热点在线丨珀莱雅: 珀莱雅化妆品股份有限公司2022年年度报告（英文版）-华夏家具网

热点在线丨珀莱雅: 珀莱雅化妆品股份有限公司2022年年度报告（英文版）

来源：证券之星 2023-04-20 17:36:08

Annual Report 2022Stock Code: 603605 Stock Abbreviation: ProyaBond Code: 113634 Bond Abbreviation : Proya Convertible Bond<img style="display:block;margin:auto;" width="450" src="http://www.xcctv.cn/uploadfile/2022/0610/20220610100822639.jpg" />【资料图】 Proya Cosmetics Co., Ltd. Annual Report 2022 Annual Report 2022 Important NotesI. The Board of Directors, Board of Supervisors, directors, supervisors and senior management of the Company warrant that the content of the Annual Report is authentic, accurate and complete, free from false records, misleading statements and major omissions, and shall be jointly and severally liable therefore.II. All directors of the Company attended the meeting of the Board of Directors.III. Pan-China Certified Public Accountants (Special General Partnership) has issued a standard unqualified audit report to the Company.IV. HOU Juncheng, chairman of the Company, and WANG Li, CFO of the Company and Head of Accounting Department, represent and warrant that the financial report in the Annual Report is authentic, accurate and complete.V. The profit distribution plan or capital reserve capitalization plan for the Reporting Period approved by the Board of DirectorsBased on the total share capital as of the record date on which equity distribution is implemented, theCompany proposes to distribute to all shareholders registered a cash dividend of RMB8.7 (tax inclusive)per 10 shares, and convert the capital reserve into share capital in the proportion of 4 shares for every 10shares held, but give no bonus shares. Based on the total share capital of 283,519,469 shares on Decemberinclusive) and a total of 113,407,788 shares will be converted.In case of a change in the Company"s total share capital due to the conversion of convertible bonds beforethe record date for equity distribution, the Company maintain the said distribution and conversation ratiosand yet adjust the total distribution and conversion amounts.VI. Disclosure of risks involved in forward-looking statements√ Applicable □ Not applicableAny future plan, development strategy and other descriptions contained in the forward-looking statementsherein shall not be deemed as the Company"s substantial commitments to investors. Investors should notethat investment involves risks.VII. Whether there is any non-operating capital occupation by a controlling shareholder and other related partiesNoVIII. Whether there is any external guarantee provided in violation of specified decision-making proceduresNo Annual Report 2022IX. Whether the majority of the directors are unable to warrant the authenticity, accuracy and completeness of the Annual Report disclosed by the CompanyNoX. Major risk tipsThe Company has described the existing risks in details in this Report. Refer to "(IV) Possible risks", "VI.Discussion and Analysis of the Company"s Future Development", "Section III Management Discussionand Analysis".XI. Other□ Applicable √ Not applicable Annual Report 2022 Contents Financial statements signed and sealed by the Legal Representative, CFO of the Company,Documents and person in charge of Accounting DepartmentAvailable Original copy of the audit report stamped by the accounting firm and signed and sealed by for certified public accountants.Inspection Original copies of all documents and announcements of the Company disclosed during the Reporting Period in newspapers designated by China Securities Regulatory Commission. Annual Report 2022 Section I DefinitionsI. DefinitionsIn this report, unless the context otherwise requires, the following terms have the following meanings: Definition Proya Cosmetics, this refers to Proya Cosmetics Co., Ltd. Company, or the Company Huzhou Branch of Proya Cosmetics Co., Ltd., a branch of the Huzhou Branch refers to Company Shanghai Branch of Proya Cosmetics Co., Ltd., a branch of the Shanghai Branch refers to Company Hangzhou Proya Trade Co., Ltd., a wholly-owned subsidiary Proya Trade refers to of the Company Hanna Cosmetics Co., Ltd., a wholly-owned subsidiary of the Korea Hanna refers to Company Anya (Huzhou) Cosmetics Co., Ltd., a wholly-owned Anya (Huzhou) refers to subsidiary of Korea Hanna Yueqing Laiya Trading Co., Ltd., a wholly-owned subsidiary Yueqing Laiya refers to of the Company Huzhou UZERO Trading Co., Ltd., a wholly-owned Huzhou UZERO refers to subsidiary of the Company Mijing Siyu (Hangzhou) Cosmetics Co., Ltd., a wholly-owned Mijing Siyu (Hangzhou) refers to subsidiary of the Company Zhejiang Meiligu Electronic Commerce Co., Ltd., a wholly- Meiligu refers to owned subsidiary of the Company Huzhou Chuangdai E-commerce Co., Ltd., a wholly-owned Chuangdai Electronics refers to subsidiary of Meiligu Hangzhou Boxin Trading Co., Ltd., a wholly-owned Hangzhou Boxin refers to subsidiary of Meiligu Hapsode (Hangzhou) Cosmetics Co., Ltd., a wholly-owned Hapsode (Hangzhou) refers to subsidiary of the Company Hapsode Co., Ltd., a wholly-owned subsidiary of Hapsode Korea Hapsode refers to (Hangzhou) Huzhou Hapsode Trading Co., Ltd., a wholly-owned Huzhou Hapsode refers to subsidiary of Hapsode (Hangzhou) Danyang Hapsode Cosmetics Trading Co., Ltd., a wholly- Danyang Hapsode refers to owned subsidiary of Hapsode (Hangzhou) Hangzhou Proya Commercial Management Co., Ltd., a Proya Commercial refers to wholly-owned subsidiary of the Company Hangzhou Tiedingxian Catering Management Co., Ltd., a Tiedingxian refers to holding subsidiary of Proya Commercial Hangzhou Tielexin Aini Catering Management Co., Ltd., a Tielexin Aini refers to wholly-owned subsidiary of Proya Commercial Hangzhou Xiake Bar Catering Management Co., Ltd., a Xiake Bar refers to wholly-owned subsidiary of Proya Commercial Annual Report 2022 Hangzhou Luxiaotie Fitness Co., Ltd., a wholly-ownedLuxiaotie refers to subsidiary of Proya Commercial Hangzhou Donghai Wangchao Catering Management Co.,Donghai Wangchao refers to Ltd., a wholly-owned subsidiary of Proya Commercial Hong Kong Keshi Trading Co., Ltd., a holding subsidiary ofHong Kong Keshi refers to the Company Hongkong Xinghuo Industry Limited, a wholly-ownedHongkong Xinghuo refers to subsidiary of the Company Hong Kong Zhongwen Electronic Commerce Co., Limited, aHong Kong Zhongwen refers to wholly-owned subsidiary of Hongkong Xinghuo Hong Kong Xuchen Trading Limited, a wholly-ownedHong Kong Xuchen refers to subsidiary of Hongkong Xinghuo Proya Europe SARL, a wholly-owned subsidiary of HongkongProya Luxembourg refers to Xinghuo Shanghai Zhongwen Electronic Commerce Co., Ltd., aShanghai Zhongwen refers to wholly-owned subsidiary of the Company Huzhou Niuke Technology Co., Ltd., a holding subsidiary ofHuzhou Niuke refers to the Company Hangzhou Wanyan Culture Media Co., Ltd., a wholly-ownedHangzhou Wanyan refers to subsidiary of Huzhou Niuke Hong Kong Wanyan Electronic Commerce Co., Limited, aHong Kong Wanyan refers to wholly-owned subsidiary of Huzhou Niuke Huzhou Younimi Cosmetics Co., Ltd., a wholly-ownedHuzhou Younimi refers to subsidiary of the Company Korea Younimi Cosmetics Co., Ltd., a holding subsidiary ofKorea Younimi refers to the Company Ningbo TIMAGE Cosmetics Co., Ltd., a holding subsidiary ofNingbo TIMAGE refers to the Company Hangzhou TIMAGE Cosmetics Co., Ltd., a wholly-ownedHangzhou TIMAGE refers to subsidiary of Ningbo TIMAGE Ningbo Keshi Trading Limited, a holding subsidiary of theNingbo Keshi refers to Company Zhejiang Beute Cosmetics Co., Ltd., a wholly-ownedZhejiang Beute refers to subsidiary of the Company Ningbo Proya Enterprise Consulting Management Co., Ltd., aNingbo Proya refers to wholly-owned subsidiary of the Company Zhejiang Qingya Culture Art Communication Co., Ltd., aZhejiang Qingya refers to holding subsidiary of the Company Boya (Hong Kong) Investment Management Co., Limited, aBoya (Hong Kong) refers to wholly-owned subsidiary of the CompanyJapan OR refers to O&R Co., Ltd., a holding subsidiary of Boya (Hong Kong) Ningbo Tangyu Trading Co., Ltd., a wholly-owned subsidiaryNingbo Tangyu refers to of Japan OR Hangzhou Weiluoke Cosmetics Co., Ltd., a wholly-ownedHangzhou Weiluoke refers to subsidiary of the Company Annual Report 2022 Hangzhou Yizhuo Culture Media Co., Ltd., a wholly-owned Hangzhou Yizhuo refers to subsidiary of the Company Hangzhou Oumisi Trading Co., Ltd., a wholly-owned Hangzhou Oumisi refers to subsidiary of the Company Guangzhou Qianxi Network Technology Co., Ltd., a wholly- Guangzhou Qianxi refers to owned subsidiary of the Company Proya (Hainan) Cosmetics Co., Ltd., a wholly-owned Proya (Hainan) refers to subsidiary of the Company Shenggelan (Hangzhou) Cosmetics Co., Ltd., a wholly-owned Singuladerm (Hangzhou) refers to subsidiary of the Company Xuzhou Laibo Information Technology Co., Ltd., a wholly- Xuzhou Laibo refers to owned subsidiary of the Company Proya (Zhejiang) Cosmetics Co., Ltd., a wholly-owned Proya (Zhejiang) refers to subsidiary of the Company CSRC refers to China Securities Regulatory Commission SSE refers to Shanghai Stock Exchange Pan-China Certified Public Accountants (Special General Pan-China refers to Partnership) CSC refers to China Securities Co., Ltd. Company Law refers to Company Law of the People"s Republic of China Securities Law refers to Securities Law of the People"s Republic of China Articles of Association refers to Articles of Association of Proya Cosmetics Co., Ltd. RMB/RMB’0,000 refers to Renminbi Yuan/Renminbi 10,000 Yuan Reporting Period refers to January 1, 2022 to December 31, 2022 Section II Company Profile and Key Financial IndicatorsI. Company InformationChinese name of the Company Proya Cosmetics Co., Ltd.Short name of the Company in Chinese 珀莱雅English name of the Company Proya Cosmetics Co., Ltd.Abbreviation of English name of the ProyaCompanyLegal representative of the company HOU JunchengII. Contact Details Board Secretary Securities Affairs RepresentativeName WANG Li WANG XiaoyanMailing address Xihu District, Hangzhou City, Zhejiang Road, Xihu District, Hangzhou City, Province Zhejiang ProvinceTelephone 0571-87352850 0571-87352850Fax 0571-87352813 0571-87352813Email proyazq@proya.com proyazq@proya.com Annual Report 2022III. General Information No. 588, Xixi Road, Liuxia Street, Xihu District,Registered address Hangzhou City, Zhejiang Province For details, please refer to the Announcement on Amending the Articles of Association and Applying forHistorical changes in the Company"s Changing Business Registration (No.2019-008) disclosedregistered address by the Company on the designated media on February 27, Proya Building, No. 588 Xixi Road, Xihu District,Office address of the Company Hangzhou City, Zhejiang ProvincePostal code of the registered office address 310023Company website http://www.proya-group.comEmail proyazq@proya.comIV. Information Disclosure and Place for Obtaining the ReportMedia for the Company"s information Shanghai Securities News, Securities TimesdisclosureCSRC"s designated website for the http://www.sse.com.cnCompany"s Annual Report disclosureThe Company"s Annual Report may be Board of Director"s Office, Proya Building, No. 588 Xixiobtained at Road, Xihu District, Hangzhou City, Zhejiang ProvinceV. Stock Information Stock Information Stock abbreviation Stock class Stock exchange Stock abbreviation Stock code before changes Shanghai Stock A share Proya 603605 None ExchangeVI. Other Relevant Information Pan-China Certified Public Accountants (Special Name General Partnership) Auditor of the Block B, China Resources Building, No. 1366, Company Office address Qianjiang Road, Jianggan District, Hangzhou (domestic) Name of the signing YIN Zhibin, WANG Xiaokang accountant Sponsor Name China Securities Co., Ltd. performing Room 2203, North Tower, Shanghai Securities Office address continuous Building, No. 528, Pudong South Road, Shanghai supervisory Names of the sponsor"s GE Liang, WANG Zhan duty during the signing representatives Reporting Period of continuous January 4, 2022 - December 31, 2023 Annual Report 2022 Period supervisionVII. Major Accounting Data and Financial Indicators for the Past Three Years(I) Major Accounting Data Unit: Yuan Currency: RMB Major accounting Year-on-year data change (%) Operating revenue 6,385,451,424.00 4,633,150,538.43 37.82 3,752,386,849.02 Net profit attributable to shareholders of the listed company Net profit attributable to shareholders of the listed company net of non-recurring profit or loss Net cash flow from operating activities As of the end of As of the end of Year-on-year As of the end of Net assets attributable to shareholders of the listed company Total assets 5,778,071,824.19 4,633,049,783.03 24.71 3,636,882,185.29(II) Key Financial Indicators Year-on-year Key financial indicators 2022 2021 2020 change (%) Basic earnings per share (RMB/share) Diluted earnings per share (RMB/share) Basic earnings per share net of non-recurring profit and loss 2.80 2.83 -1.06 2.34 (RMB/share) Weighted average ROE (%) Up by 3.70 percentage points Weighted average ROE net of Up by 3.09 non-recurring profit and loss (%) percentage pointsExplanation on the Company"s major accounting data and financial indicators for the recent three years as Annual Report 2022 of the end of the Reporting Period □ Applicable √ Not applicable VIII. Differences in Accounting Data under Chinese and International Accounting Standards (I) Difference in net profit and net assets attributable to shareholders of the listed company in the financial report disclosed in accordance with International accounting standards and Chinese accounting standards □ Applicable √ Not applicable (II) Differences in net profit and net assets attributable to shareholders of the listed company in the financial report disclosed in accordance with International accounting standards and Chinese accounting standards □ Applicable √ Not applicable (III) Description of differences between international and Chinese accounting standards: □ Applicable √ Not applicable IX. Major Financial Data for 2022 by Quarter Unit: Yuan Currency: RMB Q1 Q2 Q3 Q4 (January - March) (April - June) (July - September) (October - December)Operating revenue 1,254,357,336.99 1,371,585,907.30 1,336,130,787.67 2,423,377,392.04Net profitattributable toshareholders of thelisted companyNet profitattributable toshareholders of thelisted company netof non-recurringprofit and lossNet cash flow fromoperating activities Description of differences between quarterly data and disclosed regular report data □ Applicable √ Not applicable X. Non-recurring Profit and Loss Items and Amounts √ Applicable □ Not applicable Unit: Yuan Currency: RMB Amount for Note (if Amount for Amount for Non-recurring profit and loss item Gain or loss on disposal of non-current assets Unauthorized approval, no formal Annual Report 2022 Amount for Note (if Amount for Amount for Non-recurring profit and loss itemapproval, or occasional tax refund orreductionGovernment grants recognized in profit orloss for the current period (excludinggovernment grants that are closely relatedto the Company"s business operations andgained at a fixed amount or quantityaccording to national standards)Capital occupation fees charged to the non-financial enterprises and included in profitor loss for the current periodGains when the investment cost ofacquiring a subsidiary, an associate and ajoint venture is less than the fair value of theidentifiable net assets of the invested entityGains or losses from exchange of non-monetary assetsGains or losses from entrusting others withinvestment or asset managementAsset impairment provision accrued forforce majeure such as natural disastersGains or losses from debt restructuringEnterprise restructuring fees, such asstaffing expenses and integration feesProfit and loss of the part exceeding fairvalue generated from transaction withunreasonable transaction priceCurrent net gains or losses of subsidiariesestablished by business combinationinvolving enterprises under commoncontrol from the beginning of the period tothe combination dateGains or losses on contingencies that haveno relation with the normal operation of theCompanyGains or losses from change in fair value byheld-for-trading financial assets, derivativefinancial assets, held-for-trading financialliabilities and derivative financialliabilities, and investment income fromdisposal of held-for-trading financialassets, derivative financial assets, held-for-trading financial liabilities, derivative Annual Report 2022 Amount for Note (if Amount for Amount for Non-recurring profit and loss itemfinancial liabilities and other debtinvestments, excluding the effectivehedging businesses related with normaloperations of the CompanyReversal of provision for impairment ofreceivables and contract assets individually 2,782,350.76tested for impairmentGains or losses from outward entrustedloaningGains or losses from changes in the fairvalues of Investment real estate that aresubsequently measured using the fair valuemodelImpact of a one-time adjustment on currentprofit and loss according to therequirements of tax and accounting lawsand regulationsCustody fees of entrusted operationOther non-operating revenue and expenses -2,926,959.81 -3,078,442.83 -6,810,805.57besides the above itemsOther items that conform to the definitionof non-recurring profit or lossLess: Effect of income tax 3,689,885.55 1,917,310.27 1,042,102.64Effect of minority equity (after tax) 5,802,406.15 2,314,480.49 688,969.45 Total 28,886,986.92 8,026,545.18 6,073,394.19 The reasons should be explained for the non-recurring profit and loss items defined by the Company according to the definition of the Explanatory Announcement No.1 on Information Disclosure for Companies Offering Their Securities to the Public: Non-recurring Profit and Loss, and the definition of the non-recurring profit and loss items listed in the Explanatory Announcement No.1 on Information Disclosure for Companies Offering Their Securities to the Public: Non-recurring Profit and Loss as recurring profit and loss items. □ Applicable √ Not applicable XI. Items Measured at Fair Value √ Applicable □ Not applicable Unit: Yuan Currency: RMB Amount of impact Item Opening balance Ending balance Current change on the current profit Receivable 0.00 financing Other equity 56,402,400.00 146,402,400.00 90,000,000.00 0.00 Annual Report 2022 instrument investments Total 59,644,400.00 146,402,400.00 86,758,000.00 0.00 XII. Other □ Applicable √ Not applicable Section III Management Discussion and Analysis I. Business Discussion and Analysis RMB6.385 billion operating revenue, up by 37.82% YOY including RMB6.362 billion prime operating revenue, up by 37.69% YOY RMB23 million non-operating revenue Prime operating revenue: (1) By channel Change in Change in Change in Amount 2020 over Proportion Proportion Proportion Channel (RMB100 the previous of 2022 of 2021 of 2020 previous year previous year million) year (%) (%) (%) YOY (%) YOY (%) YOY (%) Direct sales 44.78 59.79 76.16 79.63 70.40 60.66 42.45 Online Distribution 13.10 16.79 8.56 34.36 20.58 24.27 27.56 Subtotal 57.88 47.50 49.54 58.59 90.98 84.93 70.01 Household chemicals Offline Others 1.31 -32.32 -30.50 -32.81 2.06 4.19 7.43 Subtotal 5.74 -17.62 -38.03 -23.12 9.02 15.07 29.99 Total 63.62 37.69 23.28 20.26 100.00 100.00 100.00 Note: The percentage of sales from each channel is the proportion of its sales in the prime operating revenue. (2) By brand Change in Change in Change in Amount 2020 over Proportion Proportion Proportion Brand (RMB100 the previous of 2022 of 2021 of 2020 previous year previous year million) year (%) (%) (%) YOY (%) YOY (%) YOY (%) Proya 52.64 37.46 28.25 12.43 82.74 82.87 79.66Self- TIMAGE 5.72 132.04 103.48 - 8.99 5.33 -owned OR 1.26 509.93 - - 1.98 - -brands Hapsode 1.87 188.27 - - 2.94 - - Annual Report 2022 Other brands Subtotal 63.12 40.74 26.63 19.11 99.22 97.05 94.48 Cross-Agency borderbrands agency brandsTotal 63.62 37.69 23.28 20.26 100.00 100.00 100.00 Note: The proportion of sales of each brand is the proportion of its sales in the prime operating revenue;The data of OR and Hapsode is incorporated into that of other brands in 2021 and therebefore, but is separately listed in 2022 and thereafter. (3) By category Change in Change in Change in 2020 Amount Proportion Proportion Proportion Category (RMB100 of 2022 of 2021 of 2020 previous year previous year previous year million) (%) (%) (%) YOY (%) YOY (%) YOY (%) Skincare (including 54.84 38.56 22.70 11.38 86.20 86.10 86.50 cleansing) Make-up cosmetics Body & hair 1.26 509.93 - - 1.98 - - Others 0.00 -100.00 -41.05 0.47 0.00 0.52 1.09 Total 63.62 37.69 23.28 20.26 100.00 100.00 100.00 Note: The " Body & hair " category is included in the "Skincare (including cleansing)" category before RMB817 million net profit attributable to shareholders of the listed company, up by 41.88% YOY RMB789 million net profit attributable to shareholders of the listed company net of non-recurring profit and loss, up by 38.80% YOY Indicator 2022 2021 2020 Notes Mainly due to the increased gross profit margin. Mainly due to: online direct sales; 2. Hero product strategy; Mainly due to: as Hapsode) and increased Annual Report 2022 spending in image promotion.Of which: image promotion feerate Mainly due to: increased by 67.15% YOY (an absolute increase of RMB51.43 million); R&D expense ratio was with 3.55% for the same period last year). Mainly due to:rate (time/year) 2. Decreased average balance of accounts receivable.days (days)(time/year)II. The Company"s Industry Situation during the Reporting PeriodAccording to the Guidelines for the Industry Classification of Listed Companies by the CSRC, theCompany falls under chemical raw material and chemical product manufacturing (classification code:C26); according to the Industrial Classification for National Economic Activities (GB/T 4754-2017), theCompany falls under the manufacturing of daily chemical products (C268) and further under themanufacturing of cosmetics (C2682).According to statistics from the National Bureau of Statistics, in 2022, the total retail sales of consumergoods reached RMB43,973.3 billion, down by 0.2% YOY; the total retail sales of cosmetics reachedRMB393.6 billion, down by 4.5% YOY (covering consumer goods above designated units).III. The Company"s Business Operations during the Reporting Period(I) Main businessThe Company seeks to build a new domestic cosmetics industry platform, and is primarily engaged inR&D, production and sales of cosmetic products. Main brands owned by the Company include Proya,TIMAGE, Off&Relax, Hapsode, CORRECTORS, INSBAHA, UZERO and Anya. The Company"s ownbrands have covered fields such as popular skincare, make-up, body & hair, and high-efficiency skincare: Annual Report 2022(1) Proya, focusing on technology skincare, designed for young white-collar female customers, priced atRMB200 to RMB500, sold both online and offline.(2) Hapsode, customized for young skin, especially for college students and other young female customers,priced at RMB50 to RMB150, sold mainly online.TIMAGE, a professional make-up brand with a new Chinese style, priced at RMB150 to RMB300, soldonline.Off&Relax, developed and made in Japan, focusing on scalp care, priced at RMB150 to RMB200, soldmainly online.CORRECTORS, a high-efficiency skincare brand, priced at RMB260 to RMB600, sold online.(II) Business modelsMainly online sales, supplemented by offline sales.Online sales are mainly operated through direct sales and distribution. Direct sales are mainly carried outon platforms such as Tmall, TikTok, JD, Kwai, and Pinduoduo. Distribution platforms include Taobao,JD, and Vipshop.Offline sales are mainly operated through dealers. Channels include cosmetics franchise stores,supermarkets, and single-item stores.Self-production is the main production model of the Company, supplemented by OEM production. Theskincare products of the Company are self-produced while make-up products are both self-produced andOEM-produced. The Company has self-built skincare and make-up factories.Independent R&D is the main R&D model of the Company, supplemented by industry-university-researchcooperation. The Company has maintained R&D cooperation with front-end research institutions andhigh-quality raw material suppliers including the Institute of Microbiology, Chinese Academy of Sciences,Zhejiang University of Technology, BASF China, Ashland China, Royal DSM Shanghai, LIPOTRUES.L., and Shenzhen Siyomicro Bio-tech.IV. Analysis of Core Competitiveness during the Reporting Period√ Applicable □ Not applicableThe Company"s core competitiveness is mainly embodied by:The Company adheres to the guidance of the 6*N strategy and puts it into practice amid the rapidlychanging market; consolidates and deepens the refined operation management system highlighting "R&D,products, contents, operation"; constructs a self-driven organization featuring "culture-strategy-mechanism-talents".With a keen insight into consumers" needs, the Company keeps sharpening the strengths of hero products,as well as building and improving the matrix of core hero products based on R&D and relying on quickresponse and organizational capabilities.The Company has built a self-driven and agile organization to serve brands in the second echelon thathave taken shape as well as brands under incubation. By building our own MCN team and content Annual Report 2022marketing team, the Company strengthens the internally circular ecosystem and connects Proya brandswith the external ecosystem.V. Main Operations during the Reporting PeriodProya:During the Reporting Period, Proya continued to deepen the "Hero Product Strategy"; primarily expandedand upgraded the categories and efficacy of Elastic Brightening Youth Essence, Ruby Essence, andAdvanced Original product families; launched Advanced Original Face Cream, Advanced Original FaceMask, and other new products; upgraded the Elastic Brightening Youth Activating Eye Cream, the DeepOcean Energy Wrinkless and Firming Moisture Cream, and the Advanced Original Essence to version 2.0,which further solidified the mindset of the three product families; continued to explore high-end productcategories by launching the Inaugurating Nourishing Face Oil. These products give consumers moreoptions and better product experiences.In 2022, Proya ranked 1st in the essence category, 4th in the mask category, 4th in the eye cream category,and 9th in the face cream category on Tmall.TIMAGE:During the Reporting Period, TIMAGE further completed the deployment of facial make-up product lines,and strengthened the impression of a "professional make-up artist" for consumers. Based on the facialmake-up category, TIMAGE created two segments of "Contour Line" and "Base Make-up". In additionto contour, highlighter, and primer, TIMAGE created another six categories including liquid foundation,concealer, and setting spray. The large base make-up category was supplemented while maintainingadvantages in contour lines, so that the base make-up category could establish a wider presence.In 2022, the "tri-colored contour palette" and "dual-colored highlighter palette" of TIMAGE maintainedtheir advantages in the highlighter category, led the growth for the brand aggressively, improved productpenetration, and brought a large number of new customers to the brand. The tri-colored contour paletteranked 1st in the highlighter category on Tmall. The dual-colored highlighter palette ranked 2nd in thehighlighter category on Tmall. The face primer ranked 1st in the sun block/primer category on Tmall. Thenewly-launched tri-colored concealer palette ranked 1st in the concealer category on Tmall. The newly-launched setting spray ranked top 10 in the setting spray category on Tmall.Off&Relax (OR):During the Reporting Period, the Company continued to optimize the product structure and facilitated theconstruction of a scalp health care system for the brand.Making scalp health a focus for the brand penetrating the market, OR solves users" pain points by rapidlybuilding two flagship products "Off&Relax Hot Spring Water SPA Shampoo" and "Off&Relax Hot SpringWater Hair Mask". Based on the existing market environment and the characteristics of Japanese brands,OR sorts out product selling points, provides various scalp and hair care products for high-net-valueconsumers, who care user experience of cleansing and care products, to satisfy the demands of differentconsumers.Hapsode:During the Reporting Period, Hapsode focused on building two cleansing products: Amino Acid Crystaland Multiple Acids Purely Cleansing Mud Musk. Cleansing products allow the Company to rapidly reach Annual Report 2022young consumers with oily skin. Also, Hapsode completes the brand and category portfolio by launchinghighly-effective skin cleansing products such as the "Ultra Soothing Facial Mask " and the "Oil ControlBalanced Serum", builds up a pyramid-typed product system for oily skin, and gradually improvesconsumers" recognition of Hapsode as "an expert for the care of oily skin".Proya:During the Reporting Period, the Proya brand continuously built its brand around the "spirit of discovery",focused on socially important issues such as gender equality, mental health and intimate relationships, andcreated and communicated brand content on issues related to young people"s growth and the targetaudience for long-lasting effects. The Company carried out brand marketing events as follows:(1) "Next Stop, Decisive Turn" in January: Proya delivered the hope for the new year with poems andgave the audience a beautiful wish for good luck by organizing a subway poetry exhibition.(2) "Gender is Not the Borderline, Prejudice is" on Women"s Day in March: Aiming at gender equalityonce again, Proya invited the female soccer WANG Shuang and the Nanxing Hexingtang Lion DanceTeam to shoot a documentary. Efforts were made to unite with seven brands to continuously strive for "agender equal world" with concrete actions.(3) "Visible Only to Moms" on Mother"s Day in May: Proya told the stories of "mothers", who are one ofthe target consumer groups of the brand, to all family members, and invited experts of different fields toparticipate in topic discussions. Differentiated from the "Thank You Mother" topic in the same period, theevent drummed up more discussions about the "division of household labor and responsibilities".(4) "Dare to love, dare not to love" on the Chinese Valentine"s Day in August: Proya worked withFUJIFILM and photographers to discuss with consumers the form of self presentation in love in the wayof pictures and texts. Meanwhile, the Company proposed the brand technology mindset of "A ScientificChoice for Skin" while working with the original content platform Zhihu to seek the answer to the question"what is the best scientific choice for skin", and better help consumers understand the knowledge ofscientific skin care so they can choose products more wisely.(5) "The Smallest Thing Is Important" in September: Proya advocated for school bullying victims, heldthe attention to the signs of campus bullying that seem "insignificant", and called on the public to realizethe "multi-faced look" of campus bullying, so as to light up the road ahead for those growing amidst bullies.(6) World Mental Health Day in October: Proya continued on the "Echo Project" brand marketingcampaign, paid sustaining attention to the mental health of young people, and output the brand attitude ofProya. Joining hands with Beijing New Sunshine Charity Foundation, Douban, Owspace, FangsuoCommune, The Mind, Xiaoyuzhou Podcast APP, and xinli001.com, Proya presented everyone themultiple possibilities of "emotional outlets".(7) Pop-up series at 9 stores in 8 cities across China in November: By understanding the youngsters"“Coffee & Alcohol Pop Up” mindset, Proya effectively integrated its hero products into a popular lifestyleof young people, delivering a young brand image by catering to a lifestyle that better suits youngconsumers.TIMAGE:During the Reporting Period, TIMAGE comprehensively deepened the brand recognition of "Chinesemake-up, original beauty" and had a dialog with Chinese female consumers with its uniqueprofessionalism and aesthetics. By means of cross-border marketing, brand responsibility and care, andbrand values delivery, TIMAGE carried out the following marketing events: Annual Report 2022(1) "Unfiltered You" on Women"s Day in March: Photographers were invited to output the opinions of"original beauty", speak out for the brand, and interpret the concept of original beauty as female artists.Starting from the insight into "filters", the event presents the brand concept and aesthetic tonality oforiginal beauty.(2) "Witness the Original Beauty" in April: TIMAGE worked with Hippocampus, a professionalphotography organization, to provide ID photo make-up of "original beauty". Hippocampus set up specialmake-up tables at its 180 stores. Large-screen advertisements were launched in 5 major cities and onlinetopics were promoted to most searched hashtags to encourage consumers to share their changes in themake-up before taking an ID photo over the years.(3) "Life is Beautiful" in June: TIMAGE collaborated with the One Way Street Library to start topics.Many art workers, music critics, directors, writers, and screenwriters sent articles and photos of theirexperiences to share and output positive content. TIMAGE also produced peripheral sachets and gavethem to consumers for free.(4) "Origin at the Beginning of Autumn" in August: TIMAGE produced a video with three female contentKOLs to present the life attitude that "It is Never too Late to Do" and encourage everyone to find morepossibilities in life.(5) "You Are Beautiful in Every Single Way" in October: TIMAGE released the first high-quality brandpromotion film to set the latest visual identity of the brand, complete the full-chain communication loopfrom "original beauty" to "Chinese make-up", and showcase the brand tonality of TIMAGE as well as itsattitude toward women"s intrinsic growth.(6) "See Your Beauty" in December: By producing thank-you letters and peripheral gifts, TIMAGEinteracted with fans to express its gratitude for the support of fans.Proya:Online:(1) Tmall flagship storeDuring the Reporting Period, the Company continued to consolidate the hero product matrix strategy andcreated super-hero products throughout the Internet. Combining factors of consumers, goods, and venues,the Company deeply maintains the members and regular customers of stores, improves their possibilitiesof repurchase and per customer transaction, increases the penetration into populations and high-value usersin tier 1 and tier 2 cities; heightens the ranking in core categories and draws the attention of consumers;values the operation of self live-streaming and improves the proportion of self live-streaming. Duringthe "6.18" and "11.11" shopping festivals in 2022, the gross merchandise volume (GMV) of ProyaFlagship Store ranked 5th on Tmall Beauty and 1st among all Chinese products. In 2022, the GMV ofProya Flagship Store ranked 4th on Tmall Beauty and 1st among all Chinese products.