions, Arrangements or Contracts

Save as disclosed in the paragraphs headed "Continuing connected transactions" below, there was no transaction, arrangement or contract of significance to which the Company or any of its subsidiaries was a party, and in which a Director of the Company or an entity connected with a Director had a material interest, whether directly or indirectly, subsisted during or at the end of the year ended 31 December 2020.

Directors' and Chief Executive's Interests and Short Positions in Shares, Underlying Shares and Debentures

As at 31 December 2020, the Directors and the chief executive of the Company had the following interests or short positions in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which have been notified to the Company and the Hong Kong Stock Exchange pursuant to Division 7 and 8 of Part XV of the SFO, including interests and short positions which the Directors and the chief executive of the Company are taken and deemed to have under such provisions of the SFO, or which are required to be and are recorded in the register required to be kept under Section 352 of the SFO or as otherwise notified to the Company and the Hong Kong Stock Exchange pursuant to the Model Code:

Long Positions in the Company

Approximate percentage of interest in the issued

Number of Shares	share capital of
Name of Director	Nature of interest	interested	the Company(1)
Mr. Ding Shui Po	Founder and beneficiary of a discretionary trust(2)/	1,370,734,500	53.82%
Beneficial interests(3)
Ms. Ding Mei Qing	Founder and beneficiary of a discretionary trust(2)	1,310,059,500	51.44%
Mr. Ding Ming Zhong	Founder and beneficiary of a discretionary trust(2)	1,310,059,500	51.44%
Mr. Tan Wee Seng	Beneficial interests	280,000(4)	0.01%
Notes:

• (1) It was based on 2,546,965,472 issued Shares of the Company as at 31 December 2020.

• (2) Each of Mr. Ding Shui Po, Ms. Ding Mei Qing and Mr. Ding Ming Zhong established a family trust (each, a "Family Trust" and collectively, the "Family Trusts") for the benefit of himself/herself and their respective family members. UBS Trustees (BVI) Limited is the trustee of the Family Trusts.

  The Family Trusts (through their controlled companies) indirectly hold 1,310,059,500 Shares in aggregate and therefore each of Mr. Ding Shui Po, Ms. Ding Mei Qing and Mr. Ding Ming Zhong is deemed to be interested in 1,310,059,500 Shares of the Company.

• (3) Mr. Ding Shui Po was also beneficially interested in 60,675,000 Shares of the Company.

• (4) 100,000 of these shares were issued to Mr. Tan Wee Seng upon the exercise of options granted on 7 December 2011 under the Share Option Scheme. The remaining 180,000 shares of these shares were acquired by Mr. Tan Wee Seng on the Hong Kong Stock Exchange.

REPORT OF THE DIRECTORS

Save as disclosed above, as at 31 December 2020, none of the Directors or the chief executive 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 had been recorded in the register maintained by the Company pursuant to section 352 of the SFO or which had been notified to the Company and the Hong Kong Stock Exchange pursuant to the Model Code.

At no time was the Company, or any of its holding companies and subsidiaries a party to any arrangements to enable the Directors and the chief executive of the Company (including their spouse and children under 18 years of age) to hold any interest or short positions in the shares, underlying shares or debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO).

Continuing Connected Transactions

Certain related party transactions as disclosed in note 40 to the financial statements also constituted continuing connected transactions under the Listing Rules which are required to be disclosed in this report in accordance with Chapter 14A of the Listing Rules. The details of such confirmed connected transactions are set out below.

During the year ended 31 December 2020, certain subsidiaries of the Company leased certain office units in Xiamen from Hu Du Century (Xiamen) Investment Management Co., Ltd. ("HD Century", an indirect wholly-owned subsidiary of Wan Xing International Holdings Limited, a controlling shareholder of the Company and is therefore a connected person of the Company).

The rental amounts under the lease agreements were determined based on arm's length negotiations between HD Century and the Group with reference to the prevailing market price of leases of comparable office buildings.

During the year ended 31 December 2020, the Group's rental payments to HD Century amounted to RMB10,276,000.

For details, please refer to the Company's announcement dated 21 December 2018.

The Directors (including the independent non-executive Directors) have reviewed the above continuing connected transactions and confirmed that the transactions have been entered into:

• (1) in the ordinary and usual course of business of the Group;

• (2) on normal commercial terms or better; and

• (3) according to the agreements governing them on terms which are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

The Company's auditor has been engaged to report on the Group's continuing connected transactions in accordance with Hong Kong Standard on Assurance Engagements 3000 (Revised) Assurance Engagements Other Than Audits or Reviews of Historical Financial Information and with reference to Practice Note 740 Auditor's Letter on Continuing Connected Transactions under the Hong Kong Listing Rules issued by the Hong Kong Institute of Certified Public Accountants. The auditor has issued its unqualified letter containing its findings and conclusions in respect of the above continuing connected transactions disclosed by the Group in accordance with Listing Rule 14A.56. A copy of the auditor's letter has been provided by the Company to the Hong Kong Stock Exchange.

REPORT OF THE DIRECTORS

Share Option Scheme

The Company has adopted the Share Option Scheme on 7 May 2008 for the purpose of motivating eligible persons to optimize their future contributions to the Group and/or reward them for their past contributions, attracting and retaining or otherwise maintaining on-going relationships with such eligible persons who are significant to and/or whose contributions are or will be beneficial to the performance, growth or success of the Group.

The maximum number of Shares that may be issued upon exercise of all options to be granted under the Share Option Scheme and any other schemes of the Group shall not in aggregate exceed 10% of the Shares in issued as at the Listing Date, i.e. 220,000,000 Shares. No option may be granted to any participant of the Share Option Scheme such that the total number of Shares issued and to be issued upon exercise of the options granted and to be granted to that person in any 12-month period up to the date of the latest grant exceeds 1% of the Company's issued share capital from time to time.

An option may be exercised in accordance with the terms of the Share Option Scheme at any time during a period as determined by the Board and not exceeding 10 years from the date of the grant. There is no minimum period for which an option must be held before it can be exercised. Participants of the Share Option Scheme are required to pay the Company HK$1.0 upon acceptance of the grant on or before 30 days after the offer date. The exercise price of the options is determined by the Board in its absolute discretion and shall not be less than whichever is the highest of:

• (a) the nominal value of a Share;

• (b) the closing price of a Share as stated in the Hong Kong Stock Exchange's daily quotations sheets on the offer date; and

• (c) the average closing price of a Share as stated in the Hong Kong Stock Exchange's daily quotation sheets for the five Business Days immediately preceding the offer date.

The Share Option Scheme shall be valid and effective for a period of 10 years from the Listing Date, after which no further options will be granted or offered.

Details of the share options granted under the Share Option Scheme as at 31 December 2020 are as follows:

Name

Date of grantExercise price per Share(1)

Exercise period(2)(3)(4)Outstanding as at 1 January 2020

Granted during Cancelled during Exercised duringthe year ended 31 December 2020

the year ended 31 December 2020

the year ended 31 December 2020

Lapsed during the year ended 31 December 2020

Outstanding as at 31 December 2020

Director

Mr. Tan Wee Seng

30 March 2010

• HK$6.13 30 March 2011 - 29 March 2020

  600,000

  -

  -

  -

  (600,000)

  -

  Former Director

  Mr. Ho Yui Pok, Eleutherius(5)

  28 May 2010

• HK$6.00 28 May 2012 - 27 May 2020

1,000,000

-

-

-

(1,000,000)

-

Employees

• In aggregate

  28 January 2010

  • HK$5.01 28 January 2011 - 27 January 2020

• In aggregate

  28 May 2010

  • HK$6.00 28 May 2012 - 27 May 2020

• In aggregate

7 December 2011

• HK$2.35 14 January 2012 - 13 January 2021

Total

500,000 8,000,000 12,955,000 23,055,000

- - - -

- - - -

- - (12,955,000)(6)

(500,000) (8,000,000)

-

(12,955,000)

(10,100,000)

- - - -

REPORT OF THE DIRECTORS

No share is available for issue under the Share Option Scheme as at the date of this annual report.

