A Global sportswear company

CONTENTS

  1. Interim Results at a Glance
  1. Five-yearFinancial Summary
  2. Corporate Information
  3. Chairman's Statement
  1. Management Discussion and Analysis
  1. Corporate Governance and Other Information
  1. Independent Review Report
  2. Interim Condensed Consolidated Income Statement
  1. Interim Condensed Consolidated Statement of
     Comprehensive Income
  2. Interim Condensed Consolidated Statement of
     Financial Position
  1. Interim Condensed Consolidated Statement of
     Changes in Equity
  2. Interim Condensed Consolidated Statement of
     Cash Flows
  3. Notes to Interim Condensed Consolidated
     Financial Information

67 Glossary

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 6,100 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.

INTERIM RESULTS AT A GLANCE

Financial and Operational Overview

Revenue

RMB 3,679 m

10%

Operating profit

RMB 501 m

Revenue by brand nature1

0.5%

Mass market

87.0%

Athleisure

12.5%

Professional sports

Note 1: Signature brands under different brand nature are as follows: Mass market - Xtep

30%

Profit attributable to ordinary equity holders

RMB 248 m

47%

Athleisure - K-Swiss, Palladium

Professional sports - Saucony, Merrell

Revenue by product category

61.3%

2.3%

36.4%

Footwear

Apparel

Accessories

Interim dividend per Share

HK 6.5 cents

(Payout ratio: 60.0%)

Net cash and cash equivalents

RMB 2,163 m

(31 December 2019: RMB2,132 m)

Interim Results at a Glance

Xtep

K-Swiss

Palladium

Saucony

Merrell

#OGTKECU

'WTQRG

Mainland China

/KFFNG'CUV

#HTKEC #UKC2CEKƒE GZ/CKPNCPF%JKPC

Worldwide

retail and distribution network

FIVE-YEAR FINANCIAL SUMMARY

For the six months ended 30 June

2020

2019

2018

2017

2016

Profitability data (RMB million)

3,679.1

3,356.9

2,729.0

2,310.8

2,534.6

Revenue

Gross profit

1,489.1

1,497.3

1,193.1

1,015.6

1,098.5

Operating profit

500.7

717.3

592.0

479.1

583.4

Profit attributable to ordinary equity holders

247.9

463.0

375.2

310.3

380.1

Basic earnings per Share (RMB cents) (Note 1)

10.10

20.19

17.26

13.98

17.25

Profitability ratios (%)

40.5

44.6

43.7

43.9

43.3

Gross profit margin

Operating profit margin

13.6

21.4

21.7

20.7

23.0

Net profit margin

6.7

13.8

13.7

13.4

15.0

Effective tax rate

39.6

32.0

31.8

28.1

29.9

Return on average total equity holders'

7.1

15.2

14.1

12.2

15.3

 equity (annualized) (Note 2)

Operating ratios (as a percentage

4

of revenue) (%)

10.8

13.4

12.3

12.2

9.3

Advertising and promotional costs

Staff costs

12.4

10.8

10.7

10.6

9.4

R&D costs

2.8

2.4

2.6

2.8

2.3

As at 30 June

2020

2019

2018

2017

2016

Assets and liabilities data (RMB million)

3,628.2

1,438.6

1,117.7

946.4

1,090.6

Non-current assets

Current assets

9,310.9

9,238.7

8,320.1

7,493.7

7,140.2

Current liabilities

3,810.9

3,458.3

3,091.9

2,267.4

2,979.5

Non-current liabilities

2,041.7

320.7

830.1

889.2

156.5

Non-controlling interests

88.1

64.5

108.3

94.7

48.3

Shareholders' equity

6,998.4

6,833.8

5,407.4

5,188.8

5,046.5

Asset and working capital data

2.4

2.7

2.7

3.3

2.4

Current asset ratio

Gearing ratio (%) (Note 3)

18.1

16.7

21.0

19.1

18.9

Net asset value per Share (RMB) (Note 4)

2.81

2.76

2.46

2.38

2.31

Average inventory turnover days (days) (Note 5)

94

81

104

67

55

Average trade receivables turnover days

137

107

113

164

122

 (days) (Note 6)

Average trade payables turnover days

142

90

134

128

120

 (days) (Note 7)

Overall working capital days (days)

89

98

83

103

57

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 period.
  2. Return on average total equity holders' equity is equal to the profit attributable to ordinary equity holders of the Company for the period 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 period.
  4. The calculation of net asset value per Share is based on the total number of Shares in issue at the end of the period.
  5. Average inventory turnover days is equal to the average of opening and closing inventory divided by costs of sales and multiplied by 183 days.
  6. Average trade receivables turnover days is equal to the average of opening and closing trade receivables divided by revenue and multiplied by 183 days.
  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 183 days.

XTEP INTERNATIONAL HOLDINGS LIMITED

CORPORATE INFORMATION

Board of Directors

Principal Place of Business in Hong Kong

Executive Directors

Unit A, 27/F, Tower A

Ding Shui Po (Chairman)

Billion Centre, 1 Wang Kwong Road

Ding Mei Qing

Kowloon Bay, Kowloon, Hong Kong

Ding Ming Zhong

Head Office in the PRC

Independent Non-executive Directors

Xiamen Xtep Tower, No. 89 Jiayi Road, Guanyinshan

Tan Wee Seng

Siming District, Xiamen, Fujian Province, PRC

Gao Xian Feng

Postal Code 361008

Bao Ming Xiao

Legal Adviser as to Hong Kong Laws

Board Committees

Loeb & Loeb LLP

Audit Committee

Auditor

Tan Wee Seng (Chairman)

Gao Xian Feng

Ernst & Young

Bao Ming Xiao

Cayman Islands Principal Share Registrar and

Remuneration Committee

Transfer Office

Gao Xian Feng (Chairman)

Butterfield Fund Services (Cayman) Limited

5

Ding Mei Qing

Butterfield House, 68 Fort Street, P.O. Box 705

Bao Ming Xiao

Grand Cayman KY1-1107, Cayman Islands

Nomination Committee

Hong Kong Branch Share Registrar and

Ding Shui Po (Chairman)

Transfer Office

Tan Wee Seng

Computershare Hong Kong Investor Services Limited

Gao Xian Feng

Shops 1712-1716,

Company Secretary

17/F, Hopewell Centre

183 Queen's Road East

Yeung Lo Bun, FCPA

Wanchai, Hong Kong

Authorized Representatives

Principal Bankers

Ding Shui Po

Bank of China

Yeung Lo Bun

Bank of East Asia

Registered Office

China Construction Bank

China Minsheng Bank

Cricket Square, Hutchins Drive

Hang Seng Bank

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

HSBC

Cayman Islands

Industrial Bank

Company Website

www.xtep.com.hk

INTERIM REPORT 2020

CHAIRMAN'S STATEMENT

Dear Shareholders,

Looking back at the first half of 2020, we faced unprecedented challenges created by the coronavirus pandemic. When the outbreak started to spread across Mainland China within January 2020, the Chinese government implemented containment measures to curb the pandemic. Retail stores were temporarily closed. Manufacturing operations and public transportation in Mainland China were also suspended to prevent the transmission of the virus. These precautionary efforts have proved effective, enabling our branded offline stores, in-house production facilities and offices to gradually resume operations starting from late February. In the aftermath of the coronavirus pandemic, Mainland China's total retail sales of consumer goods declined by 19.0% year on year in the first quarter in 20201. Yet, the sportswear sector and the core Xtep brand demonstrated resilience with noticeable signs of recovery manifested in the second quarter of 2020.

The sudden outbreak of the coronavirus also caused disruption in the rest of the world, especially in the Americas and Europe, forcing governments in those continents to implement lockdown measures that brought much of their economic activities to a halt. As a result, the overseas business operations of the newly- acquired brands were inevitably affected. Although numerous European countries and the US outlined plans for phased reopening of their economies, the global economic outlook amid the pandemic has remained uncertain as the number of confirmed coronavirus cases worldwide continued to reach new peaks in the first half of 2020.

PERFORMANCE REVIEW

The coronavirus pandemic had an adverse effect on the Group's financial performance in the first half of 2020. Revenue of the core Xtep brand decreased by 4.6% to RMB3,201.0 million (1H2019: RMB3,356.9 million). Incorporating the revenue contributions from the acquisition and joint venture during the first half of 2020, the Group's revenue reached RMB3,679.1 million. The gross profit margin of the core Xtep brand was 40.5% (1H2019: 44.6%). Operating profit of the Group declined by 30.2% to RMB500.7 million (1H2019: RMB717.3 million). Profit attributable to ordinary equity holders of the Company was recorded at RMB247.9 million (1H2019: RMB463.0 million). Basic earnings per Share amounted to RMB10.1 cents (1H2019: RMB20.2 cents). The Board has declared an interim dividend of HK6.5 cents (1H2019: HK12.5 cents) per Share, with an option to receive scrip shares in lieu of cash, which is equivalent to a payout ratio of 60.0% (1H2019: 59.3%).

1 Source: National Bureau of Statistics of China

ALL HANDS ON DECK TO RIDE OUT THE HARDSHIP

In response to the pandemic, we proactively diverged our sales to our e-commerce platforms of our core Xtep brand and executed various cost control initiatives to alleviate its impact to our business. Since the early stage of the outbreak in Mainland China, we resorted to new cost-effective sales channels to counteract the reduction of foot traffic in the offline retail stores. Our distributors and Xtep's employees were encouraged to reach out to customers through private traffic such as mini programs, group chats and personal social media accounts, etc. Sales from private traffic contributed eminently to the retail sales of the core Xtep brand in the first quarter of 2020. Retail sales in the second quarter picked up at a faster pace than in the first quarter of 2020.

The pandemic also delayed our store opening plans for Saucony and Merrell. We were pleased to celebrate Saucony's grand opening in Shanghai on 6 June 2020. The new store has exhibited our efforts in areas including marketing, product innovation, product quality improvement and supply chain integration since the establishment of the joint venture in March 2019. The marketing campaign for the grand opening generated considerable attention in the market and successfully increased its brand awareness. More store openings for Saucony and Merrell are in the pipeline and we look forward to delivering more enjoyable customer experiences in the second half of 2020.

Moreover, the progress of the pragmatic five-year development plan for K-Swiss and Palladium was not hindered by the coronavirus pandemic. While the Group continues to conduct the rebranding process for K-Swiss in branding, product and marketing strategies in preparation for its new launch in Mainland China in the future, retail network optimization is currently underway. In July and August 2020, the Group opened two new K-Swiss stores in K11 Art Mall and tmtplaza in Hong Kong, respectively. As for Palladium, the Group is striving to kick off the self-operated store openings in Mainland China this year. In Hong Kong, favorable rental offers amidst the pandemic facilitate the brand to open its stores in prime shopping malls with higher customer traffic, such as Harbour City, which can drive better sales.

Chairman's Statement

OUTLOOK

Looking ahead, the Group believes that the pandemic will further increase the health awareness among Chinese people, and thus we remain positive about our long-term business development and the prospects of the sportswear industry in Mainland China. Meanwhile, consolidation in the sportswear market in Mainland China has intensified in the aftermath of the pandemic. We are confident that we are well-placed to benefit from the market consolidation with our strong net cash position and solid business foundation. We anticipate that the Group's business should gradually improve in the second half of 2020 and 2021.

Along with uncertainties, the pandemic also presents opportunities. Not only has it allowed us to focus on outlining a detailed plan for the supply chain consolidation of the core Xtep brand and four new brands in aspects

ranging from material sourcing and suppliers to 7 manufacturing facilities and logistics; it has also presented us with the chance to better improve our product innovation and optimize our retail network during

the hardship. We are committed to increasing our store productivity as well as uplifting our brand image with more innovative products and store openings in higher-tier cities and shopping malls.

I would like to take this opportunity to express my gratitude to every member of staff for their unity, perseverance and loyalty during this difficult time. Their contributions have laid a solid foundation for the Group to thrive following the pandemic. I would also like to thank our Board members, management team and business partners for their support and trust. Lastly, l would like to extend my deepest gratitude to our shareholders who have walked side by side with the Group for their recognition. We continue to remain fully committed to leading the Group to a more prosperous future and creating higher return for all shareholders.

Mr. Ding Shui Po

Chairman

Hong Kong, 28 August 2020

INTERIM REPORT 2020

ANALYSIS

DISCUSSION

MANAGEMENT DISCUSSION AND ANALYSIS

8 Number of marathons and related sports events in Mainland China in 20192

1,828 15.6%

YoY change

  1. Source: The China Athletic Association
  2. Source: National Bureau of Statistics of China

MARKET DEVELOPMENT

The unexpected coronavirus pandemic and rising tensions between Mainland China and the US have posed tough challenges to Mainland China and the global economy. The GDP of Mainland China dropped by 1.6% year on year in the first half of 20203, primarily due to a temporary economic shutdown during the first quarter of 2020 in the aftermath of the coronavirus outbreak. However, given the Chinese government's determination to put the economy back on track and the fact that Mainland China was among the first countries to contain the virus spread, Mainland China appears well-positioned to have a faster recovery from the coronavirus pandemic than other countries.

The retail sector in Mainland China has already shown signs of recovery from the pandemic, as a result of pent- up demand, deepened retail discounts and several government policies which aimed at spurring consumption, such as the issuance of electronic consumption vouchers to consumers. The year-on-year decline of the total retail sales of consumer goods in Mainland China narrowed in the second quarter as compared with the first quarter of 2020.

As one of the most resilient sectors among the retail industry, the sportswear sector continues to benefit from the Chinese government's advocacy of public health. Through the Chinese government's initiative in building a complete sports industry chain, supporting the development, design and manufacturing of sports goods, as well as encouraging the organization of mass sports activities and sports games to stimulate consumption, the value of China's professional sports industry is expected to increase in the coming years. Although the long-term prospect of the sportswear industry is promising, it has been undergoing a consolidation in recent years. Adding the negative impact from the pandemic, smaller companies might be more vulnerable than the larger players in the industry.

XTEP INTERNATIONAL HOLDINGS LIMITED

The pandemic has disrupted the retail sector and altered consumer behavior. Consumers shop less at physical stores and corporates swiftly adapted to the change by turning to non-store retail channels, such as e-commerce platforms, private traffic and live streaming. Corporates that invested in building out digital capabilities continued to generate sales and engage with customers at a time when commerce nearly ground to a halt. It is expected that non-store retailing will continue to play a significant role in the second half of 2020 and become the new normal in retail. Enterprises with technical know-how and innovative mindset would benefit from the trend.

BUSINESS REVIEW

Multi-Brand Business Model

Our multi-brand strategy is categorized into three market segments, including mass market that features the core Xtep brand, professional sports that features Saucony and Merrell, as well as athleisure that features K-Swiss and Palladium.

