Youzan Technology Limited — Annual Report 2020

Mar 28, 2021

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

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(Incorporated in Bermuda with limited liability) (Stock Code: 8083)

ANNUAL RESULTS ANNOUNCEMENT FOR THE YEAR ENDED 31 DECEMBER 2020

CHARACTERISTICS OF GEM OF THE STOCK EXCHANGE OF HONG KONG LIMITED (THE “STOCK EXCHANGE”)

GEM has been positioned as a market designed to accommodate small and mid-sized companies to which a higher investment risk may be attached than other companies listed on the Main Board of the Stock Exchange. Prospective investors should be aware of the potential risks of investing in such companies and should make the decision to invest only after due and careful consideration.

Given that the companies listed on GEM are generally small and mid-sized companies, there is a risk that securities traded on GEM may be more susceptible to high market volatility than securities traded on the Main Board and no assurance is given that there will be a liquid market in the securities traded on GEM.

This announcement, for which the directors (the “Directors”) of China Youzan Limited (the “Company”, together with its subsidiaries, the “Group” or “We” or “Youzan”) collectively and individually accept full responsibility, includes particulars given in compliance with the Rules Governing the Listing of Securities on GEM of the Stock Exchange (the “GEM Listing Rules”) for the purpose of giving information with regard to the Company. The directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this announcement is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this announcement misleading.

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The board of directors (the “Board”) of the Company is pleased to announce the audited consolidated results of the Company and its subsidiaries (the “Group”) for the year ended 31 December 2020 (the “Reporting Period”) together with the comparative figures for the year ended 31 December 2019.

FINANCIAL HIGHLIGHTS

FINANCIAL PERFORMANCE HIGHLIGHTS

	For the year ended 31 December	For the year ended 31 December	For the year ended 31 December
	2020	2019	Changes
	RMB’000	RMB’000	%
		(Re-presented)
Revenue	1,820,723	1,168,857	55.8%
Gross profit	1,082,084	593,402	82.4%
Gross profit margin (%)	59.4	50.8	8.6
Loss before tax	(592,282)	(1,012,351)	(41.5)%
Loss for the year	(545,653)	(915,569)	(40.4)%
Loss attributable to owners of the Company	(294,671)	(591,874)	(50.2)%
Non-HKFRS Measures:
Adjusted loss before interest, tax, depreciation and
amortization (unaudited)	(319,764)	(432,745)	(26.1)%
Adjusted non-HKFRS loss for the year (unaudited)	(318,237)	(421,476)	(24.5)%
FINANCIAL POSITION HIGHLIGHTS
	As	at 31 December
	2020	2019	Changes
	RMB’000	RMB’000	%
Current assets	8,107,646	6,337,493	27.9%
Non-current assets	4,104,834	4,161,367	(1.4)%
Total assets	12,212,480	10,498,860	16.3%
Current liabilities	7,058,846	6,106,953	15.6%
Non-current liabilities	523,535	492,860	6.2%
Total liabilities	7,582,381	6,599,813	14.9%
Net current assets	1,048,800	230,540	354.9%
Equity attributable to owners of the Company	3,858,795	3,658,468	5.5%
Non-controlling interests	771,304	240,579	220.6%
Total equity	4,630,099	3,899,047	18.7%

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MANAGEMENT DISCUSSION AND ANALYSIS

BUSINESS OVERVIEW

Youzan provides merchants with powerful social network-based SaaS systems with omni-channel operations and integrated new retail solutions, applying PaaS cloud service to create business customisation options, while providing extended services such as Youzan Guarantee, Youzan Distribution, Youzan Promotion, etc. We help every merchant who values products and services privatise customer assets, expand internet customer base, improve business efficiency, and help his/her business comprehensively succeed in all aspects.

In 2020, the COVID-19 outbreak caused an impact on the operation of offline retail channels and accelerated the process of digital transformation of merchants. By providing SaaS systems and integrated new retail solutions, Youzan helps merchants build and improve their online business capabilities. During the period of COVID-19 outbreak, Youzan also issued 16 “anti-epidemic measures”, including software service fees reduction or exemption, provision of sales programs of “doing business without going out”, etc., to help merchants “to fight the epidemic together”.

The Gross Merchandise Volume (“GMV”)[1] generated by merchants through Youzan’s solutions reached RMB103.7 billion in 2020, representing an increase by 61% as compared to the GMV of 2019.

In 2020, the number of our merchants continuously increased. As of 31 December 2020, the number of paying merchants was 97,158, increased by 18% as compared with the number as of 31 December 2019. The number of new paying merchants was 59,940 in 2020, increased by 10% as compared with the number of 2019.

Our store SaaS business grew significantly. The number of new paying merchants from Youzan Chain increased by 300% approximately. The number of new paying merchants from Youzan Retail, Youzan Beauty and Youzan Education increased by 100% approximately. The number of paying stores of chain merchants using our products increased significantly which was around ten times of the number in 2019.

While we are helping more merchants achieve success in commerce, our operation efficiency increased continuously. In 2020, the gross profit margin increased 8.6 percentage points to 59.4% compared with the number of 2019. The gross profit margin of subscription solutions increased 11.8 percentage points to 76.0%. All of the expense ratios decreased significantly. Our operating cash flow improved and the net cash generated from operating activities was approximately RMB144,426,000.

We offer a wide variety of cloud-based commerce services to merchants through our subscription solutions, a suite of SaaS products such as Youzan WeiMall, Youzan Retail, Youzan Chain, Youzan Beauty, and Youzan Education. In addition, leveraging our Youzan Cloud platform and our PaaS capabilities, we also provide customised services on standardised SaaS products for merchants and offer applications by third-party developers on our Youzan App Market.

1 The total value of all confirmed transactions for products and services of Youzan Group, regardless of whether the goods are delivered or returned or how such orders are settled.

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BUSINESS OVERVIEW (CONTINUED)

Youzan WeiMall is an integrated social-media-based e-commerce solution designed for merchants of all industries operating under various scenarios. Youzan WeiMall helps merchants build a comprehensive e-commerce management system to capitalise the user traffic of leading social media platforms in China, enhance their brand awareness and efficiently increase sales. Merchants using Youzan WeiMall represent a wide array of industries including fashion, food, cosmetics, digital products, garments, healthcare and home appliances, among others.

Youzan Retail is a cross-channel, integrated commerce service solution designed for retail merchants. It helps retail merchants establish online operations, upgrade storefront operating systems, and grow sales both online and offline. Youzan Retail provides merchants with a one-stop digital solution covering storefront operations, scenario-based marketing, member-based marketing, data-based decision-making, sales channels integration and business coordination with third-party systems.

Youzan Chain is a digital and intelligent commerce service solution designed for merchants with chain stores. It helps merchants manage multi-layer online and offline storefronts, realise cross-channel sales growth, and achieve operational efficiency through digitalisation. Tailored for the multi-layer management structure of offline chain stores, Youzan Chain provides a comprehensive management system integrating headquarter, franchisees, self-run subsidiaries, branch companies and physical storefronts. It is designed as a multi-layer system with different levels of authorisations and its functional capacities are correspondingly incorporated into different layers of the management system. The management system for the headquarter enables merchants to monitor business aspects that affect the overall business operations such as pricing, promotion, inventory and order processing, customer service, and membership. The franchisee module enables franchisees to manage order, promotion, value top-up as well as cash management of each franchisee storefronts. Merchants can set up online storefronts for its every offline counterparts, so that merchants can start business and conduct marketing online, while convert online traffic into offline purchase.

Youzan Beauty provides an integrated commerce service solution to build up e-commerce storefronts for merchants of beauty industry. Through functionalities that integrate online and offline operations, Youzan Beauty is able to help merchants digitalise storefront management, marketing management, membership management and chain store management.

Youzan Education is an integrated commerce service solution for education service providers. It helps education service providers realise business growth online and offline. Youzan Education offers education service providers with a wide array of management and marketing tools and functionalities such as student recruitment, registration and reservation, curriculum arrangement, student-teacher interaction and supervision, and ancillary education-related products sales.