(2) TikTokDuring the Reporting Period, the Company strengthened self live-streaming and multi-matrix accountoperation: increased the consumer maintenance efficiency while stepping up the maintenance of membersand fans; optimized the product structure, and dramatically increased the proportion of hero products andthe per customer transaction of stores. During the "6.18" and "11.11" shopping festivals in 2022, Proyaranked 1st both on TikTok Beauty and among all Chinese products. In 2022, Proya ranked 3rd on TikTokBeauty and 1st among all Chinese products.(3) JD Annual Report 2022During the Reporting Period, the Company deeply implemented the hero product strategy and furtherimproved the sales proportion of hero products through efficient operation; improved the experience ofmembers, attracted new high-value customers, and increased the repurchase ratio to have a better insightinto the population and lock target consumers; optimized the quality of advertisement content, expandedadvertisement channels, and operated various channels in a more refined manner. During the "6.18" and"11.11" shopping festivals in 2022, Proya ranked 1st both on JD Beauty and among all Chinese products.In 2022, Proya ranked 10th on JD Beauty, and ranked 1st among all Chinese products.Offline:(1) Household chemicals: Corresponding rating systems are matched for strongly influential areas andweekly influential areas of the brand to manage outlets in an targeted and differentiated manner. Thebusiness logic is now driven by "dynamic sales" instead of "channel policies", so as to optimize badinventory in channels, ensure maximum benefits for retailers, and keep close eyes on the fund, inventory,and benefits of retailers.(2) Supermarkets: The brand power enables the department store channel to improve existing counters,upgrade the image, and enhance the efficiency. The "Coffee & Alcohol Pop Up" initiative is held throughbrand marketing campaigns at 9 stores in 8 cities including Hangzhou, Shenzhen, Ningbo, Suzhou,Wenzhou, and Xi"an, so as to reach young target customers, strengthen the communication with the youngpopulation, and promote the strategic cooperation between the brand and key systems. Also, thecooperation with supermarkets is shrunk strategically.(1) Organization: The Company continuously improves the organizational structure, opens up the brandplanning mode that connects both the upper level and the lower level, builds a management modeintegrating a product and delivery capability-focused "middle platform" and an "agile front", continues todeepen the application of digital technologies, and promotes the incubation and growth of new businessesthrough the empowerment of platforms and digitalization.(2) Talents: The Company continuously promotes the talent supply chain mechanism for young andinternational talents based on business needs, steps up the introduction of talents for research, development,and information application, accurately and rapidly identifies, and efficiently utilizes talents, and graduallybuilds a dynamic, competent and self-driven talent team through the combination of training and practices.Through the dual-channel management, the Company improves the talent density, facilitates talentdevelopment, and builds a talent echelon.(3) Mechanism: The Company deepens a performance culture featuring high investment, highperformance and high returns, improves a performance management system emphasizing targets, processand results; flexible utilizes the diversified incentive system covering short-term (quarterly performanceand project incentives), middle-term (annual performance dividends) and long-term (equity incentives andpartners) incentives. Also, the Company deepens the application of the project system, builds up a three-level project management system consisting of the Company, business divisions, and departments, andputs efforts on the end-to-end value chain and internal control projects to continuously hone theorganization capability.During the Reporting Period, the Company took the R&D Innovation Center and the InternationalAcademy of Sciences as the engine for innovation; improved the R&D of all key stages from raw materialto finished products, including fundamental research, formula development, physical and chemical Annual Report 2022analysis, raw material and product efficacy evaluation, etc. The Company continues to push theconstruction of the International Academy of Sciences to conduct the research of skin texture, designactive substances, and verify their efficacy. The R&D Innovation Center continues to focus on researchingand developing new skin care and make-up products. Now the Shanghai R&D Center is under constructionand the Japan R&D Center is under preparation.(1) Patents: During the Reporting Period, the Company newly applied for 21 national invention patents,licensed invention patents and 17 design patents, totaling 32 patents obtained. As of the end of theReporting Period, the Company had 107 nationally licensed invention patents, 19 utility model patents,and 99 design patents, totaling 225 patents obtained.(2) Standard releasing: During the Reporting Period, the Company participated the drafting of two newlyreleased group standards, namely the TZHCA 017-2022 Hair Growth and Rest Period Quantity Ratio TestMethod and the T/ZHCA 019-2022 Cosmetics Anti-dandruff Efficacy Test Method. As of the end of theReporting Period, the Company had led or participated in the development of 14 national standards, 3industry standards, and 14 group standards.(3) Achievements and awards: During the Reporting Period, the Company was granted the followinghonorable titles, including the Hangzhou "Kunpeng" Enterprise, One of the Top Ten Enterprise in China"sLight Industry ad Cosmetics Industry, One of the Top 100 Enterprises in Hangzhou ManufacturingIndustry, Third Prize in National Commercial Technology Advancement Award, Top Ten Make-upBrands of Zhejiang in 2021. At the IFSCC International Cosmetic Science Conference, the Companypresented a number of its scientific achievements.(4) Strategic cooperation: During the Reporting Period, the Company deepened the strategic cooperationwith existing partners, and performed strategic cooperation with Zhejiang Peptites Biotech Co., Ltd.(1) Procurement and planning:During the Reporting Period, the Company"s supply chain system integrated the data and information fromvarious information platforms and timely calculated the demand for raw materials based on the demandat the terminal while synchronizing inventory of suppliers, procurement cycle, and logistic information.In the end, these information is accurately and agilely transmitted to all departments through the supplychain information platform to reach a balance between terminal sales and productivity and provide a back-end support for promotions on 6.18 and 11.11.The Company has organized multiple training sessions for suppliers in terms of sustainable development,actively adopts sustainable packaging, and achieves remarkable effect in reducing plastics, usingenvironmentally-friendly materials, and minimizing packaging.(2) Production:Based on market sales and needs, the Company makes productivity arrangement in advance, adheres tolean manufacturing, and keeps improving production efficiency by using automated, intelligent, anddigital technologies. During the Reporting Period, the Company expanded some workshops, addedmultiple production lines, and enhanced productivity to meet the demands during the 6.18 and 11.11shopping festivals. In addition, the Company further strengthened the full-process quality managementand risk management, regularly held communication meetings of quality experiences for consumers,received market feedback as soon as possible, and implemented project-specific management and closed-loop tracking.During the Reporting Period, the Company completed the "Massive Safety Training For A MillionEmployees" program, allowing all employees to master and grasp laws and regulations related to safe Annual Report 2022production, enhance their awareness safe production hazards, and improve the safety emergency responsecapability. The Huzhou Factory installed the independent fire control and management platform of theprovincial fire and rescue corps to systematically manage the fire control work. The Company upgradedand renovated the fire-fighting system to control the whole process of smoke exhaust.(3) Logistics:During the Reporting Period, the Company continued to improve the logistics management system andinitiated the installation of the automated three-dimensional warehouse equipment. The Company wasrated as the winner of the "China Logistics Industry Golden Ant Award 2021 and 2022" by the organizingcommittee of the LET-a CeMAT ASIA(I) Analysis of main business Unit: Yuan Currency: RMB Amount for the Amount for the Account same period last Change ratio (%) current period year Operating revenue 6,385,451,424.00 4,633,150,538.43 37.82 Operating cost 1,934,850,203.65 1,554,155,646.61 24.50 Selling expenses 2,785,837,352.95 1,991,534,076.73 39.88 General and administrative expenses Financial expenses -40,996,523.01 -7,484,395.13 447.76 Research and development expenses Net cash flow from operating activities Net cash flow from investing -298,215,550.57 -341,823,618.60 Not applicable activities Net cash flow from financing -65,251,320.73 489,615,295.96 -113.33 activitiesCause for change in operating revenue: mainly due to increased online sales.Cause for change in operating cost: mainly due to increased operating costs resulting from the increase ofoperating revenue.Cause for change in sales expenses: In 2022, sales expenses amounted to RMB2.786 billion, accountingfor 43.63% of the operating revenue (compared with 42.98% for the same period last year). Sellingexpenses increased by RMB794 million or 39.88% YOY, mainly due to an increase of RMB746 millionor 44.60% YOY in the image promotion expenses in the current period (used for the incubation of newbrands such as TIMAGE, OR, and brand re-shaping).Cause for change in general and administrative expenses: In 2022, administrative expenses amounted toRMB327 million, accounting for 5.13% of the operating revenue (compared with 5.12% for the sameperiod last year). General and administrative expenses increased by RMB90.31 million or 38.11% YOY,mainly due to increased equity incentive expense for restricted shares, employee compensation, andservice fees.Cause for change in financial expenses: The general impact of interest income and foreign exchange gainsand losses reduced financial expenses by RMB33.51 million. Annual Report 2022 Cause for change in R&D expenses: In 2022, R&D expenses amounted to RMB128.01 million, an increase of RMB51.43 million YOY, accounting for 2.00% of the operating revenue (compared with 1.65% for the same period last year). In 2022, the parent company"s R&D expense ratio was 4.31% (compared with 3.55% for the same period last year). Cause for change in net cash flow from operating activities: 1. mainly due to the YOY increase in the operating revenue and the increase in cash received from commodity sales; 2. increased payment for goods; Cause for change in net cash flow from investment activities: a YOY increase of RMB44million, mainly due to decreased cash flow from investment activities caused by the disposal of the 52% equity of Shanghai Healthlong Biochemical Technology Co., Ltd in the previous period. The event is not recognized in the current period. Causes for change in net cash flow from financing activities: a YOY decrease of RMB555 million, mainly due to that (1) the cash received from absorbing investment (equity incentive expense for restricted shares) is increased by RMB165 million; (2) the cash received from reclaiming borrowings is decreased by RMB647 million (RMB747million of fund raised in the previous period by issuing the "Proya Convertible Bond"); (3) the cash paid related to financing activities is increased by RMB43 million; (4) the cash paid to distribute dividends, profits, or repay interest is increased by RMB28 million. A detailed description of major changes in the Company"s activities, profit composition or sources of profit during the current period □ Applicable √ Not applicable √ Applicable □ Not applicable For details, see the analysis in "1. Analysis of changes in accounts in the Income Statement and the Cash Flow Statement", "(I) Analysis of main business", "V. Main Operations during the Reporting Period", "Section III Management Discussion and Analysis" of this report. (1). Main business activities by industry, product, region and sales model Unit: Yuan Currency: RMB Main business activities by industry Gross Change in Change in Change in profit operating operating gross profit Industry Operating revenue Operating cost margin revenue cost YOY margin YOY (%) YOY (%) (%) (%)Household Up by 3.32chemicals 6,361,763,550.69 1,916,352,535.29 69.88 37.69 24.03 percentageindustry points Main business activities by product Gross Change in Change in Change in profit operating operating gross profit Product Operating revenue Operating cost margin revenue cost YOY margin YOY (%) YOY (%) (%) (%)Skincare 5,483,643,868.53 1,616,998,071.19 70.51 38.56 29.68 Up by 2.02 Annual Report 2022(including percentagecleansing) points Up by 9.16Make-upcosmetics points Up by 11.73Body & hair 125,659,396.08 47,687,457.85 62.05 509.93 365.92 percentage pointsOthers 0.00 0.00 - -100.00 -100.00 Up by 3.32Total 6,361,763,550.69 1,916,352,535.29 69.88 37.69 24.03 percentage points Main business activities by region Gross Change in Change in Change in profit operating operating gross profit Region Operating revenue Operating cost margin revenue cost YOY margin YOY (%) YOY (%) (%) (%) Up by 0.03NortheastChina points Up by 6.61North China 69,783,559.44 26,385,241.51 62.19 9.94 -6.42 percentage points Up by 8.26East China 712,780,874.13 298,564,036.15 58.11 4.34 -12.84 percentage points Up by 2.51South China 44,924,050.01 18,046,419.43 59.83 -41.91 -45.33 percentage points Decreased byCentral China 149,971,246.18 61,852,910.54 58.76 -15.39 -11.34 percentage points Up by 0.22NorthwestChina points Up by 1.09SouthwestChina points Up by 46.97Hong Kongand overseas points Up by 0.90Others (e-commerce) points Annual Report 2022 Up by 3.32Total 6,361,763,550.69 1,916,352,535.29 69.88 37.69 24.03 percentage points Main business activities by sales model Gross Change in Change in Change in profit operating operating gross profit Sales model Operating revenue Operating cost margin revenue cost YOY margin YOY (%) YOY (%) (%) (%) Up by 2.63Online 5,788,034,421.87 1,684,190,321.43 70.90 47.50 35.26 percentage points Up by 2.60Offline 573,729,128.82 232,162,213.86 59.53 -17.62 -22.60 percentage points Up by 3.32Total 6,361,763,550.69 1,916,352,535.29 69.88 37.69 24.03 percentage points Description of main business activities by industry, product, region and sales model (1) Description of growth in household chemicals: The growth in prime operating revenue this year was mainly due to RMB5.788 billion online sales (accounting for 90.98% of the prime operating revenue), an increase of RMB1.864 billion or 47.50% YOY. (2) Description of growth in make-up cosmetics: mainly due to RMB572 million sales of TIMAGE that falls under the make-up cosmetics category during the Reporting Period, an increase of RMB326million or 132.04% YOY. (3) Description of growth in body and hair: mainly due to RMB126 million sales of OR that falls under the Body & hair category during the Reporting Period, an increase of RMB105 million or 509.93% YOY. (4) Description of growth in others: No income of other categories is reported this year, mainly due to that the Company no longer operated the cross-border brand agency business. (5) Description by region: The sales of other regions declined, except e-commerce, Hong Kong and overseas, East China, and North China, mainly due to a YOY fall in offline sales. (2). Analysis table of production and sales √ Applicable □ Not applicable Change in Change Change in Major Unit Production Sales Inventory production in sales inventory products YOY (%) YOY (%) YOY (%) Household Piece 314,064,556 276,025,390 90,180,032 42.44 27.66 72.95 chemicals Description of production and sales The quantities in the above table include self-produced and OEM products, excluding the quantity of products produced through cross-border brand agency. (3). Performance of major purchase contracts and major sales contracts □ Applicable √ Not applicable Annual Report 2022 (4). Cost statement analysis Unit: RMB Statement by industry Proportio Proportion n% in % in total Amount for the total cost YOY Descri Cost Amount for the Industry cost for same period for the change ption composition current period the current last year current ratio (%) period (%) period (%) Raw materials 66.20 63.18 29.97 Labor and manufacturing 107,432,847.50 5.61 81,119,950.03 5.25 32.44Household costchemicals 316,528,909.0 Outsourcing 302,956,467.34 15.81 20.49 -4.29 industry 8 Freight 237,269,640.00 12.38 11.09 38.49 Subtotal 100.00 100.00 24.03 Statement by product Proportio Proportion n in total in total Amount for the cost for YOY Descri Cost Amount for the Product cost for same period the same change ption composition current period the current last year period ratio (%) period (%) last year (%) Raw materials 75.97 73.31 34.39 Labor and manufacturing 101,753,659.87 6.29 74,591,026.00 5.98 36.42Skincare cost(including 113,127,555.8 Outsourcing 92,297,157.26 5.71 9.07 -18.41cleansing) 1 Freight 194,513,686.83 12.03 11.64 34.08 Subtotal 100.00 100.00 29.68 Raw materials 40,084,933.46 15.93 62,041,264.64 23.55 -35.39Make-up Labor andcosmetics 5,679,187.63 2.26 6,528,924.03 2.48 -13.01 manufacturing Annual Report 2022 cost Outsourcing 174,194,228.29 69.21 64.91 1.88 Freight 31,708,656.87 12.60 23,869,561.68 9.06 32.84 Subtotal 251,667,006.25 100.00 100.00 -4.46 Raw materials 175,079.76 0.37 - - - Labor and manufacturing - 0.00 - - -Body & cost hair Outsourcing 36,465,081.79 76.46 8,307,839.73 81.17 338.92 Freight 11,047,296.30 23.17 1,927,244.65 18.83 473.22 Subtotal 47,687,457.85 100.00 10,235,084.38 100.00 365.92 Raw materials - - - - - Labor and manufacturing - - - - -Others cost Outsourcing - - 24,114,635.62 98.16 -100.00 Freight - - 452,529.45 1.84 -100.00 Subtotal - - 24,567,165.07 100.00 -100.00 Other explanations None (5). Changes in consolidation due to changes in the equity of major subsidiaries during the Reporting Period √ Applicable □ Not applicable For details, see "VIII. Changes in the Consolidation Scope", "Section X Financial Report". (6). Significant changes or adjustments to the Company"s business activities, products or services during the Reporting Period □ Applicable √ Not applicable (7). Major sales customers and major suppliers A. The Company"s major customers √ Applicable □ Not applicable The sales of top five customers amounted to RMB798.31million, accounting for 12.55% of the total annual sales; the sales of related parties of such top five customers amounted to RMB0, accounting for 0.00% of the total annual sales. Circumstances where a single customer contributed to more than 50% of the total sales, top 5 customers included a new customer, or the Company relied heavily on a small number of customers during the Reporting Period □ Applicable √ Not applicable Annual Report 2022B. The Company"s major suppliers√ Applicable □ Not applicableThe purchase amount of top 5 suppliers amounted to RMB393.25million, accounting for 20.57% of thetotal annual purchase amount; the purchase amount of related parties of such top 5 suppliers amounted toRMB0, accounting for 0.00% of the total annual purchase amount.Circumstances where a single supplier accounted for more than 50% of the total procurement, top 5suppliers included a new supplier, and the Company relied heavily on a small number of suppliers duringthe Reporting Period□ Applicable √ Not applicableOther explanationsNone√ Applicable □ Not applicable Unit: RMB Change for the Expense item 2022 2021 Growth rate (%) current period Selling expenses General and administrative 327,296,749.37 236,988,519.23 90,308,230.14 38.11 expenses Research and development 128,009,104.49 76,583,650.83 51,425,453.66 67.15 expenses Financial -40,996,523.01 -7,484,395.13 -33,512,127.88 Not applicable expenses(1). Statement of R&D investment√ Applicable □ Not applicable Unit: RMB Expensed R&D investment for the 128,009,104.49 current period Capitalized R&D investment for the 0.00 current period Total R&D investment 128,009,104.49 Total R&D investment in operating 2.00 revenue (%) Capitalization of R&D investment (%) 0.00(2). Statement of R&D personnel√ Applicable □ Not applicable Annual Report 2022Number of R&D personnel 229Percentage of R&D personnel (%) 7.21 Educational background structureEducational level Number of personsPhD 4Master 69Bachelor 123Associate 31High school and below 2 Age structureAge range Number of personsUnder 30 (exclusive) 100(3). Description□ Applicable √ Not applicable(4). Cause for significant changes in the composition of R&D personnel and the impact on the future development of the Company□ Applicable √ Not applicable√ Applicable □ Not applicable Unit: RMB Amount for the Amount for the Growth rate Item same period Description current period (%) last year Mainly due to: operating revenue and the Net cash flow increase in cash received from from operating activities goods; image promotion fees. Net cash flow Mainly due to the disposal of from - Not the 52% equity of Shanghai -298,215,550.57 investing 341,823,618.60 applicable Healthlong Biochemical activities Technology Co., Ltd. in the Annual Report 2022 previous period. The event is not recognized in the current period. Mainly due to: absorbing investment (equity incentive expense for restricted shares) is increased by RMB165 million; reclaiming borrowings isNet cash flow decreased by RMB647millionfrom (RMB747million of fund -65,251,320.73 489,615,295.96 -113.33financing raised for the previous periodactivities by issuing the "Proya Convertible Bond"); financing activities is increased by RMB43 million; dividends, profits, or repay interest is increased by RMB28 million.Cash receivedfrom the saleof goods and 7,088,465,997.21 38.17the renderingof servicesOther cash Mainly due to the increasedreceived bank interest and governmentrelated to 99,500,140.40 54,614,521.56 82.19 subsidies received in theoperating current period.activitiesCash paid for Mainly due to the expandedgoodspurchased 2,241,842,834.78 38.69and services production.receivedPayments of Mainly due to the expandedvarious types 660,096,624.31 432,668,333.55 52.56 sales scale and the improvedof taxes profitability of the Company.Other cash Mainly due to the expandedpaid related to 1,864,985,801. sales scale and the increasedoperating 02 payment for image promotionactivities expenses. Annual Report 2022 Net cash received from disposal of Mainly due to the increased fixed assets, cash receipts from disposals intangible of fixed assets in the current assets and period other long- term assets Mainly due to the new equity investment of RMB90 million Cash paid for investments Holdings Co., Ltd. in the current period. Mainly due to the disposal of equity in Shanghai Healthlong Biochemical Technology Co., Other cash Ltd. and payment of other paid related to investing investment activities in the activities previous period. The event is not recognized for the current period. Mainly due to the receipt of payment for the equity Cash received incentive expense for from capital 165,676,000.00 700,000.00 23,568.00 restricted shares from contributions employees in the current period. Mainly due to the issuance of “Proya Convertible Bond” in Cash received the previous period for from 300,000,000.00 946,996,018.87 -68.32 RMB747 million. This event borrowings is not recognized in the current period. Mainly due to the payment for Other cash acquisition of minority equity paid related to financing Cosmetics Co., Ltd. in the activities current period.(II) Description on significant changes in profit caused by non-primary business activities□ Applicable √ Not applicable(III) Analysis of assets and liabilities√ Applicable □ Not applicable Annual Report 2022 Unit: RMB Amount as Amount as of the end in total in total YOY of the end of Item of the assets assets change Description the previous current （%）（%） ratio (%) period period Mainly due to increased cash Cash and cash 3,161,003, 2,391,048,24 equivalents 085.05 9.81 operating activities in the current period. Mainly due to the reduced balance of Receivable financing bills as of the end of the current period. Mainly due to the increased prepayment for Prepayments 1.58 1.26 56.63 image promotion .15 1 expenses as of the end of the current period. Mainly due to the increased stock quantity for 1Q2023 Inventories 11.58 9.67 49.36 arising from the expanded sales scope of the Company. Mainly due to the new equity Other equity investment of instrument 2.53 1.22 159.57 RMB90 million to investments Hangzhou Gaolang Holdings Co., Ltd. in the current period. Mainly due to the additional investment in the Construction 207,378,93 108,678,896. in progress 5.86 27 Production Base Construction Project (Phase I) and the Annual Report 2022 Amount as Amount as of the end in total in total YOY of the end of Item of the assets assets change Description the previous current （%）（%） ratio (%) period period Longwu R&D Center Construction Project. Mainly due to the addition of an officeRight-of-use 6,410,634. Notassets 25 applicable of lease contracts in the current period.Long-term Mainly due to theprepaid 0.33 0.64 -35.67 amortization of .46 1expenses renovation costs. Mainly due to that the trademark amount of RMB39.90 million (SINGULADERM) in the beginningOther non- 5,554,726. 44,167,303.5current assets 06 6 transferred to intangible assets since the trademark transfer registration is completed in the current period. Mainly due to the increase of theContract 174,602,83 91,151,985.3liabilities 3.91 2 and the point conversion rate. Mainly due to the increased benefits payable to employees at theEmployeecompensation 2.16 1.70 58.86payable expanded operation scale and continuous staffing adjustment in the current period.Taxes 152,918,87 2.65 99,893,176.9 2.16 53.08 Mainly due to the Annual Report 2022 Amount as Amount as of the end in total in total YOY of the end of Item of the assets assets change Description the previous current （%）（%） ratio (%) period periodpayable 1.45 7 expanded sales scale and the improved profitability of the Company. Mainly due to increased restrictedOther 216,392,18 62,162,153.5payables 3.41 5 obligations at the end of the period.Non-current Mainly due to theliabilities due 2,549,452. Not transfer of leasewithin one 14 applicable liabilities due withinyear one year. Mainly due to the addition of an officeLease 3,718,119. Notliabilities 41 applicable of lease contracts in the current period. Mainly due to the adjustment of offline channels, the intensified adjustment of the department storeEstimated 59,282,928 10,812,084.8liabilities .68 8 optimization of household chemicals outlets, and the shrinking of the supermarket channel. Mainly due to the increased deferredDeferred income taxincome tax 0.33 8,408,158.81 0.18 126.20 liabilities accrued .67liabilities for one-time depreciation of fixed assets.Share capital 4.91 4.34 41.05 Annual Report 2022 Amount as Amount as of the end in total in total YOY of the end of Item of the assets assets change Description the previous current （%）（%） ratio (%) period period implemented the plan for the capitalization of capital reserves and the 2022 restricted share incentive plan. Mainly due to that the Company implemented the incentive plan,Treasury 164,976,00stock 0.00 liabilities for repurchase obligations and included them in the treasury stock. Mainly due to the changes inOther - translation - Notcomprehensiv 1,918,603. -0.03 -0.03 difference ofe income 07 financial statements denominated in foreign currencies. Mainly due to the withdrawal of statutory surplus reserve according to the net profit of the parent company.Surplus 141,759,73 100,634,780. The statutoryreserve 4.50 00 surplus reserve does not need to be withdrawn if the cumulative amount reaches fifty percent or more of the registered capital.Retained 2,300,384, 1,696,978,06 Mainly due toprofits 763.19 4.52 increased net profit Annual Report 2022 Amount as Amount as of the end in total in total YOY of the end of Item of the assets assets change Description the previous current （%）（%） ratio (%) period period in the current period.Other explanationsNone√ Applicable □ Not applicable(1) Scale of assetsIncluding RMB216.10million of overseas assets, accounting for 3.74% of the total assets.(2) Description of a high percentage of overseas assets□ Applicable √ Not applicable√ Applicable □ Not applicable Unit: RMB Item Ending book value Cause for restrictions Cash and cash Including transformer deposit, Pinduoduo deposit, equivalents L/C deposit, Tmall deposit, and Alipay deposit, etc. Total 35,670,000.00□ Applicable √ Not applicable(IV) Analysis of industry operational information√ Applicable □ Not applicableRefer to the "Analysis of chemical operational information" below Annual Report 2022Analysis of chemical operational information(1).Industry policies and changes□ Applicable √ Not applicable(2).Major sub-industries and industrial status of the Company√ Applicable □ Not applicableSee the description in "(I) Industry pattern and trends", "VI. Discussion and Analysis of the Company"sFuture Development", "Section III Management Discussion and Analysis".Industrial status of the Company:According to comprehensive industry data analysis, the Company has gained some market share in thedomestic cosmetics market.(1). Major business models√ Applicable □ Not applicableSee the description of business models in "III. Business Activities Carried out by the Company during theReporting Period", "Section III Management Discussion and Analysis".Adjusted business models during the Reporting Period□ Applicable √ Not applicable(2). Major products√ Applicable □ Not applicable Major upstream raw Major downstream Major price Products Sub-industry materials application areas influencing factors Humectant, active Personal income,Skincare substance, grease skin type, lifestyle(including Skincare wax, emulsifier, Skincare, cleansing habits, brandcleansing) surfactant, essence, preference packaging Grease wax, Personal income,Make-up Make-up, beauty, Make-up emulsifier, toner, living habits, brandcosmetics contour essence, packaging preference Personal income, Surfactant, skin type, lifestyleBody & hair Body & hair humectant, essence, Body & hair habits, brand packaging preference(3). R&D innovation√ Applicable □ Not applicableSee "5. New R&D strategy", "V. Main Operations during the Reporting Period", "Section III ManagementDiscussion and Analysis". Annual Report 2022(4). Production technologies and process√ Applicable □ Not applicableThe Company"s products are mainly divided into skincare (including cleansing) and make-up cosmetics.Their production processes are shown as follows: Skincare raw Functional materials components Heat Heating to Homogeneous preservation Cooling Filtration and dissolve emulsification and mixing discharge Inspection of semi- finished products Warehousing Cartoning Packing Filling Storage Inspection of finished products Cleansing raw materials Heat Heating and preservation Cooling Filtration and mixing and mixing discharge Inspection of semi- finished products Warehousing Cartoning Packing Filling Storage Inspection of finished products (1) Cosmetic powder blocks: Annual Report 2022 Powder raw Functional Inspection of materials components semi-finished products Mixing Toning Crushing and Discharge Powder storage sieving Warehousing Cartoning Packing Forming Filling Aluminum plate Inspection of Visual finished inspection products (2) Lipstick cosmetics Wax-based Functional raw materials components Heating to Toning Defoaming Filtration and dissolve discharge Inspection of semi- finished products Warehousing Cartoning Packing Molding Storage Inspection of Visual finished inspection products (3) Eyelashes and eyeliners Basic raw Functional materials components Heating to Homogeneous Toning Cooling Discharge dissolve emulsification Inspection of semi- finished products Warehousing Cartoning Packing Filling Storage Inspection of finished products(5). Production capacity and operation status√ Applicable □ Not applicable Unit: RMB ’0,000 Currency: RMB Annual Report 2022 Amount of Estimated time Capacity Capacity investment in of completion Main plant or Designed utilization under capacity of capacity project capacity ratio (%) construction under under construction construction Huzhou Skincare 300million 86.67 101.18 16,801.64 December 2024 Factory pcs million pcs Huzhou 40 million pcs 25.06 Cosmetics FactoryChange in production capacity□ Applicable √ Not applicableAdjustment of product line and optimization of capacity structure□ Applicable √ Not applicableUnexpected shutdown□ Applicable √ Not applicable(1). Basic information on major raw materials√ Applicable □ Not applicable YOY price Major raw Settlement Purchase Purchase model change ratio Consumption materials method quantity (%) Mainly by Settle competitive within the About 1,560 Packaging procurement, About 1,510 payment -14.77 million materials except for some million pieces period as pieces strategic agreed suppliers Mainly by competitive procurement, while Settle establishing within the Raw About 2,052 About 1,953 long-term payment 5.31 material_humectant tons tons strategic period as cooperation agreed with advantageous suppliers Raw Mainly by price Settle About 754 About 720 material_active inquiry and within the tons tons Annual Report 2022 substance comparison, payment while period as performing agreed diversified cultivation of suppliers with a single source of supply Mainly by competitive procurement, while Settle Raw establishing within the About 850 About 810 material_grease long-term payment 24.62 tons tons wax strategic period as cooperation agreed with advantageous suppliers Mainly by competitive procurement, Settle while within the Raw cooperating About 160 About 150 payment 31.46 material_emulsifier with industry- tons tons period as leading agreed suppliers on some raw materials Mainly by competitive procurement, while Settle establishing within the Raw About 102 long-term payment 2.89 About 92 tons material_sunscreen tons strategic period as cooperation agreed with advantageous suppliersImpact of changes in the prices of major raw materials on the Company"s operating costs: Rising prices ofraw materials increase operating costs.