Lianhua Supermarket Announces 2008 Annual Results

Profits of core business up 79.3%, record high since listing

Successful implementation of "Strong Outlet" strategy

Laid solid foundation for long term growth
HONG KONG--(Business Wire)--
Financial and Operational Highlights

* The year of 2008 was a year of improvement and innovation for the Group.
Pursuing to its "strong outlet" strategy, the Group continued to focus on outlet
transformation and improved its management ability and innovation support
system. Basic capacity and key sections of operations were further strengthened.
Core business profitability greatly improved while both revenue and profit
attributable to shareholders recorded stable increases.

* During the Review Period, the Group actively adjusted its product mix, held
"Special Chinese Food Festivals", selectively bought out specific products from
suppliers to provide customers with better products at lower price. It also
adopted a new "origin-procurement" strategy to lower product costs while
securing quality, continuously improved the attractiveness of our stores. In
2008, the Group recorded a turnover of RMB20.70 billion, representing a growth
of 14.5% as compared with 2007. Same store sales growth reached 8.3% even though
food prices dropped and financial crisis brought negative impact on consumer
confidence in the second half of the year. Same store sales for hyper markets,
supermarkets and convenience stores were 7.8%, 9.5% and 6.9% higher,
respectively.

* Gross profit increased to RMB2,806 million, an increase of 19.5% as compared
to the previous year, higher than the growth rate of turnover. Gross profit
margin increased by 0.56 percentage point to 13.6% on a stable basis due to the
Group`s continuous improvement in merchandise management and effective pricing
strategy.

* Operating profit reached RMB359 million. Excluding non-recurring expenses and
profit in both 2007 and 2008, the actual growth was 79.3% higher than that of
2007. The profitability of core businesses improved significantly and the
operating profit of the three main segments was a steady growth. The operating
profit of hypermarkets amounted to RMB118.66 million, a significant increase
compared with that of 2007. The operating profit margin rose from 0.05% in 2007
to 1% in 2008. The operating profit of supermarkets amounted to RMB269.12
million, a 16.39% increase compared with that of 2007. The operating profit
margin rose steadily from 3.52% in 2007 to 3.82% in 2008. The operating profit
of convenience stores amounted to RMB26.57 million, an 8.82% increase compared
with that of 2007, excluding the one-off income on the disposal of Guangzhou
Lianhua Quik Stores Co., Ltd. in 2007. The operating margin rose steadily to
1.67% in 2008.

* Thanks to the solid growth in the business operation and the coupon issuing,
the Group's net cash inflow from operating activities remained strong and
reached RMB1,597.91 million, cash and bank balances as at the year-end amounted
to RMB6,559.82 million. The sufficient cash flow provided good support to the
operation capability for commodities and expansion of outlets. Also, while
ensuring the liquidity and safety, the Group achieved good financial return
through active and reasonable cash management.

* Profit attributable to shareholders was RMB388 million, an increase of 44.7%
over 2007. Earnings per share reached RMB0.62.

* During the review period, the Group continued its strategy of prudent
development. A total of 464 new outlets were added to the hypermarkets,
supermarkets and convenience stores networks. As at the end of the year, Lianhua
had a total of 3,872 outlets, spanning across 20 provinces and municipalities
directly under the jurisdiction of the Central Government all over the country
with 84% of the outlets located in Eastern China.

* To control risk, the Group has been dedicated to building a comprehensive
internal control system, including the establishment of a complete network
development procedure and enforces the review on the network by investment
management committee; The Group also centralized its capital management. Under
the premise of emphasizing the safety and liquidity of cash, the Group
rigorously controlled investment risk and focus on hedging and appreciation in
cash management.
* Total dividend for the year was RMB0.25 per share (tax included), including
the already distributed interim dividend of RMB0.10. The Board recommended a
final dividend of RMB 0.15. Payout ratio for the year was 40.3%.

Lianhua Supermarket Holdings Co.,Ltd. ("Lianhua Supermarket" or the "Company",
together with its subsidiaries, collectively the "Group"; HKEx stock code: 980)
today announced its annual results for the 12 months ended 31 December 2008 (the
"Review Period" or the "Period").

Financial Review

In 2008, the Group recorded a turnover of RMB20.70 billion, representing a
growth of 14.46% as compared with that of 2007, and same store sales growth
reached 8.30%. During the year, the gross profit grew steadily and increased to
RMB2,805.78 million, an increase of 19.46% as compared to that of previous year.
The gross profit margin increased steadily by 0.56 percentage point to 13.55%
due to the Group`s continuous improvement in its product mix and good pricing
strategy. The consolidated income reached RMB4,939.05 million with a
consolidated income margin of 23.86%, which is a well-maintained level.