Mainland China has witnessed a running craze nationwide in recent years, largely contributed by the successful penetration of marathon boom into the lower-tier cities and the growing number of affluent upper-middle class athletes. Seeing the enticing prospect for the running market, the core Xtep brand will continue to provide runners in the mass market with affordable, stylish and functional products, while Saucony and Merrell will offer performance sportswear that improves athletes' performance, provides extra comfort and minimizes injuries.

On the other hand, as athleisure has become the new casual in Mainland China due to the widespread adoption of healthy living and fitness activities, K-Swiss and Palladium will be positioned as one of the top athleisure wear choices for the younger generation.

Management Discussion and Analysis

9

INTERIM REPORT 2020

Management Discussion and Analysis

Mass Market

Our core Xtep brand has continued to lead the market as Chinese runners' favorite brand. Once again, we ranked first among the domestic brands and fourth among all global brands in international class marathon in Mainland China4. Adhering to the brand's mission to offer value-for money professional sportswear products to all levels of athletes in the mass market, we continue to increase our effort in product innovation. As at 30 June 2020, there were 6,124 Xtep branded stores mainly operated by authorized distributors of the Group in Mainland China and overseas.

Product

Award-winning professional running shoes - RC160X

Our first carbon fiber professional running shoe, RC160X, has found wide appeal among the running community since its launched in December 2019. The model garnered the 2020 Editors' Choice Award and Best Buy Award in Mainland China from Runner's World, one of the most influential running magazines in the world.

10

RC160X

New signature running collection - Ultra Fast

In June 2020, we upgraded the RC160X model and released the Ultra Fast collection, which includes Ultra Fast160X, Ultra FastX, and Ultra Fast. The Ultra Fast collection combines top-notch technologies and functions to best fit runners of different levels and helps them make breakthroughs in their top speed. Ultra Fast160X is designed to provide energy storage for ultimate propulsion and rebound capability for professional runners, whereas Ultra FastX and Ultra Fast offer supreme cushioning and energy return to athletes during running and cross-training.

Ultra

Fast 160X

carbon

-length

arc-shaped

•

Full

fiber plate

PB midsole

•

Dynamic

Foam

•

Flyknit

upper

Ultra

FastX

arc-shaped

TPU

plate

Dynamic

•

Full-length

of X-

-layer midsole

Lite

•

A double

Dynamic

Foam

Foam

and

U

ltra

Fast

TPU

plate

Full

-length

Lite

midsole

•

Foam

•

Dynamic

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

XTEP INTERNATIONAL HOLDINGS LIMITED

Management Discussion and Analysis

Crossover collection with Shaolin Temple

We delightedly announced our collaboration with Shaolin Temple at Mount Song in June 2020. During the launch event, the Shaolin monks performed breathtaking martial arts and the models debuted the Xtep x Shaolin and Xtep Kids x Shaolin collection. As the first sportswear brand to cooperate with Shaolin Temple, we are on a mission to preserve and promote China's intangible cultural heritage. Through the integration of Chinese sports spirit with Shaolin Kung Fu culture, this collection perfectly displays beautiful elements from Chinese culture and fashion that appeals to the younger generation.

11

Sustainable collection

As a socially responsible company, we demonstrated our determination to implement environmental protection initiatives to the society. In June 2020, we introduced the "cultivated garment" concept with the launch of our biodegradable Xtep-eco windbreaker. The Xtep-eco windbreaker is made of biodegradable polylactic acid woven fabric extracted from corn and straw. The polylactic acid in the cloth is completely biodegradable when buried in soil within one year. We will strive to make additional breakthroughs in its usage and expand it into a full product line.

INTERIM REPORT 2020

Management Discussion and Analysis

FOOTWEAR TECHNOLOGIES

12

RUN FAST

RUN DYNAMIC

RUN FIT

For Expert/

For

For

Advanced

Intermediate

Beginner

Runners

Runners

Runners

who participate

who seek

who prioritize

competitively

a balance

comfort

in

in marathons

between

their exercise

and seek high

performance

experience

performance

and comfort

Ultra Fast160X

An upgraded version of RC160X which adopts Dynamic Foam PB midsole to offer ultimate propulsion and excellent rebound capability. Its

HWNNNGPIVJECTDQPƒDGTRNCVG features a Y-shaped 3D structure design to help runners make breakthroughs in their top speed.

Ultra FastX

Adopt 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-lengtharc-shaped TPU plate allows greater support and propulsion for every step.

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.

Use eco-friendly ETPU foaming

technology that offers higher rebound

and compression durability than

traditional EVA foam.

Use a new composite high-resilience EVA foam formula to deliver a soft and gentle rebound experienceduring shock absorption.

Use Xtep's signature DNA hollow structural cushioning technology to provide an exceptional lightweight and responsive cushioning experience.

Apply uni-body three-

dimensional double-layer weaving technique, with mesh arrangement based on foot form and pressure points to improve breathability and

CEJKGXGCUGCONGUUƒV

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

Use soft cube modules to cushion the core pressure points between the foot and the ground, leading to memory foam-like support and flexibility for increased comfort.

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 INTERNATIONAL HOLDINGS LIMITED

Management Discussion and Analysis

APPAREL TECHNOLOGIES

XTEP -

Polar Ice Fiber

COOL

Innovative silky material with

rapid heat conducting and

dissipation technologies to provide

cool comfort

KEEP YOU

Ice Fiber Family

COOL

Rapid heat conduction and

dissipation technologies to provide

cool comfort

XTEP -

SHIELD

KEEP YOU

PROTECTED

Water-resistant

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

Anti-UV

Protect skin from harmful ultraviolet rays during outdoor sports

XTEP -

Moisture Absorption and Quick Drying

DRY

Sweat absorption and rapid drying

technology to keep athletes dry and

comfortable

KEEP YOU

Quick-Drying Cotton

Breathable and sweat-wicking

DRY

cotton fabric to provide dry

comfort during exercise

XTEP -

Far-infrared Heating

WARM

Apply special material which can

effectively absorb and reflect the

far-infrared of the human body to

provide warmth

KEEP YOU

Heat Reflection

WARM

Apply heat reflection technique to

form heat currents and reflect body

temperature to increase warmth

Warmth Retention

Retain air in the interlayers to

provide warmth and shape-

distortion resistance of clothes

XTEP -

COMFORT

KEEP YOU

COMFORTABLE

Distortion Resistance

13

Unique spatial 3D structure to maintain the shape of clothes

X-SEAMLESS-TECH

Soft lightweight clothes to perfectly match body shape

Smooth and skin-friendly fabric

5OQQVJCPFFGNKECVGƒDGTVQ reduce skin friction

Sports Elasticity - Basic

#URGEKCNƒDGTCPFEQORQUKVKQP structure of weaving for natural comfort

Sports Elasticity - Intermediate

A special material with enhanced woven elasticity to improve sports performance

Sports Elasticity - Advanced

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

Sorona

7PKSWGRNCPVƒDGTYKVJIQQFGNCUVKEKV[ natural moisture absorption and sweat-wicking

LYCRA

Soft and smooth material with excellent elasticity and can be stretched repeatedly without deformation

INTERIM REPORT 2020

Management Discussion and Analysis

Branding and marketing

We continued to adopt a two-pronged marketing strategy in the form of marathon and running event sponsorship as well as

14 celebrity endorsement, combining sports and entertainment to uplift our brand image.

Marathon and running event sponsorship

Marathon events around the world faced severe disruption from the coronavirus pandemic. However, we came up with an alternative way to sponsor running events without bringing large numbers of people into proximity. Following the Xiamen Marathon that was held in January 2020, we sponsored five virtual races in Chongqing, Wuhan, Chengdu, Xiamen and Jiangsu province. Participants who signed up for virtual races online used various workout apps to track their performance both indoor or outdoor. Electronic certificates were given to runners as a recognition of their participation. The six events that we sponsored in the first half of 2020 attracted approximately 700,000 participants.

LIST OF MARATHONS

AND RUNNING EVENTS'

SPONSORSHIPS

Chongqing

Virtual Marathon

Xiamen March 2020

Marathon

January 2020

Electronic certificate of Jiangsu Virtual Cloud Run (June 2020)

Xiamen

Virtual Marathon

Chengdu

June 2020

Wuhan

Virtual Marathon

June 2020

Virtual Marathon

April 2020

Jiangsu

Virtual

Cloud Run

June 2020

XTEP INTERNATIONAL HOLDINGS LIMITED

Jeremy Lin

Nicholas Tse

Jing Tian

Jiro Wang

A famous Asian

Our first celebrity

A popular Chinese actress

A well-known Taiwanese

basketball player

spokesperson since 2001

singer and actor

Celebrity spokespersons and KOL endorsement

In the first half of 2020, Xtep teamed up with Jeremy Lin, the brand's spokesperson and charity ambassador, to offer a series of online basketball training classes to all basketball lovers every Friday on our WeChat official account. These classes have effectively increased our brand awareness among younger consumers and

strengthened the linkage between Xtep and basketball. Building on the successful collaboration with Jeremy Lin, we will continue to develop professional and fashionable basketball products inspired by Jeremy Lin's character. New autographed basketball shoes will be released in the second half of 2020.

NEXT

The next superstar Chinese pop boy band (spokespersons contract expired in June 2020)

INTERIM REPORT 2020

Management Discussion and Analysis

We solidify our leading position in running through engaging with influential KOLs and spokespersons, such as Dong Guojian, the fastest marathon runner in Mainland China and Xu Zhouzheng, a renowned Chinese sprinter.

Xu Zhouzheng

A Young

Chinese

sprinter

16

Other entertainment marketing

We served as the official designated footwear and apparel sponsor of "Me to Us", a highly sought-after music reality show in Mainland China, to showcase our "Street" lifestyle series and integrate our brand into the

everyday lives of young consumers. Featuring Nicholas Tse, our first spokesperson, as a mentor in the program, the show was a perfect channel for us to attract audiences that have similar attributes with the brand.

XTEP INTERNATIONAL HOLDINGS LIMITED

Management Discussion and Analysis

E-commerce

Our e-commerce business, which accounted for over 20% of the Group's revenue, has become an extremely important retail channel since lockdown restrictions were adopted in Mainland China in January 2020. Lockdown measures as a result of the pandemic have shifted consumer behavior, and the transition from offline to online sales was way ahead of expectations.

During the first half of 2020, we proactively diverged our sales to the e-commerce platforms and encouraged our distributors and employees to leverage private traffic such as WeChat Mini Programs and WeChat Moments to boost the sell-through rate. Nearly 200 live streams, of which over 50 times were sponsored live streams in collaboration with internet celebrities, were conducted on Tmall, Douyin, Kuaishou and other live platforms. Celebrity sales anchor Wei Ya, who has over 10 million Weibo followers, hosted a live stream with our spokespersons NEXT on 13 May 2020 and sold more than 50,000 items that was

worth nearly RMB20 million. All these strategies have proven effective17 and drove encouraging results. For example, our Tmall flagship store

retail sales recorded over 50% growth during the 618 festival.

Meanwhile, the restructuring plan for our e-commerce business to integrate its supply chain operations with that of our offline business has started to bear fruit. The design and quality of the online exclusive products are now improving to match that of the O2O products. In addition, we will continue to increase the proportion of our O2O products to fully unleash the O2O synergies. We are confident that the completion of the restructuring plan will contribute to the sustainable growth of our e-commerce business in the years ahead.

INTERIM REPORT 2020

Management Discussion and Analysis

Xtep Kids

There were approximately 800 POS for Xtep Kids (31 December 2019: 825 POS) as at 30 June 2020. In spite of the negative impacts of the coronavirus outbreak in Mainland China in the first half of 2020, Xtep Kids recorded better-than-expected retail sales performance, which was mainly attributable to the enhancement in brand awareness, product design and quality following the successful restructuring from 2015 to 2017. In light of the recurring coronavirus outbreaks and highly fragmented childrenswear market in Mainland China, we take a cautious approach towards the expansion of our kid's business for the rest of the year.

XTEP INTERNATIONAL HOLDINGS LIMITED

Professional Sports

Saucony has reached another major milestone in Mainland China since the establishment of a joint venture between Xtep and Wolverine Worldwide in March 2019. In June 2020, the century-old global leading running brand unveiled its grand opening in Shanghai at Super Brand Mall together with its new brand positioning "first-class cabin for runners". During the grand opening, professional runners and sports enthusiasts gathered at the mall to experience the first-class comfort offered by Saucony's running shoes and apparel.

We are actively mapping out Saucony's retail network in Mainland China and plan to open more than 30 physical stores in 2020. As at 30 June 2020, there were 12 stores in the tier I and tier II cities in Mainland China.

Grand opening at Super Brand Mall, Shanghai

Management Discussion and Analysis

Product innovation

Saucony segmented product lines by running shoes which comprises the Speed Training series, Outdoor Cross Country series and Retro series. In May 2020, it launched the newest model of professional running shoes, Endorphin Pro, in its Speed Training series. As Saucony's fastest shoe, Endorphin Pro incorporates a carbon-fiber plate into the midsole to facilitate elite athletes to break personal bests.

To provide a broader range of products for our customers along with our new store opening plans in Mainland China, Saucony also launched several lines of new apparel products, including a professional sports line with comfortable, light, breathable and quick-drying sportswear for daily training and speed racing; a retro line that exhibits the centennial brand culture of Saucony and a city

commuter line that is especially designed for upmarket 19 consumers who commute to work daily.

Endorphin Pro

INTERIM REPORT 2020

Management Discussion and Analysis

Merrell, as a well-developed global brand, is believed to have more competitive advantages in the outdoor sports market in Mainland China. We have seen a gradual increase in the demand for performance outdoor products and number of outdoor sports enthusiasts in Mainland China in recent years, driven by the shift in the appeal of urban outdoor activities from hardcore urban outdoor activities in Mainland China. Consumers, especially those in the higher- tier cities, have a stronger preference for premium global outdoor brands specialized in high performing products with fashionable design.

Following the opening of the Tmall flagship store in Mainland China in March 2020, Merrell has provided Chinese consumers with products that over-deliver on performance, versatility, and durability. More product offerings were available to our customers along with the opening of our standalone stores in Beijing in April and July 2020.

20 More store openings in cities with famous landscapes for outdoor sports and activities in Mainland China are expected in the second half of 2020.

Product innovation

As one of the leading outdoor brands in the world, Merrell aims to support and encourage everyone to engage in enjoyable outdoor adventures. The brand designs and creates products specialized for hiking, trail running and training to cater to consumers in Mainland China. Our signature hiking boot, MOAB, also known as "mother of all boots", has an estimated cumulative global sales of 50 million pairs. MOAB was introduced to consumers in Mainland China through the Tmall flagship store in 2020, it soon gained traction and received positive feedback. During the 618 shopping festival, MOAB recorded a sell-through rate of 70%.

