Youzan Technology Limited — Interim / Quarterly Report 2021

Aug 12, 2021

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Interim Report 2021

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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.

Hong Kong Exchanges and Clearing Limited and the Stock Exchange of Hong Kong Limited take no responsibility for the contents of this report, 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 report.

This report, for which the directors (the “Directors”) of China Youzan Limited (the “Company”, together with its subsidiaries, the “Group”, “Youzan“ or “We”) 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 report 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 this report or any statement herein misleading.

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

HIGHLIGHTS

For the six months ended 30 June 2021, the Group recorded a revenue of approximately RMB803,399,000, representing a decrease of 2.5% compared to the same period of last year (Re-presented). Of which, the revenue from subscription solutions was approximately RMB507,808,000, representing an increase of 6.8% compared to the same period of last year (Re-presented), and the revenue from merchant solutions was approximately RMB289,258,000, representing a decrease of 15.2% compared to the same period of last year (Re-presented).

For the six months ended 30 June 2021, the Group recorded a gross profit of approximately RMB487,402,000, representing an increase of 1.2% compared to the same period of last year (Re-presented). Of which, the gross profit of subscription solutions was approximately RMB380,673,000, representing an increase of 6.3% compared to the same period of last year (Re-presented), and the gross profit of merchant solutions was approximately RMB106,273,000, representing a decrease of 12.4% compared to the same period of last year (Re-presented).

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

For the six months ended 30 June 2021, the Group’s gross profit margin increased from 58.4% (Re-presented) in the same period of last year to 60.7% for the current period. Of which, the gross profit margin of subscription solutions decreased from 75.3% in the same period of last year (Represented) to 75.0% for the current period, and the gross profit margin of merchant solutions increased from 35.6% in the same period of last year (Represented) to 36.7% for the current period.

The Group recorded an operating loss of approximately RMB449,519,000 for the six months ended 30 June 2021, representing an increase in loss of 87.3% when compared to an operating loss of approximately RMB239,955,000 for the same period in last year.

For the three months ended 30 June 2021, the Group recorded a revenue of approximately RMB386,125,000, representing a decrease of 14.4% compared to the same period of last year. For the three months ended 30 June 2021, gross profit margin increased from 59.8% in the same period of last year to 62.7% in the current period.

As at 30 June 2021, the Group had a tot al of approximately RMB1,125,095,000 cash and cash equivalents and the current ratio was at 1.08 times.

The board of directors (the “Board”) does not recommend the payment of interim dividend for the six months ended 30 June 2021.

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

FINANCIAL RESULTS

The Board of the Company announces the unaudited consolidated results of the Group for the three months and the six months ended 30 June 2021 (the “reporting period”) together with the comparative unaudited figures for the corresponding periods in 2020 (Re-presented) as follows:

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS

Notes	Three months ended 30 June Six months ended 30 June 2021 2020 2021 2020 (Unaudited) (Unaudited) (Unaudited) (Unaudited) RMB’000 RMB’000 RMB’000 RMB’000 (Re-presented) (Re-presented)
Revenue 4 Cost of sales Gross profit Investment and other income 5 Other gains and losses, net Selling expenses Administrative expenses Equity-settled share-based payments Amortisation of intangible assets Other operating expenses 6 Loss from operations Finance costs Share of profits/(losses) of associates Fair value change in financial assets at fair value through profit or loss (“FVTPL”) Loss before taxation Income tax credit 8 Loss for the period 9 Attributable to: Owners of the Company Non-controlling interests Loss per share (express in RMB per share) 11 – basic – diluted	386,125 450,944 803,399 823,957 (143,844) (181,400) (315,997) (342,479)
	242,281 269,544 487,402 481,478 16,050 20,926 36,817 39,234 (2,527) 16,147 (2,680) 16,199 (228,554) (178,256) (438,549) (339,975) (78,387) (59,512) (148,986) (104,646) (12,199) (15,784) (25,087) (33,112) (31,207) (47,904) (61,665) (96,440) (160,155) (101,251) (296,771) (202,693)
	(254,698) (96,090) (449,519) (239,955) (5,610) (7,995) (11,235) (15,987) 265 (3,104) 116 1,934 3,705 – 3,705 –
	(256,338) (107,189) (456,933) (254,008) 54,461 9,324 86,880 23,859
	(201,877) (97,865) (370,053) (230,149)
	(107,617) (44,995) (198,746) (119,885) (94,260) (52,870) (171,307) (110,264)
	(201,877) (97,865) (370,053) (230,149)
	(0.0063) (0.0028) (0.0116) (0.0076) N/A N/A N/A N/A

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

	Three months ended 30 June Six months ended 30 June 2021 2020 2021 2020 (Unaudited) (Unaudited) (Unaudited) (Unaudited) RMB’000 RMB’000 RMB’000 RMB’000
Loss for the period 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 period, net of tax Total comprehensive income for the period, net of tax Attributable to: Owners of the Company Non-controlling Interests	(201,877) (97,865) (370,053) (230,149)
	3,925 – 3,925 – (8,759) 5,772 (7,177) 8,025
	(4,834) 5,772 (3,252) 8,025
	(206,711) (92,093) (373,305) (222,124)
	(112,538) (40,556) (200,818) (106,225) (94,173) (51,537) (172,487) (115,899)
	(206,711) (92,093) (373,305) (222,124)

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Note	As at As at 30 June 31 December 2021 2020 (Unaudited) (Audited) RMB’000 RMB’000
Non-current assets Property, plant and equipment 12 Right-of-use assets 13 Long term deposits Goodwill Intangible assets Investments in associates Capitalised contract costs Loans to employees Deferred tax assets Financial assets at FVTOCI Financial assets at FVTPL Earnest money paid for potential investments Current assets Inventories Trade receivables 14 Prepayments, deposits and other receivables Capitalised contract costs Amount due from a non-controlling shareholder of subsidiaries Amount due from a related company Current tax assets Time deposits Restricted bank balances 15 Balances with central bank Bank and cash balances 16 Current liabilities Trade payables 17 Accruals and other payables Amounts due to non-controlling shareholders of subsidiaries Contract liabilities Lease liabilities Settlement obligations Current tax liabilities	68,436 64,705 231,303 240,853 4,795 3,209 1,963,409 1,963,409 1,378,245 1,439,645 5,286 3,170 28,349 24,464 3,150 2,650 272,054 195,705 128,498 117,024 253,247 – 52,000 50,000
	4,388,772 4,104,834
	1,828 1,384 2,635 1,821 409,810 806,109 157,137 170,796 260 260 463 452 174 772 120,000 – 4,603 58,414 3,852,443 5,340,582 1,004,252 1,727,056
	5,553,605 8,107,646
	2,800 4,396 491,673 620,918 291 256 618,050 611,236 29,940 19,170 3,998,366 5,802,001 869 869
	5,141,989 7,058,846

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

	Note	As at As at 30 June 31 December 2021 2020 (Unaudited) (Audited) RMB’000 RMB’000
	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 18 Reserves Non-controlling interests TOTAL EQUITY	411,616 1,048,800
		4,800,388 5,153,634
		55,870 56,371 222,413 223,091 233,524 244,073
		511,807 523,535
		4,288,581 4,630,099
		145,036 144,981 3,541,118 3,713,814
		3,686,154 3,858,795
		602,427 771,304
		4,288,581 4,630,099