(2). Basic information on major sources of energy√ Applicable □ Not applicable Annual Report 2022 YOY price Purchase Settlement Purchase Major energy change ratio Consumption model method quantity (%) Prepayment and monthly Fixed settlement or agreement with payment on Water 0.00 201,279 tons 201,279 tons the local water demand company according to the local requirements Prepayment and monthly Fixed settlement or agreement with payment on 11.76 million 11.76 million Electricity the local power 0.00 demand kwh kwh supply according to the company local requirements Prepayment and monthly Fixed settlement or agreement with payment on Gas the local gas 38.67 368,936 cbm 368,936 cbm demand supply according to the company local requirementsImpact of changes in the prices of major energy on the Company"s operating costs: The price of gas isincreased by 38.67%, resulting in a slight increase in operating cost since the consumption of gas onlytakes up a small part in the energy structure.(3). Countermeasures for risks of fluctuations in the prices of raw materialsMajor financial products such as derivatives□ Applicable √ Not applicable(4). Basic information on other methods adopted such as staged reserves□ Applicable √ Not applicable(1). Basic information on the Company"s primary business activities by sub-industry√ Applicable □ Not applicable Unit: RMB ’0,000 Currency: RMB Change Gross profit Sub- Operating Operating Gross Change in Change in in gross margin for industry revenue cost profit operating operating profit products in Annual Report 2022 margin revenue cost YOY margin the same (%) YOY (%) (%) YOY (%) industry and field Skincare No public (including 70.51 38.56 29.68 2.02 information cleansing) available No public Make-up cosmetics available No public Body & hair available No public Others 0.00 0.00 - -100.00 -100.00 - information available(2). Basic information on the Company"s primary business activities by sales channel√ Applicable □ Not applicable Unit: RMB ’0,000 Currency: RMB Change in operating revenue Sales channel Operating revenue YOY (%) Online 578,803.44 47.50 Offline 57,372.91 -17.62Statement of accounting policies□ Applicable √ Not applicable(1). Basic information on major work safety accidents of the Company during the Reporting Period□ Applicable √ Not applicable(2). Major environmental violations□ Applicable √ Not applicable Annual Report 2022(V) Analysis of investmentOverall analysis of external equity investments√ Applicable □ Not applicable Ending amount Beginning amount Item Impairment Impairment Carrying amount Book value Carrying amount Book value provision provision Other equity instrument investments Investment in joint ventures Investment in associates 216,906,642.52 81,442,213.22 135,464,429.30 181,555,246.18 14,670,468.59 166,884,777.59 Total 366,377,990.68 81,442,213.22 284,935,777.46 241,032,404.86 14,670,468.59 226,361,936.27For details, see the description in "17. Long-term equity investments" and "18. Other equity instrument investments ", "VII. Notes to the Items in ConsolidatedFinancial Statements", "Section X Financial Report" of this report.□ Applicable √ Not applicable□ Applicable √ Not applicable√ Applicable □ Not applicable Unit: Yuan Currency: RMB Profit and loss Impairment Beginning Accumulated Amount of Amount of Asset category from changes accrued for the Other changes Ending amount amount change in fair purchase for sale/redemption in fair value current period Annual Report 2022 for the current value included the current for the current period in equities period period Other 56,402,400.00 90,000,000.00 146,402,400.00 Total 56,402,400.00 90,000,000.00 146,402,400.00For details, refer to the particulars contained in "18. Description of other equity instrument investments" in "VII. Notes to the Items of Consolidated FinancialStatements", of "Section X Financial Report" of this reportDescription of securities investment□ Applicable √ Not applicableDescription of private equity investment□ Applicable √ Not applicableDescription of derivatives investment□ Applicable √ Not applicable Annual Report 2022□ Applicable √ Not applicable(VI) Sale of major assets and equity□ Applicable √ Not applicable(VII) Analysis of major holding companies√ Applicable □ Not applicable Unit: RMB’0,000 Major Major Nature of products Registered Total Net Holding or Net assets subsidiary business and capital assets profit shareholding servicesZhejiangMeiligu CosmeticsElectronic Cosmetics 1,000.00 62,360.91 25,376.57 8,238.00 Holding salesCommerceCo., Ltd.HangzhouProya Cosmetics - Cosmetics 5,000.00 27,637.31 5,554.91 HoldingTrade Co., sales 5,333.47Ltd.(VIII) Structured entities controlled by the Company□ Applicable √ Not applicableVI. Discussion and Analysis of the Company"s Future Development(I) Industry pattern and trends√ Applicable □ Not applicableAccording to statistics from the National Bureau of Statistics, in 2022, the total retail sales of consumergoods reached RMB43,973.3 billion, down by 0.2% YOY; the total retail sales of cosmetics reachedRMB393.6 billion, down by 4.5% YOY (covering consumer goods above designated units).(II) Development strategy of the Company√ Applicable □ Not applicableWinning Now Winning Later, "6*N" strategy, enhanced core competence, and enriched brand matrix."6" represents new consumption, new marketing, new organization, new mechanism, new technology,new intelligent manufacturing; "N" represents N brands created(1) New consumption: Innovative services to meet more consumer needs and consumer value;(2) New marketing: Digital marketing, fine omni-channel operation, and accurate and advanced consumerinsight. Focus on future marketing possibilities in new areas and make preparations;(3) New organization: An efficient organization that is flat, platform-based, self-driven and collaborative;(4) New mechanism: A flexible, diversified, business-oriented incentive mechanism to be established; Annual Report 2022(5) New technology: The focus on basic scientific research and the actions taken to establish the presenceof new raw materials and new R&D technologies, develop more R&D partners and resources in differentfields to form a global R&D landscape, provide technological guarantee for targeted product enhancement,and create a sustainable and unique R&D technological competitiveness; measures taken to furtherimprove the intelligent operation management system and carry out targeted transformation toward digitalintelligence and informatization to improve operational refinement and management efficiency in businessand organization and achieve process transparency and accurate decision-making;(6) New intelligent manufacturing: Creation of an agile and flexible supply chain to serve the hero productmatrix and the application of the digital management system to improve production quality, strengthen thesupply chain supervision, and guarantee product quality.- The core connotation of "6*N" is to enable or incubate different brands that meet different needs ofdifferent consumers based on the above six capabilities.While Proya, as the main brand, maintains rapid and steady development, the Company creates, replicates,enables and incubates different brands to meet the different needs of different consumers based on thesuccessful experience and core competence, enlarges the customer base, extends the demand coverage ofthe life cycle of customers, gradually builds and improves the multi-brand matrix, and achieves long-termsustainable growth.(III) Business plan√ Applicable □ Not applicableI. Construction of a multi-category and multi-brand matrixProya:(1) Brand: Better establish the brand awareness of "A Scientific Choice for Skin" by more scientificproduct portfolios, better and more delicate product experiences, and the output of the reasonable conceptof skincare, thus taking the brand to a new level. Maintain outstanding products as the core driver of thebrand, and make satisfactory services and experiences consumers" reason for choice. Dig deeper into thebrand"s insistence on products and belief in scientific formula, communicate with consumers in an all-around manner, deliver needed products and great experiences to consumers, and make Proya a leader inthe era of "home-made products".(2) Product: Better upgrade the product in formula, efficacy, design, and use experiences around the coremid-end product line, consolidate the status of hero products; better divide the needs of users with differentskin types, reserve richer and more detailed efficacy and categories, and expand the coverage to moreconsumers to satisfy their needs for skin care.(3) Marketing: 1) In 2023, Proya will keep carving the brand by taking "exploration and discovery" asthe core, continuously express our opinions in gender equality, family responsibility, intimate relationships,young people"s growth, mental health, and other socially important issues, so as to expand the impact ofbrand long-termism beyond brand incidents. 2) Based on the brand identity of the year, Proya will buildits own online public welfare platform to carry long-term public welfare actions and content under thebrand"s core projects and extend care of the brand.(4) Channel:products, penetrate into the market of the essence category as the core of the brand, enhance the penetrationof face cream, face mask, facial care kits, and other core categories, further improve the proportion ofhigh-value users, better refine the operation, improve services, and lift the brand mindset. Annual Report 2022achieve integrated operation of brand recommendation and purchase, improve the overall operationefficiency, establish presence in the shelf e-commerce on TikTok, better work with high-quality KOLs,and achieve diversified and healthy brand development in TikTok.cooperation to realize resonance inside and outside the site; change to user-based operation for themembership section with the focus on improving service level and user experiences and maintaining userloyalty; continuously strengthen the refined operation of all traffic channels.products and primarily aim at the direction of basic moisturizing and anti-aging products; beef up thedigitalization capability to empower offline sales, improve product turnover rate, and raise the satisfactionof channel customers. Department stores: Focus on influential business district and large department storegroups, explore the new "online+offline" sales mode, and increase the repurchase rate and per customertransaction.Hapsode:(1) Brand: Continuously consolidate the strategy of hero cleansing products, take the existing advantagein the oil remover category, expand the customer base of Hapsode, and increase brand penetration in theyoung population.(2) Product: Complete the layout of the full cleansing product line based on Hapsode"s pyramid-typedproduct system for oily skin. Keep improving the product efficacy of oil control in 2023 as the corecompetitiveness of an oily skin care brand; create the product combo for oily and sensitive skin for thesoothing product line around the Ultra Soothing Facial Mask and the Ultra Soothing Serum.(3) Marketing: Keep focusing on college students as the core target consumers and carry out serial brandevents to deliver Hapsode"s young and dynamic brand image.(4) Channel: Focus on TikTok and Tmall and put more efforts on self live-streaming.(1) Brand: Focus on building a professional brand of "Chinese make-up" around the brand core of"Chinese make-up, original beauty" to deliver "original beauty" experiences to consumers. Consolidatebrand professionalism with marketing content, improve brand services by seeing through the targetcustomer group, and enhance the brand"s sense of value by innovating in brand peripherals and gifts.(2) Product: Further expand the "Contour Line" advantages and keep increasing the brand penetration.Continue to establish presence in the large make-up base category, reserve sub-categories such as liquidfoundation, cream foundation, cushion, and powder & pact, complete the make-up base mindset, andcreate a "professional" brand image.(3) Marketing: Carry out content marketing around new product launch, festival topics, and IPcooperation.(4) Channel: Focus on Tmall and TikTok.(1) Brand: Establish the brand image of a scalp health expert from Japan, stabilize the product strength,and strengthen the core brand efficacy as "a scalp health solution", allowing core consumers to recognizethe brand values of OR.(2) Product: Further bring together international R&D capabilities and complete the global supply chainsystem. Rely on Japan"s leading fundamental research and technological development advantages to erect Annual Report 2022a technological barrier and offer consumers a complete scalp health solution. Make further presence in thescalp solution market, upgrade hair masks, hair care essence oil, and other hair care products, and createa new flagship product line.(3) Marketing: Output the brand personality and accumulate brand assets by communicating OR"s brandtrait as a "professional scalp health care expert". Launch product marketing based on the core mindset ofa top Japanese brand and a scalp health expert, allow consumers to better understand the conditions oftheir scalp, and help them build up the basic scalp health knowledge base; continue with the "tiny butbeautiful" brand marketing, advocate a lifestyle from scalp health to mental and physical health, penetrateinto the core population, and enhance the brand likability among target consumers.(4) Channel: Focus on Tmall (Tmall Global, Tmall Flagship Store) and TikTok in the Chinese Mainland;make more breakthroughs in physical stores in Japan while increasing the online traffic.II. R&D constructionIn 2023, the Company will keep adopting the internationalization strategy, complete and upgrade theresearch and development system, introduce high-level and cross-discipline talents with a global visioncovering chemistry, chemical engineering, pharmacology, dermatology, statistics, and computationalbiology; establish research and development laboratories at home and abroad based on R&D advantagesin all regions across the globe. While completing the system of consumer and technology insight,technology development, raw material development, formula, product development, and efficacyevaluation, the Company also strengthens strategic partnerships with globally-leading research institutionsspecializing in biotechnologies, life sciences, cytology, and dermatology.(1) Fundamental research: Continue to plan for the development pipeline of new technologies and newraw materials, and develop advanced enabling technologies in computational biology, genomics, andproteomics.(2) Applied research: Guided by market demand, develop skin care and make-up products of various levelswith obvious efficacy, great skin feel and favorable costs, and complete the technological layout for futureiterations of all hero products.(3) Clinical research: Continue with the clinical research and verification of products, explore newmethods to verify the efficacy of raw materials and products, and develop new efficacy testing methodsby using advanced instruments and statistics.(IV) Possible risks√ Applicable □ Not applicable(1) The Company"s brand strategy and channel strategy fail to come up to expectations due to intensifiedcompetition from various brands in the industry;(2) The control of digital and precise delivery costs fails to come up to expectations due to intensifiedcompetition in marketing and ads delivery.(1) New brand incubation risk: Performance fails to come up to expectations despite big investment inmarketing;(2) New category cultivation risk: Performance fails to come up to expectations due to different operationmodes for different categories and the incompetent team. Annual Report 2022(V) Other□ Applicable √ Not applicableVII. Circumstances Where the Company Fails to Disclose Due to Non-applicability or Special Reasons Such as State Secrets and Trade Secrets and Statement of Reasons□ Applicable √ Not applicable Section IVCorporate GovernanceI. Description of Corporate Governance√ Applicable □ Not applicableDuring the Reporting Period, the Company continuously improved its standard operation and corporategovernance structure based on the actual situation pursuant to applicable laws and regulations, includingthe Company Law, the Securities Law, the Listing Rules of the Shanghai Stock Exchange and the Code ofCorporate Governance of Listed Companies as well as the Articles of Association. The Company has setup the general meeting of shareholders, Board of Directors, Board of Supervisors and special committeesunder the Board of Directors as required and developed corresponding rules of procedure. Such rulesdefine the duties, powers, procedures and obligations of organizations at all levels in terms of decision-making, supervision and implementation. They form a scientific and effective governance structurefeaturing clear rights and responsibilities, mutual checks and balances, and mutual coordination. Duringthe Reporting Period, the Company consciously fulfilled the obligation for information disclosure,managed investor relationships, and promoted the Company to continuously improve its standardoperation. The corporate governance status complies with the requirements of the normative documentson the governance of listed companies issued by the CSRC.Whether there are significant differences between the Company"s corporate governance and therequirements of laws, administrative regulations and CSRC"s regulations on the governance of listedcompanies; if so, explain the reasons.□ Applicable √ Not applicableII. Specific measures taken by the Company"s controlling shareholders and actual controllers to ensure the Company"s independence in assets, personnel, finance, organization and business activities as well as solutions, work progress and subsequent work plans taken due to influence on the Company"s independence□ Applicable √ Not applicableCircumstances where any controlling shareholders, actual controllers and other entities under their controlengage in the same or similar business activities, as well as the impact of horizontal competition or majorchanges in horizontal competition on the Company, resolutions taken, progress and follow-up resolutions□ Applicable √ Not applicable Annual Report 2022III. Meetings of the General Meeting of Shareholders during the Reporting Period Session Date Reference Date of release Resolution The meeting approved proposals including the Company"s Annual Report 2021 and its Summary, and the Plan for Annual Profit Distribution and Capitalization of Capital Reserves for 2021. For General May 12, 2022-027 on SSE May 13, 2022 details, see the Announcement on Meeting of 2022 website Resolutions of the 2021 Annual Shareholders (www.sse.com.cn) General Meeting of Shareholders (No.: 2022-027) released on the SSE website on May 13, 2022 (http://www.sse.com.cn) and relevant media. The meeting approved proposals including the Proposal on 2022 Restricted Share Incentive Plan of the Company (Draft) and Its Summary, and the Proposal on Extraordinary Announcement No. Management Method for the 2022 General July 25, 2022-041 on SSE Restricted Share Incentive Plan. July 26, 2022 Meeting of 2022 website For details, see the Announcement Shareholders (www.sse.com.cn) on Resolutions of the 2022 First in 2022 Extraordinary General Meeting of Shareholders (No.: 2022-041) released on the SSE website on July 26, 2022 (http://www.sse.com.cn) and relevant media.Request of preferred shareholders with restored voting rights for convening an extraordinary generalmeeting□ Applicable √ Not applicableDescription of the General Meeting of Shareholders□ Applicable √ Not applicable Annual Report 2022IV. Directors, Supervisors and Senior Management(I) Changes in shareholding and remuneration of current and resigned directors, supervisors and senior management during the Reporting Period√ Applicable □ Not applicable Unit: share Total pre-tax remuneration Any Number of Number of Change in received from remuneration shares held Position Term start Term end shares held shares Cause for the Company from the Name Gender Age at the (Note) date date at the end of during the change during the Company"s beginning of the year year Reporting related the year Period parties (RMB’0,000) Shares Chairman of HOU converted the Board of Male 59 7/30/2015 9/8/2024 69,764,815 97,670,741 27,905,926 162.94 NoJuncheng from capital Directors reserve Shares converted from capital Director, FANG reserve and General Male 54 7/30/2015 9/8/2024 36,347,843 45,772,470 9,424,627 162.94 No Yuyou shares Manager reduced for personal capital need HOU Director Male 35 9/9/2021 9/8/2024 0 0 0 48.06 No Yameng HOU Deputy Male 35 9/15/2021 9/8/2024 0 0 0 0.00 No Yameng General Annual Report 2022 Manager MA Independent Male 53 5/13/2021 9/8/2024 0 0 0 15.00 NoDongming Director GE Independent Male 48 9/9/2021 9/8/2024 0 0 0 15.00 No Weijun Director HOU Supervisor Female 34 5/2/2018 9/8/2024 0 0 0 22.28 No Luting FANG Supervisor Female 33 5/8/2018 9/8/2024 0 0 0 32.02 No Qin HU Lina Supervisor Female 35 9/9/2021 9/8/2024 0 0 0 17.19 No Shares converted from capital Deputy reserve and JIN General Male 61 4/16/2018 9/14/2024 54,981 216,973 161,992 grant of 70.79 No Yanhua Manager 2022 restricted stock incentive Shares converted from capital reserve andWANG Li CFO Female 45 9/3/2018 9/14/2024 32,322 225,251 192,929 grant of 120.17 No restricted stock incentive Annual Report 2022 Deputy General Manager,WANG Li Female 45 9/15/2021 9/14/2024 0 0 0 0.00 No Secretary of the Board of Directors Total / / / / / 106,199,961 143,885,435 37,685,474 / 666.40 /Notes:The total pre-tax remuneration received by the above directors, supervisors and the senior management from the Company during the Reporting Period is the totalpre-tax remuneration during their term of office in the Reporting Period. Name Working experience He once worked in Yiwu Liaoyuan Daily Chemical Co., Ltd., Hangzhou Proya Cosmetics Co., Ltd., and Hangzhou Proya Holding Co., Ltd. Since August 2012, he has served as Chairman of the Company and its predecessor. As of the end of the Reporting Period, he concurrently served as Executive Director and General Manager of Proya Trade, Executive Director of Meiligu, Executive Director of Chuangdai Electronics, Executive Director of Yueqing Laiya, Inside Director and Representative Director of Korea Hanna, Executive Director and General Manager of Hapsode HOU (Hangzhou), Executive Director and General Manager of Huzhou Hapsode, Executive Director and General Manager of Danyang Hapsode, Juncheng Executive Director and General Manager of Mijing Siyu (Hangzhou), Executive Director and General Manager of Huzhou Younimi, Executive Director of Proya (Hainan), Executive Director of Proya (Zhejiang), Chairman and General Manager of Hangzhou Kunyi Industrial Co., Ltd., Chairman of CBIC, Executive Director and General Manager of Huzhou Beauty Town Technology Incubation Park Co., Ltd., Director of Xinjiang Huanyu New Silk Road Investment Development Co., Ltd., Director of Yongxinou (Ningbo) International Trading Co., Ltd., and Executive Director of Zhejiang Zhujin Enterprise Management Co., Ltd. He once worked in Shijiazhuang Liaoyuan Cosmetics Co., Ltd., Hangzhou Proya Cosmetics Co., Ltd., and Hangzhou Proya Holdings Co., Ltd. Since 2007, he has been working in the Company and its predecessor. Since August 2012, he has served as Director and General Manager of the FANG Company and its predecessor. As of the end of the Reporting Period, he concurrently served as General Manager of Meiligu, General Manager of Yuyou Yueqing Laiya, Inside Director of Korea Hanna, Director of Hongkong Xinghuo, Executive Director and General Manager of Hangzhou Fangxiake Investment Co., Ltd., Director of Hangzhou Kunyi Industrial Co., Ltd., Director of Hangzhou Tairentang Biotechnology Co., Ltd., Supervisor of Zhejiang Boweihui Grapevine Technology Co., Ltd., and Director of Jiangsu Lenong Weimei Agricultural Technology Development Co., Ltd. Annual Report 2022 He once worked in the E-commerce Department of Proya Cosmetics Co., Ltd., and has served as Director and Deputy General Manager of the HOU Company since September 2021. As of the end of the Reporting Period, he concurrently served as Executive Director and General Manager of Yameng Hainan Mengya Enterprise Consulting Co., Ltd. and Executive Director and General Manager of Hangzhou TIMAGE. He used to be Deputy Director and Director of CSRC Zhejiang Branch, Director of the Commissioner"s Office of CSRC Shanghai Branch, and MA Deputy General Manager and Secretary of the Board of Directors of Yongan Futures Co., Ltd. Since May 2021, he has served as IndependentDongming Director of the Company. As of the end of the Reporting Period, he concurrently served as Independent Director of Transwarp Technology (Shanghai) Co., Ltd., Independent Director of Zhejiang Shuangyuan Technology Co., Ltd., and Independent Director of Merit Interactive Co., Ltd. He once worked in Zhejiang Xingyun Law Firm and Xingyun Law Firm Shanghai Branch. From February 2006 to December 2021, he served as Professor, Doctoral Supervisor, and Legal Adviser of Shanghai University of Finance and Economics. Since January 2022, he has served as a full- time teacher (professor) at the Law School of Fudan University. Since September 2021, he has served as Independent Director of the Company. He also serves as Arbitrator at the China International Economic and Trade Arbitration Commission, Arbitrator at the Shanghai International Economic and Trade Arbitration Commission, Arbitrator at Shanghai Arbitration Commission ,Arbitrator at Shenzhen Court of InternationalGE Weijun Arbitration, Executive Officer of the China Commercial Law Society, Vice President of the Commercial Research Branch of the Shanghai Judicial Think Tank, Vice President of the Commercial Law Research Association of the Shanghai Law Society, Vice President of the Cultural Law Research Association of the Shanghai Law Society, Independent Director of Shanghai Huace Navigation Technology Ltd., Independent Director of Changzhou ECTEK Automotive Electronics System Co., Ltd., Independent Director of Hangzhou EZVIZ Network Co., Ltd. and Independent Director of Zheshang Development Group Co., Ltd. From July 2013 to January 2014, she served as an expatriate financial specialist at Zhonghui Accounting Firm. From February 2014 to June 2017, she served as a packaging material procurement specialist at the Purchasing Department of the Company. From June 2017 to April 2019, she servedHOU Luting as a raw material procurement specialist at the Purchasing Department of the Company. From April 2019 to March 2021, she served as a raw material evaluation engineer. From March 2021 to December 2022, she served as a deputy price review manager. From December 2022 to present, she has served as a price review manager. Since May 2018, she has served as Supervisor of the Company. From November 2008 to January 2018, she served as Director of the Planning Department of the Company and its predecessor. From January 2018FANG Qin to July 2022, she served as Planning Strategy Manager of the Company. Since July 2022, she has served as Senior Planning Strategy Manager of the Company. Since May 2018, she has served as Supervisor of the Company. She once worked in Pan-China Certified Public Accountants (Special General Partnership), and has served as Strategy Supervisor at the Company HU Lina since 2013, and has served as Supervisor of the Company since September 2021.JIN Yanhua He once worked in Zhejiang Sanmen Fertilizer Factory, Zhejiang InBev Yandangshan Beer Co., Ltd., Zhejiang InBev Jinhua Beer Co., Ltd., Annual Report 2022 Hangzhou Proya Cosmetics Co., Ltd., and Hangzhou Proya Holding Co., Ltd. From 2007 to August 2012, he served as General Manager of the Huzhou Factory under the Company and its predecessor. Since August 2012, he has served as General Manager of the Company"s Supply Chain Management Center; since April 2018, he has served as Deputy General Manager of the Company. As of the end of the Reporting Period, he concurrently served as Executive Director of Hanya (Huzhou), Executive Director of Huzhou UZERO, Manager of Chuangdai Electronics, Executive Director and General Manager of Proya Commercial, Executive Director and General Manager of Huzhou Niuke, Executive Director and General Manager of Hangzhou Wanyan, Executive Director and General Manager of Zhejiang Beute, Executive Director of Shanghai Zhongwen, Executive Director and General Manager of Ningbo Proya, Chairman of Ningbo Keshi, Chairman of Ningbo TIMAGE, Director of Hong Kong Keshi, Director of Hong Kong Wanyan, Director of Hong Kong Zhongwen, Executive Director of Zhejiang Qingya, Executive Director of Luxiaotie, Executive Director and General Manager of Hangzhou Yizhuo, Executive Director and General Manager of Hangzhou Weiluoke, Executive Director and General Manager of Hangzhou Oumisi, Director of Japan OR, Executive Director and General Manager of Guangzhou Qianxi, Director of Ningbo Xiyou Interactive Entertainment Culture Media Co., Ltd., General Manager of Proya (Hainan), Director of Korea Hapsode, Executive Director and General Manager of Xuzhou Laibo, Executive Director and General Manager of Shenggelan (Hangzhou), Chairman and General Manager of Ningbo Tangyu, Manager of Proya (Zhejiang), Executive Director and General Manager of Hangzhou Boxin, Executive Director and General Manager of Huzhou Keyan Trading Co., Ltd. She once served as CFO of Guangzhou Yingtai Digital Power Technology Co., Ltd., Financial Representative of US CELLSTAR (Phonest Star), Financial Manager of Shanghai Ruili Sports Co., Ltd., Financial Director of Vgrass Fashion Co., Ltd., Financial Director of Zhuoshang Clothing WANG Li (Hangzhou) Co., Ltd., and Financial Director of Jiangsu Sunport Power Corp., Ltd. Since April 2023, she has served as Independent Director of Zhejiang Wazam New Materials Co., Ltd. She is currently Deputy General Manager, Secretary of the Board of Directors, and CFO of Proya Cosmetics Co., Ltd.Other explanations□ Applicable √ Not applicable Annual Report 2022(II) Positions of current and resigned directors, supervisors and senior management during the Reporting Period√ Applicable □ Not applicable Name of Name of shareholder Position held in Term start date Term end date employee entity shareholder entity Peixian Deyi Network JIN Yanhua Technology Partnership Executive Partner August 2019 February 2022 (Limited Partnership) Description of None position held in shareholder entitiesNotes: Peixian Deyi Network Technology Partnership (Limited Partnership) was deregistered in February√ Applicable □ Not applicable Name of Position held in Name of another entity Term start date Term end date employee shareholder entity Executive Director and Proya Trade June 2011 General Manager November Meiligu Executive Director December Chuangdai Electronics Executive Director September Yueqing Laiya Executive Director Inside Director and November Korea Hanna Representative Director 2011 Executive Director and Hapsode (Hangzhou) February 2018 General Manager HOU Executive Director and Juncheng Huzhou Hapsode May 2016 General Manager Executive Director and December Danyang Hapsode General Manager 2016 Executive Director and Mijing Siyu (Hangzhou) February 2018 General Manager Chairman of the Board of November Huzhou Younimi March 2019 Directors 2022 Executive Director and November Huzhou Younimi General Manager 2022 Proya (Hainan) Executive Director January 2021 Proya (Zhejiang) Executive Director May 2022 Hangzhou Kunyi Chairman and General April 2014 Annual Report 2022Name of Position held in Name of another entity Term start date Term end dateemployee shareholder entity Industrial Co., Ltd. Manager Cosmetics Industry Chairman of the Board of December (Huzhou) Investment Directors 2018 Development Co., Ltd. Huzhou Beauty Town Executive Director and Technology Incubation January 2019 General Manager Park Co., Ltd. Xinjiang Huanyu New Silk Road Investment Director March 2021 Development Co., Ltd. Yongxinou (Ningbo) International Trading Director May 2022 Co., Ltd. Zhejiang Zhujin September Enterprise Management Executive Director Co., Ltd. November Meiligu General Manager September Yueqing Laiya General Manager November Korea Hanna Inside Director Hongkong Xinghuo Director March 2019 November Huzhou Younimi Director March 2019 Hangzhou Fangxiake Executive Director and FANG May 2018 Investment Co., Ltd. General Manager Yuyou Hangzhou Kunyi Director April 2014 Industrial Co., Ltd. Hangzhou Tairentang December Director Biotechnology Co., Ltd. 2014 Zhejiang Boweihui November Grapevine Technology Supervisor Co., Ltd. Jiangsu Lenong Weimei Agricultural Technology Director May 2022 Development Co., Ltd. Hangzhou Yishan September Supervisor January 2022 Design Co., Ltd. 2017 HOU Hainan Mengya Executive Director and NovemberYameng Enterprise Consulting General Manager 2021 Co., Ltd. Hangzhou TIMAGE Executive Director and March 2022 Annual Report 2022Name of Position held in Name of another entity Term start date Term end dateemployee shareholder entity General Manager Particle Culture Technology Group Independent Director October 2020 March 2022 (Hangzhou) Co., Ltd. Transwarp Technology December Independent Director MA （Shanghai）Co., Ltd. 2020Dongming Zhejiang Shuangyuan December Science & Technology Independent Director Development Co., Ltd. Merit Interactive Co., Independent Director May 2022 Ltd. Wuxi Genecast Independent Director January 2020 August 2022 Biotechnology Co., Ltd. Shanghai Huace December Navigation Technology Independent Director Ltd. Changzhou ECTEKGE Weijun September Automotive Electronics Independent Director System Co., Ltd. Hangzhou EZVIZ Independent Director March 2022 Network Co., Ltd. Zheshang Development Independent Director May 2022 Group Co., Ltd. December Anya (Huzhou) Executive Director Huzhou UZERO Executive Director January 2018 Chuangdai Electronics Manager February 2018 Executive Director and September Proya Commercial General Manager 2018 Executive Director and December Huzhou Niuke General Manager 2018 Executive Director and Hangzhou Wanyan January 2019 JIN General Manager Yanhua Executive Director and Zhejiang Beute March 2019 General Manager Chairman of the Board of Shanghai Zhongwen April 2019 Directors Executive Director and December Ningbo Proya General Manager 2019 September Ningbo Keshi Director Ningbo TIMAGE Director July 2019 Peixian Deyi Network Executive Partner August 2019 February 2022 Annual Report 2022Name of Position held in Name of another entity Term start date Term end dateemployee shareholder entity Technology Partnership (Limited Partnership) Hong Kong Keshi Director March 2019 Hong Kong Wanyan Director October 2019 Hong Kong Zhongwen Director July 2019 Zhejiang Qingya Executive Director May 2020 Luxiaotie Executive Director August 2020 Executive Director and Hangzhou Yizhuo July 2020 General Manager Executive Director and Hangzhou Weiluoke July 2020 General Manager Executive Director and Hangzhou Oumisi August 2020 General Manager Japan OR Director August 2020 Executive Director and Guangzhou Qianxi October 2020 General Manager Ningbo Xiyou Interactive September Director Entertainment Culture 2020 Media Co., Ltd. Proya (Hainan) General Manager January 2021 Korea Hapsode Director of the Company June 2021 Executive Director and Xuzhou Laibo January 2022 General Manager Executive Director and September Huzhou Boyun August 2022 General Manager 2020 Xuzhou Proya Executive Director and Information Technology January 2021 July 2022 General Manager Co., Ltd. Singuladerm Executive Director and October 2021 (Hangzhou) General Manager Chairman and General Ningbo Tangyu October 2021 Manager Proya (Zhejiang) Manager May 2022 Executive Director and December Hangzhou Boxin General Manager 2022 Huzhou Keyan Trading Executive Director and March 2023 Co., Ltd. General Manager Zhejiang Wazam NewWANG Li Independent Director April 2023 Materials Co., Ltd.Descriptionof position Noneheld in Annual Report 2022 Name of Position held in Name of another entity Term start date Term end date employee shareholder entityotherentities(III) Remuneration of directors, supervisors and senior management√ Applicable □ Not applicable The remuneration of directors and supervisors of the Company shall be approved by the Remuneration and Appraisal Committee, the Decision-making procedures for Board of Directors and the Board of Supervisors respectively. Then, remuneration of directors, the remuneration plan shall be submitted to the general meeting of supervisors and senior shareholders for deliberation. The remuneration of senior management management shall be deliberated by the Remuneration and Appraisal Committee and the Board of Directors. Basis for determination of The annual remuneration of the Company"s directors, supervisors remuneration of directors, and senior management shall be paid based on basic pay and supervisors and senior performance appraisal results. management Actual payment of remuneration of directors, supervisors and Paid. senior management Total remuneration actually During the Reporting Period, the Company"s directors, supervisors received by all directors, and senior management actually received a total remuneration of supervisors and senior RMB6.6640 million from the Company (including current and management as of the end of the resigned supervisors and senior management during the Reporting Reporting Period Period).