The Stock Exchange of Hong Kong Limited and the Securities and Futures Commission take no responsibility for the contents of this Application Proof, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this Application Proof.
Application Proof of
KTL International Holdings Group Limited 三和國際控股集團有限公司 (Incorporated in the Cayman Islands with limited liability)
(“Company”)
WARNING The publication of this Application Proof is required by The Stock Exchange of Hong Kong Limited (“Exchange”) and the Securities and Futures Commission (“Commission”) solely for the purpose of providing information to the public in Hong Kong. This Application Proof is in draft form. The information contained in it is incomplete and is subject to change which can be material. By viewing this document, you acknowledge, accept and agree with the Company, its sponsor, advisers or member of the underwriting syndicate that: (a)
this document is only for the purpose of providing information about the Company to the public in Hong Kong and not for any other purposes. No investment decision should be based on the information contained in this document;
(b)
the publication of this document or supplemental, revised or replacement pages on the Exchange’s website does not give rise to any obligation of the Company, its sponsor, advisers or members of the underwriting syndicate to proceed with an offering in Hong Kong or any other jurisdiction. There is no assurance that the Company will proceed with the offering;
(c)
the contents of this document or supplemental, revised or replacement pages may or may not be replicated in full or in part in the actual final listing document;
(d)
the Application Proof is not the final listing document and may be updated or revised by the Company from time to time in accordance with the Rules Governing the Listing of Securities on the Exchange;
(e)
this document does not constitute a prospectus, offering circular, notice, circular, brochure or advertisement offering to sell any securities to the public in any jurisdiction, nor is it an invitation to the public to make offers to subscribe for or purchase any securities, nor is it calculated to invite offers by the public to subscribe for or purchase any securities;
(f)
this document must not be regarded as an inducement to subscribe for or purchase any securities, and no such inducement is intended;
(g)
neither the Company nor any of its affiliates, advisers or underwriters is offering, or is soliciting offers to buy, any securities in any jurisdiction through the publication of this document;
(h)
no application for the securities mentioned in this document should be made by any person nor would such application be accepted;
(i)
the Company has not and will not register the securities referred to in this document under the United States Securities Act of 1933, as amended, or any state securities laws of the United States;
(j)
as there may be legal restrictions on the distribution of this document or dissemination of any information contained in this document, you agree to inform yourself about and observe any such restrictions applicable to you; and
(k)
the application to which this document relates has not been approved for listing and the Exchange and the Commission may accept, return or reject the application for the subject public offering and/or listing.
If an offer or an invitation is made to the public in Hong Kong in due course, prospective investors are reminded to make their investment decisions solely based on the Company’s prospectus registered with the Registrar of Companies in Hong Kong, copies of which will be distributed to the public during the offer period.
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
IMPORTANT
IMPORTANT: If you are in any doubt about any of the contents of this [REDACTED], you should obtain independent professional advice.
KTL International Holdings Group Limited 三和國際控股集團有限公司 (Incorporated in the Cayman Islands with limited liability)
[REDACTED]
[REDACTED]
Nominal value : HK$0.01 per Share [REDACTED]
[REDACTED]
Joint Sponsors
[REDACTED]
[REDACTED]
[REDACTED]
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
EXPECTED TIMETABLE(1)
[REDACTED]
–i–
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
EXPECTED TIMETABLE(1)
[REDACTED]
– ii –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
EXPECTED TIMETABLE(1)
[REDACTED]
– iii –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
CONTENTS
[REDACTED]
Page Expected Timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
[i]
Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
[iv]
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
[1]
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
[11]
Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
[24]
Forward-looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
[25]
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
[26]
– iv –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
CONTENTS Information about this [REDACTED] and the [REDACTED] . . . . . . . . . . . . . . . . . . . .
[46]
Directors and Parties Involved in the [REDACTED] . . . . . . . . . . . . . . . . . . . . . . . . . . .
[50]
Corporate Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
[54]
Industry Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
[56]
Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
[67]
History, Development and Reorganisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
[80]
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [100] Relationship with Controlling Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [147] Substantial Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [153] Directors, Senior Management and Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [154] Share Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [160] Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [163] Future Plans and Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [219] Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [221] Structure and Conditions of the [REDACTED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [231] How to Apply for the Hong Kong Public [REDACTED] . . . . . . . . . . . . . . . . . . . . . . . . [241] Appendix I
–
Accountants’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
I-1
Appendix II
–
Unaudited Pro Forma Financial Information. . . . . . . . . . . . . . . . . .
II-1
Appendix III
–
Property Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
III-1
Appendix IV
–
Summary of the Constitution of the Company and Cayman Islands Company Law . . . . . . . . . . . . . . . . . . . . . . . . . .
IV-1
Appendix V
–
Statutory and General Information . . . . . . . . . . . . . . . . . . . . . . . . .
V-1
Appendix VI
–
Documents Delivered to the Registrar of Companies and Available for Inspection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
VI-1
–v–
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
SUMMARY
This summary aims at giving you an overview of the information contained in this [REDACTED]. Because this is a summary, it does not contain all the information that may be important to you. You should read this [REDACTED] in its entirety, including our financial statements and the accompanying notes, before you decide to invest in the [REDACTED]. There are risks associated with any investment. Some of the particular risks in investing in the [REDACTED] are set out in the section headed “Risk Factors” in this [REDACTED]. You should read that section carefully before you decide to invest in the [REDACTED]. Various expressions used in this summary are defined in the section headed “Definitions” in this [REDACTED]. BUSINESS OVERVIEW We are an integrated fine jewellery provider with a well-established operating history in Hong Kong, and are primarily engaged in designing, manufacturing and exporting fine jewelleries to jewellery wholesalers and retailers mainly in Russia, Americas and other European countries. According to the IPSOS Report, we ranked the second among the top five fine jewellery export manufacturers in 2013 in terms of export value in Hong Kong. We offer a wide range of fine jewellery products in karat gold, including rings, earrings, pendants, necklaces, bracelets, bangles, cufflinks, brooches and anklets. Our products are generally priced on a cost-plus basis and vary depending on factors such as product type, complexity of design and craftsmanship, raw materials used and our expected margins. For the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014, the average wholesale price of our products was approximately HK$1,359, HK$1,245, HK$1,231 and HK$1,133 per piece respectively. We believe that the success of a fine jewellery provider vests in its capability of providing integrated services to its customers. In addition to product design and production, we provide synergistic, value-added services to selected customers with strategic values to us, which are typically branded retail chain operators. For these selected customers, we share our observation on market trend and conduct discussion and interactive sessions with them, and collaborate with them on areas such as product series theme creation, product design in sets and/or series, product positioning, product showcasing and product launch strategies, which we view as collaborating efforts with them to promote their end consumer sales. We believe that our synergistic, value-added services helped us enhance the customer loyalty and led us to securing long-term and major customers. Our customers Our customers are mainly wholesalers and retailers of jewellery products. Our five largest customers had maintained three to 12 years of business relationship with our Group. Our five largest customers for the year ended 31 March 2014 include three Russia based retailers and wholesalers who operate chain stores in Russia selling jewellery products, a wholesaler in the United States which sells its products to local chain stores and a retailer with jewellery chain stores in the PRC and Hong Kong. –1–
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
SUMMARY For the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014, sales to our largest customer amounted to approximately HK$447.8 million, HK$724.6 million, HK$566.4 million and HK$160.1 million and accounted for approximately 40.2%, 50.5%, 42.1% and 46.4% of our total sales, respectively and sales to our five largest customers amounted to approximately HK$713.1 million, HK$1,091.6 million, HK$1,062.7 million and HK$271.1 million and accounted for approximately 64.0%, 76.1%, 79.0% and 78.6% of our total sales, respectively. We have been engaged in the fine jewellery business since 1990. We started our business with an initial customer network mainly in the United States and Italy as the jewellery industry was relatively developed in these countries. We made a strategic move and tapped into the Russia fine jewellery market in 2006. Since then our geographical coverage has continued to expand and now covers customers around the globe including Russia, Americas, other European countries, the PRC and the Middle East. According to the IPSOS Report, most of these geographical regions have experienced stable to significant growth in their respective retail jewellery markets in recent years. More particularly, the retail sales value of fine jewellery in Russia, the PRC, the Middle East, the United States and Europe (other than Russia) had CAGR of about 11.8%, 13.0%, 9.3%, 4.8% and 1.6% from 2009 to 2013 respectively. The following table sets out a breakdown of our approximate revenue and percentage of our total revenue by geographical locations of our customers for the periods indicated: Year ended 31 March 2012
2013
Revenue
Percentage of total revenue
HK$’000 . .
2014
Revenue
Percentage of total revenue
(%)
HK$’000
634,938 234,126
57.0 21.0
. . . .
115,585 43,851 51,650 34,564
Total . . . . . . .
1,114,714
Countries/ Territories
Russia . . . . . Americas . . . . Europe (other than Russia) . . . . PRC . . . . . . Middle East . . . Others . . . . .
Three months ended 30 June 2013
Revenue
Percentage of total revenue
(%)
HK$’000
989,174 220,993
69.0 15.4
10.4 3.9 4.6 3.1
89,325 64,766 43,620 26,486
100.0
1,434,364
Revenue
Revenue
Percentage of total revenue
(%)
HK$’000
(%)
HK$’000
(%)
838,056 283,866
62.3 21.1
360,740 75,364
74.7 15.6
208,784 74,678
60.6 21.7
6.2 4.5 3.0 1.9
74,038 84,315 23,377 42,170
5.5 6.3 1.7 3.1
12,320 16,982 12,034 5,257
2.6 3.5 2.5 1.1
22,217 24,247 2,506 12,382
6.4 7.0 0.7 3.6
100.0
1,345,822
100.0
482,697
100.0
344,814
100.0
Notes: (1) (2) (3) (4)
2014 Percentage of total revenue
Americas mainly includes the United States and Canada. Europe (other than Russia) mainly includes Italy, France, Holland and Turkey. Middle East mainly includes United Arab Emirates. Others mainly include Hong Kong, Indonesia, Japan and Africa.
–2–
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
SUMMARY The following table sets out a breakdown of our approximate revenue and percentage of our total revenue by product types for the periods indicated: Year ended 31 March 2012
Three months ended 30 June
2013
Revenue
Percentage of total revenue
(%)
HK$’000
444,403 407,125 170,255 40,850 47,542
39.9 36.5 15.3 3.6 4.3
. .
4,539
. .
Total: . . . . . .
Ring . . . . . Earrings . . . Pendant. . . . Necklace . . . Bracelet/bangle. Other gold fine jewelleries(1) . Silver jewellery/ Watch(2) . .
. . . . .
Revenue
Percentage of total revenue
HK$’000 . . . . .
2014
2013
Revenue
Percentage of total revenue
(%)
HK$’000
604,648 525,034 220,159 45,246 35,914
42.2 36.6 15.3 3.2 2.5
0.4
3,363
−
−
1,114,714
100.0
2014
Revenue
Percentage of total revenue
Revenue
Percentage of total revenue
(%)
HK$’000
(%)
HK$’000
(%)
553,774 477,292 221,611 40,642 47,293
41.1 35.5 16.5 3.0 3.5
199,450 191,373 64,995 12,082 13,436
41.3 39.6 13.5 2.5 2.8
156,127 122,802 44,677 8,229 11,756
45.3 35.6 13.0 2.4 3.4
0.2
5,210
0.4
1,361
0.3
977
0.2
−
−
−
−
−
−
246
0.1
1,434,364
100.0
1,345,822
100.0
482,697
100.0
344,814
100.0
Notes: (1)
Other gold fine jewelleries include cufflink, brooch and anklet etc.
(2)
Since April 2014, we commenced trading of watches, silver jewelleries and non-precious metal (such as ceramic and steel) jewelleries with or without semi-precious and artificial stones as an ancillary product type to satisfy customers’ requests.
The following table sets out the average wholesale price and sales volume by product types for the periods indicated: Year ended 31 March 2012
Three months ended 30 June
2013
Quantity
Average Wholesale price
(HK$)
(piece)
321,557 273,076 184,084 14,761 25,084
1,382 1,491 925 3,221 1,629
. .
1,782
. .
Total . . . . . . .
Ring . . . . . Earrings . . . Pendant. . . . Bracelet/Bangle Necklace . . . Other gold fine jewelleries(1) . Silver jewellery/ Watch(2) . .
. . . . .
Quantity
Average Wholesale price
(piece) . . . . .
2014
2013
Quantity
Average Wholesale price
Quantity
(HK$)
(piece)
(HK$)
(piece)
474,928 357,747 272,204 13,437 31,912
1,273 1,468 809 2,673 1,418
465,807 333,882 242,744 15,960 31,958
1,189 1,430 913 2,963 1,272
148,050 125,914 78,886 4,271 9,262
2,547
2,192
1,534
2,779
1,875
–
–
–
–
–
820,344
1,359
1,152,420
1,245
1,093,130
–3–
2014 Average Wholesale price
Quantity
Average Wholesale price
(piece)
(HK$)
1,347 1,520 824 3,146 1,304
135,977 97,834 54,477 3,694 7,387
1,148 1,255 820 3,183 1,114
1,042
1,305
501
1,945
–
–
–
4,410
56
1,231
367,425
1,314
304,280
1,133
(HK$)
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
SUMMARY Our design team We pride ourselves on having a strong in-house design team comprises a total of about 79 staff including about 24 jewellery designers and about 55 craftsmen. A number of our designers and craftsmen have been awarded with various certificates recognized in the jewellery industry in the PRC, amongst other, the Honorary Certificate of Guangzhou Expert Technician (廣州市 技術能手) issued by Guangzhou Municipal Human Resources and Social Security Bureau (廣州 市人力資源和社會保障局) in 2013 and the Certificates of Guangdong Province Jewellery and Jade Industry Expert Technician Fugleman (廣東省珠寶玉石首飾行業崗位技術能手標兵) issued by Guangdong Province Jewellery and Jade Industry Association (廣東省珠寶玉石首飾行業協 會) in 2011. Over the years, we have also won various awards issued by the Hong Kong Jewellery Manufacturers’ Association in the Hong Kong Buyers’ Most Favourable Jewellery Design Competitions. Our patented design “Diamonds in Snowflake” (冰花鑽) With our effort throughout the years, our “Diamonds in Snowflake” (冰花鑽) design, a unique stone-setting technique involving the setting of diamonds in multiple layers to create the appearance of one single diamond with larger table size, has been granted with design patent by the Patents Registry of the Intellectual Property Department of Hong Kong and the State Intellectual Property Office of the PRC. For details, please refer to the subsection headed “Business – Design and Craftsmanship” in this [REDACTED]. Our suppliers and subcontractors Our major suppliers include suppliers of raw materials and processing services. The principal raw materials purchased by our Group are gold, diamonds and gem stones. Our largest suppliers of raw materials mainly include wholesalers and trade dealers of gold, diamonds, gem stones in Hong Kong and the Shanghai Gold Exchange. For the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014 respectively, purchases and subcontracting fees (if any) from our five largest suppliers amounted to approximately HK$509.9 million, HK$919.7 million, HK$582.8 million and HK$130.9 million, which accounted for approximately 70.4%, 72.8%, 68.2% and 62.6% of our total purchases and subcontracting fees. Purchases from our largest supplier amounted to approximately HK$399.4 million, HK$760.9 million, HK$444.2 million and HK$90.7 million for the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014, respectively, which accounted for approximately 55.2%, 60.3%, 52.0% and 43.4% of our total purchases and subcontracting fees respectively. We have maintained business relationships with our five largest suppliers during the Track Record Period for about five years to 12 years. We engage subcontractors with jewellery manufacturing facilities in Panyu, the PRC, which are Independent Third Parties, to handle certain steps of the production process such as casting and moulding, filing and touch-up, embroidering, inlay, stone setting, polishing and electroplating. Semi-finished products are sent back to our production facilities at Yinping Premises for quality control and finished products are sent to our Hong Kong office for export. As at the Latest Practicable Date, we maintained business relationships with five subcontractors, which had maintained business relationships with our Group ranging from five to 12 years. –4–
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
SUMMARY Our production capacities We are equipped with our own production plant in Panyu, Guangdong Province in the PRC. We also subcontract certain steps of the production process to enhance management resource and cost efficiency and to provide better services to customers such as timely delivery of products in case of urgent orders. Our production output was about 746,532, 1,316,671, 1,028,479 and 221,088 fine jewellery pieces for the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014 respectively, with an utilization rate of about 77.7%, 96.4%, 89.4% and 91.9% in the corresponding period. We believe that our edge on product design and our production capabilities enables us to appeal to customers’ needs, maintain business relationships with our existing customers as well as exploring new business opportunities. Our strengths We believe that our success in the Hong Kong jewellery industry to date and our potential for future growth are attributed to a combination of the following competitive strengths: •
we are one of the top fine jewellery providers in Hong Kong with well-established and strong business relationships with worldwide customers;
•
we have strong design capability appealing to customers’ need;
•
we offer synergistic, value-added services to selected customers with strategic values to us and collaborate with them on areas such as product series theme creation, product design in sets and/or series, product positioning, product showcasing and product launch strategies; and
•
we have an experienced, stable and dedicated management team.
Our business strategies We strategically strive for maintaining our Group as one of the top fine jewellery providers through expanding market share in existing markets and reaching out into new markets. We have adopted and implemented the following strategies to attain this goal: •
further diversify our markets to the United States and the PRC;
•
enhance our efforts to offer products together with integrated services to broaden customer base;
•
strengthening our design capability; and
•
continue to strengthen our sales and operating capabilities by enhancing our ERP system.
PROPERTIES We owned two properties in Guangzhou City, the PRC, namely Yinping Premises and Yuwotou Premises, and a property in Hong Kong. Please refer to the valuation report in Appendix III to this [REDACTED] for details. –5–
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
SUMMARY SHAREHOLDERS INFORMATION Immediately following completion of the [REDACTED] and the [REDACTED] (taking no account of Shares which may be issued pursuant to the exercise of the [REDACTED] and the options that may be granted under the Share Option Scheme), KTL International (BVI) will directly own approximately [REDACTED] of the issued share capital of our Company. KTL International (BVI) is owned by Universe Master as to 55.57% and Husheng Holdings as to 44.43%. Universe Master is owned by Mr. Kei as to 79.97% and Mr. Kei Yeuk Lun Calan as to 20.03%. The entire issued share capital of Husheng Holdings, is owned by Mr. Li. KTL International (BVI), Universe Master, Husheng Holdings, Mr. Li, Mr. Kei and Mr. Kei Yeuk Lun Calan are directly or indirectly entitled to exercise or control the exercise of 30% or more of the voting power of our meeting collectively, and thus, each of them is regarded as our Controlling Shareholder. For details, please refer to the section headed “Relationship with Controlling Shareholders” in this [REDACTED]. KEY OPERATIONAL AND FINANCIAL DATA The following tables set forth the summary combined financial information of our Group. We have derived the summary combined financial information from the combined financial statements of our Group set forth in the Accountants’ Reports in Appendix I to this [REDACTED]. Our combined financial information was prepared in accordance with HKFRS. You should read the summary combined financial information together with the combined financial statements in this [REDACTED], including the related notes. Selected combined income data Three months ended 30 June
Year ended 31 March
Revenue . . . . . . . Gross profit . . . . . Gross profit margin Profit for the year . Net profit margin .
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
2012
2013
2014
HK$’000
HK$’000
HK$’000
1,434,364 263,884 18.4% 33,772 2.4%
1,345,822 244,116 18.1% 37,572 2.8%
1,114,714 239,197 21.5% 68,783 6.2%(1)
2013 HK$’000 (Unaudited) 482,697 84,122 17.4% 18,095 3.7%
2014 HK$’000
344,814 69,590 20.2% 17,354 5.0%
Note: (1)
We included a one-off gain on disposal of property, plant and equipment of approximately HK$39.1 million for the year ended 31 March 2012 mainly related to our sales of two properties to a third party and a shareholder and his spouse for the purpose of restructuring our Group’s asset profile.
Selected combined statements of financial position As of 30 June
As of 31 March
Non-current assets . . . . . . . . Current assets . . . . . . . . . . . Current liabilities . . . . . . . . . Net current assets/(liabilities) .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
2012
2013
2014
2014
HK$’000
HK$’000
HK$’000
HK$’000
. . . .
159,107 543,290 580,845 (37,555)
–6–
183,459 813,598 840,553 (26,955)
202,067 630,993 635,750 (4,757)
208,970 640,440 634,635 5,805
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
SUMMARY Net current liabilities as of 31 March 2012, 2013 and 2014 Our current liabilities exceeded our current assets by HK$37.6 million, HK$27.0 million, and HK$4.8 million as of 31 March 2012, 2013 and 2014, respectively and we recorded net current asset of approximately HK$5.8 million as of 30 June 2014. Our net current liabilities were principally resulted from the amounts due to our immediate holding company during the Track Record Period. Such amount was settled and fully capitalised on 28 July 2014. Our Directors confirmed and the Joint Sponsors concurred that, taking into consideration the financial resources presently available to us, including banking facilities and other internal resources, and the estimated [REDACTED] from the [REDACTED], we have sufficient working capital for our present requirements and for at least the next 12 months commencing from the date of this [REDACTED]. Our Directors confirmed that our Group did not have material defaults in payment of trade and non-trade payables and bank borrowings, and/or breaches of finance covenants during the Track Record Period. Key financial ratios Three months ended 30 June
Year ended 31 March
Gross Profit Margin (%) . . Net Profit Margin (%) . . . Return on equity (%) . . . . Return on total assets (%) . Interest coverage . . . . . . .
. . . . .
. . . . .
. . . . .
. . . . .
2012
2013
2014
2013
2014
21.5% 6.2% 57.1% 9.8% 8.2
18.4% 2.4% 22.0% 3.4% 3.9
18.1% 2.8% 19.2% 4.5% 4.4
17.4% 3.7% 10.3% 2.0% 7.3
20.2% 5.0% 8.2% 2.0% 9.1
As at 30 June
As at 31 March
Current ratio . . . . . . . . . . . . . . . . . . . Gearing ratio (%) . . . . . . . . . . . . . . . . Net debt to equity ratio (%) . . . . . . . . .