MOAB ("Mother of all boots")

New Yansha Mall, Beijing

XTEP INTERNATIONAL HOLDINGS LIMITED

K11 Art Mall, Hong Kong

Boyz N the Hood collection

Crossover collection

As an American heritage footwear brand, K-Swiss collaborated closely with famous IPs originated in the U.S. to launch various crossover and limited edition footwear collections. During the Period, the brand released the K-Swiss x Breaking Bad collection and Boyz N the Hood collection with Sony Pictures to pay ultimate tribute to one of the most critically acclaimed television series and seminal films of all time.

Conscious collection - recycle, reuse, reissue

Management Discussion and Analysis

Athleisure

The business operations of K-Swiss and Palladium were negatively affected by the suspension of most of their business operations in the Americas and Europe since mid-March due to the coronavirus pandemic. Despite the challenges, we strived to carry out strategic transformation for the two brands to achieve sustainable development during the first half of 2020.

Since the acquisition by Xtep in 2019, K-Swiss has entered new chapters and developed strategic plans to appeal to younger generations who desire premium athleisure products. Currently, K-Swiss is mainly engaged in the wholesale business in North America, Europe and

Asia-Pacific, and we will shift its business focus to the 21 Asia-Pacific region, including Mainland China, to capitalize

on the athleisure trend. Upon completion of the rebranding process that aims at revamping the brand positioning, marketing, R&D and product innovation, K-Swiss will target to debut its brand new standalone store in tier I cities in Mainland China. As at 30 June 2020, there were 42 self-operated stores in Asia-Pacific.

K-Swiss x Breaking Bad

Seeing sustainability as the future of commercial production, K-Swiss offers iconic footwear made from recycled materials and adopts manufacturing processes that bring lighter impact on the environment. The reissues of the Surf 'N Turf and Classic 2000 in 2020 feature original designs in new, eco- friendly constructions, utilizing repurposed and recycled materials such as reground rubber insole, reground leather, recycled plastic bottles and recycled canvas.

Surf 'N Turf

INTERIM REPORT 2020

Management Discussion and Analysis

For over 70 years, Palladium has been at service to daring explorers by offering timeless and adaptable footwear. Combining premium materials and cutting-edge styling, our signature boots offer outstanding functionality, comfort and durability to young consumers to discover the world. Successfully tapping into the fast-growing athleisure trend in the Asia-Pacific region, majority of P a l l a d i u m ' s b u s i n e s s o p e r a t i o n s a r e i n t h e aforementioned region. Palladium has an extensive distribution network covering Mainland China, Asia- Pacific, Europe, Middle East, Africa and North America. As at 30 June 2020, there were 31 and three self-operated stores in Asia-Pacific and Europe, respectively.

Crossover collection

22 Palladium constantly collaborated with some of the world's most influential brands and leading creative minds from around the globe. In the Fall-Winter season 2020, we will collaborate with Michelin, a French multinational tyre manufacturer, for the new Pampa X Tech collection to launch iconic functional footwear that comes with high performance technical soles for greater grip and adaptability to all terrains.

Harbour City, Hong Kong

Pampa X Tech collection

Earth collection

Palladium has been a leading and award-winning brand since the early 90's for driving the sustainable footwear movement. In 2020, Palladium launched the earth collection that features the recycled and organic collections with products containing organic cotton, recycled rubber outsole, biodegradable plastic lacetips and cork laminated footbed. As the foundation of our product development and creation, the earth collection uses the most innovative production and fabric sourcing to bring to life our most sustainable and eco-friendly product to our customers.

Recycled collection

XTEP INTERNATIONAL HOLDINGS LIMITED

Operations Management

Supply chain

We implement an efficient supply chain management to ensure seamless business operations. Apart from in- house production, we strategically engaged outsourced suppliers around the world to collectively source materials and manufacture footwear and apparel products to optimize our operational efficiency. We select

Product capacity allocation

Management Discussion and Analysis

suppliers whose practice aligns with the Group's environmental, social and governance standards, all qualified suppliers are also required to comply with our Supplier Code of Conduct.

37%

In-house

63% FOOTWEAR

Outsourced

Logistics park

We began the construction of a logistics park with a gross floor area of approximately 200,000 square meters in Jinjiang, Fujian Province in the second half of 2019 to support our business growth. Upon completion, the automated park which aims to streamline our supply

Human resources management

Xtep considers its employees as the most valuable asset. We strive to support the career and personal development of our staff through comprehensive human resources initiatives and trainings which empower them to achieve their personal goals. Our Xtep University, which was established in 2014, provides ongoing training and development programs regarding corporate culture, leadership, retail and manufacturing. For instance, retail staff can participate in various online and offline trainings offered by the Faculty of Retail, such as store manager workshops, product display instruction and store efficiency improvement skills, etc. Xtep University offered over 340,000 hours of online and offline training to employees as at 30 June 2020.

10%

In-house

23

APPAREL 90%

Outsourced

chain will ship products manufactured in our in-house factories directly to our branded retail stores from the five neighboring provinces of Fujian, greatly shortening the lead time and accelerating replenishment cycle process.

INTERIM REPORT 2020

Management Discussion and Analysis

Prospect

We have seen a surge in the number of people running in Mainland China during the epidemic as more people have turned to running when social distancing guidelines took hold. We believe that Chinese people will increase exercise frequency and consumption of sportswear following the pandemic in the long run. The running market is expected to further expand in Mainland China if the epidemic persists into the second half of 2020 and beyond, creating advantageous opportunities for our mass market and professional sports segments. The core Xtep brand will continue to be a stable growth driver of the Group. We will increase our investment in R&D to develop sustainable and innovative products, uplift our store productivity and provide new customer experience on both online and offline platforms.

24 On the other hand, the growing number of elite athletes and affluent upper-middle class consumers in Mainland China has presented an enticing prospect for professional and premium sportswear products. Following Saucony's store openings in Mainland China since May 2020, it has become a new growth driver of the Group. We will continue to increase the proportion of Saucony's apparel and localized products to offer comprehensive product lines to customers. More stores of Saucony and Merrell will be opened in the second half of 2020 to tap into the growing demand for functional sportswear.

The coronavirus pandemic and rising tensions between the U.S. and Mainland China have impeded the recovery of our athleisure market segment, but not the progress of our brand revamp for K-Swiss. While we expect that the recovery in the Americas and Europe will take time, we will focus on optimizing the business for Palladium and K-Swiss to capture the enormous athleisure market in Asia-Pacific, including Mainland China.

We remain cautiously optimistic that the recovery momentum of our operations in Mainland China will continue into the second half of 2020. However, we believe that the long-term development of the sportswear sector remains promising, supported by favorable government policies and increasing health awareness of Chinese people. We are optimistic about the sustainable growth of the five brands under our portfolio. Looking ahead, we will continue to enhance our core competencies and increase market share in the accelerating industry consolidation that is catalyzed by the pandemic.

XTEP INTERNATIONAL HOLDINGS LIMITED

Management Discussion and Analysis

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 period:

For the period ended 30 June

2020

2019

Change

Revenue

Revenue

in revenue

(RMB Million)

(% of Revenue)

(RMB Million)

(% of Revenue)

(%)

Footwear

2,253.8

61.3

1,911.9

57.0

17.9

Apparel

1,339.3

36.4

1,356.0

40.4

-1.2

Accessories

86.0

2.3

89.0

2.6

-3.4

Total

3,679.1

100.0

3,356.9

100.0

9.6

Group Revenue Breakdown by Brand Nature

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

25

For the period ended 30 June

2020

2019

Change

Revenue

Revenue

in revenue

(RMB Million)

(% of Revenue)

(RMB Million)

(% of Revenue)

(%)

Mass market

3,201.0

87.0

3,356.9

100.0

-4.6

Athleisure

458.6

12.5

-

-

N/A

Professional sports

19.5

0.5

-

-

N/A

Total

3,679.1

100.0

3,356.9

100.0

9.6

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 period ended 30 June 2020 amounted to approximately RMB3.7 billion (2019: RMB3.4 billion), which was mainly driven by revenue contributions from athleisure's signature brands.

INTERIM REPORT 2020

Management Discussion and Analysis

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 period:

For the period ended 30 June

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)

Footwear

901.4

40.0

857.2

44.8

5.2

-4.8

Apparel

558.5

41.7

606.4

44.7

-7.9

-3.0

Accessories

29.2

33.9

33.7

37.9

-13.5

-4.0

Total

1,489.1

40.5

1,497.3

44.6

-0.5

-4.1

The Group's overall gross profit margin decreased by 4.1 percentage point to 40.5% (2019: 44.6%). The decrease in the overall gross profit margin was mainly contributed by the change in product mix, margin contributions from new

26 brands and e-commerce channel; and inventory buy-back of forth-quarter 2019 and first-quarter 2020 products which were subsequently donated or resold at a lower gross profit margin.

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 period:

For the period ended 30 June

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

1,296.0

40.5

1,497.3

44.6

-13.4

-4.1

Athleisure

185.6

40.5

-

-

N/A

N/A

Professional sports

7.5

38.7

-

-

N/A

N/A

Total

1,489.1

40.5

1,497.3

44.6

-0.5

-4.1

Other Income and Gains

For the period ended 30 June 2020, other income and gains of the Group mainly represented the subsidized income from the PRC government, which amounted to approximately RMB139.2 million (2019: RMB88.4 million); the income derived from financial investments and structured bank deposits was approximately RMB48.2 million (2019: RMB39.6 million), which was the interest income derived from treasury deposit products. The increase in other income and gains was mainly due to the royalty income which amounted to approximately RMB12.0 million (2019: Nil) arising from athleisure brands and the increase in subsidized income from the PRC government.

Selling and Distribution Expenses

For the period ended 30 June 2020, the Group's selling and distribution expenses amounted to approximately RMB685.2 million (2019: RMB636.8 million), representing approximately 18.6% (2019: 19.0%) of the Group's total revenue. Excluding the impact arising from the new brands of approximately RMB164.6 million, there was a decrease in selling and distribution expenses of approximately RMB116.2 million, which was mainly due to the decrease in advertising and promotional costs. The advertising and promotional costs for the period amounted to approximately RMB396.2 million (2019: RMB449.3 million), representing approximately 10.8% (2019: 13.4%) of the Group's total revenue. The decrease in advertising and promotional costs was mainly due to the decrease in running events promotion.

XTEP INTERNATIONAL HOLDINGS LIMITED

Management Discussion and Analysis

General and Administrative Expenses

For the period ended 30 June 2020, the Group's general and administrative expenses amounted to approximately RMB512.9 million (2019: RMB281.0 million), which represented approximately 13.9% (2019: 8.4%) of the Group's total revenue. The increase in general and administrative expenses was mainly attributed to:

  1. an increase of the expenses from the new brands of approximately RMB93.2 million;
  2. an increase in R&D cost - the R&D cost for the period amounted to approximately RMB101.3 million (2019: RMB81.7 million), representing approximately 2.8% (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
  3. an impairment for trade receivables amounted to RMB43.9 million (2019: Write-back of impairment of trade receivables amounted to RMB60.9 million).

Net Finance Costs

The total net finance cost of the Group for the period ended 30 June 2020 amounted to approximately RMB77.4 million (2019: RMB35.3 million). The increase in net finance costs was mainly due to increase in fair value loss on interest rate

swaps amounted to RMB15.1 million (2019: Nil) and the decrease in bank interest income (2020: RMB2.5 million; 2019: 27 RMB27.0 million) which was resulted from the decrease in time deposits during the period.

Operating Profit and Operating Profit Margin Breakdown

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

For the period ended 30 June

2020

2019

Change in

Operating

Change in

operating

Operating

profit/(loss)

Operating

Operating

operating

profit/(loss)

profit/(loss)

margin

profit/(loss)

profit margin

profit/(loss)

margin

(RMB Million)

(%)

(RMB Million)

(%)

(%)

(% point)

Mass market

584.7

18.3

761.0

22.7

-23.2

-4.4

Athleisure

(47.7)

(10.4)

-

-

N/A

N/A

Professional sports

(4.0)

(20.4)

-

-

N/A

N/A

533.0

14.5

761.0

22.7

-30.0

-8.2

Corporate

(32.3)

N/A

(43.7)

N/A

-26.1

N/A

Total

500.7

13.6

717.3

21.4

-30.2

-7.8

The operating profit margin decreased by 7.8 percentage points due to the decrease in operating profit from mass market and the operating losses arising from the new brands during the period.

INTERIM REPORT 2020

Management Discussion and Analysis

Income Tax Expenses

Income tax provision of the Group for the period ended 30 June 2020 was approximately RMB165.6 million (2019: RMB218.2 million). The income tax provision included profit tax provision relating to operating companies, which amounted to approximately RMB166.2 million (2019: RMB164.9 million). Also, there was an over-provision of income tax of approximately RMB4.7 million (2019: An under-provision of RMB5.2 million). 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 Company had provided a provision of withholding tax on undistributed profits amounted to RMB5.0 million (2019: RMB48.0 million) during the period.

Profit Attributable to Ordinary Equity Holders and Net Profit Margin

For the period ended 30 June 2020, the profit attributable to ordinary equity holders was approximately RMB247.9 million (2019: RMB463.0 million), representing a decrease of approximately 46.5% over the same period in last year. The decrease was mainly due to the increase in operating expenses during the period.

The Group's net profit margin amounted to 6.7% (2019: 13.8%).

Dividend

The Group maintained a high level of cash and bank balances. The Board continued to maintain high Shareholders'

28 dividend return and therefore resolved to distribute an interim dividend of HK6.5 cents per Share (2019: An interim dividend of HK12.5 cents per Share). The proposed interim 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 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 and a form of election, together with this interim report, will be dispatched to the Shareholders.

Working Capital Cycle

For the period ended 30 June 2020, the Group's overall working capital turnover days was 89 days (2019: 98 days).

For the period ended 30 June

2020

2019

Changes

WORKING CAPITAL TURNOVER DAYS

Days

Days

Days

Inventories

94

81

+13

Trade receivables

137

107

+30

Trade payables

142

90

+52

Overall working capital turnover days

89

98

-9

The turnover days for inventories, trade receivables and trade payables increased by 13 days, 30 days and 52 days respectively resulting in a decrease in overall working capital turnover days by 9 days.

Bills Receivables

In order to have more flexibilities in utilizing working capital facilities, the Group utilized the acceptance and usage of bills receivables. As of 30 June 2020, the bills receivables amounted to approximately RMB414.5 million (31 December 2019: RMB313.5 million). For the period ended 30 June 2020, the number of turnover days of bills receivables was 18 days (2019: 12 days).