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

EQUITY
	As at		As at
	1 January		30 June
	2021	Movements	2021
		(Unaudited)	(Unaudited)
	RMB’000	RMB’000	RMB’000
Share capital	144,981	55	145,036
Share premium account	6,093,115	5,309	6,098,424
Share option reserve	33,492	7,476	40,968
Shares held for Share Award Scheme	(75,524)	12,052	(63,472)
Share Award Scheme reserve	50,067	4,245	54,312
Capital reserve	(620,234)	(1,332)	(621,566)
Statutory reserve	8,060	–	8,060
Exchange reserve	(15,710)	(4,109)	(19,819)
General reserve	–	291	291
Financial assets at FVTOCI reserve	(57,812)	2,037	(55,775)
Subsidiary’s treasury share reserve	(7)	–	(7)
Accumulated losses	(1,701,633)	(198,665)	(1,900,298)
Total attributable to owners of
the Company	3,858,795	(172,641)	3,686,154
Non-controlling interests	771,304	(168,877)	602,427
Total equity	4,630,099	(341,518)	4,288,581
	As at		As at
	1 January		30 June
	2020	Movements	2020
		(Unaudited)	(Unaudited)
	RMB’000	RMB’000	RMB’000
Share capital	128,665	16,073	144,738
Share premium account	5,025,838	1,042,780	6,068,618
Share option reserve	64,334	(41,449)	22,885
Shares held for Share Award Scheme	(136,589)	30,838	(105,751)
Share Award Scheme reserve	78,335	(18,062)	60,273
Warrant reserve	774	(774)	–
Capital reserve	(59,517)	(48,048)	(107,565)
Statutory reserve	8,060	–	8,060
Exchange reserve	74,027	13,660	87,687
Financial assets at FVTOCI reserve	(56,304)	950	(55,354)
Subsidiary’s treasury share reserves	(7)	–	(7)
Accumulated losses	(1,469,148)	(59,050)	(1,528,198)
Total attributable to owners of
the Company	3,658,468	936,918	4,595,386
Non-controlling interests	240,579	151,573	392,152
Total equity	3,899,047	1,088,491	4,987,538
CHINA YOUZAN LIMITED INTERIM REPORT 2021			007

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

	For the six	months
	ended 30	June
	2021	2020
	(Unaudited)	(Unaudited)
	RMB’000	RMB’000
Net cash (used in)/generated from operating activities	(355,011)	83,754
Net cash used in investing activities	(267,086)	(32,273)
Net cash generated from financing activities	2,293	1,043,782
Net (decrease)/increase in cash and cash equivalents	(619,804)	1,095,263
Effect of foreign exchange rate changes	(6,631)	8,042
Cash and cash equivalents at beginning of period	1,751,530	746,194
Cash and cash equivalents at the end of period	1,125,095	1,849,499

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

Notes:

1. General information and basis of presentation

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 functional currency of the Company is Hong Kong Dollars (“HK$”) and accordingly, the condensed consolidated financial statements of the Group was presented in Renminbi (“RMB”). The directors of the Company considered presenting the Group’s condensed consolidated financial results and financial position in RMB can reflect more closely of the Group’s business operations and its business environment.

For the purpose of presenting the condensed consolidated financial statement of the Group in RMB, the assets and liabilities for the condensed consolidated statement of financial position are translated into RMB at the closing rate at the respective reporting dates. Income and expenses for the condensed consolidated statement of profit or loss and other comprehensive income are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during the period, in which case, the exchange rates prevailing at the dates of transactions are used. Share capital, share premium and other reserves are translated at the exchange rate at the date when the respective amounts were determined. The non-controlling interests presented in the condensed consolidated statement of financial position are translated into RMB at the closing rate at the respective reporting dates.

These condensed consolidated financial statements have been prepared in accordance with Hong Kong Accounting Standard 34 “Interim Financial Reporting” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) and the applicable disclosures required by the Rules Governing the Listing of Securities on GEM of The Stock Exchange of Hong Kong Limited.

The condensed consolidated financial statements should be read in conjunction with the 2020 annual financial statements. The accounting policies (including the significant judgements made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty) and methods of computation used in the preparation of the Financial Information are consistent with those used in the annual financial statements for the year ended 31 December 2020.

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

2. Adoption of new and revised Hong Kong Financial Reporting Standards (“HKFRSs”)

The accounting policies applied in these financial statements are the same as those applied in the Group’s consolidated financial statements as at and for the year ended 31 December 2020. In the current period, the Group has adopted all the new and revised HKFRSs issued by the HKICPA that are relevant to its operations and effective for its accounting year beginning on 1 January 2021 but they do not have a material effect on the Group’s financial statements.

A number of new standards and amendments to standards are effective for annual periods beginning after 1 January 2021 and earlier application is permitted. The Group has not early adopted any of the forthcoming new or amended standards in preparing these condensed consolidated interim financial statements.

3. Fair value measurements

The carrying amounts of the Group’s financial assets and financial liabilities as reflected in the condensed consolidated statement of financial position approximate their respective fair values.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following disclosures of fair value measurements use a fair value hierarchy that categorises into three levels the inputs to valuation techniques used to measure fair value:

Level 1 inputs: quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group can access at the measurement date.

Level 2 inputs: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs: unobservable inputs for the asset or liability.

The Group’s policy is to recognise transfers into and transfers out of any of the three levels as of the date of the event or change in circumstances that caused the transfer.

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

(a) Disclosures of level in fair value hierarchy: At 30 June 2021

	Fair value measurements using: Total 30 June Level 1 Level 2 Level 3 2021 (Unaudited) (Unaudited) (Unaudited) (Unaudited) RMB’000 RMB’000 RMB’000 RMB’000
Recurring fair value measurements: Financial assets Financial assets at FVTOCI – unlisted equity securities Financial assets at FVTPL – unlisted equity securities Financial assets at FVTPL – preferred shares At 31 December 2020	– – 128,498 128,498 – – 10,733 10,733 – – 242,514 242,514
	– – 381,745 381,745
	Fair value measurements using: Total 31 December Level 1 Level 2 Level 3 2020 (Audited) (Audited) (Audited) (Audited) RMB’000 RMB’000 RMB’000 RMB’000
Recurring fair value measurements: Financial assets Financial assets at FVTOCI – unlisted equity securities	– – 117,024 117,024

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

(b) Reconciliation of assets measured at fair value based on Level 3:

	Financial assets at FVTPL – unlisted equity securities Financial assets at FVTPL – preferred shares Financial assets at FVTOCI – unlisted equity securities Total (Unaudited) (Unaudited) (Unaudited) (Unaudited) RMB’000 RMB’000 RMB’000 RMB’000
At 31 December 2020 (Audited) and 1 January 2021 Acquisition and capital contribution – cash consideration paid for the period – earnest money paid in the year ended 31 December 2020 and recognised as investment during the period – payable for the period Fair value change during the period Exchange difference At 30 June 2021 (Unaudited)	– – 117,024 117,024 10,620 178,750 7,922 197,292 – 50,000 – 50,000 – 10,345 – 10,345 113 3,592 3,925 7,630 – (173) (373) (546)
	10,733 242,514 128,498 381,745

(c) Disclosure of valuation process used by the Group and valuation techniques and inputs used in fair value measurements at 30 June 2021:

The Group’s financial controller is responsible for the fair value measurements of assets and liabilities required for financial reporting purposes, including level 3 fair value measurement. The financial controller reports directly to the Board of Directors for these fair value measurements. Discussions of valuation processes and results are held between the financial controller and the Board of Directors at least twice a year.

For level 3 fair value measurements, the Group had engaged an external valuation expert on 31 December 2020 with the recognised professional qualifications and recent experience to perform valuation.