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BUSINESS OVERVIEW (CONTINUED)

With Youzan Cloud platform and PaaS capabilities, we can provide merchants with customised services on our standardised SaaS products, which enables our SaaS products to evolve with merchants’ changing demand and special requirements. We also provide Youzan App Market that offers applications by third-party developers to merchants to achieve their respective business goals. With our Youzan App Market, merchants are able to access a wide array of applications including marketing management, storefront operation management, integration and compatibility of different management systems, online storefront design and decoration, software customisation, customer service, and logistics and inventory management. As of 31 December 2020, we had 2,055 applications by 1,646 third-party developers on offer through our Youzan App Market. As of 31 December 2020, more than 235,000 merchants had subscribed to applications by third-party developers through our Youzan App Market.

We also provide merchants with merchant solutions, a series of value-added services to address merchants’ online and/or offline operation needs, including payment services, merchandise sourcing and distribution, consumer protection and online traffic monetisation. Merchant solutions mainly include Youzan Payment, Youzan Distribution, Youzan Guarantee and Youzanke.

Youzan Distribution provides our merchants with additional means to facilitate effective and efficient sales and distribution of products. Through Youzan Distribution, merchants who manufacture and supply products are able to establish collaborative relationship with merchants who want to distribute such products in a cost-effective manner, therefore enabling faster and more efficient distribution of products through such synergy created.

Youzan Guarantee aims to resolve the problem of insufficient trust between merchants and consumers which leads to low purchase conversion rate. With Youzan Guarantee, we strive to restore consumers’ confidence in merchants and their products and, in turn, increase the customer acquisition and repeat purchase.

Youzanke is a commission-based promotion platform launched in 2020, which connects merchants with media content providers such as KOLs, live-streamers and self-run bloggers, so that merchants can market and promote their products leveraging the Internet traffic brought by these media content providers. Through this platform, media content providers promote and market our merchants’ products and monetise their online traffic by charging a commission from merchants for the products sold. Youzanke, in turn, takes a percentage of such commission. Youzanke provides merchants with an additional marketing and sales channel as well as provides media content providers with access of branded products and online traffic monetisation opportunities. Our merchants are responsible for product supply, logistics, inventory and customer services, while the media content providers focus on product promotion and marketing.

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BUSINESS OVERVIEW (CONTINUED)

We provide a series of add-on services to the merchants that subscribe our solution offerings, including services we proactively provide to merchants, as well as services we provide in response to merchants’ inquiries. Motivated by the belief of helping merchants achieve success, we provide a wide variety of personalised services, covering the initial contact of merchants by our service managers, fulfilment of the first order and reaching transaction value threshold or membership level with our assistance, achievement of higher GMV and customer active level, and renewal of our contracts with merchants. We also endeavour to provide real-time help to our merchants in response to their inquiries through our help centre, covering a wide variety of topics such as product user-guidance, merchant service, consumer service, product vetting and examination, and customer complaint.

In addition to the services we provide by ourselves, we have launched Youzan Service Market, a platform where we connect third-party service providers to our merchants. As of 31 December 2020, there were 111 service providers on our Youzan Service Market, providing services of approximately 360 items in 10 categories, such as store decoration and photography, operation management, publicity and promotion, short video and live-streaming, and personnel training.

Endeavouring to resolving the critical needs of our merchants, we have been driven by an unwavering focus on developing our products to address a full spectrum of pain points experienced by our merchants in different processes of their operations. We released more than 52,000 updates and upgrades for our SaaS products in 2020. These updates and upgrades are aimed to expand the functionalities as well as the performance of our SaaS products. Our ability to compete successfully depends on continuously development and rolling out new features, functions and solutions tailored to the needs of merchants and therefore continuous research and development is critical to our future success. Our proven record of product development capabilities is supported by our strong technology and products development team. As of 31 December 2020, we had 1,231 product and technology staff with expertise in cloud computing, mobile technology, social media platform development, mobile Internet information technology, largescale distributed application technology, as well as big data computing technology, together representing approximately 34% of our total number of employees. Our research and development expenses amounted to RMB452,446,000 in 2020, increased by 12%.

In 2020, we continued to improve the construction of our sales team and expand our sales force. We set up a new regional operation center in Chengdu to expand and serve merchants in the southwest region. As of the end of 2020, Youzan’s direct sales team covered six major cities including Hangzhou, Beijing, Shanghai, Guangzhou, Shenzhen and Chengdu. As of 31 December 2020, the number of Youzan channel partners reached 568, covering 153 cities in 31 provincial regions in China, increased 63% as compared with the number as of 31 December 2019.

We consider our employees as our most important asset and competitive advantage. We value the contribution of each of our employees and we are dedicated to work together with them to create value for our merchants. As of 31 December 2020, we have 3,603 employees, with 43% of sales, 34% of product and technology, 17% of service and operation and 6% of management and support.

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FUTURE BUSINESS STRATEGIES

Our future business plan has been made based on our mission, which is to help every merchant who values products and services achieve success in commerce. To help the merchants achieve success is to help them improve business efficiency and expand the business scale by providing better solutions to satisfy their business needs. We plan to implement the following strategies to strengthen our leadership in the cloud-based commerce services industry:

Grow our merchants’ sales

We believe that our business value is commensurate with the continued success attained by our merchants and therefore our first growth strategy is to keep helping grow our merchants’ sales. The more sales a merchant generates with our products and services, the greater the financial return we would receive in exchange for the value we created for them. We will further review and monitor our merchants’ needs, and endeavour to provide them with the most effective and efficient solutions that are tailor-made for their needs. Furthermore, we will further enhance and optimise our service capabilities helping merchants use our products efficiently as well as providing them with constructive advice for their business operations.

Grow our merchant base and broaden sales network

We will further increase the size of our merchant base. We believe that we are well-positioned to capitalise the continued growth of the decentralised e-commerce market in China. Merchants of all sizes demand user-friendly and efficient management tools to digitalise their business operations, manage their online customer traffic, as well as integrate their online/offline operations. We will continue to design and launch new solutions and optimise our existing offerings to capitalise these industry trends. In addition, we will further expand our sales network of direct sale team and channel partners, improve our sales and marketing efficiency and increase penetration in more regions with sales potential so that we can achieve further growth.

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FUTURE BUSINESS STRATEGIES (CONTINUED)

Continuous innovation and expansion of our solution offerings

Leveraging our in-depth industry know-how and proprietary technologies, we will continue to develop new products and services catering to our merchants’ evolving needs and pursue cross-sell and up-sell opportunities. As for our subscription solutions, we plan to invest in continuous innovation of our SaaS products and related services helping them better manage their own customer traffic and achieve more efficient digitalised operations. As for our merchant solutions, we will further enhance our understanding of demands of merchants of all sizes in different verticals and provide them with services that align with their business process to meet their ever-increasing operational needs. Furthermore, in light of the emergence and rapid development of live-streaming e-commerce and other potential popular online sales and marketing channel, we will strive to connect our merchants to more online platforms with high customer traffic so as to increase their business opportunities.

Continue to expand our ecosystem and enhance our capabilities to serve large-scale merchants

We will continue to grow and develop our ecosystem by joining forces with our partners to foster the ability to serve large-scale merchants by offering personalised and customised solutions:

• Youzan Cloud platform. We will further enhance and optimise our PaaS capabilities. By enhancing and optimising our Youzan Cloud platform, we are able to make our Youzan App Market available to more third-party developers who are capable to develop and offer more quality applications to enrich our offerings on Youzan App Market. In addition, we will increase our investment in Youzan Cloud platform to strengthen our cloud offerings such as E-commerce Cloud, Retail Cloud, and Marketing Cloud.

• Youzan Service Market. We will further expand the number of third-party service providers clustered around Youzan Service Market. We plan to attract more quality third-party service providers to Youzan Service Market to enrich service offerings for merchants. We will also deepen our relationships with third-party service providers by offering better incentives for quality services, efficient match with particular merchant with service needs, as well as introduction of other business opportunities.

Continue to build for the long-term

We are committed to creating long-term value for our merchants and help them to achieve long-term success. As an innovator and pioneer offering state-of-the-art cloud-based commerce services solutions, we seek opportunities for strategic partnership with other market players that can create synergies with us, and opportunities for making selective investments or acquisitions to constantly enhance our competence. We believe the strategic partnership or investments could further strengthen our market leadership for the long run and create greater long-term value for our merchants.

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FINANCIAL REVIEW

Revenue

In 2020, the Group’s overall business performances were good. The Group’s revenue was approximately RMB1,820,723,000 (2019: approximately RMB1,168,857,000 (Re-presented)), representing an increase of about 55.8% as compared to 2019, which was mainly attributable to the substantial increase in revenue from sales of subscription solutions and merchant solutions to merchants.