XTEP INTERNATIONAL HOLDINGS LIMITED

Management Discussion and Analysis

Liquidity and Capital Resources

As of 30 June 2020, the Group's cash and cash equivalents amounted to approximately RMB3,051.3 million (31 December 2019: RMB2,969.5 million), representing an increase of approximately RMB81.8 million. The increase in the Group's cash and cash equivalents is summerised as follows:

Six months ended 30 June

2020

2019

RMB million

RMB million

Cash generated from operating activities

505.8

618.4

Income and withholding tax paid

(172.5)

(168.4)

Net interest expenses paid

(59.8)

(28.5)

Net cash flow generated from operating activities

273.5

421.5

Deposit paid for acquisition of subsidiaries

-

(179.2)

Decrease/(increase) in pledged bank deposits

163.2

(168.2)

Decrease/(increase) in structured bank deposits

400.0

(80.0)

Increase in term deposits

(500.0)

-

Increase in equity investments

-

(35.0)

29

Dividends paid

(155.5)

(203.0)

Net repayment of bank borrowings

(63.7)

(139.2)

Net proceeds from issue of ordinary shares under share placing and subscription

-

1,160.2

Others

(35.7)

(16.0)

Net increase in cash and cash equivalents

81.8

761.1

The net cash and cash equivalents (including term deposits, structured bank deposits and pledged bank deposits minus bank borrowings) were approximately RMB2,162.7 million as at 30 June 2020 (31 December 2019: RMB2,131.6 million).

30 June

31 December

2020

2019

RMB million

RMB million

Cash and cash equivalents

3,051.3

2,969.5

Bank deposits

1,453.9

1,517.0

Total bank deposits and bank balances

4,505.2

4,486.5

Less: Bank borrowings

(2,342.5)

(2,354.9)

Net cash and cash equivalents

2,162.7

2,131.6

As of 30 June 2020, the Group's gearing ratio was 18.1% (31 December 2019: 19.1%), which is defined as the total bank borrowings divided by the Group's total assets.

As of 30 June 2020, the total assets of the Group amounted to RMB12,939.1 million (31 December 2019: RMB12,322.6

million), represented by non-current assets of RMB3,628.2 million (31 December 2019: RMB3,056.7 million) and current

assets of RMB9,310.9 million (31 December 2019: RMB9,265.9 million). The total liabilities of the Group amounted to

RMB5,852.6 million (31 December 2019: RMB5,362.3 million), represented by non-current liabilities of RMB2,041.7

million (31 December 2019: RMB1,691.2 million) and current liabilities of RMB3,810.9 million (31 December 2019: RMB3,671.1 million). The total non-controlling interests of the Group amounted to RMB88.1 million (31 December 2019: RMB69.8 million). Hence, the total net assets of the Group amounted to RMB7,086.5 million (31 December 2019: RMB6,960.3 million), representing an increase of 1.8%. Net assets per Share as at 30 June 2020 were approximately RMB2.81 (31 December 2019: RMB2.77), representing an increase of 1.4%.

INTERIM REPORT 2020

Management Discussion and Analysis

Impairment Provision for Inventories

During the period ended 30 June 2020, the Group recorded an impairment provision for inventories amounted to RMB14.5 million (2019: RMB2.8 million).

Impairment for Trade Receivables

During the period ended 30 June 2020, the Group recorded an impairment for trade receivables amounted to RMB43.9 million (2019: Write back of impairment amounted to RMB60.9 million).

Impairment for Right-of-use Assets

During the period ended 30 June 2020, the Group recorded an impairment for right-of-use assets amounted to RMB6.6 million (2019: Nil) mainly relating to the leases of certain retail stores in the athleisure segment.

Commitments

Details of the Group's commitments are stated in note 25 of the interim financial information.

Contingent Liabilities

As of 30 June 2020, the Group did not have any material contingent liabilities.

30 Charge of Assets

Save as disclosed in notes 16 and 19 of the interim financial information relating to certain amounts of bank deposits pledged to secure certain banking facilities, none of the Group's assets was pledged as at 30 June 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.

Interest Rate Risks

Interest on bank borrowings is mainly charged at floating rates. To mitigate the exposures to floating interest rate risk, the Group had entered into various interest rate swap contracts at an aggregate notional amount of RMB1,324.8 million (2019: Nil) with fixed swap rates ranging from 0.88% to 1.18% per annum during the period ended 30 June 2020.

Significant Investments and Material Acquisitions and Disposals of Subsidiaries

During the Period, 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 interim report.

Human Resources

As of 30 June 2020, the Group had approximately 8,800 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.

XTEP INTERNATIONAL HOLDINGS LIMITED

CORPORATE GOVERNANCE AND

OTHER INFORMATION

CORPORATE GOVERNANCE CODE

The Company has complied with all the code provisions contained in the Corporate Governance Code throughout the period, except for the deviation from code provision A.2.1 as disclosed below.

Under code provision A.2.1 of the Corporate Governance Code, the roles of the chairman and chief executive officer 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 chief executive officer. Mr. Ding Shui Po is the chairman and chief executive officer of the Group. He has extensive experience in sportswear industry and is responsible for the overall corporate strategies, planning and business management of the Group. The Board considers 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 are comprised of experienced and high caliber individuals. As at the date of this report, the Board consisted of three executive Directors and three independent non-executive Directors and has a strong independence element in its composition.

MODEL CODE

The Company has also adopted the Model Code 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 standard set out in the Model Code and its code of 31 conduct during the period.

REVIEW OF INTERIM FINANCIAL INFORMATION

Disclosure of financial information in this report complies with Appendix 16 of the Listing Rules. The audit committee of the Company has held meetings to discuss the internal controls and financial reporting matters of the Company, including the review of the interim results and the unaudited interim financial information for the period.

The external auditor of the Group has reviewed the interim financial information for the period in accordance with Hong Kong Standard on Review Engagements 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Hong Kong Institute of Certified Public Accountants.

PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S LISTED SECURITIES

Neither the Company nor any of its subsidiaries has purchased, sold or redeemed any of the Company's listed securities during the period.

INTERIM REPORT 2020

Corporate Governance and Other Information

DISCLOSURE OF INTERESTS

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

As at 30 June 2020, the Directors and the chief executive of the Company and their respective associates 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). They have 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 share

Number of

capital of

Name of Director

Nature of interest

Shares interested

the Company(1)

32

Mr. Ding Shui Po

Founder and beneficiary of

1,370,734,500

54.41%

 a discretionary trust(2)/

Beneficial interests(3)

Ms. Ding Mei Qing

Founder and beneficiary of

1,310,059,500

51.99%

 a discretionary trust(2)

Mr. Ding Ming Zhong

Founder and beneficiary of

1,310,059,500

51.99%

 a discretionary trust(2)

Mr. Tan Wee Seng

Beneficial interests

280,000(4)

0.01%

Notes:

  1. It was based on 2,519,440,501 issued Shares of the Company as at 30 June 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 is 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 of these Shares were acquired by Mr. Tan Wee Seng on the Stock Exchange.

Saved as disclosed above, as at 30 June 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 Stock Exchange pursuant to the Model Code.

At no time was the Company, or any of its holding company 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).

XTEP INTERNATIONAL HOLDINGS LIMITED

Corporate Governance and Other Information

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 30 June 2020, the persons or corporations (other than the 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:

Approximate

percentage of

interest in

issued share

Number of

capital of

Name of Shareholders

Nature of interest

Shares interested

the Company(1)

Group Success

Beneficial interests

1,310,059,500

51.99%

Wan Xing International

Interests of controlled corporation(2)

1,310,059,500

51.99%

 Holdings Limited

Ding Wang Fortune Limited

Interests of controlled corporation(3)

1,310,059,500

51.99%

33

Guan Hong Development Limited

Interests of controlled corporation(3)

1,310,059,500

51.99%

Ming Zhong Family Limited

Interests of controlled corporation(3)

1,310,059,500

51.99%

UBS Trustees (BVI) Limited

Trustee(3)

1,310,059,500

51.99%

Notes:

  1. It was based on 2,519,440,501 issued Shares of the Company as at 30 June 2020.
  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 30 June 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.

INTERIM REPORT 2020

34

Corporate Governance and Other Information

SHARE OPTION SCHEME

The Company 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 which 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 30 June 2020 are as follows:

Outstanding

Granted

Cancelled

Exercised

Lapsed

Outstanding

Exercise price

Exercise

as at

during

during

during

during

as at

Name

Date of Grant

per Share

period(1)(2)(3)

1 January 2020

the period

the period

the period

the period

30 June 2020

Director

Mr. Tan Wee Seng

30 March 2010

HK$6.13

30 March 2011 -

600,000

-

-

-

(600,000)

-

 29 March 2020

Former Director

Mr. Ho Yui Pok,

28 May 2010

HK$6.00

28 May 2012 -

1,000,000

-

-

-

(1,000,000)

-

 Eleutherius

 27 May 2020

Employees

In aggregate

28 January 2010

HK$5.01

28 January 2011 -

500,000

-

-

-

(500,000)

-

 27 January 2020

In aggregate

28 May 2010

HK$6.00

28 May 2012 -

8,000,000

-

-

-

(8,000,000)

-

 27 May 2020

In aggregate

7 December 2011

HK$2.35

14 January 2012 -

12,955,000

-

-

-

-

12,955,000

 13 January 2021

Total

23,055,000

-

-

-

(10,100,000)

12,955,000

XTEP INTERNATIONAL HOLDINGS LIMITED

Corporate Governance and Other Information

The total number of shares available for issue under the Share Option Scheme is 12,955,000, representing 0.5% of the Company's issued share capital as at the date of this interim report.

Save as disclosed above, during the period, no share options were granted, exercised, lapsed or cancelled under the Share Option Scheme.

Notes:

  1. Share options replaced under the Share Option Scheme on 7 December 2011 shall vest in the grantee in accordance with the timetable below:

Vesting Date

Percentage of Share Options to vest

14 January 2012

40% of the total number of options granted

14 January 2013

30% of the total number of options granted

14 January 2014

30% of the total number of options granted

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

Further details of the Share Option Scheme are set out in note 23 to the interim financial information.

SHARE AWARD SCHEME

35

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

On 15 May 2015, the Board has paid to the trust established for the Scheme HK$160,000,000, 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 Scheme represent approximately 2.25% of the issued share capital of the Company as at the date of grant.

As of 30 June 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:

As at

Granted

Vested

Forfeited

As at

1 January

during

during

during

30 June

Name

Date of Grant

2020

the period

the period

the period

2020

Vesting period

Employees

10 January 2017

34,070,000

-

(9,120,000)

-

24,950,000

10 January 2018 to

 10 January 2022

Save for the aforesaid, as at the date of this report, the Board neither granted any awards nor caused to pay the trustee the trust fund for purchase nor subscription of Shares.

Further details of Share Award Scheme are set out in note 24 to the interim financial information.

INTERIM REPORT 2020

Corporate Governance and Other Information

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 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 the 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:

  1. Mr. Ding Shui Po will remain as the chairman of the Board;
  2. Mr. Ding Shui Po will maintain control over the management and business of the Group;

36 (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

  1. 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 30 June 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 51.99% of the issued share capital of the Company. Mr. Ding Shui Po also had personal beneficial interests in approximately 2.42% of the issued share capital of the Company.

XTEP INTERNATIONAL HOLDINGS LIMITED

INDEPENDENT REVIEW REPORT

To the board of directors of Xtep International Holdings Limited (Incorporated in the Cayman Islands with limited liability)

INTRODUCTION

We have reviewed the interim financial information set out on pages 38 to 66, which comprise the condensed consolidated statement of financial position of Xtep International Holdings Limited and its subsidiaries as at 30 June 2020, and the related condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated statement of changes in equity and the condensed consolidated statement of cash flows for the six-month period then ended, and explanatory notes. The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited require the preparation of a report on interim financial information to be in compliance with the relevant provisions thereof and Hong Kong Accounting Standard 34 "Interim Financial Reporting" ("HKAS 34") issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA").

The directors of the Company are responsible for the preparation and presentation of this interim financial information in accordance with HKAS 34. Our responsibility is to express a conclusion on this interim financial information based on our review. Our report is made solely to you, as a body, in accordance with our agreed terms of engagement, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

SCOPE OF REVIEW

37

We conducted our review in accordance with Hong Kong Standard on Review Engagements 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the HKICPA. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

CONCLUSION

Based on our review, nothing has come to our attention that causes us to believe that the interim financial information is not prepared, in all material respects, in accordance with HKAS 34.