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

Level 3 fair value measurements – Unlisted equity securities classified as financial assets at FVTOCI

				Effect on
				fair value for
	Valuation	Unobservable		increase of
Description	technique	inputs	Parameters	inputs	Fair	value
					As at		As at
					30 June	31	December
					2021		2020
					(Unaudited)		(Audited)
					RMB’000		RMB’000
Haier Consumer	Market multiples with	Lack of marketability	25.08%	Decrease	74,670		74,670
Finance Co., Ltd.	an adjustment of discount	discount (“DLOM”)
	for lack of marketability
Guang Holdings	Guideline transaction method	Volatility	60.07%	Increase	41,981		42,354
Limited
Hangzhou All-In	Market multiples with	Enterprise value to sales	10.50x	Increase	11,847		N/A
Technology	an adjustment of DLOM	multiple (“EV/S”)
Co., Ltd
		DLOM	17.33%	Decrease

Level 3 fair value measurements – Financial assets at FVTPL

				Effect on
				fair value for
		Unobservable		increase of
Description	Valuation technique	inputs	Parameters	inputs		Fair	value
					As at			As at
					30 June		31	December
					2021			2020
					(Unaudited)			(Audited)
					RMB’000			RMB’000
Unlisted equity
securities:
Zhengzhou Xindajiean	Market multiples with	EV/S	8.75x	Increase	10,733			N/A
Information	an adjustment of DLOM
Technology
Co., Ltd.
		DLOM	27.83%	Decrease
Preferred Shares:
Shanghai Burgeon	Market multiples with	EV/S	5.10x	Increase	215,760			N/A
Software	an adjustment of DLOM
Technology
Co., Ltd.
		DLOM	19.29%	Decrease
Techsun Inc.	Market multiples with	EV/S	7.66x	Increase	26,754			N/A
	an adjustment of DLOM
		DLOM	16.70%	Decrease

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

4. Revenue

(a) Disaggregation of revenue

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

	For the three months ended 30 June For the six months ended 30 June 2021 2020 2021 2020 (Unaudited) (Unaudited) (Unaudited) (Unaudited) RMB’000 RMB’000 RMB’000 RMB’000 (Re-presented) (Re-presented)
Revenue from contracts with customers within the scope of HKFRS 15 Subscription solutions Merchant solutions (note (i)) Others	250,796 262,476 507,808 475,378 132,547 183,969 289,258 340,921 2,782 4,499 6,333 7,658
	386,125 450,944 803,399 823,957

• (i) Merchant solutions include transaction fee of approximately nil and RMB21,603,000 (Three months ended 30 June 2020: RMB42,594,000 and six months ended 30 June 2020: RMB93,260,000) generated from 杭州有 贊科技有限公司 (“Hangzhou Youzan”), a subsidiary of the Group, for the three months ended 30 June 2021 and six months ended 30 June 2021 respectively. Hangzhou Youzan ceased its transaction service in February 2021 and no transaction fee income would be generated afterwards.

• (ii) For the three months ended 30 June 2020 and six months ended 30 June 2020, 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 three months ended 30 June 2021 and six months ended 30 June 2021 are more relevant and appropriate for the Group’s current development of business. As a result, the corresponding figures are re-presented.

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

For the six months ended 30 June General trading Third party payment services Onecomm Merchant services Others Total 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Re-presented) (Re-presented)

Primary geographical markets – PRC except Hong Kong – 690 138,481 127,877 – 286 669,407 712,426 3,771 N/A 811,659 841,279 Segment revenue – 690 138,481 127,877 – 286 669,407 712,426 3,771 N/A 811,659 841,279 Intersegment revenue – PRC except Hong Kong – – (7,044) (17,322) – – (1,216) – – N/A (8,260) (17,322) Revenue from external customers – 690 131,437 110,555 – 286 668,191 712,426 3,771 N/A 803,399 823,957 Timing of revenue recognition Products transferred at a point in time – 690 31 500 – – 129,648 128,216 – N/A 129,679 129,406 Products and services transferred over time – – 131,406 110,055 – 286 538,543 584,210 3,771 N/A 673,720 694,551 Total – 690 131,437 110,555 – 286 668,191 712,426 3,771 N/A 803,399 823,957

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

	Total	2021 2020	(Unaudited) (Unaudited)	RMB’000 RMB’000	(Re-presented)			388,483 458,443	388,483 458,443		(2,358) (7,499)	386,125 450,944		64,722 74,393		321,403 376,551	386,125 450,944
		2020	(Unaudited)	RMB’000				N/A	N/A		N/A	N/A		N/A		N/A	N/A
	Others	2021	(Unaudited)	RMB’000				1,851	1,851		–	1,851		–		1,851	1,851
	Merchant services	2021 2020	(Unaudited) (Unaudited)	RMB’000 RMB’000	(Re-presented)			316,623 386,797	316,623 386,797		(604) –	316,019 386,797		64,705 73,407		251,314 313,390	316,019 386,797
	Onecomm	2021 2020	(Unaudited) (Unaudited)	RMB’000 RMB’000				– 286	– 286		– –	– 286		– –		– 286	– 286
Third party payment	services	2021 2020	(Unaudited) (Unaudited)	RMB’000 RMB’000				70,009 70,868	70,009 70,868		(1,754) (7,499)	68,255 63,369		17 494		68,238 62,875	68,255 63,369
	General trading	2021 2020	(Unaudited) (Unaudited)	RMB’000 RMB’000				– 492	– 492		– –	– 492		– 492		– –	– 492
		For the three months ended 30 June				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

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

(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 30 June 2021 and the expected timing of recognising revenue as follows:

	Subscription solutions At 30 June 2021 Subscription solutions At 31 December 2020 (Unaudited) (Audited) RMB’000 RMB’000
Within 1 year More than 1 year but not more than 2 years More than 2 years	618,050 611,236 53,928 53,740 1,942 2,631
	673,920 667,607

5. Investment and other income

	For the three months ended 30 June For the six months ended 30 June 2021 2020 2021 2020 (Unaudited) (Unaudited) (Unaudited) (Unaudited) RMB’000 RMB’000 RMB’000 RMB’000 (Re-presented) (Re-presented)
Interest income on: Bank deposits Central Bank Loan to other Financial assets at FVTPL Total interest income Government grants VAT super-credit Compensation income Others	4,194 2,245 8,626 3,679 3,061 3,624 6,335 9,251 – 33 – 65 1,935 912 3,144 1,884
	9,190 6,814 18,105 14,879 2,650 3,025 3,300 5,635 1,580 2,792 9,394 9,233 – 5,327 – 5,327 2,630 2,968 6,018 4,160
	16,050 20,926 36,817 39,234

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

6. Other operating expenses

	For the three months ended 30 June For the six months ended 30 June 2021 2020 2021 2020 (Unaudited) (Unaudited) (Unaudited) (Unaudited) RMB’000 RMB’000 RMB’000 RMB’000 (Re-presented) (Re-presented)
Research and development expenditures Others	160,126 101,091 296,704 202,008 29 160 67 685
	160,155 101,251 296,771 202,693

7. Segment information

The Group has five 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

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Information about operating segment profit or loss and assets:

	General trading Third party payment services Onecomm Merchant services Others Total (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
For the six months ended 30 June 2021: Revenue from external customer Intersegment revenue Segment profit/(loss) As at 30 June 2021 Segment assets Investments in associates	s – 131,437 – 668,191 3,771 803,399 – 7,044 – 1,216 – 8,260 9 6,273 (4) (423,397) (5) (417,124) 3,531 4,099,536 39 2,806,463 23,249 6,932,818 – 5,286 – – – 5,286
	General trading Third party payment services Onecomm Merchant services Other Total (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
For the six months ended 30 June 2020: Revenue from external customers Intersegment revenue Segment (loss)/profit As at 31 December 2020 Segment assets Investments in associates	(Re-presented) (Re-presented) 690 110,555 286 712,426 N/A 823,957 – 17,322 – – N/A 17,322 (560) 11,831 323 (222,804) N/A (211,210) (Audited) (Audited) (Audited) (Audited) (Audited) (Audited) 973 5,667,695 43 3,813,134 29,596 9,511,441 – 3,170 – – – 3,170

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

Reconciliations of segment revenue and profit or loss:

	For the six months ended 30 June 2021 2020 (Unaudited) (Unaudited) RMB’000 RMB’000
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 Fair value change in financial assets at FVTPL Unallocated amounts: Corporate income and expenses, net Consolidated loss before income tax	(Re-presented) 811,659 841,279 (8,260) (17,322)
	803,399 823,957
	(417,124) (211,210) (25,087) (33,112) 3,705 – (18,427) (9,686)
	(456,933) (254,008)

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

	For the three months ended 30 June For the six months ended 30 June 2021 2020 2021 2020 (Unaudited) (Unaudited) (Unaudited) (Unaudited) RMB’000 RMB’000 RMB’000 RMB’000
Current tax – the PRC Provision for the period Deferred tax	2 – 18 – (54,463) (9,324) (86,898) (23,859)
	(54,461) (9,324) (86,880) (23,859)

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

PRC Enterprises Income Tax (“EIT”) has been provided at a rate of 25% for the three months and six months ended 30 June 2021 (Three months and six months ended 30 June 2020: 25%).

