[For Immediate Release]

Financial Highlights

Financial statement of 1H 2017 restated according to Hong Kong Financial Reporting Standard 9 and 15

(22 August 2018 — Hong Kong) ─ Hengan International Group Company Limited ("Hengan International" or the "Company", SEHK stock code: 1044, together with its subsidiaries, the "Group") announces today its interim results for the six months ended 30 June 2018.

During the period under review, with the foundation of the nation-wide rollout of the "small sales team" operating model (also known as "Hengan's Amoeba model"), Hengan Group continued to push forward the transformation and evolution of Amoeba, and implemented the "small team" strategy in various operation units. The Group fully utilise Amoeba's advantage of high flexibility and prompt-response, to enhance operating efficiency and improve the expense ratio, while promoting sales. During the period, "small sales team" successfully reinvigorated the sales network and the Group's overall sales resumed double-digit growth. For the six months ended 30 June 2018, the Group's revenue increased significantly by about 16.3% to approximately RMB10,136,897,000 (2017 first half (Restated): RMB8,719,647,000).

During the period, due to the significant increase in the overall prices of wood pulp, the Group's production cost of tissue business significantly increased. The Group's gross profit margin dropped to about 39.6% during the period under review (first half of 2017 (Restated): 43.7%). The Group will continue to optimise its product portfolio and expand the economies of scale in the second half of 2018 so as to mitigate the negative effects of rising wood pulp prices.

Although the company strengthened brand promotion during the period and resulted in the increase in selling and distribution costs and administrative expenses by approximately 7.1% compared to last period, selling and distribution costs and administrative expenses still decreased to approximately 17.2% (first half of 2017 (Restated): 18.6%) of the Group's revenue. The decrease was mainly attributable to the implementation of "small sales team" operating model which effectively improved the sales efficiency.

In the first of 2018, operating profit rose by about 2.5% to approximately RMB2,681,943,000 (2017 first half: RMB2,616,808,000). Profit attributable to shareholders of the Company increased by about 5.0% to approximately RMB1,946,907,000 (2017 first half: RMB1,853,935,000). The Board of Directors declared an interim dividend of RMB1.00 per share for the six months ended 30 June 2018 (2017 first half: RMB0.95).

Commenting on the Group's interim results, Mr. Sze Man Bok, Chairman of Hengan International, said, "In the first half of 2018, China's gross domestic product increased by 6.8% year-on-year, slightly better than the annual target of 6.5%. The consumption expenditure per capita for the household articles and services category grew by 11.8% compared to that in the first half of 2017. The household necessities market continued to grow. Leveraging on the positive effects of "small sales team" operating model to capitalise on the growth in mainland market, the Group maintained steady operating performance"

Sanitary Napkin
With the constantly rising education level, income and social status of women, the mature females who have more disposable income, pay more attention to product quality and tend to buy premium high-end product. The Group keeps upgrading and renewing the product portfolio. The Space 7 series (launched in the second half of 2017), which targets the white-collar market in first and second tier cities, has received positive response from the market. Moreover, the upgraded functional product lines under the Group's sanitary napkin flagship brand, Space 7, including Super Slim series, Super Long 420 night series and Sweet Sleeping Panty series received overwhelming response from the market. The sales of sanitary napkin business remained stable and the performance was in line with the broader market in the first half of 2018.

During the period, revenue from the sanitary napkins business grew by approximately 5.0% to approximately RMB3,222,746,000, which accounted for approximately 31.8% of the revenue (first half of 2017(Restated): 35.2%). In the first half of 2018, thanks to the increased proportion of high-end and upgraded products in the product mix which offset the impact of higher costs of petrochemical raw materials, the gross profit margin of the sanitary napkins business increased to approximately 69.3% (2017 first half (Restated): 68.7%).

Looking forward, leveraging on the market knowledge on the consumer market of the "small sales team", the Group will develop more brand new, upgraded and repackaged products that suit the market needs to cater to consumer taste of different age groups and further develop the white-collar market with higher consumption power in the first and second tier cities. With its advantage as a National Brand, the Group will continue to expand the product category of female care products and offer various product combos to provide full-cycle care for female. It is expected the total sales will remain steady growth in 2018.

Tissue Paper
With growing disposable income and improving awareness of personal hygiene among Chinese citizens, demand for tissue paper rises sustainably. However, China's tissue consumption per capita still lags behind that of developed countries, implying enormous market potential. With high cost of raw materials and tightened environmental policies during the period, industry consolidation had been speeded up. With its scale of economies, the Group maintained a stable price level and along with its leading environmental production technologies, the Group gained market share and increased product penetration. During the period, revenue from the Group's tissue paper segment largely increased by about 21.1% to approximately RMB5,084,428,000, accounting for approximately 50.2% (first half of 2017(Restated): 48.2%) of the Group's total revenue.