2012
2013
2014
2014
0.9 56.7% 131.0%
1.0 66.3% 196.5%
1.0 49.6% 98.4%
1.0 51.0% 104.2%
Please refer to the section headed “Financial Information” in this [REDACTED] for further details. RECENT DEVELOPMENT Based on our unaudited financial information for the two months ended 31 August 2014, our monthly average revenue slightly decreased when compared with the monthly average revenue for the three months ended 30 June 2014. The decrease in revenue was mainly attributable to the recent slowdown of the Russia market as a result of the recent military intervention in Ukraine, which was partially offset by the increase in sales in the United States as a result of the continuous economic recovery of the United States. Since April 2014, we commenced trading of silver jewelleries. The average wholesale price of our products decreased for the two months ended 31 August 2014 due to the increase in our sales of silver jewelleries, which have a substantially lower average wholesale price. To the best information and knowledge of our Directors, save as disclosed in the foregoing, there had been no material development in the jewellery industry in which our Group’s products were sold since 30 June 2014 up to the Latest Practicable Date. –7–
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
SUMMARY
[REDACTED]
NO MATERIAL ADVERSE CHANGE Our Directors confirmed that, up to the date of this [REDACTED], save as to the impact of [REDACTED] expenses on our financial performance as disclosed above, there has been no material adverse change in our financial or trading position since 30 June 2014, the end of the period reported in the Accountants’ Report set out in Appendix I to this [REDACTED], and there has been no event since 30 June 2014 which would materially affect the information shown in the Accountants’ Report set out in Appendix I to this [REDACTED]. FUTURE PLANS AND USE OF PROCEEDS The aggregate [REDACTED] from the [REDACTED] (after deducting [REDACTED] fees and estimated expenses in connection with the [REDACTED] and assuming an [REDACTED] of HK$[REDACTED] per Share, being the mid-point of the indicative range of the [REDACTED] of HK$[REDACTED] to HK$[REDACTED] per Share, and assuming the [REDACTED] is not exercised) will be approximately HK$[REDACTED]. Our Directors intend to apply the [REDACTED] from the [REDACTED] as follows: (1) approximately HK$[REDACTED] (representing approximately [REDACTED]% of the [REDACTED]), will be used for the fitting out and decoration of Yuwotou Premises which are contemplated to be used as an exhibition centre with multiple showrooms to showcase our design concepts and products to our customers and a staff training centre; (2) approximately HK$[REDACTED] (representing approximately [REDACTED]% of the [REDACTED]), will be used for purchasing of raw materials, more specifically diamonds. Suppliers of diamonds generally offer discounts for orders without credit terms. We believe that it would be beneficial for our Group to allocate part of the proceeds to facilitate purchases of diamonds on a cash-on-delivery basis to take advantage of purchase discounts generally provided by our suppliers for orders without credit terms to enable us to offer products at more competitive prices and/or increase our gross profit margin; –8–
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
SUMMARY (3) approximately HK$[REDACTED] (representing approximately [REDACTED]% of the [REDACTED]), will be used for upgrading our ERP system, together with IT infrastructure upgrade; (4) approximately HK$[REDACTED] (representing approximately [REDACTED]% of the [REDACTED]), will be used for the development and enhancement of our design capability, including among others, (i) purchasing software for producing threedimensional design sketches and equipment for producing design prototypes; and (ii) employing and providing training to designers and craftsmen; and (5) approximately HK$[REDACTED] (representing approximately [REDACTED]% of the [REDACTED]), will be used for working capital and other general corporate purposes. For details, please refer to the section headed “Future Plans and Use of Proceeds” in this [REDACTED]. DIVIDEND POLICY During the Track Record Period, we declared and paid dividends of approximately HK$4.5 million for the year ended 31 March 2012, nil for the year ended 31 March 2013, nil for the year ended 31 March 2014 and nil for the three months ended 30 June 2014. The foregoing should not be viewed as a reference or basis to determine the level of dividends that may be declared or paid by us in the future. The recommendation of the payment of dividend is subject to the absolute discretion of our Board, and, after [REDACTED], any declaration of final dividend for the year will be subject to the approval of our Shareholders. Our Directors may recommend a payment of dividend in the future after taking into account our operations, earnings, financial condition, cash requirements and availability, capital expenditure and future development requirements and other factors as it may deem relevant at such time. Any declaration and payment as well as the amount of the dividend will be subject to our constitutional documents and the Companies Law, including the approval of our Shareholders. Future dividend payments will also depend upon the availability of dividends received from our foreign-invested subsidiary in the PRC. Any distributable profits that are not distributed in any given year will be retained and available for distribution in subsequent years. Subject to the factors above, our Directors currently intend to recommend, at the relevant shareholders’ meetings of our Company, an annual dividend around 30% of the net profit available for distribution to the Shareholders in the foreseeable future. For details, please refer to the subsection headed “Financial Information – Dividend Policy” in this [REDACTED]. RISK FACTORS There are risks associated with our business and investment in the [REDACTED], among others, (1) our profitability and financial position may be materially and adversely affected if any of our major customers ceases to do business with us; (2) we do not have long-term purchase commitments from our customers, which expose us to potential volatility in our revenue; (3) the –9–
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
SUMMARY operational arrangements of some of our major customers in Russia may be subject to challenge and may disrupt our business and financial operation; (4) our high gearing ratio and net current liabilities position expose us to liquidity risk; and (5) we recorded negative operating cash flow at times during the Track Record Period. If we continue to have negative operating cash flow in the future, our liquidity and financial condition may be materially and adversely affected. For details and discussions of other risks, please refer to the section headed “Risk Factors” in this [REDACTED]. LEGAL COMPLIANCE During the Track Record Period, we did not fully comply with the applicable PRC laws and regulations in respect of social insurance contribution and housing provident fund contribution, and the then in force Companies Ordinance in respect of the convening of annual general meeting and laying profit and loss accounts and balance sheets at the general meeting and the filing of notice of change of director/secretary within the prescribed time. Our Directors consider such previous non-compliance incidents not to have constituted material or systematic non-compliance. For details regarding the non-compliance incidents, the remedial measures taken, the relevant risks and internal control measures adopted, please refer to the section headed “Risk Factors” and the subsections headed “Business – Litigation and Legal Compliance” and “Business – Internal Control/Risk Management” in this [REDACTED].
[REDACTED]
– 10 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
DEFINITIONS In this [REDACTED], the following expressions shall have the meanings set out below unless the context requires otherwise. [REDACTED] “Alan’s Jewellery”
Alan’s Jewellery Company Limited (雅倫珠寶有限公司), a company incorporated in Hong Kong on 18 June 1992 and a wholly-owned subsidiary of our Company [REDACTED]
“Articles” or “Articles of Association”
the articles of association of our Company, conditionally adopted on [●] 2014 and as amended from time to time, a summary of which is contained in Appendix IV to this [REDACTED]
“associate(s)”
has the meaning ascribed to it under the [REDACTED]
“Board” or “our Board”
the board of Directors
“Business Day”
any day (other than a Saturday, Sunday or public holiday in Hong Kong or days on which a tropical cyclone warning no. 8 or above or a “black rainstorm warning signal” is hoisted in Hong Kong at any time between 9:00 a.m. and 5:00 p.m.) on which banks in Hong Kong are generally open for normal banking business
“BVI”
British Virgin Islands
[REDACTED]
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
DEFINITIONS
[REDACTED]
“CCBI”
CCB International Capital Limited, a licensed corporation to conduct type 1 (dealing in securities), type 4 (advising on securities) and type 6 (advising on corporate finance) regulated activities under the SFO, being one of the Joint Sponsors to the [REDACTED]
“China” or “PRC”
the People’s Republic of China excluding, for the purpose of this [REDACTED], Hong Kong, Special Administrative Region of Macau of the PRC and Taiwan
“China Galaxy”
China Galaxy International Securities (Hong Kong) Co., Limited, a licensed corporation to conduct type 1 (dealing in securities), type 4 (advising on securities) and type 6 (advising on corporate finance) regulated activities under the SFO, being one of the Joint Sponsors to the [REDACTED]
“Chinagrow Development”
Chinagrow Development Limited (東高發展有限公司), a company incorporated in Hong Kong on 18 April 2007 and a wholly-owned subsidiary of our Company
“Circular 37”
the PRC Circular on Relevant Issues concerning Foreign Exchange Administration of Overseas Investment and Financing and Round-trip Investment by Domestic Residents via Special Purpose vehicles (國家外匯管理局關於境內居民 通過特殊目的公司境外投融資及返程投資外匯管理有關問題 的通知) promulgated by SAFE on 4 July 2014
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
DEFINITIONS “Circular 75”
the PRC Circular regarding Foreign Exchange Control for Fundraising and Round-trip Investments by Domestic Residents through Offshore Special Purpose Vehicles (國家 外匯管理局關於境內居民通過境外特殊目的公司融資及返程 投資外匯管理有關問題的通知) promulgated by SAFE on 21 October 2005
“close associate(s)”
has the meaning ascribed to it under the [REDACTED]
“Companies Law”
the Companies Law (as revised) of the Cayman Islands, as amended, supplemented or otherwise modified from time to time
“Companies Ordinance”
the Companies Ordinance (Chapter 622 of the Laws of Hong Kong) as amended, supplemented or otherwise modified from time to time
“Companies (Winding Up and Miscellaneous Provisions) Ordinance”
the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Chapter 32 of the Laws of Hong Kong) as amended, supplemented or otherwise modified from time to time
“Company”, “the Company” or “our Company”
KTL International Holdings Group Limited 三和國際控股集 團有限公司, an exempted company incorporated in the Cayman Islands on 6 June 2014 with limited liability
“connected person(s)”
has the meaning ascribed to it under the [REDACTED]
“Controlling Shareholder(s)”
has the meaning ascribed to it under the [REDACTED], and in the context of our Company, means Mr. Kei, Mr. Kei Yeuk Lun Calan, Universe Master, Husheng Holdings, Mr. Li and KTL International (BVI)
“Covenantors”
Mr. Kei, Mr. Kei Yeuk Lun Calan, Universe Master, Husheng Holdings, Mr. Li and KTL International (BVI)
“CSRC”
the China Securities Regulatory Commission of the PRC (中 國證券監督管理委員會)
“Deed of Non-Competition”
the deed of non-competition undertaking dated [●] entered into by the Controlling Shareholders and Directors in favour of our Company (for ourselves and for benefit of our subsidiaries)
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
DEFINITIONS “Director(s)”
the director(s) of our Company
“EIT Law”
the PRC Enterprise Income Tax Law (中華人民共和國企業 所得稅法), enacted by the NPC in March 2007 and became effective on 1 January 2008 and its implementation rules
“FIE(s)”
foreign-invested enterprise(s) established in the PRC under the laws of the PRC [REDACTED]
“Golden Charter”
Golden Charter Management Corp., a company incorporated in the BVI on 7 February 2002 and a wholly-owned subsidiary of our Company [REDACTED]
“Group” or “our Group” or “we” or “us”
our Company and its subsidiaries or any of them, or where the context so requires, in respect of the period before our Company became the holding company of its present subsidiaries, such subsidiaries as if they were subsidiaries of our Company at the relevant time
“Guangzhou Dihe”
Guangzhou Dihe Jewellery Limited* (廣州締和首飾有限公 司), a company established in the PRC on 22 February 2011 and a wholly-owned subsidiary of our Company
“Guangzhou KTL”
Guangzhou KTL Jewellery Ltd.* (廣州市卡締爾首飾有限公 司), a company established in the PRC on 5 January 2008 and a wholly-owned subsidiary of our Company
[REDACTED]
“HK$” and “cents”
Hong Kong dollars and cents, respectively, the lawful currency of Hong Kong
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
DEFINITIONS “HKFRS”
Hong Kong Financial Reporting Standards promulgated by HKICPA
“HKICPA”
The Hong Kong Institute of Certified Public Accountants
[REDACTED]
“HKTDC”
Hong Kong Trade Development Council
“Hong Kong” or “HK”
the Hong Kong Special Administrative Region of the PRC
[REDACTED]
“Husheng Holdings”
Husheng Holdings Limited (互盛控股有限公司), a company incorporated in the BVI on 12 September 2014, its entire issued share capital is owned by Mr. Li, and one of our Controlling Shareholders
“Independent Third Party(ies)”
individual(s) or company(ies) which is/are independent of and not connected with (within the meaning of the [REDACTED]) any directors, chief executives and substantial shareholders of our Company or any of our subsidiaries and any of their respective associates
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
DEFINITIONS “Info Dragon”
Info Dragon Trading Limited, a company incorporated in the BVI on 12 February 2002 and a wholly-owned subsidiary of our Company
[REDACTED]
“IPSOS”
Ipsos Hong Kong Limited, an industry research consultant commissioned by us to prepare the IPSOS Report
“IPSOS Report”
the market research report prepared by IPSOS on the fine jewellery industry
“Joint Sponsors” or [REDACTED] or [REDACTED]
CCBI and China Galaxy
“KTL Brilliant”
KTL Brilliant Limited (三和展利有限公司) (formerly known as K.T.L. Group Limited 三和控股有限公司), a company incorporated in Hong Kong on 24 November 1997 and a wholly-owned subsidiary of our Company
“K.T.L. Development”
K.T.L. Development Co., Limited (三和展貿有限公司) (formerly known as K.T.L. Development Co., Limited 雅和 首飾有限公司), a company incorporated in Hong Kong on 21 April 2004 and a wholly-owned subsidiary of our Company
– 16 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
DEFINITIONS “KTL (Guangzhou)”
KTL (Guangzhou) Jewellery Limited (雅和(廣州)首飾有限 公司), a company established in the PRC on 4 June 2004 and a wholly-owned subsidiary of our Company
“KTL International (BVI)”
KTL International Holdings Limited (三和國際控股有限公 司) (formerly known as Ample Witty International Limited), a company incorporated in the BVI on 28 February 2002 and one of our Controlling Shareholders
“K.T.L. Jewellery”
K.T.L. Jewellery Manufacturer Limited (三和珠寶有限公司) (formerly known as K.T.L. Jewellery Manufacturer Limited 三和珠寶集團有限公司 and K.T.L. Jewellery Manufacturer Limited), a company incorporated in Hong Kong on 29 June 1990 and a wholly-owned subsidiary of our Company
“KTL Jewellery Trading”
KTL Jewellery Trading Limited (三和珠寶貿易有限公司), a company incorporated in Hong Kong on 31 December 2008 and a wholly-owned subsidiary of our Company
“KTL Management”
KTL Management Limited (三和管理有限公司) (formerly known as Joint Sense International Limited 集善國際有限公 司), a company incorporated in Hong Kong on 28 November 1996 and a wholly-owned subsidiary of our Company
“KTL Marketing”
KTL Marketing Limited (三和市場營銷有限公司) (formerly known as KTL Marketing Limited and Rosso Design Limited), a company incorporated in Hong Kong on 30 May 2007 and a wholly-owned subsidiary of our Company
“Landclick Properties”
Landclick Properties Limited, a company incorporated in Hong Kong on 26 March 2002 and a wholly-owned subsidiary of our Company
“Latest Practicable Date”
[13 October] 2014, being the latest practicable date prior to the printing of this [REDACTED] for the purpose of ascertaining certain information contained in this [REDACTED]
[REDACTED]
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
DEFINITIONS
[REDACTED]
“Lucigala Jewellery”
Lucigala Jewellery (Hong Kong) Limited (露思珈蘭首飾(香 港)有限公司) (formerly known as Lucigala Jewellery Limited and KTL Watch Manufacturer Limited 三和鐘錶集 團有限公司), a company incorporated in Hong Kong on 21 July 2005 and a wholly-owned subsidiary of our Company
[REDACTED]
“Memorandum” or “Memorandum of Association”
the memorandum of association of our Company, as amended from time to time, a summary of which is contained in Appendix IV to this [REDACTED]
“MOFCOM”
the Ministry of Commerce of the PRC (中華人民共和國商務 部), or its predecessor, the Ministry of Foreign Trade and Economic Cooperation, as appropriate to the context
“Mr. Kei”
Mr. Kei York Pang Victor (紀若鵬), our Co-Chairman, executive Director and Chief Executive Officer
“Mr. Li”
Mr. Li Man Chun (李文俊), our Co-Chairman, executive Director and Chief Operating Officer
“M&A Rules”
the PRC Rules on Merger and Acquisition of Domestic Enterprises by Foreign Investors (關於外國投資者併購境內 企業的規定) issued by MOFCOM, along with SASAC, SAT, SAIC, CSRC and SAFE on 8 August 2006 and amended on 22 June 2009
“NDRC”
the National Development and Reform Commission of the PRC (中華人民共和國國家發展和改革委員會)
[REDACTED]
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DEFINITIONS “Notice 59”
the PRC Notice of the Ministry of Finance and the State Administration of Taxation on Several Issues Concerning the Enterprise Income Tax Treatment on Enterprise Reorganisation (財政部、國家稅務總局關於企業重組業務 企業所得稅處理若干問題的通知) issued by the Ministry of Finance of the PRC and SAT on 30 April 2009
“NPC”
the National People’s Congress of the PRC (中華人民共和國 全國人民代表大會) and its Standing Committee
[REDACTED]
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
DEFINITIONS “PBOC”
the People’s Bank of China (中國人民銀行), the central bank of the PRC
“PRC Company Law”
Company Law of the PRC (中華人民共和國公司法) (as amended, supplemented or otherwise modified from time to time)
“PRC GAAP”
generally accepted accounting principles in the PRC
“PRC Government” or “Chinese Government” or “State”
the central government of the PRC, including all governmental subdivisions (including provincial, municipal and other regional or local government entities) and instrumentalities thereof, or where the context require, any of them
“PRC Legal Advisers”
Tian Yuan Law Firm, our legal advisers as to the PRC laws
[REDACTED]
“Renminbi” or “RMB”
Renminbi, the lawful currency of the PRC
“Reorganisation”
the pre-[REDACTED] reorganisation of our Group, further details of which are described under the sub-section headed “History, Development and Reorganisation – Reorganisation” in this [REDACTED]
“Rich Delta”
Rich Delta Resources Limited, a company incorporated in the BVI on 31 January 2002 and a wholly-owned subsidiary of our Company
“SAFE”
the State Administration of Foreign Exchange of the PRC* (中華人民共和國國家外滙管理局)
“SAIC”
the State Administration of Industry and Commerce of the PRC (中華人民共和國國家工商行政管理總局)
“SASAC”
the State-owned Assets Supervision and Administration Commission of the State Council of the PRC (中華人民共和 國國務院國有資產監督管理委員會) – 20 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
DEFINITIONS “SAT”
the State Administration of Taxation of the PRC (中華人民共 和國國家稅務總局)
“SFC”
the Securities and Futures Commission of Hong Kong
“SFO”
the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time
“Shanghai Gold Exchange”
a self-managing and non-profit legal entity approved by the State Council and founded by PBOC in Shanghai, the PRC, which is responsible for the organization of gold transactions under the supervision of PBOC
“Share(s)”
ordinary share(s) with par value of HK$0.01 each in the share capital of our Company
“Share Option Scheme”
the share option scheme conditionally adopted by our Company, further details of which are described in the section headed “D. Other information – 1. Share Option Scheme” in Appendix V headed “Statutory and General Information” to this [REDACTED]
“Shareholder(s)”
holder(s) of our Share(s)
“Stabilising Manager”
CCB International Capital Limited
“State Council”
the State Council of the PRC
[REDACTED]
“subsidiary(ies)”
has the meaning ascribed to it under the [REDACTED]
“substantial shareholder(s)”
has the meaning ascribed to it under the [REDACTED]
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DEFINITIONS “Takeovers Code”
the Hong Kong Code on Takeovers and Mergers, as approved by the SFC and as amended, supplemented or otherwise modified from time to time
“Techno City”
Techno City Trading Limited, a company incorporated in the BVI on 31 January 2002 and a wholly-owned subsidiary of our Company
“TLGMFL”
The London Gold Market Fixing Limited
“Track Record Period”
the period comprising the three financial years of our Group ended 31 March 2012, 31 March 2013 and 31 March 2014 and the three months ended 30 June 2014
“True Success”
True Success International Limited, a company incorporated in the BVI on 10 March 1999 and a wholly-owned subsidiary of our Company
[REDACTED]
“United States” or “U.S.” or “USA”
the United States of America, its territories, its possessions and all areas subject to its jurisdiction
“Universe Master”
Universe Master Limited, a company incorporated in the BVI on 2 January 2013 and one of our Controlling Shareholders
“U.S. Securities Act”
the United Securities Act of 1933, as amended
“USD”, “US dollars” or “US$”
United States dollars, the lawful currency of the United States
“VAT”
value-added tax
“WFOE(s)”
wholly foreign-owned enterprise(s) established in the PRC under the laws of the PRC
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DEFINITIONS
[REDACTED]
“Yinping Premises”
premises owned by our Group located at No. 1 Yinping Road, Shatou Street, Panyu District, Guangzhou City, the PRC (廣 州市番禺區沙頭街銀平路1號), which is a multiple purpose building for our product design, production, and office administration, etc.
“Yuwotou Premises”
premises owned by our Group located at South of Yuwotou Town Road, Dongshen Village, Dongyong Town, Nansha District, Guangzhou, Guangdong Province, the PRC
“%”
per cent
In this [REDACTED], the English names of the PRC nationals, entities, departments, facilities, certificates, titles, etc. marked “*” are translations of their Chinese names and are for identification purposes only. If there is any inconsistency, the Chinese name shall prevail. Unless expressly stated or otherwise required by the context, all data contained in this [REDACTED] are as at the Latest Practicable Date. Unless otherwise specified, all references to any shareholding in our Company in this [REDACTED] assume no exercise of the [REDACTED] and any options which may be granted under the Share Option Scheme. Certain amounts and percentage figures included in this [REDACTED] have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures preceding them.
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GLOSSARY
This glossary contains certain definitions and technical terms in this [REDACTED] which relate to our business and the industries and sectors that we operate in. As such, some terms and definitions may not correspond to standard industry definitions or usage of such terms. “CAGR”
compound annual growth rate
“carat”
a unit of weight for diamonds and gemstones, each of which is equal to 200 milligrams
“CIF”
cost, insurance and freight
“ERP System”
enterprise resource planning system, software designed integrate business processes and functions
“FCA”
free carrier to airport
“fine jewellery”
jewellery products principally made of diamonds, gem stones or pearls and precious metals
“GDP”
gross domestic product
“ISO”
International Organization for Standardization
“karat”
a unit of measure for the fineness of gold
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
FORWARD-LOOKING STATEMENTS This [REDACTED] contains certain statements that are “forward-looking” and uses forward-looking terminology such as “anticipate”, “believe”, “expect”, “may”, “plan”, “consider”, “ought to”, “should”, “would”, “shall”, “will” and the negative of these terms and other similar expressions, as they relate to us. Those statements include, among other things, the discussion of our growth strategy and the expectations of our future operations, liquidity and capital resources, which reflect our management’s current view with respect to future events based on the beliefs of our management and assumptions made by and information currently available to our management, and are subject to certain risks, uncertainties and factors, including the risk factors described in the section headed “Risk factors” in this [REDACTED]. Potential investors of the [REDACTED] are cautioned that reliance on any forward-looking statement involves risk and uncertainties and that, any or all of those assumptions could prove to be inaccurate and as a result, the forward-looking statements based on those assumptions could also be incorrect. As a result of these and other risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this [REDACTED] might not occur in the way we expect or at all. In light of these, the inclusion of forward-looking statements in this [REDACTED] should not be regarded as representations or warranties by us that our Group’s plans and objectives will be achieved and these forward-looking statements should be considered in light of various important factors, including those set forth in the section headed “Risk Factors” in this [REDACTED]. We do not intend to update these forward-looking statements in addition to our on-going disclosure obligations pursuant to the [REDACTED] or other requirements of the [REDACTED]. Investors should not place undue reliance on such forward-looking information.