No provision for Hong Kong Profits Tax is required since the Group has no assessable profit for the three months and six months ended 30 June 2021 (Three months and six months ended 30 June 2020: 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 EIT rate was changed from 25% to 15% since the year beginning 1 January 2018. The abovesaid subsidiary is applying renewal and management estimated the possibility of successful renewal is high. After renewal, the abovesaid subsidiary will be entitled to enjoy an income tax concession at preferential rate of 15% effective from 1 January 2021 for three years.

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 EIT rate was changed from 25% to 15% since the year beginning 1 January 2020.

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9. Loss for the period

Loss for the period was determined after charging/(crediting):

	For the three months	For the three months	For the six months	For the six months
	ended	30 June	ended	30 June
	2021	2020	2021	2020
	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)
	RMB’000	RMB’000	RMB’000	RMB’000
		(Re-presented)		(Re-presented)
Amortisation of
intangible assets	31,207	47,904	61,665	96,440
Amortisation of capitalised
contract costs	59,891	55,112	121,573	103,224
Allowance for inventories	–	60	–	60
Allowance for trade
receivables, net	221	–	221	–
Allowance/(reversal of
allowance) for
prepayments, deposit and
other receivables, net	517	(19,007)	517	(19,007)
Cost of goods sold	1,571	2,811	3,037	3,795
Depreciation of property,
plant and equipment	5,286	4,793	10,480	9,395
Depreciation of right-of-use
assets	13,065	10,466	25,496	21,187
Net (gain)/loss on disposals
of property, plant and
equipment	(4)	83	(44)	66
Operating lease charges	3,482	2,040	5,148	3,842
Research and development
expenditures (included in
other operating expenses
and equity-settled share-
based payments)	165,536	105,225	303,937	211,143

10. Interim dividend

The Board does not recommend the payment of an interim dividend for the three months and the six months ended 30 June 2021 (three months and six months ended 30 June 2020: Nil).

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

11. Loss per share

The calculation of basic and diluted loss per share is based on the following:

For the three months	For the six months
ended 30 June	ended 30 June
2021 2020	2021 2020
(Unaudited) (Unaudited)	(Unaudited) (Unaudited)
RMB’000 RMB’000	RMB’000 RMB’000

Loss

Loss attributable to owners of the Company, used in the basic and diluted loss per share calculation	(107,617) (44,995) (198,746) (119,885)
	For the three months ended 30 June For the six months ended 30 June 2021 2020 2021 2020 (Unaudited) (Unaudited) (Unaudited) (Unaudited) ’000 ’000 ’000 ’000
Number of shares Weighted average number of ordinary shares used in basic loss per share calculation Effect of dilutive potential ordinary shares arising from share options Weighted average number of ordinary shares used in diluted loss per share calculation	17,113,323 16,310,027 17,106,556 15,751,271 165,779 13,077 196,240 N/A
	17,279,102 16,323,104 17,302,796 N/A

For the three months ended 30 June 2021 and 2020, there is no dilutive effect on the loss per share as the exercise of the Company’s outstanding share options would result in the decrease in the loss per share.

For the six months ended 30 June 2021, there is no dilutive effect on the loss per share as the exercise of the Company’s outstanding share options would result in the decrease in the loss per share.

For the six months ended 30 June 2020, there is no dilutive potential ordinary share arising from share options as the exercise prices of the options exceed the average market price of the Company’s ordinary share during the period.

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12. Property, plant and equipment

During the six months ended 30 June 2021, the Group acquired property, plant and equipment of approximately RMB14,247,000 (Unaudited) (during the year ended 31 December 2020: approximately RMB23,615,000 (Audited)).

Certain lessors of the leased office premises and staff quarters had not provided the Group with valid title certificates or relevant authorisation documents evidencing their rights to lease the property to the Group. As at 30 June 2021 and 31 December 2020, the carrying amount of leasehold improvements related to these premises was amounted to RMB16,379,000 (Unaudited) and RMB9,557,000 (Audited), respectively.

13. Right-of-use assets

During the six months ended 30 June 2021, the Group additions right-of-use assets of approximately RMB15,966,000 (Unaudited) (during the year ended 31 December 2020: RMB87,204,000 (Audited)).

Certain lessors of the leased office premises and staff quarters had not provided the Group with valid title certificates or relevant authorisation documents evidencing their rights to lease the property to the Group. As at 30 June 2021 and 31 December 2020, the carrying amount of right-of-use assets related to these premises was amounted to RMB61,841,000 (Unaudited) and RMB66,106,000 (Audited), respectively.

14. Trade receivables

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

				As at	As at
				30 June	31 December
				2021	2020
				(Unaudited)	(Audited)
				RMB’000	RMB’000
0	to	120	days	2,635	1,821

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

15. Restricted bank balances

	As at 30 June 2021 As at 31 December 2020 (Unaudited) (Audited) RMB’000 RMB’000
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	843 24,474 – 30,436 3,760 3,504
	4,603 58,414

All restricted bank balances were denominated in RMB.

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

16. Bank and cash balances

As at 30 June 2021, no bank balances was exclusively designated for the purpose of fulfilling the Group’s settlement obligations (as at 31 December 2020: RMB99,864,000 (Audited)).

Bank and cash balances of the Group deposited with banks in the PRC are denominated in the following currencies:

	As at 30 June 2021 As at 31 December 2020 (Unaudited) (Audited) RMB’000 RMB’000
HK$ RMB US dollars (“USD”)	4,931 633 368,821 658,616 588,963 961,703
	962,715 1,620,952

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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CHINA YOUZAN LIMITED INTERIM REPORT 2021

17. Trade payables

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

	As at 30 June 2021 As at 31 December 2020 (Unaudited) (Audited) RMB’000 RMB’000
Current to 90 days 91 to 180 days 181 to 365 days Over 365 days	367 383 – – – – 2,433 4,013
	2,800 4,396

18. Share capital

The number of issued shares of the Company was 17,260,003,617 shares as at 30 June 2021.

The number of issued shares of the Company was 17,260,003,617 shares as at the date of this report.

19. Convertible bonds

As at 30 June 2021 and the date of this report, there were no outstanding convertible bonds.

20. Warrants

As at 30 June 2021 and the date of this report, there were no outstanding warrants.

21. Contingent liabilities

• (a) The Group provided transaction services to facilitate the transactions process between merchants and consumers. In connection with provision of such service, Hangzhou Youzan entered into a payment service agreement with Beijing Gaohuitong Commercial Management Co., Ltd. (“Beijing Gaohuitong”) (a subsidiary of the Group), pursuant to which Beijing Gaohuitong, a licensed payment company, provided settlement service to the Group’s merchants.

As advised by the Group’s Legal Advisor, transaction service in the past provided by Hangzhou Youzan (“Past Transaction Service”) might be deemed as having engaged in payment activities without licence by the relevant authority in China under Administrative Measures for the Payment Services Provided by NonFinancial Institutions（《非金融機構支付服務管理辦法》）and may give rise to the risk of being required to terminate such practice according to the relevant PRC regulations. Furthermore, according to Measures for Banning Illegal Financial Institutions and Illegal Financial Business Activities（《非法金融機構和非法金融業 務活動取締辦法》）that remain in force during the reporting period, confiscation of illegal gains and administrative fine in the range of one time to five times of any illegal gains from such operation (in case of no illegal gains, administrative fine of RMB100,000 to RMB500,000) could be imposed by the relevant regulatory authorities.