(IV) Changes in the Company"s directors, supervisors and senior management□ Applicable √ Not applicable(V) Description of punishments by the CSRC in the past three years□ Applicable √ Not applicable(VI) Other□ Applicable √ Not applicableV. Meetings of the Board of Directors held during the Reporting Period Session Date Resolution The meeting approved proposals including the Proposal on third session of January 12, 2022 Restrictions for the Third Release Period of the Restricted Board of Directors Shares Granted for the First Time and with Reserve under the 2018 Restricted Share Incentive Plan, the Proposal on the Annual Report 2022 Use of Raised Funds to Replace Self-raised Funds Already Invested in Fundraising Projects, and the Proposal on Using Some Idle Raised Fund for Cash Management. For details, see the Announcement on Resolutions of the 4th Meeting of the Third Session of Board of Directors (No.: 2022-002) disclosed by the Company on the SSE website (http://www.sse.com.cn) and relevant media on January 13, The meeting approved proposals including the Company"s Annual Report 2021 and its Summary, the Company"s ESG Report 2021, and the Company"s Plan for Profit Distributionthird session of April 20, 2022 see the Announcement on Resolutions of the 5th Meeting ofBoard of Directors the Third Session of Board of Directors (No.: 2022-014) disclosed by the Company on the SSE website (http://www.sse.com.cn) and relevant media on April 22, The meeting approved proposals including the Proposal on and Its Summary, and the Proposal on Formulating the Assessment Management Method for the 2022 Restrictedthird session of July 8, 2022 Share Incentive Plan. For details, see the Announcement onBoard of Directors Resolutions of the 6th Meeting of the Third Session of Board of Directors (No.: 2022-033) released on the SSE website on July 9, 2022 (http://www.sse.com.cn) and relevant media. The meeting approved the Proposal on the Granting ofthird session of July 25, 2022 Announcement on Granting of Restricted Shares to IncentiveBoard of Directors Recipients (No.: 2022-044) released on the SSE website on July 26, 2022 (http://www.sse.com.cn) and relevant media. The meeting approved proposals including the Company"s Special Report on the Semi-annual Storage and Actual Use of Raised Fund. For details, see the Announcement onthird session of August 24, 2022 Resolutions of the 8th Meeting of the Third Session of BoardBoard of Directors of Directors (No.: 2022-045) disclosed by the Company on the SSE website (http://www.sse.com.cn) and relevant media on August 26, 2022. The meeting approved the Company"s 2022 Third Quarterthird session of October 27, 2022 disclosed by the Company on the SSE websiteBoard of Directors (http://www.sse.com.cn) and relevant media on October 28, Annual Report 2022VI. Performance of Duties by Directors(I) Directors attending meetings of the Board of Directors and general meetings of shareholders Attendance at general Attendance at meetings of the Board of Directors meetings of shareholders Number Number Number Number of Fail to attend Director Independent of Number of of of meetings two Number of name director or not meetings meetings of the meetings meetings of the consecutive general of the Board of of the of the Board of meetings of meetings of Board of Directors Board of Board of Directors the Board of shareholders Directors attended by Directors Directors to be Directors or attended attended communication attended absent attended not in person by proxy from this year HOU No 6 6 0 0 0 No 2 Juncheng FANG No 6 6 0 0 0 No 2 Yuyou HOU No 6 6 0 0 0 No 2 Yameng MA Yes 6 6 6 0 0 No 2 Dongming GE Yes 6 6 6 0 0 No 2 WeijunExplanation on absence from two consecutive meetings of the Board of Directors□ Applicable √ Not applicable Number of meetings of the Board of Directors held during the year Including: number of on-site meetings 0 Number of meetings held by communication 0 Number of meetings held both on site and by communication(II) Circumstances where directors object to the Company"s relevant matters□ Applicable √ Not applicable(III) Other□ Applicable √ Not applicableVII. Special Committees under the Board of Directors√ Applicable □ Not applicable(1). Members of special committees under the Board of Directors Category of special Name of member committeeAudit Committee HOU Yameng, MA Dongming, GE WeijunNomination Committee HOU Juncheng, MA Dongming, GE WeijunRemuneration and FANG Yuyou, MA Dongming, GE WeijunAppraisal Committee Annual Report 2022Strategy Committee HOU Juncheng, MA Dongming, GE Weijun(2). Four meetings held by the Audit Committee during the Reporting Period Important Other comments Date Description performance and of duties suggestions The 3rd meeting of the third session of the Audit Committee was held to deliberate on and approve the Company"s Annual Report 2021 and its Summary, the Company"s 2022 Q1 Report, the Company"s Annual Financial Final Report 2021, the Performance Report Approve these of Directors, the Company"s Internal Control Evaluation proposals and Report 2021, the 2021 Special Report on the Annual agree to April 20, Storage and Actual Use of Raised Fund, the Company"s submit them None to the Board Reserves for 2021, the Proposal on Payment of Audit of Directors Fees for 2021 and Further Employment of the Accounting for Firm for 2022, the Proposal on the Estimated Amount of deliberation Daily Related-party Transactions for 2022, the Proposal on the Accrual of Asset Impairment Provision for 2021, the Proposal on the Adjustment of the Conversion Price of "Proya Convertible Bond", and the Company"s Annual Internal Audit Work Report 2021. Approve these proposals and The 4th meeting of the third session of Audit Committee agree to July 8, was held to deliberate on and approve the Proposal on submit them None to the Board (Draft) and Its Summary. of Directors for deliberation Approve The 5th meeting of the third session of Audit Committee these was held to deliberate on and approve the proposals and Company"s 2022 Semi-annual Report and its Summary, agree to August the 2022 Special Report on the Semi-annual Storage and submit them None Actual Use of Raised Fund, and the Proposal on the to the Board Adjustment of the Conversion Price of "Proya of Directors Convertible Bond". for deliberation Annual Report 2022 Approve these proposals and The 6th meeting of the third session of Audit Committee agree to October was held to deliberate on and approve the Company"s submit them None of Directors for deliberation(3). Three meetings held by the Remuneration and Appraisal Committee during the Reporting Period Important Other comments Date Description performance and of duties suggestions Approve The 1st meeting of the third session of Remuneration and these Appraisal Committee was held to deliberate on and proposals and approve the Proposal on the Satisfaction of Conditions agree to January for Releasing the Sales Restrictions for the Third Release submit them None Period of the Restricted Shares Granted for the First to the Board Time and with Reserve under the 2018 Restricted Share of Directors Incentive Plan. for deliberation Approve these The 2nd meeting of the third session of Remuneration and proposals and Appraisal Committee was held to deliberate on and agree to April 20, approve the Proposal on Confirming the Remuneration of submit them None Directors for 2021 and the Proposal on Confirming the to the Board Remuneration of Senior Management for 2021. of Directors for deliberation Approve The 3rd meeting of the third session of Remuneration and these Appraisal Committee was held to deliberate on and proposals and approve the Proposal on 2022 Restricted Share Incentive agree to July 8, Plan of the Company (Draft) and Its Summary, the submit them None to the Board Method for the 2022 Restricted Share Incentive Plan, and of Directors the Proposal on Verifying the List of Incentive Recipients for for the 2022 Restricted Share Incentive Plan. deliberation(4). One meeting held by the Strategy Committee during the Reporting Period Annual Report 2022 Important Other comments Date Description performance and of duties suggestions Approve these proposals and The 2nd meeting of the third session of Strategy agree to April 20, Committee was held to deliberate on and approve the submit them None to the Board of Directors for deliberation(5). Dissenting matters□ Applicable √ Not applicableVIII. Explanation on the Company"s Risks Identified by the Board of Supervisors□ Applicable √ Not applicableThe Board of Supervisors had no objection to matters supervised during the Reporting Period.IX. Employees of the Parent Company and Major Subsidiaries as of the End of the Reporting Period(I) Employees Number of current employees of the parent 1,129 company Number of current employees of major 2,048 subsidiaries Total number of employees 3,177 Number of retired employees to be supported by 4 the parent company and major subsidiaries Specialty composition Category Number of employees Production workers 276 Sales specialists 2,370 Management 302 R&D personnel 229 Total 3,177 Educational background Education level Number (persons) Bachelor and above 1,217 Associate 724 High school and below 1,236 Total 3,177 Annual Report 2022(II) Remuneration policy√ Applicable □ Not applicableValue creation is the Company"s basis for salary distribution. Performance is an intuitive reflection ofvalue. By establishing a comprehensive and objective performance evaluation system, the Companycombines salary distribution and performance evaluation of employees with an aim to fully guide andmotivate employees to create value.(III) Training program√ Applicable □ Not applicableThe Company adheres to the goal of gathering and training outstanding professionals by alwaysconsidering staff learning and growth as a primary task, and continuously innovating in and optimizingtraining research, training topics, training forms, training implementation, training evaluation andimprovement, and trainer management. In terms of the form of learning, the Company combines internaland external learning and fully improves the engagement of employees in training, thus making thetraining more effective.(IV) Labor outsourcing√ Applicable □ Not applicable Total man-hours for labor outsourcing Total remuneration paid for labor outsourcing RMB53,644,979.66Labor Service Co., Ltd. to outsource auxiliary services including canteen, greening, cleaning, and goodshandling, loading and unloading, and packaging to the latter and pay consideration for the agreedquantities.Enterprise Management Co., Ltd. to outsource services such as partial goods handling, loading andunloading, combined packaging, and mask folding to the latter, and pay consideration for the agreedquantities.X. Profit Distribution or Capital Reserve Conversion Plan(I) Development, implementation or adjustment of the cash dividend distribution policy√ Applicable □ Not applicableThe Company held the 16th meeting of the second session of Board of Directors and the 3rd extraordinaryGeneral Meeting of Shareholders on October 12, 2020 and October 28, 2020 respectively and approvedthe Proposal on the Company"s Planning for Dividends to Shareholders for the Next Three Years (2020-I. Factors considered in developing the planning for dividend distribution to shareholdersTo promote the long-term and sustainable development, based on a comprehensive analysis of thecorporate development strategy, shareholder requirements and expectations, social capital costs, andexternal financing environment, the Company has solicited and listened to the requirements andexpectations of shareholders, especially small and medium shareholders, fully considered the Company"scurrent and future profitability, cash flow, development stage, project investment capital needs, and bankcredit, balanced the short-term and long-term interests of shareholders, and made institutional Annual Report 2022arrangements for profit distribution, so as to establish a sustainable and stable mechanism for dividenddistribution to investors to ensure the continuity and stability of the Company"s profit distribution policy.II. Principles for planning for dividend distribution to shareholdersThe Company implements a continuous and stable profit distribution policy, attaches importance toreasonable investment returns to investors while considering sustainable development, and has establisheda continuous and stable mechanism for returns to investors in combination with the Company"sprofitability and actual needs for the future development strategy. The Company shall make a profitdistribution plan in accordance with the Articles of Association. The Company"s Board of Directors, Boardof Supervisors and General Meeting of Shareholders shall fully consider the opinions of independentdirectors, supervisors and public investors in deciding and demonstrating the profit distribution policy.III. Planning for dividend distribution to shareholders (2020-2022)reasonable investment returns to investors as well as the Company"s actual operating conditions andsustainable development for the current year in profit distribution.by laws and regulations. The distribution shall not exceed the accumulated distributable profits, and shallnot undermine the Company"s ability to continue as a going concern. When eligible for cash dividends,the Company shall distribute profits first in cash.When eligible for cash dividends under the Company"s Articles of Association, the Company shall, inprinciple, distribute profits in cash on a yearly basis. The Company"s Board of Directors may propose thatthe Company should distribute interim cash dividends according to the Company"s profitability and capitalneeds. The Company shall maintain the continuity and stability of the profit distribution policy, anddistribute every year at least 20% of the distributable profits achieved for the current year. The Company"sBoard of Directors shall propose a differentiated cash dividend policy in line with the procedure under theCompany"s Articles of Association after a comprehensive analysis of factors such as industrycharacteristics, development stage, its own business mode, profitability, and major spending arrangements.(1) The Company shall evaluate the implemented plan for dividend distribution to shareholders once everythree years. According to applicable laws and regulations, the Company"s operating conditions, and theopinions of shareholders (especially small and medium investors) and independent directors, the Companymay modify its current profit distribution policy when necessary and make a new plan for dividenddistribution to shareholders. Upon adjustment, the plan for dividend distribution to shareholders shall beapproved by voting at the General Meeting of Shareholders.(2) The Company"s Board of Directors shall make an appropriate annual distribution plan or an interimprofit distribution plan as necessary for development after fully considering the Company"s profitability,cash flow, development capital needs, financing costs, and the external financing environment, andimplement them upon the approval by the Company"s General Meeting of Shareholders.During the Reporting Period, the Company approved the 2021 annual profit distribution plan at the 2021Annual General Meeting of Shareholders, whereby distributing a cash dividend of RMB8.60 (tax inclusive)for each 10 shares to all shareholders registered as of the record date on the basis of the total share capitalas of the record date for dividend distribution for a total of RMB172,868,570.76 (tax inclusive). The saiddividend distribution was completed on May 30, 2022.(II) Special description of the cash dividend policy√ Applicable □ Not applicable Annual Report 2022 Is the cash dividend policy acceptable under the Company"s Articles of Association or √Yes □No as required by resolutions at the General Meeting of Shareholders? Are dividend distribution standard and ratio clearly defined? √Yes □No Are decision-making procedures and mechanisms complete? √Yes □No Do independent directors fulfill their duties and play their roles diligently? √Yes □No Do minority shareholders have the opportunity to fully express their opinions and √Yes □No demands, and are their legitimate rights and interests fully protected?(III) Where the Company made profits and the parent company could provide positive profits available to shareholders for distribution but did not propose a cash profit distribution plan during the Reporting Period, the Company shall disclose the reasons in details and the purpose and use of undistributed profits.□ Applicable √ Not applicable(IV) Profit distribution and capitalization of capital reserves during the Reporting Period√ Applicable □ Not applicable Unit: Yuan Currency: RMB Number of bonus shares distributed per 10 shares (shares) Dividends per 10 shares (RMB) (tax included) 8.70 Conversions per 10 shares (shares) 4 Amount of cash dividends (tax included) 246,661,938.03 Net profit attributable to ordinary shareholders of the Company in the annual consolidated statement 817,400,223.93 of dividends Proportion in the net profit attributable to ordinary shareholders of the Company in the consolidated 30.18 statement (%) Amount of shares repurchased in cash included in cash dividends Total dividend amount (tax included) 246,661,938.03 Proportion of the dividend amount in the net profit attributable to ordinary shareholders of the 30.18 Company in the consolidated statement (%)XI. The Company"s Equity Incentive Plans, Employee Stock Ownership Plans or Other Employee Incentives and Their Impact(I) Relevant incentive matters disclosed in the temporary announcement and with no progress or changes in subsequent implementation√ Applicable □ Not applicable Matter Reference Announcement on the Satisfaction SSE website, Shanghai Securities News, Securities Times on of Conditions for Releasing the January 13, 2022 Sales Restrictions for the Third Annual Report 2022 Release Period of the Restricted Shares Granted for the First Time and with Reserve under the 2018 Restricted Share Incentive Plan and Listing Announcement on 2022 Restricted Share Incentive Plan of SSE website, Shanghai Securities News, Securities Times on July the Company (Draft) and Its 9, 2022 Summary Announcement on the Granting of SSE website, Shanghai Securities News, Securities Times on July Restricted Shares to Incentive Recipients Announcement on the Granting SSE website, Shanghai Securities News, Securities Times on Result of the 2022 Restricted September 8, 2022 Stock Incentive Plan(II) Incentives not disclosed in the interim announcement or with subsequent progressEquity incentives□ Applicable √ Not applicableOther explanations□ Applicable √ Not applicableEmployee stock ownership plans□ Applicable √ Not applicableOther incentives□ Applicable √ Not applicable(III) Equity incentives granted to directors and senior management during the Reporting Period□ Applicable √ Not applicable√ Applicable □ Not applicable Unit: share Number of Number Number newly of Market price of Price of granted restricted as of the end restricted restricted Unloc restricted Locked shares of the Name Position shares shares ked shares shares held at the Reporting held at the granted shares during the end of the Period beginning (RMB) Reporting Reporting (RMB) of the year Period Period JIN Deputy 54,981 140,000 78.56 76,97 140,000 216,973 36,338,638.0 Yanhua General 3 4 Manager WANG Deputy 32,322 180,000 78.56 45,25 180,000 225,251 37,725,037.4 Annual Report 2022 Li General 1 8 Manager, Secretary of the Board of Directors, CFO / 87,303 320,000 / 122,2 320,000 442,224 / TotalNote: The Company implemented the 2021 Equity Distribution Plan on May 30, 2022, in which theCompany distributed to all shareholders a cash dividend of RMB8.60 (tax inclusive) per 10 shares basedon the total share capital as of the record date on which equity distribution is implemented and issued 4shares for every 10 shares to all shareholders through capitalization of the capital reserve. The "unlockedshares" and "number of restricted shares held at the end of the period" mentioned in the table above includethe shared converted through the capitalization of the capital reserve in 2021.(IV) Evaluation mechanism for senior management as well as the establishment and implementation of the incentive mechanism during the Reporting Period√ Applicable □ Not applicableDuring the Reporting Period, the Company"s General Manager and other senior management wereevaluated based on performance indicators and their annual performance remuneration was submitted bythe Remuneration and Appraisal Committee to the Board of Directors for deliberation.XII. Construction and Implementation of the Internal Control System during the Reporting Period√ Applicable □ Not applicableThe Company has developed relevant systems including the Internal Audit System, the ExternalGuarantee Decision-making Management System, the Related-party Transaction Management System,the Raised Funds Management System, and the Information Disclosure Management System, andestablished processes for company establishment/investment/change applications, entrusted wealthmanagement application, and guarantee application. The Company continuously improves the internalcontrol system and related processes, regulates the implementation of the internal control system,strengthens the supervision and inspection of internal control, and promotes the healthy and sustainabledevelopment of the Company.Description on Material deficiencies in internal control during the Reporting Period□ Applicable √ Not applicableXIII. Management and Control of Subsidiaries during the Reporting Period√ Applicable □ Not applicableThe Company has developed systems including the External Investment and Operation Decision-makingSystem and the Subsidiary Management System to implement centralized control over subsidiaries. TheCompany HQ is responsible for its finance, asset operation and overall strategic planning while allsubsidiaries develop their strategic plans based on the Company"s overall strategic planning.XIV. Description of the Internal Control Audit Report√ Applicable □ Not applicable Annual Report 2022During the Reporting Period, Pan-China Certified Public Accountants (Special General Partnership), theCompany"s internal control auditing firm, issued the Internal Control Audit Report (Tian Jian Shen [2023]No.3129), in which opinion the Company had maintained effective internal control over financialreporting in all material aspects as of December 31, 2022 pursuant to the Basic Rules for Internal Controland other applicable provisions.Whether to disclose the internal control audit report: YesType of opinion in the internal control audit report: standard unqualified opinionXV. Correction of Problems Identified in the Special Campaign for Governance of Listed CompaniesNoneXVI. Other□ Applicable √ Not applicable Section V Environmental and Social ResponsibilityI. Environmental Information Whether to establish the environmental protection Yes mechanism Investment in environmental protection during the Reporting Period (Unit: RMB’0,000)(I) Environmental issues of the Company and major subsidiaries included in the list of primary pollutant discharge entities announced by the environmental authority□ Applicable √ Not applicable(II) Environmental issues of the Company not included in the list of primary pollutant discharge entities√ Applicable □ Not applicable□ Applicable √ Not applicable entities√ Applicable □ Not applicableDuring the Reporting Period, the Company passed the ISO14001:2015 Environmental ManagementSystem certification (valid until February 14, 2025). The emission of greenhouse gases and discharge ofindustrial wastewater, air emissions, and residues mainly occur from product production.The wastewater produced by the Company mainly comes from domestic sewage and productionwastewater and is discharged to landscape water pools or to the outside through a consolidated water pipeafter being treated by the sewage treatment station. The air emissions produced mainly comes from boilers.The Company has formulated the Sewage Treatment Management System, the Boiler Management System, Annual Report 2022and other management documents to strictly control the discharge of wastewater and air emissions. Duringthe Reporting Period, the Company discharged wastewater and air emissions up to standards.Main administrative measures taken during the Reporting Period include:(1) Wastewater:The Company installed the Multi Vision COD online automatic monitoring instrument, and monitored theCOD in treated water 24 hours a day to ensure class-A sewage discharge; constructed a sewage treatmentsystem to make sure treated sewage is highly purified and recycled; renovated environmental protectiontechnologies in the production park:① Underground pipeline CCTV detection system: Consisting of crawlers, lenses, cable reels, and acontrol system, the underground pipeline CCTV detection system is used to clear the blockage in thepipeline inside the park and maintain and repair the pipeline network, so as to prevent the risk of sewageleakage due to outdated pipeline and provide reliable technological support for zero sewage discharge;② Perform technological transformation on the anaerobic tower of the sewage treatment station toimprove the biological anaerobic effect;③ Increase the capacity and efficiency of the air flotation tank of the sewage treatment station to 10 tons;improve the capability of treating gas explosion of sewage in the air flotation tank, and enhance the cleanwater treatment capacity on the original basis.(2) Air emissions:① Huzhou production base (skincare factory): A air emissions treatment facility for the cream productionline was added to reduce the emission of dust and organic air emissions. After being use, the facility cancollect 99% dust and remove 75% organic air emissions. A highly-precise volatile organic chemical (VOC)gas collection device was installed to effectively reduce unorganized gas emission;② Huzhou production base (make-up factory): A Swiss-made VOC gas and dust treatment facility wasadded.(3) The Company properly disposes of solid waste generated in production and operations. The Companymanages solid wastes in a macroscopical manner and our factories can track the whole process data onsolid wastes and prevent risks by requesting to report the amount of generated hazardous waste on theNational Information System Platform for the Management of Solid Wastes and Chemicals every year,selecting hazardous waste treatment service providers through open bidding on the platform, andrequesting for the treatment of hazardous wastes on the platform.□ Applicable √ Not applicable(III) The Company"s performance in helping protect the environment, prevent pollution and fulfill environmental responsibilities√ Applicable □ Not applicableThe emission of greenhouse gases and discharge of industrial wastewater, air emissions, and residuesmainly occur from product production. Moreover, the consumption of energy, raw materials, and otherresources principally occurs when products are made. Therefore, sustainable production can improve theusage efficiency of resources and energy in production processes, reduce pollutants and greenhouse gasemissions, and build a resource-saving and eco-friendly production system.During the Reporting Period, the Company carried out a new round of audits on cleaner production in theHuzhou Production Base (skincare factory). We investigated the current situation of pollutant emissions, Annual Report 2022energy management, and environmental protection, and also developed several cleaner productionimplementation programs according to the investigation results.During the Reporting Period, the Huzhou Production Base (skincare factory) planned and implemented(1) Reduced waste water discharge by 4,400 tons;(2) Reduced COD emission by 0.17 tons and ammonia nitrogen emission by 0.001 tons;(3) Reduced the generation of hazardous waste by 3 tons;(4) Reduced carbon dioxide emissions by 322.73 tons;(5) Saved electricity by 565.9 MWh;(6) Saved raw materials worth RMB108 thousand;(7) Saved natural gas by 3,000 Nm³;(8) Saved water by 4,600 m³.(IV) Measures taken to reduce carbon emissions during the Reporting Period and their effects Whether to take carbon emission Yes reduction measures Carbon dioxide emission equivalent reduced (unit: ton) policies to suppliers, cooperate with them to reduce carbon emissions in the stage of procurement, and prioritize suppliers with low carbon emissions. (1) Regularly collect carbon emissions data, invite professional third parties to conduct data audits, and make improvements to correct deviations inside the Company; (2) Carry out energy-saving and technology upgrade Type of carbon emission reduction projects to improve energy efficiency; measures (such as electricity generation (3) Carry out clean energy replacement and increase the with clean energy, carbon reduction proportion of clean energy use through photovoltaic power technologies used in production, or the generation and the purchase of green electricity. development and production of new products that help reduce carbon reduce carbon emissions after packaging disposal through emissions) packaging usage reduction, packaging recycling, and other methods. and logistics system to reduce energy consumption in the process of warehousing and logistics by rationally arranging warehouses and planning transportation routes. sustainable consumption to consumers to provide them with more sustainable choices.Specific description□ Applicable √ Not applicable Annual Report 2022II. Social Responsibility(I) Whether to independently disclose social responsibility reports, sustainable development reports, or ESG reports√ Applicable □ Not applicableFor details, see the Proya Sustainable Development & Environmental, Social, and Governance (ESG)Report 2022 disclosed by the Company on the SSE website (www.sse.com.cn) disclosed on the same day.