Ernst & Young

Certified Public Accountants

22/F CITIC Tower

1 Tim Mei Avenue

Central

Hong Kong

28 August 2020

INTERIM REPORT 2020

INTERIM CONDENSED CONSOLIDATED INCOME STATEMENT

Six months ended 30 June 2020

Six months ended 30 June

2020

2019

Notes

RMB'000

RMB'000

(Unaudited)

(Unaudited)

REVENUE

5

3,679,061

3,356,913

Cost of sales

(2,189,918)

(1,859,626)

Gross profit

1,489,143

1,497,287

Other income and gains

5

209,697

137,784

Selling and distribution expenses

(685,180)

(636,780)

General and administrative expenses

(512,911)

(281,035)

Operating profit

6

500,749

717,256

Net finance costs

7

(77,434)

(35,273)

Share of losses of associates

(5,342)

(1,043)

38

PROFIT BEFORE TAX

417,973

680,940

Income tax expense

8

(165,583)

(218,166)

PROFIT FOR THE PERIOD

252,390

462,774

Attributable to:

 Ordinary equity holders of the Company

247,921

463,012

 Non-controlling interests

4,469

(238)

252,390

462,774

EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY

 HOLDERS OF THE COMPANY

10

 Basic

RMB10.10 cents

RMB20.19 cents

 Diluted

RMB10.01 cents

RMB19.80 cents

XTEP INTERNATIONAL HOLDINGS LIMITED

INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Six months ended 30 June 2020

Six months ended 30 June

2020

2019

RMB'000

RMB'000

(Unaudited)

(Unaudited)

PROFIT FOR THE PERIOD

252,390

462,774

OTHER COMPREHENSIVE INCOME/(EXPENSE)

Other comprehensive income/(expense) that may be reclassified to profit

 or loss in subsequent periods:

 Exchange differences on translation of financial statements

  of operations outside Mainland China

(4,615)

59,639

(4,615)

59,639

Other comprehensive income/(expense) that will not be reclassified to profit

 or loss in subsequent periods:

 Equity investments designated at fair value through other

8,400

  comprehensive income

(5,000)

39

 Income tax effect

(1,260)

750

7,140

(4,250)

Other comprehensive income for the period, net of tax

2,525

55,389

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD

254,915

518,163

Attributable to:

 Ordinary equity holders of the Company

250,446

518,401

 Non-controlling interests

4,469

(238)

254,915

518,163

INTERIM REPORT 2020

INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

30 June 2020

30 June

31 December

2020

2019

Notes

RMB'000

RMB'000

(Unaudited)

(Audited)

NON-CURRENT ASSETS

Property, plant and equipment

724,091

661,732

Investment properties

32,577

33,985

Right-of-use assets

351,590

356,242

Deposits for acquisition of land use right

60,105

60,105

Goodwill

851,617

833,938

Intangible assets

821,631

809,892

Investments in associates

48,005

39,161

Term deposits

16

500,000

-

Equity investments designated at fair value through

 other comprehensive income

14

166,500

158,100

Deposits and other assets

13

72,080

103,557

Total non-current assets

3,628,196

3,056,712

40

CURRENT ASSETS

Inventories

11

1,208,426

1,046,286

Trade receivables

12

2,903,222

2,596,449

Bills receivables

12

414,500

313,500

Prepayments, other receivables and other assets

13

774,036

817,739

Tax recoverable

5,613

5,359

Structured bank deposits

15

400,000

800,000

Pledged bank deposits

16

553,868

717,034

Cash and cash equivalents

16

3,051,312

2,969,504

Total current assets

9,310,977

9,265,871

CURRENT LIABILITIES

Trade payables

17

1,974,069

1,419,700

Other payables and accruals

18

906,798

980,586

Interest-bearing bank borrowings

19

704,268

1,086,338

Lease liabilities

95,523

68,850

Deferred subsidies

577

577

Tax payable

129,698

115,093

Total current liabilities

3,810,933

3,671,144

NET CURRENT ASSETS

5,500,044

5,594,727

TOTAL ASSETS LESS CURRENT LIABILITIES

9,128,240

8,651,439

XTEP INTERNATIONAL HOLDINGS LIMITED

Interim Condensed Consolidated Statement of Financial Position

30 June 2020

30 June

31 December

2020

2019

Notes

RMB'000

RMB'000

(Unaudited)

(Audited)

NON-CURRENT LIABILITIES

Interest-bearing bank borrowings

19

1,638,205

1,268,527

Derivative financial instruments

18

15,351

-

Lease liabilities

89,176

107,308

Deferred tax liabilities

20

264,094

280,393

Deferred subsidies

20,784

21,074

Other liabilities

14,129

13,899

Total non-current liabilities

2,041,739

1,691,201

NET ASSETS

7,086,501

6,960,238

EQUITY

41

Equity attributable to ordinary equity holders of the Company

Share capital

21

22,157

22,093

Reserves

22

6,976,217

6,868,381

6,998,374

6,890,474

Non-controlling interests

88,127

69,764

Total equity

7,086,501

6,960,238

INTERIM REPORT 2020

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Six months ended 30 June 2020

Six months ended 30 June 2020 (Unaudited)

Attributable to ordinary equity holders of the Company

Reserves

Share

Statutory

Share

Share

Exchange

Non-

Share

premium

Capital

surplus

Treasury

award

option

fluctuation

Fair 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

At 1 January 2020 (audited)

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

Profit for the period

-

-

-

-

-

-

-

-

-

247,921

247,921

247,921

4,469

252,390

Other comprehensive income/

 (expense) for the period

-

-

-

-

-

-

-

(4,615)

7,140

-

2,525

2,525

-

2,525

Total comprehensive income/

 (expense) for the period

-

-

-

-

-

-

-

(4,615)

7,140

247,921

250,446

250,446

4,469

254,915

2019 final dividend declared and paid

9(b)

-

-

-

-

-

-

-

-

-

(169,312)

(169,312)

(169,312)

-

(169,312)

Shares issued in lieu of cash dividend

21(a)

64

17,719

-

-

(4,006)

-

-

-

-

-

13,713

13,777

-

13,777

Lapse of share options

23

-

-

-

-

-

-

(60,233)

-

-

60,233

-

-

-

-

Repurchase of shares

22(g)

-

-

-

-

(5,985)

-

-

-

-

-

(5,985)

(5,985)

-

(5,985)

42

Capital contribution from a

 non-controlling interest

-

-

-

-

-

-

-

-

-

-

-

-

24,902

24,902

Deemed acquisition of a non-controlling

 interest

-

-

-

-

-

-

-

-

-

10,889

10,889

10,889

(10,889)

-

Equity-settled share award arrangement

24

-

-

-

-

8,085

-

-

-

-

-

8,085

8,085

-

8,085

Vesting of awarded shares

24

-

-

-

-

-

(1,325)

-

-

-

1,325

-

-

-

-

Exchange differences on translation of

 foreign operations

-

-

-

-

-

-

-

-

-

-

-

-

(119)

(119)

At 30 June 2020 (unaudited)

22,157

1,588,447

118,615

873,408

(120,766)

3,135

7,798

(86,458)

33,205

4,558,833

6,976,217

6,998,374

88,127

7,086,501

Six months ended 30 June 2019 (Unaudited)

Attributable to ordinary equity holders of the Company

Reserves

Share

Statutory

Share

Share

Exchange

Non-

Share

premium

Capital

surplus

Treasury

award

option

fluctuation

Fair 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

At 1 January 2019 (audited)

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/(loss) for the period

-

-

-

-

-

-

-

-

-

463,012

463,012

463,012

(238)

462,774

Other comprehensive income/

(expense) for the period

-

-

-

-

-

-

-

59,639

(4,250)

-

55,389

55,389

-

55,389

Total comprehensive income/

(expense) for the period

-

-

-

-

-

-

-

59,639

(4,250)

463,012

518,401

518,401

(238)

518,163

2018 final dividend declared and paid

9(b)

-

-

-

-

-

-

-

-

-

(202,994)

(202,994)

(202,994)

-

(202,994)

Exercise of share options

23

70

31,828

-

-

-

-

(6,711)

-

-

-

25,117

25,187

-

25,187

Repurchase of shares

22(g)

-

-

-

-

(3,029)

-

-

-

-

-

(3,029)

(3,029)

-

(3,029)

Share placing

2,115

1,158,123

-

-

-

-

-

-

-

-

1,158,123

1,160,238

-

1,160,238

Formation of subsidiaries

-

-

-

-

-

-

-

-

-

-

-

-

58,800

58,800

Equity-settled share award arrangement

24

-

-

-

-

11,969

-

-

-

-

-

11,969

11,969

-

11,969

Vesting of awarded shares

24

-

-

-

-

-

(965)

-

-

-

965

-

-

-

-

Exchange differences on translation of

foreign operations

-

-

-

-

-

-

-

-

-

-

-

-

1,277

1,277

At 30 June 2019 (unaudited)

21,967

1,516,498

118,615

833,357

(123,751)

4,514

69,343

(78,443)

14,250

4,457,449

6,811,832

6,833,799

64,526

6,898,325

XTEP INTERNATIONAL HOLDINGS LIMITED

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

Six months ended 30 June 2020

Six months ended 30 June

2020

2019

RMB'000

RMB'000

(Unaudited)

(Unaudited)

Operating activities:

Cash from operations

505,801

618,361

Income tax paid

(172,472)

(168,401)

Net interest expenses paid

(59,803)

(28,459)

NET CASH FLOWS FROM OPERATING ACTIVITIES

273,526

421,501

NET CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES(i)

32,972

(488,405)

NET CASH FLOWS FROM/(USED IN) FINANCING ACTIVITIES(ii)

(227,915)

836,028

NET INCREASE IN CASH AND CASH EQUIVALENTS

78,583

769,124

43

Cash and cash equivalents at beginning of period

2,969,504

3,195,809

Effect of foreign exchange rate changes, net

3,225

(8,009)

Cash and cash equivalents at end of period

3,051,312

3,956,924

ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS

Cash and cash equivalents as stated in the interim condensed consolidated

 statement of financial position

3,051,312

3,956,924

The accompanying notes form part of this interim financial information.

  1. Net cash flows from/(used in) investing activities for the period included decrease in structured bank deposits of RMB400,000,000 (2019: increase in structured bank deposits of RMB80,000,000), investment income derived from financial assets at fair value through profit or loss and structured bank deposits of RMB48,152,000 (2019: RMB39,646,000), decrease in pledged bank deposits of RMB163,166,000 (2019: increase in pledged bank deposits of RMB168,199,000), increase in non-current term deposits of RMB500,000,000 (2019: Nil) and purchase of items of property, plant and equipment of RMB62,540,000 (2019: RMB22,741,000).
  2. Net cash flows from/(used in) financing activities for the period included the dividends paid to ordinary equity holders of the Company of RMB155,535,000 (2019: RMB202,994,000) apart from scrip shares in lieu of cash, net repayment of bank borrowings of RMB63,688,000 (2019: RMB139,207,000), capital contribution from non-controlling interests of RMB24,902,000 (2019: RMB58,800,000) and principal elements of lease payments of RMB33,460,000 (2019: RMB12,642,000).

INTERIM REPORT 2020

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

30 June 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 period, 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 period.

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.

2. BASIS OF PREPARATION AND CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES

2.1 Basis of preparation

The interim condensed consolidated financial information has been prepared in accordance with Hong Kong Accounting Standard ("HKAS") 34 "Interim Financial Reporting" issued by the Hong Kong Institute of

Certified Public Accountants (the "HKICPA") and the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Listing

44Rules").

The interim condensed consolidated financial information does not include all the information and disclosures required in the financial statements, and should be read in conjunction with the annual financial statements for the year ended 31 December 2019.

The interim condensed consolidated financial information has been prepared under the historical cost convention, except for bills receivables, financial assets at fair value through profit or loss ("FVPL"), equity investments designated at fair value through other comprehensive income ("FVOCI"), structured bank deposits and derivative financial instruments which have been measured at fair value. The accounting policies adopted in the preparation of the interim condensed consolidated financial information are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2019 except for the changes in accounting policies made after the adoption of the revised HKFRSs as further detailed in note 2.2 below.

XTEP INTERNATIONAL HOLDINGS LIMITED

Notes to Interim Condensed Consolidated Financial Information

30 June 2020

2. BASIS OF PREPARATION AND CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES

(Continued)

2.2 Changes in accounting policies and disclosures

The Group has adopted the following revised Hong Kong Financial Reporting Standards ("HKFRSs") for the first time for the current period's financial information.

Amendments to HKFRS 3

Definition of a Business

Amendments to HKFRS 9,

Interest Rate Benchmark Reform

 HKAS 39 and HKFRS 7

Amendment to HKFRS 16

Covid-19-Related Rent Concessions (early adopted)

Amendments to HKAS 1 and HKAS 8

Definition of Material

Other than as explained below regarding the impact of amendment to HKFRS 16, other revised standards are not relevant to the preparation of the Group's interim condensed consolidated financial information. The nature and impact of the amendment to HKFRS 16 are described below:

  1. 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

45

consequence of the covid-19 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 retrospectively for annual periods beginning on or after 1 June 2020 with earlier application permitted.

During the period ended 30 June 2020, certain monthly lease payments for the leases of the Group's retail stores have been reduced or waived by the lessors as a result of the covid-19 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 covid-19 pandemic during the period ended 30 June 2020. Accordingly, a reduction in the lease payments arising from the rent concessions of RMB1,590,000 has been accounted for as a variable lease payment by derecognising part of the lease liabilities and crediting to interim condensed consolidated income statement for the period ended 30 June 2020.

INTERIM REPORT 2020

Notes to Interim Condensed Consolidated Financial Information

30 June 2020

3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES

The preparation of the interim condensed consolidated financial information in conformity with HKAS 34 requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and their accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amounts of the assets or liabilities affected in the future.

In preparing the interim condensed consolidated financial information, the significant judgements made by management in applying the Group's accounting policies and key sources of estimation uncertainty were the same as those used by management in the preparation of the Group's annual financial statements for the year ended 31 December 2019.

4. OPERATING SEGMENT INFORMATION

The Group is principally engaged in the manufacture and sale of sportswear, including footwear, apparel and accessories. For management purposes, the Group is organised into business units based on market segmentation and has three reportable operating segments as follows:

  1. mass market segment, including signature brand, Xtep;

46 (b) athleisure segment, including signature brands, mainly K-Swiss and Palladium; and

  1. professional sports segment, including signature brands, Saucony and Merrell.

Management monitors the results of the Group's operating segments separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on reportable segment profit/loss, which is a measure of adjusted profit/loss before tax. The adjusted profit/loss before tax is measured consistently with the Group's profit before tax except that bank interest income, finance costs, share of losses of associates as well as corporate and other unallocated expenses are excluded from such measurement.

Segment assets exclude tax recoverable, investments in associates, pledged bank deposits and other unallocated corporate assets as these assets are managed on a group basis.

Segment liabilities exclude derivative financial instruments, interest-bearing bank borrowings, tax payable, deferred tax liabilities and other unallocated corporate liabilities as these liabilities are managed on a group basis.

The operating segment information for the six months ended 30 June 2020 and 2019 are as follows:

Six months ended

Professional

30 June 2020

Mass market

Athleisure

sports

Total

RMB'000

RMB'000

RMB'000

RMB'000

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Segment revenue (note 5)

Sales to external customers

3,201,040

458,552

19,469

3,679,061

Segment results

584,719

(47,701)

(3,962)

533,056

Bank interest income

2,540

Finance costs

(79,974)

Share of losses of associates

(5,342)

Corporate and other unallocated

 expenses

(32,307)

Profit before tax

417,973

XTEP INTERNATIONAL HOLDINGS LIMITED

Notes to Interim Condensed Consolidated Financial Information

30 June 2020

4. OPERATING SEGMENT INFORMATION (Continued)

Six months ended

Professional

30 June 2019

Mass market

Athleisure

sports

Total

RMB'000

RMB'000

RMB'000

RMB'000

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Segment revenue (note 5)

Sales to external customers

3,356,913

-

-

3,356,913

Segment results

761,026

-

-

761,026

Bank interest income

26,956

Finance costs

(62,229)

Share of losses of associates

(1,043)

Corporate and other unallocated

 expenses

(43,770)

Profit before tax

680,940

47

The following table presents the asset and liability information of the Group's operating segments as at 30 June 2020 and 31 December 2019, respectively.