The operating profit reached RMB359.24 million, representing a decrease of
13.91% over that of 2007. Excluding non-recurring expenses and profit, the
actual growth was approximately 79.30% as compared to that of 2007. The Group
recorded a total net profit attributable to the Company`s shareholders of
RMB388.34 million, representing an increase of 44.74% over that of 2007.
Earnings per share reached RMB0.62.

The Board recommended a final dividend of RMB 0.15. Together with the interim
dividend of RMB0.10, total dividend per share was RMB0.25.

"The Group's remarkable performance was strong evidence that it has adopted a
correct "Strong Outlet Strategy", which strives to strengthen basic operation
capabilities, optimize merchandise structure, improve both the supply chain
establishment and service quality in order to enhance core competitiveness."
commented Mr. Wang Zhi-gang, Chairman.

Segment Results

During the year, the Group`s hypermarkets recorded a turnover of RMB11, 910.71
million, which accounted for approximately 57.53% of the Group`s turnover,
representing an increase of approximately 20.97%, and gross profit margin
increased steadily to 11.83%. Same store sales growth reached 7.80%. Segment
operating profit was approximately RMB118.66 million, representing an increase
of RMB113.45 million over that of 2007. The operating profit margin rose by 0.95
percentage point as compared with that of 2007 and the profitability of
hypermarkets improved significantly.

2008 2007
Gross profit margin (%) 11.83 11.09
Consolidated income margin (%) 23.04 24.23
Operating profit margin (%) 1.00 0.05

During the year, the Group`s supermarkets recorded a turnover of approximately
RMB7,045.98 million, which accounted for approximately 34.03% of the Group`s
turnover, representing an increase of 7.40% over that of the previous year, and
gross profit margin increased to 15.83% on a stable basis. Same store sales
growth reached 9.50%. Segment operating profit was approximately RMB269.12
million. The continuous transformation of supermarkets outlets brought the
steady growth of profitability of the segment.

2008 2007
Gross profit margin (%) 15.83 15.09
Consolidated income margin (%) 24.13 23.51
Operating profit margin (%) 3.82 3.52

During the year, the Group`s convenience stores recorded a turnover of
approximately RMB1,591.67 million, which accounted for approximately 7.69% of
the Group`s turnover, representing an increase of approximately 4.44% over that
of the previous year. Gross profit margin increased slightly to 15.58%. Same
stores sales growth reached 6.90%. Segment operating profit was approximately
RMB26.57 million, representing a stable 8.82% increase over that of 2007, if
one-off income on the disposal of Guangzhou Lianhua Quik Stores Co., Ltd in 2007
is excluded.

2008 2007
Gross profit margin (%) 15.58 15.47
Consolidated income margin (%) 23.22 24.84
Operating profit margin (%) 1.67 2.93

Operation Review

Our prudent development strategy enabled us to strengthen our edges on an
ongoing basis

As a cross-region and multi-business chain supermarket enterprise, the Group
continues to seek better location and open new outlets to make shopping more
convenient for customers. In recent years, the Group has maintained a steady
pace of opening about 400 outlets every year, and continued to explore potential
markets and shopping channels for consumers. The synchronized development of our
three major businesses, namely, hypermarkets, supermarkets and convenience
stores, has provided consumers with convenience in shopping due to the
availability of choices in terms of time and place. In 2008, the Group opened
464 outlets. As at the end of the year, the Group had a total of 3,872 outlets
all over the country, spanning across 20 provinces and municipalities under the
direct supervision of the Central Government, and 84% of our outlets are located
in Eastern China area.

As at Hypermarkets Supermarkets Convenience Total
31 December 2008
stores

Direct operation 127 546 934 1,607
Franchise operation - 1242 1023 2,265
Total 127 1788 1957 3,872

Centralization in regional development is the Group`s strategy for network
development, which copes with China`s actual situation - dispersed markets with
a weak supply chain system. Centralized development in focused regions
facilitates economies of scale: in Shanghai and Hangzhou, the Group has the
largest number of outlets in relation to our 3 major modes of operation in the
local markets. The Yangtze Delta region with these two cities as the core is
where our major operation lies. The strong logistics distribution and
information systems provide support to our aggressive development in this
region. The Quik Convenience Store in Dalian is another typical example of
development in focused regions. We have already achieved economies of scale and
witnessed a promising growth prospect by opening outlets in focused areas and
upgrading their operations constantly: in 2008, the growth of same store sales
exceeded 10%.