(II) Description of social responsibilities√ Applicable □ Not applicable External donation and charity Quantity/content Description projects Include funds and materials donated by the Total investment (RMB’0,000) 143.46 Company to various community philanthropy and charitable activities Shanghai Adream Foundation for the "One County, One Dream" charity project. Village, Jiulong County, Ganzi Prefecture, Sichuan Province, and donated RMB100,000 Including: fund (RMB’0,000) 140.00 to village school so they could buy stationery and books; to the charity project jointly operated by the Wuxing District Charity Federation of Huzhou and Proya. The Company donated anti-epidemic supplies Cash value of materials (RMB’0,000) Hangzhou Number of beneficiaries (person)Specific description□ Applicable √ Not applicableIII. Poverty Alleviation and Rural Revitalization Progress√ Applicable □ Not applicable Poverty alleviation and rural Quantity/content Description revitalization project to Shanghai Adream Foundation for the Total investment (RMB’0,000) 110 "One County, One Dream" charity project. Annual Report 2022 Liwu Village, Jiulong County, Ganzi Prefecture, Sichuan Province, and donated RMB100,000 to village school so they could buy stationery and books; Including: fund (RMB’0,000) 110 Cash value of materials (RMB’0,000) Number of beneficiaries (person) 8,085 Form of support (such as industrial support, employment Education support support, education support, etc.)Specific description□ Applicable √ Not applicable Annual Report 2022 Section VI Important MattersI. Fulfillment of Commitments(I) Commitments made by the Company"s actual controllers, shareholders, related parties, acquirers and the Company and other relevant parties during the Reporting Period or continuing to the Reporting Period√ Applicable □ Not applicable The next Whether the Cause for step in Any commitment any the event Date and Background Type Promisor Description deadline for is timely failure to of failure duration performance and strictly perform to performed in time perform in time Restrictions Directors, (1) During their terms as the Company"s Date: No Yes Not Not on sales senior director/senior management, they shall not November applicable applicable management transfer more than 25% of their total shares 15, 2017 HOU directly or indirectly held in the Company each Duration: Juncheng, year. Within six months after leaving office, November FANG they shall not transfer their shares directly or 15, 2017 Yuyou and indirectly held in the Company. (2) If their to long- IPO-related CAO shares in the Company are sold within two term commitments Liangguo years upon expiration of the lock-up period, the selling price shall not be lower than the offering price. If the closing price of the Company"s shares is lower than the offering price for 20 consecutive trading days within 6 months after the Company"s IPO, or the closing price as of the end of the 6-month period after the Company"s IPO is lower than Annual Report 2022 the offering price, the lock-up period for their shares in the Company will be automatically extended for 6 months. Their commitments above shall survive job change and resignation. (3) Should any of them/their partnership violate the said share lock-up commitments, the lock-up period for their/their partnership"s shares in the Company will be automatically extended for 6 months.Restrictions Senior (1) Within 12 months from the date of the Date: No Yes Not Noton sales management Company"s IPO, they shall not transfer or April 16, applicable applicable JIN Yanhua authorize any other to manage their shares 2018 directly or indirectly held in the Company or Duration: have the Company repurchase such shares. (2) April 16, During their terms as the Company"s senior 2018 to management, they shall not transfer more than long-term held in the Company each year. Within six months after leaving office, they shall not transfer their shares directly or indirectly held in the Company. (3) If their shares in the Company are sold within two years upon expiration of the lock-up period, the selling price shall not be lower than the offering price. If the closing price of the Company"s shares is lower than the offering price for 20 consecutive trading days within 6 months after the Company"s IPO, or the closing price as of the end of the 6-month period after the Annual Report 2022 Company"s IPO is lower than the offering price, the lock-up period for their shares in the Company will be automatically extended for 6 months. Their commitments above shall survive job change and resignation. (4) Should any of them/their partnership violate the said share lock-up commitments, the lock-up period for their/their partnership"s shares in the Company will be automatically extended for 6 months.Restrictions Senior (1) Within 12 months from the date of the Date: No Yes Not Noton sales management Company"s IPO, they shall not transfer or September applicable applicable WANG Li authorize any other to manage their shares 3, 2018 directly or indirectly held in the Company or Duration: have the Company repurchase such shares. (2) September During their terms as the Company"s senior 3, 2018 to management, they shall not transfer more than long-term held in the Company each year. Within six months after leaving office, they shall not transfer their shares directly or indirectly held in the Company. (3) If their shares in the Company are sold within two years upon expiration of the lock-up period, the selling price shall not be lower than the offering price. If the closing price of the Company"s shares is lower than the offering price for 20 consecutive trading days within 6 months after the Company"s IPO, or the closing price as of Annual Report 2022 the end of the 6-month period after the Company"s IPO is lower than the offering price, the lock-up period for their shares in the Company will be automatically extended for 6 months. Their commitments above shall survive job change and resignation. (4) Should any of them/their partnership violate the said share lock-up commitments, the lock-up period for their/their partnership"s shares in the Company will be automatically extended for 6 months.Restrictions Controlling (1) Within 24 months upon expiration of the Date: No Yes Not Noton sales shareholder lock-up period, they shall not directly or November applicable applicable and actual indirectly reduce their shares in the Issuer by 15, 2017 controller more than 6% of the total number of shares of Duration: HOU the Issuer before such IPO. (2) They must sell November Juncheng shares in the Company through methods 15, 2017 and FANG including but not limited to collective trading to long- Aiqin through bidding, block trading, and transfer by term agreement and transfer by agreement in line with applicable laws, regulations and rules. (3) Before selling the Company"s shares, they shall announce the same three trading days in advance, discharge the obligation to disclose information in a timely and accurate manner as per the rules of the securities exchange, except to the extent that their shares in the Company are less than 5%. (4) Should they fail to perform the said intent of share reduction, they Annual Report 2022 must explain the cause for failing to do so in the Company"s General Meeting of Shareholders and the media designated by the CSRC and publicly apologize to the Company"s shareholders and public investors.Restrictions Shareholders (1) If they intend to reduce shares after the Date: No Yes Not Noton sales FANG lock-up period expires, they will prudently November applicable applicable Yuyou and make a share reduction plan as necessary for 15, 2017 LI Xiaolin the Company to stabilize the share price and Duration: directly conduct operations and capital operations as November holding required by the CSRC and the exchange on 15, 2017 more than shareholders for share reduction, whereby to long- the the lock-up period. (2) They must sell shares Company in the Company with methods including but not limited to collective trading through bidding, block trading, and transfer by agreement in line with applicable laws, regulations and rules. (3) Before selling the Company"s shares, they shall announce the same three trading days in advance, discharge the obligation to disclose information in a timely and accurate manner as per the rules of the securities exchange except to the extent that their shares in the Company are less than intent of share reduction, they must explain the cause for failing to do so in the Company"s General Meeting of Shareholders and the Annual Report 2022 media designated by the CSRC and publicly apologize to the Company"s shareholders and public investors.Other The When the preconditions for enabling the share Date: No Yes Not Not Company price stabilization plan are met, if the November applicable applicable Company fails to take specific measures to 15, 2017 stabilize the share price, the Company must Duration: explain the cause for failing to do so in the November Company"s General Meeting of Shareholders 15, 2017 and the media designated by the CSRC and to long- publicly apologize to the Company"s term shareholders and public investors. In the event of losses to investors not as a result of force majeure, the Company will be liable for compensation to investors by law, and be liable otherwise as required by laws, regulations and competent regulators; if the losses are caused due to force majeure, the Company shall work out a plan in the shortest possible time to minimize losses to investors and submit it to the General Meeting of Shareholders for deliberation, so as to protect the interests of the Company"s investors as much as possible. Within three years from the date of the Company"s IPO, if the Company appoints new directors and senior management, the Company will require such new directors and senior management to fulfill the commitments made by the directors and Annual Report 2022 senior management at the time of the Company"s IPO.Other The When the preconditions for enabling the share Date: No Yes Not Not Company"s price stabilization plan are met, if failing to November applicable applicable controlling take specific measures to stabilize the share 15, 2017 shareholders price, they must explain the cause for failing to Duration: and actual do so at the Issuer"s General Meeting of November controllers Shareholders and the media designated by the 15, 2017 CSRC and publicly apologize to the Issuer"s to long- shareholders and public investors. Where the term commitment is not fulfilled, they will not receive shareholder dividends from the Issuer within 5 working days from the date when the said incident occurs, and they will not be able to transfer their shares until they take measures to stabilize the share price as per the said plan and achieve results.Other The When the preconditions for enabling the share Date: No Yes Not Not Company"s price stabilization plan are met, if failing to November applicable applicable directors take specific measures to stabilize the share 15, 2017 (excluding price as per the plan to stabilize the share price, Duration: independent they must explain the cause for failing to do so November directors) at the Issuer"s General Meeting of 15, 2017 and senior Shareholders and the media designated by the to long- management CSRC and publicly apologize to the Issuer"s term shareholders and public investors. Where the commitment is not fulfilled, they will not receive remuneration and shareholder dividends (if any) from the Issuer within 5 Annual Report 2022 working days from the date when the said incident occurs, and they will not be able to transfer their shares until they take measures to stabilize the share price as per the said plan and achieve results.Other The If the Company"s prospectus contains false Date: No Yes Not Not Company records, misleading statements or major November applicable applicable omissions, which causes investors to suffer 15, 2017 losses in securities transactions, the Company Duration: will compensate investors for such losses by November law. After the illegal facts mentioned above 15, 2017 are identified by the CSRC or the stock to long- exchange or the judicial authority where the term Company is located, the Company will actively compensate investors for direct economic losses incurred therefrom by settling with investors with respect to measurable economic losses directly incurred to investors, mediating with investors through a third party and establishing an investor compensation fund based on the principles of procedure simplification, active negotiation, compensation in advance, and effective protection of investors" interests, especially small and medium investors. If found to have violated the said commitments, the Company will publicly apologize to shareholders and public investors for failing to perform the said compensation measures at the General Annual Report 2022 Meeting of Shareholders and the media designated by the CSRC and compensate investors for the actual losses identified by the CSRC and the judicial authority.Other The Issuer"s If the Issuer"s prospectus contains false Date: No Yes Not Not controlling records, misleading statements or major November applicable applicable shareholders omissions, which causes investors to suffer 15, 2017 and actual losses in securities transactions, they will Duration: controllers compensate investors for such losses by law. November After the illegal facts mentioned above are 15, 2017 identified by the CSRC or the stock exchange to long- or the judicial authority where the Company is term located, the Company will actively compensate investors for direct economic losses incurred therefrom by settling with investors with respect to measurable economic losses directly incurred to investors, mediating with investors through a third party and establishing an investor compensation fund based on the principles of procedure simplification, active negotiation, compensation in advance, and effective protection of investors" interests, especially small and medium investors. If found to have violated the said commitments, the Company"s controlling shareholders and actual controllers will publicly apologize to the Issuer"s shareholders and public investors for failing to perform the said compensation measures at the Annual Report 2022 Issuer"s General Meeting of Shareholders and the media designated by the CSRC and will not receive shareholder dividends from the Issuer within 5 working days from the date when the said commitments are violated, and their shares in the Issuer will not be transferred until they take compensation measures as per the said commitments and achieve results.Other Directors, If the Issuer"s prospectus contains false Date: No Yes Not Not supervisors records, misleading statements or major November applicable applicable and senior omissions, which causes investors to suffer 15, 2017 management losses in securities transactions, they will Duration: compensate investors for such losses by law. November After the illegal facts mentioned above are 15, 2017 identified by the CSRC or the stock exchange to long- or the judicial authority where the Company is term located, the Company will actively compensate investors for direct economic losses incurred therefrom by settling with investors with respect to measurable economic losses directly incurred to investors, mediating with investors through a third party and establishing an investor compensation fund based on the principles of procedure simplification, active negotiation, compensation in advance, and effective protection of investors" interests, especially small and medium investors. If found to have violated the said commitments, the Company"s Annual Report 2022 directors, supervisors and senior management will publicly apologize to the Issuer"s shareholders and public investors for failing to perform the said compensation measures at the Issuer"s General Meeting of Shareholders and the media designated by the CSRC and will not receive remuneration (or allowances) and shareholder dividends (if any) from the Issuer within 5 working days from the date when the said commitments are violated, and their shares in the Issuer will not be transferred until they take compensation measures as per the said commitments and achieve results.Other The In order to ensure the effective use of the Date: No Yes Not Not Company proceeds from the IPO, effectively prevent the November applicable applicable risk of diluting immediate returns and improve 15, 2017 future returns, the Company intends to take Duration: measures including tightening operation November management and internal control, accelerating 15, 2017 the progress of fundraising projects, and to long- strengthening the investor return mechanism, term so as to improve asset quality, increase operation revenue, raise future earnings, and achieve sustainable development to fill the diluted immediate returns. The Company promises to continuously improve various measures to fill the diluted spot returns in accordance with the implementation rules issued by the CSRC and Shanghai Stock Annual Report 2022 Exchange. If found to have violated the said commitments, the Company will promptly announce the facts and cause of such violation, except for force majeure or other reasons not attributable to the Company, apologize to the Company"s shareholders and public investors, make supplementary commitments or substitute commitments to investors to protect the interests of investors as much as possible, and implement such supplementary commitments or substitute commitments subject to the approval by the Company"s General Meeting of Shareholders.Other Controlling In order to ensure that the Company"s Date: No Yes Not Not shareholder measures to fill the diluted immediate returns November applicable applicable and actual can be effectively performed, they, as the 15, 2017 controller Company"s controlling shareholder and actual Duration: HOU controller, promise that: (1) Under no November Juncheng circumstances will they abuse the position as 15, 2017 and FANG the controlling shareholder and actual to long- Aiqin controller by ultra vires interfering with the term Company"s operation and management activities or encroaching on the Company"s interests; (2) After the CSRC and Shanghai Stock Exchange have otherwise released opinions and implementation rules on measures to fill the diluted immediate returns and relevant commitments, if the Company"s relevant provisions and their commitments Annual Report 2022 contradict such rules, they will immediately make supplementary commitments in line with such rules of the CSRC and Shanghai Stock Exchange, and actively promote the Company to issue new commitments or measures up to the requirements of the CSRC and Shanghai Stock Exchange; (3) They will fully, completely and timely perform the Company"s measures to fill the diluted immediate returns and their commitments regarding the measures to fill the diluted immediate returns. If found to have violated such commitments, which causes losses to the Company or shareholders, they are willing to: ① state the cause and apologize at the General Meeting of Shareholders and the media designated by the CSRC; ② be liable for compensation to the Company and/or shareholders by law; ③ unconditionally accept the penalties or regulatory measures taken by the CSRC and/or Shanghai Stock Exchange and other securities regulators as per their current rules. The said measures to fill the diluted immediate returns shall not be deemed to constitute a guarantee for the Company"s future profits.Other Directors, In order to ensure that the Company"s Date: No Yes Not Not senior measures to fill the diluted immediate returns November applicable applicable management can be effectively performed, they, as the 15, 2017 Annual Report 2022Company"s directors and senior management, Duration:promise that: (1) They will not offer benefits Novemberto other entities or individuals for free or on 15, 2017unfair terms, or otherwise harm the Company"s to long-interests; (2) They will strictly follow the termCompany"s budget management by limitingtheir duty-related consumption to the extentrequired, subject to the Company"ssupervision, and free from waste orextravagance; (3) They will not use theCompany"s assets to engage in investment andconsumption activities unrelated to theirduties; (4) They will actively promote theimprovement of the Company"s compensationsystem to better meet the requirements forfilling the diluted immediate returns; supportthe Company"s Board of Directors orRemuneration Committee to link thedevelopment, revision, and supplementation ofthe Company"s compensation system with theimplementation of the measures to fill thediluted immediate returns; promise that thevesting conditions for the Company"s equityincentives will be linked to the implementationof the Company"s measures to fill the dilutedimmediate returns; (5) After the CSRC andShanghai Stock Exchange have otherwisereleased the opinions and implementationrules on the measures to fill the diluted Annual Report 2022immediate returns and relevant commitments,if the Company"s relevant provisions and theircommitments contradict such rules, they willimmediately make supplementarycommitments in line with such rules of theCSRC and Shanghai Stock Exchange, andactively promote the Company to issue newcommitments or measures up to therequirements of the CSRC and Shanghai StockExchange; (6) They will fully, completely andtimely perform the Company"s measures to fillthe diluted immediate returns and theircommitments regarding the measures to fill thediluted immediate returns. If found to haveviolated such commitments, which causeslosses to the Company or shareholders, theyare willing to: ① state the cause andapologize at the General Meeting ofShareholders and the media designated by theCSRC; ② be liable for compensation to theCompany and/or shareholders by law; ③unconditionally accept the penalties orregulatory measures taken by the CSRC and/orShanghai Stock Exchange and other securitiesregulators as per their current rules. The saidmeasures to fill the diluted immediate returnsshall not be deemed to constitute a guaranteefor the Issuer"s future profits. Annual Report 2022Avoiding Controlling 1. They do not and will not directly or Date: No Yes Not Nothorizontal shareholder indirectly engage in any activities constituting November applicable applicablecompetition and actual horizontal competition with the existing and 15, 2017 controller future businesses of the Company and its Duration: HOU holding subsidiaries, including but not limited November Juncheng to the R&D, production and sale of any 15, 2017 and FANG products same as or similar to those of the to long- Aiqin Company and its holding subsidiaries. They term shall be liable for the economic losses to the Company caused by violation of the above commitments. 2. For the enterprises under their control, They will perform their obligations under such commitments by assigning agencies and personnel (including but not limited to directors and managers), and They shall be liable for the economic losses to the Company caused by violation of the above commitments. 3. From the date of signing this letter of commitment, if the Company further expands its product and business scope, the enterprises under their control shall not compete with the Company within the expanded product or business scope, or will, in case of any possible competition with the Company within the expanded product or business scope, withdraw from the competition by: (1) stopping the production of competing or potentially competing products; (2) stopping the operation of competing or Annual Report 2022 potentially competing business; (3) transferring the competing business to the Company; or (4) transferring the competing business to an unrelated third party. 4. Their shareholding companies, including Hangzhou Huazhuang Industrial Investment Co., Ltd., Huzhou Mogan Wangshu Cosmetics Industry Phase I Venture Capital Partnership (Limited Partnership), and companies that they invest in, engage in no cosmetics business or related upstream and downstream business. If they engage in such businesses in the future, They commit that they will withdraw their investment in those business through equity transfer and other means, and that the Company will be given priority to invest in the said enterprises according to legal provisions and the consent of other shareholders of those enterprises. Other Controlling Commitments on the effective fulfillment of Date: No Yes Not Not shareholder the Company"s measures to fill the diluted April 21, applicable applicable and actual immediate returns: 1. Under no circumstances 2021 controller will they interfere with the Company"s Duration:Commitments HOU operation and management activities or April 21,on Juncheng encroach on the company"s interests by ultra 2021 torefinancing and FANG vires; 2. From the date of the issuance of these long-term Aiqin commitments to the date of the Company"s public issuance of A-share convertible corporate bonds, if the CSRC releases new Annual Report 2022 regulatory rules on the measures to fill the diluted immediate returns and relevant commitments and the above-mentioned commitments can no longer satisfy the new regulatory rules, they will make supplementary commitments in line with the latest rules of the CSRC; 3. They will practically fulfill the Company"s measures for filling the diluted immediate returns and their commitments regarding the measures to fill the diluted immediate returns. Where they violate those commitments, causing losses to the Company or investors, they will assume the compensation liability to the Company or investors according to law. As one of the parties responsible for the measures to fill the immediate returns, should they violate or refuse to fulfill the above commitments, they shall be subject to the punishment or relevant regulatory measures imposed on them by the securities regulatory authorities such as the CSRC and the SSE in accordance with the relevant regulations and rules.Other Directors, Commitments on the effective fulfillment of Date: No Yes Not Not senior the Company"s measures to fill the diluted April 21, applicable applicable management immediate returns: 1. They will not offer 2021 benefits to other entities or individuals for free Duration: or on unfair terms, or otherwise harm the April 21, Company"s interests; 2. They will limit their Annual Report 2022duty-related consumption; 3. They will not use 2021 tothe Company"s assets to engage in investment long-termand consumption activities unrelated to theirduties; 4. The compensation system developedby the Board of Directors and theRemuneration and Appraisal Committee willbe linked to the implementation of themeasures for filling the diluted immediatereturns; 5. If the Company issues equityincentives in the future, the vesting conditionsfor the Company"s equity incentives will belinked to the implementation of the Company"smeasures to fill the diluted immediate returns;commitments to the date of the Company"spublic issuance of A-share convertiblecorporate bonds, if the CSRC releases newregulatory rules on the measures to fill thediluted immediate returns and relevantcommitments and the above-mentionedcommitments can no longer satisfy the newregulatory rules, they will makesupplementary commitments in line with thelatest rules of the CSRC. As one of the partiesresponsible for the measures to fill theimmediate returns, should they violate orrefuse to fulfill the above commitments, theyshall be subject to the punishment or relevantregulatory measures imposed on them by the Annual Report 2022securities regulatory authorities such as theCSRC and the SSE in accordance with therelevant regulations and rules. Annual Report 2022(II) Statement of whether the Company"s assets or projects fulfilled the original profit forecast and its reason where the Company had profit forecasts on assets or projects and the Reporting Period fell within the term of profit forecasts□Fulfilled □Unfulfilled √Not applicable(III) Execution of the performance undertakings and their impact on the goodwill impairment testing□ Applicable √ Not applicable Annual Report 2022II. Non-operating Occupation of Funds by the Controlling Shareholders and Other Related Parties during the Reporting Period□ Applicable √ Not applicableIII. Illegal Guarantee□ Applicable √ Not applicable Annual Report 2022IV. Explanation of the Company"s Board of Directors on the "Non-standard Audit Report" from the Accounting Firm□ Applicable √ Not applicableV. Analysis and Explanation from the Company on the Reasons and Impact of Changes in Accounting Policies, Accounting Estimates or Correction on Significant Accounting Errors(I) Analysis and explanation from the Company on the reasons and impact of changes in accounting policies or accounting estimates√ Applicable □ Not applicableFor details, see the description in "44. Changes in significant accounting policies and accountingestimates", "V. Significant Accounting Policies and Accounting Estimates", "Section X Financial Report".(II) Analysis and explanation from the Company on the reasons and impact of the correction on significant accounting errors□ Applicable √ Not applicable(III) Communication with the previous accounting firm□ Applicable √ Not applicable(IV) Other explanations□ Applicable √ Not applicableVI. Appointment and Dismissal of the Accounting Firm Unit: Yuan Currency: RMB Current accounting firm Pan-China Certified Public Accountants Name of the domestic accounting firm (Special General Partnership) Remuneration of the domestic accounting firm 1,400,000 Term of office of the domestic accounting firm 12 Names of CPAs from the domestic accounting firm YIN Zhibin, WANG Xiaokang YIN Zhibin: 3 years of continual term of Continual term of audit service provided by the CPAs audit service from the in the domestic accounting firm WANG Xiaokang: 5 years of continual term of audit service Name Remuneration Pan-China Certified Public Accounting firm for internal Accountants (Special General 200,000 control and audit Partnership)Explanation on appointment and dismissal of the accounting firm□ Applicable √ Not applicable Annual Report 2022Explanation on the change of accounting firm during the Auditing Period□ Applicable √ Not applicableVII. Particulars on Risk of Delisting(I) Reasons for the delisting risk warning□ Applicable √ Not applicable(II) Measures to be taken by the Company□ Applicable √ Not applicable(III) Situation and causes for termination of listing□ Applicable √ Not applicableVIII. Matters Related to Bankruptcy and Reorganization□ Applicable √ Not applicableIX. Material Litigations and Arbitrations□ The Company had material litigations and arbitrations during the year √ The Company had no materiallitigations and arbitrations during the yearX. Suspected Violations, Penalties and Rectifications of the Company and Its Directors, Supervisors, Senior Management, Controlling Shareholders and Actual Controllers□ Applicable √ Not applicableXI. Integrity of the Company and Its Controlling Shareholders and Actual Controllers During the Reporting Period√ Applicable □ Not applicable During the Reporting Period, the Company and its controlling shareholders and actual controllerswere in good faith.XII. Significant Related-party Transactions(I) Related-party transactions pertaining to daily operation the follow-up implementation□ Applicable √ Not applicable follow-up implementation√ Applicable □ Not applicableThe 5th meeting of the third session of Board of Directors and the 2021 annual General Meeting ofShareholders were held by the Company on April 20, 2022 and May 12, 2022 respectively to deliberate Annual Report 2022on and approve the Proposal on the Estimated Amount of Daily Related-party Transactions for 2022. Fordetails, see the Announcement on the Estimated Amount of Daily Related-party Transactions for 2022(No.: 2022-020) disclosed by the Company on the SSE website (www.sse.com.cn) on April 22, 2022. Thenumber of daily related-party transactions of the Company in 2022 does not exceed the estimated numberat the beginning of the year.The estimated and actual amounts of the Company"s daily related-party transactions in 2022 are as follows: Category of Actual amount in related-party Related party Estimated amount in 2022 transactions Deposits in Zhejiang Yueqing Rural No more than RMB150 bank accounts Commercial Bank Co., million for daily amount RMB146.67million opened with the Ltd. related party Huzhou Beauteville Information of Technology Incubator RMB1.8 million RMB1.12million related lease Co., Ltd.Note: The "actual amount in 2022" represents the balance in the accounts as of March 15, 2022 as ZhejiangYueqing Rural Commercial Bank Co., Ltd. has no longer been identified as an affiliated entity of theCompany since March 16, 2022. From January 1, 2022 to March 15, 2022, the Company obtained a depositinterest of RMB1.44million from Zhejiang Yueqing Rural Commercial Bank Co., Ltd.□ Applicable √ Not applicable(II) Related-party transactions arising from acquisition and disposal of assets or equity the follow-up implementation□ Applicable √ Not applicable follow-up implementation□ Applicable √ Not applicable□ Applicable √ Not applicable performance□ Applicable √ Not applicable(III) Significant related-party transactions pertaining to joint external investment the follow-up implementation□ Applicable √ Not applicable Annual Report 2022 follow-up implementation□ Applicable √ Not applicable□ Applicable √ Not applicable(IV) Credits and debits with related parties the follow-up implementation□ Applicable √ Not applicable follow-up implementation□ Applicable √ Not applicable□ Applicable √ Not applicable(V) Financial business between the Company and related financial companies, holding financialcompanies and related parties□ Applicable √ Not applicable(VI) Other□ Applicable √ Not applicableXIII. Significant Contracts and Their Performance(I) Trusteeship, contracting and leasing□ Applicable √ Not applicable□ Applicable √ Not applicable□ Applicable √ Not applicable Annual Report 2022(II) Guarantee□ Applicable √ Not applicable Annual Report 2022(III) Entrusting others to manage cash assets(1) Overall condition of entrusted wealth management□ Applicable √ Not applicableOthers□ Applicable √ Not applicable(2) Individual entrusted wealth management□ Applicable √ Not applicableOthers□ Applicable √ Not applicable(3) Impairment provisions of entrusted wealth management□ Applicable √ Not applicable(1) Overall condition of entrusted loans□ Applicable √ Not applicableOthers□ Applicable √ Not applicable(2) Individual entrusted loans□ Applicable √ Not applicableOthers□ Applicable √ Not applicable(3) Impairment provisions of entrusted loans□ Applicable √ Not applicable□ Applicable √ Not applicable(IV) Other material contracts□ Applicable √ Not applicableXIV. Other Major Matters That Have A Significant Impact on Investors" Value Judgments and Investment Decisions□ Applicable √ Not applicable Annual Report 2022 Section VII Shareholders and Changes in Shares I. Changes in Share Capital (I) Table of changes in shares Unit: ’0,000 shares Before this change Increase or decrease (+ or -) due to this change After this change Shares Issuance converted Percent Bonus Percentage Number of new from Other Subtotal Number age (%) shares (%) shares capital reserveI. Restrictedsharesby the stateby state-ownedlegal personsby other 34.7201 0.1727 210 -34.7201 175.2799 210 0.7407domestic fundsWherein: Sharesheld bydomestic non-state-ownedlegal personsShares held bydomestic natural 34.7201 0.1727 210 -34.7201 175.2799 210 0.7407personsby foreign fundsWherein: Sharesheld by foreignlegal persons Sharesheld by foreignnatural personsII. Unrestrictedoutstanding 99.8273 8,040.3986 35.2718 99.2593sharesOrdinary Shares 2765 04 469funded shareslisteddomesticallyfunded shareslisted overseas Annual Report 2022III. Total shares 20,100. 