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
RISK FACTORS
You should carefully consider all of the information set out in this [REDACTED], including the risks and uncertainties described below before making an investment in the [REDACTED]. You should pay particular attention to the fact that we are incorporated in the Cayman Islands and that a substantial part of our Group’s operations are conducted in the PRC and are governed by a legal and regulatory environment that differs from that prevailing in other countries. Our business, financial condition and results of operations could be materially and adversely affected by any of these risks. The trading price of the Shares could decline due to any of these risks, and you may lose all or part of your investment. RISKS RELATING TO OUR BUSINESS Our profitability and financial position may be materially and adversely affected if any of our major customers ceases to do business with us For the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014, sales to our five largest customers amounted to approximately HK$713.1 million, HK$1,091.6 million, HK$1,062.7 million and HK$271.1 million and accounted for approximately 64.0%, 76.1%, 79.0% and 78.6% of our total sales, respectively; and sales to our largest customer amounted to approximately HK$447.8 million, HK$724.6 million, HK$566.4 million and HK$160.1 million and accounted for approximately 40.2%, 50.5%, 42.1% and 46.4% of our total sales, respectively. We have maintained three to 12 years of business relationship with our five largest customers during the Track Record Period. However, there is no assurance that our business relationship with any of these major customers will continue in the future. If any of these customers, in particular our largest customer, ceases to do business with us, or substantially reduces the volume of its business with us for whatever reason, and if we are unable to secure new customers with comparable sales volume and profit margins, or successfully promote sales with our other existing customers to compensate for the cessation of or reduction in businesses with our major customers, our profitability and financial position may be materially and adversely affected. Our business and financial position may be adversely affected if we are not able to continue servicing the Russian market effectively or if there is an economic downturn in Russia We have historically been relying heavily on the Russian market. During the Track Record Period, Russia is our largest sales market. For the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014, revenues arising from sales to Russia amounted to approximately 57.0%, 69.0%, 62.3% and 60.6% of our total sales, respectively. However, we cannot assure you that we will be able to continue to do so in the future. While it is a strategy of our Group to further diversify our market to the United States and the PRC and we have achieved a certain degree of initial momentum with these markets in 2014, our geographical sales contribution is still and is expected to be in the near term to remain skewed significantly towards the Russian market. If we are not able to respond effectively to the taste of the Russian market or offer competitive prices to our customers in Russia, our business and financial operation could be adversely affected. Further, if there is an economic downturn in Russia due to social or political instability, natural disaster or otherwise, demands for fine jewellery products from Russia may drastically decrease which may adversely affect our business and financial operation. – 26 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
RISK FACTORS We do not have long-term purchase commitments from our customers, which expose us to potential volatility in our revenue Our sales are generally made on order-by-order basis. During the Track Record Period, we entered into two framework agreements with two of our customers which provide for a minimum amount of purchase from these customers during the term of the respective framework agreement, subject to the availability of our products. For details, please refer to the subsection headed “Business – Sales and Marketing – Agreements relating to sales” in this [REDACTED]. Other than the said framework agreements, we did not enter into any long-term purchase agreement with minimum purchase commitment with other customers. Sales to our customers may vary significantly from period to period. It is also difficult to forecast future order quantities. There is no assurance that any of our customers will continue to place orders with us in the future for the same volume, or at the same margin, as compared to the past, or at all. If any of our major customers substantially reduces its volume of purchases from us or ceases to do business with us, and we cannot identify any alternative customers for replacement, our sales may decrease substantially and our business, financial condition, results of operations and prospects may be materially and adversely affected. The operational arrangements of some of our major customers in Russia may be subject to challenge and may disrupt our business and financial operation During the Track Record Period, some of our major customers in Russia utilized entities (certain of which have physical offices situated in Hong Kong) which, according to the best of our Directors’ knowledge and understanding, are under common control with our customers, to handle certain customary functions such as handling of order confirmations, pre-shipment quality control, shipment logistics, customs and declarations as well as payment settlements when dealing with us, whether for reasons of logistical efficiency, mitigation of risks relating to taxation and customs or otherwise. We conduct our business principally with our Russian customers directly, including discussing product designs, negotiating and securing terms of orders such as product price, quantity, delivery dates, payment terms etc., while we liaise with these designated entities on matters relating to pre-shipment quality control and shipping logistics. To the best of our Directors’ knowledge and information, the adoption or utilization of such operational arrangements are not uncommon in Russia. However, despite that we are not aware of any such challenge against these customers in the past, we cannot assure you that the operational arrangements of these customers will not be challenged by the tax authorities, customs or other relevant authorities in Russia. To the best of our Directors’ knowledge and information based on the due diligence works performed, we understand that we are not exposed to liabilities as regards any potential disputes between our Russian customers and the Russian tax and customs authorities. Nonetheless, if the operational arrangements of any of our customers in Russia is found to be in breach of any laws and regulations or is subject to penalties, fines or other liabilities in Russia, the business and operation of our customer may be disrupted and our business and financial performance can be adversely affected if we cannot establish new business relationship and network in time to compensate the decrease in sales from such customer. – 27 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
RISK FACTORS Any change in the relevant laws and regulations in Russia resulting in a restriction on the import of fine jewelleries to Russia could adversely affect our financial and business operation During the Track Record Period, Russia is our largest sales market. For the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014, revenues arising from sales to Russia amounted to approximately 57.0%, 69.0%, 62.3% and 60.6% of our total sales, respectively. There is currently no quota or tariff system restricting the import of fine jewelleries to Russia. However, we cannot assure you that the relevant policies, laws and regulations in Russia will not change in the future. If there is a change in the relevant policies, laws and regulations in Russia resulting in a restriction on the import of fine jewelleries to Russia, our financial and business operation could be adversely affected. Our success depends on our ability to anticipate and respond to product trends and changing consumer preferences We believe that our continued success depends on our ability to anticipate, identify and interpret the habits, tastes of and trends among our customers and to offer products that adjust to their preferences. Moreover, given the diversity of our customers across the globe, buying habits, market trends and consumer tastes and preferences may vary from region to region. Accordingly, we must continuously develop and offer products with various designs and characteristics across our product categories that satisfy a broad spectrum of regional market trends and customer preferences. There is no assurance that we can correctly anticipate, identify and interpret the varying habits, trends, tastes and preferences of our customers across regions, and produce products with designs and characteristics that are well received by them. If we fail to continuously introduce products and adjust our product mix to meet the changing market tastes and preferences in the regions that we serve and turn into orders from our customers, our business, financial performance and results of operations may be materially and adversely affected. Fluctuation of raw material prices could adversely affect our business Gold and diamonds are the major raw materials used in the production of our products. For the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014, our purchase of gold accounted for approximately 64.8%, 67.2%, 62.6% and 53.6% of our total purchase of principal raw materials, respectively; and our purchase of diamonds accounted for approximately 29.9%, 26.3%, 31.2% and 39.7% of our total purchase of principal raw materials, respectively. For the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014, respectively, the average prices of gold that we purchased were approximately US$1,680 per ounce, US$1,697 per ounce, US$1,354 per ounce and US$1,308 per ounce; and the average purchase prices of diamonds were approximately HK$1,912 per carat, HK$2,035 per carat, HK$1,994 per carat and HK$2,232 per carat, respectively. – 28 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
RISK FACTORS We did not enter into any hedging transaction or adopt any measures during the Track Record Period to mitigate any associated risk resulting from fluctuation of gold or diamond price. To the best of our Directors’ knowledge and information, while there are market references for diamonds in the size of 0.1 carat or above, there is no publicly available market reference for diamonds in the size under 0.1 carat. According to the IPSOS Report, the average price of polished diamond in the global market in 2012, 2013 and 2014 was about US$378.8 per carat, US$362.3 per carat and US$378.0 per carat respectively. These average prices of polished diamond in the global market were in respect of polished diamonds in the range of 0.01 to 0.40 carat with clarity in the range of I-1 to I-3, that is, with inclusions visible under 10 times magnification and may not be comparable to the diamonds that we purchased, as a majority of diamonds that we purchased were 0.002 to 0.004 carat and vary in terms of colour, clarity and cut. We price our products in general on a cost-plus basis with reference to, among others, our cost of production for each batch of confirmed sales order. The purchase price of our raw materials is set by reference to the prevailing market prices. However, if the prices of the raw materials continue to increase or fluctuate to such an extent beyond the ability of our customers to absorb and price their products accordingly without significantly hindering sales of their products in their respective regional retail market, our sales to customers may be materially and negatively affected as a result. Moreover, our profit margins may need to be adjusted downward to share the burden with our customers in absorbing the increases and fluctuations of raw materials which in turn would have a negative impact on our profitability. In any event our business and financial performance will be adversely affected. Any disruption of operation of our production facilities could materially and adversely affect our business and operation During the Track Record Period and up to the Latest Practicable Date, we manufactured our products in our production facilities in Panyu, Guangdong Province, the PRC. A number of factors could cause prolonged interruptions or have a negative effect on the operations of our production facilities, whether caused by power or water shortage, labor strikes, riots, fire or any other events that may be beyond our control or there occurs any change in the relevant PRC laws and regulations which may adversely affect the operations of our production facilities. We cannot assure you that, if any of the aforesaid events occurs, we will be able to find alternative ways to produce our products and fulfil our customers’ orders. If we cannot find alternative ways to produce our products at comparable costs and to deliver our products timely or at all, our business and operation and our reputation could be adversely affected.
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
RISK FACTORS Any disruption of operation of our subcontractors could materially and adversely affect our operation During the Track Record Period and up to the Latest Practicable Date, certain production steps of our products were outsourced to subcontractors. For details, please refer to the subsection headed “Business – Subcontracting” in this [REDACTED]. We do not enter into long-term agreements with our subcontractors and place orders with them on an order-by-order basis. Our subcontractors may decide not to accept our future processing orders on the same or similar terms or at all. If our subcontractors decide to substantially reduce their volume of supply to us, substantially increase their processing prices or terminate their business relationship with us, we may need to find other proper replacement or expand our resources to internalize these production steps in a timely manner, the failure of which may result in delays or defaults on the delivery of our products to our customers. In addition, if any of our subcontractors fails to provide the required amount of products meeting our quality standards, we may need to source alternative subcontractors or again expand our resources to internalize these production steps, which may result in additional costs and delays in the delivery of our products and our business reputation may be negatively affected. A number of factors could also cause prolonged interruptions or have a negative effect on the operations of our subcontractors, whether caused by power or water shortage, labor strikes, riots, fire or any other events that may be beyond our control or there occurs any change in the relevant PRC laws and regulations which may adversely affect the operations of our subcontractors. Any of the above events may materially and adversely damage our relationships with our subcontractors, causing a material and adverse effect on our business, financial condition, results of operations and prospects. There is no assurance that we will be able to find alternative processing factories or subcontractors to undertake our production operations, or that we will be able to undertake such operations on our own, at affordable or reasonable costs and on a timely basis. Any such disruption of operation of our subcontractors could materially and adversely affect our production schedule and operation. Our business may be affected by the success of the business of our customers and may be affected by the image and strength of the brands of our customers Our customers are primarily fine jewellery wholesalers and retailers. The success of our customers’ business depends on the changing perceptions of the end customers of our products and could be affected beyond our and our customers’ control. Therefore there can be no assurance that we can maintain or benefit from the success of the business of our customers. Our business could be significantly and adversely affected by any adverse change in the business of our customers. As most of our jewellery products are sold under our customers’ brand names, the image and strength of these brands are subject to changing consumers’ perceptions and could be affected by factors beyond our control. There is no assurance that we can maintain or benefit from the image or recognition of the brands of our customers. Our business could be significantly and adversely affected by any adverse change in the brands of our customers. – 30 –
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RISK FACTORS Our business could be materially adversely affected if we cannot protect our trade name and intellectual property rights As a fine jewellery provider to mainly wholesalers and retailers which operate chains, we consider our corporate image and trade name “三和珠寶” (KTL Jewellery) to be our most important assets. Our ability to sell our fine jewellery products relies on the strength of our trade name. Any deterioration in the reputation of our trade name could have an adverse effect on our sales, profitability and implementation of growth strategy. We cannot assure you that our trade name and intellectual property rights will not be subject to any infringement in the future. Any unauthorised use of our trade name or intellectual property rights, including in locations where we do not operate, could harm our brand, market image and reputation, which could adversely affect our business, financial conditions and results of operations. We may face claims in relation to infringement of intellectual property rights from third parties which may affect our business and reputation We may face claims from time to time that our products infringe upon the intellectual property rights of third parties, including our competitors. Defending such claims may require significant attention from our management and may be costly. If any legal proceeding against us for infringement of intellectual property rights is successful, we may be ordered to be responsible for the losses incurred by the claiming parties due to our infringement of their intellectual property rights. Further, if we are unable to obtain the right of using such intellectual property rights on acceptable terms or at all or we are unable to design around such intellectual property rights, we may be prohibited from manufacturing or selling products which are dependent on the usage of such intellectual property rights. In such cases, we may experience a material and adverse effect on our business and reputation, and these types of proceedings and their consequences could divert our management’s attention from our business, all of which could have a material and adverse effect on our business, financial condition, results of operations and prospects. The fine jewellery industry requires a constant supply of skilled labor at competitive prices We rely heavily on our skilled labor to deliver our fine jewellery products in good quality and on time to our customers. Our production plant is located in Panyu, Guangdong Province, the PRC, which is the centre of fine jewellery manufacturing in Southern China. We did not experience any shortage of skilled labor during the Track Record Period, but we cannot assure you that we will not experience any shortage of skilled labor in the future. If we cannot retain our skilled labor or fail to find replacement with comparable experiences at similar prices, it may results in increase of our operation cost and may also affect our product quality, which will have an adverse impact on our business, financial condition and results of operations.
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
RISK FACTORS Our business relies on certain key personnel and experienced staff, and loss of them could have a material adverse effect on our business, financial conditions and results of operations Our success, to a great extent, has been attributable to the management, sales and marketing, and operational and technical expertise of certain key personnel. In particular, we are dependent on the experience of our key personnel, including Mr. Kei, our founder, Co-Chairman, executive Director and Chief Executive Officer; Mr. Li, our founder, Co-Chairman, executive Director and Chief Operating Officer; and Mr. Kei Yeuk Lun Calan, our executive Director and our sales and marketing director. Details of their expertise and experience are set out in the section headed “Directors, Senior Management and Employees” in this [REDACTED]. There can be no assurance that we will be able to retain these officers or that such personnel may not receive and/or accept competing offers of employment. If our Group fails to retain our key personnel or attract or engage suitable replacements or recruit suitable new appointees on a timely basis, it may result in the loss of strategic leadership, disruption or delay to business operation or expansion, which could have a material adverse effect upon our business, financial conditions and results of operations. Our success also depends on the efforts and abilities of our design team, procurement team and sales and marketing team, which undertake the design and development of our fine jewellery products, the procurement of raw materials and the sale of our fine jewellery products, respectively. Many of our employees have extensive experience and knowledge of our products and industry. In respect of the procurement of raw materials, the requisite level of technical expertise to select and effectively negotiate the prices of diamonds and gem stones for necessary quality is difficult to find, develop and replicate, as are the skills required to developing long-standing customer relationships. Competition for qualified personnel in the fine jewellery industry is intense, and we may not be able to attract and retain a sufficient number of qualified employees in the future, particularly in light of our plans to expand our business. If we were to lose such personnel, it would take time for us to find and train replacement personnel to our required standards, which could have an adverse effect on our business, financial conditions and results of operations. We could be exposed to legal risks relating to our business conducted in foreign countries Due to our export activities, we may be subject to laws and regulations of the various countries or territories in which we conduct our business. The legal, political and business environments in areas such as money-laundering and terrorist financing are evolving and are inconsistent across various jurisdictions and often lack clarity or predictability. These factors may increase our compliance costs and legal risks. Subsequent legislation, regulation, litigation, court rulings or other events could expose us to increased costs, liabilities and risks of reputational damage. Further, uncertainty in the business and legal environment in foreign countries to which our business activities are related may affect our business and limit our ability to enforce our rights. – 32 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
RISK FACTORS Our high gearing ratio and net current liabilities position expose us to liquidity risk We rely on cash generated from our business operations, bank borrowings and the amount due to our immediate holding company to finance our business operation. We expect that we will continue to do so in the future. Our high level of bank borrowings and gearing ratio could materially and adversely affect our liquidity. For example, the high level of bank borrowings and high gearing ratio could: •
require us to allocate a higher portion of our cash flow from operations to fund repayments of principal and interest on our borrowings, thus reducing the availability of our cash flow from operations to fund working capital, capital expenditure and other general corporate purposes;
•
increase our vulnerability to adverse economic or industry condition;
•
limit our flexibility in planning for, or reacting to, changes in our business or in the industry in which we operate;
•
potentially restrict us from pursuing strategic business opportunities;
•
limit our ability to incur additional debt; and
•
increase our exposure to interest rate fluctuations.
Our gearing ratio was 56.7%, 66.3%, 49.6% and 51.0% as of 31 March 2012, 2013 and 2014 and 30 June 2014, respectively. Our current liabilities exceeded our current assets by HK$37.6 million, HK$27.0 million, and HK$4.8 million as of 31 March 2012, 2013 and 2014, respectively and we recorded net current asset of approximately HK$5.8 million as of 30 June 2014. We recorded net current liabilities in the past principally because of the amounts due to our immediate holding company during the Track Record Period. The amounts due to our immediate holding company were fully capitalized as at the Latest Practicable Date. We cannot assure you that we will not have a net current liabilities position in the future. The net current liabilities position, if recur in the future, would expose us to liquidity risk which could restrict our ability to make necessary capital expenditure or develop business opportunities, and our business, operating results, financial condition could be materially and adversely affected. We recorded negative operating cash flow at times during the Track Record Period. If we continue to have negative operating cash flow in the future, our liquidity and financial condition may be materially and adversely affected We recorded negative operating cash flow of approximately HK$84.6 million and HK$11.7 million for the year ended 31 March 2013 and the three months ended 30 June 2014, respectively, primarily attributable to the increase of purchase of raw materials for the year ended 31 March 2013, and the increase in trade receivables for the three months ended 30 June 2014. Please refer to the subsection headed “Financial Information – Liquidity and Capital Resources – Cash flows – Operating activities” in this [REDACTED] for further details. – 33 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
RISK FACTORS We cannot assure you that we will not record negative operating cash flow again in the future. If we resort to external financing facilities to generate additional cash, we will incur additional financing costs. If operating cash flow remains negative in the future and if we cannot obtain adequate fund from other resources on satisfactory terms or at all to fund our operation, our business, prospects, financial condition and results of operations may be materially and adversely affected. Our financial performance for the year ending 31 March 2015 would be significantly and negatively affected as a result of the [REDACTED] expenses The [REDACTED] expenses payable by our Company, which are one-off non-recurring, are estimated to be HK$36.9 million. Approximately HK$19.1 million of the [REDACTED] expenses is directly attributable to the [REDACTED] to the public and will be accounted for as a deduction from equity, approximately HK$17.8 million of the [REDACTED] expenses has been or is expected to be reflected in our combined statements of profit or loss and other comprehensive income; and approximately HK$8.9 million of the [REDACTED] expenses in relation to services already performed has been reflected in the combined statements of profit or loss and other comprehensive income of our Group for the Track Record Period. The remaining amount of approximately HK$8.9 million is expected to be reflected in the combined statements of profit or loss and other comprehensive income of our Group after the Track Record Period. Our financial performance for the year ending 31 March 2015 would be significantly and negatively affected by the one-off [REDACTED] expenses as mentioned above. In particular, it is expected that our net profit for the year ending 31 March 2015 would be significantly lower than that of the year ended 31 March 2014. Our insurance coverage may not cover all losses We maintain different types of insurance policies to cover our operations, including insurance policies covering the potential losses or damages of our inventory (including inventory in transit), production facilities and factory in the PRC and property in Hong Kong. There may be circumstances under which certain types of loss, damage and liability are not covered by our insurance policies, in which case we could incur losses that could have an adverse effect on our business and results of operations. There can also be no assurance that we will continue to be able to renew our existing levels of coverage on commercially acceptable terms, or at all. The unavailability of adequate insurance for the various areas at our business could have adverse effect on our business and results of operations.
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RISK FACTORS Non-compliance with relevant social insurance and housing provident fund contribution laws and regulations in the PRC could lead to imposition of fines and penalties Pursuant to the relevant PRC laws and regulations, employers in the PRC are required to make social insurance contributions and housing provident fund contributions for the benefit of their employees, and entities which fail to make contributions may be ordered to settle the unpaid contributions and subject to penalty within a stipulated time limit. During the Track Record Period, we had not made social insurance contributions and housing provident fund contributions in full for our employees for our PRC subsidiaries, including KTL (Guangzhou) and Guangzhou KTL. In addition, Guangzhou Dihe had not registered in time with the relevant housing provident fund management authority. As at 31 March 2012, 2013 and 2014 and 30 June 2014, the total amount of outstanding social insurance contributions and housing provident fund contributions was approximately HK$13.9 million, HK$17.2 million, HK$24.0 million and HK$25.2 million, respectively. We have made adequate provisions for the outstanding social insurance contributions and housing provident fund contributions for the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014. For details of the non-compliance incidents and the remedial measures taken, please refer to the subsection headed “Business – Litigation and Legal Compliance” in this [REDACTED]. We cannot assure you that we will not be subject to any order to rectify the non-compliance incidents in the future, nor can we assure you that there are no, or will not be any, employee complaints regarding contributions of social insurance or housing provident funds against us, or that we will not receive any claims or subject to any penalties under the applicable laws and regulations. Non-compliance with relevant environmental protection laws and regulations in the PRC could lead to imposition of fines and penalties and harm our business We are subject to the PRC national and local environmental laws and regulations related to our operations, including regulations governing the use, storage, discharge and disposal of waste substances and waste emission levels as well as regulations governing the construction of our production facilities. During the Track Record Period, our PRC subsidiary, KTL (Guangzhou), had been in breach of the Water Pollution Prevention and Control Law of the PRC (中華人民共 和國水污染防治法) and subject to seven fines in the total sum of approximately RMB117,560 as the domestic sewage released by it was in excess of permitted level during 2013. For details of the non-compliance incidents, please refer to the subsection headed “Business – Litigation and legal compliance” in this [REDACTED]. KTL (Guangzhou) completed the upgrade of waste water disposal system in December 2013. In subsequent monitoring activities conducted by Guangzhou Panyu Environmental Monitoring Station, it was found that the waste water discharged by KTL (Guangzhou) had not exceeded the permitted level. Our Directors believe that the waste water disposal system upgrade completed in December 2013 is adequate to minimise the possibility of KTL (Guangzhou) releasing waste water in excess of the permitted level. However, there is no assurance that these non-compliance incidents will not happen again or that we will not be subject to fines and penalties again. – 35 –
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RISK FACTORS Further, any amendments to the relevant environmental protection laws and regulations may impose substantial pollution control measures that may require us to make significant expenditures to modify our production process or change the design of our products to limit actual or potential impact to the environment. New laws, new interpretations of existing laws, increased governmental enforcement of environmental laws or other developments could require us to make significant additional expenditures, which may materially and adversely affect our business, results of operations and financial conditions. Non-compliance with the then in force Companies Ordinance could lead to imposition of fines and penalties During the Track Record Period, we failed to comply with the relevant provisions under the then in force Companies Ordinance to convene annual general meeting and lay accounts at the general meeting and file notice of change within the prescribed time. As a remedial action, we had submitted all notices of change required to be filed to the Companies Registry of Hong Kong for filing. We had also adopted other remedial measures to ensure compliance with the statutory requirements in the future. For details, please refer to the subsection headed “Business − Litigation and Legal Compliance” in this [REDACTED]. Our Directors confirmed, after consulting a barrister practicing in Hong Kong, that it is unlikely that the maximum penalties will be imposed on the relevant officers and directors in respect of the non-compliance incidents. However, we cannot assure you that we would not be subject to fines and penalties in respect of the non-compliance incidents. RISKS RELATING TO THE FINE JEWELLERY INDUSTRY Competition in the fine jewellery industry is highly intense and could cause us to lose market share, thereby materially and adversely affecting our business, results of operations and financial condition The fine jewellery industry is highly competitive. The majority of fine jewellery manufacturers in Hong Kong focus on export businesses. As of 2013, there were over 640 fine jewellery manufacturers in Hong Kong, the majority of which focus on fine jewellery export. Some of our competitors may have larger local or regional customer bases, greater financial, sales and marketing resources or greater production capability and may be able to produce products at lower costs and thus offer customers lower price for their products. We attribute our success to product quality, product designs and synergistic, value-added services. However, there is no assurance that we may continue to refine and develop our manufacturing techniques, keep up with design and market trends, develop improvement to maintain our competitive advantages, or that we may offer competitive price for our products. If we fail to compete effectively against our competitors, we may be unable to maintain and expand our market share and profitability.