The following table sets forth the revenue breakdown by major products and services for the years indicated.

Subscription Solutions Merchant Solutions Others Total	For the year ended 31 December 2020 2019 Changes RMB’000 RMB’000 % (Re-presented) 1,047,951 593,565 76.6% 757,511 566,721 33.7% 15,261 8,571 78.1% 1,820,723 1,168,857 55.8%	For the year ended 31 December 2020 2019 Changes RMB’000 RMB’000 % (Re-presented) 1,047,951 593,565 76.6% 757,511 566,721 33.7% 15,261 8,571 78.1% 1,820,723 1,168,857 55.8%
		55.8%

Subscription Solutions

Revenue from subscription solutions primarily include subscription fees for SaaS products and a pertransaction cloud service fee for each extra order beyond a pre-specified order number threshold that consumers made to such merchants through SaaS products. The Group started to charge paying merchants cloud service fee since July 2019. In 2020, revenue generated from subscription solutions was approximately RMB1,047,951,000 (2019: approximately RMB593,565,000(Re-presented)), representing a year-on-year increase of 76.6%, which was mainly attributable to the increase in the number of paying merchants from 82,343 as of 31 December 2019 to 97,158 as of 31 December 2020 who purchased SaaS products, and the increase in average revenue per merchant of subscription solutions from RMB7,208.4 in 2019 to RMB10,786.0 in 2020.

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FINANCIAL REVIEW (CONTINUED)

Revenue (Continued)

Merchant Solutions

The Group offers merchant solutions which comprise comprehensive value-added services addressing merchant needs that arise in daily operations. Revenue from merchant solutions mainly include transaction service fee charged for transaction service, service fees charged for Youzan Distribution, Youzan Guarantee, as well as Youzanke. Transaction service fee and service fees for Youzan Distribution, Youzan Guarantee and Youzanke are determined with reference to the GMV generated by merchants through solutions.

In 2020, revenue from merchant solutions was approximately RMB757,511,000 (2019: approximately RMB566,721,000 (Re-presented)), representing a year-on-year increase of 33.7%, which was primarily due to the increase in transaction service fee, service fees for Youzan Guarantee and Youzanke, driven by the increase in the number of paying merchants and the GMV generated by such merchants.

Others

In 2020, revenue from other businesses was approximately RMB15,261,000 (2019: approximately RMB8,571,000 (Re-presented)), representing a year-on-year increase of 78.1%, mainly due to the increase in the revenue from providing catering services and management service.

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FINANCIAL REVIEW (CONTINUED)

Cost

The following table sets forth a breakdown of costs by nature for the years indicated.

Staff costs Server and SMS costs Transaction costs Costs of goods sold Depreciation of right-of-use-assets Technology services expenses Contracted customer services expenses Taxes and surcharges Others Total	For the year ended 31 December 2020 2019 RMB’000 Percentage (%) RMB’000 Percentage (%) (Re- presented) 156,845 21.2% 146,064 25.4% 106,448 14.4% 77,826 13.5% 422,465 57.2% 321,691 55.9% 7,101 1.0% 7,735 1.3% 7,369 1.0% 8,017 1.4% 10,844 1.5% 1,132 0.2% 7,841 1.1% – 0.0% 7,067 1.0% 2,576 0.4% 12,659 1.6% 10,414 1.9% 738,639 100.0% 575,455 100.0%	Changes % 7.4% 36.8% 31.3% -8.2% -8.1% 858.0% 100.0% 174.3% 21.6%
		28.4%

In 2020, the Group’s costs were approximately RMB738,639,000 (2019: approximately RMB575,455,000 (Re-presented)), representing a year-on-year increase of 28.4%, which was mainly attributable to business expansion. Transaction costs increased by 31.3% from approximately RMB321,691,000 in 2019 to approximately RMB422,465,000 in 2020, mainly due to the growth of GMV and partially offset by the decrease in the original third party payment services business. Server and SMS costs increased by 36.8% from approximately RMB77,826,000 in 2019 to approximately RMB106,448,000 in 2020, primarily attributable to the increase in server usage as a results of business expansion. Technology services expenses increased by 858.0% from approximately RMB1,132,000 in 2019 to approximately RMB10,844,000 in 2020, primarily attributable to the increase in software customisation service cost as a results of business expansion in large-scale merchants.

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FINANCIAL REVIEW (CONTINUED)

Gross profit and gross profit margin

In 2020, the Group recorded a gross profit of approximately RMB1,082,084,000 (2019: approximately RMB593,402,000 (Re-presented)), representing a year-on-year increase of 82.4%. During the Reporting Period, the Group’s gross profit margin increased from 50.8% (Re-presented) in 2019 to 59.4% in current year. The increase in gross profit and gross profit margin was mainly due to the increase in total revenue and the proportion of subscription solutions that have high gross profit margin. Revenue generated from subscription solutions as a percentage of total revenue increased from 50.8% in 2019 to 57.6% in 2020.

Subscription Solutions Merchant Solutions Others Total	For the year ended 31 December 2020 2019 RMB’000 Gross profit margin (%) RMB’000 Gross profit margin (%) (Re-presented) 796,548 76.0% 380,957 64.2% 282,776 37.3% 210,391 37.1% 2,760 18.1% 2,054 24.0% 1,082,084 59.4% 593,402 50.8%

Subscription Solutions

In 2020, the gross profit of subscription solutions was approximately RMB796,548,000 (2019: approximately RMB380,957,000 (Re-presented)), representing a year-on-year increase of 109.1%. The gross profit margin increased from 64.2% (Re-presented) in 2019 to 76.0% in 2020. The increase in gross profit and gross profit margin of subscription solutions was mainly due to the increase in average revenue per merchant of subscription solutions from RMB7,208.4 in 2019 to RMB10,786.0 in 2020, and the increase in the revenue of subscription solutions whilst the relevant major costs did not increase to the similar extent.

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FINANCIAL REVIEW (CONTINUED)

Gross profit and gross profit margin (Continued)

Merchant Solutions

In 2020, the gross profit of merchant solutions was approximately RMB282,776,000 (2019: approximately RMB210,391,000 (Re-presented)), and the gross profit margin increased from 37.1% in 2019 to 37.3% in 2020, which was mainly due to the growth rate of our revenue of merchant solutions exceeded the growth rate of our costs of sales of merchant solutions, driven by the revenue generated by provision of service under Youzanke, Youzan Guarantee and Youzan Distribution whilst the relevant major costs did not increase to the similar extent.

Others

In 2020, other gross profit was approximately RMB2,760,000 (2019: approximately RMB2,054,000 (Represented)) and the gross margin decreased from 24.0% in 2019 to 18.1% in 2020.

Expenses and others

In 2020, the Group recorded a 43.9% year-on-year increase in selling expenses to approximately RMB781,882,000 (2019: approximately RMB543,215,000 (Re-presented)). The increase was mainly due to (i) the increase in sales personnel which led to the increase in sales staff costs and travelling expenses, and (ii) the increase in the amortization of capitalized contract costs driven by the increase in the commission paid to channel partners as a result of the increase in the number of paying merchants contributed by channel partners.

In 2020, the Group recorded a 22.7% year-on-year increase in administrative expenses to approximately RMB241,438,000 (2019: approximately RMB196,797,000 (Re-presented)). The increase was mainly due to the increase in staff costs because of business expansion and the increase in legal and professional fees for the listing application of Youzan Technology Inc..

In 2020, the Group recorded approximately RMB445,165,000 (2019: approximately RMB349,927,000 (Re-presented)) of other operating expenses, representing a year-on-year increase of 27.2%, which was primarily attributable to the increase in research and development expenditure since the Group continue to invest significant resources in research and development to enhance technology capabilities.

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FINANCIAL REVIEW (CONTINUED)

Expenses and others (Continued)

In 2020, the Group recorded an 54.4% year-on-year decrease in equity-settled share-based payment to approximately RMB62,197,000 (2019: approximately RMB136,428,000). The decrease was primarily due to the number of share awards under vesting year in 2020 were less than that in 2019.

In 2020, the Group recorded an investment and other income of approximately RMB76,937,000 (2019: approximately RMB29,727,000 (Re-presented)), which was primarily attributable to the increase in interest income and VAT super-credit.

In 2020, the Group recorded other net gains of approximately RMB1,569,000 (2019: other net losses approximately RMB198,992,000 (Re-presented)). The change was mainly due to no impairment loss was recognized for third party services business in 2020 while RMB193,304,000 was recognized for that in 2019.