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

During the six months ended 30 June 2021 and up to date of this report, Hangzhou Youzan had not been determined by the relevant regulatory authorities as engaging in payment activities without licence. In February 2021, Hangzhou Youzan has ceased providing transaction service. The Group’s PRC Legal Advisor is of the view that, based on that Hangzhou Youzan ceased providing transaction service and the consultation with the competent regulatory authority, (i) the likelihood that current business operations of Hangzhou Youzan would be penalised for having engaged in unlicensed payment activities is low, and (ii) the likelihood that Hangzhou Youzan would be retrospectively penalised for having engaged in unlicensed payment activities is low.

After considering the Group’s Legal Advisor’s legal opinion, and given that Hangzhou Youzan has already ceased the transaction service during the period, the Directors are of the opinion that material financial impact to the Group as a result of the Past Transaction Service is not probable.

• (b) On 12 October 2020, Hangzhou Youzan and 2 merchants had a legal dispute with a third party for product design infringement. The third party sued for infringement of product design used by the merchants and claimed the merchants and Hangzhou Youzan for damages of RMB2,000,000. Management and the Group’s legal department assessed the likelihood of the claim as low and the maximum compensation, if any, could be RMB2,000,000. The Directors are of the opinion that it is not probable that an outflow of economic benefits will be required to settle the case, and therefore disclosed as contingent liabilities.

Save as disclosed above, the Group had no other material contingent liabilities as at 30 June 2021.

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22. Capital commitments

Capital commitments contracted for at the end of the reporting period but not yet incurred are as follows:

	As at	As at
	30 June	31 December
	2021	2020
	(Unaudited)	(Audited)
	RMB’000	RMB’000
Equity investment in a company	6,787	6,787
Property, plant and equipment	2,103	3,278

Apart from disclosed above, as at 30 June 2021, the Group has committed to acquire interests of an entity subject to the financial performance of the entity for the year ending 31 December 2021. The relevant total commitment of investment is RMB16,800,000. As at 30 June 2021, earnest money of RMB2,000,000 was paid for the arrangement.

23. Related party transactions

• (a) In addition to those related party transactions and balances disclosed elsewhere in the condensed consolidated financial statements, the Group had the following material transactions with its related parties during the period:

	For the three months	For the three months		For the six months	For the six months
	ended 30 June			ended 30 June
	2021	2020		2021	2020
	(Unaudited)	(Unaudited)		(Unaudited)	(Unaudited)
	RMB’000	RMB’000		RMB’000	RMB’000
Advertising service
fee received from
a related company
(exclude VAT)	–	198		–	198
Technology services
fee paid to a
related party	–		–	–	(189)
Revenue from a
related company	1,022	1,067		2,184	2,341
Dividend income
from an associate	–		–	725	2,538
Loans to a related
company during
the period
– Principal borrowed
during the period	–		–	–	(500)
– Repayment during
the period	–		–	–	800
Commission paid to
associates	(1,971)	(593)		(3,344)	(1,074)
Administrative
expenses paid to
a non-controlling
interests	(452)	(787)		(1,081)	(787)

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

(b) The remuneration of directors and other members of senior management during the period was as follows:

	For the three months ended 30 June For the six months ended 30 June 2021 2020 2021 2020 (Unaudited) (Unaudited) (Unaudited) (Unaudited) RMB’000 RMB’000 RMB’000 RMB’000 (Re-presented) (Re-presented)
Salaries, bonus and allowances Equity-settled share-based payments Retirement benefit scheme contribution	4,429 4,976 9,149 10,318 2,971 8,020 5,937 16,940 86 24 182 96
	7,486 13,020 15,268 27,354

24. 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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CHINA YOUZAN LIMITED INTERIM REPORT 2021

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 customization options, while providing extended services such as Youzan Guarantee, Youzan Distribution, Youzan Promotion, etc. We help every merchant who values products and services privatize customer assets, expand internet customer base, improve business efficiency, and help his/her business comprehensively succeed in all aspects.

Our products and services are divided into five core segments: social e-commerce, new retail, beauty industry, education, and global markets. In May 2021, the new retail business of Youzan was upgraded with “Youzan New Retail” as the business brand, which created incremental value for merchants and facilitated the digital upgrading of retail business. Youzan New Retail helps merchants to strengthen their capabilities of omni-channel marketing, private domain operation, transaction conversion and organisational iteration, so as to achieve omni-channel sales growth, effective customer growth, and customer lifetime value growth through Youzan New Retail. Youzan New Retail provides industry solutions for different vertical industries, covering fashion, department store, collection stores, fast-moving consumer goods, intra-city retail and other sectors, which not only consist of system solutions including omni-channel marketing, private domain marketing, online store operation, and offline store operation, but also consist of services solutions including business consulting, operation launching consulting, operation services, data application services and data integration services. In order to enhance our capability to provide integrated solutions for large merchants, we launched the ONE strategy, and cooperated with some system service providers to provide online and offline data integration services for merchants. We provided in-depth services such as consulting, marketing, and customisation for large merchants and launched the K100 plan to accompany the development of 100 industry leaders.

The Gross Merchandise Volume (“GMV”) generated by merchants through Youzan’s solutions reached RMB48.1 billion in the first half of 2021, representing an increase by 4% as compared to the GMV in the same period of 2020.

As of 30 June 2021, the number of paying merchants was 87,457. The number of new paying merchants was 19,054 in the first half of 2021.

As of 30 June 2021, we have 4,008 employees, with 41% of sales, 36% of product and technology, 16% of service and operation and 7% of management and support.

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

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.

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.

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

Continue to expand our ecosystem and enhance our capabilities to serve largescale 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-theart 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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CHINA YOUZAN LIMITED INTERIM REPORT 2021

Financial Review

Revenue

The Group’s revenue for the period was approximately RMB803,399,000 (Six months ended 30 June 2020: approximately RMB823,957,000 (Re-presented)), representing a decrease of about 2.5% compared with the same period in 2020, which was mainly attributable to the decrease in revenue from merchant solutions.

The following table sets forth the revenue breakdown by major products or service lines for the period indicated.

	For the six months ended 30 June 2021 2020 Changes (Unaudited) (Unaudited) RMB’000 RMB’000 % (Re- presented)
Subscription solutions Merchant solutions Others Total	507,808 475,378 6.8% 289,258 340,921 (15.2%) 6,333 7,658 (17.3%)
	803,399 823,957 (2.5%)

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

Subscription Solutions

Revenue from subscription solutions primarily include subscription fees for SaaS products and a per-transaction cloud service fee for each extra order beyond a pre-specified order number threshold that consumers made to such merchants through SaaS products. Revenue generated from subscription solutions increased by 6.8% from approximately RMB475,378,000 (Re-presented) for the six months ended 30 June 2020 to RMB507,808,000 for the reporting period, mainly attributable to the increase in subscription fees for SaaS products which was partially offset by the decrease in cloud service fees.

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.

Revenue from merchant solutions was approximately RMB289,258,000 in the reporting period (Six months ended 30 June 2020: approximately RMB340,921,000 (Re-presented)), representing a decrease of 15.2%, which was primarily due to the decrease in revenue generated from transaction services since Hangzhou Youzan ceased its transaction service in February 2021. Excluding transaction service fees, revenue from other merchant solutions remained stable for the six months period ended 30 June 2021 year over year.

Others

Revenue from other businesses was approximately RMB6,333,000 in the reporting period (Six months ended 30 June 2020: approximately RMB7,658,000 (Re-presented)), representing a decrease of 17.3%, mainly due to the decrease in the revenue from providing catering services which were ceased since May 2021.