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RISK FACTORS Challenges or continued downturn in economic conditions may affect the demand for our products which could adversely affect our sales or growth Our fine jewellery products are discretionary products and the demand of which are highly sensitive to the global economic conditions as well as the specific economic conditions in our principal markets. If there is any significant economic downturn or recession in the global economy or our target markets, the demand for our products will drop significantly. In such event, the business of our customers could be adversely affected. An economic downturn or recession in one or more of our principal markets could adversely affect the purchasing power of our customers and end customers and their demands which could have a material effect on our business, results of operations and financial condition. During the Track Record Period, Russia was our largest market. For the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014, sales to Russia accounted for approximately 57.0%, 69.0%, 62.3% and 60.6% of our total sales, respectively. The recent military intervention in Ukraine may bring uncertainty to or even adversely affect the economy of Russia which could potentially affect the business of our customers in Russia. In such event, the demand for our products can drop drastically and our business, financial conditions and results of operations can be materially adversely affected. The nature of fine jewellery business exposes us to security and transport risks We operate in a business that is highly susceptible to theft and robbery. Whilst we have implemented various security measures to safeguard the safety of our inventory and valuable properties, there is no guarantee that these measures will be adequate or effective. Any occurrences of theft or robbery on our production premises can have an adverse effect on our reputation and our brand and could result in uninsured financial losses. There is no guarantee that our employees would not be affected or even injured which would lead to serious repercussions for our reputation and employee morale and could even lead to legal actions being taken against us. The transportation of our products and raw materials to our premises and customers also exposes us to risks. While we have implemented various procedures to manage and track our products and raw materials, we transport large numbers of high value items through third-party shipping or delivery companies which, while carefully selected, are not within our control and we are therefore subject to risks associated with the actions of these third parties. While we have insurance to cover our products and raw materials while they are in transit, any security breach or failure in transport logistics could result in a huge loss in inventory and have an adverse impact on our business, financial conditions and results of operations. RISKS RELATING TO THE PRC A substantial part of our Group’s business activities is located in the PRC. Accordingly, the results of operations, financial position and prospects of our Group are subject, to a significant degree, to the economic, political and legal developments of the PRC. – 37 –
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RISK FACTORS Discontinuation of preferential tax treatments could affect our financial condition and results of operations During the Track Record Period, one of our PRC subsidiaries, KTL (Guangzhou) benefited from export value-added tax and consumption tax refund exemption treatment under the Circular of the State Administration of Taxation on Issuing the Measures for the Administration of Tax Refund (Exemption) of Exported Goods (For Trial Implementation) effective as at 1 May 2005 and the Administrative Measures for Value-added Tax and Consumption Tax on Export Goods and Labor Services effective as at 1 July 2012. Further, as advised by our PRC Legal Advisers, KTL (Guangzhou) is entitled to enjoy the weighted deduction computed in taxable enterprise income for the wages paid by KTL (Guangzhou) for job placement of the disabled and of other personnel in 2013, 2014 and until March 2015 under the Enterprise Income Tax Law of the PRC (2008). Such preferential tax treatment is subject to annual registration in Guangzhou Panyu Office of State Administration of Taxation. We cannot assure you that the relevant tax policies, laws and regulations in the PRC will not change or we will continue to enjoy these preferential tax treatments in the future. Political and economic policies of the PRC government could affect our Group’s business Before its adoption of the economic reforms and open policy in late 1970s, the PRC had been primarily a planned economy. With the commencement of the PRC government’s effort to reform the Chinese economy in 1978, the PRC government introduced changes to its economic system, as well as the government structure. These reforms have led to significant economic growth and progress in social development. Although the PRC government still owns a significant portion of the productive assets in China, economic reform policies have placed much emphasis on creating autonomous enterprises and the utilization of market mechanisms. Factors that may cause the PRC government to modify, delay or even discontinue the implementation of certain reform measures include political changes and political instability and such economic factors as changes in rates of national and regional economic growth, unemployment and inflation. Our Directors anticipate that the PRC Government will continue to further implement these reforms, further reduce government interference on enterprises, and rely more on free market mechanisms for the allocation of resources, bring positive effect on our overall and long-term development. Any changes in the political climate, economic and social situation, the laws, regulations and policies of the PRC arising therefrom, may have an adverse effect on the present or future operations of our Group. With our business and operations substantially based in the PRC, our operation and financial results could be adversely affected by the restrictive or austere policies introduced by the PRC government. We may not be able to capitalise on economic reform measures adopted by the PRC government. We cannot assure you that the PRC government will not impose economic and regulatory controls that may adversely affect our Group’s business, financial positions and results of operations. – 38 –
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RISK FACTORS Introduction of new laws or changes to existing laws by the PRC government may adversely affect our business Our business and operations in the PRC are governed by the legal system of the PRC. The legal system in the PRC is based on statutory law. Under this system, prior court decisions may be cited for references but do not have binding precedential effect. Accordingly, the outcome of dispute resolution may not be consistent or predictable as in the other more developed jurisdictions. Interpretation and enforcement of the PRC laws and regulations, including those regulating foreign investments may be subject to changes in policies and political environment. Different regulatory authorities may have different interpretation and enforcement of the foreign investment policies, which requires companies to meet the policies requirements issued by relevant regulatory authorities from time to time, and obtain approvals and complete filings in accordance with the relevant regulatory authorities’ interpretation and enforcement of such policies. If there are any future changes in applicable laws, regulations, administrative interpretations or regulatory documents, or stricter enforcement policies by the relevant PRC regulatory authorities, more stringent requirements could be imposed on the industries we are currently engaged in. Compliance with such new requirements could impose substantial additional costs or otherwise have a material adverse effect on our business, financial conditions and results of operations. In addition, if we fail to meet such new rules and requirements relating to approval, construction, environmental or safety compliance of our operations, we may be ordered by the relevant PRC regulatory authorities to change, suspend construction of or close of the relevant production facilities. Alternatively, these changes may also relax some requirements, which could be beneficial to our competitors or could lower market entry barriers and increase competition. As a result, our business, financial condition and results of operations could be materially and adversely affected. In addition, since the PRC economy is developing at a faster pace than its legal system and the PRC laws and regulations regarding the foreign investments are relatively new and evolving, there may be uncertainties as to whether and how existing laws and regulations will apply to certain circumstances or events, and until the development of the legal system is kept abreast of economic reforms and development in the PRC, such uncertainties are likely to remain. We cannot assure you that introduction of new laws and amendments to existing laws by the PRC government may not adversely affect our profitability and prospects. For details of some of the relevant PRC laws and regulations to which our Group is currently subject, please refer to the section headed “Regulations” in this [REDACTED]. Government control on currency conversion and changes in the exchange rate between RMB and other currencies could negatively affect our financial condition, operations and our ability to pay dividends RMB is not currently a freely convertible currency and our Group needs to convert RMB into foreign currency for payment of dividends, if any, to Shareholders. Our PRC subsidiaries are subject to the PRC rules and regulations on currency conversion. In the PRC, SAFE regulates the conversion of RMB into foreign currencies. FIEs are required to apply to SAFE or its local branches for Foreign Exchange Registration Certificates. – 39 –
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RISK FACTORS Under relevant PRC foreign exchange laws and regulations, payment of current account items, including profit distributions and interest payments are permitted to be made in foreign currencies without prior government approval but are subject to certain procedural requirements. Strict foreign exchange control continues to apply to capital account transactions, which must be approved by and/or registered with SAFE. We cannot assure you that the PRC regulatory authorities will not impose further restrictions on foreign exchange transactions for currentaccount items, including payment of dividends. Furthermore, in 2005, the PRC revalued the exchange rate of the RMB to the US dollars and abolished the RMB to peg solely to the US dollars as applied in the past. Instead, it is pegged against a basket of currencies which can rise or drop by as much as 0.3% each day. We cannot assure you that in the future PRC will not revalue RMB or permit its substantial appreciation. Any increase in the value of RMB may adversely affect the growth of the PRC economy and competitiveness of various industries in the PRC, including the industries in which our Group operates, which could in turn affect the financial condition and operations of our Group. Currently, some of our revenue, expenses and bank loans are denominated in Renminbi, however we cannot guarantee that our financial portfolio will be free from any foreign currencies denominated securities or investments in the future. The global financial crisis in 2008 has adversely affected the United States, the European countries and other world economies. Although there are signs of recovery in the global and Chinese economy, there can be no assurance that any such recovery is sustainable. The ongoing uncertainties in the global investment environment may cause fluctuations in exchange rates which may in turn adversely affect the value of our net assets, earnings or any declared dividends. Also, any unfavourable movement in the exchange rate or the value of US dollars may lead to an unfavourable exposure to foreign exchange losses, which could in turn materially and adversely affect our financial conditions and results of operations. Distribution and transfer of funds may be subject to restrictions under the PRC law Our Company is a holding company incorporated in the Cayman Islands and does not have any business operations other than investments in the subsidiaries. Our Company relies entirely on the dividend payments from our subsidiaries. Under the PRC laws, dividends from our subsidiary in the PRC may only be paid out of distributable after-tax profits, less any recovery of accumulated losses and allocations to statutory funds which are not available for distribution as cash dividends. Any distributable profits that are not distributed in a given year will be retained and made available for distribution in subsequent years. The calculation of distributable profits under the PRC accounting principles is different in many respects from Hong Kong accounting principles.
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RISK FACTORS Distributions by our subsidiaries in the PRC to our Company may be subject to governmental approval and taxation. These requirements and restrictions may affect our ability to pay dividends to our Shareholders. Any transfer of funds from our Company to our subsidiaries in the PRC, either as a shareholder loan or as an increase in registered capital, is subject to registration and/or approval granted by the PRC governmental authorities. These limitations on the free flow of funds between our Company to subsidiaries in the PRC could restrict our ability to act in response to changing market conditions in a timely manner. Furthermore, members of our Group may obtain credit facilities in banks in the future which restrict them from paying dividends to their Shareholders, which may have an adverse impact on their ability to pay dividends to their Shareholders. Our operations may be subject to transfer pricing adjustment by competent authority During the Track Record Period, we primarily produced products through KTL (Guangzhou). When KTL Jewellery Trading received a purchase order, it would channel the purchase order to KTL (Guangzhou) for production and KTL (Guangzhou) would receive processing fees from KTL Jewellery Trading for the processing services. Finished products which were sold to overseas customers were delivered by KTL (Guangzhou) to KTL Jewellery Trading for onward sales and export to overseas customers. Pursuant to the EIT Law and the Implementation Regulations for Special Tax Adjustments (Trial) (特別納稅調整實施辦法(試行)) (“Implementation Regulations for Special Tax Adjustments”), transactions in respect of the sale and purchase and transfer of products between enterprises under direct or indirect control by the same third party are regarded as affiliated parties transactions and should comply with the arm’s length principle (獨立交易原則). If the failure of compliance with such principle results in reducing the income or taxable income of the enterprise or its affiliated parties, the tax authority has the power to make an adjustment by reasonable methods. Pursuant to the Income Tax Law, when submitting its annual enterprise income tax return to the tax authority, an enterprise shall attach an annual report on affiliated transactions (if any) between the enterprise and its affiliated parties. Pursuant to the Implementation Regulations for Special Tax Adjustments, enterprises shall prepare and preserve on a tax year basis the materials for the time periods wherein their affiliated transactions occur (hereinafter referred to as “current materials”), and shall submit the same to the relevant taxation authorities as required. Except as otherwise stipulated by the Implementation Regulations for Special Tax Adjustments, enterprises shall complete the preparation of current materials before May 31 of the year following the occurrence of the relevant affiliated transactions, and the materials shall be submitted within 20 days of the relevant taxation authorities’ request. The affiliated transactions of our Group mainly occurred between one of our PRC subsidiaries, KTL (Guangzhou) which is a processing enterprise, and another subsidiary of our Group, KTL Jewellery Trading.
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RISK FACTORS Each of the Guangzhou Panyu Municipal Local Taxation Bureau (廣州市番禺區地方稅務 局) and the State Taxation Bureau of Guangzhou City Panyu District (廣州市番禺區國家稅務局), being the competent authorities as advised by our PRC Legal Advisers, issued confirmation letters on 17 July 2014 and 17 June 2014 respectively, confirming that during the Track Record Period, KTL (Guangzhou) had complied with the relevant rules and regulations relating to tax (including making filings and payments of the local and state taxes in accordance with the relevant rules and regulations). Notwithstanding the aforesaid, as advised by our PRC Legal Advisers, according to the relevant PRC tax laws and regulations, the tax authority has the power to reassess the affiliated transactions for a maximum of 10 years. If KTL (Guangzhou) is deemed not to be in compliance with the transfer pricing rules, the tax authority has the power to order KTL (Guangzhou) to pay all outstanding tax and statutory interest and KTL (Guangzhou) may be subject to a maximum penalty of RMB50,000. There is no assurance that the tax authority will not make adjustment to the tax payable by our Group in respect of such affiliated transactions within the above time frame. Our Group may be required to change its transfer pricing practices such as adjusting the processing fees payable by KTL Jewellery Trading to KTL (Guangzhou). In such event, our Group may be required to pay additional profit tax and our Group’s profitability may be adversely affected. It may be difficult to enforce any judgments obtained from non-PRC courts against us in the PRC Currently some of our assets are located within the PRC. The PRC does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with most western countries. Therefore, it may be difficult for you to enforce against us in the PRC any judgments obtained from non-PRC courts. PRC tax law may affect tax exemptions on dividends received by our Company and Shareholders and increase our enterprise income tax rate Our Company is incorporated under the laws of the Cayman Islands and holds interests in our PRC subsidiaries through a number of subsidiaries incorporated in BVI and Hong Kong. The EIT Law has become effective as at 1 January 2008. If our Company is deemed to be a non-PRC tax resident enterprise without an office or premises in the PRC, a withholding tax at the rate of 10% will be applicable to any dividends paid to our Company, unless our Company is entitled to reduction or elimination of such tax, including by tax treaties. Under an arrangement between the PRC and Hong Kong, such dividend withholding tax rate is reduced to 5% if a Hong Kong tax resident enterprise owns over 25% of the equity interests of the PRC company distributing the dividends. Pursuant to the Administrative Measures for Non-Residents Enjoying Tax Treaty Benefits (Trial Implementation) (非居民享受稅收協定待遇管理辦法(試行)) released by the State Administration of Taxation on 24 August 2009 and took effect on 1 October 2009, K.T.L. Development and Chinagrow Development need to obtain approval from competent PRC taxation authorities in order to enjoy the preferential withholding tax rate of 5% in accordance with the double taxation arrangement. Any new enactment of the PRC tax law affecting tax exemptions on dividends may reduce the amount of dividends that could be distributed to our Company and Shareholders. – 42 –
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RISK FACTORS
[REDACTED]
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RISK FACTORS
[REDACTED]
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RISK FACTORS
[REDACTED]
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INFORMATION ABOUT THIS [REDACTED] AND THE [REDACTED]
[REDACTED]
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INFORMATION ABOUT THIS [REDACTED] AND THE [REDACTED]
[REDACTED]
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INFORMATION ABOUT THIS [REDACTED] AND THE [REDACTED]
[REDACTED]
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INFORMATION ABOUT THIS [REDACTED] AND THE [REDACTED]
[REDACTED]
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DIRECTORS AND PARTIES INVOLVED IN THE [REDACTED] DIRECTORS Name
Residential Address
Nationality
Kei York Pang Victor (紀若鵬)
House 23 TPTL 165 Area 38 18 Shan Tong Road JC Castle, Tai Po New Territories Hong Kong
Chinese
Li Man Chun (李文俊)
Flat 9, 8/F Dynasty Villa 9 2 Yin Ping Road Beacon Hill Kowloon Hong Kong
Chinese
Kei Yeuk Lun Calan (紀若麟)
No. 64A, 10th Street Hong Lok Yuen, Tai Po New Territories Hong Kong
Chinese
Executive Directors
Independent non-executive Directors Ting Tit Cheung (丁鐵翔)
Flat 1, 10/F, Block D Chermain Heights 9 Eastbourne Road Kowloon Tong Hong Kong
Chinese
Chan Chi Kuen (陳志權)
Flat 6, 21F Hong Chung House Mei Chung Court Tai Wai New Territories Hong Kong
Chinese
Lo Chun Pong (盧振邦)
13 Section K 4th Street Fairview Park Yuen Long New Territories Hong Kong
Chinese
For detailed information of our Directors, please refer to the section headed “Directors, Senior Management and Employees” in this [REDACTED]. – 50 –
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DIRECTORS AND PARTIES INVOLVED IN THE [REDACTED] PARTIES INVOLVED Joint Sponsors (in alphabetical order)
CCB International Capital Limited 12/F, CCB Tower 3 Connaught Road Central Central Hong Kong China Galaxy International Securities (Hong Kong) Co., Limited Unit 3501-3507, 35/F, Cosco Tower Grand Millennium Plaza 183 Queen’s Road Central Sheung Wan Hong Kong
[REDACTED]
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DIRECTORS AND PARTIES INVOLVED IN THE [REDACTED]
[REDACTED]
Legal advisers to the Company
As to Hong Kong law Squire Patton Boggs 29/F, Edinburgh Tower The Landmark 15 Queen’s Road Central Hong Kong As to PRC law Tian Yuan Law Firm 10th Floor China Pacific Insurance Plaza 28 Fengsheng Hutong Xicheng District Beijing, 100032 China
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DIRECTORS AND PARTIES INVOLVED IN THE [REDACTED] As to Cayman Islands law Appleby 2206-19 Jardine House 1 Connaught Place Central Hong Kong
[REDACTED]
Auditors and reporting accountants
Ernst & Young 22/F, CITIC Tower 1 Tim Mei Avenue Central Hong Kong
Property valuer
CBRE Limited 4/F, Three Exchange Square 8 Connaught Place Hong Kong
[REDACTED]
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CORPORATE INFORMATION Registered office
Clifton House 75 Fort Street Grand Cayman KY1-1108 Cayman Islands
Place of business and headquarter in Hong Kong
Flat 1207 Fu Hang Industrial Building 1 Hok Yuen Street East HungHom, Kowloon Hong Kong
Company’s website
www.ktl.com.hk (information contained in this website does not form part of this [REDACTED])
Company secretary
Mr. Lam Pak Kan, CPA Flat D, 51st Floor Tower 5 Grand Waterfront 38 San Ma Tau Street Tokwawan, Kowloon Hong Kong
Authorised representatives
Mr. Li Man Chun Flat 9, 8th Floor Dynasty Villa 9 2 Yin Ping Road Beacon Hill Kowloon Hong Kong Mr. Lam Pak Kan Flat D, 51st Floor Tower 5 Grand Waterfront 38 San Ma Tau Street Tokwanwan, Kowloon Hong Kong
Audit committee
Mr. Chan Chi Kuen (Chairman) Mr. Ting Tit Cheung Mr. Lo Chun Pong
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CORPORATE INFORMATION Remuneration committee
Mr. Mr. Mr. Mr. Mr.
Ting Tit Cheung (Chairman) Li Man Chun Kei Yeuk Lun Calan Chan Chi Kuen Lo Chun Pong
Nomination committee
Mr. Mr. Mr. Mr. Mr.
Kei York Pang Victor (Chairman) Li Man Chun Ting Tit Cheung Chan Chi Kuen Lo Chun Pong
Compliance adviser
Guotai Junan Capital Limited 27/F Grand Millennium Plaza 181 Queen’s Road Central Hong Kong
[REDACTED] Principal bankers
Hang Seng Bank Limited 83 Des Voeux Road Central Central Hong Kong The Hongkong and Shanghai Banking Corporation Limited HSBC Main Building 1 Queen’s Road Central Central Hong Kong Bank of China (Hong Kong) Limited 9/F, Bank of China 1 Garden Road Hong Kong
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INDUSTRY OVERVIEW
This section contains certain information which is derived from official government sources and a commissioned report, the IPSOS Report, prepared by IPSOS which is an independent third party. We believe that the sources of the information are appropriate sources for such information and have taken reasonable care in extracting and reproducing such information. We have no reason to believe that such information is false or misleading or that any fact has been omitted that would render such information false or misleading. However, the information has not been independently verified by us, or any of our affiliates or advisors, nor by the Joint Sponsors, the [REDACTED], the [REDACTED], [REDACTED], the [REDACTED] or any of their affiliates or advisors or any other party involved in the [REDACTED] other than IPSOS with respect to the information contained in the IPSOS Report. No representation is given as to the accuracy of the IPSOS Report. After taking reasonable care, our Directors confirmed that there has been no adverse change in the market information since the date of the IPSOS Report up to the date of this [REDACTED]. SOURCES OF INFORMATION We have commissioned IPSOS, an independent market research company, to analyse and report on, among others, the trends of the global and Hong Kong fine jewellery industry for the period from 2009 to 2018 at a fee of HK$438,000 and our Directors consider that such fee reflects the market rates. To provide an analysis of the aforementioned markets, IPSOS combined the following data and intelligence gathering methodology: (a) performing client consultation to facilitate the research including in-house background information of the client such as the business of our Company; (b) conducting desk research to gather background information and to obtain the relevant information and statistics on the industry; and (c) conducting in-depth interviews including face to face, phone interviews with key stakeholders and industry experts of fine jewellery players in Hong Kong. The information and statistics as set forth in this section have been extracted from the IPSOS Report. Founded in Paris, France, in 1975 and publicly-listed on the NYSE Euronext Paris in 1999, IPSOS SA acquired Synovate Ltd. in October 2011. After the combination, IPSOS became the third largest research company in the world which employs approximately 16,000 personnel worldwide across 85 countries. IPSOS conducts research on market profiles, market size, share and segmentation analyses, distribution and value analyses, competitor tracking and corporate intelligence. IPSOS is independent of our Company and none of our Directors or their associates has any interest in IPSOS. Our Directors confirmed that IPSOS, including all of its subsidiaries, divisions and units, are independent of and not connected with us (within the meaning of the [REDACTED]) in any way. IPSOS has given its consent for us to quote from the IPSOS Report and to use information contained in the IPSOS Report in this [REDACTED]. Except as otherwise noted, all of the data and forecasts contained in this section are derived from the IPSOS Report, various official government publications and other publications. – 56 –
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INDUSTRY OVERVIEW ASSUMPTIONS AND PARAMETERS USED IN THE IPSOS REPORT Analyses in the IPSOS Report are based on the following assumptions: •
there is no external shock such as financial crisis or natural disasters in the global market which will affect the demand for fine jewellery over the forecast period; and
•
the supply and demand of products and manufacturers in the fine jewellery manufacturing industry in Hong Kong are assumed to be stable and without shortage over the forecast period.
The following parameters have been taken into account in the market sizing and forecast model in the IPSOS Report: •
nominal GDP, GDP growth rate and GDP per capita in the world from 2009 to 2018;
•
average annual household disposable income and consumption expenditure in the world from 2009 to 2018;
•
total export volume and value of fine jewellery products in Hong Kong from 2009 to 2013; and
•
average price trend of key raw materials for fine jewellery manufacturing industry from 2009 to 2013.
RELIABILITY OF INFORMATION IN THE IPSOS REPORT Our Directors are of the view that the sources of information used in this section are reliable as the information was extracted from the IPSOS Report. Our Directors believe the IPSOS Report is reliable and not misleading as IPSOS is an independent professional research agency with extensive experience in its profession. AN OVERVIEW OF THE GLOBAL FINE JEWELLERY MARKET According to the United Nations, fine jewellery products refer to jewellery products of gold, silver or platinum group metals (except watches and watch-cases) and goldsmiths’ or silversmiths’ wares (including set gems). Fine jewellery products generally include (i) necklaces, (ii) bracelets, (iii) earrings, (iv) rings, and (v) other personal accessories such as brooches, hair pins, money clips and cufflinks etc. As of 2013, the global retail sales value of fine jewellery was about HK$266.3 billion. Fine jewellery industry can be split into three market segments, (i) the mass to middle segment (with retail prices less than HK$12,000 one piece); (ii) the high-end segment (with retail prices ranging from HK$12,000 to HK$80,000 one piece) and (iii) luxury segment (with retail prices over HK$80,000 one piece). – 57 –
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INDUSTRY OVERVIEW Supply chain of the fine jewellery industry Global fine jewellery industry supply chain consists of five key roles as outlined below:
Raw material suppliers
Fine jewellery manufacturers
Fine jewellery wholesalers
Fine jewellery retailers
Buyers/ end users
Source: IPSOS research and analysis Notes: 1.
Raw material suppliers: mainly supplying precious materials such as diamonds, gem stones and precious metals, which include platinum, gold and silver.
2.
Fine jewellery manufacturers: mainly involve in the sourcing of raw materials, design and manufacturing of the fine jewellery products.
3.
Fine jewellery wholesalers: sourcing fine jewellery products from international and/or local fine jewellery manufacturers and distributing them to various retailers.
4.
Fine jewellery retailers: selling fine jewellery to buyers/end users via different retail channels.
5.
Buyers/End users: consumers of the fine jewellery products.
Major factors affecting the demand for fine jewellery products Major factors affecting the demand for fine jewellery products include brand awareness, design, customization and gender preferences. Brand awareness: with easy and instant access to market information, customers are highly aware of fashion trends and brands of fine jewellery. International branded fine jewellery tends to gain popularity among customers due to its privileged brand image. Design: With the continuous improvement of living standard, customers of fine jewellery products nowadays are paying more attention to the design and craftsmanship of the fine jewellery products they are buying. Customization: There is an increasing demand for custom-made fine jewellery, especially for younger customers who prefer personalised fine jewellery products. Gender preferences: The male segment is an emerging market as men pay more attention to their appearances. Most of them prefer fine jewellery such as cufflinks, money clips and rings. They also buy fine jewellery such as rings, earrings and necklaces as gifts for their partners.
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INDUSTRY OVERVIEW Global retail sales value of fine jewellery from 2009 to 2018 HK$ billion 400 300 200
228.8
239.3
249.5
257.0
266.3
280.8
292.8
305.0
317.6
331.2
96.0
100
87.2 80.8
80 66.6
60 40 20 0
55.3 50.0
55.8
57.0
43.1
56.3 49.6 49.0
50.1
61.2
73.1
68.0
77.5
80.8
84.6
53.3
54.3
55.0
55.9
56.6
57.5
18.8
20.5
24.0
17.4
22.1
16.0
16.7
18.2
19.7
21.3
15.0
2014F
2015F
2016F
2017F
2018F
12.0
13.1
14.4
8.5
9.0
10.0
11.6
13.3
2009
2010
2011
2012
2013
11.2
69.6
61.2
48.1
37.5
74.1
Global retail sales value of fine jewellery
China
United States
Russia
Middle East
Europe (other than Russia)
Sources: IPSOS research and analysis
The total retail sales value of fine jewellery in the global market increased from about HK$228.8 billion in 2009 to about HK$266.3 billion in 2013, representing a CAGR of about 3.9%, while the total retail sales value per capita in the global market increased from about HK$33.6 in 2009 to about HK$37.4 in 2013 representing a CAGR of about 2.7%. Lower gold prices in 2012 and 2013 resulted in an increase of consumer demand for fine jewellery products made of gold. According to the World Gold Council, the global demand for gold jewellery products increased by approximately 20% during the period from January to September 2013, compared to the same period in 2012, reaching about 3,757 tons and valued at about HK$1,427.1 billion. The total retail sales value of fine jewellery in the global market is expected to increase from about HK$266.3 billion in 2013 to about HK$331.2 billion in 2018, at a CAGR of about 4.5%, while the total retail sales value per capita in the global market is expected to increase from about HK$37.4 in 2013 to HK$42.0 in 2018, at a CAGR of 2.6%. There has been significant growth in the total retail sales value of fine jewellery in markets such as Russia, the PRC and the Middle East, with CAGRs of about 11.8%, 13.0% and 9.3% from 2009 to 2013, respectively. The United States market also experiences a stable growth with CAGR of about 4.8% from 2009 to 2013, while the Europe (other than Russia) market remains stable with CAGR of about 1.6% from 2009 to 2013.