In 2020, the Group recorded finance costs of approximately RMB27,886,000 (2019: approximately RMB22,044,000), representing a year-on-year increase of 26.5%, which mainly included the interest of lease liabilities and other loan.

NON-HKFRS MEASURES

Adjusted loss before interest, tax, depreciation and amortization

	For the year ended	For the year ended
	31 December
	2020	2019
	RMB’000	RMB’000
		(Re-presented)
Loss from operations	(563,235)	(995,596)
– Equity-settled share-based payment	62,197	136,428
– Depreciation of property, plant and equipment	19,192	16,720
– Depreciation of right-of-use assets	47,445	47,072
– Amortization of intangible assets	193,143	193,366
– Other (gains)/losses, net	(1,569)	198,992
– Investment and other income	(76,937)	(29,727)
Adjusted loss before interest, tax, depreciation and amortization	(319,764)	(432,745)

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NON-HKFRS MEASURES (CONTINUED)

Adjusted non-HKFRS loss for the year

	2020	2019
	RMB’000	RMB’000
		(Re-presented)
Loss for the year	(545,653)	(915,569)
– Equity-settled share-based payment	62,197	136,428
– Amortization of intangible assets	193,143	193,366
– Impairment of goodwill	1,047	193,304
– Adjusted for tax effects on non-GAAP adjustments	(28,971)	(29,005)
Adjusted non-HKFRS loss for the year	(318,237)	(421,476)

Note: These unaudited non-HKFRS measures should be considered in addition to, not as a substitute for, measures of the Group’s financial performance prepared in accordance with HKFRS. In addition, these non-HKFRS financial measures may be defined differently from similar terms used by other companies.

DIVIDEND

The Directors did not recommend the payment of any dividend (2019: Nil).

PLEDGE OF ASSETS

As at 31 December 2020, the Group had no pledge of assets (2019: Nil).

FINANCIAL RESOURCES AND LIQUIDITY

As at 31 December 2020, the Group had cash and cash equivalents of approximately RMB1,751,530,000 (2019: approximately RMB746,194,000).

As at 31 December 2020, the Group had no bank borrowings (2019: Nil).

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FOREIGN EXCHANGE EXPOSURE

The Group’s operations are mainly located in the PRC and its transactions, monetary assets and liabilities are primarily denominated in Renminbi. The Group monitors its foreign currency risks and will consider hedging significant currency exposures should the need arises.

EMPLOYEES

As at 31 December 2020, the Group has 3,603 employees (2019: 2,941). Employees are remunerated according to their performance and work experience. In addition to basic salaries and retirement scheme, staff benefits include performance bonus, share options and share awards etc.. The Directors believe that good quality of its employees is a company asset which affects growth and improves profitability. The Group recognizes the importance of staff training and thus regularly provides internal and external training for its staff to enhance their skills and knowledge.

LITIGATION

As at 31 December 2020, the Group has no material outstanding litigation.

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CONSOLIDATED STATEMENT OF PROFIT OR LOSS

For the year ended 31 December 2020

Note Revenue 5 Cost of sales Gross profit Investment and other income 6 Other gains and losses, net 7 Selling expenses Administrative expenses Equity-settled share-based payments Amortisation of intangible assets 13 Other operating expenses Loss from operations Finance costs Share of (losses)/profits of associates, net Loss before tax Income tax credit 8 Loss for the year 9 Attributable to: Owners of the Company Non-controlling interests Loss per share (expressed in RMB per share) 11 Basic Diluted	2020 RMB’000 1,820,723 (738,639) 1,082,084 76,937 1,569 (781,882) (241,438) (62,197) (193,143) (445,165) (563,235) (27,886) (1,161) (592,282) 46,629 (545,653) (294,671) (250,982) (545,653) (0.0180) N/A	2019 RMB’000 (Re-presented) 1,168,857 (575,455) 593,402 29,727 (198,992) (543,215) (196,797) (136,428) (193,366) (349,927) (995,596) (22,044) 5,289 (1,012,351) 96,782 (915,569) (591,874) (323,695) (915,569) (0.0397) N/A

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CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the year ended 31 December 2020

Loss for the year Other comprehensive income: Item that will not be reclassified to profit or loss: Fair value changes of equity instruments at fair value through other comprehensive income (FVTOCI) Item that may be reclassified to profit or loss: Exchange differences on translating foreign operations Other comprehensive income for the year, net of tax Total comprehensive income for the year Attributable to: Owners of the Company Non-controlling interests	2020 RMB’000 (545,653) 11,161 (93,876) (82,715) (628,368) (378,705) (249,663) (628,368)	2019 RMB’000 (915,569) (30,983) 30,689 (294) (915,863) (583,503) (332,360) (915,863)

18

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 31 December 2020

Note Non-current assets Property, plant and equipment Right-of-use assets Long term deposits 15 Goodwill 12 Intangible assets 13 Investments in associates Capitalised contract costs Loan to an employee Deferred tax assets Financial assets at FVTOCI Earnest money paid for a potential investment Current assets Inventories Trade receivables 14 Prepayments, deposits and other receivables 15 Capitalised contract costs Indemnification assets Loans to a related company Amounts due from a non-controlling shareholder of subsidiaries Amount due from a related company Current tax assets Restricted bank balances 16 Balances with central bank Bank and cash balances	As at 31 December 2020 RMB’000 64,705 240,853 3,209 1,963,409 1,439,645 3,170 24,464 2,650 195,705 117,024 50,000 4,104,834 1,384 1,821 806,109 170,796 – – 260 452 772 58,414 5,340,582 1,727,056 8,107,646	As at 31 December 2019 RMB’000 (Re-presented) 60,812 205,146 17,490 1,963,409 1,632,166 4,956 9,790 2,650 167,491 97,457 – 4,161,367 1,517 345 926,581 118,793 5,814 800 260 634 – 4,573 4,531,982 746,194 6,337,493

19

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONTINUED)

At 31 December 2020

Current liabilities Trade payables 17 Accruals and other payables Amount due to a non-controlling shareholder of a subsidiary Contract liabilities Lease liabilities Other loan Settlement obligations Current tax liabilities Withholding tax payables Net current assets Total assets less current liabilities Non-current liabilities Contract liabilities Lease liabilities Deferred tax liabilities NET ASSETS Capital and reserves Equity attributable to owners of the Company Share capital Reserves Non-controlling interests TOTAL EQUITY Note	4,396 620,918 256 611,236 19,170 – 5,802,001 869 – 7,058,846 1,048,800 5,153,634 56,371 223,091 244,073 523,535 4,630,099 144,981 3,713,814 3,858,795 771,304 4,630,099 As at 31 December 2020 RMB’000	4,013 383,591 – 406,706 31,477 201,337 5,069,559 4,456 5,814 6,106,953 230,540 4,391,907 47,567 184,148 261,145 492,860 3,899,047 128,665 3,529,803 3,658,468 240,579 3,899,047 As at 31 December 2020 RMB’000 (Re-presented)

20

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2020

1. GENERAL INFORMATION

The Company was incorporated in Bermuda with limited liability. The address of its registered office is Victoria Place, 5th Floor, 31 Victoria Street, Hamilton HM10, Bermuda. The address of its principal place of business is Unit 2708, 27/F, The Center, 99 Queen’s Road Central, Hong Kong. The Company’s shares are listed on the GEM of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”).

The Company is an investment holding company.

2. BASIS OF PREPARATION

These consolidated financial statements have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). HKFRSs comprise Hong Kong Financial Reporting Standards (“HKFRS”); Hong Kong Accounting Standards (“HKAS”); and Interpretations. These consolidated financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on the GEM of the Stock Exchange and with the disclosure requirements of the Hong Kong Companies Ordinance (Cap. 622).

The HKICPA has issued certain new and revised HKFRSs that are first effective or available for early adoption for the current accounting period of the Group. Note 3 provides information on any changes in accounting policies resulting from initial application of these developments to the extent that they are relevant to the Group for the current and prior accounting periods reflected in these consolidated financial statements.