Saved as disclosed above, no share options granted under the Share Option Scheme were exercised, lapsed or cancelled during the year ended 31

December 2020.

Notes:

• (1) The closing prices per Share immediately before 28 January 2010, 30 March 2010, 28 May 2010 and 7 December 2011 (the dates on which the share options were granted) were HK$4.86, HK$5.95, HK$5.67 and HK$2.31 respectively.

• (2) Share options granted under the Share Option Scheme on 28 January 2010 and 30 March 2010 shall vest in the grantees in accordance with the timetable below (for this purpose, the date or each such date on which the share options are to vest being hereinafter referred to as a "Vesting Date"):

  Vesting Date	Percentage of share options to vest
  First anniversary of the date of grant	30% of the total number of options granted
  Second anniversary of the date of grant	30% of the total number of options granted
  Third anniversary of the date of grant	40% of the total number of options granted

• (3) Share options granted under the Share Option Scheme on 28 May 2010 shall vest in the grantee in accordance with the timetable below:

  Vesting Date	Percentage of share options to vest
  Second anniversary of the date of grant	30% of the total number of options granted
  Third anniversary of the date of grant	70% of the total number of options granted

• (4) Share options granted under the Share Option Scheme on 7 December 2011 shall vest in the grantees in accordance with the timetable below (for this purpose, the date or each such date on which the share options are to vest being hereinafter referred to as a "Vesting Date"):

  Vesting Date Percentage of share options to vest

  14 January 2012

  14 January 2013

  14 January 2014

  40% of the total number of options granted 30% of the total number of options granted 30% of the total number of options granted

• (5) Mr. Ho Yui Pok, Eleutherius retired from the office as a non-executive Director with effect from 6 May 2019.

• (6) The weighted average closing price of Shares immediately before the dates on which the options were exercised is HK$3.35.

Further details of the Share Option Scheme are set out in note 33 to the financial statements.

Arrangement for Directors to Purchase Shares or Debentures

Save as disclosed in "Share Option Scheme" above, at no time during the year were rights to acquire benefits by means of the acquisition of shares in or debentures of the Company granted to any Director of the Company or their respective spouses or minor children, or were such rights exercised by them, or was the Company, or any of its holding companies and its subsidiaries a party to any arrangements to enable the Directors of the Company to acquire benefits by means of the acquisition of shares in, or debt securities (including debentures) of the Company or any other body corporate.

REPORT OF THE DIRECTORS

Substantial Shareholders' Interests and Short Positions in Shares and Underlying Shares

So far as is known to any Director or chief executive of the Company, as at 31 December 2020, the persons or corporations (other than Directors or chief executive of the Company) who had interest or short positions in the shares and underlying shares of the Company which were required to be disclosed to the Company under the provisions of Division 2 and 3 of Part XV of the SFO, or which were recorded in the register required to be kept under section 336 of the SFO were as follows:

Name of Shareholders

Nature of interestNumber of Shares interested

Approximate percentage of interest in the issued share

capital of the

Company(1)

Group Success

Wan Xing International Holdings Limited Ding Wang Fortune Limited

Guan Hong Development Limited Ming Zhong Family Limited

UBS Trustees (BVI) Limited

Beneficial interests

Interests of controlled corporation(2) Interests of controlled corporation(3) Interests of controlled corporation(3) Interests of controlled corporation(3) Trustee(3)

Notes:

• (1) It was based on 2,546,965,472 issued Shares of the Company as at 31 December 2020.

  1,310,059,500 51.44%

  1,310,059,500 51.44%

  1,310,059,500 51.44%

  1,310,059,500 51.44%

  1,310,059,500 51.44%

  1,310,059,500 51.44%

• (2) Wan Xing International Holdings Limited is deemed to be interested in shares held by Group Success by virtue of Group Success being 100% held by Wan Xing International Holdings Limited.

• (3) Each of Mr. Ding Shui Po, Ms. Ding Mei Qing and Mr. Ding Ming Zhong established a family trust (each, a "Family Trust" and collectively, the "Family Trusts") for the benefit of himself/herself and their respective family members. UBS Trustees (BVI) Limited is the trustee of the Family Trusts and, through its nominee UBS Nominees Limited, holds the entire issued share capital of each of Ding Wang Fortune Limited, Guan Hong Development Limited and Ming Zhong Family Limited as the respective trust assets under the Family Trusts.

Each of Ding Wang Fortune Limited, Guan Hong Development Limited and Ming Zhong Family Limited is deemed to be interested in shares held by Group Success by virtue of Group Success being 100% held by Wan Xing International Holdings Limited, which is in turn held as to 67%, 21% and 12% by Ding Wang Fortune Limited, Guan Hong Development Limited and Ming Zhong Family Limited, respectively.

Save as disclosed above, as at 31 December 2020, the Directors and the chief executive of the Company are not aware of any other person or corporation having an interest or short position in the shares and underlying shares of the Company which would require to be disclosed to the Company under the provisions of Division 2 and 3 of Part XV of the SFO, or which were recorded in the register required to be kept by the Company pursuant to Section 336 of the SFO.

REPORT OF THE DIRECTORS

Share Award Scheme

On 1 August 2014, the Company adopted the Share Award Scheme (the "Share Award Scheme") in which the Group's employees, executives, officers or directors will be entitled to participate. Details of the Share Award Scheme are set out in the Company's announcement dated 1 August 2014.

On 15 May 2015, the Company paid HK$160,000,000 to the trust established for the Share Award Scheme, and HK$152,600,000 of which was used to purchase 50,000,000 Shares as part of the trust fund and such Shares are held by the trustee for the benefit of the eligible participants under the trust. Details of the purchase are set out in the Company's announcement dated 15 May 2015.

On 10 January 2017, the Board resolved to grant a total of 50,000,000 Shares to employees of the Group at nil consideration. These 50,000,000 Shares granted under the Share Award Scheme represent approximately 2.25% of the issued share capital of the Company as at the date of grant.

As of 31 December 2020, there were a total of 24,950,000 outstanding Awarded Shares granted to certain employees of the Group, details of which are as follows:

Number of Awarded Shares

Name

Date of grantAs at 1 January 2020

Granted during the yearVested during the year

Forfeited

As atduring 31 Decemberthe year

2020

Vesting period

Employees

10 January 2017

34,070,000

-

(9,120,000)

-

24,950,000

10 January 2018 to

10 January 2022

Further details of the Share Award Scheme are set out in note 34 to the financial statements.

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 year ended 31 December 2020 and up to the date of this annual report.

Contracts with Controlling Shareholders

No contract of significance has been entered into between the Company or any of its subsidiaries and the controlling shareholders during the year ended 31 December 2020.

REPORT OF THE DIRECTORS

Specific Performance Obligations on Certain Controlling Shareholders

On 2 September 2019, the Company as borrower entered into a facility agreement (the "Facility Agreement") with a consortium of nine banks which is arranged by Hang Seng Bank Limited ("HASE"), The Hongkong and Shanghai Banking Corporation Limited, Bank of China (Hong Kong) Limited and CTBC Bank Co., Ltd. as mandated lead arrangers and bookrunners and HASE as facility agent, pursuant to which a 4-year term loan facility in the principal amount of HK$1,800,000,000 (the "Facility") was made available to the Company on the terms and conditions stated therein.

The Facility is guaranteed by certain subsidiaries of the Company.

It is provided in the Facility Agreement, among other things, that an event of default will occur if the following undertakings are not complied with and not remedied within 20 days of the earlier of (i) HASE, as the facility agent, giving notice to the Company and (ii) any of the Company or the guarantors named therein becoming aware of the failure to comply:

• (a) Mr. Ding Shui Po will remain as the chairman of the Board;

• (b) Mr. Ding Shui Po will maintain control over the management and business of the Group;

• (c) Mr. Ding Shui Po and Ms. Ding Mei Qing (the "Majority Shareholders") collectively will continue to own, directly or indirectly, at least 40% of the beneficial shareholding, carrying at least 40% of the voting rights in the Company, free from any security; or

• (d) the Majority Shareholders collectively will remain to be the single largest shareholder of the Company.