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INDUSTRY OVERVIEW Monthly average price of gold used as raw materials of fine jewellery industry from January 2009 to July 2014 US$ per ounce 1,800 1,600 1,400 1,200 1,000 800 600 400 200 Jul-14
Apr-14
Jan-14
Oct-13
Jul-13
Apr-13
Jan-13
Oct-12
Jul-12
Apr-12
Jan-12
Oct-11
Jul-11
Jan-11
Apr-11
Oct-10
Jul-10
Jan-10
Apr-10
Oct-09
Jul-09
Jan-09
Apr-09
0
gold Sources: IPSOS research and analysis
Yearly average price of polished diamond used as raw materials of fine jewellery industry from 2009 to 2013 US$ per carat 450 400 350 300 250 200 150 100 50 0
395.1 291.4
2009
378.8
362.3
2012
2013
317.6
2010
2011 polished diamond
Sources: IPSOS research and analysis
The monthly average price of gold in the global market increased from about US$1,224.7 per ounce in 2010 to about US$1,411.0 per ounce in 2013 at a CAGR of about 4.8%. There was continuous growth in the demand for gold used for jewellery making and investment purpose. However, the decline in demand for gold for other investment purposes such as exchange traded funds imposed a downward pressure for the average price of gold in the global market starting from 2013. The average price of gold in global market is expected to decline to about US$1,250 – 60 –
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INDUSTRY OVERVIEW per ounce in the fourth quarter in 2014 and stable at about US$1,230 per ounce in 2015. This is due to lower inflation pressures in the developed countries, such as the United States (at about 1.7% in 2014) and Europe (at about 0.4% in 2014), lowering the demand for gold for inflation hedging purpose. The yearly average price of polished diamond in the global market is in respect of polished diamonds in the range of 0.01 to 0.40 carat with clarity in the range of I-1 to I-3, that is, with inclusions visible to 10 times magnification. Such average price increased from about US$291.4 per carat in 2009 to about US$362.3 per carat in 2013 at a CAGR of about 5.6%. The increase in average price was due to the growth in global demands and sales for polished diamond from about US$12.5 billion in 2009 to about US$19.9 billion in 2013 at a CAGR of about 12.3%. In particular, there was continuous growth in demand for polished diamonds in the PRC and India jewellery making industry. The average price of polished diamond in global market is expected to increase for 5% to 10% between 2015 and 2018. This is due to the economic growth prospects in the United States and Europe and slightly positive growth in Japan, together with the urbanization of the population and the growth of the middle class in developing countries such as the PRC and other Southeast Asian countries. Future trends and development of global fine jewellery markets Fine jewellery retailers are focusing on mono-brand retail Fine jewellery retailers are focusing on mono-brand retail, which gives them more control over their brands, closer contact with consumers, and higher margin potential. Mono-brand fine jewellery retailers have been expanding faster at the expense of multi-brand fine jewellery retailers. Diversifying products can capture more market demand The fine jewellery products are more diversified nowadays and are produced for various purposes and occasion at more affordable prices to capture more market demand. The boundaries between fine jewellery products and fashion jewellery products are becoming less clear. For example, fine jewellery products used to be almost exclusively a gift purchase before 1960s, but modern consumers are buying fine jewellery products more for self-consumption. In light of this trend, fine jewellery retailers might consider introducing new products at a more affordable prices to entice younger consumers, giving them an entry point into the fine jewellery products. THE FINE JEWELLERY MANUFACTURING INDUSTRY IN HONG KONG As of 2013, there were over 640 fine jewellery manufacturers in Hong Kong, the majority of which focus on fine jewellery export. The chart below shows the total revenue of the fine jewellery manufacturers in Hong Kong which engage in fine jewellery export.
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INDUSTRY OVERVIEW Revenue of fine jewellery export manufacturing industry in Hong Kong from 2009 to 2018 HK$ million 180,000 152,831.4
160,000
134,484.8 121,171.4
140,000 120,000
104,694.1 89,623.9
100,000 72,288.1
80,000
76,875.0
63,415.1
60,000
46,645.1 38,079.9
40,000 20,000 0
2009
2010
2011
2012
2013
2014F
2015F
2016F
2017F
2018F
Revenue of fine jewellery export manufacturing industry Sources: IPSOS research and analysis
The revenue of fine jewellery export manufacturing industry in Hong Kong increased from about HK$38,079.9 million in 2009 to about HK$76,875.0 million in 2013 at a CAGR of about 19.2%. It was mainly due to the increase in the export to Russia and the Middle East, at a CAGR of about 48.5% and about 30.5% from 2009 to 2013, respectively. The increasing demand from Russia brought in more business and revenue for the fine jewellery export manufacturers in Hong Kong. The revenue of fine jewellery export manufacturing industry in Hong Kong is expected to increase from HK$76,875.0 million in 2013 to about HK$152,831.4 million in 2018 at a CAGR of about 14.7%. With the stable recovery of United States economy and continuous strong demand for fine jewellery from Russia and the Middle East, the future growth of this industry can be sustained. The total export values from Hong Kong to Russia, the United States, the Middle East and Europe (other than Russia) are expected to increase from about HK$2,124.0 million in 2014 to about HK$3,352.4 million in 2018 at a CAGR of about 12.1%, from about HK$18,204.7 million in 2014 to about HK$30,808.5 million in 2018 at a CAGR of about 14.1%, from about HK$4,156.4 million in 2014 to about HK$10,047.2 million in 2018 at a CAGR of about 24.7%, and from about HK$17,716.5 million in 2014 to about HK$30,222.9 million in 2018 at a CAGR of about 14.3%, respectively.
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INDUSTRY OVERVIEW Total export volume and value of fine jewellery from Hong Kong from 2009 to 2018 Volume (Metric Ton)
Value (HK$ Million)
2,500
109,165.3 96,060.6
2,000
120,000 100,000
86,551.0 74,781.5
1,500 51,634.4
80,000
64,017.1 54,910.7
60,000
45,296.5
1,000 33,317.9
40,000
27,199.9 500
516.3 510.7
394.2
335.0
332.2
348.8
366.3
384.6
403.8
424.0
2011
2012
2013
2014F
2015F
2016F
2017F
2018F
20,000 0
0 2009
2010
Export volume
Export value
Sources: Census and Statistics Department, HKSAR; IPSOS research and analysis Note: The export value and volume, which include those exported from Hong Kong to PRC, were based upon the categorization of fine jewellery products as articles of jewellery and parts of precious metals with precious stones.
The total export volume of fine jewellery from Hong Kong decreased from about 510.7 metric tons in 2009 to about 332.2 metric tons in 2013. Meanwhile, the total export value of fine jewellery increased from about HK$27,199.9 million in 2009 to about HK$54,910.7 million in 2013, at a CAGR of about 19.2%. The decline in the export volume was due to the global economy downturn with the lack of retail sales momentum in the fine jewellery market. On the other hand, the increase in the total export value was due to the increase in the average selling price of fine jewellery products in major export markets such as the United States and Europe which offset the impact from decrease in the quantity demand. The total export volume of fine jewellery from Hong Kong is expected to increase from about 348.8 metric tons in 2014 to about 424.0 metric tons in 2018 at a CAGR of about 5.0%. Meanwhile, the total export value of fine jewellery from Hong Kong is expected to increase from about HK$64,017.1 million in 2014 to about HK$109,165.3 million in 2018, at a CAGR of about 14.3%. The total export volume and value of fine jewellery is expected to increase due to the signs of global economy recovery that shall improve the willingness of potential consumers to buy fine jewellery for personal consumption.
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INDUSTRY OVERVIEW Average export wholesale prices of key fine jewellery products from Hong Kong from 2009 to 2013 HK$ per piece 1,800 1,600
1,497.5
1,533.4
1,401.4
1,435.0
1,087.4
1,113.5
2012
2013
1,393.0 1,400
1,288.5 1,204.9
1,200 1,000 800
1,205.8
1,303.6
1,075.5 935.7
1,011.5
849.7
600 400 200 0 2009
2010 Rings
2011 Earrings
Bracelets and Bangles
Sources: IPSOS research and analysis Notes:
Fine jewellery consisted of 14 karat gold and silver decorated with freshwater pearls, micro coloured gemstones and/or polished diamonds of 1 milimetre to 2 milimetres diameter in size were within the scope of research.
The increase in the average wholesale prices of the fine jewellery was driven by the increment of the raw material prices. For instance, the average price of polished diamond increased at a CAGR of about 5.6% from 2009 to 2013. On the other hand, the increases in operating costs such as wages also leads to the growth in average wholesale prices of the fine jewellery. The labor costs in the PRC had been increasing from 2009 to 2013. From 2009 to 2013, the average real wages in the PRC grew from about RMB2,723.7 in 2009 to about RMB4,283.8 in 2013, at a CAGR of about 12.0%. COMPETITIVE LANDSCAPE OF THE FINE MANUFACTURING INDUSTRY IN HONG KONG
JEWELLERY
EXPORT
As of 2013, there were over 640 fine jewellery export manufacturers in Hong Kong. The top five fine jewellery export manufacturers in Hong Kong which engage in export businesses accounted for about 8.9% of the total export value of fine jewellery industry in Hong Kong. The manufacturing facilities of these fine jewellery export manufacturers in Hong Kong are mostly located in the PRC.
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INDUSTRY OVERVIEW Top 5 fine jewellery export manufacturers in Hong Kong in 2013
Headquarter Industry player location
Rank
Export value of fine jewellery
Market share of total industry revenue Key products
(HK$ million)
Target export markets
(%)
1 . . . . . . Competitor A
Hong Kong
1,395.0
2.5% • Coloured gemstone jewellery • Diamond jewellery • Plain gold jewellery (excluding gold chain) • Plain platinum jewellery
• Europe • Asia • North America
2 . . . . . . Our Group
Hong Kong
1,235.4
2.2% • Coloured gemstone jewellery • Diamond jewellery • Pearl gold jewellery (south sea pearl)
• • • • •
Russia Europe Asia Middle East Africa
3 . . . . . . Competitor B
Hong Kong
782.6
1.4% • Coloured gemstone jewellery • Diamond jewellery • Plain gold jewellery (excluding gold chain) • Plain silver jewellery
• • • •
United States Europe Middle East Asia
4 . . . . . . Competitor C
Hong Kong
781.2
1.4% • Coloured gemstone jewellery • Diamond jewellery • Gold chain
• North America • Southeast Asia • Europe
5 . . . . . . Competitor D
Hong Kong
770.0
1.4% • Coloured gemstone jewellery • Europe • North America • Diamond jewellery • Pearl gold jewellery (south sea • Middle East pearl)
Others . . .
49,946.5
Total . . . .
54,910.7Note
91.1% • Coloured gemstone gold and diamond gold jewellery • Gold jewellery (plain, except gold chain) 100.0%
Source: IPSOS research and analysis Note:
The total export value of jewellery in Hong Kong in 2013 is based on the information obtained from the Census and Statistics Department of Hong Kong.
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INDUSTRY OVERVIEW One of the differentiating factors for fine jewellery export manufacturers in Hong Kong is product features which include product design, craftsmanship and use of materials. Other than product features, product quality also differentiates one’s products from competitors’ in the fine jewellery industry. As fine jewellery products will eventually be distributed to retail outlets, the quality of fine jewellery products determines one’s success in its expansion in the global market. A stringent quality control system helps the fine jewellery export manufacturers in Hong Kong stand out from the peers. Further, a good track record generates brand differentiation from competitors within the fine jewellery industry. A good, stable and long-term track record of production and relationship with fine jewellery brand owners are essential for maintaining the business relationships and attracting new business opportunities with other fine jewellery brand owners. Entry barriers of fine jewellery manufacturing industry in Hong Kong There are a number of entry barriers for the fine jewellery manufacturing industry, including: •
the customer’s expectation of the track record, experience and reputation in the industry;
•
dependence on the established business networks with wholesalers; and
•
hiring of labors with skills relating to fine jewellery design and manufacturing techniques.
Growth drivers and challenges for the fine jewellery manufacturing industry in Hong Kong With the rising economies in the emerging markets, such as Russia, the PRC and India, there are increasing growth in demand for fine jewellery products in these markets. As a result, the number of fine jewellery brand owners in these markets have been increasing. Major international jewellery brands are now very visible in the PRC. Thus, the fine jewellery manufacturers in Hong Kong should capture the growth of fine jewellery brand owners in the emerging market and aim at developing a business relationship with them. In addition, use of eCommerce platforms can attract foreign buyers and fine jewellery brand owners to engage in potential business partnerships with fine jewellery manufacturers in Hong Kong. Increasing demand for jewellery in regions such as the Middle East will also benefit the fine jewellery industry in Hong Kong. In the Middle East, the value of demand for gold and gold jewellery increased from about HK$19.4 billion in 2012 to about HK$24.0 billion in 2013. Such increase was supported by the rising demand for gold jewellery from the Indian expatriate community in the United Arab Emirates which favored 22-karat gold jewellery items. – 66 –
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REGULATIONS REGULATORY OVERVIEW PRC LAWS AND REGULATIONS This section sets out summaries of the PRC laws and regulations, which are relevant to our Group’s operation and business. PRC laws and regulations relating to the industry Industry catalogue and foreign investment restrictions The Catalogue for the Guidance of Foreign Investment Industries (revised in 2011) (外商 投資產業指導目錄(2011年修訂)) which was jointly issued by NDRC and MOFCOM on 24 December 2011, effective on 30 January 2012 (the “Catalogue”) is a long-standing tool that the PRC policymakers have used to manage and direct foreign investment. The Catalogue divides industries into three basic categories: encouraged industries, restricted industries and prohibited industries. Industries that do not fall within one of the three enumerated categories shall be classified as permitted industries. Under the current Catalogue, the jewellery production and processing is classified as a permitted industry and generally open to foreign investment unless specifically barred in other PRC regulations. PRC laws and regulations on processing trade According to the Circular of MOFCOM on the Printing and Distribution of the Tentative Measures for the Management of Examination and Approval of Processing Trade (對外貿易經濟 合作部關於印發《加工貿易審批管理暫行辦法》的通知) promulgated on 27 May 1999 and became effective on 27 May 1999, processing trade includes the processing of materials provided by foreign clients and the processing of imported materials. Enterprises which engage in processing trade shall apply to related authorities in charge of foreign trade for approval. According to the Measures of the Customs of the PRC for the Supervision and Administration of Processing Trade Goods (中華人民共和國海關加工貿易貨物監管辦法) promulgated by the General Administration of Customs of the PRC on 12 March 2014, and the Notice of Issues Concerning of the Implementation of the Measures of the Customs of the PRC for the Supervision and Administration of Processing Trade Goods (關於執行《中華人民共和國海關加 工貿易貨物監管辦法》有關問題的公告) promulgated by the General Administration of Customs of the PRC on 24 March 2014 and became effective on 24 March 2014, an operating enterprise shall go through the formalities for the establishment of the manual of the processing trade goods with the competent customs of the place where the processing enterprise is located. According to the Circular of the Ministry of Commerce and the General Administration of Customs on Related Work Concerning the Reform of Examination and Approval of Processing Trade of Guangdong Province (商務部、海關總署關於廣東省加工貿易審批改革有關工作的通知) promulgated on 15 July 2013, the approval for processing trade business and the approval for the imported materials and parts in bond or finished products of processing trade selling domestically are suspended for three trial years in Guangdong Province. – 67 –
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REGULATIONS PRC laws and regulations relating to the administration of gold and silver and gold and silver products According to the Administrative Regulations on Gold and Silver of the PRC (中華人民共 和國金銀管理條例) (the “Gold and Silver Administrative Regulations”) promulgated by the State Council on 15 June 1983, implemented on 15 June 1983 and amended on 8 January 2011 and its Implementation rules promulgated by the PBOC on 28 December 1983 and became effective on 28 December 1983, the PBOC is responsible for the administration and control of gold and silver. All gold and silver mined and refined by mining enterprises, rural communes, the armed forces and individuals must be sold to the PBOC, and must not be kept for personal sale, exchange or use without authorization. For foreign-invested enterprises, Chinese-foreign equity joint ventures and foreign investors within the territory of the PRC which purchase gold and silver products or process goods containing gold and silver, if such gold and silver are purchased from the PRC, they shall make an application according to the specified procedures to the PBOC for approval of such purchase. For an enterprise which engages in the sales or processing of gold and silver products, it shall obtain prior approval from the PBOC and other relevant competent governmental authorities. According to the Gold and Silver Administrative Regulations, there is no limit to the quantity of gold and silver imported in the PRC as raw materials by foreign-invested enterprises and Chinese-foreign equity joint ventures. Export products containing a high percentage of gold and silver shall be released upon verification and approval by the PBOC and a product which is not verified or approved or exceed the approved amount are prohibited from being exported. According to the Regulations on Carrying Gold or Silver Into or Out of the Territory of the PRC (對金銀進出口國境的管理辦法) promulgated on 1 February 1984 and became effective on 15 February 1984, before the products leave factories, regardless of whether the imported gold and silver or gold and silver supplied by the PBOC is used as the raw material and whether the gold and silver percentage is high or low, the local branch of the PBOC shall examine the gold and silver weight contained in the products, check contracts, register relevant information and then issue the Gold and Silver Products Export Licence. According to the Notice on Further Strengthening the Administration of Gold and Silver Jewellery Retail Market (關於進一步加強金銀飾品零售市場管理的通知) promulgated and became effective on 31 July 1995, entities running the gold and silver jewellery retail business shall obtain the permission from the provincial branch of the PBOC and acquire the “Gold and Silver Jewellery Business Licence”. However, on 1 November 2002, the State Council promulgated the Decision of the State Council in Relation to the Cancellation of the First Batch of Administrative Approval Items (國 務院關於取消第一批行政審批項目的決定), the approval of silver purchase and supply and the approval of silver products processing, wholesale and retail business have been cancelled. On 27 February 2003, the State Council promulgated the Decision of the State Council in Relation to the Cancellation of the Second Batch of Administrative Approval Items and Amendment of the Management Method of Certain Administrative Approval Items (國務院關於 取消第二批行政審批項目和改變一批行政審批項目管理方式的決定), the gold purchase permit, the approval of gold supply, the approval of gold products production, processing and wholesale business, the approval of gold products retail business, the approval of silver import have been cancelled. – 68 –
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REGULATIONS According to the Notice of PBOC and the General Administration of Customs of the PRC on the Import and Export of Gold and Gold Products in Processing Trade (中國人民銀行、海關 總署發佈關於黃金及其製品的加工貿易進出口的公告), from 1 January 2004, the import and export of gold and gold products in processing trade shall no longer be subject to examination and approval of the PBOC while the domestic sales of the gold and gold products originally produced for export shall still be subject to the examination and approval of the PBOC. According to the Provisional Measures Governing the Export of Silver (白銀出口管理暫行 辦法) which was promulgated on 26 November 1999 and became effective on 1 January 2000, the state exercises control over the export of silver with quota licence system and silver mentioned in these Measures only refers to silver powder, unforged silver and semi-product of silver. Furthermore, according to the Catalogue of Commodities Subject to Export License Administration (出口許可證管理貨物目錄) in 2011, 2012, 2013 and 2014 promulgated by the MOFCOM and General Administration of Customs of the PRC (中華人民共和國海關總署) and the Catalogue of Goods to be Exported Under Classified Licensing Control (出口許可證管理貨 物分級發證目錄) in 2011, 2012, 2013 and 2014 promulgated by the MOFCOM, silver is one of the categories that are subject to export control by means of quota, quota bidding and licence. However, neither Measures nor Catalogues regulate the export control of silver finished products by means of quota, quota bidding and licence. Currently, there is no law or regulation explicitly regulating the export control of silver finished products by means of quota, quota bidding and licence. As a result, although the Gold and Silver Administrative Regulations have not been abolished, the approval of gold and silver purchase and supply, the approval of gold and silver products processing, wholesale and retail business and the approval of silver import have been cancelled. While the import and export of gold and gold products in general trade remain subject to administrative examination and approval, the import and export of gold and gold products in processing trade is no longer subject to administrative examination and approval except the domestic sales of the gold and gold products originally produced for export. Further, silver finished products are not subject to export control by means of quota, quota bidding and licence. PRC laws and regulations relating to transfer pricing of affiliated transactions Pursuant to the EIT Law and the Implementation Regulations for Special Tax Adjustments (Trial) (特別納稅調整實施辦法 (試行)) (“Implementation Regulations for Special Tax Adjustments”), transactions in respect of the sale and purchase and transfer of products between enterprises under direct or indirect control by the same third party are regarded as affiliated parties transactions and should comply with the arm’s length principle (獨立交易原則). If the failure of compliance with such principle results in reducing the income or taxable income of the enterprise or its affiliated parties, the tax authority has the power to make an adjustment by reasonable methods.