3. ADOPTION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

(a) Application of new and revised HKFRSs

The Group has applied the Amendments to Reference to the Conceptual Framework in HKFRS Standards and the following amendments to HKFRSs issued by the HKICPA for the first time, which are mandatorily effective for the annual period beginning on or after 1 January 2020 for the preparation of the consolidated financial statements:

Amendments to HKAS 1 and HKAS 8 Definition of Material Amendments to HKFRS 3 Definition of a Business Amendments to HKFRS 9, Interest Rate Benchmark Reform HKAS 39 and HKFRS 7

In addition, the Group has early applied the Amendments to HKFRS 16, COVID-19 Related Rent Concessions.

Except as described below, the application of the Amendments to References to the Conceptual Framework in HKFRS Standards and the amendments to HKFRSs in the current year had no material impact on the Group’s financial positions and performance for the current and prior years and/or on the disclosures set out in these consolidated financial statements.

21

3. ADOPTION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (Continued)

(a) Application of new and revised HKFRSs (Continued)

Amendments to HKAS 1 and HKAS 8 Definition of Material

The amendments provide a new definition of material that states “information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.” The amendments also clarify that materiality depends on the nature or magnitude of information, either individually or in combination with other information, in the context of the financial statements taken as a whole.

The application of the amendments had no impact on the consolidated financial statements.

Amendment to HKFRS 16, COVID-19-Related Rent Concessions

The amendment provides a practical expedient that allows a lessee to by-pass the need to evaluate whether certain qualifying rent concessions occurring as a direct consequence of the COVID-19 pandemic (“COVID-19 Related Rent Concessions”) are lease modifications and, instead, account for those rent concessions as if they were not lease modifications.

The Group has elected to early adopt the amendments and applies the practical expedient to all qualifying COVID-19 Related Rent Concessions granted to the Group during the year. Consequently, rent concessions received have been accounted for as negative variable lease payments recognised in profit or loss in the period in which the event or condition that triggers those payments occurred. There is no impact on the opening balance of equity at 1 January 2020.

22

3. ADOPTION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (Continued)

(b) New and revised HKFRSs in issue but not yet effective

Other than the amendments to HKFRS 16, COVID-19 Related Rent Concessions, the Group has not applied any new and revised HKFRSs that have been issued but are not yet effective for the financial year beginning 1 January 2020. These new and revised HKFRSs include the following which may be relevant to the Group.

	Effective for
	accounting periods
	beginning on or after
Amendments to HKFRS 9, HKAS 39, HKFRS 7, HKFRS 4 and HKFRS 16	1 January 2021
Interest Rate Benchmark Reform – Phase 2
Amendments to HKFRS 3 Reference to the Conceptual Framework	1 January 2022
Amendments to HKAS 16 Property, Plant and Equipment: Proceeds	1 January 2022
Before Intended Use
Amendments to HKAS 37 Onerous Contracts – Cost of Fulfilling a Contract	1 January 2022
Annual Improvements to HKFRSs 2018 – 2020 Cycle	1 January 2022
Amendments to HKAS 1 Classification of Liabilities as Current or Non-Current	1 January 2023

The Group is in the process of making an assessment of what the impact of these amendments and new standards is expected to be in the period of initial application. So far it has concluded that the adoption of them is unlikely to have a significant impact on the consolidated financial statements.

23

4. SEGMENT INFORMATION

The Group has five (2019: four) operating segments as follows:

General trading	–	trading of watches and other goods
Third party payment services	–	provision of third party payment services and related consultancy services in the
		People’s Republic of China (the “PRC”)
Onecomm	–	provision of third party payment management services and sales of integrated
		smart Point of Sale (“POS”) devices
Merchant services	–	provision of e-commerce platform with a variety of SaaS products and
		comprehensive services in the PRC through Youzan Technology Inc. (Formerly
		known as Qima Holdings Ltd.) and its subsidiaries (“Youzan Group”), which owns
		Youzan WeiMall, Youzan Retail, Youzan Beauty and other SaaS products
Others	–	Other business

The Group’s reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing strategies.

Segment profits or losses do not include equity-settled share-based payments and impairment of goodwill. Segment assets do not include investments in associates, indemnification assets, goodwill, financial assets at FVTOCI, and other corporate assets. Segment non-current assets do not include financial instruments, deferred tax assets and goodwill. Segment liabilities (current and non-current) do not include current tax liabilities, deferred tax liabilities, withholding tax payables and corporate liabilities.

The Group accounts for intersegment sales and transfers as if the sales or transfers were to third parties, i.e. at current market prices.

24

4. SEGMENT INFORMATION (Continued)

Information about operating segment profit or loss, assets and liabilities:

		Third party
	General	payment		Merchant
	trading	services	Onecomm	services	Others	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Year ended 31 December 2020
Revenue from external customers	595	243,441	286	1,575,797	604	1,820,723
Intersegment revenue	–	36,496	–	187	–	36,683
Segment (loss)/profit	(16)	8,871	(437)	(491,727)	55	(483,254)
Interest income	1	17,870	–	8,841	52	26,764
Finance costs	–	(333)	–	(27,597)	–	(27,930)
Depreciation and amortisation	–	(11,575)	–	(246,614)	–	(258,189)
Share of (losses)/profits of associates	–	170	–	(1,331)	–	(1,161)
Other material items of non-cash items:
– Allowance for trade receivable	–	–	–	(1,262)	–	(1,262)
– Written off of trade receivable	–	–	–	(345)	–	(345)
– Allowance for inventories	–	–	–	(82)	–	(82)
– Reversal of allowance for prepayment,
deposits and other receivables,
net of allowance	–	19,037	–	–	–	19,037
– impairment of goodwill	–	–	–	(1,047)	–	(1,047)
Income tax credit	–	–	–	45,279	–	45,279
Additions to segment non-current assets	–	3,170	–	24,056	–	27,226
As at 31 December 2020
Segment assets	973	5,667,695	43	3,813,134	29,596	9,511,441
Segment liabilities	366	5,550,780	4,601	1,768,963	301	7,325,011
Investments in associates	–	3,170	–	–	–	3,170

25

4. SEGMENT INFORMATION (Continued)

Information about operating segment profit or loss, assets and liabilities: (Continued)

		Third party
	General	payment		Merchant
	trading	services	Onecomm	services	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(Re-presented)	(Re-presented)
Year ended 31 December 2019
Revenue from external customers	1,064	169,592	430	997,771	1,168,857
Intersegment revenue	–	101,077	–	–	101,077
Segment profit/(loss)	9	(30,018)	1,724	(625,116)	(653,401)
Interest income	208	339	1	3,437	3,985
Finance costs	–	(729)	–	(21,189)	(21,918)
Depreciation and amortisation	–	(15,443)	–	(240,029)	(255,472)
Share of (losses)/profits of associates	–	(330)	–	5,619	5,289
Other material items of non-cash items:
– Allowance for trade receivable	(821)	–	–	–	(821)
– Reversal of allowance for prepayment,
deposits and other receivables, net of allowance	–	2,830	1,600	–	4,430
– Impairment of prepayment, deposits and
other receivables	–	(265)	(117)	–	(382)
– impairment of goodwill	–	(193,304)	–	–	(193,304)
Income tax credit	–	–	–	96,782	96,782
Additions to segment non-current assets	–	3,721	–	90,515	94,236
As at 31 December 2019
Segment assets	992	4,796,011	290	3,152,248	7,949,541
Segment liabilities	300	4,762,992	4,211	1,549,978	6,317,481
Investments in associates	–	–	–	4,956	4,956

26

4. SEGMENT INFORMATION (Continued)

Reconciliations of segment revenue, profit or loss and assets:

Revenue Total revenue of reportable segments Elimination of intersegment revenue Consolidated revenue Profit or loss Total loss of reportable segments Equity-settled share-based payments Unallocated amounts: Corporate income and expenses, net Impairment of goodwill Consolidated loss before income tax Assets Total assets of reportable segments Unallocated amounts: Goodwill Investment in associates Deferred tax assets Financial assets at FVTOCI Indemnification assets Other corporate assets Consolidated total assets Liabilities Total liabilities of reportable segment Current tax liabilities Deferred tax liabilities Withholding tax payables Other corporate liabilities Consolidated total liabilities	2020 RMB’000 1,857,406 (36,683) 1,820,723 (483,254) (62,197) (45,784) (1,047) (592,282) 9,511,441 1,963,409 3,170 195,705 117,024 – 421,731 12,212,480 7,325,011 869 244,073 – 12,428 7,582,381	2019 RMB’000 (Re-presented) 1,269,934 (101,077) 1,168,857 (653,401) (136,428) (29,218) (193,304) (1,012,351) 7,949,541 1,963,409 4,956 167,491 97,457 5,814 310,192 10,498,860 6,317,481 4,456 261,145 5,814 10,917 6,599,813

27

4. SEGMENT INFORMATION (Continued)

Geographical information:

No separate analysis of segment information by geographical information is presented as the Group’s revenue and noncurrent assets are principally attributable to a single geographical region, which is the PRC.