Professional

Mass market

Athleisure

sports

Total

RMB'000

RMB'000

RMB'000

RMB'000

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

30 June 2020

9,616,252

2,407,123

190,329

12,213,704

Segment assets

Corporate and other unallocated assets

725,469

12,939,173

Segment liabilities

2,663,868

339,089

25,032

3,027,989

Corporate and other unallocated

2,824,683

 liabilities

5,852,672

31 December 2019

Segment assets

8,964,943

2,355,396

131,384

11,451,723

Corporate and other unallocated assets

870,860

12,322,583

Segment liabilities

2,190,562

342,145

10,930

2,543,637

Corporate and other unallocated

 liabilities

2,818,708

5,362,345

INTERIM REPORT 2020

Notes to Interim Condensed Consolidated Financial Information

30 June 2020

5. REVENUE, OTHER INCOME AND GAINS

An analysis of revenue, other income and gains is as follows:

  1. Revenue
    Revenue represents the net invoiced value of goods sold during the period, after allowances for returns and trade discounts. The performance obligation is satisfied upon delivery of the sportswear goods and the payment is generally due within 90 to 120 days from delivery, except for new customers, where payment in advance is normally required. Disaggregation of revenue from contracts with customers by product categories is as follows:

Six months ended 30 June

2020

2019

RMB'000

RMB'000

(Unaudited)

(Unaudited)

Product categories

 Footwear

2,253,732

1,911,867

 Apparel

1,339,301

1,356,032

 Accessories

86,028

89,014

48

3,679,061

3,356,913

(ii) Other income and gains

Subsidy income from the PRC government *

139,182

88,401

Rental income

6,192

3,789

Royalty income

11,957

-

Income derived from financial assets at FVPL and

 structured bank deposits

48,152

39,646

Dividend income from an equity investment designated at FVOCI

-

3,600

Others

4,214

2,348

209,697

137,784

  • There are no unfulfilled conditions or contingencies relating to these subsidies.

XTEP INTERNATIONAL HOLDINGS LIMITED

Notes to Interim Condensed Consolidated Financial Information

30 June 2020

6. OPERATING PROFIT

The Group's operating profit is arrived at after charging/(crediting):

Six months ended 30 June

2020

2019

RMB'000

RMB'000

(Unaudited)

(Unaudited)

Advertising and promotional costs

396,211

449,344

Impairment/(write-back of impairment) of trade receivables, net

43,923

(60,877)

Impairment of right-of-use assets#

6,583

-

Provision for inventories

14,536

2,839

Research and development costs*

101,320

81,744

Depreciation of property, plant and equipment

33,066

36,322

Depreciation of right-of-use assets

39,549

14,580

Amortisation of intangible assets

7,377

751

Staff costs

456,734

364,119

Equity-settled share award scheme expense

8,085

11,969

* The research and development costs for the six months ended 30 June 2020 included RMB56,401,000 (six months ended 30 June 2019: RMB48,414,000) relating to the depreciation of research and development centres and staff costs for research and development activities, which were also included in the total amounts disclosed above for each of these types of expenses.

49

  • During the six months ended 30 June 2020, certain retail stores in athleisure segment were loss making. The Group assessed the recoverable amounts of the right-of-use assets of those retail stores and an impairment loss of RMB6,583,000 was recognised in selling and distribution expenses. The estimates of recoverable amount were based on value-in-use calculations using discounted cash flow projections covering the remaining tenure of the leases.

7. NET FINANCE COSTS

An analysis of net finance costs is as follows:

Six months ended 30 June

2020

2019

RMB'000

RMB'000

(Unaudited)

(Unaudited)

Interest expense on bank loans

34,948

30,235

Interest expense on discounted bills receivables

23,007

29,457

Interest expense on lease liabilities

4,387

1,857

Amortisation of bank charges on syndicated loans

2,551

680

Fair value loss, net:

 Derivative instruments - transactions not qualified as hedges (note 18(c))

15,081

-

Bank interest income

(2,540)

(26,956)

77,434

35,273

INTERIM REPORT 2020

Notes to Interim Condensed Consolidated Financial Information

30 June 2020

8. INCOME TAX

No provision for Hong Kong profits tax has been made as the Group did not generate any assessable profits arising in Hong Kong for the six months ended 30 June 2020 (six months ended 30 June 2019: Nil). Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the jurisdictions in which the Group operates.

Six months ended 30 June

2020

2019

RMB'000

RMB'000

(Unaudited)

(Unaudited)

Current tax - Overseas

 Charge for the period

166,179

164,944

 Under/(over)-provision in prior periods

(4,662)

5,222

161,517

170,166

Deferred tax

4,066

48,000

165,583

218,166

50

9. DIVIDENDS

  1. Dividends payable attributable to ordinary equity holders of the Company during the period:

Six months ended 30 June

2020

2019

RMB'000

RMB'000

(Unaudited)

(Unaudited)

Interim dividend - HK6.5 cents (six months ended

 30 June 2019: HK12.5 cents) per ordinary share

148,697

274,429

At the board meeting held on 28 August 2020, the board of directors declared and approved an interim dividend of HK6.5 cents (equivalent to approximately RMB5.9 cents) per ordinary share, totalling approximately HK$163,764,000 (equivalent to approximately RMB148,697,000), for the six months ended 30 June 2020. The interim dividend will be payable in cash with a scrip dividend alternative. This interim dividend has not been recognised as a liability in the interim condensed consolidated financial information.

At the board meeting held on 21 August 2019, the board of directors declared and approved an interim dividend of HK12.5 cents (equivalent to approximately RMB11.0 cents) per ordinary share, totalling approximately HK$312,313,000 (equivalent to approximately RMB274,429,000), for the six months ended 30 June 2019. The interim dividend was payable in cash with a scrip dividend alternative. This interim dividend had not been recognised as a liability in the interim condensed consolidated financial information.

XTEP INTERNATIONAL HOLDINGS LIMITED

Notes to Interim Condensed Consolidated Financial Information

30 June 2020

9. DIVIDENDS (Continued)

  1. Dividends paid to ordinary equity holders of the Company during the period:

Six months ended 30 June

2020

2019

RMB'000

RMB'000

(Unaudited)

(Unaudited)

Dividends paid during the period:

Final dividends in respect of the financial years ended:

 31 December 2019 - HK7.5 cents per ordinary share

169,312

-

 31 December 2018 - HK9.5 cents per ordinary share

-

202,994

169,312

202,994

10. EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE COMPANY

(a) Basic earnings per share

The calculation of basic earnings per share for the six months ended 30 June 2020 is based on the profit

51

for the period attributable to ordinary equity holders of the Company of RMB247,921,000 (six months

ended 30 June 2019: RMB463,012,000) and the weighted average number of ordinary shares in issue

during the period as adjusted to reflect the effects of share options exercised (note 23), the Awarded

Shares vested (note 24), the share placing, the scrip dividend issued (note 21) and the repurchase of

treasury shares (note 22(g)) as follows:

Six months ended 30 June

2020

2019

(Unaudited)

(Unaudited)

Issued ordinary shares at 1 January

2,512,444,722

2,243,380,000

Effect of share options exercised

-

2,183,287

Effect of Awarded Shares vested

18,244,725

9,958,950

Effect of share placing

-

111,935,890

Effect of scrip dividend issued

192,192

-

Less: Repurchase of treasury shares

(75,585,813)

(73,643,751)

Weighted average number of ordinary shares

2,455,295,826

2,293,814,376

INTERIM REPORT 2020

Notes to Interim Condensed Consolidated Financial Information

30 June 2020

10. EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE COMPANY (Continued)

  1. Diluted earnings per share
    The calculation of diluted earnings per share for the six months ended 30 June 2020 is based on the profit for the period attributable to ordinary equity holders of the Company of RMB247,921,000 (six months ended 30 June 2019: RMB463,012,000) and the weighted average number of ordinary shares in issue during the period, as used in the basic earnings per share calculation, as adjusted to reflect the dilution effect of Awarded Shares and share option as follows:

Six months ended 30 June

2020

2019

(Unaudited)

(Unaudited)

Weighted average number of ordinary shares as

 used in the basic earnings per share calculation

2,455,295,826

2,293,814,376

Effect of dilution - weighted average number of ordinary shares:

 - Share award

18,472,842

35,841,050

 - Share option

2,870,237

8,330,400

52

Weighted average number of ordinary shares

2,476,638,905

2,337,985,826

11. INVENTORIES

30 June

31 December

2020

2019

RMB'000

RMB'000

(Unaudited)

(Audited)

Raw materials

133,528

140,053

Work in progress

83,915

104,532

Finished goods

1,063,549

859,650

1,280,992

1,104,235

Less: Provision for inventories

(72,566)

(57,949)

1,208,426

1,046,286

XTEP INTERNATIONAL HOLDINGS LIMITED

Notes to Interim Condensed Consolidated Financial Information

30 June 2020

12. TRADE AND BILLS RECEIVABLES

30 June

31 December

2020

2019

RMB'000

RMB'000

Notes

(Unaudited)

(Audited)

Trade receivables

3,354,833

3,004,086

Less: Impairment of trade receivables

(451,611)

(407,637)

(a)

2,903,222

2,596,449

Bills receivables

(b)

414,500

313,500

The Group's trading terms with its customers are mainly on credit, except for new customers, where payment in advance is normally required. The credit period is generally three to four months. Each customer has a maximum credit limit. The Group seeks to maintain strict control over its outstanding receivables and has a credit control department to minimise credit risk. Overdue balances are reviewed regularly by senior management. The Group's

trade receivables relate to a number of diversified customers and there is certain concentration of credit risk. The 53Group does not hold any collateral or other credit enhancements over its trade receivable balances. Trade receivables are non-interest-bearing.

Notes:

  1. An ageing analysis of the trade receivables as at the end of the reporting period, based on the invoice date and net of impairment, is as follows:

30 June

31 December

2020

2019

RMB'000

RMB'000

(Unaudited)

(Audited)

Within 3 months

1,734,051

1,760,051

3 to 6 months

620,175

537,640

Over 6 months

548,996

298,758

2,903,222

2,596,449

  1. The maturity dates of the bills receivables at the end of the reporting period are analysed as follows:

30 June

31 December

2020

2019

RMB'000

RMB'000

(Unaudited)

(Audited)

Within 3 months

41,000

222,000

3 to 6 months

273,500

44,000

Over 6 months

100,000

47,500

414,500

313,500

Management considers that there were minimal expected credit loss associated with bills receivables in view of the fact that these balances are not yet past due.

INTERIM REPORT 2020

Notes to Interim Condensed Consolidated Financial Information

30 June 2020

13. PREPAYMENTS, OTHER RECEIVABLES AND OTHER ASSETS

30 June

31 December

2020

2019

RMB'000

RMB'000

Notes

(Unaudited)

(Audited)

Prepayments

64,592

71,244

Deposits and advance payments to suppliers

333,066

373,848

Deposits and advance payments to subcontractors

79,492

110,131

Right-of-return assets

7,170

10,159

Loan to a then investee company

(a)

60,000

60,000

Other Asset

(b)

65,010

65,010

Value added tax ("VAT") recoverable

172,507

143,033

Other receivables

(c)

48,020

44,848

Other deposits

16,259

43,023

846,116

921,296

54

Less: Non-current portion

(72,080)

(103,557)

774,036

817,739

Notes:

  1. Balance represented a loan granted to a then investee company in prior years. The loan bore interest at 4.5675% per annum and was repayable in October 2018. The loan was secured by land and building of a related party of the then investee company located at Putian, Fujian Province, the PRC.
    As at 31 December 2019 and 30 June 2020, the balance was overdue and the Group was in the progress of recovering the balance through the secured land and building. The fair value of the secured land and building as at 30 June 2020 was estimated by the directors with reference to the valuation report performed by an independent valuer of the secured land and building as at 31 December 2019, which the fair value is higher than the loan's carrying amount as at 30 June 2020 and no impairment in value was considered necessary accordingly.
  2. On 6 June 2019, the Group entered into an agreement (the "Disposal Agreement") with an independent third party (the "Buyer") to dispose of its entire interests in a wholly-owned subsidiary, which mainly held a parcel of land in Fujian, the PRC. According to the Disposal Agreement, the total consideration would be settled by: (i) a cash consideration of RMB59,665,000, and (ii) certain areas of the building and car parks to be constructed on the land of this disposed subsidiary (the "New Properties"). To the best of the knowledge, information and belief of the Company's directors, having made all reasonable enquiry, the Group does not expect any obstacles to receive the New Properties from the Buyer upon the completion of the construction. The fair value of the New Properties on the disposal date was estimated by management at RMB65,010,000 and is recognised by the Group as the right to receive the New Properties ("Other Asset"). To the best estimation of the directors, the construction of the New Properties is expected to be completed in 2023.
  3. Included in the other receivables are amounts due from the associates of RMB1,022,000 (31 December 2019: RMB869,000), which are repayable on demand.

Except for the loan to a then investee company mentioned in note (a) above, these financial assets included in the above balances relate to receivables for which there was no recent history of default and past due amounts.

XTEP INTERNATIONAL HOLDINGS LIMITED

Notes to Interim Condensed Consolidated Financial Information

30 June 2020

14. EQUITY INVESTMENTS DESIGNATED AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

Note

RMB'000

At 1 January 2020 (audited)

158,100

Changes in fair values

(a)

8,400

At 30 June 2020 (unaudited)

166,500

As at 30 June 2020, the Group held two unlisted investments with fair values of RMB140,500,000 (31 December 2019: RMB130,400,000) and RMB26,000,000 (31 December 2019: RMB27,700,000), representing 5% and 11% (31 December 2019: 5% and 11%) equity interests in two corporate entities, which were established in the PRC on 22 December 2014 and 22 October 2012 with paid-up capital of RMB1,900,000,000 and RMB300,000,000, respectively.

The above unlisted equity investments were irrevocably designated at FVOCI as the Group considers these investments to be strategic in nature.

55

Note:

  1. During the period, fair value gain of RMB8,400,000 (six months ended 30 June 2019: fair value losses of RMB5,000,000) in respect of the Group's equity investments designated at FVOCI were recognised in the interim condensed consolidated statement of comprehensive income.

15. STRUCTURED BANK DEPOSITS

The structured bank deposits are wealth management products issued by a bank in Mainland China with fixed maturity periods of eight to ten months (31 December 2019: six to ten months) and bear interest at floating rates based on the fluctuation in the London Interbank Offered Rate ("LIBOR"). They were classified as financial assets at fair value through profit or loss at the end of the reporting period as their contractual cash flows are not solely payments of principal and interest.

INTERIM REPORT 2020

Notes to Interim Condensed Consolidated Financial Information

30 June 2020

16. TERM DEPOSITS, TIME DEPOSITS, CASH AND BANK BALANCES AND PLEDGED BANK DEPOSITS

30 June

31 December

2020

2019

RMB'000

RMB'000

Note

(Unaudited)

(Audited)

Term deposits and time deposits

628,689

-

Cash and bank balances

3,476,491

3,686,538

4,105,180

3,686,538

Less: Pledged bank deposits for:

   - short-term bank loans

19

(553,868)

(717,034)

Less: Non-current term deposits

(500,000)

-

56

Cash and cash equivalents

3,051,312

2,969,504

At the end of the reporting period, the cash and bank balances, time deposits and term deposits of the Group denominated in RMB amounted to RMB3,931,212,000 (2019: RMB3,525,650,000). RMB is not freely convertible into other currencies. However, under Mainland China's Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for other currencies through banks authorised to conduct foreign exchange business.