The Group`s store expansion considers both focus and coverage of the network,
thus enhances the enterprise`s risk tolerance. Despite the macro-environment of
economic slowdown and shrinking consumption, the Group see opportunities: the
State policy of "subsidizing farmers` purchase of electrical appliances" and
supporting "supermarkets` move to open outlets in rural areas" under the
"marketing project for ten thousand villages and a thousand rural areas" have
brought new opportunities to the Group`s outlets operating in the second and
third tier markets, as well as our franchising business to develop in the rural
markets. Although the convenience stores in business districts will be affected
directly by sluggish business operations and weaker consumption power of
customers, the balanced distribution of the Group`s outlets in residential and
tourism areas has reduced the overall impact of the negative factors on our
businesses.

Our chain supermarket management experience accumulated over the years and the
excellent brand reputation established throughout the years have attracted new
franchisees. The franchised outlets are mainly located in rural counties and
second and third tier cities. With urbanization taking place in recent years,
these regions have witnessed a rapid increase in consumption power and market
capacity. Capitalizing on the edges of our franchisees, the Group has
established a development model outside city centres. The Group endeavors to
achieve a win-win situation with our franchisees in our joint development and
treat them as targets that we serve. In the "Franchisee Briefing Session" held
on every Wednesday, the professional personnel of the Group prepared promotional
materials such as videos and pictures for individuals and enterprises which are
interested in joining the Group. We also answered their questions and addressed
their concerns. Through the professional information system "Home for
Franchisees", the merchandise information can also be disclosed and the orders
and reconciliations can be made on the internet. In 2008, the Quik Convenience
Store opened its 1,000th franchised outlet. As at the end of the year, the
number of new franchised outlets of the supermarket and convenience store
reached 178 and 218 respectively.

Improving operation brought good results which underpinned a solid foundation
for long-term development

It is well said that "any high building must be supported by a solid base". In
the fierce market competition, the Group understands that our healthy and
long-term development relies on continuous improvement of operational capability
as well as innovation. Hence, the Group always stresses the improvement in our
basic capacity and all significant parts of operation. Ongoing pursuit of latest
technologies and business models is the key to strengthening the competitiveness
of our local retail entities. Since 2007, the Group has been applying the
"Strong Outlet strategy" by emphasizing the incessant upgrade of all fundamental
functions, such as supply chain system, information system, workflow
restructuring and market management.

With the focus on demands of outlets, or actually the needs of consumers, a
"Strong Outlet" concept is formed by upgrading the automatic stock replenishment
technology with lower insufficiency rate. By using a B2B platform, we
implemented an improvement plan for major suppliers which gained increase in the
rate of satisfaction of timely delivery. Besides, the planning for new
distribution centers was made, based on imported advanced technologies as well
as practical experience, in order to achieve a high volume distribution with
efficiency in Yangtze River Delta. In respect of merchandise management and
outlet operation, we adopted and implemented a category management concept for a
better operation in merchandise business.

As impacted by the macroeconomic environment and the relevant regulations, our
operating costs rose inevitably. As such, the Group continued to seek cost
control through increasing the utilization rate of the resources. As to the
labor cost, our staff`s working efficiency was enhanced by providing training to
improve their operational skills. Meanwhile, by improving the work schedule, we
endeavored to implement flexible work time in the outlets, with an aim to
reducing the overtime work and controlling the increase in labor costs to a
reasonable extent. The Group made every effort to reduce the utility charges by
improving the electrical equipment and employing energy-saving equipment.
Although there was an upward pressure on the labor costs as a result of relevant
policies in 2008, the proportion of both utility charges and depreciation and
amortization charges to turnover decreased. The Group`s overall cost ratio
increased slightly by 0.55 percentage point due to the sustainable and effective
cost control measures.

Be aware of the changes in customers` needs to improve their shopping
experiences

Supermarket chain is a traditional yet modern business. The Group needs to keep
up with the changes in its customers` needs in order to better organize its
merchandise to satisfy their daily needs. The Group also needs to extend the
scope of its services to enhance our customers` shopping experiences.