Revenue from major customers:

No customer accounted for 10 percent or more of the Group’s revenue for both years 2020 and 2019.

5. REVENUE

(a) Disaggregation of revenue

Disaggregation of revenue from contracts with customers by major products or service line for the year is as follows:

Revenue from contracts with customers within the scope of HKFRS 15 Subscription Solutions Merchant Solutions (note (i)) Others	2020 RMB’000 1,047,951 757,511 15,261 1,820,723	2019 RMB’000 (Re-presented) 593,565 566,721 8,571
		1,168,857

Note:

• (i) Merchant Solutions include transaction fee of approximately RMB188,778,000 (2019: RMB164,808,000) generated from 杭州有贊科技有限公司 (“Hangzhou Youzan”), a subsidiary of the Group, for the year ended 31 December 2020. Hangzhou Youzan ceased its transaction service in February 2021 and no transaction fee income would be generated afterwards. Details are set out in note 18(d) to this announcement.

• (ii) For the year ended 31 December 2019, revenue were disaggregated into three types: (i) SaaS and Extended Services, (ii) transaction fees and (iii) others. The directors of the Company consider the new presentation for the year ended 31 December 2020 is more relevant and appropriate for the Group’s current development of business. As a result, the corresponding figures are re-presented.

28

5. REVENUE (Continued)

(a) Disaggregation of revenue (Continued)

The Group derives revenue from the transfer of goods and services over time and at a point in time in the following major product lines and geographical regions:

For the year ended 31 December Primary geographical markets – PRC except Hong Kong Segment revenue Intersegment revenue – PRC except Hong Kong Revenue from external customers Timing of revenue recognition Products transferred at a point in time Products and services transferred over time Total	General	trading 2019 RMB’000 1,064 1,064 – 1,064 1,064 – 1,064	Third payment	party services 2019 RMB’000 270,669 270,669 (101,077) 169,592 90 169,502 169,592	Onec	omm 2019 RMB’000 430 430 – 430 430 – 430	Merchant	services 2019 RMB’000 (Re-presented) 997,771 997,771 – 997,771 203,496 794,275 997,771	Oth	ers 2019 RMB’000 – – – – – – –	To	tal
	2020 RMB’000 595 595 – 595 595 – 595		2020 RMB’000 279,937 279,937 (36,496) 243,441 337 243,104 243,441		2020 RMB’000 286 286 – 286 – 286 286		2020 RMB’000 1,575,984 1,575,984 (187) 1,575,797 305,808 1,269,989 1,575,797		2020 RMB’000 604 604 – 604 – 604 604		2020 RMB’000 1,857,406 1,857,406 (36,683) 1,820,723 306,740 1,513,983 1,820,723	2019 RMB’000 (Re-presented) 1,269,934
												1,269,934
												(101,077)
												1,168,857
												205,080 963,777
												1,168,857

(b) Transaction price allocated to the remaining performance obligation for contracts with customers

The transaction price allocated to the remaining performance obligations (unsatisfied or partially unsatisfied) as at the year ended and the expected timing of recognising revenue as follows:

Within 1 year More than 1 year but not more than 2 years More than 2 years	Subscription Solutions 2020 2019 RMB’000 RMB’000 611,236 406,706 53,740 38,370 2,631 9,197 667,607 454,273	Subscription Solutions 2020 2019 RMB’000 RMB’000 611,236 406,706 53,740 38,370 2,631 9,197 667,607 454,273
		454,273

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6. INVESTMENT AND OTHER INCOME

Interest income on: Bank deposits Central bank Loans to others Financial assets at FVTPL Total interest income Government grants VAT super-credit Compensation income Rent concession Others The Group recognised government grants as follow: Blockchain industry park subsidies Capital investment subsidies COVID-19 related subsidies Entity-specific financial support High and New Technology Enterprise subsidies Research and development project subsidies	2020 RMB’000 11,479 17,733 109 6,204 35,525 12,753 15,787 5,327 1,905 5,640 76,937 2020 RMB’000 500 2,400 1,929 3,674 500 3,750 12,753	2019 RMB’000 (Re-presented) 7,372 – 36 2,808
		10,216 6,551 8,364 – – 4,596
		29,727
		2019 RMB’000 500 2,640 – 2,811 600 –
		6,551

There were no unfulfilled conditions and other contingent attached of the receipts of all above government grants.

30

7. OTHER GAINS AND LOSSES, NET

Allowance for trade receivables Allowance for other receivables Impairment of goodwill (note 12) Net gain/(loss) on early termination of leases Net foreign exchange losses Reversal of allowance for other receivables Property, plant and equipment written off Net gain/(loss) of disposal of property, plant and equipment Written off of trade receivables Others	2020 RMB’000 (1,262) (51) (1,047) 222 (14,032) 19,088 (356) 59 (345) (707) 1,569	2019 RMB’000 (Re-presented) (821) (382) (193,304) (1,194) (3,506) 4,430 (2,321) (107) – (1,787) (198,992)

8.

INCOME TAX CREDIT

Income tax has been recognised in profit or loss as follows:

Current tax – the PRC Provision for the year Current tax – Hong Kong Over-provision for previous year Deferred tax	2020 RMB’000 5 (1,348) (45,286) (46,629)	2019 RMB’000 2,232 – (99,014) (96,782)

PRC Enterprises Income Tax has been provided at a rate of 25% (2019: 25%).

No provision for Hong Kong Profits Tax is required since the Group has no assessable profit for the year (2019: Nil).

Tax charge on profits assessable elsewhere have been calculated at the rates of tax prevailing in the countries in which the Group operates, based on existing legislation, interpretation and practices in respect thereof.

One of the Group’s subsidiary operating in Hangzhou, the PRC, was recognised as a High and New Technology Enterprise（高新技術企業） on 30 November 2018 and were entitled to enjoy an income tax concession at preferential rate of 15% effective from 1 January 2018 for three years. In order to enjoy the preferential rate of 15%, the subsidiary was required to apply for renewal every three years from first year of approval. The effective interest rate was changed from 25% to 15% since the year beginning 1 January 2018.

31

8. INCOME TAX CREDIT (Continued)

One of the Group’s subsidiary operating in Beijing, the PRC, was recognised as a High and New Technology Enterprise （高新技術企業） on 21 October 2020 and were entitled to enjoy an income tax concession at preferential rate of 15% effective from 1 January 2020. In order to enjoy the preferential rate of 15%, the subsidiary was required to apply for renewal every three years from first year of approval. The effective interest rate was changed from 25% to 15% since the year beginning 1 January 2020.

The reconciliation between the income tax credit and the product of loss before tax multiplied by the PRC Enterprise Income Tax rate is as follows:

Loss before tax Tax at the PRC Enterprise Income Tax rate of 25% (2019: 25%) Tax effect of expenses that are not deductible Tax effect of income that are not taxable Tax effect of temporary differences not recognised Tax effect of super deduction of qualified research and development expenditure Tax effect of unused tax losses not recognised Tax effect of utilisation of tax losses not previously recognised Over-provision for previous year Effect of different tax rates of subsidiaries Income tax credit	2020 RMB’000 (592,282) (148,070) 50,145 (19,332) 14,018 (26,517) 55,574 (1,103) (1,348) 30,004 (46,629)	2019 RMB’000 (Re-presented) (1,012,351) (253,088) 114,529 (30,116) 4,902 (19,148) 29,031 (7,660) – 64,768 (96,782)

32

9. LOSS FOR THE YEAR

The Group’s loss for the year is stated after charging/(crediting) the following:

Amortisation of intangible assets (note 13) Amortisation of capitalised contract costs Auditor’s remuneration – annual audit – other services Allowance for inventories (include in cost of sales) Allowance for trade receivables (note 14) Reversal of allowance for prepayments, deposit and other receivables, net of allowance (note 15) Cost of inventories sold Depreciation of property, plant and equipment Depreciation of right-of-use assets Impairment of goodwill (note 12) Net (gain)/loss on disposals of property, plant and equipment Net (gain)/loss on early termination of leases Operating lease charges Property, plant and equipment written off Research and development expenditure (included in other operating expenses and equity-settled share-based payments)	2020 RMB’000 193,143 212,842 2,205 2,189 82 1,262 (19,037) 7,101 19,192 47,445 1,047 (59) (222) 9,931 356 452,446	2019 RMB’000 193,366 161,438 2,185 12 – 821 (4,048) 8,056 16,720 47,072 193,304 107 1,194 12,760 2,321 404,655

10. DIVIDENDS

No dividends have been paid or proposed during the year ended 31 December 2020, nor has any dividend been proposed since the end of the reporting period (2019: Nil).