In case of occurrence of an event of default which is continuing, HASE, as the facility agent, may by notice to the Company (a) cancel the whole or any part of the Facility whereupon the whole or relevant part of the Facility shall immediately be cancelled; (b) declare that all or part of the Facility, together with accrued interest, and all other amounts accrued or outstanding under the Facility Agreement and related documents be immediately due and payable, whereupon they shall become immediately due and payable; and/or (c) declare that all or part of the Facility be payable on demand, whereupon they shall immediately become payable on demand by HASE on the instructions of the majority lenders.

As at 31 December 2020 and as at the date of this report, Mr. Ding Shui Po was an executive Director, the chairman and a controlling shareholder of the Company. Ms. Ding Mei Qing was an executive Director and a controlling shareholder of the Company. Mr. Ding Shui Po and Ms. Ding Mei Qing collectively held indirectly approximately 51.44% of the issued share capital of the Company. Mr. Ding Shui Po also had personal beneficial interests in approximately 2.38% of the issued share capital of the Company.

REPORT OF THE DIRECTORS

Non-Compete Undertakings

Each of the controlling shareholders of the Company, who is an obligor under the Deed of Non-compete (as defined in the prospectus of the Company dated 21 May 2008), has confirmed to the Company of his/her compliance with the non-compete undertakings provided to the Company thereunder. The independent non-executive Directors of the Company have reviewed the status of compliance and confirmed that all the undertakings under the Deed of Non-compete have been complied with by such controlling shareholders of the Company.

Directors' Interest in Competing Business

None of the Directors is or was interested in any business, apart from the Group's business, that competes or competed or is or was likely to compete, either directly or indirectly, with the Group's business at any time during the year ended 31 December 2020 and up to and including the date of this annual report.

Management Contracts

No contracts concerning the management and administration of the whole or any substantial part of the business of the Company were entered into or existed during the year ended 31 December 2020.

Pre-Emptive Rights

There are no provisions for pre-emptive rights under the Company's articles of association or the laws of Cayman Islands where the Company is incorporated applicable to the Company.

Emolument Policy

The Group's emolument policies are based on the merit, qualifications and competence of individual employees and are reviewed by the remuneration committee periodically.

The emoluments of the Directors are recommended by the remuneration committee and are decided by the Board, having regard to the Group's operating results, individual performance and comparable market statistics.

The Company has adopted a share option scheme pursuant to the shareholders' written resolutions passed on 7 May 2008 to motivate and reward its Directors and eligible employees. Details of the scheme are set out in the paragraph headed "Share Option Scheme" above and note 33 to the financial statements.

The Company has adopted a share award scheme in which the Group's employees, executives, officers or Directors will be entitled to participate. Details of this scheme are set out in this paragraph headed "Share Award Scheme" above and note 34 to the financial statements.

None of the Directors waived any emoluments during the year.

REPORT OF THE DIRECTORS

Pension Scheme

The Group operates a defined contribution mandatory provident fund scheme (the "MPF Scheme") under the Mandatory Provident Fund Schemes Ordinance for eligible employees. Contributions are made based on a percentage of the employees' basic salaries and are charged to the consolidated income statements as they become payable in accordance with the rules of the MPF Scheme. The assets of the MPF Scheme are held separately from those of the Group in an independently administered fund. The Group's employer contributions vest fully with the employees when contributed into the MPF Scheme.

The employees of the Group's subsidiaries which operate in China are required to participate in defined contribution central pension schemes operated by the local municipal government. The subsidiaries of the Group are required to contribute certain percentages of its payroll costs to the central pension schemes. The contributions are charged to the consolidated income statements as they become payable in accordance with the rules of the central pension scheme.

The Group has no other material obligation for the payment of pension benefits beyond the annual contributions described above.

Business Review

A business review of the Group for the year ended 31 December 2020 is shown on pages 8 to 37.

Permitted Indemnity Provision

Article 167 of the Company's articles of association provides that every Director, secretary and other officers shall be indemnified out of the assets and profits of the Company against all actions, costs, losses and damages which he shall or may incur or sustain by or by reason of any act done, concurred in or omitted in or about the execution of his duty, or supposed duty, in his office, provided that the indemnity shall not extend to any matter in respect of any fraud or dishonesty which may attach to him.

Major Customers and Suppliers

Aggregate sales attributable to the Group's largest and five largest customers were 3.4% (2019: 3.7%) and 14.3% (2019: 15.1%) of the Group's total sales respectively.

Aggregate purchases attributable to the Group's largest and five largest suppliers were 4.8% (2019: 5.3%) and 20.1% (2019: 18.6%) of the Group's total purchases respectively.

At no time during the year ended 31 December 2020, did a Director, his/her close associate(s) or a Shareholder which to the knowledge of the Director owns more than 5% of the Company's share capital have an interest in any of the Group's five largest customers and suppliers.

REPORT OF THE DIRECTORS

Auditor

Ernst & Young will retire and, being eligible, offer themselves for reappointment. A resolution for their re-appointment as auditor of the Company will be proposed at the forthcoming annual general meeting of the Company.

Sufficiency of Public Float

Based on information that is publicly available to the Company and within the knowledge of the Directors as at the date of this annual report, the Company has maintained the prescribed public float of not less than 25% of the Company's issued Shares as required under the Listing Rules for the year ended 31 December 2020.

Bank Loans

Details of bank loans of the Company and the Group as at 31 December 2020 are set out in note 28 to the financial statements.

Five-Year Summary

A summary of the results and of the assets and liabilities of the Group for the last five financial years is set out on page 4 of this annual report.

On behalf of the Board

Ding Shui Po

Chairman

Hong Kong, 18 March 2021

INDEPENDENT AUDITOR'S REPORT

To the shareholders of Xtep International Holdings Limited

(Incorporated in the Cayman Islands with limited liability)

Opinion

We have audited the consolidated financial statements of Xtep International Holdings Limited (the "Company") and its subsidiaries (the "Group") set out on pages 83 to 174, which comprise the consolidated statement of financial position as at 31 December 2020, and the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2020, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards ("HKFRSs") issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA") and have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance.

Basis for Opinion

We conducted our audit in accordance with Hong Kong Standards on Auditing ("HKSAs") issued by the HKICPA. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the consolidated financial statements section of our report. We are independent of the Group in accordance with the HKICPA's Code of Ethics for Professional Accountants (the "Code"), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the Auditor's responsibilities for the audit of the consolidated financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying consolidated financial statements.

Key Audit Matters (Continued)

Key audit matter

How our audit addressed the key audit matter

Impairment assessment of trade receivables

As at 31 December 2020, the Group had gross trade receivables of RMB3,144 million, after netting off the impairment provision of RMB384 million, resulted in a net trade receivables of RMB2,760 million. Significant judgement and estimation by management are involved in the assessment of impairment, based on the lifetime expected credit loss to be incurred, by taking into account the ageing of trade receivable balances, the credit quality and credit loss history of debtors, and the prevailing sportswear market conditions. Both current and future general economic conditions are also taken into consideration by management in the estimation. Where the expectation is different from the original estimate, such difference will impact the carrying value of the trade receivables and the loss allowance for trade receivables in the year in which such estimate has been changed.

Our procedures included, among others, reviewing management's assessment on the recoverability of the trade receivable balances with reference to various factors such as historical settlement and settlement received from customers subsequent to the end of the reporting period. We test checked the accuracy of the ageing classification of these balances. We also evaluated management's assessment of the credit quality of customers based on the sales and repayment history. In addition, we examined the information used by management to estimate the loss allowance for trade receivables, including testing of the historical default data, evaluating adjustments made to the historical loss rates based on current economic conditions and forward-looking information by checking to the published macroeconomics factors, and examining the actual losses recorded during the current financial year.