8,250.95 28,351.9 √ Applicable □ Not applicable On January 12, 2022, the 4th meeting of the third session of Board of Directors and the 4th meeting of the third session of Board of Supervisors were held to deliberate on and approve the Proposal on the Satisfaction of Conditions for Releasing the Sales Restrictions for the Third Release Period of the Restricted Shares Granted for the First Time and with Reserve under the 2018 Restricted Share Incentive Plan, agreeing that the Company may handle the release procedure for the incentive recipients who meet the conditions for releasing the sales restrictions. A total of 347,201 restricted shares were released from the sales restriction. The circulation date of released shares is January 20, 2022. The number of the unrestricted circulating shares of the Company increased from 200,662,765 before the listing to listing to 0. On May 12, 2022, the 2021 annual General Meeting of Shareholders was held to deliberate on and approve the Company"s Plan for Profit Distribution and Capitalization of Capital Reserves for 2021, in which the Company distributed to all shareholders a cash dividend of RMB8.60 (tax inclusive) per 10 shares based on the total share capital as of the record date on which equity distribution is implemented and issued 4 shares for every 10 shares to all shareholders through capitalization of the capital reserve, totaling number of the unrestricted circulating shares of the Company increased from 201,009,966 before the listing to 281,413,952. On July 25, 2022, the 7th meeting of the third session of Board of Directors and the 7th meeting of the third session of Board of Supervisors were held to deliberate on and approve the Proposal on the Granting of Restricted Shares to Incentive Recipients, which considered that the granting conditions specified in the restricted shares would be granted to 101 eligible incentive recipients at the consideration of RMB78.56/share on July 25, 2022, which is considered the grant day. On September 6, 2022, the Company completed the registration of the grant under the 2022 Restricted Share Incentive Plan at CSDC Shanghai Branch. The number of the restricted circulating shares of the Company increased from 0 before the listing to 2,100,000. With the Approval of the CSRC, namely, the Reply on Approving Proya Cosmetics Co., Ltd."s Public Issuance of Convertible Corporate Bonds (Zheng Jian Xu Ke [2021] No. 3408), on December 8, 2021, the Company publicly issued 7,517,130 convertible bonds with a face value of RMB100 per share and a total face value of RMB751,713,000, with a term of 6 years. With the approval of the SSE"s Self- Regulatory Supervision Decision Letter [2021] No. 503, the convertible corporate bonds issued by the Company amounting to RMB751,713,000 would be listed and traded on the Shanghai Stock Exchange from January 4, 2022, with the short name of "Proya Convertible Bond" and the bond code of "113634". The Proya Convertible Bond started conversion on June 14, 2022. As of December 31, 2022, RMB776,000 of Proya Convertible Bond had been converted to A-share stocks of the Company, generating 5,517 shares. The number of the unrestricted circulating shares of the Company increased by 5,517. Annual Report 2022 financial indicators in the last year and period (if any)√ Applicable □ Not applicableImplementation of the 2021 plan for capitalization of capital reserves: calculated based on the diluted totalshare capital after the capitalization of capital reserves.Changes in other shares: no material impact. authority requires□ Applicable √ Not applicable(II) Changes in restricted shares√ Applicable □ Not applicable Unit: Share Number of Number of Number of Number of restricted restricted restricted Date of restricted Reason for Name of shares at shares shares releasing shares at the sales shareholder the released increased the sales end of the restriction beginning during the during the restriction year of the year year year Restricted JIN Yanhua 39,320 39,320 140,000 140,000 - Stock Incentive Plan Restricted WANG Li 22,382 22,382 180,000 180,000 - Stock Incentive Plan granted for The grant for the first time the first time under 2018 under 2018 January Restricted Restricted 20, 2022 Stock Stock Incentive Incentive Plan Plan granted with The grant with reserve under reserve under Restricted Restricted 20, 2022 Stock Stock Incentive Incentive Plan Plan Annual Report 2022 granted under Restricted Restricted 0 0 1,780,000 1,780,000 - Stock Stock Incentive Plan Incentive Plan Total 347,201 347,201 2,100,000 2,100,000 / /II. Issuance and Listing of Securities(I) Issuance of securities as of the Reporting Period√ Applicable □ Not applicable Unit: Share Currency: RMB Number of Issue Category of shares price (or Issue Circulation Termination shares and their Issue date available for interest quantity date date derivatives circulation rate) and trading Convertible corporate bonds and warrant bonds Convertible corporate bondsIssuance of securities in the Reporting Period (provide separate explanation on bonds with differentinterest rates in their duration):√ Applicable □ Not applicableWith the Approval of the CSRC, namely, the Reply on Approving Proya Cosmetics Co., Ltd."s PublicIssuance of Convertible Corporate Bonds (Zheng Jian Xu Ke [2021] No. 3408), on December 8, 2021,the Company publicly issued 7,517,130 convertible bonds with a face value of RMB100 per share and atotal face value of RMB751,713,000. These convertible bonds were issued at face value with a term of 6years.With the approval of the SSE"s Self-Regulatory Supervision Decision Letter [2021] No. 503, theconvertible corporate bonds issued by the Company amounting to RMB751,713,000 would be listed andtraded on the Shanghai Stock Exchange from January 4, 2022, with the short name of "Proya ConvertibleBond" and the bond code of "113634". The nominal interest rate of the convertible corporate bonds issuedthis time was as follows: 0.30% in the first year, 0.50% in the second year, 1.00% in the third year, 1.50%in the fourth year, 1.80% in the fifth year, and 2.00% in the sixth year. The duration of the convertiblecorporate bonds runs from December 8, 2021 to December 7, 2027.According to relevant regulations and the Prospectus of Proya Cosmetics Co., Ltd. for the Public Offeringof A-Share Convertible Corporate Bonds, this “Proya Convertible Bond” issued by the Company can beconverted to the Company"s shares from June 14, 2022. The convertible period is from June 14, 2022 toDecember 7, 2027. The initial conversion price is 195.98 RMB/share. The latest conversion price is 138.92RMB/share. The historical adjustments to the conversion price are as follows:“Proya Convertible Bond” was adjusted to RMB139.37/share on May 30, 2022. For details, see theAnnouncement of Proya Cosmetics Co., Ltd. on Adjustment of Conversion Price due to 2021 Equity Annual Report 2022Distribution Plan (No.: 2022-029) released by the Company on the SSE website on May 24, 2022(www.sse.com.cn).Plan was completed, the conversion price of the “Proya Convertible Bond” has been adjusted to 138.92RMB/share since September 9, 2022. For details, see the Announcement of Proya Cosmetics Co., Ltd. onAdjustment of Conversion Price due to Additional Issuance from Granting of Restricted Shares (No.:(II) Changes in the total number of shares and shareholder structure of the Company and changes in the structure of assets and liabilities of the Company√ Applicable □ Not applicableThe total number of the Company"s ordinary shares at the beginning and end of the Reporting Period wasThe Company"s total assets and total liabilities at the beginning of the Reporting Period amounted toRMB4,633,049,783.03 and RMB1,746,209,355.96 respectively, with the asset-liability ratio of 37.69%.The Company"s total assets and total liabilities at the end of the Reporting Period amounted toRMB5,778,071,824.19 and RMB2,240,848,493.90 respectively, with the asset-liability ratio of 38.78%.(III) Existing internal employee shares□ Applicable √ Not applicableIII. Shareholders and Actual Controllers(I) Total number of shareholders Total number of shareholders of ordinary shares as of the end of the Reporting Period Total number of shareholders of ordinary shares at the end of last month prior to the disclosure date 13,080 of the Annual Report Total number of shareholders of preferred shares whose voting rights have been restored as of the 0 end of the Reporting Period Total number of shareholders of preferred shares whose voting rights have been restored at the end of last month prior to the disclosure date of the Annual Report(II) Table of shareholdings of the top ten shareholders and the top ten shareholders of circulating shares (or unrestricted shareholders) as of the end of the Reporting Period Unit: share Shareholdings of the top ten shareholders Name of Number of Number Pledged, Change Percentage Nature of shareholder shares held of marked or during the (%) shareholder (full name) at the end restricted frozen Annual Report 2022 Reporting of the shares Share Number Period period held status DomesticHOUJuncheng personHong KongSecuritiesClearing 17,317,429 64,473,469 22.74 0 None OtherCompanyLimited DomesticFANG Yuyou 9,424,627 45,772,470 16.14 0 None natural personChinaConstructionBank Co.,Ltd. - YinhuaFuyu Theme 5,801,301 5,801,301 2.05 0 None OtherHybridSecuritiesInvestmentFundChinaConstructionBank Co.,Ltd. - CUAMConsumerIndustryHybridSecuritiesInvestmentFundAberdeenStandardInvestmentManagement(Asia) Co.,Ltd. -AberdeenStandard -China A-shareEquity Fund Annual Report 2022Industrial andCommercialBank of ChinaLimited -JingshunChangchengEmergingGrowthHybridSecuritiesInvestmentFundIndustrial andCommercialBank of ChinaLimited -CUAMConsumption 300,002 1,500,089 0.53 0 None OtherUpgradeHybridSecuritiesInvestmentFund DomesticCAO -2,407,401 1,362,537 0.48 0 None naturalLiangguo personJ. P. MorganSecuritiesPLC - Self-owned Capital Shareholdings of the top ten unrestricted shareholders Number of unrestricted Type and number of shares Name of shareholder circulating shares held Type NumberHOU Juncheng 97,670,741 RMB ordinary shares 97,670,741Hong Kong SecuritiesClearing Company LimitedFANG Yuyou 45,772,470 RMB ordinary shares 45,772,470China Construction BankCo., Ltd. - Yinhua FuyuTheme Hybrid SecuritiesInvestment FundChina Construction BankCo., Ltd. - CUAM ConsumerIndustry Hybrid SecuritiesInvestment Fund Annual Report 2022 Aberdeen Standard Investment Management (Asia) Co., Ltd. - Aberdeen 2,552,293 RMB ordinary shares 2,552,293 Standard - China A-share Equity Fund Industrial and Commercial Bank of China Limited - Jingshun Changcheng 2,380,000 RMB ordinary shares 2,380,000 Emerging Growth Hybrid Securities Investment Fund Industrial and Commercial Bank of China Limited - CUAM Consumption 1,500,089 RMB ordinary shares 1,500,089 Upgrade Hybrid Securities Investment Fund CAO Liangguo 1,362,537 RMB ordinary shares 1,362,537 J. P. Morgan Securities PLC - Self-owned Capital Explanation on the special account for repurchase None among the top ten shareholders Explanation on the above- mentioned shareholders" entrusting voting rights, None entrusted voting rights and abstention from voting rights Explanation on the related relationship or parties acting FANG Yuyou is the younger brother of HOU Juncheng"s spouse FANG in concert among the above Aiqin, so HOU Juncheng and FANG Yuyou are related. shareholders Explanation on the shareholders of preferred shares with voting rights None restored and their shareholdingsShareholdings and sales restrictions of the top ten restricted shareholders√ Applicable □ Not applicable Unit: share Number of Availability of restricted Name of shareholder of Sales Number restricted shares for circulation and restricted shares restrictions shares held trading Annual Report 2022 Number of Time of new shares availability available for for circulation circulation and trading and trading See the explanation below for details Explanation on the related relationship or parties acting in concert among the above None shareholdersNote: The restricted shares held by equity incentive recipients are those granted under the 2022 RestrictedStock Incentive Plan. The restricted period was 12 months, 24 months, and 36 months from the completionof their registration with CSDC Shanghai Branch (September 6, 2022).(III) Strategic investors or general legal persons becoming the top ten shareholders because of placing of new shares□ Applicable √ Not applicableIV. Controlling shareholders and Actual Controllers(I) Controlling shareholders□ Applicable √ Not applicable√ Applicable □ Not applicable Name HOU Juncheng and Fang Aiqin Nationality Chinese Acquire residence permits in other No countries or regions or not HOU Juncheng and Fang Aiqin are husband and wife. HOU Juncheng serves as the Chairman of the Company, and Fang Main job and title Aiqin serves as the Senior Purchasing Consultant of the Company.□ Applicable √ Not applicable□ Applicable √ Not applicable Annual Report 2022 controlling shareholders√ Applicable □ Not applicable(II) Actual controllers□ Applicable √ Not applicable√ Applicable □ Not applicable Name HOU Juncheng and Fang Aiqin Nationality Chinese Acquire residence permits in other No countries or regions or not HOU Juncheng and Fang Aiqin are husband and wife. HOU Juncheng serves as the Chairman of the Company, and Fang Main job and title Aiqin serves as the Senior Purchasing Consultant of the Company. Shareholdings in other domestic or overseas listed companies over the None past 10 years□ Applicable √ Not applicable□ Applicable √ Not applicable controllers√ Applicable □ Not applicable Annual Report 2022 management□ Applicable √ Not applicable(III) Other explanations on controlling shareholders and actual controllers□ Applicable √ Not applicableV. The accumulative number of pledged shares of the Company"s controlling shareholders or the largest shareholder and its persons acting in concert accounted for more than 80% of the Company"s shares held by them□ Applicable √ Not applicableVI. Other Legal Person Shareholders with More Than 10% Shareholdings□ Applicable √ Not applicableVII. Explanation on Limitation on Reduction of Shareholding□ Applicable √ Not applicableVIII.Specific Implementation of Share Repurchase During the Reporting Period□ Applicable √ Not applicable Section VIII Information on Preferred Shares□ Applicable √ Not applicable Annual Report 2022 Section IX Information on BondsI. Enterprise Bonds, Corporate Bonds and Non-financial Corporate Debt Financing Instruments□ Applicable √ Not applicableII. Convertible Corporate Bonds√ Applicable □ Not applicable(I) Issuance of convertible bonds√ Applicable □ Not applicableWith the Approval of the CSRC, namely, the Reply on Approving Proya Cosmetics Co., Ltd."s PublicIssuance of Convertible Corporate Bonds (Zheng Jian Xu Ke [2021] No. 3408), on December 8, 2021,the Company publicly issued 7,517,130 convertible bonds with a face value of RMB100 per share and atotal face value of RMB751,713,000. These convertible bonds were issued at face value with a term of 6years.With the approval of the SSE"s Self-Regulatory Supervision Decision Letter [2021] No. 503, theconvertible corporate bonds issued by the Company amounting to RMB751,713,000 would be listed andtraded on the Shanghai Stock Exchange from January 4, 2022, with the short name of "Proya ConvertibleBond" and the bond code of "113634". The nominal interest rate of the convertible corporate bonds issuedthis time was as follows: 0.30% in the first year, 0.50% in the second year, 1.00% in the third year, 1.50%in the fourth year, 1.80% in the fifth year, and 2.00% in the sixth year. The duration of the convertiblecorporate bonds runs from December 8, 2021 to December 7, 2027.According to relevant regulations and the Prospectus of Proya Cosmetics Co., Ltd. for the Public Offeringof A-Share Convertible Corporate Bonds, this “Proya Convertible Bond” issued by the Company can beconverted to the Company"s shares from June 14, 2022. The convertible period is from June 14, 2022 toDecember 7, 2027. The initial conversion price is 195.98 RMB/share. The latest conversion price is 138.92RMB/share. The historical adjustments to the conversion price are as follows:Proya Convertible Bond was adjusted to RMB139.37/share on May 30, 2022. For details, see theAnnouncement of Proya Cosmetics Co., Ltd. on Adjustment of Conversion Price due to 2021 EquityDistribution Plan (No.: 2022-029) released by the Company on the SSE website on May 24, 2022(www.sse.com.cn).Plan was completed, the conversion price of the Proya Convertible Bond has been adjusted to 138.92RMB/share since September 9, 2022. For details, see the Announcement of Proya Cosmetics Co., Ltd. onAdjustment of Conversion Price due to Additional Issuance from Granting of Restricted Shares (No.:(II) Holders and guarantors of convertible bonds during the Reporting Period√ Applicable □ Not applicable Name of the convertible corporate Proya Convertible Bond bond Number of holders of the convertible corporate bond at the end of the Annual Report 2022Reporting PeriodGuarantors of the convertible bond of Nonethe CompanyThe top ten holders of the convertible bond are as follows: Number of bonds held at Name of holders of the convertible the end of the Reporting Holding ratio (%) corporate bond Period (RMB)Dajia Assets - Minsheng Bank - DajiaAssets - Selected ConservativePortfolio No.5 (Issue 2) CollectiveAsset Management ProductChina Merchants Bank Co., Ltd. -Huabao Convertible Bond Securities 40,233,000 5.36Investment FundICBC Credit Suisse Ruixi Fixed-income Pension Product - Bank of 26,647,000 3.55China LimitedIndustrial and Commercial Bank ofChina Limited - Southern ProfitableReturn Bond Securities InvestmentFundDajia Assets - China Merchants Bank -Dajia Assets - Selected ConservativePortfolio No.1 (Issue 1) CollectiveAsset Management ProductIndustrial and Commercial Bank ofChina Limited - Yinhua Convertible 21,487,000 2.86Bond Securities Investment FundDajia Assets - China CITIC Bank -Dajia Assets Houkun No.40 Collective 20,481,000 2.73Asset Management ProductGenerali Asset Management -Industrial and Commercial Bank ofChina - Generali Asset Management - 19,000,000 2.53Selected Bond Asset ManagementProductDajia Assets - Postal Savings Bank ofChina - Dajia Assets - SelectedConservative Portfolio No.6 (Issue 2)Collective Asset Management ProductChina Merchants Bank Co., Ltd. -Oriental Juli Bond Securities 12,500,000 1.66Investment Fund Annual Report 2022(III) Changes in convertible bonds during the Reporting Period√ Applicable □ Not applicable Unit: Yuan Currency: RMB Name of the Increase or decrease due to this change convertible Before this After this Share corporate change Redemption Sell-back change conversion bond Proya Convertible 751,713,000 776,000 0 0 750,937,000 BondCumulative conversion of convertible bonds during the Reporting Period√ Applicable □ Not applicable Name of the convertible corporate bond Proya Convertible Bond Amount of shares converted from bonds in the Reporting Period (RMB) Number of shares converted from bonds in the Reporting Period (share) Accumulated number of shares converted from bonds (share) Proportion of the accumulated number of converted shares in the total number of issued 0.0020 shares of the Company before conversion (%) Amount of bonds not converted into shares (RMB) Proportion of unconverted convertible bonds in the total amount of convertible bonds issued (%)(IV) Historical adjustments to the conversion price√ Applicable □ Not applicable Unit: Yuan Currency: RMB Name of the convertible Proya Convertible Bond corporate bond Date of Adjusted Time of Media of Explanation on adjustments to adjustment conversion price disclosure disclosure the conversion price Since the 2021 Equity SSE website, Distribution Plan was Shanghai implemented by the Company, May 30, 139.37 May 24, Securities the conversion price of the Proya Convertible Bond was adjusted Securities to 139.37 RMB/share on May Times Annual Report 2022 Announcement of Proya Cosmetics Co., Ltd. on Adjustment of Conversion Price due to 2021 Equity Distribution Plan (No.: 2022-029) released by the Company on the SSE website on May 24, 2022 (www.sse.com.cn). Since the registration of restricted shares involved in the grant under the 2022 Restricted Stock Incentive Plan was completed, the conversion price of the Proya Convertible Bond SSE website, has been adjusted to 138.92 Shanghai RMB/share since September 9, September 138.92 September Securities 2022. For details, see the Securities Cosmetics Co., Ltd. on Times Adjustment of Conversion Price due to Additional Issuance from Granting of Restricted Shares (No.: 2022-052) released by the Company on the SSE website on September 8, 2022 (www.sse.com.cn). Latest conversion price as of the end of the Reporting Period(V) The Company"s liabilities, changes in credit, and cash arrangements for debt repayment in future years□ Applicable √ Not applicable(VI) Other explanations on convertible bonds□ Applicable √ Not applicable Section X Financial ReportI. Audit Report√ Applicable □ Not applicable Audit Report Tian Jian Shen [2023] No.3128To all shareholders of Proya Cosmetics Co., Ltd.: Annual Report 2022I. Audit OpinionWe have audited the financial statements of Proya Cosmetics Co., Ltd. (hereinafter referred to as "Proya"),which comprise the consolidated and parent company"s balance sheets as at December 31, 2022, theconsolidated and parent company"s income statements, the consolidated and parent company"s cash flowstatements, and the consolidated and parent company"s statements of changes in shareholders" equity forthe year of 2022, as well as notes to financial statements.In our opinion, the accompanying financial statements were prepared in accordance with the AccountingStandards for Business Enterprises in all material aspects and give a true and fair view of the consolidatedand parent company"s financial position of Proya as at December 31, 2022 and of its consolidated andparent company"s operating results and cash flows for the year of 2022.II. Basis of Audit OpinionWe have conducted our audit in accordance with the Chinese Auditing Standards for Certified PublicAccountants. The "Responsibilities of CPAs for the Audit of the Financial Statements" herein furtherillustrate our responsibilities under those standards. In accordance with the Code of Professional Ethics ofChinese Certified Public Accountants, we are independent of Proya and have performed otherresponsibilities in respect of professional ethics. We believe that the audit evidence we have obtained issufficient and appropriate to provide a basis for our opinion.III. Key Audit MattersKey audit matters are, in our professional judgment, most significant in our audit of the financialstatements for the current period. These matters were addressed in the context of our audit of the financialstatements as a whole, and in forming our opinion thereon, we do not provide a separate opinion on thesematters.(I) Recognition of revenueFor relevant information disclosure, refer to "38. Revenue" in "V. Significant Accounting Policies andEstimates", "61. Operating revenue and operating costs" in "VII. Notes to the Items of ConsolidatedFinancial Statements", and "6. Segment information" in "XVI. Other Significant Matters" of "Section XFinancial Report" herein.The operating revenue of Proya primarily comes from the sale of cosmetics. The operating revenue forPursuant to the sales contract between Proya and its customer, under the distribution model, the salesrevenue is recognized by Proya when its products are delivered to and accepted by the buyers. Under theagency sales model, the sales revenue is recognized by Proya when its products are delivered to the agentand the agent completes the sales and issues the sales list for goods. Under the direct sales model, the salesrevenue is recognized by Proya when its products are delivered to its consumer and the consumer confirmsthe receipt and makes the payment.Since operating revenue is one of the key performance indicators of Proya, there is an inherent risk thatthe management of Proya (hereinafter referred to as the "management") achieves specific goals orexpectations through inappropriate recognition of revenue. Therefore, we identify the recognition ofrevenue as a key audit matter.For recognition of revenue, we primarily implemented the following audit procedures: Annual Report 2022(1) To obtain an understanding of key internal controls related to the recognition of revenue, evaluate thedesign of these controls, determine whether these controls were implemented, and test the operationaleffectiveness of these controls;(2) To issue letters to the main customers to confirm the sales amount in 2022 and the balance of accountsreceivable as at the end of 2022;(3) To test details and make a spot-check on supporting documents for recognition of revenue (includingsales contracts, delivery documents, receipts, agency sales lists, and sales invoices), understand majorcontract terms or conditions, and evaluate the appropriateness of the method for recognition of revenue;(4) To implement analysis procedures, including analysis on fluctuations in revenue of each month of(5) To obtain the rebate and subsidy policies, rebate and subsidy calculation sheets and other information,and check whether the withholding amount of rebate and subsidy as at the end of 2022 was sufficient; toanalyze whether the amount of rebate and subsidy and the withholding amount were reasonable based onthe rebate and subsidy policy as well as the revenue in 2022; and to check the settlement after the rebateand subsidy withholding period as at the end of 2022;(6) To obtain the return and exchange policy, calculation sheet of provisions and other information, andcheck whether the estimated future return and exchange rate is reasonable; to check the subsequent returnand exchange situation and compare it with the estimated return and exchange data;(7) To learn about the inventory and stock age of each major dealer as at the end of 2022 and check whetherthe inventory amount and structure of the dealer were reasonable;(8) To analyze the sales data of main online chain stores by calculating the consumption per capita,consumption per time, purchase times and repurchase information of customers of online chain stores andcomparing them with the selling prices and normal use days of Proya products, so as to judge the rationalityof the above data in combination with normal consumption habits and analyze the authenticity andrationality of the income of online chain stores;(9) To compare the background transaction data, Alipay receipt data and sales revenue data on financialaccounts of online chain stores, and analyze the matching attribute of data, so as to check the authenticityof sales from the online chain stores;(10) To check whether the information related to the operating revenue is properly presented in thefinancial statements.(II) Net realizable value of inventoriesFor relevant information disclosure, refer to "15. Inventories" in "V. Significant Accounting Policies andEstimates" and "9. Inventories" in "VII. Notes to the Items of Consolidated Financial Statements" of"Section X Financial Report" herein.As of December 31, 2022, the book balance of inventories of Proya amounted to RMB710.13million, theprovision for devaluation of inventories amounted to RMB41.08million, and the carrying value ofinventories amounted to RMB669.05million.At the balance sheet date, inventories are measured at the lower of cost and net realizable value, andprovision for devaluation of inventories is made if the cost of a single inventory is higher than its netrealizable value. On the basis of considering the purpose of holding inventories, the managementdetermines the estimated selling price based on the historical selling price, actual selling price, and futuremarket trends, and also determines the net realizable value based on the amount after deducting theestimated cost of completion, estimated sale expense and relevant taxes from the estimated sale price ofinventories. Annual Report 2022Since the amount of inventories is significant and the determination of the net realizable value ofinventories involves significant judgment by the management, we identified the net realizable value ofinventories as a key audit matter.For net realizable value of inventories, we primarily implemented the following audit procedures:(1) To obtain an understanding of key internal controls related to the net realizable value of inventories,evaluate the design of these controls, determine whether these controls were implemented, and test theoperational effectiveness of these controls;(2) To obtain the accrual policy and calculation process for provision for devaluation of inventories, andre-check the calculation process;(3) To obtain the list of products that are no longer sold, count the products rolling off the production linesin the inventories and the corresponding raw material inventories, and verify whether the provision fordevaluation of inventories was accrued for the raw material inventories;(4) To check whether the inventories as at the end of the period had long inventory ages, outdated modelsand changes in market demand in combination with the inventory monitoring, and evaluate whether themanagement reasonably estimated the net realizable value;(5) To check whether the information related to the net realizable value of inventories was properlypresented in the financial statements.IV. Other InformationThe management is responsible for the other information, which comprises all the information covered inthe Annual Report other than the financial statements and this audit report.Our audit opinion on the financial statements does not cover the other information and we do not expressany form of assurance conclusion thereon.In connection with our audit of the financial statements, our responsibility is to read the other informationand, in doing so, consider whether the other information is materially inconsistent with the financialstatements or our knowledge obtained in the audit or otherwise appears to be materially misstated.If, based on the work we have performed, we conclude that there is a material misstatement of this otherinformation, we are required to report that fact. We have nothing to report in this regard.V. Responsibilities of the Management and Those Charged With Governance for the FinancialStatementsThe management is responsible for the preparation of financial statements that give a true and fair view inaccordance with the Accounting Standards for Business Enterprises, and for the design, implementationand maintenance of necessary internal control to enable the preparation of financial statements that arefree from material misstatement, whether due to fraud or error.In preparing the financial statements, the management is responsible for assessing Proya"s ability tocontinue as a going concern, disclosing, as applicable, matters related to going concern and using the goingconcern basis of accounting unless the management either intends to liquidate the Company or to ceaseoperations, or has no realistic alternative but to do so.The governance of Proya (hereinafter referred to as "governance") is responsible for overseeing thefinancial reporting process of Proya.VI. Responsibilities of CPAs for the Audit of the Financial StatementsOur objective is to obtain reasonable assurance of whether there is a material misstatement in the financialstatements as a whole due to fraud or error and to issue an audit report containing audit opinion. Annual Report 2022Reasonable assurance is a highly reliable assurance, but is not a guarantee that an audit conducted inaccordance with China Standards on Auditing will always identify a material misstatement when it exists.Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,they could reasonably be expected to influence the economic decisions of users taken on the basis of thesefinancial statements.As part of an audit in accordance with the auditing standards, we exercise professional judgment andmaintained professional skepticism throughout the audit. We also:(I) Identify and assess the risks of material misstatement of the financial statements, whether due to fraudor error, design and perform audit procedures responsive to those risks, and obtain audit evidence that issufficient and appropriate to provide a basis for our opinion. The risk of not identifying a materialmisstatement resulting from fraud is higher than that of failing to detect one resulting from error, as fraudmay involve collusion, forgery, intentional omissions, misrepresentations, or the override of internalcontrol.(II) Obtain an understanding of internal control related to the audit to design the appropriate auditprocedures.(III) Evaluate the appropriateness of accounting policies used and the reasonableness of accountingestimates and related disclosures made by the management.(IV) Conclude on the appropriateness of the management"s use of the going concern basis of accountingand, based on the audit evidence obtained, determined whether a material uncertainty exists related toevents or conditions that may significantly affect Proya"s ability to continue as a going concern. If weconclude that a material uncertainty exists, we are required to draw attention in our audit report to therelated disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion.Our conclusions are based on the audit evidence obtained up to the date of our audit report. However,future events or conditions may cause Proya to cease to continue as a going concern.(V) Evaluate the overall presentation, structure and content of the financial statements, and determinewhether the financial statements reflect the related transactions and events fairly.