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

Cost

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

	For	the six months ended 30	the six months ended 30	June
	2021		2020		Changes
	(Unaudited)		(Unaudited)
		Percentage		Percentage
	RMB’000	(%)	RMB’000	(%)	%
			(Re-
			presented)
Staff costs	84,776	26.8%	71,290	20.8%	18.9%
Server and
SMS costs	55,756	17.6%	49,280	14.4%	13.1%
Transaction costs	135,418	42.9%	201,119	58.7%	(32.7%)
Costs of goods sold	3,037	1.0%	3,795	1.1%	(20.0%)
Depreciation of right-
of-use assets	3,691	1.2%	2,934	0.9%	25.8%
Technology services
expenses	2,609	0.8%	4,050	1.2%	(35.6%)
Contracted customer
services expenses	4,906	1.6%	3,136	0.9%	56.4%
Taxes and surcharges	3,930	1.2%	2,576	0.7%	52.6%
Insurance premium
costs	13,175	4.2%	–	–	N/A
Others	8,699	2.7%	4,299	1.3%	102.3%
Total	315,997	100.0%	342,479	100.0%	(7.7%)

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

The Group’s costs of sales in the reporting period were approximately RMB315,997,000 (Six months ended 30 June 2020: approximately RMB342,479,000 (Re-presented)), representing a decrease of 7.7%, which was mainly because transaction costs decreased by 32.7% from approximately RMB201,119,000 in the same period of last year to approximately RMB135,418,000 in the reporting period, due to Hangzhou Youzan ceased its transaction service in February 2021. Meanwhile the decrease of costs of sales was partially offset by the following factors: (i) staff costs increased by 18.9% from approximately RMB71,290,000 in the same period of last year to RMB84,776,000 in the reporting period due to the increase of personnel caused by business expansion, (ii) insurance premium costs increased by RMB13,175,000 since the Group started to purchase freight insurance from insurance institutions and provide to merchants who registered with Youzan Guarantee from December 2020, and (iii) server and SMS costs increased by 13.1% from approximately RMB49,280,000 in the same period of last year to approximately RMB55,756,000 in the reporting period, primarily attributable to the increase in server usage as a results of business expansion.

Gross Profit and Gross Profit Margin

The Group recorded a gross profit for the reporting period of approximately RMB487,402,000 (Six months ended 30 June 2020: approximately RMB481,478,000 (Re-presented)), representing an increase of 1.2%, due to the increase of gross profit from subscription solutions which was partially offset by the decrease of gross profit from merchant solutions.

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

The Group’s gross profit margin increased from 58.4% (Re-presented) in the same period of 2020 to 60.7% in the reporting period, which was mainly due to the increase in revenue from subscription solutions 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 57.7% in the six months ended 30 June 2020 to 63.2% in the six months ended 30 June 2021.

	For the six months ended 30 June 2021 2020 (Unaudited) (Unaudited) RMB’000 Gross profit margin (%) RMB’000 Gross profit margin (%) (Re- presented)
Subscription solutions Merchant solutions Others Total	380,673 75.0% 358,132 75.3% 106,273 36.7% 121,289 35.6% 456 7.2% 2,057 26.9%
	487,402 60.7% 481,478 58.4%

Subscription Solutions

The gross profit of subscription solutions for the reporting period was approximately RMB380,673,000 (Six months ended 30 June 2020: approximately RMB358,132,000 (Re-presented)), representing an increase of 6.3%. The increase in gross profit was mainly due to the increase in the revenue of subscription solutions benefitted from higher average revenue per merchant of subscription solutions. The gross profit margin was 75.0% for the reporting period (Six months ended 30 June 2020: 75.3% (Re-presented)) which remained relatively stable.

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

Merchant Solutions

The gross profit of merchant solutions for the reporting period was approximately RMB106,273,000 (Six months ended 30 June 2020: approximately RMB121,289,000 (Re-presented)), representing a decrease of 12.4%, which was mainly due to the increase in insurance premium costs since the Group started to purchase freight insurance from insurance institutions and provide to merchants who registered with Youzan Guarantee from December 2020. The gross profit margin increased from 35.6% (Re-presented) in the six months ended 30 June 2020 to 36.7% in the six months ended 30 June 2021.

Others

Other gross profit for the reporting period was approximately RMB456,000 (Six months ended 30 June 2020: approximately RMB2,057,000 (Represented)).

Expenses and Others

The Group recorded a 29.0% increase compared with the same period in 2020 in selling expenses to approximately RMB438,549,000 (Six months ended 30 June 2020: approximately RMB339,975,000 (Re-presented)). It was mainly due to the increase in sales personnel which led to the increase in sales staff costs, and an increase in channel commission expenses.

The Group recorded a 42.4% increase compared with the same period in 2020 in administrative expenses to approximately RMB148,986,000 (Six months ended 30 June 2020: approximately RMB104,646,000 (Re-presented)). It was mainly due to the increase in management and support personnel which led to the increase in administrative staff costs and the increase in legal and professional fees for the listing application of Youzan Technology Inc..

The Group recorded a 46.4% increase compared with the same period in 2020 in other operating expenses to approximately RMB296,771,000 (Six months ended 30 June 2020: approximately RMB202,693,000 (Re-presented)). It was mainly due to the increase in research and development expenditure since the Group continue to invest significant resources in research and development to enhance technology capabilities.

The Group recorded a 24.2% decrease compared with the same period in 2020 in equity-settled share-based payment to approximately RMB25,087,000 (Six months ended 30 June 2020: approximately RMB33,112,000).

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

The Group recorded a 6.2% decrease compared with the same period in 2020 in investment and other income to approximately RMB36,817,000 (Six months ended 30 June 2020: approximately RMB39,234,000 (Re-presented)). It was mainly due to the receipt of an one-off compensation income of approximately RMB5,327,000 in the same period in 2020.

The Group recorded other net losses of approximately RMB2,680,000 (Six months ended 30 June 2020: other net gains of approximately RMB16,199,000 (Re-presented)). It was mainly due to the decrease in reversal of allowance for other receivables from approximately RMB19,007,000 in the same period of 2020 to nil in the reporting period.

The Group recorded a 29.7% decrease compared with the same period in 2020 in finance costs to approximately RMB11,235,000 (Six months ended 30 June 2020: approximately RMB15,987,000 (Re-presented)), primarily due to the decrease in interest on other loan which were settled in May 2020, partially offset by the increase in the interest expenses of lease liabilities in relation to leases of office premises.

The Group recorded fair value change in financial assets at FVTPL of approximately RMB3,705,000 (Six months ended 30 June 2020: Nil). Fair value change in financial assets at FVTPL represents fair value changes of investments in Shanghai Burgeon Software Technology Co., Ltd., Techsun Inc. and Zhengzhou Xindajiean Information Technology Co., Ltd. in the six months ended 30 June 2021.

Dividends

No dividends have been paid or proposed for the three months and six months ended 30 June 2021, nor has any dividend been proposed since the end of the reporting period (Three months and six months ended 30 June 2020: Nil).

Pledge of Assets

As at 30 June 2021, the Group had no pledge of assets.

Financial Resources and Liquidity

As at 30 June 2021, the Company had cash and cash equivalents of approximately RMB1,125,095,000 (As at 31 December 2020: approximately RMB1,751,530,000).

As at 30 June 2021, the Company had no bank borrowings (As at 31 December 2020: Nil).

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

Foreign Exchange Exposure

Since the Group’s operations are mainly located in the PRC, 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.

As most sales are made in Renminbi, no hedging arrangement is made to offset the exposures to fluctuations in exchange rates.

Employees

As at 30 June 2021, the Group has approximately 4,008 employees (As at 31 December 2020: 3,603). 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.

Significant Investment and Acquisition

• (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% new shares. 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) On 26 February 2021, the Company and BetaCafe Holdings Limited (the“offeror”) 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 (“joint announcement”) dated 26 February 2021.

• (c) On 19 May 2021, Hangzhou Youzan entered into an investment intention agreement with Company A for paying RMB50 million refundable earnest money for potential investment. The earnest money was paid on 20 May 2021.