11. LOSS PER SHARE

(a) Basic loss per share

The calculation of basic loss per share is based on the loss for the year attributable to owners of the Company of approximately RMB294,671,000 (2019: approximately RMB591,874,000) and the weighted average number of ordinary shares of approximately 16,405,802,000 (2019: approximately 14,896,270,000) in issue during the year.

(b) Diluted loss per share

As exercise of the Group’s outstanding share options and warrants for the years ended 31 December 2020 and 2019 would be anti-dilutive, no diluted loss per share was presented for the years ended 31 December 2020 and 2019.

33

12. GOODWILL

Cost At 1 January 2019, At 31 December 2019 and 1 January 2020 Acquisition of a subsidiary Exchange difference At 31 December 2020 Accumulated impairment losses At 1 January 2019 Impairment loss recognised in the year At 31 December 2019 and 1 January 2020 Impairment loss recognised in the year Exchange difference At 31 December 2020 Carrying amount At 31 December 2020 At 31 December 2019	Third party payment services (“CGU A”) RMB’000 762,288 – – 762,288 227,658 193,304 420,962 – – 420,962 341,326 341,326	Merchant services (“CGU B”) RMB’000 1,622,083 – – 1,622,083 – – – – – – 1,622,083 1,622,083	株式會社 Youzan Japan Youzan Japan Kabushiki Kaisha (Formerly known as 株式会社IBS) (“Youzan Japan”) RMB’000 – 1,029 3 1,032 – – – 1,047 (15) 1,032 – –	Total RMB’000 2,384,371 1,029 3 2,385,403 227,658 193,304 420,962 1,047 (15) 421,994 1,963,409 1,963,409

34

12. GOODWILL (Continued)

Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (“CGUs”) that are expected to benefit from that business combination.

CGU A and CGU B

The carrying amount of goodwill (before any impairment) had been allocated as follows:

Third Party Payment Services (CGU A) Merchant Services (CGU B)	2020 RMB’000 762,288 1,622,083 2,384,371	2019 RMB’000 762,288 1,622,083
		2,384,371

Computer software is allocated to third party payment services segment (CGU A). E-commerce applications and distribution network are also allocated to merchant services segment (CGU B). Trademarks with indefinite useful lives are allocated to merchant services segment (CGU B), and its carrying value at the end of reporting period is RMB941,953,000 (2019: RMB941,331,000). Details of these intangible assets are set out in note 13 to this announcement.

The recoverable amounts of the CGUs have been determined on the basis of their value in use using discounted cash flow method. The key assumptions for the discounted cash flow method include those regarding the discount rates, growth rates and budgeted gross margin and revenue during the period. The Group estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGUs. The growth rates are determined on industry growth rate in foreseeable period based on management experience and on long-term average economic growth rate of the geographical area in which the businesses of the CGUs operate. Budgeted gross margin and revenue are based on past practices and expectations on market development.

The Group prepares cash flow forecasts derived from the most recent financial budgets approved by the directors for the next five years with the residual period using terminal growth rate of 3% (2019: 3%). This terminal growth rate does not exceed the average long-term growth rate for the relevant markets. The Group has engaged independent external valuers to assist management to estimate the recoverable amounts of CGUs.

35

12. GOODWILL (Continued)

CGU A and CGU B (Continued)

At end of reporting period, the pre-tax rates used to discount the forecast cash flows in each CGU of the Group are as follows:

	2020	2019
Third Party Payment Services (CGU A)	20.1%	18.6%
Merchant Services (CGU B)	20.5%	21.9%

At 31 December 2020, in CGU A within third party payment services segment, the recoverable amount calculated based on value in use exceeded carrying value by approximately RMB71 million. The pre-tax rates used to discount the forecast cashflow of CGU A change from 20.1% to 22.5%, would remove the remaining headroom.

At 31 December 2020, in CGU B within merchant services segment, the recoverable amount calculated based on value in use exceeded carrying value (after gross up adjustment of goodwill attributable to non-controlling interests) by approximately RMB1,215 million. The pre-tax rates used to discount the forecast cash flows of CGU B change from 20.5% to 24.4% would remove the remaining headroom.

Youzan Japan

The carrying amount of Youzan Japan’s goodwill arising from acquisition of Youzan Japan has been fully impaired by management during the year.

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13. INTANGIBLE ASSETS

Cost At 1 January 2019 Additions At 31 December 2019 and 1 January 2020 Additions At 31 December 2020 Accumulated amortisation and impairment loss At 1 January 2019 Charge for the year At 31 December 2019 and 1 January 2020 Charge for the year At 31 December 2020 Carrying amount At 31 December 2020 At 31 December 2019	Computer software (internally generated) RMB’000 4,527 203 4,730 – 4,730 2,705 441 3,146 453 3,599 1,131 1,584	E-commerce applications RMB’000 832,949 – 832,949 – 832,949 87,579 124,381 211,960 124,428 336,388 496,561 620,989	Distribution network RMB’000 185,069 – 185,069 – 185,069 48,263 68,544 116,807 68,262 185,069 – 68,262	Trademark RMB’000 941,331 – 941,331 622 941,953 – – – – – 941,953 941,331	Total RMB’000 1,963,876 203
					1,964,079 622
					1,964,701
					138,547 193,366
					331,913 193,143
					525,056
					1,439,645
					1,632,166

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13. INTANGIBLE ASSETS (Continued)

The average remaining amortisation period of computer software, e-commerce applications and distribution network are 2 years (2019: 3 years), 4 years (2019: 5 years) and fully amortised (2019: 1 years) respectively.

Computer software is allocated to third party payment services segment (CGU A). E-commerce applications and distribution network are allocated to merchant services segment (CGU B).

The trademarks are used in the merchant services segment (CGU B) to enhance products’ perceived value and corporate image. The trademarks have legal life of ten years but is renewable every ten years at little cost and is well established. The Group intends to renew the trademark continuously and evidence supports its ability to do so. The trademarks are regarded and assessed to have indefinite useful lives as there is no foreseeable limit to the period over which these assets are expected to generate cash flows for the Group.

14. TRADE RECEIVABLES

Trade receivables Allowance for doubtful debts	2020 RMB’000 19,813 (17,992) 1,821	2019 RMB’000 17,075 (16,730)
		345

For the year ended 31 December 2020, the Group usually does not grant any credit term to customers unless some special cases. (2019: the Group’s trading terms with customers are mainly on credit. The credit terms generally range from 25 to 90 days).

The aging analysis of trade receivables based on the invoice date, and net of allowance, is as follows:

0 to 120 days Over 120 days	2020 RMB’000 1,821 – 1,821	2019 RMB’000 345 –
		345

As at 31 December 2020, an allowance was made for estimated irrecoverable trade receivables of approximately RMB17,992,000 (2019: approximately RMB16,730,000).

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14. TRADE RECEIVABLES (Continued)

Reconciliation of allowance for trade receivables:

At 1 January Allowance for the year At 31 December 15. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES Prepayments in relation to advertising services Other prepayments Deposits Loan to others (note) Other receivables restricted for settling settlement obligations Other receivables Analysed as: Non-current assets Current asset	2020 RMB’000 16,730 1,262 17,992 2020 RMB’000 269,836 116,653 13,712 10,610 347,951 50,556 809,318 3,209 806,109 809,318	2019 RMB’000 15,909 821
		16,730
		2019 RMB’000 (Re-presented) 412,127 120,534 30,458 3,036 346,483 31,433
		944,071
		17,490 926,581
		944,071

Note: As at 31 December 2020, a loan to a potential investee amounting to RMB10,610,000 were guaranteed by a third party and repayable on or before 22 May 2021. The loan is interest free and denominated in RMB.