Cash at banks earns interest at floating rates based on daily bank deposit rates. Except for the term deposits of RMB500,000,000 (2019: Nil) which are made for 1,080 days and earn interest at a rate of 3.84% per annum, the remaining time deposits are made for one day (2019: one day) depending on the immediate cash requirements of the Group, and earn interest at the respective deposit rates. The bank balances and pledged deposits are deposited with creditworthy banks with no recent history of default.

17. TRADE PAYABLES

An ageing analysis of the trade payables as at the end of the reporting period, based on the invoice date, is as follows:

30 June

31 December

2020

2019

RMB'000

RMB'000

(Unaudited)

(Audited)

Within 3 months

1,809,607

1,308,799

3 to 6 months

96,319

45,634

Over 6 months

68,143

65,267

1,974,069

1,419,700

Notes:

  1. The trade payables are non-interest-bearing and are normally settled within 60 to 120 days.
  2. Included in the trade payables are amounts due to associates of RMB16,695,000 (31 December 2019: Nil) which is repayable on demand.

XTEP INTERNATIONAL HOLDINGS LIMITED

Notes to Interim Condensed Consolidated Financial Information

30 June 2020

18. OTHER PAYABLES AND ACCRUALS AND DERIVATIVE FINANCIAL INSTRUMENTS

30 June

31 December

2020

2019

Notes

RMB'000

RMB'000

(Unaudited)

(Audited)

Contract liabilities

(a)

111,394

99,426

Refund liabilities

11,950

16,932

Other payables

(b)

226,249

257,741

VAT payables

5,507

5,942

Accruals

551,698

600,545

Other payables and accruals

906,798

980,586

Derivative financial instruments

(c)

15,351

-

Notes:

(a)

Contract liabilities represented short-term advances received before delivery of sportswear goods to customers. Revenue that was

57

included in the contract liabilities at the beginning of the reporting period amounting to RMB99,426,000 was recognised during the period

ended 30 June 2020.

  1. As at 31 December 2019, included in the other payables were amounts due to associates of RMB6,565,000 which was repayable on demand.
  2. During the period ended 30 June 2020, the Group entered into various interest rate swap ("IRS") contracts with a creditworthy financial institution with an aggregate notional amount of HK$1,440,000,000 (equivalent to RMB1,324,800,000) for certain of its floating-interest rate loans denominated in Hong Kong dollars to manage its exposure to interest rate fluctuations for the period from 2020 to 2023.
    The IRS contracts are not designated for hedging purposes and are measured at fair value through profit or loss. Changes in the fair value of the IRS contracts amounting to RMB15,081,000 (six months ended 30 June 2019: Nil) were debited to the interim condensed consolidated income statement during the period.

19. INTEREST-BEARING BANK BORROWINGS

30 June 2020

31 December 2019

(Unaudited)

(Audited)

Effective

Effective

interest rate

interest rate

Notes

per annum

Maturity

RMB'000

per annum

Maturity

RMB'000

Current

Revolving loans

(b)

HIBOR+1.10% to

2021

689,992

HIBOR+1.10% to

2020

1,081,072

HIBOR+1.35%

HIBOR+1.35%

Other bank loans

(b)

1.00% to 1.30%

2021

14,276

1.10% to 1.30%

2020

5,266

704,268

1,086,338

Non-current

Syndicated loans

(a)

HIBOR+1.52%

2023

1,636,780

HIBOR+1.52%

2023

1,266,924

Other bank loans

(b)

1.10% to 1.30%

2021

1,425

1.10% to 1.30%

2021

1,603

to 2023

to 2023

1,638,205

1,268,527

2,342,473

2,354,865

INTERIM REPORT 2020

Notes to Interim Condensed Consolidated Financial Information

30 June 2020

19. INTEREST-BEARING BANK BORROWINGS (Continued)

30 June

31 December

2020

2019

RMB'000

RMB'000

(Unaudited)

(Audited)

Analysed into:

 Within one year and on demand

704,268

1,086,338

 In the second year

445

546

 In the third to fifth years, inclusive

1,637,760

1,267,981

2,342,473

2,354,865

Notes:

  1. The syndicated loans are supported by a corporate guarantee provided by certain of the Company's wholly-owned subsidiaries, to the extent of HK$1,800,000,000 (equivalent to approximately RMB1,656,000,000) (31 December 2019: HK$1,800,000,000 (equivalent to approximately RMB1,621,620,000) as at the end of the reporting period.

58

  1. The revolving loans and other bank loans are supported by:
    1. the pledge of certain of the Group's deposits amounting to RMB553,868,000 (31 December 2019: RMB717,034,000) in aggregate; and
    2. corporate guarantees provided by wholly-owned subsidiaries of the Company to the extent of HK$1,442,391,000 and Euro ("EUR") 450,000 (equivalent to approximately RMB1,327,000,000 and RMB3,569,000 respectively) (31 December 2019: HK$1,444,350,000 and EUR450,000 (equivalent to approximately RMB1,301,215,000 and RMB3,498,000 respectively)) at the end of the reporting period.

As at 30 June 2020, except for the bank loans of RMB1,981,000 (31 December 2019: RMB6,869,000) and

RMB13,721,000 (31 December 2019: Nil) which were denominated in EUR and United States dollars ("US$"), all bank borrowings are denominated in HK$.

20. DEFERRED TAX LIABILITIES

Pursuant to the income tax law of the PRC, a 10% withholding tax rate is levied on dividends declared to foreign investors from the foreign investment enterprises established in Mainland China. The requirement is effective from 1 January 2008 and applies to earnings accrued after 31 December 2007. A lower withholding tax rate may be applied if there is a tax treaty between Mainland China and the jurisdiction of the foreign investors. For the Group, the applicable rate for the withholding tax is 5% or 10%. In estimating the withholding taxes on dividends expected to be distributed by those subsidiaries established in Mainland China in respect of earnings generated from 1 January 2008, the directors have made an assessment based on the factors which included the dividend policy and the level of capital and working capital required for the Group's operations in the foreseeable future.

At 30 June 2020, there were no significant unrecognised deferred tax liabilities (31 December 2019: Nil) for withholding taxes that would be payable on the unremitted earnings of the Company's subsidiaries expected to be distributed, after considering the abovementioned factors, in the foreseeable future.

XTEP INTERNATIONAL HOLDINGS LIMITED

Notes to Interim Condensed Consolidated Financial Information

30 June 2020

21. SHARE CAPITAL

At 30 June 2020

HK$'000

RMB'000

(Unaudited)

(Unaudited)

Authorised:

 100,000,000,000 ordinary shares of HK$0.01 each

1,000,000

935,629

Issued and fully paid:

 2,519,440,501 ordinary shares of HK$0.01 each

25,195

22,157

At 31 December 2019

HK$'000

RMB'000

(Audited)

(Audited)

Authorised:

 100,000,000,000 ordinary shares of HK$0.01 each

1,000,000

935,629

59

Issued and fully paid:

 2,512,444,722 ordinary shares of HK$0.01 each

25,125

22,093

The following changes in the Company's share capital took place during the current period:

Number of

Share

Share

shares of

capital

capital

Note

HK$0.01 each

HK$'000

RMB'000

At 1 January 2020

2,512,444,722

25,125

22,093

Shares issued in lieu of cash dividend

(a)

6,995,779

70

64

At 30 June 2020

2,519,440,501

25,195

22,157

Note:

  1. On 8 May 2020, the shareholders of the Company had approved at the annual general meeting the payment of 2019 final dividend of HK7.5 cents (equivalent to approximately RMB6.4 cents) per ordinary share payable in cash with a scrip dividend alternative. During the six months ended 30 June 2020, 6,995,779 ordinary shares were issued and allotted by the Company at HK$2.763 each to shareholders of the Company who had elected to receive scrip shares in lieu of cash. The total value of scrip dividend issued amounted to HK$19,329,000 (equivalent to approximately RMB17,783,000), representing the addition of nominal value of ordinary shares of HK$70,000 (equivalent to approximately RMB64,000) and share premium of HK$19,259,000 (equivalent to approximately RMB17,719,000). During the six months ended 30 June 2020, 1,576,094 (six months ended 30 June 2019: Nil) treasury shares amounting to RMB4,006,000 (six months ended 30 June 2019: Nil) in form of scrip dividend were received by the Company.

INTERIM REPORT 2020

Notes to Interim Condensed Consolidated Financial Information

30 June 2020

22. RESERVES

The amounts of the Group's reserves and movements therein for the six months ended 30 June 2020 are presented in the interim condensed consolidated statement of changes in equity.

  1. Share premium
    Under the Companies Law of the Cayman Islands, the share premium account of the Company may be applied for payment of distributions or dividends to shareholders provided that immediately following the date on which the distribution or dividend is proposed to be paid, the Company is able to pay its debts as they fall due in the ordinary course of business.
  2. Capital reserve
    The capital reserve represents the excess of the nominal value of the paid-in capital of the subsidiaries acquired pursuant to the group reorganisation prior to the listing of the Company's shares over the consideration paid for acquiring these subsidiaries. It also includes the nominal amount of the shares repurchased.
  3. Statutory surplus fund

In accordance with the relevant regulations applicable in the PRC, subsidiaries established in the PRC are

60required to transfer a certain percentage of their statutory annual profits after tax (after offsetting any prior year's losses), if any, to the statutory surplus fund until the balance of the fund reaches 50% of their respective registered capital. Subject to certain restrictions as set out in the relevant PRC regulations, the statutory surplus fund may be used to offset against accumulated losses of the respective PRC subsidiaries. The amount of the transfer is subject to the approval of the board of directors of the respective PRC subsidiaries.

  1. Share option reserve
    The share option reserve comprises the fair value of share options granted which are yet to be exercised. The amount will either be transferred to the share premium account when the related options are exercised, or be transferred to retained profits should the related options expire or be forfeited.
  2. Exchange fluctuation reserve
    The exchange fluctuation reserve comprises all foreign exchange differences arising from the translation of the financial statements of operations outside Mainland China.
  3. Fair value reserve
    The fair value reserve represents the subsequent changes in fair value of the equity investments designated at fair value through other comprehensive income since their initial measurement. With the exception of dividends received, the associated gains and losses are recognised in the fair value reserve. Amounts presented in the fair value reserve are transferred to retained profits upon derecognition of the financial assets.
  4. Treasury shares
    Treasury shares reacquired and held by the Company are recognised directly in equity at cost. During the six months ended 30 June 2020, 3,000,000 (six months ended 30 June 2019: 660,000) treasury shares were purchased at cash consideration of RMB5,985,000 (six months ended 30 June 2019: RMB3,029,000) and 1,576,094 (six months ended 30 June 2019: Nil) treasury shares amounting to RMB4,006,000 (six months ended 30 June 2019: Nil) in form of scrip dividend were received by the Company. In addition, 9,120,000 treasury shares were transferred to the awardees upon the respective Awarded Shares vested. As at 30 June 2020, the Group had treasury shares of 59,639,412 (31 December 2019: 64,183,318), out of which 24,950,000 were granted to certain participants of the Share Award Scheme (note 24) but remained unvested.
  5. Share award reserve
    The share award reserve represents the differences between the cost of repurchase of shares and fair value of Awarded Shares at grant date.

XTEP INTERNATIONAL HOLDINGS LIMITED

Notes to Interim Condensed Consolidated Financial Information

30 June 2020

23. SHARE OPTION SCHEME

The Company has adopted a share option scheme (the "Share Option Scheme") pursuant to the shareholders' written resolution passed on 7 May 2008. Further details of the Share Option Scheme were disclosed in the Company's annual report for the year ended 31 December 2019.

As at 30 June 2020, a total of 12,955,000 (31 December 2019: 23,055,000) share options (the "Share Options") under the Share Option Scheme remained outstanding. During the six months ended 30 June 2020, there were 10,100,000 share options lapsed (six months ended 30 June 2019: Nil). During the six months ended 30 June 2019, the subscription rights attaching to 2,500,000 and 5,545,000 share options granted under the Share Option Scheme were exercised at the subscription prices of HK$2.35 and HK$4.11 per share, resulting in the issue of 8,045,000 additional ordinary shares of the Company and additional share capital of approximately HK$80,000 (equivalent to approximately RMB70,000) and share premium account of approximately HK$28,585,000 (equivalent to approximately RMB25,117,000), before related issuance expenses.

At the date of approval of this interim financial information, the Company had 12,955,000 Share Options outstanding under the Share Option Scheme, which represented approximately 0.5% of the issued share capital of the Company as at that date.

24. SHARE AWARD SCHEME

61

On 1 August 2014, the board of directors of the Company (the "Board") adopted a share award scheme as a mean to recognise the contributions by the key management personnel and to give incentives in order to retain them for their continual operation and development and to attract suitable personnel for further development of the Group (the "Share Award Scheme").

The Share Award Scheme is valid and effective for a period of 10 years from 1 August 2014 (the "Adoption Date"). The shares to be awarded under the Share Award Scheme (the "Awarded Shares") will either be acquired by the trustee of the Share Award Scheme (the "Trustee") from the open market or be new shares allotted and issued to the Trustee under general mandates granted by shareholders of the Company to the directors at general meetings of the Company from time to time, both of which will be out from cash contributed by the Group. The Trustee will hold the Awarded Shares in trust for the awardees until such shares are vested with the awardees in accordance with the provisions of the Share Award Scheme. The Trustee shall not exercise the voting rights in respect of any shares held under the trust.

The Board shall not make any further award of Awarded Shares which will result in the nominal value of the Shares awarded by the Board under the Scheme exceeding 5% of the issued share capital of the Company from time to time. The maximum number of Shares which may be awarded to a selected participant under the Scheme shall not exceed 1% of the issued share capital of the Company from time to time.

The vesting of shares awarded to the awardees is subject to conditions and vesting schedules as determined by the Board in its sole discretion.

The shares granted will be vested in the respective proportions in accordance with the vesting schedule. The trustee shall cause the Awarded Shares to be transferred to such selected participant on the vesting date. Vested shares will be transferred to the selected participants at no cost save that transaction fees and expenses will be payable by the selected participants as transferees.