In 2008, with the strength of nationwide presence, the staff of the Group sought
out local specialties in different places and subsequently introduced them to
customers. Two `Special Chinese Food Festivals were held respectively. Over 500
types of local specialties were served in the festivals, which enabled our
customers to "taste different foods in one go". On one hand, Shanghai customers
tried Lipu Taros from Guangxi and hotpots originated in Sichuan. On the other
hand, the northerners tried "Niu Pi Tang", a renowned candy from Yangzhou and
pastries from Fu Zi Miao in Nanjing. While providing a wide range of fresh
choices for our customers, we noticed that the differentiating operation had
brought an increase in our profit as well as positive feedbacks from our
customers. Under the circumstances of the economic slowdown and deteriorating
consumer sentiment, the Group pays more and closer attention to the change of
the consumption trend: in 2008, the Group selectively bought out the merchandise
in the market, and then selling them in good quality to our customers for low
price. The Group procured fruits and vegetables from the places of origin to
maintain the quality and price of such daily necessities.

The year of 2008 was the fifth year of the transformation of our supermarket
business. Having gone through different explorations, the Group achieved a
better defined positioning in the supermarket sector. In Shanghai, Zhejiang and
Guangxi, the Group transformed 215 supermarkets in a more precise way according
to commercial zones and communities where they belonged. Such supermarkets
included the high-ended "super living house" and those which has concepts of
"fresh", "convenient" or emphasis on food and are adjacent to communities to
better serve the needs of the target customers. Moreover, with our belief
"Lianhua is right there for you" in mind, the Group kept upgrading the quality
of our service as well as got closer with our customers: the concept behind our
outlets is about getting integrated in communities and enhancing communication
with the residential committees. The Group also extended our care to the elderly
by providing them with home delivery service. Our high-ended outlets also had
English-speaking staff to serve foreign customers.

The year of 2008 was the fifth year of the transformation of our supermarket
business. Having gone through different explorations, the Group achieved a
better defined positioning in the supermarket sector. In Shanghai, Zhejiang and
Guangxi, the Group transformed 215 supermarkets in a more precise way according
to commercial zones and communities where they belonged. Such supermarkets
included the high-ended "super living house" and those which has concepts of
"fresh", "convenient" or emphasis on food and are adjacent to communities to
better serve the needs of the target customers. Moreover, with our belief
"Lianhua is right there for you" in mind, the Group kept upgrading the quality
of our service as well as got closer with our customers: the concept behind our
outlets is about getting integrated in communities and enhancing communication
with the residential committees.

Enhance the internal control and risk management to ensure the effective
implementation of the corporate strategy

The internal control and risk management is the guarantee of the implementation
of our strategy. Today, under the unforeseen economic circumstances with risks
emerging suddenly, improvement in the internal control and risk management is
critical for an enterprise to survive the crisis. The Group has been dedicated
to building an internal management system by instilling in the staff the
awareness of internal control at all levels. We stress the assessment and
improvement of regulations and processes and carried out risk analysis for
projects to ensure effective risk control.

As regards the control of investment risk, the Group established a complete
network development procedure and enforced the review on the network by
investment management committee. The Group also issued outlet positioning
reports and risk evaluation reports so as to provide the strongest guarantee on
network quality and minimize investment risk. Due to the cross-region and
multi-business nature of the Group, the Group centralized its capital
management. Under the premise of emphasizing the safety and liquidity of cash,
the Group rigorously controlled investment risk and focus on hedging and
appreciation in cash management.

Responsibilities create value. We actively fulfilled our social responsibilities

In face of a series of contingent events in 2008, the Group tried its best to
fulfill its social responsibilities. The staff of the Group actively gave
donations on their own initiatives to the disaster area in "512" Wenchuan
Earthquake in Sichuan. The hypermarket in Deyang, Sichuan was the first
commercial retail network to resume operation in the area. It was also actively
involved in the earthquake relief work and distributed food and daily
necessities to the residents affected by the earthquake. After the State
promulgation of the "order of charging fees for plastic bags to discourage their
use", our outlets actively organized a series of activities promoting
environmental protection concepts to consumers, such as the activity of
"accepting the redemption of a recycled bag with 50 bonus points and the award
of additional bonus points to members who bring their own shopping bags" In this
way, we set an example by taking part in environmental protection. In the milk
powder incident, the Group also shouldered the social responsibility of
receiving returned goods from consumers. As an end supplier providing consumers
with food and daily necessities, the Group is aware of our huge responsibility
in quality supervision, and we endeavor to guarantee the quality and safety of
our merchandise through stringent management. We have put in place stringent
operation procedures for staff to follow in their procurement operations to the
on-site management of hypermarkets. The Group believes that responsibilities
create value, and responsible enterprise behavior is crucial to the realization
of strategic objectives, including enhancing innovation capability, staff
quality and enterprise reputation.