The significant judgement and estimates and disclosures for the recognition of impairment of trade receivables are included in notes 3 and 22 to the consolidated financial statements.

Provision for inventories

As at 31 December 2020, the Group had gross inventories of RMB1,055 million, after netting off the provision of RMB80 million, resulted in a net inventories of RMB975 million. Because of the fast changing market conditions, significant judgement and estimation by management are involved in identifying inventories with net realisable values that are lower than their costs, and obsolescence, with reference to the selling prices and salability of inventories, and the prevailing sportswear sales trend in markets.

Our procedures included, among others, selecting samples of inventories and reviewing their net realisable values with reference to their selling prices subsequent to the end of the reporting period and the Group's pricing strategy, including any management's plan for significant discounts to be offered which may affect the net realisable values of these inventory items. We evaluated management's assessment of obsolescence of inventories with reference to their ageing, the condition of inventories during our observation of physical inventory count, and the historical sales trend of sportswear products.

The related judgement and estimates and the provision for inventories are disclosed in notes 3 and 21 to the consolidated financial statements.

Key audit matters (Continued)

Key audit matter

How our audit addressed the key audit matter

Impairment assessment of goodwill and intangible assets

As at 31 December 2020, the goodwill and intangible assets amounted to RMB787 million and RMB700 million, respectively, which arose from the business combination in 2019.

Our procedures included, among others, reviewing management's method in determination of the CGUs and the recoverable amounts.

The Group is required to, at least annually, perform impairment assessments of goodwill and intangible assets that have an indefinite useful life. For intangible assets with finite useful lives, the Group is required to review these for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable.

With the assistance of our internal valuation specialists, we assessed the appropriateness of the valuation methodology and reviewed the key assumptions used in the VIU calculations which related to the forecasted revenue growth rates, discount rate and long term growth rate taking into consideration external data as well as our knowledge and experience. We reviewed the VIU calculations prepared by management and reperformed the calculations to check their arithmetic accuracy.

For the purpose of performing impairment assessments, the goodwill and intangible assets have been allocated to the relevant cash-generating unit ("CGU"). The recoverable amount of the underlying CGUs is supported by value-in-use ("VIU") calculations based on discounted cash flow projections.

We reviewed the discounted cash flow projections used, by comparing them to historical performance of market players and current actual performance of the CGUs. We also assessed the adequacy of the disclosures made in the financial statements on the impairment assessment.

The assumptions used in the discounted cash flow projections requires significant judgement and estimates by management, particularly management's view of key internal inputs and external market conditions which impact the forecasted revenue growth rates, the discount rate and the long term growth rate.

Disclosures of the related judgement and estimates and information about the impairment assessment are included in notes 3, 17 and 18 to the consolidated financial statements.

Other Information Included in the Annual Report

The directors of the Company are responsible for the other information. The other information comprises the information included in the Annual Report, other than the consolidated financial statements and our auditor's report thereon.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the Directors for the Consolidated Financial Statements

The directors of the Company are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with HKFRSs issued by the HKICPA and the disclosure requirements of the Hong Kong Companies Ordinance, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the directors of the Company are responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors of the Company either intend to liquidate the Group or to cease operations or have no realistic alternative but to do so.

The directors of the Company are assisted by the Audit Committee in discharging their responsibilities for overseeing the Group's financial reporting process.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Our report is made solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with HKSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements (Continued)

As part of an audit in accordance with HKSAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

• • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control.

• • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.

• • Conclude on the appropriateness of the directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.

• • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements (Continued)

We communicate with the Audit Committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied.

From the matters communicated with the Audit Committee, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditor's report is Chung Yuk Man.

Ernst & Young

Certified Public Accountants 22/F CITIC Tower

1 Tim Mei Avenue Central

Hong Kong

18 March 2021

CONSOLIDATED INCOME STATEMENT

Year ended 31 December 2020

2020	2019
Notes	RMB'000	RMB'000
REVENUE	5	8,171,923	8,182,721
Cost of sales	(4,973,498)	(4,632,296)
Gross profit	3,198,425	3,550,425
Other income and gains	5	307,346	308,283
Selling and distribution expenses	(1,537,304)	(1,718,446)
General and administrative expenses	(1,050,281)	(906,261)
Operating profit	918,186	1,234,001
Net finance costs	7	(139,540)	(110,871)
Share of losses of associates	19	(17,004)	(1,982)
PROFIT BEFORE TAX	6	761,642	1,121,148
Income tax expense	10	(256,620)	(389,701)
PROFIT FOR THE YEAR	505,022	731,447
Attributable to:
Ordinary equity holders of the Company	513,030	727,652
Non-controlling interests	(8,008)	3,795
505,022	731,447
EARNINGS PER SHARE ATTRIBUTABLE TO
ORDINARY EQUITY HOLDERS OF THE COMPANY	12
- Basic	RMB20.83 cents	RMB30.72 cents
- Diluted	RMB20.64 cents	RMB30.19 cents

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Year ended 31 December 2020

2020	2019
Notes	RMB'000	RMB'000
PROFIT FOR THE YEAR	505,022	731,447
OTHER COMPREHENSIVE INCOME/(EXPENSE)
Other comprehensive income that may be reclassified to
profit or loss in subsequent periods:
Exchange differences on translation of financial statements of operations outside Mainland China	29,972	56,239
Other comprehensive income/(expense) that will not be reclassified to
profit or loss in subsequent periods:
Equity investments designated at fair value through other comprehensive income:
Changes in fair value	20	6,500	8,900
Income tax effect	29	(975)	(1,335)
5,525	7,565
Other comprehensive income for the year, net of tax	35,497	63,804
TOTAL COMPREHENSIVE INCOME FOR THE YEAR	540,519	795,251
Attributable to:
Ordinary equity holders of the Company	548,904	791,456
Non-controlling interests	(8,385)	3,795
540,519	795,251

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

31 December 2020

2020	2019
Notes	RMB'000	RMB'000
NON-CURRENT ASSETS
Property, plant and equipment	13	796,230	661,732
Investment properties	14	31,170	33,985
Right-of-use assets	15(a)	429,283	356,242
Deposits for acquisition of land use rights	16	-	60,105
Goodwill	17	787,112	833,938
Intangible assets	18	709,415	809,892
Investments in associates	19	33,691	39,161
Equity investments designated at fair value through other comprehensive income	20	184,565	158,100
Deposits and other assets	23	72,931	103,557
Term deposits	25	500,000	-
Total non-current assets	3,544,397	3,056,712
CURRENT ASSETS
Inventories	21	974,803	1,046,286
Trade receivables	22	2,760,306	2,596,449
Bills receivable	22	475,500	313,500
Prepayments, other receivables and other assets	23	898,937	817,739
Tax recoverable	8,498	5,359
Structured bank deposits	24	-	800,000
Pledged bank deposits	25	437,297	717,034
Cash and cash equivalents	25	3,471,951	2,969,504
Total current assets	9,027,292	9,265,871
CURRENT LIABILITIES
Trade payables	26	1,478,866	1,419,700
Other payables and accruals	27	1,051,972	980,586
Interest-bearing bank borrowings	28	642,335	1,086,338
Lease liabilities	15(b)	74,845	68,850
Deferred subsidies	30	577	577
Tax payable	85,719	115,093
Total current liabilities	3,334,314	3,671,144
NET CURRENT ASSETS	5,692,978	5,594,727
TOTAL ASSETS LESS CURRENT LIABILITIES	9,237,375	8,651,439