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

Event After the Reporting Period

On 15 July 2021, the Company and the offeror issued a joint announcement for monthly update on (i) pre-conditional take private proposal for China Youzan Limited by the offeror by way of scheme of arrangement under section 99 of the Companies Act; (ii) proposed distribution in specie of Youzan Technology shares.

Unless otherwise defined, capitalised terms used have the same meanings as defined in the joint announcement and the circular.

Details of the transactions please refer to the Company’s announcements dated 26 February, 2021, 19 March 2021, 1 April 2021, 16 April 2021, 19 April 2021, 6 May 2021, 4 June 2021, 15 June 2021 and 15 July 2021; and the Company’s circular dated 20 April 2021.

DIRECTORS’ INTEREST IN SHARES

As at the date of this report, the interests or short positions of the Directors in the Shares, underlying shares and debentures of the Company or any associated corporation (within the meaning of Part XV of the SFO) which (i) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were taken or deemed to have under such provisions of the SFO); or (ii) were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein; or (iii) were required, pursuant to Rules 5.46 to 5.67 of the GEM Listing Rules relating to securities transactions by Directors to be notified to the Company and the Stock Exchange, were as follows:

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

Long position in Shares

		Long Position in Shares	Long Position in Shares
		Interest in
	Interest in	underlying	Total interest in
Directors	shares	shares	shares	% Shareholding
Mr. Guan Guisen	411,592,000	–	411,592,000	2.39%
(Note 1, 2)
Mr. Cao Chunmeng	57,420,000	–	57,420,000	0.31%
Mr. Yan Xiaotian	21,640,000	–	21,640,000	0.13%
Dr. Fong Chi Wah	1,000,000	–	1,000,000	0.01%
Mr. Gu Jiawang	1,000,000	–	1,000,000	0.01%
Mr. Zhu Ning	1,440,601,703
	(Note 3) 363,170,101	100,000,000 (Note 6)	1,903,771,804	11.03%
	(Note 4)
Mr. Yu Tao	–	15,000,000	15,000,000	0.09%
		(Note 7)
Mr. Cui Yusong	241,885,127	20,000,000	261,885,127	1.52%
	(Note 5)	(Note 7)
Ms. Ying Hangyan	852,000	15,000,000	15,852,000	0.09%
		(Note 7)

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

• Note 1: The shares are held by Mighty Advantage Enterprises Limited (“Mighty Advantage”). Mighty Advantage is incorporated in the British Virgin Islands and is beneficially owned by Mr. Guan Guisen.

• Note 2: Mr. Guan Guisen resigned as a Director with effect from 17 February 2021.

• Note 3: The shares are held by Whitecrow Investment Ltd. (“Whitecrow”). Whitecrow is a company incorporated in the British Virgin Islands with limited liability and is 100% beneficially owned by Mr. Zhu Ning.

• Note 4: The shares are held by Youzan Teamwork Inc. (“Youzan Teamwork”). Youzan Teamwork is a company incorporated in the British Virgin Islands with limited liability. As at 31 December 2020, Youzan Teamwork was owned as to 8% by Mr. Zhu Ning, and 18% by Whitecrow.

• Note 5: The shares are held by V5.Cui Investment Ltd. (“V5.Cui”). V5.Cui is a company incorporated in the British Virgin Islands with limited liability and is 100% beneficially owned by Mr. Cui Yusong.

• Note 6: The Company granted the share options under New Share Option Scheme on 9 September 2019, and was approved at the extraordinary general meeting on 14 October 2019. The share options is valid until 30 June 2024 and has an exercise price of HK$1.00.

• Note 7: The Company granted the share options under New Share Option Scheme on 9 September 2019, and was approved at the extraordinary general meeting on 14 October 2019. The share options is valid until 30 June 2024 and has an exercise price of HK$0.90.

Save as disclosed above, as at the date of this report, none of the Directors of the Company had any interests or short positions in any Shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO), which (i) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO); or (ii) were required, pursuant to Section 352 of the SFO, to be entered into the register referred to therein; or (iii) were required, pursuant to Rules 5.46 to 5.67 of the GEM Listing Rules relating to securities transactions by Directors to be notified to the Company and the Stock Exchange.

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

INTERESTS DISCLOSEABLE UNDER THE SFO AND SUBSTANTIAL SHAREHOLDERS

Save as disclosed below, as at the date of this report, there was no other person (other than a director or chief executive officer of the Company) who had any interests and short positions in the shares and underlying shares of the Company as recorded in the register required to be kept under Section 336 of the SFO.

Long position in Shares

		Long Position in Shares
		Number of
Name of Substantial		interest in	%
Shareholders	Capacity	shares	Shareholding
Whitecrow Investment Ltd.	Beneficial owner	1,440,601,703	8.35%
(Note 1)
Poyang Lake Investment	Beneficial owner	1,036,766,038	6.01%
Limited (Note 2)
Tencent Holdings Limited	Interests of controlled	1,036,766,038	6.01%
(Note 2)	corporation
Ward Ferry Management	Investment manager	1,218,264,000	7.06%
(BVI) Limited
UBS Group AG	Interests of controlled	1,175,563,107	6.81%
	corporation

Note 1: Whitecrow is a company incorporated in the British Virgin Islands with limited liability and is 100% beneficially owned by Mr. Zhu Ning.

Note 2: Poyang Lake Investment Limited is a wholly-owned subsidiary of Tencent Holdings Limited (Stock Exchange Stock Code: 700), which is deemed to be interested in the Shares held by Poyang Lake Investment Limited for the purpose of the SFO.

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

SHARE OPTION SCHEME AND SHARE AWARD SCHEME Share Options Scheme

The Company had one share option scheme adopted on 12 June 2019 (the “Share Option Scheme 2019”).

Set out below are the details of movements in the outstanding options granted under the Share Option Scheme 2019 during the period ended 30 June 2021:

Share Option Scheme 2019

Position held within the Company Date of grant

As at 1.1.2021 Grant during the period Lapsed during the period Cancelled during the period Exercise during the period As at 30.6.2021 Exercise price Exercisable from Exercisable until Percentage out of total number of issued Shares as at the date of this report approximately HK$ (Note 1) (Note 1) (%)

Name of Selected Directors Mr. Zhu Ning Executive Director and chief executive officer 9.9.2019 Mr. Cui Yusong Executive Director 9.9.2019 Mr. Yu Tao Executive Director 9.9.2019 Ms. Ying Hangyan Executive Director 9.9.2019 Subtotal 9.9.2019 Other employees (include 2 senior management of the Group) 9.9.2019 Total Note 1: Vesting schedule 1 July 2020 25% 1 July 2021 25% 1 July 2022 25% 1 July 2023 25%

100,000,000 – – – – 100,000,000 HK$1.00 1 July 2020 30 June 2024 0.58 20,000,000 – – – – 20,000,000 HK$0.90 1 July 2020 30 June 2024 0.12 15,000,000 – – – – 15,000,000 HK$0.90 1 July 2020 30 June 2024 0.09 15,000,000 – – – – 15,000,000 HK$0.90 1 July 2020 30 June 2024 0.09 150,000,000 – – – – 150,000,000 0.87 150,154,000 – (750,000) – (6,600,000) 142,804,000 HK$0.75 1 July 2020 30 June 2024 0.83 300,154,000 – (750,000) – (6,600,000) 292,804,000 1.70

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

SHARE AWARD SCHEME

On 31 May 2018 (“Adoption Date”), the Company has adopted the Share Award Scheme (“Share Award Scheme”) aimed to recognise the contributions by Eligible Persons and provide them with incentives in order to retain them for continuing operation and development of the Group, and to attract suitable personnel for further development of the Group.

The Share Award Scheme shall be valid and effective for a period of 10 years from the Adoption Date unless early terminated by the Board.

The Board can make award of Shares of the Company to Selected Participants, but must not make any further award of unvested Shares which would result in the number of Shares awarded by the Board under the Share Award Scheme representing 10% or more of the issued Shares from time to time without Shareholders’ approval. The maximum number of Shares which may be subject to an award or awards to a selected participant in any 12-month period shall not in aggregate exceed 1% of the issued Shares.