Employees are the Most Precious Asset of the Enterprise

Retail industry is a labor intensive industry. From our retail outlets, logistic
distribution center to our negotiation with suppliers, our close to 50 thousand
employees are the ones providing services and merchandise for our customers on
behalf of Lianhua. While creating a harmony inside the enterprise and taking
care of employees, the Group believes that in our Company, the individuals are
able to strengthen their abilities along with our growth. While we achieve a
better result, our employees can also develop their careers, which are the
greatest rewards with their diligence at work. In 2008, the Group held
"Abilities Contest" for several times in order to cultivate an atmosphere for
enhancing individuals` abilities, taking take of each other and taking
initiatives in various business segments and departments. Furthermore, the
Group`s professional training team set up a training scheme, by which the
employees could receive trainings and gain knowledge in different aspects
including professional skills, psychology, work discipline, body health etc.

Strategy and Plan

It is possible that the economy in 2009 is going to be worse. The recovery of
customers` confidence relies on the stability of economic development and the
maturity of the social insurance scheme. Despite the external pressure of
uncertainty, the Group will remain confident and adopt positive attitude to face
any challenges and fulfill the consumers` needs. We will put more effort to
improve our profitability, optimize the internal management and enhance control
of risk in the hope of seizing any opportunities in the crisis with an aim of
maintaining the consistent growth of our results as well as improving
performance. Below are some concrete measures:

* We will develop our business prudently and capture the opportunities swiftly.
* By applying the "Strong Outlet" strategy, we will focus on improving the
operational capabilities of the outlets.
* We will strengthen our ability on the management of procurement, continuously
optimize product mix and improve the operational capabilities on fresh produces.

* We will speed up the establishment of the new logistics center and
improvements in information system, and focus on upgrading the supporting system
from supply chain.
* We will strictly implement cost and capital expenditure budgeting so as to
ensure sound cash position. To further improve energy saving capability via
better usage of equipment.
* We will put more effort to optimize the internal control to enhance risk
management.
* We will optimize human resources and help to enhance employees` capacities.

"In 2009, the negative impact of financial crunch on economy will still exist.
Against the financial crisis, the Group will continue to implement its "Strong
Outlet Strategy" and pursue development, with focus on enhancing operation
capabilities and building the supporting systems. We will also emphasize risk
control with an aim to ensure sufficient cash flow. Meanwhile, the Group will
fully utilize its existing network resources to actively seize the opportunities
brought about by the government policies of stimulating consumption and boosting
domestic demand. By doing so, we will be able to turn crisis into opportunities.
In face of an increasingly competitive environment, the Group will adhere to its
strategy of differentiating itself, and improving its merchandise structure and
services, with an aim to bring greater value to our shareholders." concluded Mr.
Wang.

About Lianhua Supermarket

Lianhua Supermarket Holdings Co., Ltd. ("Lianhua Supermarket" or the "Company")
is China`s leading supermarket chain. Established in Shanghai in 1991, it is now
a retail chain operator with a nationwide retail network. It has grown
organically as well as through franchise arrangements and acquisitions. As of
December 31, 2008, Lianhua Supermarket operated 3,872 stores in 20 provinces and
municipalities. It operates the "Century Mart" chain of hypermarkets, "Lianhua"
supermarkets and "Lianhua Quik" convenience stores. The Franchise Committee of
the PRC Retail Chain Operators Association has recognized "Lianhua Supermarket"
and "Lianhua Quik" through its awards for supermarket and convenience store
excellence. Lianhua Supermarket was listed on the Hong Kong Stock Exchange on
June 27, 2003.

Investor & Media Relations:
Lianhua Supermarket
Rachel Li
Tel: 86-21-52629922Ext: 1068
Fax: 86-21-52797976
E-mail: li_ting@chinalh.com
or
Christensen
Fung Hon /Winston Yau/Scarlett Shi
Tel: 852- 2117 0861
Fax: 852- 2117 0869
E-mail:
fhon@ChristensenIR.com
wyau@ChristensenIR.com
sshi@ChristensenIR.com

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