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

31 December 2020

2020	2019
Notes	RMB'000	RMB'000
NON-CURRENT LIABILITIES
Interest-bearing bank borrowings	28	1,515,507	1,268,527
Derivative financial instruments	27	21,912	-
Lease liabilities	15(b)	130,858	107,308
Deferred tax liabilities	29	237,027	280,393
Deferred subsidies	30	20,495	21,074
Other liabilities	12,851	13,899
Total non-current liabilities	1,938,650	1,691,201
NET ASSETS	7,298,725	6,960,238
EQUITY
Equity attributable to ordinary equity holders of the Company
Share capital	31	22,395	22,093
Reserves	32	7,200,938	6,868,381
7,223,333	6,890,474
Non-controlling interests	75,392	69,764
Total equity	7,298,725	6,960,238
Ding Shui Po
Director

Ding Mei Qing Director

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Attributable to ordinary equity holders of the Company

Year ended 31 December 2020

Reserves

Share	Statutory	Share	Share	Exchange	Fair	Non-
Share	premium	Capital	surplus	Treasury	award	option	fluctuation	value	Retained	Total	controlling	Total
capital	account	reserve	fund	shares	reserve	reserve	reserve	reserve	profits	reserves	Total	interests	equity
Notes	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000
(note 31)	(note 46)	(note 32(i))	(note 32(ii))	(note 32(v))	(note 32(vi))	(note 46)	(note 32(iii))	(note 32(iv))
At 1 January 2019	19,782	326,547	118,615	833,357	(132,691)	5,479	76,054	(138,082)	18,500	4,196,466	5,304,245	5,324,027	4,687	5,328,714
Profit for the year	-	-	-	-	-	-	-	-	-	727,652	727,652	727,652	3,795	731,447
Other comprehensive income for the year	-	-	-	-	-	-	-	56,239	7,565	-	63,804	63,804	-	63,804
Total comprehensive income for the year	-	-	-	-	-	-	-	56,239	7,565	727,652	791,456	791,456	3,795	795,251
Awarded shares forfeited	34	-	-	-	-	(437)	(29)	-	-	-	466	-	-	-	-
Equity-settled share award arrangement	34	-	-	-	-	24,327	-	-	-	-	-	24,327	24,327	-	24,327
Awarded shares vested	34	-	-	-	-	-	(990)	-	-	-	990	-	-	-	-
2018 final dividend declared and paid	11	-	-	-	-	-	-	-	-	-	(203,018)	(203,018)	(203,018)	-	(203,018)
2019 interim dividend declared and paid	11	-	-	-	-	-	-	-	-	-	(274,728)	(274,728)	(274,728)	-	(274,728)
Exercise of share options	31(i)	83	37,827	-	-	-	-	(8,023)	-	-	-	29,804	29,887	-	29,887
Placing of shares	31(ii)	2,115	1,158,123	-	-	-	-	-	-	-	-	1,158,123	1,160,238	-	1,160,238
Shares issued in lieu of cash dividend	31(iii)	113	48,231	-	-	(7,030)	-	-	-	-	-	41,201	41,314	-	41,314
Repurchase of shares	32(v)	-	-	-	-	(3,029)	-	-	-	-	-	(3,029)	(3,029)	-	(3,029)
Formation of subsidiaries	1	-	-	-	-	-	-	-	-	-	-	-	-	58,800	58,800
Transfer to statutory surplus fund	-	-	-	40,051	-	-	-	-	-	(40,051)	-	-	-	-
Exchange difference related to foreign operations	-	-	-	-	-	-	-	-	-	-	-	-	2,482	2,482
At 31 December 2019	22,093	1,570,728	118,615	873,408	(118,860)	4,460	68,031	(81,843)	26,065	4,407,777	6,868,381	6,890,474	69,764	6,960,238
At 1 January 2020

At 1 January 2020 Profit for the year Other comprehensive income/(expense) for the year	22,093 1,570,728 - - - - 118,615 - - 873,408 - - (118,860) - - 4,460 - - 68,031 - (81,843) 26,065 4,407,777 6,868,381 6,890,474 69,764 6,960,238 - - 513,030 513,030 513,030 (8,008) 505,022 - 30,349 5,525 - 35,874 35,874 (377) 35,497
Total comprehensive income for the year Equity-settled share award arrangement 34 Awarded shares vested 34 2019 final dividend declared and paid 11 2020 interim dividend declared and paid 11 Placing of shares 31(iv) Exercise of share options 31(i) Shares issued in lieu of cash dividend 31(iii) Lapse of share options Repurchase of shares 32(v)Capital contribution from non-controlling interest Deemed acquisition of a non-controlling interest Transfer to statutory surplus fund 1 Dividends for treasury shares	- - - - - 44 110 148 - - - - - - - - - - - 10,804 33,576 37,394 - - - - - - - - - - - - - - - - - - - - - 15,922 - - - 30,349 - - - - - - (1,286) - - - - - - - - - - - - - (7,798) - (7,398) - - - - - (60,233) - (5,985) - - - 18,623 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 5,525 - - - - - - - 513,030 - 1,286 (169,312) (139,917) 548,904 15,922 - 548,904 (8,385) 540,519 15,922 - - 15,922 - - (169,312) (169,312) - (169,312) (139,917) (139,917) - (139,917) - - - - 60,233 10,804 25,778 29,996 - 10,848 - 10,848 25,888 - 25,888 30,144 - - 30,144 - - - - - (5,985) (5,985) - (5,985) - - 10,889 - (18,623) - 5,478 - 10,889 - 5,478 - 10,889 - 24,902 (10,889) 5,478 - - 24,902 - - 5,478
At 31 December 2020	22,395 1,652,502 118,615 892,031 (116,321) 3,174 - (51,494) 31,590 4,670,841 7,200,938 7,223,333 75,392 7,298,725

CONSOLIDATED STATEMENT OF CASH FLOWS

Year ended 31 December 2020

2020	2019
Notes	RMB'000	RMB'000
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax	761,642	1,121,148
Adjustments for:
Depreciation property, plant and equipment and investment properties	6	66,613	83,883
Depreciation of right-of-use assets	15(a)	84,849	45,788
Share of losses of associates	19	17,004	1,982
Amortisation of intangible assets	18	14,158	6,800
Covid-19-related rent concessions	15(b)	(2,869)	-
Gain on termination of lease	6	(117)	-
Impairment of right-of-use assets	15(a)	11,769	-
Loss on write-off of items of property, plant and equipment	6	715	8,950
Gain on disposal of intangible assets	5	(3,051)	-
Gain on disposal of a subsidiary	36	-	(53,175)
Bank interest income	7	(4,292)	(29,448)
Interest expense on bank loans	7	58,912	65,964
Interest expense on discounted bills receivable	7	49,497	63,756
Interest on lease liabilities	7	8,183	6,546
Amortisation of bank charges on syndicated loans	7	4,246	4,053
Dividend income derived from an equity investment designated
at fair value through other comprehensive income	5	-	(3,600)
Fair value loss, net:
Derivative financial instruments - transactions not qualified as hedges	7	22,994	-
Equity-settled share award scheme expense	34	15,922	24,327
Impairment/(write-back of impairment) of trade receivables, net	6	35,709	(79,406)
Provision for inventories	6	23,044	5,632
Income derived from financial assets at fair value through
profit or loss, term deposits and structured bank deposits	5	(96,604)	(96,786)
1,068,324	1,176,414
Decrease in inventories	35,807	61,409
Increase in trade and bills receivables	(368,676)	(522,425)
Increase in prepayments, other receivables and other assets	(134,363)	(15,269)
Increase in trade payables	63,461	433,817
Increase in other payables and accruals	84,219	78,521
Cash generated from operations	748,772	1,212,467
Interest received	4,292	29,448
Interest paid	(108,409)	(129,720)
Overseas taxes paid	(324,548)	(334,119)
Net cash flows from operating activities	320,107	778,076