(VI) Obtain sufficient and appropriate audit evidence of the financial information of the entity or businessactivity of Proya in order to express an opinion on the financial statements. We are responsible fordirecting, supervising and performing group audits. We take full responsibility for the audit opinion.We communicate with the governance regarding, among other matters, the planned scope and timing ofthe audit and significant audit findings, including any significant deficiencies in internal control that weidentify during the audit.We also provide a statement to those charged with governance on compliance with ethical requirementsrelated to independence, and communicate with them all relationships and other matters that may bereasonably considered to affect our independence, as well as related precautions (if applicable).From the matters we discussed with the those charged with governance, we determine those matters wereof most significance in the audit of the financial statements for the current period and are therefore the keyaudit matters. We describe these matters in the audit report unless laws or regulations preclude publicdisclosure about these matters or when, in extremely rare circumstances, we determine that a matter shouldnot be communicated in our audit report because the adverse consequences of doing so would reasonablybe expected to outweigh the public interest benefits of such communication.Pan-China Certified Public Accountants LLP Chinese CPA: YIN Zhibin(Project Partner)Hangzhou, China Chinese CPA: WANG Xiaokang Annual Report 2022 April 19, 2023II. Financial Statements Consolidated Balance Sheet As at December 31, 2022Prepared by: Proya Cosmetics Co., Ltd. Unit: Yuan Currency: RMB Item Notes As at December 31, 2022 As at December 31, 2021 Current assets: Cash and cash equivalents VII. 1 3,161,003,085.05 2,391,048,249.81 Clearing settlement funds Loans to banks and other financial institutions Held-for-trading financial assets Derivative financial assets Notes receivable Accounts receivable VII. 5 102,157,898.41 138,626,627.90 Receivable financing VII. 6 3,242,000.00 Prepayments VII. 7 91,483,523.15 58,406,647.11 Premiums receivable Reinsurance premium receivable Reserves for reinsurance contract receivable Other receivables VII. 8 73,564,083.63 66,043,707.81 Including: Interest receivable Dividends receivable Financial assets purchased under resale agreements Inventories VII. 9 669,051,326.73 447,938,758.29 Contract assets Held-for-sale assets Non-current assets due within one year Other current assets VII. 13 49,735,996.57 53,534,962.39 Total current assets 4,146,995,913.54 3,158,840,953.31 Non-current assets: Loans and advances to customers Debt investments Annual Report 2022 Other debt investments Long-term receivables Long-term equity VII. 17investments Other equity instrument VII. 18investments Other non-current financialassets Investment real estate VII. 20 68,654,700.81 70,321,868.00 Fixed assets VII. 21 570,376,309.67 558,981,209.20 Construction in progress VII. 22 207,378,935.86 108,678,896.27 Bearer biological assets Oil and gas assets Right-of-use assets VII. 25 6,410,634.25 Intangible assets VII. 26 420,316,883.26 397,145,124.29 Development expenditure Goodwill Long-term prepaid expenses VII. 29 19,142,604.46 29,756,474.11 Deferred income tax assets VII. 30 48,305,338.82 38,796,018.02 Other non-current Assets VII. 31 5,554,726.06 44,167,303.56 Total non-current assets 1,631,075,910.65 1,474,208,829.72 Total assets 5,778,071,824.19 4,633,049,783.03Current liabilities: Short-term borrowings VII. 32 200,195,890.41 200,251,506.85 Loans from the central bank Placements from banks andother financial institutions Held-for-trading financialliabilities Derivative financialliabilities Notes payable VII. 35 69,626,352.12 79,156,771.40 Accounts payable VII. 36 475,427,484.23 404,026,241.16 Advance from customers VII. 37 464,328.26 173,769.85 Contract liabilities VII. 38 174,602,833.91 91,151,985.32 Financial assets sold underrepurchase agreements Customer deposits anddeposits from banks and otherfinancial institutions Funds from securities tradingagencies Funds from underwritingsecurities agencies Annual Report 2022 Employee compensation VII. 39payable Taxes payable VII. 40 152,918,871.45 99,893,176.97 Other payables VII. 41 216,392,183.41 62,162,153.55 Including: Interest payable Dividends payable Fees and commissionspayable Amounts payable underreinsurance contracts Held-for-sale liabilities Non-current liabilities due VII. 43within one year Other current liabilities VII. 44 10,820,499.59 9,521,415.32 Total current liabilities 1,427,936,644.88 1,024,986,070.14Non-current liabilities: Insurance contract reserves Long-term borrowings Bonds payable VII. 46 724,491,557.93 695,586,778.80 Including: Preferred stock Perpetual bonds Lease liabilities VII. 47 3,718,119.41 Long-term payables Long-term employeecompensation payable Povisions VII. 50 59,282,928.68 10,812,084.88 Deferred income VII. 51 6,399,811.33 6,416,263.33 Deferred income tax VII. 30liabilities Other non-current liabilities Total non-currentliabilities Total liabilities 2,240,848,493.90 1,746,209,355.96Owners" equity (or shareholders" equity): Paid-in capital (or share VII. 53capital) Other equity instruments VII. 54 50,903,510.12 50,956,622.11 Including: Preferred stock Perpetual bonds Capital reserve VII. 55 914,815,786.22 834,272,205.66 Less: Treasury shares VII. 56 164,976,000.00 5,628,128.21 Other comprehensive VII. 57 -1,918,603.07 -1,247,674.10income Special reserve Annual Report 2022 Surplus reserve VII. 59 141,759,734.50 100,634,780.00 General risk reserve Retained profits VII. 60 2,300,384,763.19 1,696,978,064.52 Total owners" equity (or 3,524,488,659.96 2,876,975,835.98 shareholders" equity) attributable to equity holders of the parent company Minority interests 12,734,670.33 9,864,591.09 Total owners" equity (or shareholders" equity) Total liabilities and owners" equity (or shareholders" 5,778,071,824.19 4,633,049,783.03 equity) Person in charge of The chairman of the CFO of the Company: Accounting Department: Company: HOU Juncheng WANG Li WANG Li Parent Company"s Balance Sheet As at December 31, 2022Prepared by: Proya Cosmetics Co., Ltd. Unit: Yuan Currency: RMB As at December 31, Item Notes As at December 31, 2022 Current assets: Cash and cash equivalents 2,169,179,716.12 1,691,858,730.42 Held-for-trading financial assets Derivative financial assets Notes receivable Accounts receivable XVII. 1 289,883,063.24 354,196,955.99 Receivable financing 3,092,000.00 Prepayments 34,908,418.05 24,580,460.37 Other receivables XVII. 2 141,574,549.59 222,452,930.42 Including: Interest receivable Dividends receivable Inventories 458,341,886.37 271,436,146.45 Contract assets Held-for-sale assets Non-current assets due within one year Other current assets 32,667,616.71 33,270,945.69 Total current assets 3,126,555,250.08 2,600,888,169.34 Non-current assets: Debt investments Annual Report 2022 Other debt investments Long-term receivables Long-term equity XVII. 3 394,321,950.41 350,003,540.49investments Other equity instrument 110,580,000.00 20,580,000.00investments Other non-current financialassets Investment real estate 348,408,309.83 362,657,495.17 Fixed assets 278,011,361.35 253,209,471.02 Construction in progress 206,756,324.14 105,012,647.89 Bearer biological assets Oil and gas assets Right-of-use assets 5,707,540.03 Intangible assets 382,584,698.57 395,609,113.72 Development expenditure Goodwill Long-term prepaid expenses 13,494,337.73 20,075,870.93 Deferred income tax assets 11,372,733.52 22,968,793.93 Other non-current Assets 4,916,417.58 4,493,322.95 Total non-current assets 1,756,153,673.16 1,534,610,256.10 Total assets 4,882,708,923.24 4,135,498,425.44Current liabilities: Short-term borrowings 200,195,890.41 200,251,506.85 Held-for-trading financialliabilities Derivative financialliabilities Notes payable 69,626,352.12 79,156,771.40 Accounts payable 217,330,371.42 282,934,452.33 Advance from customers Contract liabilities 68,099,041.17 28,108,787.35 Employee compensation 58,246,111.22 33,926,736.55payable Taxes payable 69,952,710.78 66,893,331.24 Other payables 167,125,433.78 8,546,397.66 Including: Interest payable Dividends payable Held-for-sale liabilities Non-current liabilities due 2,210,449.03within one year Other current liabilities Total current liabilities 852,786,359.93 699,817,983.38Non-current liabilities: Annual Report 2022 Long-term borrowings Bonds payable 724,491,557.93 695,586,778.80 Including: Preferred stock Perpetual bonds Lease liabilities 3,354,028.30 Long-term payables Long-term employeecompensation payable Provisions Deferred income 6,399,811.33 6,416,263.33 Deferred income tax 18,758,960.23 8,395,198.23liabilities Other non-current liabilities Total non-current 753,004,357.79 710,398,240.36liabilities Total liabilities 1,605,790,717.72 1,410,216,223.74Owners" equity (or shareholders" equity): Paid-in capital (or share 283,519,469.00 201,009,966.00capital) Other equity instruments 50,903,510.12 50,956,622.11 Including: Preferred stock Perpetual bonds Capital reserve 964,613,342.84 834,563,920.32 Less: Treasury shares 164,976,000.00 5,628,128.21 Other comprehensiveincome Special reserve Surplus reserve 141,759,734.50 100,634,780.00 Retained profits 2,001,098,149.06 1,543,745,041.48 Total owners" equity (or 3,276,918,205.52 2,725,282,201.70shareholders" equity) Total liabilities and 4,882,708,923.24 4,135,498,425.44owners" equity (or shareholders"equity) Person in charge of The chairman of the CFO of the Company: Accounting Department: Company: HOU Juncheng WANG Li WANG Li Consolidated Income Statement January - December 2022 Unit: Yuan Currency: RMB Item Notes 2022 2021I. Total operating revenue VII. 61 6,385,451,424.00 4,633,150,538.43Including: Operating revenue VII. 61 6,385,451,424.00 4,633,150,538.43 Annual Report 2022 Interest income Premiums earned Fee and commission incomeII. Total operating costs 5,191,391,396.39 3,892,457,794.07Including: Operating costs VII. 61 1,934,850,203.65 1,554,155,646.61 Interest expenses Fee and commissionexpenses Surrenders Claims and policyholderbenefits (net of amounts recoverablefrom reinsurers) Net provision for insuranceliability reserves Insurance policyholderdividends Expenses for reinsuranceaccepted Taxes and surcharges VII. 62 56,394,508.94 40,680,295.80 Selling expenses VII. 63 2,785,837,352.95 1,991,534,076.73 General and administrative VII. 64expenses Research and development VII. 65expenses Financial expenses VII. 66 -40,996,523.01 -7,484,395.13 Including: Interest expenses 13,019,503.91 9,759,260.83 Interest income 51,707,124.62 28,096,157.42 Add: Other income VII. 67 39,065,105.62 16,458,269.45 Investment income ("-" VII. 68 -5,658,023.28 -7,337,735.84refers to loss) Including: Income frominvestments in associates and joint -5,658,023.28 -7,337,735.84ventures Income fromderecognition of financial assetsmeasured at amortized cost Foreign exchange gains ("-"refers to loss) Net gain on exposurehedging ("-" refers to loss) Gains on changes in fairvalue ("-" refers to loss) Credit impairment loss ("-" VII. 71 -5,057,425.43 -24,834,947.18refers to loss) Annual Report 2022 Asset impairment losses ("-" VII. 72 -164,884,555.28 -53,513,590.04refers to losses) Gains from disposal of assets VII. 73("-" refers to loss)III. Operating profit ("-" refers toloss) Add: Non-operating revenue VII. 74 1,178,886.33 249,852.89 Less: Non-operating expenses VII. 75 4,613,645.24 3,801,835.06IV. Total profits ("-" refers to totallosses) Less: Income tax expenses VII. 76 222,866,719.56 110,746,888.31V. Net profits ("-" refers to netlosses)(I) Classified by the nature of continuing operationsoperations ("-" refers to net losses)discontinued operations ("-" refersto net losses)(II) Classified by ownershipshareholders of the parent company 817,400,223.93 576,119,025.56("-" refers to net losses)to minority interests ("-" refers to net 13,883,582.44 -19,065,338.53losses)VI. Other comprehensive income, -670,928.97 -978,607.97net of tax (I) Other comprehensive incomeattributable to owners of the parent -670,928.97 -978,607.97company, net of taxincome that cannot be reclassified toprofit or loss (1) Changes arising from the re-measurement of net liabilities or netassets of defined benefit plans (2) Other comprehensive incomethat cannot be reclassified to profitor loss under the equity method (3) Changes in fair value of otherequity instrument investments (4) Changes in fair value ofenterprises" own credit risks Annual Report 2022 income that will be reclassified into -670,928.97 -978,607.97 profit or loss (1) Other comprehensive income that will be reclassified to profit or loss under the equity method (2) Changes in fair value of other debt investments (3) Amounts of financial assets reclassified into other comprehensive income (4) Provision for credit impairment of other debt investments (5) Reserve for cash flow hedges (6) Translation differences of financial statements denominated in -670,928.97 -978,607.97 foreign currencies (7) Others (II) Other comprehensive income attributable to minority interests, net of tax VII. Total comprehensive income 830,612,877.40 556,075,079.06 (I) Total comprehensive income attributable to owners of the parent 816,729,294.96 575,140,417.59 company (II) Total comprehensive income attributable to minority interests VIII. Earnings per share (I) Basic earnings per share (RMB/share) (II) Diluted earnings per share (RMB/share)In case of business combination under common control, net profit realized by the combined party beforethe combination in the current period was RMB0.00; net profit realized by the combined in the previousperiod was RMB0.00. The chairman of the Company: CFO of the Company: WANG Person in charge of Accounting HOU Juncheng Li Department: WANG Li Parent Company"s Income Statement January - December 2022 Unit: Yuan Currency: RMB Item Notes 2022 2021 I. Operating revenue XVII. 4 3,081,136,936.75 2,273,848,366.50 Annual Report 2022 Less: Operating cost XVII. 4 1,424,725,111.00 1,076,826,259.92 Taxes and surcharges 24,372,917.75 19,398,763.14 Selling expenses 472,193,858.89 284,076,298.04 General and administrativeexpenses Research and developmentexpenses Financial expenses -41,965,768.21 -9,534,296.78 Including: Interest expenses 13,019,503.91 7,909,483.79 Interest income 42,503,905.91 23,839,106.03 Add: Other income 15,650,274.95 7,273,692.73 Investment income ("-" refers XVII. 5 -4,161,437.71 -18,567,432.77to loss) Including: Income frominvestments in associates and joint -5,149,438.13 -7,608,313.87ventures Income fromderecognition of financial assetsmeasured at amortized cost Net gain on exposure hedging("-" refers to loss) Gains on changes in fair value("-" refers to loss) Credit impairment loss ("-"refers to loss) Asset impairment losses ("-" -126,987,703.77 -25,486,816.12refers to losses) Gains from disposal of assets("-" refers to loss)II. Operating profit ("-" refers to loss) 788,849,771.00 629,736,591.27 Add: Non-operating revenue 22,010.99 25,856.69 Less: Non-operating expenses 1,516,181.13 3,739,409.87III. Total profits ("-" refers to totallosses) Less: Income tax expenses 116,008,968.02 72,463,653.90IV. Net profits ("-" refers to net losses) 671,346,632.84 553,559,384.19 (I) Net profits from continuingactivities ("-" refers to net losses) (II) Net profits from discontinuingactivities ("-" refers to net losses)V. Net amount of other comprehensiveincome after tax (I) Other comprehensive incomethat cannot be reclassified into profitor loss Annual Report 2022measurement of defined benefit plansthat cannot be reclassified to profit orloss under the equity methodother equity instrument investmentsenterprise"s own credit risk (II) Other comprehensive income tobe reclassified into profit or lossthat may be reclassified to profit orloss under equity methoddebt investmentscomprehensive income onreclassification of financial assetsof other debt investmentstranslation of financial statementsVI. Total comprehensive income 671,346,632.84 553,559,384.19VII. Earnings per share: (I) Basic earnings per share(RMB/share) (II) Diluted earnings per share(RMB/share) The chairman of the Company: HOU CFO of the Company: Person in charge of Juncheng WANG Li Accounting Department: WANG Li Consolidated Cash Flow Statement January - December 2022 Unit: Yuan Currency: RMB Item Notes 2022 2021I. Cash flows from operating activities: Cash received from the sale of goodsand the rendering of services Net increase in customer deposits anddeposits from banks and other financialinstitutions Annual Report 2022 Net increase in loans from the centralbank Net increase in taking from otherfinancial institutions Cash received from premiums underoriginal insurance contract Net cash received from reinsurancebusiness Net cash received from policyholders"deposits and investment contractliabilities Cash received from interest, fees andcommissions Net increase in taking from banks andother financial institutions Net increase in financial assets soldunder repurchase arrangements Net cash received from securitiestrading agency Receipts of tax refunds 80,005.56 Other cash received related to VII. 78 (1)operating activities Sub-total of cash inflows fromoperating activities Cash paid for goods purchased andservices received Net increase in loans and advances tocustomers Net increase in balance with the centralbank and due from banks and otherfinancial institution Cash paid for compensation paymentsunder original insurance contract Net increase in loans to banks andother financial institutions Cash paid for interest, fees andcommissions Cash paid for insurance policyholderdividends Cash paid to and on behalf ofemployees Payments of various types of taxes 660,096,624.31 432,668,333.55 Other cash paid related to operating VII. 78 (2)activities Annual Report 2022 Sub-total of cash outflows fromoperating activities Net cash flow from operatingactivitiesII. Cash flows from investing activities: Cash received from disposal andrecovery of investments Cash received from investment income Net cash received from disposal offixed assets, intangible assets and other 3,751,463.96 47,622.98long-term assets Net cash received from disposal ofsubsidiaries and other business entities Other cash received related toinvesting activities Sub-total of cash inflows frominvesting activities Cash paid for acquisition orconstruction of fixed assets, intangible 170,963,405.43 194,102,666.70assets and other long-term assets Cash paid for investments 131,003,609.10 70,029,200.00 Net increase in pledged loansreceivables Net cash paid for acquiringsubsidiaries and other operating entities Other cash paid related to investing VII. 78 (4)activities Sub-total of cash outflows frominvesting activities Net cash flow from investing -298,215,550.57 -341,823,618.60activitiesIII. Cash flows from financing activities: Cash received from capitalcontributions Including: Cash received from capitalcontributions from minority shareholders 700,000.00 700,000.00of subsidiaries Cash received from borrowings 300,000,000.00 946,996,018.87 Other cash received related tofinancing activities Sub-total of cash inflows fromfinancing activities Cash repayments of borrowings 300,000,000.00 299,000,000.00 Annual Report 2022 Cash paid for distribution of dividendsor profits or settlement of interest 182,663,748.85 154,245,329.79expenses Including: Payments for distribution ofdividends or profits to minority owners ofsubsidiaries Other cash paid related to financing VII. 78 (6)activities Sub-total of cash outflows fromfinancing activities Net cash flow from financing -65,251,320.73 489,615,295.96activitiesIV. Impact of foreign exchange rate -670,928.97 -978,607.97changes on cash and cash equivalentsV. Net increase in cash and cashequivalents Add: Opening balance of cash and cashequivalentsVI. Closing balance of cash and cashequivalents Person in charge of The chairman of the Company: HOU CFO of the Company: Accounting Department: Juncheng WANG Li WANG Li Parent Company"s Cash Flow Statement January - December 2022 Unit: Yuan Currency: RMB Item Notes 2022 2021I. Cash flows from operating activities: Cash received from the sale of goods and therendering of services Receipts of tax refunds Other cash received related to operatingactivities Sub-total of cash inflows from operatingactivities Cash paid for goods purchased and servicesreceived Cash paid to and on behalf of employees 265,940,955.35 180,867,131.86 Payments of various types of taxes 276,743,971.90 197,049,919.18 Other cash paid related to operatingactivities Sub-total of cash outflows from operatingactivities Net cash flow from operating activities 1,790,129,321.03 644,827,094.22 Annual Report 2022II. Cash flows from investing activities: Cash received from disposal and recovery ofinvestments Cash received from investment income Net cash received from disposal of fixedassets, intangible assets and other long-term 1,057,300.53assets Net cash received from disposal ofsubsidiaries and other business entities Other cash received related to investingactivities Sub-total of cash inflows from investingactivities Cash paid for acquisition or construction offixed assets, intangible assets and other long- 163,990,474.83 135,132,853.40term assets Cash paid for investments 179,238,922.10 36,338,783.21 Net cash paid for acquisition of subsidiariesand other business units Other cash paid related to investingactivities Sub-total of cash outflows from investingactivities Net cash flow from investing activities -340,472,096.40 -34,093,079.88III. Cash flows from financing activities: Cash received from capital contributions 164,976,000.00 Cash received from borrowings 300,000,000.00 946,996,018.87 Other cash received related to financingactivities Sub-total of cash inflows from financingactivities Cash repayments of borrowings 300,000,000.00 200,000,000.00 Cash paid for distribution of dividends orprofits or settlement of interest expenses Other cash paid related to financingactivities Sub-total of cash outflows from financingactivities Net cash flow from financing activities -18,454,612.37 589,812,011.86IV. Impact of foreign exchange rate changeson cash and cash equivalentsV. Net increase in cash and cash equivalents 1,431,202,612.26 1,200,546,026.20 Add: Opening balance of cash and cashequivalents Annual Report 2022VI. Closing balance of cash and cashequivalents Person in charge of The chairman of the Company: CFO of the Company: Accounting Department: HOU Juncheng WANG Li WANG Li Annual Report 2022 Consolidated Statements of Changes in Owners" Equity January - December 2022 Unit: Yuan Currency: RMB Equity attributable to owners of the parent company Total equity Item Minority Paid-in capital Other equity instruments Other General attributable to Less: Treasury Special interests (or share Capital reserve comprehensive Surplus reserve risk Retained profits Other Subtotal owners Preference Perpetual shares reserve capital) Other income reserve shares bondsI. Balance atthe end of the 201,009,966.00 50,956,622.11 834,272,205.66 5,628,128.21 -1,247,674.10 100,634,780.00 1,696,978,064.52 2,876,975,835.98 9,864,591.09 2,886,840,427.07previous yearAdd: Changesin accountingpolicies Correctionfor previouserrors Businesscombinationunder commoncontrol OtherII. Balance atthe beginningof the currentyearIII. Increase ofthe currentperiod ("-" 82,509,503.00 -53,111.99 80,543,580.56 159,347,871.79 -670,928.97 41,124,954.50 603,406,698.67 647,512,823.98 2,870,079.24 650,382,903.22refers todecrease)(I) Totalcomprehensive -670,928.97 817,400,223.93 816,729,294.96 13,883,582.44 830,612,877.40income Annual Report 2022(II) Owners"contributionand capitalreductionsharescontributed bythe ownerscontributionsby other equityinstrumentholdersshare-basedpayments 47,357,121.25 47,357,121.25 47,357,121.24credited toowners" equity(III) Profitdistributionof surplus 41,124,954.50 -41,124,954.50reserveof general riskprovisionto owners (or -172,868,570.76 -172,868,570.76 -172,868,570.76shareholders)(IV) Internalcarry-forwardof owners"equitycapital reserveto capital (orshare capital) Annual Report 2022surplus reserveto capital (orshare capital)reserve to coverlossdefined benefitscheme carriedforward toretainedearningsforward ofothercomprehensiveincome toretainedearnings(V) Specialreservefor the periodfor the period(VI) Others - -50,040,368.19 -50,040,368.19 -61,753,871.38IV. Balance at 283,519,469.00 2,300,384,763.19the end of the 50,903,510.12 914,815,786.22 164,976,000.00 -1,918,603.07 141,759,734.50 3,524,488,659.96 12,734,670.33 3,537,223,330.29period Equity attributable to owners of the parent company Total equity Item Minority attributable to interests Other equity instruments Capital reserve Surplus reserve Retained profits Other Subtotal owners Annual Report 2022 Paid-in capital Less: Other Special General Preference Perpetual (or share Other Treasury comprehensive reserve risk shares bonds capital) shares income reserveI. Balance atthe end of the 201,116,925.00 837,034,836.69 12,653,905.25 -269,066.13 100,634,780.00 1,265,671,865.63 2,391,535,435.94 90,326,830.19 2,481,862,266.13previous yearAdd: Changesin accountingpolicies Correctionfor previouserrors Businesscombinationunder commoncontrol OtherII. Balance atthe beginning 201,116,925.00 837,034,836.69 12,653,905.25 -269,066.13 100,634,780.00 1,265,671,865.63 2,391,535,435.94 90,326,830.19 2,481,862,266.13of the yearIII. Increase ofthe currentperiod ("-" -106,959.00 50,956,622.11 -2,762,631.03 -7,025,777.04 -978,607.97 431,306,198.89 485,440,400.04 404,978,160.94refers todecrease)(I) Totalcomprehensive -978,607.97 576,119,025.56 575,140,417.59 556,075,079.06income(II) Owners"contribution -106,959.00 -1,999,494.15 -7,025,777.04 4,919,323.89 700,000.00 5,619,323.89and capitalreductionshares -106,959.00 -1,626,846.39 -7,025,777.04 5,291,971.65 700,000.00 5,991,971.65contributed bythe ownerscontributionsby other equity Annual Report 2022instrumentholdersshare-basedpayments -372,647.76 -372,647.76 -372,647.76credited toowners" equity(III) Profit -144,804,186.00 -144,804,186.00 -144,804,186.00distributionof surplusreserveof general riskprovisionto owners (or -144,804,186.00 -144,804,186.00 -144,804,186.00shareholders)(IV) Internalcarry-forwardof owners"equitycapital reserveto capital (orshare capital)surplus reserveto capital (orshare capital)reserve to coverlossdefined benefitscheme carriedforward toretained Annual Report 2022earningsforward ofothercomprehensiveincome toretainedearnings(V) Specialreservefor the periodfor the period(VI) Others -IV. Balance atthe end of the 201,009,966.00 50,956,622.11 834,272,205.66 5,628,128.21 -1,247,674.10 100,634,780.00 1,696,978,064.52 2,876,975,835.98 9,864,591.09 2,886,840,427.07period The chairman of the Company: HOU Juncheng CFO of the Company: WANG Li Person in charge of Accounting Department: WANG Li Parent Company"s Statement of Changes in Owners" Equity January - December 2022 Unit: Yuan Currency: RMB Paid-in Other equity instruments Other Item capital (or Less: Treasury compre Special Total equity Preference Perpetual Capital reserve Surplus reserve Retained profits share Other shares hensive reserve attributable to owners shares bonds capital) income I. Balance at the end of the 834,563,920.32 5,628,128.21 100,634,780.00 1,543,745,041.48 2,725,282,201.70 previous year Add: Changes in accounting policies Annual Report 2022 Correctionfor previouserrors OtherII. Balance atthe beginning of 834,563,920.32 5,628,128.21 100,634,780.00 1,543,745,041.48 2,725,282,201.70the yearIII. Increase ofthe currentperiod ("-" -53,111.99 130,049,422.52 159,347,871.79 41,124,954.50 457,353,107.58 551,636,003.82refers todecrease)(I) Totalcomprehensive 671,346,632.84 671,346,632.84income(II) Owners"contribution andcapitalreductionsharescontributed bythe ownerscontributions byother equityinstrumentholdersshare-basedpayments 47,357,121.24 47,357,121.24credited toowners" equity Annual Report 2022(III) Profitdistributionof surplus 41,124,954.50 -41,124,954.50reserveto owners (or -172,868,570.76 -172,868,570.76shareholders)(IV) Internalcarry-forward 80,403,986.0 -80,403,986.00of owners" 0equitycapital reserve 80,403,986.0 -80,403,986.00to capital (or 0share capital)surplus reserveto capital (orshare capital)reserve to coverlossdefined benefitscheme carriedforward toretainedearningsforward of other Annual Report 2022comprehensiveincome toretainedearnings(V) Specialreservefor the periodfor the period(VI) Others -534,526.22 -534,526.22IV. Balance atthe end of the 964,613,342.84 164,976,000.00 141,759,734.50 2,001,098,149.06 3,276,918,205.52period Paid-up Other equity instruments Other Item capital (or Less: Treasury compre Special Total equity Preference Perpetual Capital reserve Surplus reserve Retained profits share Other shares hensive reserve attributable to owners shares bonds capital) incomeI. Balance at theend of the 837,075,425.32 12,653,905.25 100,634,780.00 1,134,989,843.29 2,261,163,068.36 .00previous yearAdd: Changesin accountingpolicies Correctionfor previouserrors Other Annual Report 2022II. Balance atthe beginning of 837,075,425.32 12,653,905.25 100,634,780.00 1,134,989,843.29 2,261,163,068.36 .00the current yearIII. Increase ofthe currentperiod ("-" -106,959.00 -2,511,505.00 -7,025,777.04 408,755,198.19 464,119,133.34refers todecrease)(I) Totalcomprehensive 553,559,384.19 553,559,384.19income(II) Owners"contribution and -106,959.00 -1,999,494.15 -7,025,777.04 4,919,323.89capitalreductionshares -106,959.00 -1,626,846.39 -7,025,777.04 5,291,971.65contributed bythe ownerscontributions byother equityinstrumentholdersshare-basedpayments -372,647.76 -372,647.76credited toowners" equity(III) Profit -144,804,186.00 -144,804,186.00distribution Annual Report 2022of surplusreserveto owners (or -144,804,186.00 -144,804,186.00shareholders)(IV) Internalcarry-forwardof owners"equitycapital reserveto capital (orshare capital)surplus reserveto capital (orshare capital)reserve to coverlossdefined benefitscheme carriedforward toretainedearningsforward of othercomprehensiveincome to Annual Report 2022retainedearnings(V) Specialreservefor the periodfor the period(VI) Others 50,956,622. -512,010.85 50,444,611.26IV. Balance atthe end of the 834,563,920.32 5,628,128.21 100,634,780.00 1,543,745,041.48 2,725,282,201.70 .00 11period The chairman of the Company: HOU Juncheng CFO of the Company: WANG Li Person in charge of Accounting Department: WANG Li Annual Report 2022III. General Information about the Company√ Applicable □ Not applicableProya Cosmetics Co., Ltd. (hereinafter referred to as "Company" or the "Company"), formerly known asProya (Huzhou) Cosmetics Co., Ltd., was registered in Wuxing Branch of Huzhou MunicipalAdministration for Industry and Commerce on May 24, 2006. Headquartered in Hangzhou, Zhejiang, theCompany now holds the business license with the unified social credit code of 91330100789665033F.Currently, the Company"s registered capital is RMB283,513,952.00, and the paid-in capital isRMB283,519,469.00 (the paid-in capital is RMB5,517.00 higher than the registered capital due to theconversion of convertible bonds without industrial and commercial change registration). The total numberof shares converted is 283,519,469 (with a par value of 1.00 RMB/per share), including 2,100,000restricted circulating A shares and 281,419,469 unrestricted circulating A shares. which were listed fortrading on SSE on November 15, 2017.The Company is a beauty and personal care company mainly engaged in cosmetics research anddevelopment, production, and sales. The Company"s main products are cosmetics.The financial statements were approved for external disclosure by the 11th meeting of the third session ofthe Board of Directors of the Company on April 19, 2023.√ Applicable □ Not applicableThe Company has incorporated 47 subsidiaries, including Hangzhou Proya Trade Co., Ltd., Anya (Huzhou)Cosmetics Co., Ltd., Zhejiang Meiligu Electronic Commerce Co., Ltd., Huzhou Chuangdai E-commerceCo., Ltd., Yueqing Laiya Trading Co., Ltd. and Hapsode (Hangzhou) Cosmetics Co., Ltd., into theconsolidated financial statements of the reporting period. For details, refer to the particulars contained innotes "VIII. Change of Consolidation Scope" and "IX. Equity in Other Entities" in this report.IV. Preparation Basis of Financial StatementsThe financial statements of the Company are prepared based on going concern.√ Applicable □ Not applicableThere are no matters or situations that may substantially affect the Company"s ability to continue as agoing concern within 12 months since the end of the Reporting Period.V. Significant Accounting Policies and EstimatesNotes to specific accounting policies and accounting estimates:√ Applicable □ Not applicableRefer to "44. Changes in Significant Accounting Policies and Estimates" in "V. Significant AccountingPolicies and Estimates" of "Section X Financial Report" for details.The financial statements have been prepared by the Company in conformity with the China Accounting Annual Report 2022Standards for Business Enterprises, and present truly and completely the Company"s financial position,operating performance, changes in shareholders" equity, cash flow and other related information.The accounting period of the Company is from January 1 to December 31 of each calendar year.√ Applicable □ Not applicableThe operating cycle of the Company"s businesses is short; the Company adopts 12 months as the liquidityclassification criteria for assets and liabilities.The functional currency of the Company is RMB. Overseas subsidiaries including Hapsode Co., Ltd.,Hanna Cosmetics Co., Ltd., Korea Younimi Cosmetics Co., Ltd. and O&R Co., Ltd. adopt the currency intheir major econonmic environment of operation as their function currency.√ Applicable □ Not applicableThe assets and liabilities acquired by the Company through business combination are measured at thecarrying value of the combined party in the consolidated financial statements of the ultimate controllingparty at the combination date. The Company adjusts the capital reserve in accordance with the differencebetween the carrying value share of the owners" equity of the combined party in the consolidated financialstatements of the ultimate controlling party and the carrying value of the consideration paid for thebusiness combination or the total nominal value of the issued shares. If the capital reserve is not sufficientto offset the difference, the retained earnings will be adjusted.The difference by which the cost of combination is greater than the fair value of the net identifiable assetsof the acquiree is recognized by the Company as goodwill on the acquisition date; the difference by whichthe combination cost is less than the fair value share of the net identifiable assets of the acquiree is recordedinto the profit or loss after the re-check of the measurement of the fair value of identifiable assets, liabilitiesor contingent liabilities acquired from the acquiree, and the combination cost.√ Applicable □ Not applicablestatements. The consolidated financial statements are based on the financial statements of the parentcompany and its subsidiaries, and prepared by the parent company in accordance with the AccountingStandards for Business Enterprises No. 33 - Consolidated Financial Statements.same subsidiary in two consecutive fiscal yearsThe acquisition of the equity of the acquiree is to control its operating and financial policies and to obtainlong-term benefits from its operating activities. After the right to control the acquiree is acquired, theacquiree is included in the consolidation scope of the consolidated financial statements. Due to changes Annual Report 2022in the Company"s business plans and arrangements, if the equity of the acquiree is disposed of in the secondfiscal year to the point of losing control over it, the acquiree will be excluded from the consolidation scopeof the consolidated financial statements when the control is lost.√ Applicable □ Not applicablerelated to the share of interests in the joint operation:(1) Assets solely held, and assets jointly held on proportion;(2) Liabilities solely undertaken, and liabilities jointly undertaken on proportion;(3) Income generated from selling the Company"s output share of the joint operation;(4) Income of the joint operation generated from selling assets according to the Company"s holding share;(5) Cost incurred alone, and cost incurred from the joint operation on proportion;Cash presented in the cash flow statement refers to cash on hand and deposits that can be used for paymentat any time. Cash equivalents refer to the short-term (generally the expiration is within three months fromthe date of purchase) and highly liquid investments that are readily convertible to known amounts of cashand subject to an insignificant risk of change in value.