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REGULATIONS Pursuant to the EIT Law, (i) when submitting its annual enterprise income tax return to the tax authority, an enterprise shall attach an annual report on affiliated transactions (if any) between the enterprise and its affiliated parties; (ii) and when the tax authority investigates the affiliated transactions of an enterprise, the enterprise and its affiliated parties and other enterprise in connection with such affiliated transaction investigation shall provide relevant information as required. Pursuant to the Implementation Regulations for Special Tax Adjustments, enterprises shall prepare and preserve on a tax year basis the materials for the time periods wherein their affiliated transactions occur (hereinafter referred to as “current materials”), and shall submit the same to the relevant taxation authorities as required. However, enterprises which meet one of the following standards are exempt from preparing current materials: (1) where the total annual amount of affiliated purchases and sales is less than RMB200 million (the amount of processing business with provided materials shall be calculated based on the import and export customs declaration prices during the year) and other affiliated transaction amounts are less than RMB40 million (the amount of funds involved in financing business between affiliated enterprises shall be calculated based on the amount of interest paid or received) (such amounts shall not include affiliated transaction amounts involved in the execution of cost amortization agreements or advance pricing agreements (“APA”) (預約定價安排) arrangements by the enterprise during that year); (2) where affiliated transactions are within the scope of the APA arrangements; or (3) where the proportion of foreign-owned shares is less than 50% and affiliated transactions are conducted with domestic affiliated parties only. However, according to the Notice of the State Administration of Taxation on Strengthening the Monitoring and Investigation of Cross-border Affiliated Transactions (Letter No. 363 [2009] of the State Administration of Taxation) (國家稅務總局關於強化跨境關聯交易監控和調查的通知(國稅函 [2009]363號)), as for a PRC enterprise established by transnational enterprises and with limited functions and risks, if it makes a loss, it must prepare contemporary data and other relevant data of the year of the occurrence of the loss and submit such data to the competent taxation authority by June 20 of the next year regardless of whether it meets the standard of preparing contemporary data. Except as otherwise stipulated by the Implementation Regulations for Special Tax Adjustments, enterprises shall complete the preparation of current materials before May 31 of the year following the occurrence of the relevant affiliated transactions, and the materials shall be submitted within 20 days of the relevant taxation authorities’ request. PRC laws and regulations relating to environmental protection We are subject to various PRC environmental protection laws and regulations promulgated by the central and local governments. These laws and regulations set out environmental protection measures in the construction of projects, use, discharge and disposal of toxic and hazardous materials, discharge and disposal of waste water, solid waste and waste gases, and control of industrial noise. The Ministry of Environmental Protection of the PRC (中華人民共 和國環境保護部) is responsible for the overall supervision and administration of environmental protection in the PRC. – 70 –
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REGULATIONS According to the Environmental Protection Law of the PRC (中華人民共和國環境保護法) promulgated by NPC on 26 December 1989 and became effective on 26 December 1989, the competent environmental protection authorities under the State Council must formulate national standards on emission of pollutants in accordance with the national standards on environmental quality, and the national economic and technological conditions. Governmental authorities at the provincial level may formulate local standards on the discharge of pollutants for items not specified in the national standards and may formulate local standards which are more stringent than the national ones for items already specified in the national standards. An enterprise that causes environmental pollution shall adopt effective measures to control or even to avoid the pollution and any other damage to the environment, such as waste gas, waste water, waste residues, dust and noises generated during manufacturing or other activities. The pollution prevention facilities of the construction projects shall be designed, built and put into operation together with the main part of the project. Construction projects can only be put into operation after the environmental protection authority has examined and approved the pollution prevention facilities. An enterprise discharging pollutants shall report to and register with the relevant authorities in accordance with the relevant provisions. An enterprise engages in production, storage, transportation, sale and use of toxic chemicals and materials containing radioactive substances shall comply with the relevant regulations to prevent environmental pollution. The relevant authorities are authorized to impose various types of penalties on persons or entities in violation of the environmental regulations. The penalties which could be imposed include issuance of a warning, suspension of operation or installation of facilities which are incomplete or fail to meet the prescribed standard, reinstallation of preventive facilities which have been dismantled or left idle, administrative sanction against the individual who is directly responsible for such environmental accident, suspension of business operations or shut-down of the entities. Fines could also be levied together with the abovementioned penalties. According to the Law of the PRC on Appraising of Environment Impacts (中華人民共和國 環境影響評價法) promulgated by NPC on 28 October 2002 and became effective on 1 September 2003, the PRC government has set up a system to appraise the environmental impact of construction projects in accordance with the degree of the environmental impact of such projects. If the construction project may result in a material impact on the environment, an environmental impact report thoroughly appraising the potential environmental impact is required. If the construction project may result in a slight impact on the environment, an environmental impact report form analyzing or appraising the specific potential environmental impact is required. And if the construction project may result in minor impact on the environment, an environmental impact appraisal is not required but an environmental impact form shall be filed. The environment impact appraising document is prepared by construction entity and shall be approved by the relevant PRC authority before construction commences. Pursuant to the Law on Prevention and Control of Water Pollution of the PRC (中華人民 共和國水污染防治法) which became effective on 1 June 2008, the Law on Prevention and Control of Air Pollution of the PRC (中華人民共和國大氣污染防治法), which became effective on 1 September 2000, and the Administrative Regulations on Levy and Utilization of Sewage Charge (排污費徵收使用管理條例), which became effective on 1 July 2003, enterprises which discharge waste water or air pollutants must pay discharge fees pursuant to the types and – 71 –
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REGULATIONS volumes of pollutants discharged. The discharge fees are calculated by the local environmental protection authority, which must review and verify the types and volumes of pollutants discharged. Once the discharge fees have been calculated, a notice on payment of discharge fees must be issued to the relevant enterprises. Furthermore, enterprises that discharge industrial waste water directly or indirectly into water shall obtain license for pollutant discharge. Under the Law on Prevention and Control of Environmental Pollution Caused by Solid Waste of the PRC (中華人民共和國固體廢物污染環境防治法), which was implemented on 1 April 1996 and amended on 29 December 2004 and on 29 June 2013, entities and individuals collecting, storing, transporting, utilising or disposing of solid waste must take precautions against the spread, loss, and leakage of such solid waste or adopt other measures to prevent such solid waste from polluting the environment. An enterprise must recycle its industrial solid waste in accordance with its economic and technical conditions. As for the industrial solid waste that cannot be recycled temporarily or that cannot be recycled, such enterprise must build storage facilities and safely keep in storage of such waste based on the kind of such waste or adopt measures to safely dispose such waste in accordance with the relevant laws and regulations. Under Measures for the Environmental Management Registration of Hazardous Chemicals (for Trial Implementation) (危險化學品環境管理登記辦法(試行)) promulgated by the Ministry of Environmental Protection on 10 October 2012 and became effective on 1 March 2013, entities using hazardous chemicals listed in the Catalogue of Hazardous Chemicals (危險化學品名錄) for production shall apply for the environmental management registration of hazardous chemicals. The latest Catalogue of Hazardous Chemicals (危險化學品名錄) was promulgated on 3 March 2003. The penalties for breach of the environmental protection laws vary from warnings, fines, suspending production or operation to other administrative sanctions, depending on the degree of damage or the results of the incidents. The person directly responsible for serious environmental pollution may be subject to criminal liabilities for serious breaches resulting in significant damage to private or public property or personal injury or death. PRC laws and regulations relating to production safety On 29 June 2002, NPC passed the Production Safety Law of the PRC (中華人民共和國安 全生產法), which was implemented on 1 November 2002 and amended on 27 August 2009, according to which, enterprises engaging in production and business operation activities shall observe the relevant laws, regulations concerning production safety, strengthen the administration of production safety, establish and perfect the accountability system for production safety, perfect the conditions for production safety, and ensure the safety in production. In addition, an enterprise must set up apparent safety warning signs at its production or business operation sites or on its facilities or equipments if such sites, facilities or equipments are substantial dangerous. For production and business operation enterprises with more than 300 employees, they shall establish an administrative organization for production safety or have full-time personnel for the administration of production safety. For production and business operation enterprises with not more than 300 employees, they shall have full or part time personnel for the administration of production safety. The safety facilities of the newly built or rebuilt or expanded engineering projects of an enterprise shall be designed, built, put into production and use at the same time with the main part of the projects. – 72 –
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REGULATIONS The State Administration of Work Safety (國家安全生產監督管理總局) is responsible for the overall supervision and management of the safety production nationwide while the departments in charge of safety production at the county level or above are responsible for the supervision and management of the safety production within their own jurisdictions. PRC laws and regulations relating to taxation Income tax Prior to the implementation of the EIT Law, which was promulgated on 16 March 2007 and became effective on 1 January 2008, the enterprise income tax of foreign-invested enterprises was regulated by the Income Tax Law of the PRC for Enterprises with Foreign Investment and Foreign Enterprises (中華人民共和國外商投資企業和外國企業所得稅法), which was issued by NPC on 9 April 1991. However, the Income Tax Law of the PRC for Enterprises with Foreign Investment and Foreign Enterprises was revoked by the EIT Law on 1 January 2008. According to the EIT Law, the income tax rate for both domestic and foreign-invested enterprises shall be 25% commencing from 1 January 2008. The Notice of the State Council on the Implementation of Enterprise Income Tax Transitional Preferential Policies (國務院關於實施 企業所得稅過渡優惠政策的通知) promulgated on 4 February 2008 provides certain transitional arrangements for the enterprises established prior to 16 March 2007 (i) where the foreigninvested enterprises enjoyed reduced tax rates under the then effective laws and regulations, such reduced tax rate shall be gradually increased to coincide with the EIT Law within five years starting from 2008; and (ii) where the foreign-invested enterprises are entitled to tax holidays for a fixed period under the then effective laws and regulations, such tax holidays may continue calculation until expiry. However, if the enterprise fails to enjoy the tax holiday due to a lack of profit, year of 2008 shall be regarded as the first profit-making year and the tax holiday shall be calculated since 2008. In order to clarify some provisions in the EIT Law, its implementation rules was promulgated on 6 December 2007 and became effective on 1 January 2008. According to the Notice of the State Council on the Implementation of the Enterprise Income Tax Transitional Preferential Policy, enterprises which previously enjoy the 15% preferential tax rate shall gradually transit from this preferential tax rate to the unified 25% tax rate within five years commencing from 1 January 2008. The transitional tax rates applied to such enterprises are 18% in 2008, 20% in 2009, 22% in 2010, 24% in 2011 and 25% in 2012. Enterprises which previously enjoy the 24% preferential tax rate shall apply the unified 25% tax rate from 1 January 2008. Enterprises that previously enjoy “2-year exemption and 3-year half payment”, “5-year exemption and 5-year half payment” of the enterprise income tax and other preferential treatments in the form of tax deductions and exemptions within specified periods may, after the implementation of the EIT Law, continue to enjoy the relevant preferential treatments under the preferential measures and the time period prescribed in the former tax law, administrative regulations and relevant documents until the expiration of the said time period. However, if such an enterprise has not enjoyed the preferential treatments yet because of its failure to make profits, its preferential time period shall be calculated from 2008. The “enterprises enjoying the preferential policies” as mentioned above refers to the enterprises established and registered in the industrial and commercial administrative department and in other registration administrative departments prior to 16 March 2007. – 73 –
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REGULATIONS According to the EIT Law promulgated by NPC on 16 March 2007 and became effective on 1 January 2008 and its implementing rules promulgated by the State Council on 6 December 2007 and became effective on 1 January 2008, the enterprise income tax for both domestic and foreign-invested enterprises is unified at 25%. Under the EIT Law, enterprises are classified as “resident enterprises” and “non-resident enterprises”. Pursuant to the EIT Law and its implementing rules, enterprises established under the laws of foreign countries or regions whose “de facto management bodies” are located in China are considered resident enterprises and will generally be subject to enterprise income tax at the rate of 25% on its global income. The implementing rules of the EIT Law define “de facto management bodies” as “establishments that carry out substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise. If we are considered as a PRC tax resident enterprise under the above definition, our global income will be subject to PRC enterprise income tax at the rate of 25%. In addition, according to the EIT Law, weighted deduction may be computed in taxable income for the wages paid by enterprises for job placement for the disabled and of other personnel encouraged by the State. Value-added tax According to the Provisional Regulations on Value-added Tax of the PRC (中華人民共和國 增值稅暫行條例), which was amended on 5 November 2008 and became effective on 1 January 2009, all entities or individuals in the PRC engaged in the sales of goods, the processing services, repair and replacement services, and the importation of goods are required to pay VAT. VAT payable is calculated as “output VAT” minus “input VAT”, and the rate of VAT is 17% or in certain limited circumstances, 13%, depending on the products concerned. Pursuant to the Circular on Printing and Issuing the Pilot Proposals for the Transformation from Business Tax to Value Added Tax (關於印發《營業稅改徵增值稅試點方案》的通知) (the “Pilot Proposals”) promulgated by the Ministry of Finance of the PRC and SAT and effective on 16 November 2011, the transformation from business tax to VAT will take effect on 1 January 2012 in pilot business of pilot areas. Pursuant to the Pilot Proposals, two levels of low VAT rates of 11% and 6% are added in the current VAT rates which are 17% and 13% respectively. The tax rate for business such as the transportation business and the construction business is 11% and the tax rate for certain other modern service business is 6%. The PRC encourages the development of the gold industry by implementing preferential treatment on taxation. The Circular Relating to Tax Policies on Gold (關於黃金稅收政策問題的 通知) issued by the Ministry of Finance of the PRC and SAT on 12 September 2002 provides that the sales of gold and gold sand (containing gold content) are exempted from VAT. Transactions made by gold trading enterprises, which are members of the gold exchange, on the gold exchange without physical settlement are exempted from VAT, and transactions with physical settlement are subject to VAT levying and immediate refund. – 74 –
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REGULATIONS According to the Administrative Measures for Tax Refund (Exemption) of Exported Goods (for Trial Implementation (出口貨物退(免)稅管理辦法(試行)) promulgated by SAT on 16 March 2005 and effective as of 1 May 2005 and the Circular of SAT on Administrative Regulations of Value-added Tax and Consumption Tax of Exported Goods and labor services (國家稅務總局關 於發佈《出口貨物勞務增值稅和消費稅管理辦法》的公告) (the “Circular on VAT and Consumption Tax”) promulgated on 14 June 2012, an export-oriented enterprise may apply for tax refund or exemption of exported goods at competent taxation authorities. If such application is approved, the export-oriented enterprise is qualified to VAT refund or exemption of exported goods in certain period permitted by relevant authorities. Consumption Tax According to the Interim Regulations of the PRC on Consumption Tax (2008 revision) (the “Interim Regulations on Consumption Tax”) (中華人民共和國消費稅暫行條例(2008修訂)), which was promulgated on 1 January 1994 and amended on 1 November 2008, entities that produce, process upon commission or import the consumption goods prescribed in the Interim Regulations on Consumption Tax in the PRC shall be consumption tax payers who shall pay consumption tax according to this Regulation. The above mentioned taxable consumption goods include gold, silver, diamonds, jade and other precious jewellery. According to the Interim Regulations on Consumption Tax, taxable consumption goods produced by the taxpayer shall be subject to tax upon sales. However, according to the Circular on Adjustment of Issues Relating to the Levying of Gold and Silver Jewellery Consumption Tax (關於調整金銀首飾消費稅納稅環節有關問題的通知) promulgated by the Ministry of Finance of the PRC and SAT on 24 December 1994, the gold and silver jewellery consumption tax shall be collected at the retail level, instead of sales level and the rate of such consumption tax shall be 5%. According to the Interim Regulations on Consumption Tax, for taxable consumption goods commissioned for processing, the tax shall be paid by the commissioned party upon delivery to the commissioning party. According to the Detailed Rules for the Implementation of the Interim Regulations of the PRC on Consumption Tax (中華人民共和國消費稅暫行條例實施細則), which was promulgated on 15 December 2008 and became effective on 1 January 2009, “Taxable Consumption Goods commissioned for Processing” mentioned in the Interim Regulations on Consumption Tax refer to processed taxable consumption goods for which the commissioning party provides raw materials and major materials and for which the commissioned party only receives processing fees and supplies part of auxiliary materials on behalf of the commissioning party for processing. According to the Circular on Adjustment of Issues Relating to Levying of the Gold and Silver Jewellery Consumption Tax, the rate of such consumption tax shall also be 5%. According to the Administrative Measures for Tax Refund (Exemption) of Exported Goods (for Trial Implementation) and the Circular on VAT and Consumption Tax, an export-oriented enterprise may apply for consumption tax refund or exemption of exported goods at competent taxation authorities. If such application is approved, the export-oriented enterprise is qualified to consumption tax refund or exemption of exported goods in certain period permitted by relevant authorities. – 75 –
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REGULATIONS PRC laws and regulations relating to foreign exchange Foreign currency exchange According to the Foreign Exchange Administration Rules of the PRC (中華人民共和國外 匯管理條例) (the “Foreign Exchange Administration Rules”), which was promulgated by the State Council of the PRC on 29 January 1996 and was amended on 14 January 1997 and 5 August 2008, Renminbi is generally freely convertible for payments of current account items, such as trade and service-related foreign exchange transactions and dividend payments, but not freely convertible for capital account items, such as capital transfer, direct investment, investment in securities, derivative products or loans unless prior approval of SAFE is obtained and prior registration with the same is completed. The income of foreign exchange of domestic institutions or individuals can be transferred back into China or deposited overseas. The specific requirements and term related to the transfer or deposit shall be prescribed by the foreign exchange administration department of the State Council in light of the balance of international revenue and payment and the status of foreign exchange administration. Under the Foreign Exchange Administration Rules, foreign-invested enterprises in the PRC may purchase foreign exchange without the approval of SAFE for paying dividends by providing certain evidencing documents (board resolutions, tax certificates, etc.), or for trade and services-related foreign exchange transactions by providing commercial documents evidencing such transactions. However, foreign currency transactions involving overseas direct investment or investment and exchange in securities, derivative products aboard will be subject to registration with SAFE and approval or file with the relevant governmental authorities (if necessary). On 29 August 2008, SAFE promulgated the Circular of Relevant Operating Issues Concerning the Improvement of the Administration of Payment and Settlement of Foreign Exchange Capital of Foreign-invested Enterprises (關於完善外商投資企業外匯資本金支付結匯 管理有關業務操作問題的通知) (the “Circular 142”) to regulate the conversion by foreign invested enterprises of foreign currency into RMB. Circular 142 requires that the RMB funds obtained from the settlement of foreign currency-denominated registered capital of a foreigninvested enterprise may only be used for purposes within the business scope approved by the applicable governmental authority and may not be used for equity investments within the PRC unless otherwise provided for in the enterprise’s business scope. In addition, SAFE has strengthened its oversight of the flow and use of the RMB capital converted from foreign currency-denominated registered capital of a foreign-invested enterprise. The use of such RMB capital may not be altered without SAFE’s approval, and may not in any case be used to repay RMB loans if the proceeds of such loans have not been used. Violations of Circular 142 will result in severe penalties, such as substantial fines.
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REGULATIONS Dividend distribution Before the promulgation of the EIT Law, the principal regulations governing distribution of dividends paid by a wholly foreign-owned enterprise include the Wholly Foreign-owned Enterprise Law (中華人民共和國外資企業法) and the Implementation Regulation of the Wholly Foreign-owned Enterprise Law (中華人民共和國外資企業法實施細則). Under these regulations, a wholly foreign-owned enterprise established in the PRC may only pay dividends from accumulated after-tax profit, if any, determined in accordance with PRC accounting standards and regulations. Dividends paid to its foreign investors are exempted from withholding tax. However, this provision was revoked by the EIT Law. The EIT Law prescribes a standard withholding tax rate of 20% on dividends and other PRC-sourced passive income of non-resident enterprises. Subsequently, the Implementation Regulation of the Enterprise Income Tax Law of the PRC reduced the rate from 20% to 10%, effective from 1 January 2008. The PRC and Hong Kong signed the Arrangement between the Mainland of the PRC and Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (內地和香港特別行政區政府關於 對所得稅避免雙重徵稅和防止偷漏稅的安排) (the “Arrangement”) on 21 August 2006. According to the Arrangement, no more than 5% withholding tax rate applies to dividends paid by a PRC company to a Hong Kong resident, provided that the recipient is a company that holds at least 25% of the capital of such PRC company. The 10% withholding tax rate applies to dividends paid by a PRC company to a Hong Kong resident if the recipient is a company that holds less than 25% of the capital of the PRC company. PRC laws and regulations in relation to the Reorganisation and the proposed [REDACTED] Circular 75 and Circular 37 According to Circular 75, which was issued by the SAFE on 21 October 2005, (i) a PRC resident shall register with the local branch of the SAFE before it establishes or controls an overseas special purpose vehicle (the “SPV”), for the purposes of overseas equity financing (including convertible debt financing); (ii) when the PRC resident contributes the assets of or its equity interests in a domestic enterprise into an overseas SPV, or engages in overseas financing after contributing such assets or equity interests into an overseas SPV, such PRC resident shall register his or her interest in the overseas SPV and the change thereof with the local branch of the SAFE; and (iii) when the overseas SPV undergoes a material capital related event outside of China, such as change in share capital or merger or acquisition, the PRC resident shall, within 30 days from the occurrence of such event, register or file such change with the local branch of the SAFE. The SAFE subsequently issued relevant guidance with respect to the operational process for the SAFE registration under Circular 75, which standardized more specific and stringent supervision on the registration relating to Circular 75 and imposed obligations on onshore subsidiaries of the overseas SPV to coordinate with and supervise the beneficial owners of the overseas SPV who are PRC residents to complete the SAFE registration process. On 19 November 2012, the SAFE issued the Notice on Further Improving and Adjusting Foreign Exchange Administration Policies for Direct Investment (關於進一步改進和調整直接投 資外匯管理政策的通知), or the Notice 59, with effect from 17 December 2012. Notice 59 further clarifies issues concerning the implementation and application of Circular 75 and simplifies the operational procedures for Circular 75. – 77 –
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REGULATIONS On 4 July 2014, the SAFE issued Circular 37, with effect from 4 July 2014, when Circular 75 was repealed by Circular 37. According to Circular 37, (i) a PRC resident (including PRC enterprises and PRC individual residents) shall register with the local branch of the SAFE before it contributes its assets or its equity interests into an SPV; and (ii) when the registered overseas SPV undergoes changes of basic information, such as PRC individual shareholders, name, business term and etc., or changes of material events, such as capital increase or decrease by PRC individual shareholders, share transfer, merger or division and etc., the PRC resident shall timely register or file such change with the local branch of the SAFE. Under Circular 37 and relevant SAFE rules, failure to comply with the registration procedures set forth above may result in restrictions on a PRC subsidiary’s foreign exchange activities and its ability to distribute dividends to the overseas SPV, and penalties on the PRC residents and/or the PRC subsidiary of the overseas SPV. As advised by our PRC Legal Advisers, since none of our Controlling Shareholders are PRC residents, we are not bound by Circular 37 and relevant SAFE rules to undergo relevant registrations. Other relevant laws and regulations PRC laws and regulations on labor According to the Labor Law of the PRC (中華人民共和國勞動法) which became effective on 1 January 1995, the Labor Contract Law of the PRC (中華人民共和國勞動合同法) which became effective on 1 January 2008 and amended on 28 December 2012, and the Implementation Regulations of the Labor Contract Law of the PRC (中華人民共和國勞動合同法實施條例) which became effective on 18 September 2008 (collectively, the “Labor Laws”), employers must enter into written labor contracts with employees on the date that they start employing the employees. The employers shall comply with the Labor Laws in many aspects including with no limitation to compensating their employees with wages in an amount equal to or above the local minimum wage standards, establishing and perfecting a labor safety and sanitation system. Violations of the Labor Laws may result in the imposition of fines or other administrative liabilities. Criminal liability may arise for serious violations. According to the Social Insurance Law of the PRC (中華人民共和國社會保險法) (the “Social Insurance Law”) promulgated on 28 October 2010 and became effective on 1 July 2011, the Interim Regulations Concerning the Levy of Social Insurance Fees (社會保險費徵繳暫行條 例) which became effective on 22 January 1999 and the Regulation on Management of Housing Provident Fund (住房公積金管理條例) implemented on 3 April 1999 and amend on 24 March 2002, employers in the PRC should respectively register with the social insurance authorities and undertake housing provident fund payment and deposit registration with the housing provident fund management centers within 30 days from establishment, and within 30 days after the date of hiring, an employer shall register the employee with the local social insurance authority and undertake housing provident fund payment and deposit registration for the employee. The employers shall provide their employees with welfare schemes covering the basic medical insurance fund, basic pension insurance fund, occupational injury insurance fund, maternity insurance fund, unemployment insurance fund and housing provident fund. – 78 –
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REGULATIONS Product Quality Law According to the Product Quality Law of the PRC (中華人民共和國產品質量法) promulgated on 22 February 1993 and amended on 8 July 2000 and 27 August 2009, respectively, a manufacturer shall establish a comprehensive internal management system for product quality, and implement internal policies of quality, responsibility and assessment. Violation of the Product Quality Law of the PRC may result in various penalties, including imposition of fines, suspension of business operations, revocation of business licenses and criminal liabilities. Consumer Protection Law According to the Consumer Protection Law of the PRC (中華人民共和國消費者權益保護 法) promulgated on 31 October 1993 and became effective on 1 January 1994 and amended on 25 October 2013, any business must comply with laws and regulations regarding personal safety and protection of property. Consumer shall be provided with truthful information in relation to goods and services. Consumers who suffer personal injuries or property damages due to product defects may demand compensation from either the manufacturer or the seller. Trademark Laws According to the Trademark Law of the PRC (中華人民共和國商標法) promulgated on 23 August 1982 and latest amended on 30 August 2013, and the Regulation on Implementation of Trademark Law of the PRC (中華人民共和國商標法實施條例) promulgated on 3 August 2002 and amended on 29 April 2014 (collectively the “Trademark Laws”), trademarks include commodity trademarks, service trademarks, collective marks and certificate marks. The Trademarks Office under the State Administration for Industry and Commerce (國家工商行政管 理局商標局) handles trademark registrations and grants a term of validity of ten years to registered trademarks, renewable every ten-years where a registered trademark needs to be used after the expiration of its validity term, a registration renewal application shall be filed within six months prior to the expiration of the term. Under the Trademark Laws, any of the following acts may be regarded as an infringement upon the right to exclusive use of a registered trademark, including (i) using a trademark which is identical with or similar to the registered trademark on the same or similar commodities without authorization; (ii) selling the commodities that infringe upon the right to exclusive use of a registered trademark; (iii) forging, manufacturing the marks of a registered trademark of others without authorization, or selling the marks of a registered trademark forged or manufactured without authorization; and (iv) causing other damage to the right to exclusive use of a registered trademark of another person. Violation of the Trademark Laws may result in the imposition of fines, confiscation and destruction of the infringing commodities.
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HISTORY, DEVELOPMENT AND REORGANISATION BUSINESS HISTORY Introduction The history of our Group can be traced back to 1990 when K.T.L. Jewellery was founded in Hong Kong by Mr. Kei and Mr. Li with their respective personal funds accumulated from their respective engagement in the trading of fine jewellery. Both of Mr. Kei and Mr. Li have over 24 years of experience in the fine jewellery industry and have established network in the fine jewellery industry in Hong Kong and Guangdong Province, the PRC. Business milestones The following table sets forth our Group’s business development milestones: Date
Event
June 1990
K.T.L. Jewellery was established to engage in the trading of fine jewellery.
May 1998
We purchased a parcel of land in Panyu District, Guangzhou City, Guangdong Province.
November 1998
We commenced construction of the Yinping Premises.
November 1999
Construction of the Yinping Premises was completed and put into operation.
December 2005
K.T.L. Jewellery and KTL (Guangzhou) obtained the ISO 9001:2008 certification issued by DNV Certification Limited, United Kingdom.
July 2006
We tapped into the fine jewellery market in Russia.
January 2008
Guangzhou KTL was established in the PRC to develop the fine jewellery wholesale market in PRC.
February 2012
Our “Diamonds in Snowflake” (冰花鑽) was granted a design patent by the Patents Registry of the Intellectual Property Department of Hong Kong.
January 2013
Our “Diamonds in Snowflake” (冰花鑽) was granted a design patent by the State Intellectual Property Office of the PRC.
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HISTORY, DEVELOPMENT AND REORGANISATION CORPORATE HISTORY Our Company Our Company was incorporated as an exempted company with limited liability in the Cayman Islands on 6 June 2014. Please refer to the paragraph headed “Statutory and General Information – A. Further information about our Company and its subsidiaries – 2. Changes in share capital of our Company” in Appendix V to this [REDACTED] for details of changes in the share capital of our Company. As a result of the Reorganisation, our Company became the holding company of our Group. Info Dragon Info Dragon is a company with limited liability incorporated in the BVI on 12 February 2002 with an authorised share capital of US$50,000 divided into 50,000 shares of US$1 each, all of which were allotted and issued to Golden Charter on 1 March 2002. On 28 March 2007, Golden Charter Management Corp. transferred its 50,000 shares, being the entire issued share capital of Info Dragon, to KTL International (BVI) at a consideration of US$50,000. The principal business of Info Dragon is investment holding. On 29 July 2014, KTL International (BVI) transferred the entire issued share capital of Info Dragon to our Company in return for the allotment and issue of 200,000 Shares by our Company to KTL International (BVI) as part of the Reorganisation. Info Dragon became a directly wholly-owned subsidiary of our Company. K.T.L. Jewellery K.T.L. Jewellery is a company with limited liability incorporated in Hong Kong on 29 June 1990 with an authorised share capital of HK$10,000 divided into 10,000 shares of HK$1 each. Upon incorporation, each of Mr. Li and Mr. Kei was allotted and issued one share at par value as the initial subscribers. On 11 January 1993, each of Mr. Li and Ms. Fong Fung Yi Precia was allotted and issued one share at par value, respectively. On 16 September 1993, Mr. Li, Mr. Kei and Ms. Fong Fung Yi Precia were allotted and issued 249,998 shares, 124,999 shares and 124,999 shares, respectively at considerations of HK$249,998, HK$124,999 and HK$124,999, respectively. Upon completion of the above two share allotments, K.T.L. Jewellery was owned as to 50%, 25% and 25% by Mr. Li, Mr. Kei and Ms. Fong Fung Yi Precia, respectively. Ms. Fong Fung Yi Precia is the spouse of Mr. Kei. On 15 September 1993, the authorised share capital of K.T.L. Jewellery was increased from HK$10,000 to HK$500,000 by the creation of 490,000 shares of HK$1 each. – 81 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
HISTORY, DEVELOPMENT AND REORGANISATION On 9 January 2003, Mr. Li completed the transfer of his 250,000 shares to Info Dragon at consideration of HK$250,000; Mr. Kei transferred his 125,000 shares to Info Dragon at a consideration of HK$125,000; Ms. Fong Fung Yi Precia transferred 120,000 shares and 5,000 shares, respectively, to Info Dragon and Forever Success Investments Limited at considerations of HK$120,000 and HK$5,000, respectively. On 9 October 2009, Forever Success Investments Limited completed the transfer of its 5,000 shares to Info Dragon at a consideration of HK$5,000. Upon completion of the above share transfers, K.T.L. Jewellery was a wholly-owned subsidiary of Info Dragon. K.T.L. Jewellery is primarily responsible for the international sales of our products. Upon completion of the Reorganisation, K.T.L. Jewellery became an indirectly wholly-owned subsidiary of our Company. Techno City Techno City is a company with limited liability incorporated in the BVI on 31 January 2002 with an authorised share capital of US$50,000 divided into 50,000 shares of US$1 each. Upon incorporation, 20,000 shares and 30,000 shares were allotted and issued to KTL International (BVI) and Sully Technology Limited, respectively, at par value. Sully Technology Limited was by then wholly owned by Mr. Kei Yeuk Lun Calan. On 28 March 2007, (i)
each of KTL International (BVI) and Sully Technology Limited transferred their respective 20,000 shares and 30,000 shares, respectively, to Info Dragon but the share transfers were cancelled on the same day.