CONSOLIDATED STATEMENT OF CASH FLOWS

Year ended 31 December 2020

2020	2019
Notes	RMB'000	RMB'000
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of items of property, plant and equipment	13	(206,632)	(96,981)
Additions of intangible assets	18	(4,409)	(2,834)
Decrease in deposits for purchase of items of property, plant and equipment	30,626	6,575
Additions of investments in associates	(12,442)	(39,200)
Acquisition of subsidiaries	35	-	(1,690,983)
Proceeds from disposal of a subsidiary	36	-	45,000
Proceeds from disposal of intangible assets	49,850	-
Decrease/(increase) in pledged deposits	279,737	(511,554)
Decrease in structured bank deposits	800,000	180,000
Increase in term deposits	(500,000)	-
Capital injection in an equity investment designated
at fair value through other comprehensive income	20	(19,965)	(35,000)
Income derived from financial assets at fair value
through profit or loss, term deposits and structured bank deposits	5	96,604	96,786
Settlement of loan to a then investee company	23	60,000	-
Dividend income from an equity investment designated
at fair value through other comprehensive income	5	-	3,600
Net cash flows from/(used in) investing activities	573,369	(2,044,591)
CASH FLOWS FROM FINANCING ACTIVITIES
New bank loans, net of bank charges on syndicated loans	433,469	1,764,270
Repayment of bank loans	(510,182)	(1,377,851)
Net proceeds from issue of ordinary shares	31	25,888	29,887
Net proceeds from placing of shares	31	10,848	1,160,238
Principal elements of lease payments	(83,616)	(44,255)
Capital contribution from a non-controlling interest	24,902	58,800
Repurchase of shares under share award scheme	32(v)	(5,985)	(3,029)
Acquisition of non-controlling interests	-	(131,860)
Dividends paid	11	(279,085)	(436,432)
Exchange realignment	3,401	19,302
Net cash flows from/(used in) financing activities	(380,360)	1,039,070
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS	513,116	(227,445)
Cash and cash equivalents at beginning of year	2,969,504	3,195,809
Effect of foreign exchange rate changes, net	(10,669)	1,140
CASH AND CASH EQUIVALENTS AT END OF YEAR	3,471,951	2,969,504
ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS
Cash and cash equivalents as stated in the consolidated statement of
financial position and the consolidated statement of cash flows	3,471,951	2,969,504

NOTES TO FINANCIAL STATEMENTS

31 December 2020

1. Corporate and Group Information

Xtep International Holdings Limited (the "Company") is a limited liability company incorporated in the Cayman Islands. The Company's principal place of business in Hong Kong is located at Unit A, 27/F, Tower A, Billion Centre, 1 Wang Kwong Road, Kowloon Bay, Kowloon, Hong Kong.

During the year, the Company and its subsidiaries (collectively referred to as the "Group") were engaged in the design, development, manufacture and marketing of sportswear, including footwear, apparel and accessory products. There were no significant changes in the nature of the Group's principal activities during the year.

In the opinion of the directors, the ultimate holding company of the Company is Wan Xing International Holdings Limited ("Wan Xing"), which is a limited liability company incorporated in the British Virgin Islands ("BVI").

Information about subsidiaries

Particulars of the Company's principal subsidiaries are as follows:

NamePlace of incorporation or establishment/ business

Issued ordinary share/ registered and paid-up capital

Percentage of equity attributable to the Company Direct IndirectPrincipal activities

Xtep International Development Limited

BVI

US$10,000

Xtep International E-Commerce Investment Limited

BVI

US$50,000

100 100

• - Investment holding

• - Investment holding

("E-Commerce")Xtep (Hong Kong) Enterprise Limited

Hong Kong

HK$1,000

Xtep Global Limited (note (d))

Hong Kong

HK$10,000

तӉණྠϞࠢʮ̡ (notes (b) and (c))

People's Republic of China

HK$1,324 million

- - -

• 100 Investment holding

• 100 Investment holding

• 100 Investment holding

  ("PRC")/Mainland China

  तӉʕ਷Ϟࠢʮ̡ ("Xtep China")

  PRC/Mainland China

  HK$830 million

  -

  (notes (b) and (c))

• 100 Manufacture and trading of sportswear

  Koling (Fujian) Garment Co., Ltd.

  PRC/Mainland China

  HK$158 million

  -

  (notes (b) and (c))

• 100 Manufacture and trading of sportswear

  Xtep Sports Goods Co., Ltd. Jinjiang

  PRC/Mainland China

  US$6 million

  -

  (notes (b) and (c))

• 100 Manufacture and trading of sportswear

  Xiamen Xtep Investment Company Limited

  PRC/Mainland China

  RMB50 million

  -

• 100 Trading of sportswear

(notes (a) and (c))

31 December 2020

1.

Corporate and Group Information (Continued)

Information about subsidiaries (Continued)

Place of incorporation or establishment/Name

businessIssued ordinary share/ registered and paid-up capital

Percentage of equity attributable to the Company Direct IndirectPrincipal activities

तӉ€τᏏϞࠢʮ̡ ("Xtep Anhui")

PRC/Mainland China

RMB450 million

-

(notes (b) and (c))

• 100 Manufacture and trading of sportswear

  तӉಳی᜗ԃۜ͜Ϟࠢʮ̡

  PRC/Mainland China

  RMB50 million

  -

  (notes (b) and (c))

• 100 Manufacture of sportswear

  ࣜϪतӉ൱׸Ϟࠢʮ̡ (notes (b) and (c))

  PRC/Mainland China

  RMB10 million

  ขژ̹तӉՅഁۜ͜Ϟࠢʮ̡ ("तӉՅഁ")

  PRC/Mainland China

  HK$30 million

  - -

• 100 Trading of sportswear

• 96 Trading of sportswear

(notes (b), (c) and (i))

• (2019: 82)

  ขژतጳ൱׸Ϟࠢʮ̡ (notes (b) and (c))

  PRC/Mainland China

  RMB30 million

  ขژ˂ቌᇝཥɿਠਕϞࠢʮ̡ (notes (a) and (c))

  PRC/Mainland China

  HK$20 million

  ၅ܔ޲तӉɓΤ؂ུϞࠢʮ̡ ("Xtep YiMing")

  PRC/Mainland China

  RMB10 million

  - - -

• 100 Trading of sportswear

• 100 Trading of sportswear

• 100 Trading of sportswear

  (notes (b) and (c))K-Swiss Holdings, Inc ("K-Swiss Holdings")

  U.S.

  US$212

  -

• 100 Investment holding

  (notes (c), (d) and (e))K-Swiss Inc. (notes (c) and (e))

  U.S.

  US$60

  KSGB Europe SAS (notes (c) and (g))

  France

  Euro2.6 million

  K-Swiss (Hong Kong) Ltd. (notes (c) and (f))

  Bermuda/Hong Kong

  US$10,000

  Merrell Distribution Operations Limited

  BVI

  US$100

  - - - -

• 100 Trading of sportswear

• 100 Trading of sportswear

• 100 Trading of sportswear

• 51 Investment holding

  (notes (c) and (h))Saucony Distribution Operations Limited

  BVI

  US$100

  -

• 51 Investment holding

(notes (c) and (h))

31 December 2020

1. Corporate and Group Information (Continued)

Information about subsidiaries (Continued)

Notes:

• (a) The entities are wholly-foreign-owned enterprises and limited liability companies established in the PRC.

• (b) The entities are registered as limited liability companies in the PRC.

• (c) The registered capital of these entities was fully paid up as at 31 December 2020.

• (d) During the year ended 31 December 2019, Xtep Global Limited acquired 100% equity interests in K-Swiss Holdings at a cash consideration of US$260,000,000. Details are disclosed in note 35 to the financial statements.

• (e) These entities are registered under the laws of the State of Delaware, the United States.

• (f) This entity is incorporated in Bermuda with limited liability under the Companies Act 1981 of Bermuda.

• (g) The entity is incorporated in France with limited liability under the Commercial Code of France.

• (h) During the year ended 31 December 2019, these entities together with the associates detailed in note 19 were established for holding the subsidiaries carrying out the development, marketing and distribution of footwear, apparel and accessories under the Merrell and Saucony brands in Mainland China, Hong Kong and Macau. Investment costs of RMB24.9 million (2019: RMB58.8 million) were contributed from a non-controlling interest during the year.