At 31 December 2019, a loan amounting to RMB3,036,000 (principial RMB3,000,000 and accumulated outstanding interest RMB36,000) were guaranteed by third party and repayable on 19 April 2020. The loan principal balance amounting to RMB3,000,000 bears interest of 4.34% per annum. The loan was repaid during the year. The loan is denominated in RMB.

As at 31 December 2020, an allowance was made for estimated irrecoverable prepayment, deposits and other receivables of approximately RMB8,539,000 (2019: RMB27,576,000).

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15. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES (Continued)

Reconciliation of allowance for prepayments, deposits and other receivables:

At 1 January Allowance for the year Reversal of allowance for the year At 31 December	2020 RMB’000 27,576 51 (19,088) 8,539	2019 RMB’000 (Re-presented) 31,624 382 (4,430) 27,576

The carrying amounts of the Group’s prepayments, deposits and other receivables are denominated in the following currencies:

RMB HKD Japanese Yen (“JPY”) RESTRICTED BANK BALANCES For settlement of amounts payable to employees Frozen by a PRC District People’s Procuratorate to facilitate legal investigation not related to the Group Pledged as security of banking facilities	2020 RMB’000 804,420 2,061 2,837 809,318 2020 RMB’000 24,474 30,436 3,504 58,414	2019 RMB’000 935,845 2,011 6,215 944,071 2019 RMB’000 – 266 4,307 4,573

16. RESTRICTED BANK BALANCES

All restricted bank balances were denominated in RMB.

Conversion of the above balances from RMB into foreign currencies and from foreign currencies into RMB is subject to the PRC’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations.

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17. TRADE PAYABLES

The aging analysis of trade payables, based on the date of receipt of goods, is as follows:

0 to 90 days 91 to 180 days 181 to 365 days Over 365 days	2020 RMB’000 383 – – 4,013 4,396	2019 RMB’000 – – – 4,013
		4,013

The carrying amounts of the Group’s trade payables are denominated in RMB as at 31 December 2020 and 2019.

18. EVENTS AFTER THE REPORTING PERIOD

• (a) On 19 January 2021, Hangzhou Youzan entered into capital injection agreement and shareholders’ agreement with Shanghai Burgeon Software Technology Co. Ltd. and its existing shareholders to confirm the acquisition of 15% enlarged equity interest. RMB50 million earnest money paid became part of the consideration and the remaining balance of approximately RMB162 million was settled by Hangzhou Youzan on 22 January 2021.

• (b) During January 2021, Hangzhou Youzan received reports from consumers in respect of complaining a merchant who used Hangzhou Youzan’s subscription solutions for less than 1 year had not delivered the goods after payment of credit points that the consumers previously purchased from that merchant via Hangzhou Youzan’s e-commerce platform. Hangzhou Youzan’s in-house legal department and risk control department have investigated the cases and carried out internal assessment. After considering the aforesaid internal assessment, the Directors concluded that Hangzhou Youzan has no responsibility in such cases and it is not probable that Hangzhou Youzan would require to make compensation to the relevant consumers.

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18. EVENTS AFTER THE REPORTING PERIOD (Continued)

• (c) On 6 January 2021, Hangzhou Youzan acquired in aggregate of 4.66% equity interests of Company C from its existing shareholders with at a total consideration of RMB7,922,000.

On the same day, Hangzhou Youzan entered into an investment agreement with all existing shareholders of Company C. According to which Hangzhou Youzan intends to inject RMB16,800,000 to Company C for additional issue registered capital, provided that Company C achieves either quarterly, half-yearly or yearly sales targets in 2021 as specified in the investment agreement, so that after completion of the potential investment, Hangzhou Youzan’s holding of equity interests of Company C will reach 10%. Hangzhou Youzan can choose not to proceed with the potential investment in Company C if the performance targets cannot be met.

Hangzhou Youzan paid Company C RMB2,000,000 in January 2021 as earnest money for the potential investment, such amount together with interests calculated at bank deposit rate is refundable when Hangzhou Youzan choose not to proceed with the potential investment on grounds that the performance targets not being met.

• (d) In February 2021, Hangzhou Youzan ceased providing transaction service. Hangzhou Youzan would cease earning transaction service fee and does not expect to incur material transaction cost afterwards.

• (e) On 26 February 2021, the Company and BetaCafe Holdings Limited issued a joint announcement for the (i) proposed distribution (“Distribution”) of the shares of Youzan Technology Inc. held by the Company to all shareholders of the Company (such shares are proposed to be listed on the Main Board of the Stock Exchange by way of introduction); and (ii) the taking private of the Company after completion of the Distribution by way of a scheme of arrangement under section 99 of the Companies Act. Details are set forth in the joint announcement dated 26 February 2021.

19. COMPARATIVE FIGURES

Certain comparative figures have been re-presented to conform to the current period’s presentation. The new classification of the accounting items are considered to provide a more appropriate presentation of the state of affairs of the Group and provide more relevant information to reflect the Group’s nature of assets, liabilities, income and expenses.

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CORPORATE GOVERNANCE CODE

The Company is committed to maintaining high standards of corporate governance to protect the interests of the shareholders of the Company. The Company’s corporate governance practices are based on principles and code provisions as set out in the Corporate Governance Code (“Code”) in Appendix 15 to the GEM Listing Rules. The Company has complied with the Code for the year ended 31 December 2020.

Pursuant to code provision A.2.1 of the Code, companies listed on the Stock Exchange are expected to comply with, but may choose to deviate from the requirement that the responsibilities between the chairman and the chief executive officer should be segregated and should not be performed by the same individual.

Since 19 February 2021, Mr. Zhu Ning, who has been an executive Director and the chief executive officer of the Company since May 2018, has also been appointed as the chairman of the Board. Such practice deviates from the code provision A.2.1 of the Code.

Mr. Zhu Ning has been the key leadership figure since joining the Group who has primarily participated in formulation of business plans, strategies and major decisions of the Group, and has been responsible for the overall management of the Group. Taking into account the continuation of the implementation of our business plans, the Directors consider Mr. Zhu the best candidate for both positions and this arrangement is beneficial and in the interests of our Company and the Shareholders as a whole. Therefore, the Board considers that the deviation from the code provision A.2.1 of the Code is appropriate in such circumstances.

DIRECTORS’ SECURITIES TRANSACTIONS

The Company has adopted the required standard of dealings set out in rules 5.48 to 5.67 of the GEM Listing Rules as the code of conduct regarding directors’ securities transactions in securities of the Company. Upon the Company’s specific enquiry, each director has confirmed that during the year ended 31 December 2020, he/she had complied with the required standard of dealings and the code of conduct.

PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIES

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

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REVIEW OF ANNUAL RESULTS BY THE AUDIT COMMITTEE

The audit committee of the Company has reviewed the Group’s annual results for the year ended 31 December 2020.

SCOPE OF WORK OF RSM HONG KONG

The figures in respect of the Group’s consolidated statement of financial position, consolidated statement of profit or loss and other comprehensive income presented in the preliminary announcement and the related notes thereto for the year ended 31 December 2020 as set out in the preliminary announcement have been agreed by the Group’s auditors, RSM Hong Kong, to the amounts set out in the Group’s audited consolidated financial statements for the year. The work performed by RSM Hong Kong in this respect did not constitute an assurance engagement in accordance with Hong Kong Standards on Auditing, Hong Kong Standards on Review Engagements or Hong Kong Standards on Assurance Engagements issued by the Hong Kong Institute of Certified Public Accountants and consequently no assurance has been expressed by RSM Hong Kong on the preliminary announcement.

PUBLICATION OF ANNUAL RESULTS AND 2020 ANNUAL REPORT

This annual results announcement is published on the websites of the Stock Exchange (www.hkexnews. hk) and the Company (www.chinayouzan.com). The 2020 annual report will be despatched to the Shareholders and published on the websites of the Stock Exchange and the Company in due course.

By Order of the Board China Youzan Limited Chairman Zhu Ning

Hong Kong, 26 March 2021

As at the date of this announcement, the Board comprises six executive Directors, Mr. Cao Chunmeng, Mr. Yan Xiaotian, Mr. Zhu Ning, Mr. Cui Yusong, Mr. Yu Tao and Ms. Ying Hangyan; and four independent non-executive Directors, Dr. Fong Chi Wah, Mr. Gu Jiawang, Mr. Xu Yanqing and Mr. Deng Tao.

This announcement will remain on the “Latest Company Announcements” page of the GEM website for at least 7 days from the date of its posting and on the Company’s website at www.chinayouzan.com.

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