(ii) Sully Technology Limited transferred 13,293 shares, 6,646.5 shares, 6,646.5 shares and 3,414 shares, the aggregate of which represented its entire equity interest in Techno City, to Mr. Li, Ms. Fong Fung Yi Precia, Mr. Kei and Mr. Kei Yeuk Lun Calan, respectively, in consideration for the transfer of 74,338.5 shares of KTL International (BVI) from Mr. Li to Mr. Kei Yeuk Lun Calan, the transfer of 37,169.25 shares of KTL International (BVI) from Ms. Fong Fung Yi, Precia to Mr. Kei Yeuk Lun Calan, the transfer of 37,169.25 shares of KTL International (BVI) from Mr. Kei to Mr. Kei Yeuk Lun Calan and the nominal consideration of HK$1, respectively. (iii) Mr. Li, Ms. Fong Fung Yi Precia, Mr. Kei and Mr. Kei Yeuk Lun Calan transferred 13,293 shares, 6,646.5 shares, 6,646.5 shares and 3,414 shares to KTL International (BVI) at considerations of HK$2,733,445, HK$1,366,722, HK$1,366,722 and HK$702,022, respectively. (iv) KTL International (BVI) transferred its 50,000 shares, representing its entire equity interest in Techno City, to Info Dragon at a consideration of HK$6,324,912. – 82 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
HISTORY, DEVELOPMENT AND REORGANISATION Following completion of the above share transfers, Techno City was wholly-owned by Info Dragon. The principal business of Techno City is investment holding. Upon completion of the Reorganisation, Techno City became an indirectly wholly-owned subsidiary of our Company. Alan’s Jewellery Alan’s Jewellery is a company with limited liability incorporated in Hong Kong on 18 June 1992 with an authorised share capital of HK$10,000 divided into 10,000 shares of HK$1 each. Upon incorporation, each of Mr. Kei Yeuk Lun Calan and Mr. Li was allotted and issued one share at par value. On 13 August 1992, Mr. Kei Yeuk Lun Calan, Mr. Li and Mr. Kei were allotted and issued 5,999 shares, 1,999 shares and 2,000 shares at considerations of HK$5,999, HK$1,999 and HK$2,000, respectively. Following completion of the above shares allotments, Alan’s Jewellery was owned as to 60%, 20% and 20% by Mr. Kei Yeuk Lun Calan, Mr. Li and Mr. Kei, respectively. On 6 October 1992, Mr. Kei transferred his 2,000 shares to Ms. Fong Fung Yi, Precia at consideration of HK$2,000. On 9 January 2003, Mr. Kei Yeuk Lun, Calan completed the transfer of his 6,000 shares to Techno City at consideration of HK$6,000; Mr. Li transferred his 2,000 shares to Techno City at consideration of HK$2,000; Ms. Fong Fung Yi Precia transferred 1,900 shares and 100 shares to Techno City and Forever Success Investments Limited at considerations of HK$1,900 and HK$100, respectively. On 9 October 2009, Forever Success Investments Limited transferred its 100 shares to Techno City at a consideration of HK$100. Following completion of the above share transfers, Alan’s Jewellery was wholly-owned by Techno City. Alan’s Jewellery is primarily responsible for the international sales of our products, in particular, handling the sales to our largest customer in Russia. Upon completion of the Reorganisation, Alan’s Jewellery became an indirectly wholly-owned subsidiary of our Company. Golden Charter Golden Charter is a company with limited liability incorporated in the BVI on 7 February 2002 with an authorised share capital of US$50,000 divided into 50,000 shares of US$1 each, all of which were allotted and issued to KTL International (BVI) on 1 March 2002. The principal business of Golden Charter is investment holding. On 29 July 2014, KTL International (BVI) transferred the entire issued share capital of Golden Charter to our Company as part of the Reorganisation. Golden Charter became a directly wholly-owned subsidiary of our Company. – 83 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
HISTORY, DEVELOPMENT AND REORGANISATION Chinagrow Development Chinagrow Development is a company with limited liability incorporated in Hong Kong on 18 April 2007 with an authorised share capital of HK$10,000 divided into 10,000 shares of HK$1 each. Upon incorporation, one share of HK$1 was allotted and issued to the initial subscriber. On 18 July 2007, Chinagrow Development allotted and issued 9,999 shares to Golden Charter at consideration of HK$9,999. On 9 August 2007, the initial subscriber transferred its one share to Golden Charter at a consideration of HK$1. Following completion of the above share transfer, Chinagrow Development was wholly-owned by Golden Charter. The principal business of Chinagrow Development is investment holding of our sales business in the PRC. Upon completion of the Reorganisation, Chinagrow Development became an indirectly wholly-owned subsidiary of our Company. Guangzhou KTL Guangzhou KTL is a wholly foreign-owned enterprise established in the PRC on 5 January 2008 with an initial registered capital of HK$8 million. Guangzhou KTL has been a wholly-owned subsidiary of Chinagrow Development since its establishment. On 1 March 2011, the registered capital of Guangzhou KTL was increased to HK$14 million. On 20 December 2011, the registered capital of Guangzhou KTL was increased to HK$24 million. On 28 January 2013, the registered capital of Guangzhou KTL was increased to HK$39 million. The principal business of Guangzhou KTL is import and export, wholesale, distribution (with commission) (excluding auction) and other relevant after-sales service of various kinds of synthetic jewellery, platinum jewellery, silver jewellery, gold jewellery, diamond jewellery etc; production and processing, sales of various kinds of synthetic jewellery, platinum jewellery, silver jewellery, gold jewellery and diamond jewellery. Upon completion of the Reorganisation, Guangzhou KTL became an indirect wholly-owned subsidiary of our Company. Landclick Properties Landclick Properties is a company with limited liability incorporated in the BVI on 26 March 2002 with an authorised share capital of US$50,000 divided into 50,000 shares of US$1 each, all of which were allotted and issued to Clever Market Associates Limited as the initial subscriber. Clever Market Associates Limited was by then owned as to 82% and 18% by KTL International (BVI) and Sully Technology Limited, respectively.
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
HISTORY, DEVELOPMENT AND REORGANISATION On 28 March 2007, Clever Market Associates Limited transferred its 50,000 shares to KTL International (BVI) at a consideration of US$50,000. Following completion of the share transfer, Landclick Properties was wholly-owned by KTL International (BVI). On 27 July 2014, the authorised share capital of Landclick Properties was increased from US$50,000 to US$100,000 by creation of an additional 50,000 shares. On 28 July 2014, the amount due by Landclick Properties as at 30 June 2014 was settled by way of the allotment of 10,000 shares of US$1 in Landclick Properties, credited as fully paid by capitalising such outstanding amount, to KTL International (BVI). The principal business of Landclick Properties is investment holding. On 29 July 2014, KTL International (BVI) transferred the entire issued share capital of Landclick Properties to our Company in return for the allotment and issue of 200,000 Shares by our Company to KTL International (BVI) as part of the Reorganisation. Landclick Properties became a directly wholly-owned subsidiary of our Company. KTL Jewellery Trading KTL Jewellery Trading is a company with limited liability incorporated in Hong Kong on 31 December 2008 with an authorised share capital of HK$10,000 divided into 10,000 shares of HK$1 each, all of which were allotted and issued to Landclick Properties upon incorporation. The principal business of KTL Jewellery Trading is purchase of raw materials and it is also the indirect holding company of our PRC subsidiaries which carry out manufacturing activities in the PRC. Upon completion of the Reorganisation, KTL Jewellery Trading became an indirectly wholly-owned subsidiary of our Company. KTL Brilliant KTL Brilliant is a company with limited liability incorporated in Hong Kong on 24 November 1997 with an authorised share capital of HK$100,000 divided into 100,000 shares of HK$1 each. Upon incorporation, each of Mr. Kei and Mr. Li was allotted and issued one share at par value. On 6 February 1998, Mr. Kei, Mr. Li, Ms. Fong Fung Yi Precia and Mr. Kei Yeuk Lun Calan were allotted and issued 20,499 shares, 40,999 shares, 20,500 shares and 18,000 shares at considerations of HK$20,499, HK$40,999, HK$20,500 and HK$18,000, respectively. Following completion of the above share allotment, KTL Brilliant was owned as to 20.5%, 41.0%, 20.5% and 18.0% by Mr. Kei, Mr. Li, Ms. Fong Fung Yi Precia and Mr. Kei Yeuk Lun Calan, respectively.
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HISTORY, DEVELOPMENT AND REORGANISATION On 27 October 1999, Mr. Kei completed the transfer of his 2,050 shares to Diamond Creek Services Limited at consideration of HK$2,050; Mr. Li transferred his 4,100 shares to Diamond Creek Services Limited at a consideration of HK$4,100; Ms. Fong Fung Yi, Precia transferred 2,050 shares to Diamond Creek Services Limited at a consideration of HK$2,050; Mr. Kei Yeuk Lun Calan transferred 1,800 shares to Diamond Creek Services Limited at a consideration of HK$1,800. To the best knowledge and belief of our Directors, Diamond Creek Services Limited was by then owned by the owner of one of our customers. Following completion of the above share transfer, KTL Brilliant was owned as to 18.45%, 36.9%, 18.45%, 16.2% and 10.0% by Mr. Kei, Mr. Li, Ms. Fong Fung Yi Precia, Mr. Kei Yeuk Lun Calan and Diamond Creek Services Limited, respectively. On 9 December 2002, Mr. Kei completed the transfer of his 18,450 shares to Landclick Properties at a consideration of HK$18,450; Mr. Li transferred his 36,900 shares to Landclick Properties at a consideration of HK$36,900; Ms. Fong Fung Yi Precia transferred 18,450 shares to Landclick Properties at consideration of HK$18,450; Mr. Kei Yeuk Lun Calan transferred 16,200 shares to Landclick Properties at a consideration of HK$16,200. Following completion of the above share transfer, KTL Brilliant was owned as to 90% and 10% by Landclick Properties and Diamond Creek Services Limited, respectively. On 5 December 2005, Diamond Creek Services Limited transferred its 10,000 shares to Goelite Developments Limited at a consideration of HK$10,000. To the best knowledge and belief of our Directors, Goelite Developments Limited was by then owned by a relative of the owner of Diamond Creek Services Limited. On 5 August 2008, Goelite Developments Limited transferred 4,430 shares, 2,216 shares, 2,216 shares and 1,138 shares, to Mr. Li, Ms. Fong Fung Yi Precia, Mr. Kei, Mr. Kei Yeuk Lun Calan at considerations of HK$4,430, HK$2,216, HK$2,216 and HK$1,138, respectively. On 25 August 2008, Mr. Kei transferred his 2,216 shares to Landclick Properties at a consideration of HK$2,216; Mr. Li transferred his 4,430 shares to Landclick Properties at a consideration of HK$4,430; Ms. Fong Fung Yi Precia transferred 2,216 shares to Landclick Properties at a consideration of HK$2,216; Mr. Kei Yeuk Lun Calan transferred 1,138 shares to Landclick Properties at a consideration of HK$1,138. Following completion of the above share transfer, KTL Brilliant was wholly owned by Landclick Properties. On 15 July 2009, Landclick Properties transferred 100,000 shares, being its entire equity interest in KTL Brilliant to KTL Jewellery Trading at a consideration of HK$100,000. Following completion of the above share transfer, KTL Brilliant was wholly owned by KTL Jewellery Trading. The principal businesses of KTL Brilliant are investment and asset holding and provision of intra-group car rental services. Upon completion of the Reorganisation, KTL Brilliant became an indirectly wholly-owned subsidiary of our Company. – 86 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
HISTORY, DEVELOPMENT AND REORGANISATION K.T.L. Development K.T.L. Development is a company with limited liability incorporated in Hong Kong on 21 April 2004 with an authorised share capital of HK$10,000 divided into 10,000 shares of HK$1 each. Upon incorporation, the initial subscribers were allotted and issued two shares at par value. On 20 May 2004, the initial subscribers completed the transfer of their respective one share to Landclick Properties at par value. On the same day, Landclick Properties was allotted and issued 8,998 shares at consideration of HK$8,998; Diamond Creek Services Limited was allotted and issued 1,000 shares at a consideration of HK$1,000. Following completion of the above share transfer and share allotment, K.T.L. Development was owned as to 90% and 10% by Landclick Properties and Diamond Creek Services Limited, respectively. On 30 September 2005, Landclick Properties and Diamond Creek Services Limited completed the transfers of their respective 3,800 and 1,000 shares to Goelite Developments Limited at a consideration of HK$3,800 and HK$1,000, respectively. Following completion of the above share transfer, K.T.L. Development was owned as to 52% and 48% by Landclick Properties and Goelite Developments Limited, respectively. On 5 August 2008, Goelite Developments Limited completed the transfer of its 4,800 shares to Landclick Properties at a consideration of HK$4,800. Following completion of the above share transfer, K.T.L. Development was wholly owned by Landclick Properties. On 15 July 2009, Landclick Properties completed the transfer of its 10,000 shares, being its entire equity interest in K.T.L. Development to KTL Jewellery Trading at a consideration of HK$10,000. Following completion of the above share transfer, K.T.L. Development was wholly owned by KTL Jewellery Trading. The principal businesses of K.T.L. Development are investment and provision of intragroup car rental services. Upon completion of the Reorganisation, K.T.L. Development became an indirectly wholly-owned subsidiary of our Company. KTL (Guangzhou) KTL (Guangzhou) is a wholly foreign-owned enterprise established in the PRC on 4 June 2004 with an initial registered capital of HK$20 million. KTL (Guangzhou) has been a wholly-owned subsidiary of K.T.L. Development since its establishment. On 12 June 2010, the registered capital of KTL (Guangzhou) was increased to HK$50 million. On 28 March 2011, the registered capital of KTL (Guangzhou) was increased to HK$90 million. On 23 November 2012, the registered capital of KTL (Guangzhou) was increased to HK$140 million. – 87 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
HISTORY, DEVELOPMENT AND REORGANISATION The principal business of KTL (Guangzhou) is production of jewellery and related items. Upon completion of the Reorganisation, KTL (Guangzhou) became an indirect wholly-owned subsidiary of our Company. Guangzhou Dihe Guangzhou Dihe is a wholly foreign-owned enterprise established in the PRC on 22 February 2011 with an initial registered capital of HK$30 million. Guangzhou Dihe has been a wholly-owned subsidiary of K.T.L. Development since its establishment. The principal business of Guangzhou Dihe is design, technical support and business management consultancy and related services of jewellery. Upon completion of the Reorganisation, Guangzhou Dihe became an indirect wholly-owned subsidiary of our Company. Rich Delta Rich Delta is a company with limited liability incorporated in the BVI on 31 January 2002 with an authorised share capital of US$50,000 divided into 50,000 shares of US$1.00 each, all of which were allotted and issued to Clever Market Associates Limited as the initial subscriber. Clever Market Associates Limited was by then owned as to 82% and 18% by KTL International (BVI) and Sully Technology Limited, respectively. On 28 March 2007, Clever Market Associates Limited transferred its 50,000 shares, being its entire equity interest in Rich Delta to Info Dragon at a consideration of US$50,000. On 10 March 2009, Info Dragon transferred its 50,000 shares, being its entire equity interest in Rich Delta to KTL International (BVI) at a consideration of HK$390,000. Following completion of the above share transfers, Rich Delta was wholly owned by KTL International (BVI). The principal business of Rich Delta is investment holding. On 29 July 2014, KTL International (BVL) transferred the entire issued share capital of Rich Delta to our Company in return for the allotment and issue of 200,000 Shares by our Company to KTL International (BVI) as part of the Reorganisation. Rich Delta became a directly wholly-owned subsidiary of our Company. KTL Marketing KTL Marketing is a company with limited liability incorporated in Hong Kong on 30 May 2007 with an authorised share capital of HK$10,000 divided into 10,000 shares of HK$1 each. Upon incorporation, the initial subscriber was allotted and issued one share at par value. On 17 July 2007, the initial subscriber transferred its one share to Ever Achieve Agents Limited at consideration of HK$1. Ever Achieve Agents Limited was by then wholly owned by Total Acute Industries Limited, which was by then wholly owned by KTL International (BVI). On the same day, 7,499 shares were allotted and issued to Ever Achieve Agents Limited at consideration of HK$7,499; 2,500 shares were allotted and issued at a consideration of HK$2,500 to PAOLO CALABRO’ who is an Italian previously acting as our sales partner in Italy. Following completion of the above share transfer and share allotment, KTL Marketing was owned as to 75% and 25% by Ever Achieve Agents Limited and PAOLO CALABRO’, respectively. – 88 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
HISTORY, DEVELOPMENT AND REORGANISATION On 6 February 2009, PAOLO CALABRO’ transferred his 2,500 shares, being his entire equity interest in KTL Marketing to Ever Achieve Agents Limited at a consideration of Euro 2,000. The consideration was determined after arms’ length discussion with reference to the then net asset value of KTL Marketing. On 12 March 2009, Ever Achieve Agents Limited transferred its 10,000 shares, being its entire equity interest in KTL Marketing to Rich Delta at consideration of HK$27,300. Following completion of the above share transfers, KTL Marketing was wholly owned by Rich Delta. KTL Marketing is currently a dormant company. Upon completion of the Reorganisation, KTL Marketing became an indirectly wholly-owned subsidiary of our Company. Lucigala Jewellery Lucigala Jewellery is a company with limited liability incorporated in Hong Kong on 21 July 2005 with an authorised share capital of HK$100,000 divided into 100,000 shares of HK$1 each, all of which were allotted and issued to Total Acute Industries Limited at par value upon incorporation. Total Acute Industries Limited was by then wholly owned by Clever Market Associates Limited. On 13 March 2009, Total Acute Industries Limited transferred its 100,000 shares, being its entire equity interest in Lucigala Jewellery to Rich Delta at a consideration of HK$100,000. On 15 July 2009, Rich Delta transferred its 100,000 shares, being its entire equity interest in Lucigala Jewellery to KTL Marketing at a consideration of HK$100,000. On 8 February 2011, KTL Marketing transferred its 100,000 shares, being its entire equity interest in Lucigala Jewellery to Rich Delta at a consideration of HK$100,000. Following completion of the above share transfers, Lucigala Jewellery was wholly owned by Rich Delta. Lucigala Jewellery is a company holding our intellectual property rights in Hong Kong. Upon completion of the Reorganisation, Lucigala Jewellery became an indirectly wholly-owned subsidiary of our Company. True Success True Success is a company with limited liability incorporated in the BVI on 10 March 1999 with an authorised share capital of US$50,000 divided into 50,000 shares of US$1 each. Upon incorporation, two bearer shares were allotted and issued on the applications by Mr. Li and Ms. Fong Yee Nei. Ms. Fong Yee Nei is the spouse of Mr. Li. On 1 March 2002, at the request of the holders of the bearer shares, the two bearer shares were cancelled in return for the allotment and issue of two shares to Golden Charter. On the same day, 49,998 shares were allotted and issued to Golden Charter at par value. On 28 March 2007, Golden Charter transferred its 50,000 shares, being its entire equity interest in True Success to KTL International (BVI) at a consideration of US$50,000. Following completion of the above share allotment and share transfer, True Success was wholly owned by KTL International (BVI). – 89 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
HISTORY, DEVELOPMENT AND REORGANISATION The principal business of True Success is investment holding. On 29 July 2014, KTL International (BVI) transferred the entire issued share capital of True Success to our Company in return for the allotment and issue of 200,000 Shares by our Company to KTL International (BVI) as part of the Reorganisation. True Success became a directly wholly-owned subsidiary of our Company. KTL Management KTL Management is a company with limited liability incorporated in Hong Kong on 28 November 1996 with an authorised share capital of HK$10,000 divided into 10,000 shares of HK$1 each. Two shares were allotted and issued to the initial subscribers at par value upon incorporation. On 18 December 1996, the initial subscribers transfer their respective one share to Ms. Fong Fung Yi Precia and Mr. Kei at par. On 19 December 1996, 4,999 shares and 4,999 shares were allotted and issued to Ms. Fong Fung Yi Precia and Mr. Kei at considerations of HK$4,999 and HK$4,999, respectively. Following completion of the above share transfer and share allotment, KTL Management was owned as to 50% and 50% by Ms. Fong Fung Yi Precia and Mr. Kei, respectively. On 8 December 1998, Ms. Fong Fung Yi, Precia and Mr. Kei completed the transfers of 2,500 shares and 2,500 shares to Mr. Li at considerations of HK$2,500 and HK$2,500, respectively. Following completion of the above share transfer, KTL Management was owned as to 25%, 25% and 50% by Ms. Fong Fung Yi Precia, Mr. Kei and Mr. Li, respectively. On 9 January 2003, Ms. Fong Fung Yi Precia completed the transfer of her 2,500 shares, being her entire equity interest in KTL Management to True Success at consideration of HK$2,500; Mr. Kei completed the transfer of his 2,400 shares to True Success at consideration of HK$2,400; Mr. Li completed the transfer of his 5,000 shares, being his entire equity interest in KTL Management to True Success at consideration of HK$5,000; Mr. Kei completed the transfer of his 100 shares to Forever Success Investments Limited at consideration of HK$100. Following completion of the above share transfer, KTL Management was owned as to 99% and 1% by True Success and Forever Success Investments Limited, respectively. On 9 October 2009, Forever Success Investments Limited completed the transfer of its 100 shares, being its entire equity interest in KTL Management to True Success at a consideration of HK$100. Following completion of the above share transfer, KTL Management was wholly owned by True Success. The principal business of KTL Management is properties holding. Upon completion of the Reorganisation, KTL Management became an indirectly wholly-owned subsidiary of our Company.
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
HISTORY, DEVELOPMENT AND REORGANISATION PREVIOUS SUBSIDIARIES OF OUR GROUP DURING THE TRACK RECORD PERIOD AND SUBSIDIARIES IN THE PROCESS OF DEREGISTRATION Wealth Logistics Limited Wealth Logistics Limited was incorporated in Hong Kong with limited liability on 20 May 2006. Prior to its application for deregistration, its entire equity interest was owned by Golden Charter. It was an investment holding company which had been used to establish a joint venture with several Independent Third Parties for the pursuit of business of distribution and sale of jewellery in Hong Kong, Macau and the PRC. It is currently under the process of voluntary deregistration by way of submitting an application to the Companies Registry of Hong Kong pursuant to section 750 of the Companies Ordinance and assuming that there is no objection, it is expected that the deregistration process will be completed in the first half of 2015. Erax Development Limited Erax Development Limited was incorporated in Hong Kong with limited liability on 11 November 1998. Prior to its application for deregistration, its entire equity interest was owned by True Success. It had been a property holding company and ceased business operations prior to its application for deregistration. It is currently under the process of voluntary deregistration by way of submitting an application to the Companies Registry of Hong Kong pursuant to section 750 of the Companies Ordinance and assuming that there is no objection, it is expected that the deregistration process will be completed in the first half of 2015. Bright Favour Development Limited Bright Favour Development Limited was incorporated in Hong Kong with limited liability on 18 November 1998. Prior to its application for deregistration, its entire equity interest was owned by True Success. It had been a property holding company and ceased business operations prior to its application for deregistration. It is currently under the process of voluntary deregistration by way of submitting an application to the Companies Registry of Hong Kong pursuant to section 750 of the Companies Ordinance and assuming that there is no objection, it is expected that the deregistration process will be completed in the first half of 2015.