• (i) During the year ended 31 December 2020, the Group contributed RMB91.0 million into तӉՅഁ while no further contribution was made by the non-controlling shareholder. Accordingly, the equity interest of the non-controlling shareholder was diluted from 18% to 4%, which constituted a deemed acquisition of non-controlling interest. The difference of RMB10,889,000 between the net asset value of तӉՅഁ owned by the non-controlling shareholder before and after the deemed acquisition, was transferred from non-controlling interest to retained profits.

The above table lists the subsidiaries of the Company which, in the opinion of the directors, principally affected the results for the year or formed a substantial portion of the net assets of the Group. To give details of other subsidiaries would, in the opinion of the directors, result in particulars of excessive length.

2.1 Basis of Preparation

These financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards ("HKFRSs") (which include all Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards ("HKASs") and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA"), accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. They have been prepared under the historical cost convention, except for financial assets at fair value through profit or loss and financial assets at fair value through other comprehensive income, structured bank deposits and derivative financial instruments which have been measured at fair value. These financial statements are presented in Renminbi ("RMB") and all values are rounded to the nearest thousand except when otherwise indicated.

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries for the year ended 31 December 2020. A subsidiary is an entity (including a structured entity), directly or indirectly, controlled by the Company. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee (i.e., existing rights that give the Group the current ability to direct the relevant activities of the investee).

31 December 2020

• 2.1 Basis of Preparation (Continued)

  Basis of consolidation (Continued)

  When the Company has, directly or indirectly, less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

  • (a) the contractual arrangement with the other vote holders of the investee;

  • (b) rights arising from other contractual arrangements; and

  • (c) the Group's voting rights and potential voting rights.

  The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. The results of subsidiaries are consolidated from the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases.

  Profit or loss and each component of other comprehensive income are attributed to the owners of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

  The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control described above. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

  If the Group loses control over a subsidiary, it derecognises (i) the assets (including goodwill) and liabilities of the subsidiary, (ii) the carrying amount of any non-controlling interest and (iii) the cumulative translation differences recorded in equity; and recognises (i) the fair value of the consideration received, (ii) the fair value of any investment retained and (iii) any resulting surplus or deficit in income statement. The Group's share of components previously recognised in other comprehensive income is reclassified to income statement or retained profits, as appropriate, on the same basis as would be required if the Group had directly disposed of the related assets or liabilities.

• 2.2 Changes in Accounting Policies and Disclosures

  The Group has adopted the Conceptual Framework for Financial Reporting 2018 and the following revised HKFRSs for the first time for the current year's financial statements.

Amendments to HKFRS 3

Definition of a Business

Amendments to HKFRS 9, HKAS 39 and HKFRS 7 Interest Rate Benchmark ReformAmendments to HKFRS 16

Amendments to HKAS 1 and HKAS 8

Covid-19-Related Rent Concessions (early adopted) Definition of Material

Other than as explained below regarding the impact of Amendments to HKFRS 16, the adoption of the above revised standards has had no significant financial effect on these financial statements.

31 December 2020

• 2.2 Changes in Accounting Policies and Disclosures (Continued)

  Amendment to HKFRS 16 provides a practical expedient for lessees to elect not to apply lease modification accounting for rent concessions arising as a direct consequence of the Covid-19 pandemic. The practical expedient applies only to rent concessions occurring as a direct consequence of the pandemic and only if (i) the change in lease payments results in revised consideration for the lease that is substantially the same as, or less than, the consideration for the lease immediately preceding the change; (ii) any reduction in lease payments affects only payments originally due on or before 30 June 2021; and (iii) there is no substantive change to other terms and conditions of the lease. The amendment is effective for annual periods beginning on or after 1 June 2020 with earlier application permitted and shall be applied retrospectively.

  During the year ended 31 December 2020, certain monthly lease payments for the leases of the Group's stores have been reduced or waived by the lessors as a result of the pandemic and there are no other changes to the terms of the leases. The Group has early adopted the amendment on 1 January 2020 and elected not to apply lease modification accounting for all rent concessions granted by the lessors as a result of the pandemic during the year ended 31 December 2020. Accordingly, a reduction in the lease payments arising from the rent concessions of RMB2,869,000 has been accounted for as a variable lease payment by derecognising part of the lease liabilities and crediting to profit or loss for the year ended 31 December 2020.

• 2.3 Issued but not yet Effective Hong Kong Financial Reporting Standards

  The Group has not applied the following new and revised HKFRSs, that have been issued but are not yet effective, in these financial statements.

• 1 Effective for annual periods beginning on or after 1 January 2021

• 2 Effective for annual periods beginning on or after 1 January 2022

• 3 Effective for annual periods beginning on or after 1 January 2023

• 4 No mandatory effective date yet determined but available for adoption

• 5 As a consequence of the amendments to HKAS 1, Hong Kong Interpretation 5 Presentation of Financial Statements - Classification by the Borrower of a Term Loan that Contains a Repayment on Demand Clause was revised in October 2020 to align the corresponding wording with no change in conclusion

• 6 As a consequence of the amendments to HKFRS 17 issued in October 2020, HKFRS 4 was amended to extend the temporary exemption that permits insurers to apply HKAS 39 rather than HKFRS

• 9 for annual periods beginning before 1 January 2023

Amendments to HKFRS 3	Reference to the Conceptual Framework 2
Amendments to HKFRS 9, HKAS 39, HKFRS 7,	Interest Rate Benchmark Reform - Phase 2 1
HKFRS 4 and HKFRS 16
Amendments to HKFRS 10 and HKAS 28 (2011)	Sale or Contribution of Assets between an Investor and its Associate or Joint Venture 4
HKFRS 17	Insurance Contracts 3
Amendments to HKFRS 17	Insurance Contracts 3, 6
Amendments to HKAS 1	Classification of Liabilities as Current or Non-current 3,5
Amendments to HKAS 16	Property, Plant and Equipment: Proceeds before Intended Use 2
Amendments to HKAS 37	Onerous Contracts - Cost of Fulfilling a Contract 2
Annual Improvements to HKFRSs 2018-2020	Amendments to HKFRS 1, HKFRS 9, Illustrative Examples accompanying HKFRS 16,
and HKAS 41 2

31 December 2020

2.3 Issued but not yet Effective Hong Kong Financial Reporting Standards (Continued)

Further information about those HKFRSs that are expected to be applicable to the Group is described below.

Amendments to HKFRS 3 are intended to replace a reference to the previous Framework for the Preparation and Presentation of Financial Statements with a reference to the Conceptual Framework for Financial Reporting issued in June 2018 without significantly changing its requirements. The amendments also add to HKFRS 3 an exception to its recognition principle for an entity to refer to the Conceptual Framework to determine what constitutes an asset or a liability. The exception specifies that, for liabilities and contingent liabilities that would be within the scope of HKAS 37 or HK(IFRIC)-Int 21 if they were incurred separately rather than assumed in a business combination, an entity applying HKFRS 3 should refer to HKAS 37 or HK(IFRIC)-Int 21 respectively instead of the Conceptual Framework. Furthermore, the amendments clarify that contingent assets do not qualify for recognition at the acquisition date. The Group expects to adopt the amendments prospectively from 1 January 2022. Since the amendments apply prospectively to business combinations for which the acquisition date is on or after the date of first application, the Group will not be affected by these amendments on the date of transition.