During the period, gross profit margin of tissue paper business was affected by the persistent increase in the prices of wood pulp, a raw material for tissue paper production. Gross profit margin decreased to approximately 25.8% (first half of 2017 (Restated): 29.6%).However, the Group is confident of mitigating the pressure from rising raw material costs as the sustainable positive effect of the "small sales team" operating model will become more evident in the second half of 2018 while the Group will also continue to launch high-quality and high-end products and increase its contribution to overall sales, along with the price hike of certain products in June.

The Group's annualised production capacity was approximately 1,360,000 tons, and is expected to increase to approximately 1,420,000 tons by the second half year of 2018. The Group will consider expanding its production capacity according to the market conditions and sales performance in the future.

In the second half of 2018, the Group will continue to upgrade its product mix. Through increasing promotional campaigns, and the proportion of high demand high-end products, including Minions-themed tissue paper series, Hebe Tien-customized Tea Classical series, Bamboo π series and Super Mini-series in the product mix, the Group could further strengthen the high-end and young image of the Hengan-branded tissues, at the same time satisfying consumers' needs. On the other hand, the Group will capitalise on the growth momentum of the e-commerce market with the launch of online exclusive themed products to fulfil the different needs of families and individuals. Leveraging on the flexible and consumer-intimate "small sales team", the Group believes that the sales of tissue paper segment will maintain a robust growth.

Disposable Diapers
With the implementation of "Two Child Policy" and a rapidly aging population in China, the potential users of disposable diapers increased. Also, the market penetration rate of disposable diapers in China is still relatively low compared with that in other developed countries, implying huge untapped market potential. Besides, economic development makes China citizens pay more attention on quality of life. With rising awareness of personal hygiene, parents can afford and are more willing to buy high-end and high quality products for their children.

During the period under review, the Group's sales of disposable diapers through traditional channels still accounted for around 40% of the total sales of disposable diapers business and continued to be impacted by the e-commerce channel. Therefore, the sales decreased, in line with the decline of the market. In light of this, the Group has expedited the sales development through e-commerce channel in the past two years and during the period. As at 30 June 2018, sales of disposable diapers through e-commerce channel increased to more than 30% of the overall diaper sales.

In addition to online sales channel, the Group continued to move on its omni-channel strategy and increased investment in maternity stores. Through the omni-channel which includes supermarket, maternity stores and online sales channel, the Group promotes "Q˙MO", the iconic high-end brand that acquired CE Marking, FDA certificate and CQM certificate, to wider consumer base. The sales of "Q˙MO" increased more than threefold when compared to the same period of last year. Its sales contributed to a mid-single digit percentage of diapers sales. Besides, for the first half year of 2018, "Soft and thin", the upgraded product of Anerle, continued to receive positive feedback from the market. It recorded a double digit growth in sales. Although the sales portion of e-commerce channel increased and the development of the high-end products speeded up, the sales portion through traditional channels were declining significantly in the recent years in line with the market, its sales for the period ended 30 June 2018 still accounted for around 40% of the total sales of disposable diapers and its sales were declining by more than 30% with compared to last period. As a result, the revenue of the diapers business decreased by approximately 9.9% to approximately RMB810,823,000 for the six month ended 30 June 2018, which accounted for approximately 8.0% of the Group's revenue (2017 first half(Restated): 10.3%).

During the period under review, the gross profit margin level remained relatively stable by adjusting and narrowing the price difference between online and offline sales as well as increasing the proportion of high margin products in the product mix. The gross profit margin of the first half year of 2018 only slightly reduced to approximately 39.9% (2017 first half(Restated): 40.4%). In the second half of 2018, the Group will further promote its omni-channel strategy through increasing exclusive products for e-commerce channel and maternity stores in order to increase their contribution to diapers sales. In addition, the Group will continue to upgrade current products, enrich the "Q˙MO" series and shift the product positioning to high-end market, in order to stand out from the immense competition among domestic and overseas brands, as an outstanding "National Brand".

E-commerce
In the first half of 2018, there was a continued shift of the consumption from in-store shopping to online shopping. To cater to the change in the consumption pattern and habit of the Chinese consumers, the Group has started to move on its "Omni-Channel Sales". Apart from the traditional channels like distributors and supermarket, the Group has been making use of sales channel like online stores and Wechat stores, to further expand its sales network in China.

During the period under review, through the strategic collaborations with well-known large-scale e-commerce operators in China, the Group has started to make use of big data to analyse the discrepancy in online shopping habit, so that the Group could flexibly allocate the resources used in production, supplies, and sales. As at 30 June 2018, revenue from e-commerce(including Retail Expert (零售通) and wechat sales) exceeded about 1.2 billion, up by more than 60% over the same period last year. E-commerce's contribution to total sales revenue also rose to approximately 12.7% (first half of 2017(Restated): 9.2%).

For more information, please visit http://doc.irasia.com/listco/hk/hengan/interim/2018/intpress.pdf.

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