No award shall be made by the Board and no instructions to acquire Shares shall be given by the Board to the Trustee under the Share Award Scheme where any director is in possession of unpublished price-sensitive information in relation to the Group or where dealings by directors are prohibited under any code or requirement of the GEM Listing Rules and all applicable laws from time to time.

Subject to the relevant Share Award Scheme Rules, (1) the Company can issue and allot Shares to the Trustee from time to time under general mandates granted or to be granted by the Shareholders at general meetings of the Company from time to time (unless such issue and allotment of Shares has otherwise been approved by the Shareholders) for future awards; or (2) in case where the Board have selected certain Eligible Person to be Selected Participant(s), the Company shall, as soon as reasonably practicable after the grant date, for the purposes of satisfying the grant of awards, issue and allot Shares to the Trustee under general mandates granted or to be granted by the Shareholders at general meetings of the Company from time to time (unless such issue and allotment of Shares has otherwise been approved by the Shareholders) and/or transfer to the Trust the necessary funds and instruct the Trustee to either (i) subscribe Shares to be issued by the Company or (ii) acquire Shares through on-market transactions at the prevailing market price. The Trustee must hold the Shares until they are vested in accordance with the Share Award Scheme Rules. When the Selected Participant has satisfied all vesting conditions specified by the Board at the time of making the award and become entitled to the Shares forming the subject of the award, the Trustee will transfer the relevant vested Shares to the Selected Participant.

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

The Trustee shall not exercise any voting rights and powers in respect of any Shares held under the Trust (including, but not limited to, the Awarded Shares, the Returned Shares, any bonus Shares and scrip Shares).

First Awards

During the year ended 31 December 2018, a total of 551,522,400 Awarded Shares (“First Awards”) were granted and out of which, none was granted to the directors of the Company. The fair value of the First Awards granted was calculated based on the market price of the Company’s Share at the measurement date that all relevant approvals in connection with the GEM Listing Rules requirements were received. The fair value of awarded shares granted was HK$0.62 per Awarded Share.

Second Awards

On 19 November 2018, the Board announced the granting of another lot of 314,376,000 Awarded Shares and subsequently reduced to 304,247,200 Awarded Shares (“Second Awards”) on 24 January 2019, none was granted to the directors of the Company. The Company received all approvals and allotted Second Awards to Trustee on 1 February 2019, but the grantees acceptance were not received until 15 March 2019. Also on 15 March 2019, the Board adjusted the number of Awards Shares previously announced and granted additional 23,064,800 Awarded Shares to 58 grantees using lapsed shares of First Awards and Second Awards held by Trustee in the Trust Fund. The fair value of the Second Awards granted was calculated based on the market price of the Company’s Share at the measurement date that all relevant approvals in connection with the GEM Listing Rules requirements and acceptance from the Eligible participants were received. The fair value of Second Awards shares granted was HK$0.52 per Awarded Share.

On 5 May 2019, the Board passed a resolution to modify the vesting schedule of 80 grantees of Second Awards, which resulted in immediate and full vesting of 154,897,600 Awarded Shares. Other than that there was no other modification of vesting conditions that will results in the acceleration of vesting.

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

Third Awards

On 21 August 2019, the Board passed a resolution to grant additional 7,814,400 Awarded Shares (“Third Awards”) by using the lapsed shares of First Awards and Second Awards held by Trustee in the Trust Fund, of which none was granted to the directors of the Company. The fair value of the Third Awards granted was calculated based on the market price of the Company’s Share at the measurement date that all relevant approvals in connection with the GEM Listing Rules requirements and the acceptance of Selected Participants were received. The fair value of Third Awards granted was HK$0.51 per Awarded Share.

Third Awards granted to Selected Participants are divided into 3 tranches. The first tranche representing 50% of the awards would be vested when the Selected Participant completing 2 years of continuous service to the Group from the date of first day of employment. The second and third tranches each represent 25% of the awards, and would be vested after completing the third year and fourth year of continuous service to the Group, respectively.

Fourth Awards

On 1 July 2020, the Board passed a resolution to grant additional 45,120,000 awarded shares (“Fourth Awards”) by using the lapsed shares of First Awards and Second Awards held by the Trustee in the Trust Fund, of which none was granted to the directors of the Company. The fair value of the Fourth Awards granted was calculated based on the market price of the Company’s share at the measurement date that all relevant approvals in connection with the GEM Listing Rules requirements and the acceptance of selected participants were received. The fair value of Fourth Awards granted was HK$1.37 per Awarded Share.

Fourth Awards granted to selected participants are divided into 4 tranches. The first tranche representing 25% of the awards would be vested when the Selected Participant completing 1 year of continuous service to the Group from the date of grant. The second, third and fourth tranches each represent 25% of the awards, and would be vested in the second, third and fourth anniversary from the date of grant, respectively.

COMPETING INTERESTS

The Directors are not aware of, as at 30 June 2021, any business or interest of each Director, management shareholder and the respective associates of each that competes or may compete with the business of the Group and any other conflicts of interest which any such person has or may have with the Group.

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

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

During the three months and six months ended 30 June 2021, there were no purchase, sale or redemption by the Company or any of its subsidiaries of the Company’s listed securities.

CODE OF CONDUCT REGARDING SECURITIES TRANSACTIONS BY DIRECTORS

The Company has adopted a Code of Practice for Securities Transactions by Directors and Designated Employees on terms no less exacting than the required standard of dealings set out in Rules 5.48 to 5.67 of the GEM Listing Rules. The Company has also made specific enquiry of all Directors who have confirmed their compliance with required standard set out in the Securities Code during the three months and six months ended 30 June 2021.

BOARD PRACTICES AND PROCEDURES

The Company has complied throughout the three months and six months ended 30 June 2021 the board practices and procedures as set out in Chapter 5 of the GEM Listing Rules.

CORPORATE GOVERNANCE AND COMPLIANCE WITH THE CODE ON CORPORATE GOVERNANCE PRACTICES

As at 30 June 2021, the Company has been in compliance with the code provisions set out in the Code on Corporate Governance Practices (the “CG Code”) as set out in Appendix 15 of the GEM Listing Rules.

AUDIT COMMITTEE

The Company has established an audit committee (the “Committee”) in compliance with the GEM Listing Rules. The Committee comprises three independent non-executive Directors, namely Dr Fong Chi Wah, Mr Gu Jiawang and Mr Deng Tao. The Committee is chaired by Dr Fong Chi Wah. The primary duties of the Committee are to review and supervise the financial reporting process and internal control systems of the Group.

The Committee has reviewed and assessed the composition of the Group’s financial reporting team and was satisfied with the performance of the team.

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CHINA YOUZAN LIMITED INTERIM REPORT 2021

The Committee is of the opinion that the preparation of the unaudited results for the three months and six months ended 30 June 2021 has complied with applicable accounting standards, the Stock Exchange and legal requirements and that adequate disclosures had been made. The Committee has reviewed the Company’s unaudited results for the three months and six months ended 30 June 2021 and the draft of this report, and has provided advice and comments thereon.

By Order of the Board China Youzan Limited Zhu Ning Chairman

Hong Kong, 11 August 2021

As at the date of this report, the Board comprises the following members:

Executive Directors

Mr. Cao Chunmeng Mr. Yan Xiaotian Mr. Zhu Ning Mr. Cui Yusong Mr. Yu Tao Ms. Ying Hangyan

Independent Non-executive Directors

Dr. Fong Chi Wah Mr. Gu Jiawang Mr. Xu Yanqing Mr. Deng Tao

This report will remain on the “Latest Company Announcements” page on the GEM website at www.hkgem.com for at least 7 days from the day of its posting and on the website of the Company at www.chinayouzan.com.

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CHINA YOUZAN LIMITED INTERIM REPORT 2021