Amendments to HKFRS 9, HKAS 39, HKFRS 7, HKFRS 4 and HKFRS 16 address issues not dealt with in the previous amendments which affect financial reporting when an existing interest rate benchmark is replaced with an alternative RFR. The Phase 2 amendments provide a practical expedient to allow the effective interest rate to be updated without adjusting the carrying amount when accounting for changes in the basis for determining the contractual cash flows of financial assets and liabilities, if the change is a direct consequence of the interest rate benchmark reform and the new basis for determining the contractual cash flows is economically equivalent to the previous basis immediately preceding the change. In addition, the amendments permit changes required by the interest rate benchmark reform to be made to hedge designations and hedge documentation without the hedging relationship being discontinued. Any gains or losses that could arise on transition are dealt with through the normal requirements of HKFRS 9 to measure and recognise hedge ineffectiveness. The amendments also provide a temporary relief to entities from having to meet the separately identifiable requirement when an RFR is designated as a risk component. The relief allows an entity, upon designation of the hedge, to assume that the separately identifiable requirement is met, provided the entity reasonably expects the RFR risk component to become separately identifiable within the next 24 months. Furthermore, the amendments require an entity to disclose additional information to enable users of financial statements to understand the effect of interest rate benchmark reform on an entity's financial instruments and risk management strategy. The amendments are effective for annual periods beginning on or after 1 January 2021 and shall be applied retrospectively, but entities are not required to restate the comparative information.

The Group had certain interest-bearing bank borrowings denominated in Hong Kong dollars based on the Hong Kong Interbank Offered Rate ("HIBOR") as at 31 December 2020. If the interest rates of these borrowings are replaced by RFRs in a future period, the Group will apply this practical expedient upon the modification of these borrowings when the "economically equivalent" criterion is met and expects that no significant modification gain or loss will arise as a result of applying the amendments to these changes.

31 December 2020

2.3 Issued but not yet Effective Hong Kong Financial Reporting Standards (Continued)

Amendments to HKFRS 10 and HKAS 28 (2011) address an inconsistency between the requirements in HKFRS 10 and in HKAS 28 (2011) in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The amendments require a full recognition of a gain or loss when the sale or contribution of assets between an investor and its associate or joint venture constitutes a business. For a transaction involving assets that do not constitute a business, a gain or loss resulting from the transaction is recognised in the investor's profit or loss only to the extent of the unrelated investor's interest in that associate or joint venture. The amendments are to be applied prospectively. The previous mandatory effective date of amendments to HKFRS 10 and HKAS 28 (2011) was removed by the HKICPA in January 2016 and a new mandatory effective date will be determined after the completion of a broader review of accounting for associates and joint ventures. However, the amendments are available for adoption now.

Amendments to HKAS 1 clarify the requirements for classifying liabilities as current or non-current. The amendments specify that if an entity's right to defer settlement of a liability is subject to the entity complying with specified conditions, the entity has a right to defer settlement of the liability at the end of the reporting period if it complies with those conditions at that date. Classification of a liability is unaffected by the likelihood that the entity will exercise its right to defer settlement of the liability. The amendments also clarify the situations that are considered a settlement of a liability. The amendments are effective for annual periods beginning on or after 1 January 2023 and shall be applied retrospectively. Earlier application is permitted. The amendments are not expected to have any significant impact on the Group's financial statements.

Amendments to HKAS 16 prohibit an entity from deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognises the proceeds from selling any such items, and the cost of those items, in profit or loss. The amendments are effective for annual periods beginning on or after 1 January 2022 and shall be applied retrospectively only to items of property, plant and equipment made available for use on or after the beginning of the earliest period presented in the financial statements in which the entity first applies the amendments. Earlier application is permitted. The amendments are not expected to have any significant impact on the Group's financial statements.

Amendments to HKAS 37 clarify that for the purpose of assessing whether a contract is onerous under HKAS 37, the cost of fulfilling the contract comprises the costs that relate directly to the contract. Costs that relate directly to a contract include both the incremental costs of fulfilling that contract (e.g., direct labour and materials) and an allocation of other costs that relate directly to fulfilling that contract (e.g., an allocation of the depreciation charge for an item of property, plant and equipment used in fulfilling the contract as well as contract management and supervision costs). General and administrative costs do not relate directly to a contract and are excluded unless they are explicitly chargeable to the counterparty under the contract. The amendments are effective for annual periods beginning on or after 1 January 2022 and shall be applied to contracts for which an entity has not yet fulfilled all its obligations at the beginning of the annual reporting period in which it first applies the amendments. Earlier application is permitted. Any cumulative effect of initially applying the amendments shall be recognised as an adjustment to the opening equity at the date of initial application without restating the comparative information. The amendments are not expected to have any significant impact on the Group's financial statements.

31 December 2020

• 2.3 Issued but not yet Effective Hong Kong Financial Reporting Standards (Continued)

  Annual Improvements to HKFRSs 2018-2020 sets out amendments to HKFRS 1, HKFRS 9, Illustrative Examples accompanying HKFRS 16, and HKAS 41. Details of the amendments that are expected to be applicable to the Group are as follows:

  • • HKFRS 9 Financial Instruments: clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability. These fees include only those paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other's behalf. An entity applies the amendment to financial liabilities that are modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies the amendment. The amendment is effective for annual periods beginning on or after 1 January 2022. Earlier application is permitted. The amendment is not expected to have a significant impact on the Group's financial statements.

  • • HKFRS 16 Leases: removes the illustration of payments from the lessor relating to leasehold improvements in Illustrative Example 13 accompanying HKFRS 16. This removes potential confusion regarding the treatment of lease incentives when applying HKFRS 16.

  The Group is in the process of making an assessment of the impact of the other new and revised HKFRSs upon initial application but is not yet in a position to state whether these new and revised HKFRSs would have a significant impact on the Group's results of operations and financial position.

• 2.4 Summary of Significant Accounting Policies

  Investments in associates

  An associate is an entity in which the Group has a long term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies.

  The Group's investments in associates are stated in the consolidated statement of financial position at the Group's share of net assets under the equity method of accounting, less any impairment losses. The Group's share of the post-acquisition results and other comprehensive income of associates is included in the consolidated income statement and consolidated other comprehensive income, respectively. In addition, when there has been a change recognised directly in the equity of the associate, the Group recognises its share of any changes, when applicable, in the consolidated statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and its associates are eliminated to the extent of the Group's investments in the associates, except where unrealised losses provide evidence of an impairment of the assets transferred.

  If an investment in an associate becomes an investment in a joint venture, the retained interest is not remeasured. Instead, the investment continues to be accounted for under the equity method. In all other cases, upon loss of significant influence over the associate or joint control over the joint venture, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate or joint venture upon loss of significant influence or joint control and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss.

  When an investment in an associate or a joint venture is classified as held for sale, it is accounted for in accordance with HKFRS 5 Non-current Assets Held for Sale and Discontinued Operations.

31 December 2020

2.4 Summary of Significant Accounting Policies (Continued)

Business combinations and goodwill

Business combinations are accounted for using the acquisition method. The consideration transferred is measured at the acquisition date fair value which is the sum of the acquisition date fair values of assets transferred by the Group, liabilities assumed by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree that are present ownership interests and entitle their holders to a proportionate share of net assets in the event of liquidation at fair value or at the proportionate share of the acquiree's identifiable net assets. All other components of non-controlling interests are measured at fair value. Acquisition-related costs are expensed as incurred.

The Group determines that it has acquired a business when the acquired set of activities and assets includes an input and a substantive process that together significantly contribute to the ability to create outputs.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts of the acquiree.

If the business combination is achieved in stages, the previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss is recognised in profit or loss.

Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability is measured at fair value with changes in fair value recognised in profit or loss. Contingent consideration that is classified as equity is not remeasured and subsequent settlement is accounted for within equity.

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred, the amount recognised for non-controlling interests and any fair value of the Group's previously held equity interests in the acquiree over the identifiable net assets acquired and liabilities assumed. If the sum of this consideration and other items is lower than the fair value of the net assets acquired, the difference is, after reassessment, recognised in profit or loss as a gain on bargain purchase.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. The Group performs its annual impairment test of goodwill as at 31 December. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units.

Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised. An impairment loss recognised for goodwill is not reversed in a subsequent period.