√ Applicable □ Not applicableForeign currency transactions are translated into RMB at the approximate rate of spot rate on thetransaction date during initial recognition. On the balance sheet date, the foreign-currency monetary itemsare calculated based on the spot rate on the same date. The exchange difference arising from the differentexchange rates is included in the current profit or loss, except the exchange difference between theprincipal and interest of the foreign currency loans specially borrowed for the purchase and constructionof assets eligible for capitalization. The foreign currency non-monetary items measured at historical costare still translated based on the approximate rate of the spot rate on the transaction date, and the RMBamount is not changed. The foreign currency non-monetary items measured at fair value are translatedbased on the spot rate on the determination date of the fair value, and the difference is included in thecurrent profit or loss or other comprehensive income.Assets and liabilities items in the balance sheet are translated at the spot rates prevailing at the balancesheet date. Owners" equity items other than "undistributed profits" are translated at the spot rates on thetransaction dates. Income and expense items in the income statement are translated at the approximaterates of the spot rates on the transaction dates. Any balance incurred from the translation of foreign-currency financial statements by the above method is included in other comprehensive income.√ Applicable □ Not applicable Annual Report 2022Financial assets are classified into the following three categories at initial recognition: (1) financial assetsmeasured at amortized cost; (2) financial assets measured at fair value through other comprehensiveincome; (3) financial assets measured at fair value through profit or loss.Financial liabilities are classified into the following four categories at initial recognition: (1) financialliabilities measured at fair value through profit or loss; (2) financial liabilities arise when a transfer of afinancial asset does not qualify for derecognition or that are accounted for using the continuing-involvement method; (3) loan commitments not belonging to the financial guarantee contracts mentionedin item (1) or (2) above and those not belonging to item (1) above and given at a rate lower than marketinterest rate; (4) financial liabilities measured at amortized cost.(1) Recognition basis and initial measurement method for financial assets and liabilitiesA financial asset or liability is recognized when the Company becomes a party to a financial instrumentcontract. Financial assets and liabilities are measured at the fair value at initial recognition. For financialassets and liabilities measured at fair value through profit or loss, relevant transaction expenses are directlyincluded in the current profit or loss; for other categories of financial assets or liabilities, relevanttransaction costs are recognized as expenses at initial recognition. However, where the accounts receivableinitially recognized by the Company do not contain a significant financing component or the Companydoes not consider the financing component in the contract of less than one year, the initial measurementis made according to the transaction price defined in the Accounting Standards for Business EnterprisesNo. 14 – Revenue.(2) Subsequent measurement of financial assetsSuch financial assets are subsequently measured at amortized cost using the effective interest method. Thegains and losses incurred by the financial assets measured at amortized cost but not belonging to anyhedging relationship are included in the current profit or loss during derecognition, reclassification,amortization according to the effective interest method or impairment recognition.They are subsequently measured at fair value. The interest, impairment losses or gains and exchange gainsor losses calculated with the effective interest method are included in the current profit or loss, and othergains or losses are included in other comprehensive income. At derecognition, the gains or lossesaccumulated previously through comprehensive income are transferred from other comprehensive incomeand included into the current profit or loss.They are subsequently measured at fair value. The dividends obtained (except for the part from investmentcost recovery) are included in the current profit or loss, and other gains or losses are included in othercomprehensive income. At derecognition, the gains or losses accumulated previously through othercomprehensive income are transferred from other comprehensive income and included into retainedearnings.They are subsequently measured at fair value. The generated gains or losses (including interest anddividend income) are included in the current profit or loss, unless the financial assets belong to part of thehedging relationship.(3) Subsequent measurement of financial liabilitiesSuch financial liabilities include held-for-trading financial liabilities (including derivative instrumentsbelonging to financial liabilities) and those designated as financial liabilities measured at fair value through Annual Report 2022profit or loss. Such financial liabilities are subsequently measured at fair value. Changes in the fair valueof financial liabilities measured at fair value through profit or loss due to changes in the Company"s owncredit risk are included in other comprehensive income, unless the treatment will cause or enlarge theaccounting mismatch in the profit or loss. Other gains or losses (including interest, except changes in thefair value arising from the Company"s own credit risk) are included in the current profit or loss, unless thefinancial liabilities belong to part of the hedging relationship. At derecognition, the gains or lossesaccumulated previously through other comprehensive income are transferred from other comprehensiveincome and included into retained earnings.continued involvement in transferred financial assetsThey are measured in accordance with the Accounting Standards for Business Enterprises No. 23 -Transfer of Financial Assets.and those not belonging to item 1) above and given at a rate lower than market interest rateThey are subsequently measured at the higher one of the following two amounts, after initial recognition:① loss provisions determined according to regulations on impairment of financial instruments; ②balance of the initially recognized amount after deducting cumulative amortization recognized inaccordance with the regulations set out in the Accounting Standards for Business Enterprises No. 14 –Revenue.They are measured at amortized cost using the effective interest method. The gains and losses incurred bythe financial liabilities measured at amortized cost but not belonging to any hedging relationship areincluded in the current profit or loss during derecognition or amortization according to the effective interestmethod.(4) Derecognition of financial assets and liabilities① The contract right to collect cash flow from the financial assets has terminated;② The financial assets have been transferred and such transfer satisfies the provisions for derecognitionof financial assets in the Accounting Standards for Business Enterprises No. 23 - Transfer of FinancialAssets.liabilities (or that part thereof) are derecognized.If the Company has transferred almost all the risks and rewards related to the ownership of financial assets,the financial assets are derecognized, and the rights and obligations resulting from or retained in thetransfer are separately recognized as the assets or liabilities. In case that almost all the risks and rewardsrelated to the ownership of the financial assets are retained, the recognition of the transferred financialassets is continued. In case that almost all the risks and rewards related to the ownership of the financialassets are neither transferred nor retained, disposal shall apply depending on the following circumstances:(1) if the control over the financial assets is not retained, the financial assets shall be derecognized, andthe rights and obligations resulting from or retained in the transfer are separately recognized as the assetsor liabilities; (2) if the control over the financial assets is retained, the relevant financial assets arerecognized according to the degree of continued involvement in the transferred financial assets, and therelevant liabilities are recognized accordingly.If the transfer of an entire financial asset satisfies the conditions for derecognition, the difference between Annual Report 2022the two amounts below shall be included in the current profit or loss: (1) Carrying value of the transferredfinancial assets at the date of derecognition; (2) The sum of consideration received for the transfer offinancial asset, plus the corresponding derecognized portion of accumulated change in fair valuepreviously included in other comprehensive income (in cases where the transferred financial asset is debtinstrument investment measured at fair value with changes included in other comprehensive income). Ifpart of the financial assets is transferred and the transfer satisfies the conditions for derecognition, theoverall carrying value before the transfer of financial assets is apportioned according to their respectiverelative fair value at the transfer date between the portion of derecognized part and the remaining part, andthe difference between the two amounts below is included in the current profit or loss: (1) carrying valueof the derecognized part; (2) the sum of consideration for the derecognized part, plus the correspondingderecognized part of accumulated change in fair value previously included in other comprehensive income(in cases where the transferred financial assets are debt instrument investment measured at fair value withchanges included in other comprehensive income).The Company adopts valuation techniques appropriate to the prevailing circumstances with the support ofsufficient data and other information available, to determine the fair value of relevant financial assets andliabilities. The Company divides the inputs for the estimation technique into the following levels and usesthem in turn:(1) Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that theCompany can access at the measurement date.(2) Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable, eitherdirectly or indirectly, including: the quotation of similar assets or liabilities in an active market; thequotation of the identical or similar assets or liabilities in an inactive market; other observable inputs otherthan the quotation, such as the interest rate and yield curves that can be observed during the normalquotation intervals; and the market validation inputs;(3) Level 3 inputs are unobservable inputs of related assets or liabilities, including the interest rate, stockvolatility, future cash flow of retirement obligations borne during the business combination, and financialforecasts made based on its own data, which cannot be observed directly or cannot be verified accordingto observable market data.(1) Impairment measurement and accounting treatment of financial instrumentsBased on the expected credit loss, the Company carries out accounting treatment for impairment andrecognizes the loss provision for the financial assets measured at amortized cost, the debt instrumentinvestment measured at fair value through other comprehensive income, contract assets, lease receivables,the loan commitment other than financial liabilities measured at fair value through profit or loss, and thefinancial guarantee contracts of financial liabilities not measured at fair value through profit or loss orfinancial liabilities not from failure of transfer of financial assets to meet the derecognition conditions orcontinued involvement in transferred financial assets.Expected credit loss refers to the weighted average of credit losses of financial instruments weighted bythe risk of default. Credit loss refers to the balance between all contractual cash flows discounted accordingto the original effective interest rate and receivable under the contract by the Company and all cash flowsas expected, i.e. the present value of all cash shortages. The purchased or underlying financial assets ofthe Company with credit impairment incurred are discounted according to their effective interest ratesupon credit adjustment. Annual Report 2022For the purchased or underlying financial assets with credit impairment incurred, only the accumulativechanges in the expected credit loss in the whole duration after initial recognition are recognized by theCompany as loss provisions on the balance sheet date.For the receivables and contract assets from transactions in accordance with the Accounting Standards forBusiness Enterprises No. 14 – Revenue, excluding significant financing components or withoutconsideration, by the Company, to the financing components in the contract of no more than one year, theCompany measures the loss provision according to the amount equal to the expected credit loss in thewhole duration by applying simplified measurement method.For the lease receivables as well as receivables and contract assets from transactions in accordance withthe Accounting Standards for Business Enterprises No. 14 – Revenue, including significant financingcomponents, the Company measures the loss provision according to the amount equal to the expectedcredit loss in the whole duration by applying simplified measurement method.For financial assets other than the above measurement methods, the Company shall, on each balance sheetdate, assess whether their credit risk has increased significantly since initial recognition. If the credit riskhas increased significantly since the initial recognition, the Company will measure the loss provision basedon the amount of expected credit loss in the whole duration; if the credit risk has not significantly increasedsince the initial recognition, the Company will measure the loss provision based on the amount of expectedcredit loss for the financial instruments in the next 12 months.The Company determines whether the credit risk of financial instruments has increased significantly sinceinitial recognition by utilizing the available, reasonable and well-grounded information, includingforward-looking information, and comparing the default risks of the financial instruments on the balancesheet date and on the initial recognition date.If the Company determines that the financial instruments bear a low credit risk on the balance sheet date,it assumes that the credit risk of the financial instruments has not increased significantly since initialrecognition.The Company evaluates the expected credit risk and measures the expected credit loss based on singlefinancial instrument or portfolio of financial instruments. When based on the portfolio of financialinstruments, the Company divides financial instruments into different portfolios on the basis of thecommon risk characteristics.The Company re-measures the expected credit loss on each balance sheet date, and the increased orreversed amount of the loss provision arising therefrom, as losses or gains from impairment, shall beincluded in the current profit or loss. For financial assets measured at amortized cost, the loss provisiondeducts the carrying value of the financial assets listed in the balance sheet; for the debt investmentmeasured at fair value with changes included in other comprehensive income, the Company recognizes itsloss provision in other comprehensive income without deducting the carrying value of the financial assets.(2) Financial instruments of which expected credit risks are assessed by portfolio and expected creditlosses are measured with a three-stage model Basis for determining the Method for measuring the Item portfolio expected credit loss Calculating the expected credit loss by the default risk exposure Other receivables - account age and the expected credit loss rate Account age portfolio in next 12 months or in the whole duration by referring to historical experience in credit Annual Report 2022 loss and according to the current situation and the forecast on future economic conditions.(3) Receivables and contract assets with expected credit losses measured by portfolio with a simplifiedmeasurement method Basis for determining the Method for measuring the Item portfolio expected credit loss Calculating the expected credit loss by the default risk exposure and the expected credit loss rate in the whole duration by Receivables financing - bank Bill type referring to historical acceptance note experience in credit loss and according to the current situation and the forecast on future economic conditions Calculating the expected credit loss by preparing the comparison table between account age of accounts receivable and expected credit Accounts receivable - account Account age loss rate in the whole duration age portfolio by referring to historical experience in credit loss and according to the current situation and the forecast on future economic conditionsloss rate in the whole duration Accounts receivable Account age Expected credit loss rate (%) Within 1 year (inclusive, same for below) 5 Above 3 years 100Financial assets and liabilities are resented in the balance sheet respectively without offsetting. However,when the following conditions are met, the financial assets and liabilities are presented at the net amountafter mutual offset in the balance sheet: (1) the Company has the legal right of offsetting the recognizedamount and such legal right is currently executable; (2) the Company plans to settle by net amount orsimultaneously realize the financial assets and clear off the financial liabilities.When the financial assets that do not meet the derecognition conditions are transferred, the Company doesnot offset the transferred financial assets with the relevant liabilities. Annual Report 2022Determination and accounting treatment of the expected credit loss of notes receivable□ Applicable √ Not applicableDetermination and accounting treatment of the expected credit loss of accounts receivable√ Applicable □ Not applicableRefer to "10. Financial instruments" in "V. Significant Accounting Policies and Estimates" of "Section XFinancial Report" of this report.√ Applicable □ Not applicableRefer to "10. Financial instruments" in "V. Significant Accounting Policies and Estimates" of "Section XFinancial Report" of this report.Determination and accounting treatment of the expected credit loss of other receivables√ Applicable □ Not applicableRefer to "10. Financial instruments" in "V. Significant Accounting Policies and Estimates" of "Section XFinancial Report" of this report.√ Applicable □ Not applicableInventories include finished goods or commodities for sale in daily operations, goods in process duringthe production, materials consumed during production or rendering of service.Moving weighted average method is adopted for delivered inventories.At the balance sheet date, inventories are measured at the lower of cost and net realizable value, andprovision for devaluation of inventories is made if the cost of a single inventory is higher than its netrealizable value. The net realizable value of inventories directly for sale is determined by the amount ofthe estimated selling price after subtracting the estimated sales expenses and relevant taxes during thenormal production and operation; the net realizable value of inventories required to be processed isdetermined by the amount of the estimated selling price of the finished products after subtracting theestimated cost by the end of processing, the estimated sales expenses and relevant taxes during the normalproduction and operation. On the balance sheet date, the net realizable value is determined separately forthe two parts of the same inventory with or without contract price, and is compared with the relevant coststo separately determine the amount withdrawn or reversed for inventory falling price reserve.The Company adopts a perpetual inventory system. Annual Report 2022(1) Low-value consumablesAmortization is performed by the immediate write-off method.(2) PackagingAmortization is performed by the immediate write-off method.(1). Recognition methods and standards of contract assets√ Applicable □ Not applicableThe rights of the Company to collect consideration from the customer unconditionally (i.e. only dependingon time) are presented as receivables; the rights (depend on other factors than time) to collect considerationfor transferring goods to the customer are presented as contract assets.(2). Determination and accounting treatment of the expected credit loss of contract assets□ Applicable √ Not applicable□ Applicable √ Not applicable(1). Determination and accounting treatment of the expected credit loss of debt investments□ Applicable √ Not applicable(1). Determination and accounting treatment of the expected credit loss of other debt investments□ Applicable √ Not applicable(1). Determination and accounting treatment of the expected credit loss of long-term receivables□ Applicable √ Not applicable√ Applicable □ Not applicableJoint control is the contractually agreed sharing of control of an arrangement. It exists only when decisionsabout the relevant activities of the arrangement require the unanimous consent of the parties sharingcontrol. Significant influence refers to the power to participate in the decision-making process on thefinancial and operating policies of the investee, but not to control or impose joint control together withother parties over the formulation of these policies.(1) For a long-term equity investment obtained from a business combination under common control: wherethe combining party pays cash, transfers non-cash assets, bears debts or issues equity securities ascombination consideration, the initial investment cost is the share with reference to the carrying value of Annual Report 2022the owners" equity of the combined party in the consolidated financial statements of the ultimatecontrolling party on the combination date. The difference between the initial investment cost of the long-term equity investment and the carrying value of the consideration paid for the business combination orthe total nominal value of the issued shares is adjusted to capital reserve. If the capital reserve is notsufficient to offset the difference, the retained earnings are adjusted.For a long-term equity investment obtained from a business combination under common control throughmultiple transactions by step, the Company judges whether the transactions are a "package deal". If yes,the transactions are subject to accounting treatment as one deal that has acquired control right. If no, theinitial investment cost is determined on the basis of the share with reference to the carrying value of thenet asset of the combined party in the consolidated financial statements of the ultimate controlling partyon the combination date. The difference between the initial investment cost of long-term equity investmentat the combination date and the sum of the carrying amount of long-term equity investment before businesscombination and the carrying value of newly paid consideration for additional shares acquired on thecombination date is adjusted to the capital reserve. If the capital reserve is not sufficient to be offset, theretained earnings are adjusted.(2) For a long-term equity investment obtained from a business combination not under common control,the fair value of consideration paid for business combination is regarded as the initial investment cost onthe acquisition date.For the long-term equity investment achieved by the Company via a business combination not undercommon control through multiple transactions by step, the relevant accounting treatment is based onindividual financial statements or consolidated financial statements:sum of the carrying value of the equity investment originally held and the newly increased investment cost."package deal". If yes, the transactions are subject to accounting treatment as one deal that has acquiredcontrol right. If no, the equity of the acquiree held before the acquisition date is re-measured at the fairvalue of the equity on the acquisition date, and the difference between the fair value and its carrying valueis included in the current investment income. If the equity of the acquiree held before the acquisition dateis related to other comprehensive income under the equity method, the other related comprehensiveincome is converted into the current income on the acquisition date, excluding the other comprehensiveincome derived from changes in net liabilities or assets due to re-measurement on defined benefit plansby the investee.(3) For a long-term equity investment obtained by means other than business combination: If it is obtainedby cash, the initial investment cost is the actual payment; If it is obtained through issuing equity securities,the initial investment cost is the fair value of the issued equity securities. If it is obtained through debtrestructuring, the initial investment cost is determined based on the Accounting Standards for BusinessEnterprises No. 12 - Debt Restructuring. If it is obtained through the exchange of non-monetary assets,the initial investment cost is determined based on the Accounting Standards for Business Enterprises No.For a long-term equity investment controlled by the investee, the cost method is adopted for accounting.For a long-term equity investment in associates and joint ventures, the equity method is adopted foraccounting.multiple transactions(1) Individual financial statements Annual Report 2022For disposal of equity, the difference between the carrying value and the consideration actually receivedis included in the current profit or loss. The accounting of remaining equity is completed by equity methodin case of significant influence on the investee or implementation of joint control with other parties.However, in case of no control, joint control or significant influence on the investee, the accounting ofremaining equity must comply with the relevant provisions of the Accounting Standards for BusinessEnterprises No.22 - Recognition and Measurement of Financial Instruments.(2) Consolidated financial statementbelonging to a "package deal"Before the loss of control, the difference between the price of disposal and the subsidiary"s net assetsentitled from the disposal of long-term equity investment cumulatively calculated from the acquisitiondate or the combination date, is adjusted to capital reserve (capital premium). If the capital premium isinsufficient to offset the difference, the retained earnings are adjusted.When the control over the original subsidiary is lost, the remaining equity is re-measured at fair value asat the date on which the control is lost. The difference between the sum of the consideration received fromequity disposal and the fair value of the remaining equity and the net assets of the original subsidiaryproportionate to the original shareholding accumulated from the date of acquisition or businesscombination is included in investment gains of the period during which the control is lost, and meanwhile,the goodwill is offset. Other comprehensive income related to the equity investment in the originalsubsidiary is transferred to investment gains of the period during which the control is lost.belonging to a "package deal"All transactions are regarded as one transaction disposing the subsidiaries and losing the control right foraccounting treatment. However, the difference between the amount received each time for disposal beforethe control is lost and the net assets of such subsidiary corresponding to the disposal of investment isrecognized as other comprehensive income in the consolidated financial statements, and is transferred toprofit or loss of the period during which the control is lost upon loss of control.(1). In case of a cost measurement model:Depreciation or amortization methodand building leased-out.depreciated or amortized with the same method as that for fixed assets and intangible assets.(1). Conditions for recognition√ Applicable □ Not applicableFixed assets are tangible assets that are held for use in the production or rendering of goods or services,for rental to others, or for administrative purposes, and have a service life of more than one accountingyear. The fixed assets are recognized when the following conditions are satisfied at the same time: theeconomic benefits are likely to inflow to the Company. The costs of such fixed assets can be measuredreliably. Annual Report 2022(2). Depreciation method√ Applicable □ Not applicable Depreciation Depreciation life Annual Category Residual value method (year) depreciation rate Houses and Straight-line buildings method General Straight-line equipment method Dedicated Straight-line equipment method Means of Straight-line transportation method(3). Recognition basis, valuation and depreciation of fixed assets under financial lease□ Applicable √ Not applicable√ Applicable □ Not applicableeconomic benefits are likely to inflow to the Company; the costs of such construction in progress can bemeasured reliably. Construction in progress is measured at the actual cost incurred to make the assets readyfor their intended use.condition for service. When construction in progress has achieved serviceable conditions but finalsettlement has not been finished yet, it is first transferred to fixed assets as per estimated value. After finalsettlement is finished, the estimated value is adjusted based on actual cost, but the depreciated amount isnot adjusted.√ Applicable □ Not applicableBorrowing costs incurred by the Company, which are directly attributable to the purchase and constructionof assets eligible for capitalization, are capitalized and included in the costs of the related assets. Otherborrowing costs are recognized as expense in the period in which they incur and are included in the currentprofit or loss.(1) Capitalization of borrowing costs begins when the following three conditions are fully satisfied: 1)expenditures for the assets have incurred; 2) borrowing costs have incurred; 3) acquisition and constructionor production that are necessary to enable the assets reach the intended usable or saleable conditions havecommenced.(2) Where abnormal interruption of the assets eligible for capitalization occurs during the acquisition andconstruction or production process and such interruption has lasted for more than 3 consecutive months,the capitalization of borrowing costs is suspended; the borrowing costs during the interruption are Annual Report 2022recognized as current expenses till resumption of purchasing or production of the assets.(3) Capitalization of borrowing costs is suspended during periods in which the qualifying asset underacquisition and construction or production is ready for the intended use or sale.In case of special borrowing for the acquisition and construction or production of assets meeting thecapitalization conditions, interest amount to be capitalized is recognized after deducting the bank interestsfor the unused portion or the investment income for temporary investment from the interest costs(including recognized depreciation or amortization of premium under effective interest method) actuallyincurred in the current period of specific borrowing; for general borrowing occupied for the acquisitionand construction or production of assets meeting the capitalization conditions, the interest amount to becapitalized shall be determined by the result obtained by multiplying the capitalization rate of occupiedgeneral borrowing with the weighted average value of the asset expenditure for the accumulatedexpenditure exceeding the specific borrowing portion.□ Applicable √ Not applicable□ Applicable √ Not applicable√ Applicable □ Not applicable Refer to "42. Lease" in "V. Significant Accounting Policies and Estimates" of "Section X FinancialReport" of this report for details.(1). Valuation method, service life and impairment test√ Applicable □ Not applicableat the cost.life in accordance with the expected realization method of the economic benefits related to the intangibleassets. If the expected realization method cannot be reliably determined, the straight-line method is usedfor amortization. The specific year information is shown as below: Item Amortization period (year) Land use rights 40 or 50 Unpatented technology 5 Office software 3 - 10 Patent right 5 Customer resources 3 Trademark right 10 Annual Report 2022(2). Accounting policy regarding the expenditure on the internal research and development√ Applicable □ Not applicableExpenditure incurred during the research phase of the internal research and development projects isincluded in the current profit or loss when actually incurred. Expenditure incurred during the developmentphase is recognized as an intangible asset when all of the following conditions are satisfied simultaneously.(1) The technical feasibility of completing the intangible asset so that it will be available for use or sale.(2) Its intention to complete the intangible asset so that it will be available for use or sale.(3) How the intangible asset will generate probable future economic benefits. Amongst other things, theCompany can demonstrate the existence of a market for the output of the intangible asset or the intangibleasset itself or, if it is used internally, the usefulness of the intangible asset.(4) The availability of adequate technical, financial and other resources to complete the development andto use or sell the intangible asset.(5) Its ability to reliably measure the expenditure attributable to the intangible asset during its development.√ Applicable □ Not applicableFor such long-term assets as long-term equity investment, investment real estate measured with the costmodel, fixed assets, construction in progress and intangible assets with limited service life, in case thatthere are signs indicating impairment on the balance sheet date, the recoverable amount should beestimated. Whether there is a sign of impairment or not, the goodwill acquired through the businesscombination and intangible assets with indefinite service life is tested for impairment each year. Theimpairment test on goodwill is carried out in combination with its related asset group or asset groupportfolio.In case the recoverable

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