INTERIM REPORT 2020

Notes to Interim Condensed Consolidated Financial Information

30 June 2020

24. SHARE AWARD SCHEME (Continued)

In 2015, the Company repurchased 50,000,000 ordinary shares of the Company at HK$3.052 per share at an aggregate consideration of HK$152,600,000 (equivalent to approximately RMB120,447,000) through the Trustee for the Share Award Scheme.

Prior to 10 January 2017, no Awarded Shares have been granted. On 10 January 2017, the Board resolved to grant 50,000,000 Awarded Shares to certain selected participants, who are not a director, chief executive or substantial shareholder of the Company, nor an associate (as defined under the Listing Rules) of any of them at nil consideration.

Details of each category of Awarded Shares granted on 10 January 2017 under the Share Award Scheme are as follows:

Number of Awarded

Fair value at

Grant date

Shares to vest

Vesting period

grant date

HK$ per share

10 January 2017

5,000,000

10 January 2017 to 10 January 2018

3.21

10 January 2017

7,500,000

10 January 2017 to 10 January 2019

3.21

62

10 January 2017

10,000,000

10 January 2017 to 10 January 2020

3.21

10 January 2017

10,000,000

10 January 2017 to 10 January 2021

3.21

10 January 2017

17,500,000

10 January 2017 to 10 January 2022

3.21

Fair values of the Awarded Shares at grant date were measured by the quoted market price of the shares at the grant date.

Movements in the number of Awarded Shares were as follows:

Number of

Awarded Shares

Outstanding as at 1 January 2019

41,210,000

Awarded Shares forfeited

(200,000)

Awarded Shares vested

(6,940,000)

Outstanding as at 31 December 2019 and 1 January 2020

34,070,000

Awarded Shares vested

(9,120,000)

Outstanding as at 30 June 2020

24,950,000

During the period, share award scheme expense of RMB8,085,000 (six months ended 30 June 2019: RMB11,969,000) was recognised in the interim condensed consolidated income statement.

During the period, an amount of RMB1,325,000 (six months ended 30 June 2019: RMB965,000) was transferred from share award reserve to retained profits in respect of vesting of 9,120,000 Awarded Shares (30 June 2019:

6,940,000). As at 30 June 2020, the cumulative Awarded Shares forfeited was 4,400,000 (31 December 2019:

4,400,000).

XTEP INTERNATIONAL HOLDINGS LIMITED

Notes to Interim Condensed Consolidated Financial Information

30 June 2020

25. COMMITMENTS

The Group had the following capital commitments at the end of the reporting period:

30 June

31 December

2020

2019

RMB'000

RMB'000

(Unaudited)

(Audited)

Contracted for commitments in respect of:

124,689

 - construction of new buildings

159,199

 - construction of new manufacturing facilities

22,589

16,689

 - advertising and promotional expenses

216,634

263,753

363,912

439,641

26. RELATED PARTY TRANSACTIONS

  1. In addition to the transactions detailed elsewhere in this interim financial information, the Group had the following material transactions with related parties during the period:
  1. The Group entered into several lease agreements for the period from 2021 to 2023 with Hu Du

Century (Xiamen) Investment Management Co., Ltd., a company established in the PRC and a wholly-

63

owned subsidiary of Wan Xing, the ultimate holding company of the Company. As at 30 June 2020, right-of-use assets of RMB18,974,000 (31 December 2019: RMB17,210,000) and lease liabilities of RMB20,276,000 (31 December 2019: RMB17,872,000) in respect of these leases were recognised in the interim condensed consolidated statement of financial position. During the period ended 30 June 2020, depreciation of right-of-use assets of RMB4,725,000 (six months ended 30 June 2019: RMB3,858,000) and interest expenses on lease liabilities of RMB473,000 (six months ended 30 June 2019: RMB493,000) were charged to the interim condensed consolidated income statement.

These transactions also constitute continuing connected transactions as defined in Chapter 14A of the Listing Rules.

  1. During the period ended 30 June 2020, purchases amounting to RMB18,786,000 (six months ended 30 June 2019: Nil) were made by the Group from associates of the Group.

These transactions were entered into by the Group and its related companies in accordance with the terms of the respective agreements.

  1. Outstanding balances with related parties:
    Details of the Group's other receivable and trade payable balances with the associates are disclosed in notes 13 and 17 to the interim condensed consolidated financial information, respectively.

27. FINANCIAL ASSETS THAT ARE DERECOGNISED IN THEIR ENTIRETY

At 30 June 2020, the Group discounted certain commercial bills receivable with a carrying amount in aggregate of approximately RMB1,140,500,000 (31 December 2019: RMB1,624,736,000) to a bank in the PRC (the "Derecognised Bills") for cash. The Derecognised Bills had a remaining maturity from approximately 59 days to 238 days (31 December 2019: 31 days to 294 days) at the end of the reporting period. In accordance with the Law of Negotiable Instruments in the PRC, the holders of the Derecognised Bills have a right of recourse against the Group if the PRC bank and/or the issuers of bills receivable default (the "Continuing Involvement"). In the opinion of the directors, the Group has transferred substantially all risks and rewards relating to the Derecognised Bills. Accordingly, the Group has derecognised the full carrying amounts of the Derecognised Bills. The maximum exposure to loss from the Group's Continuing Involvement in the Derecognised Bills and the undiscounted cash flows to repurchase these Derecognised Bills is equal to their carrying amounts. In the opinion of the directors, the fair value of the Group's Continuing Involvement in the Derecognised Bills is not significant.

During the six months ended 30 June 2020, the Group has not recognised any gain or loss on the date of transfer of the Derecognised Bills (six months ended 30 June 2019: Nil). No gains or losses were recognised from the Continuing Involvement, both during the period or cumulatively. The discount of bills receivables of RMB1,140,500,000, RMB2,873,036,000 and RMB1,282,300,000 has been made during the period ended 30 June 2020, the year ended 31 December 2019 and the period ended 30 June 2019, respectively.

INTERIM REPORT 2020

Notes to Interim Condensed Consolidated Financial Information

30 June 2020

28. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS

64

Management has assessed that the fair values of cash and cash equivalents, pledged bank deposits, trade receivables, trade payables, financial assets included in other receivables, financial liabilities included in other payables and accruals and the current portion of interest-bearing bank borrowings approximate to their carrying amounts largely due to the short-term maturities of these instruments.

The fair values of non-current term deposits and non-current portion of interest-bearing bank borrowings have been calculated by discounting the expected future cash flows using rates currently available for instruments with similar terms, credit risk and remaining maturities. The changes in fair value as a result of the Group's own non-performance risk for interest-bearing bank borrowings as at 30 June 2020 were assessed to be insignificant. The fair values of non-current term deposits and non-current portion of interest-bearing bank borrowings approximate to their carrying amounts as at the end of the reporting period.

The Group's finance department is responsible for determining the policies and procedures for the fair value measurement of financial instruments. At each reporting date, the finance department analyses the movements in the values of financial instruments and determines the major inputs applied in the valuation. The valuation is reviewed and approved by the chief financial officer. The valuation process and results are discussed with the audit committee twice a year for interim and annual financial reporting.

The fair values of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following methods and assumptions were used to estimate the fair values:

The fair values of bills receivables and structured bank deposits have been calculated by discounting the expected future cash flows using rates currently available for instruments with similar terms, credit risk and remaining maturities, the key observable inputs in the valuation are time to expiration and risk free rate. The fair values of bills receivables and structured bank deposits approximate to their carrying amounts as at the end of the reporting period. In respect of the derivative financial instruments, the Group relies on bank valuations to determine the fair value of the instruments, these valuations maximise the use of observable market data. Key observable inputs in the valuations are floating rates, fixed rates, time to expiration and discount rate. The fair value of the unlisted equity investments designated at fair value through other comprehensive income have been estimated using a market-based valuation technique based on assumptions that are not supported by observable market prices or rates. The valuation requires the directors to determine comparable public companies (peers) based on industry and geography, and calculate an appropriate price multiple, such as price to net book value ("P/ B") multiple, for each comparable company identified. The multiple is calculated by dividing the net book value per share of the comparable company by the market price per share. The trading multiple is then discounted for considerations such as marketability between the comparable companies based on company-specific facts and circumstances.

The discounted multiple is applied to the corresponding P/B multiple of the unlisted equity investments to measure the fair value. The directors believe that the estimated fair values resulting from the valuation technique, which are recorded in the interim condensed consolidated statement of financial position, and the related changes in fair values, which are recorded in the interim condensed consolidated statement of comprehensive income, are reasonable, and that they were the most appropriate values at the end of the reporting period.

XTEP INTERNATIONAL HOLDINGS LIMITED

Notes to Interim Condensed Consolidated Financial Information

30 June 2020

28. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (Continued) Below is a summary of significant unobservable inputs to the valuation of unlisted equity investments together with a quantitative sensitivity analysis as at 30 June 2020:

Range of

Relationship of

Valuation

Unobservable

unobservable

unobservable inputs

Description

technique

inputs

inputs

to fair value

Unlisted equity

Market

P/B multiple

30 June 2020:

5% (31 December 2019: 5%)

 investments

 multiples

 of peers

 0.23x to 1.57x

 increase/decrease in multiple

 (31 December 2019:

 would result in increase/decrease

 0.17x to 8.28x)

 in fair value by RMB8.3 million

 (31 December 2019: RMB7.9 million)

Discount for lack

30 June 2020:

2.5% (31 December 2019: 2.5%)

 of marketability

 20%

 increase/decrease in multiple

 (31 December 2019:

 would result in decrease/increase

 20%)

 in fair value by RMB5.2 million

 (31 December 2019: RMB4.9 million)

Fair value hierarchy

65

The following tables illustrate the fair value measurement hierarchy of the Group's financial instruments:

Assets measured at fair value:

As at 30 June 2020

Fair value measurement using

Quoted prices

Significant

Significant

in active

observable

unobservable

markets

inputs

inputs

(Level 1)

(Level 2)

(Level 3)

Total

RMB'000

RMB'000

RMB'000

RMB'000

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Equity investments designated at fair value

-

-

166,500

166,500

 through other comprehensive income

Structured bank deposits

-

400,000

-

400,000

Bills receivables

-

414,500

-

414,500

-

814,500

166,500

981,000

As at 31 December 2019

Fair value measurement using

Quoted prices

Significant

Significant

in active

observable

unobservable

markets

inputs

inputs

(Level 1)

(Level 2)

(Level 3)

Total

RMB'000

RMB'000

RMB'000

RMB'000

(Audited)

(Audited)

(Audited)

(Audited)

Equity investments designated at fair value

 through other comprehensive income

-

-

158,100

158,100

Structured bank deposits

-

800,000

-

800,000

Bills receivables

-

313,500

-

313,500

-

1,113,500

158,100

1,271,600

INTERIM REPORT 2020

Notes to Interim Condensed Consolidated Financial Information

30 June 2020

28. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (Continued) Assets measured at fair value: (Continued)

Reconciliation of fair value measurements categorised within Level 3 of the fair value hierarchy:

2020

2019

RMB'000

RMB'000

(Unaudited)

(Unaudited)

Equity investments designated at FVOCI:

At 1 January

158,100

114,200

Fair value gains/(losses) recognised in other comprehensive income

8,400

(5,000)

Addition

-

35,000

At 30 June

166,500

144,200

Liabilities measured at fair value:

As at 30 June 2020

66

Fair value measurement using

Quoted prices

Significant

Significant

in active

observable

unobservable

markets

inputs

inputs

(Level 1)

(Level 2)

(Level 3)

Total

RMB'000

RMB'000

RMB'000

RMB'000

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Derivative financial instruments

-

15,351

-

15,351

The Group did not have any financial liabilities measured at fair value as at 31 December 2019.

During the period ended 30 June 2020, there were no transfers of fair value measurements between Level 1 and Level 2 and no transfers into or out of Level 3 for both financial assets and financial liabilities (six months ended 30 June 2019: Nil).

29. APPROVAL OF THE INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

The interim condensed consolidated financial information was approved and authorised for issue by the board of directors on 28 August 2020.

XTEP INTERNATIONAL HOLDINGS LIMITED

GLOSSARY

In this interim report, unless the context otherwise requires, the following terms shall have the following meanings:

"App"

A software program for download onto mobile devices

"Board"

The Board of Directors of the Company

"Business Day"

Any day on which the Hong Kong Stock Exchange is open for the business of dealing

in securities

"Company"

Xtep International Holdings Limited

"Corporate Governance

The Corporate Governance Code as set out in Appendix 14 of the Listing Rules

 Code"

"Director(s)"

The director(s) of the Company

"GDP"

Gross domestic product

"Group"

The Company and its subsidiaries

67

"Group Success"

Group Success Investments Limited, a company incorporated in the British Virgin

Islands with limited liability on 23 February 2007, and is wholly owned by Wan Xing

International Holdings Limited, which is in turn ultimately owned as to 67% by Mr. Ding

Shui Po's family trust, 21% by Ms. Ding Mei Qing's family trust and 12% by Mr. Ding

Ming Zhong's family trust

"HK$" and "HK cents"

Hong Kong dollars and cents respectively, the lawful currency of Hong Kong

"Hong Kong"

The Hong Kong Special Administrative Region of the PRC

"Hong Kong Stock Exchange"

The Stock Exchange of Hong Kong Limited

 and "Stock Exchange"

"Joyrun"

A leading Chinese App for runners

"Listing Date"

3 June 2008, on which dealing in the Shares first commenced on the Hong Kong

Stock Exchange

"Listing Rules"

The Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong

Limited

"Model Code"

The Model Code for Securities Transactions by Directors of Listed Issuers as set out in

Appendix 10 of the Listing Rules

"O2O"

Online to Offline

"Period"

The six months ended 30 June 2020

"POS"

Points of sale

INTERIM REPORT 2020

Glossary

"PRC" or "China" or

The People's Republic of China excluding, for the purpose of this interim report, Hong

 "Mainland China"

Kong, Macau and Taiwan

"R&D"

Research and development

"RMB"

Renminbi, the lawful currency of the PRC

"SFO"

Securities and Futures Ordinance, Chapter 571 of the Laws of Hong Kong

"Share(s)"

Ordinary share(s) of HK$0.01 each in the share capital of the Company

"Share Option Scheme"

The share option scheme adopted by the Company on 7 May 2008, the principal terms

of which are summarized under the paragraph headed "Share Option Scheme" in

Appendix VI to the prospectus of the Company dated 21 May 2008

"Shareholder(s)"

Shareholder(s) of the Company

"U.S."

United States of America

68

"US$"

U.S. dollars, the lawful currency of the U.S.

"Xtep"

Xtep brand

"Xtep Kids"

The children's sportswear business of the Group

XTEP INTERNATIONAL HOLDINGS LIMITED

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Xtep International Holdings Limited published this content on 22 September 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 22 September 2020 09:39:07 UTC