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HISTORY, DEVELOPMENT AND REORGANISATION Sanhe (Guangzhou Panyu) Jewellery Limited* (三和(廣州番禺)首飾有限公司) Sanhe (Guangzhou Panyu) Jewellery Limited* (三和(廣州番禺)首飾有限公司) was a wholly foreign-owned enterprise established in the PRC on 6 April 1998 with registered capital of HK$15.4 million immediately before its deregistration. Prior to its application for deregistration, its entire equity interest was owned by KTL Brilliant. The principal business of Sanhe (Guangzhou Panyu) Jewellery Limited* (三和(廣州番禺) 首飾有限公司) prior to its application for deregistration was processing, production of various kinds of artificial jewellery and platinum jewellery, silver jewellery, gold jewellery and watches, the cutting and molding of diamonds, precious stones and semi-precious stones. It is currently under the process of deregistration. Our PRC Legal Advisers confirmed that it is not aware of any legal impediment on the completion of the deregistration with the relevant PRC government authorities. To the best of our Directors’ knowledge and information, the deregistration process is expected to be completed in late January 2015. Lusijialan Jewellery Trading (Shanghai) Limited* (露思珈蘭首飾貿易(上海)有限公司) Lusijialan Jewellery Trading (Shanghai) Limited* (露思珈蘭首飾貿易(上海)有限公司) was a wholly foreign-owned enterprise established in the PRC on 22 April 2009 with registered capital of HK$17 million immediately before its deregistration. Prior to its application for deregistration, its entire equity interest was owned by Chinagrow Development. Its principal business was the import and export, wholesale, retail and commission agency (excluding auction) of jewellery (excluding rough and loose diamond), watch and accessories, and relevant supporting services. Our PRC Legal Advisers confirmed that Lusijialan Jewellery Trading (Shanghai) Limited* (露思珈蘭首飾貿易(上海)有限公司) was legally and officially deregistered with the competent industry and commerce administration authority on 31 May 2013 in accordance with relevant PRC laws and regulations. As confirmed by our Directors, these companies had ceased their business operations and made no material profit contribution to our Group during the Track Record Period, we therefore consider them not material to our business and apply to deregister them.
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HISTORY, DEVELOPMENT AND REORGANISATION REORGANISATION The following chart sets forth our corporate and shareholding structure prior to the Reorganisation:
Mr. Kei
Mr. Kei Yeuk Lun Calan
79.95%
20.05%
Universe Master (BVI)
Minority shareholders Note
Mr. Li
53.4%
42.7%
3.9%
KTL International (BVI) (BVI)
100%
100%
100% Landclick Properties (BVI)
Golden Charter (BVI)
Info Dragon (BVI) 100%
K.T.L. Jewellery (Hong Kong)
100%
100%
100%
Rich Delta (BVI)
True Success (BVI)
100%
100%
KTL Jewellery Trading (Hong Kong)
Chinagrow Development (Hong Kong)
100% KTL Management (Hong Kong)
KTL Marketing (Hong Kong)
100% 100%
Techno City (BVI)
100%
Guangzhou KTL (PRC)
Lucigala Jewellery (Hong Kong)
100%
100% 100%
Alan’s Jewellery (Hong Kong)
100%
KTL Brilliant (Hong Kong)
Wealth Logistics Limited (Hong Kong)
Sanhe (Guangzhou Panyu) Jewellery Limited* 三和(廣州番禺) 首飾(有限公司) (PRC)
Erax Development Limited (Hong Kong) 100% Bright Favour Development Limited (Hong Kong)
100% K.T.L. Development (Hong Kong)
100%
100%
100%
KTL (Guangzhou) (PRC)
Guangzhou Dihe (PRC)
Companies which are in the process of deregistration
Note: KTL International (BVI) was owned as to 1.50%, 0.50%, 0.50%, 0.50%, 0.40%, 0.20%, 0.10%, 0.10% and 0.10% by Cheung Chi Kong Ringo, Wong King Shun, Wong Man Hon, Law Chi Ming, Kwong Ying Wah Monita, Lam Pak Kan, Pang Tsz Fung, Pang Chun Lai and Leung Hong Fai, respectively. All of these minority shareholders are former or existing employees of our Group, who are Independent Third Parties.
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HISTORY, DEVELOPMENT AND REORGANISATION In preparation for the [REDACTED], we underwent the Reorganisation which involved the following steps: Incorporation of our Company On 6 June 2014, (a)
our Company was incorporated in the Cayman Islands as an exempted company with limited liability with an authorised share capital of HK$380,000 divided into 38,000,000 Shares of HK$0.01 each;
(b) one Share was allotted and issued to the initial subscriber; (c)
the initial subscriber transferred its one Share to KTL International (BVI);
(d) our Company allotted and issued 999,999 Shares to KTL International (BVI). Transfer of shares in KTL International (BVI) from three minority shareholders to Universe Master and Mr. Li On 29 July 2014, three minority shareholders, namely Wong Man Hon, Wong King Shun and Law Chi Ming transferred their respective entire equity interests in KTL International (BVI) to Universe Master and Mr. Li. The following table sets forth details of the relevant share transfers: Name of transferor Wong Man Hon . Wong King Shun Law Chi Ming . . Law Chi Ming . .
. . . .
. . . .
. . . .
. . . .
. . . .
Name of transferee
No. of shares in KTL International (BVI)
Universe Master Mr. Li Universe Master Mr. Li
50,000 50,000 25,000 25,000
shares shares shares shares
Consideration (HK$) HK$1,000,000 HK$1,000,000 HK$500,000 HK$500,000
On the same date, Mr. Li transferred 7,500 shares in KTL International (BVI) to Universe Master at HK$150,000. As confirmed by our Directors, the consideration of the above share transfers were determined after arms’ length discussion and the determination of which had taken into consideration the then net asset value of KTL International (BVI). Prior to the allotment and issue of shares as below, Universe Master was owned by Mr. Kei as to 79.95% and Mr. Kei Yeuk Lun Calan as to 20.05%. The above shares in KTL International (BVI) were purchased by Mr. Kei and Mr. Kei Yeuk Lun Calan through Universe Master. To reflect the amount of consideration contributed by each of Mr. Kei and Mr. Kei Yeuk Lun Calan, Universe Master allotted and issued 67,500 shares and 15,000 shares to each of Mr. Kei and Mr. Kei Yeuk Lun Calan for value at par. Upon the above shares allotments, Universe Master was owned by Mr. Kei as to 79.98% and Mr. Kei Yeuk Lun Calan as to 20.02%. – 94 –
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HISTORY, DEVELOPMENT AND REORGANISATION Acquisitions of Info Dragon, Golden Charter, Landclick Properties, Rich Delta and True Success by our Company On 29 July 2014, KTL International (BVI) transferred its entire equity interest in each of Info Dragon, Golden Charter, Landclick Properties, Rich Delta and True Success to our Company. In consideration of the above transfers, our Company allotted and issued a total of 1,000,000 Shares to KTL International (BVI), credited as fully paid at par. Transfer of shares in KTL International (BVI) by the remaining six minority Shareholders and the allotment and issue of Shares to these minority Shareholders On 10 September 2014, the remaining six minority shareholders, namely Mr. Cheung Chi Kong Ringo, Ms. Kwong Ying Wah Monita, Mr. Lam Pak Kan, Mr. Pang Tsz Fung, Mr. Pang Chun Lai and Mr. Leung Hong Fai transferred their respective entire equity interests in KTL International (BVI) to Universe Master and Mr. Li at nominal value of HK$1. The following table sets forth details of the relevant share transfers: Name of transferor Mr. Cheung Chi Kong Ringo . Mr. Cheung Chi Kong Ringo . Ms. Kwong Ying Wah Monita Ms. Kwong Ying Wah Monita Mr. Lam Pak Kan . . . . . . . . Mr. Lam Pak Kan . . . . . . . . Mr. Pang Tsz Fung . . . . . . . Mr. Pang Tsz Fung . . . . . . . Mr. Pang Chun Lai . . . . . . . Mr. Pang Chun Lai . . . . . . . Mr. Leung Hong Fai . . . . . . Mr. Leung Hong Fai . . . . . .
Name of transferee . . . . . . . . . . . .
. . . . . . . . . . . .
. . . . . . . . . . . .
. . . . . . . . . . . .
. . . . . . . . . . . .
. . . . . . . . . . . .
. . . . . . . . . . . .
. . . . . . . . . . . .
Universe Master Li Man Chun Universe Master Li Man Chun Universe Master Li Man Chun Universe Master Li Man Chun Universe Master Li Man Chun Universe Master Li Man Chun
No. of shares in KTL International (BVI) 83,535 66,465 22,276 17,724 11,138 8,862 5,569 4,431 5,569 4,431 5,569 4,431
Upon completion of the above transfer of shares in KTL International (BVI), KTL International (BVI) was owned by Universe Master as to 55.57% and Mr. Li as to 44.43%. The above shares in KTL International (BVI) were purchased by Mr. Kei and Mr. Kei Yeuk Lun Calan through Universe Master. To reflect the shareholding acquired by Mr. Kei and Mr. Kei Yeuk Lun, Universe Master allotted and issued 106,344 and 27,312 shares to each of Mr. Kei and Mr. Kei Yeuk Lun Calan. Upon the above shares allotments, Universe Master was owned by Mr. Kei as to 79.97% and Mr. Kei Yeuk Lun Calan as to 20.03%.
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HISTORY, DEVELOPMENT AND REORGANISATION On 10 September 2014, our Board resolved to allot and issue to these six minority Shareholders such number of Shares, in proportion to their pre-existing shareholding interest of KTL International (BVI) credited as fully paid at par. Upon completion of the above shares allotments and issues by our Company, our Company was owned by KTL International (BVI) as to 97.6% and the six minority shareholders as to 2.4%. The following table sets forth the shareholding of our Company in consequence of the allotments: Name of Shareholder KTL International (BVI) . . . . Mr. Cheung Chi Kong Ringo . Ms. Kwong Ying Wah Monita Mr. Lam Pak Kan . . . . . . . . Mr. Pang Tsz Fung . . . . . . . Mr. Pang Chun Lai . . . . . . . Mr. Leung Hong Fai . . . . . .
Number and percentage of Shares held . . . . . . .
. . . . . . .
. . . . . . .
. . . . . . .
. . . . . . .
. . . . . . .
. . . . . . .
. . . . . . .
. . . . . . .
. . . . . . .
. . . . . . .
. . . . . . .
. . . . . . .
. . . . . . .
. . . . . . .
2,000,000 Shares (97.6%) 30,738 Shares (1.5%) 8,197 Shares (0.4%) 4,098 Shares (0.2%) 2,049 Shares (0.1%) 2,049 Shares (0.1%) 2,049 Shares (0.1%)
Transfer of shares in KTL International (BVI) held by Mr. Li to his wholly-owned company On 10 October 2014, Mr. Li transferred his entire shareholding interest in KTL International (BVI) to Husheng Holdings, his wholly-owned company incorporated in the BVI, at nominal value of HK$1. Upon completion of the above transfer, KTL International (BVI) was owned by Husheng Holdings as to 44.43%.
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HISTORY, DEVELOPMENT AND REORGANISATION The following chart sets forth our corporate and shareholding structure upon completion of the Reorganisation but immediately before completion of the [REDACTED] and the [REDACTED]:
Mr. KeiNote 1
Mr. Kei Yeuk Lun CalanNote 1 Mr. Li 20.03%
79.97%
100% Husheng Holdings (BVI)
Universe Master (BVI) 55.57%
44.43%
Six minority ShareholdersNote 2
KTL International (BVI) (BVI) 97.6%
2.4%
Our Company (Cayman Islands)
100% Info Dragon (BVI)
100%
K.T.L. Jewellery (Hong Kong)
100%
100%
Landclick Properties (BVI)
Golden Charter (BVI)
100%
Rich Delta (BVI)
100%
100%
KTL Jewellery Trading (Hong Kong)
Chinagrow Development (Hong Kong)
KTL Marketing (Hong Kong)
100% 100%
Techno City (BVI)
100%
KTL Brilliant (Hong Kong)
Guangzhou KTL (PRC)
100%
100%
Wealth Logistics Limited (Hong Kong)
100% True Success (BVI)
100% KTL Management (Hong Kong) 100%
100%
Sanhe (Guangzhou Panyu) Jewellery Limited* 三和(廣州番禺) 首飾(有限公司) (PRC)
100% Alan’s Jewellery (Hong Kong)
100%
Lucigala Jewellery (Hong Kong)
Erax Development Limited (Hong Kong) 100% Bright Favour Development Limited (Hong Kong)
100% K.T.L. Development (Hong Kong) 100%
100% KTL (Guangzhou) (PRC)
Guangzhou Dihe (PRC)
Companies which are in the process of deregistration
Notes: 1.
Mr. Kei is the elder brother of Mr. Kei Yeuk Lun Calan. Our Directors confirmed that save as the aforesaid, there is no other family relationship among the above Shareholders.
2.
These six minority Shareholders are Cheung Chi Kong Ringo, Kwong Ying Wah Monita, Lam Pak Kan, Pang Tsz Fung, Pang Chun Lai and Leung Hong Fai, who holds 1.5%, 0.4%, 0.2%, 0.1%, 0.1% and 0.1%, respectively, of the issued share capital of our Company. All of these minority Shareholders are former or existing employees of our Group, who are Independent Third Parties.
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HISTORY, DEVELOPMENT AND REORGANISATION The following chart sets forth our corporate and shareholding structure immediately after completion of the [REDACTED] and the [REDACTED], assuming that the [REDACTED] has not been exercised and that no Shares have been issued pursuant to the exercise of the share options which may be granted under the Share Option Scheme:
Mr. Kei
Mr. Kei Yeuk Lun Calan Mr. Li 20.03%
79.97%
100% Universe Master (BVI)
Husheng Holdings (BVI)
55.57%
44.43%
Other public Shareholders
Six minority ShareholdersNote
KTL International (BVI) (BVI) [REDACTED]%
[35.0]%
[REDACTED]%
Our Company (Cayman Islands)
100%
100%
100% Landclick Properties (BVI)
Golden Charter (BVI)
Info Dragon (BVI) 100%
K.T.L. Jewellery (Hong Kong)
100%
100%
True Success (BVI)
Rich Delta (BVI)
100% KTL Jewellery Trading (Hong Kong)
Chinagrow Development (Hong Kong)
100%
100%
100% KTL Management (Hong Kong)
KTL Marketing (Hong Kong)
100% 100%
Techno City (BVI)
100% KTL Brilliant (Hong Kong) Guangzhou KTL (PRC)
100% Sanhe (Guangzhou Panyu) Jewellery Limited* 三和(廣州番禺) 首飾(有限公司) (PRC)
100% 100%
Alan’s Jewellery (Hong Kong)
Wealth Logistics Limited (Hong Kong)
Lucigala Jewellery (Hong Kong)
Erax Development Limited (Hong Kong) 100% Bright Favour Development Limited (Hong Kong)
100% K.T.L. Development (Hong Kong)
100%
100%
100%
100%
KTL (Guangzhou) (PRC)
Guangzhou Dihe (PRC)
Companies which are in the process of deregistration
Note: These six minority Shareholders are Cheung Chi Kong Ringo, Kwong Ying Wah Monita, Lam Pak Kan, Pang Tsz Fung, Pang Chun Lai and Leung Hong Fai, who holds [REDACTED], [REDACTED], [REDACTED], [REDACTED], [REDACTED] and [REDACTED], respectively, of the issued share capital of our Company. The Shares held by these six minority Shareholders will be part of the public float for the purpose of Rule 8.08 of the [REDACTED].
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HISTORY, DEVELOPMENT AND REORGANISATION PRC LEGAL COMPLIANCE As Mr. Kei, Mr. Li and Mr. Kei Yeuk Lun Calan, being the controllers of our PRC subsidiaries, are not PRC domestic residents and do not habitually reside inside the PRC due to reasons of economic interests, our PRC Legal Advisers confirmed that they are not required to carry out the foreign exchange registration pursuant to the then in force Circular 75 and Circular 37. Our PRC Legal Advisers further confirmed that all approvals, permits and licences required under the PRC laws and regulations in connection with the Reorganisation and the establishment, equity interests transfer and increase of registered capital and deregistration in respect of the PRC companies in our Group as set forth in this section have been obtained, and the Reorganisation has complied with all applicable PRC laws and regulations.
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BUSINESS OVERVIEW We are an integrated fine jewellery provider with a well-established operating history in Hong Kong, and are primarily engaged in designing, manufacturing and exporting fine jewelleries to jewellery wholesalers and retailers mainly in Russia, Americas and other European countries. According to the IPSOS Report, we ranked second among the top five fine jewellery export manufacturers in Hong Kong in 2013 in terms of export value. We offer a wide range of fine jewellery products in karat gold, including rings, earrings, pendants, necklaces, bracelets, bangles, cufflinks, brooches and anklets. The average wholesale price of our products is approximately HK$1,359, HK$1,245, HK$1,231 and HK$1,133 per piece in the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014 respectively. We believe that a distinguishing factor for the success of a fine jewellery provider vests in its capability of providing integrated services to its customers. In addition to product design and production, we provide synergistic, value-added services to selected customers with strategic values to us, which are typically branded retail chain operators. For these selected customers, we share our observation on market trend and conduct discussions and interactive sessions with them, and collaborate with them on areas such as product series theme creation, product design in sets and/or series, product positioning, product showcasing and product launch strategies, which we view as collaborating efforts with them to promote their end consumer sales. We believe our ability to create new product designs and develop innovative production techniques in response to market trends and customers’ preference contribute to the success of our products. Our design capabilities are demonstrated by our invention of “Diamond in Snowflake” (冰花鑽), a unique stone-setting technique involving the setting of diamonds in multiple layers to create the appearance of one single diamond with larger table size. In February 2012 and January 2013 respectively, the Patents Registry of the Intellectual Property Department of Hong Kong and the State Intellectual Property Office of the PRC granted a design patent to us for our “Diamonds in Snowflake” design. We manufacture our products at our production facility in Panyu, Guangdong Province, the PRC. We also outsource certain production steps to our subcontractors to enhance resource management and cost efficiency and to provide better services to customers such as timely delivery of products in case of urgent orders. All of our subcontractors engaged during the Track Record Period were Independent Third Parties.
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BUSINESS OUR COMPETITIVE STRENGTHS We believe that our success to date and our potential for future growth are attributed to a combination of our competitive strengths set out as follows: One of the top fine jewellery providers in Hong Kong with well-established and strong business relationship with worldwide customers We are one of the top fine jewellery providers in Hong Kong which focus on export business. According to the IPSOS Report, we ranked second among the top five fine jewellery export manufacturers in Hong Kong in 2013 in terms of export value in Hong Kong. We have been engaged in the fine jewellery business since 1990. We focused our business initially in the United States and Italy as the jewellery markets were relatively developed in these countries. We made a strategic move and tapped into the Russia fine jewellery market in 2006. Since then our geographical coverage has continued to expand and now covers customers around the globe including Russia, Americas, other European countries, the PRC and the Middle East. According to the IPSOS Report, most of these markets have experienced stable to significant growth in their respective retail jewellery sales in recent years. More particularly, the retail sales value of fine jewellery in Russia, the PRC, the Middle East, the United States and Europe (other than Russia) had CAGR of about 11.8%, 13.0%, 9.3%, 4.8% and 1.6% from 2009 to 2013 respectively. Our well-established operating history as one of the top fine jewellery exporters in Hong Kong has enabled us to forge close, long-term and trusting relationships with major customers in Russia, the United States and Hong Kong/PRC. For the three years ended 31 March 2014 and the three months ended 30 June 2014, our 10 largest customers included some branded jewellery retail chain operators in Russia and Hong Kong/PRC and a wholesaler in the United States which sells its products to local chain stores. Our five largest customers during the Track Record Period have been our customers for over six years. According to the IPSOS Report, the total retail sales value of fine jewellery in the global market increased with a CAGR of about 3.9% between 2009 and 2013, and is expected to continue with a growth trend from 2013 to 2018 with a CAGR of about 4.5%. Meanwhile, the revenue of fine jewellery export manufacturing in Hong Kong is expected to grow with a CAGR of about 14.7% between 2013 to 2018. We strongly believe that with our well-established operating history as one of the top fine jewellery exporters in Hong Kong, our established reputation among our customers, our production capability and quality craftsmanship and design capability, we are posed to be a major beneficiary from the growing global market of fine jewellery.
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BUSINESS Strong design capability appealing to customers’ need We believe our ability to create new product designs and develop innovative production techniques in response to market trends and customers’ preference contribute to the success of our products. We have been making continuous efforts in conducting research on the latest market trends of jewelleries, accessories and fashion to enable us to continuously provide a wide variety of fine jewellery designs for our customers. According to the IPSOS Report, the boundaries between fine jewellery products and fashion jewellery products are becoming less clear. In light of this trend, we have been offering customers with a wide range of products with appealing designs at affordable prices, made with various kinds of precious metals and diamonds and gem stones with various specifications to cater for a wider bandwidth of market demand. Our design team comprises a total of about 79 staff, including about 24 jewellery designers and about 55 craftsmen. A number of our designers and craftsmen have been awarded with various certificates recognized in the jewellery industry in the PRC, amongst other, the Honorary Certificate of Guangzhou Expert Technician (廣州市技術能手) issued by Guangzhou Municipal Human Resources and Social Security Bureau (廣州市人力資源和社會保障局) in 2013 and the Certificates of Guangdong Province Jewellery and Jade Industry Expert Technician Fugleman (廣東省珠寶玉石首飾行業崗位技術能手標兵) issued by Guangdong Province Jewellery and Jade Industry Association (廣東省珠寶玉石首飾行業協會) in 2011. Our designs are well-recognized by industry associations and well-received by our customers in various geographical locations. Over the years, we have won various design awards including: Year
Award
Issuing body
2011
Hong Kong Buyers’ Most Favourable Jewellery Design Competition – Silver Prize of Free Style
Hong Kong Jewellery Manufacturers’ Association
2011
Hong Kong Buyers’ Most Favourable Jewellery Design Competition – Bronze Prize of Free Style
Hong Kong Jewellery Manufacturers’ Association
2011
Hong Kong Buyers’ Most Favourable Jewellery Design Competition – Silver Prize of Pendant and brooch
Hong Kong Jewellery Manufacturers’ Association
2011
Hong Kong Buyers’ Most Favourable Jewellery Design Competition – Bronze Prize of Pendant and brooch
Hong Kong Jewellery Manufacturers’ Association
2012
Hong Kong Buyers’ Most favourable Jewellery Design Competition – Bronze Prize of Rings
Hong Kong Jewellery Manufacturers’ Association
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BUSINESS Our strong design capability is also signified by our patented design, “Diamonds in Snowflake” (冰花鑽) which is a unique stone-setting technique involving the setting of diamonds in multiple layers to create the appearance of one single diamond with larger table size. We believe that our demonstrated capability in design and craftsmanship coupled with our scale production capability have distinguished us from our peers and competitors, and appeals to customers looking for large quantity of supply of jewellery products with constantly varying styles and designs and quality and consistency in craftsmanship. Jewellery provider offering synergistic, value-added services As an integrated fine jewellery provider serving customers around the globe, we find that fine jewellery has been increasingly perceived by end consumers to be less of a pure luxury and more of a fashion statement, a trendy accessory and a statement of personal character and consumers are increasingly drawn to the overall marketing package of jewellery sets and pieces, including the theme they carry, the underlying messages and story-lines they convey, and the corresponding product showcasing strategies, all designed to enhance consumer appeals and stimulate consumer purchases. As such, we believe that a successful jewellery provider can better distinguish itself through its capability to provide synergistic, value-added services to better assist its customers in formulating and materializing these increasingly important marketing and packaging strategies. We pride ourselves in our capability to provide synergistic, value-added services such as product series theme creation, product showcasing and product launch strategies, product positioning and marketing support to cater for the varying needs of our customers. For selected customers with strategic values to us, which are typically branded retail chain operators, we share our observation on market trend, conduct discussions and interactive sessions with them, and strive to collaborate with these customers on areas such as product series theme creation, product designs in sets and/or series, product positioning, product showcasing and product launch strategies to enhance overall consumer appeal of their jewellery products and promote stronger retail sales. We believe our commitment to extending services over and above a mere manufacturer and supplier of jewellery products have enabled us and will continue to help us forge long, trusting and mutually beneficial relationships with customers with strategic values to us. Experienced, stable and dedicated management team All of our executive Directors have extensive experience in the fine jewellery industry. Mr. Kei and Mr. Li, being our founders and executive Directors, have more than 24 years experience in the fine jewellery industry. Both of them have established network in the fine jewellery industry in Hong Kong and Guangzhou City of the PRC. Mr. Kei was elected as an executive committee member of Jewellery Manufacturers Association from 2013 to 2015. He was also a member of National Committee of the Chinese People’s Political Consultative Conference (Guangzhou City Committee) in 2012. Mr. Li was a member of National Committee of the Chinese People’s Political Consultative Conference (Panyu District Committee) and the vice – 103 –
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BUSINESS president of the 5th Session of the Council, Guangzhou Association of Enterprises with Foreign Investment. Mr. Li has also served as Honorary Life President and General Member of the Guangzhou Panyu Jewellery Manufacturers Association. Mr. Kei Yeuk Lun Calan, our executive Director, has over 22 years of experience in the fine jewellery industry. He was the founder of Alan’s Jewellery, which was acquired by our Group in 2003. For further details about the experience of our executive Directors, please refer to the section headed “Directors, Senior Management and Employees” in this [REDACTED]. Our management team comprises members focusing on various areas ranging from sales and marketing management, financial management, product development design and craftsmanship as well as production management. The experience and network of our management team are fundamental to our Group in building a solid foundation for the development of our business. OUR BUSINESS STRATEGIES We strive for maintaining our Group as one of the top fine jewellery providers in Hong Kong with a focus on export business by enhancing our sales and marketing force, increasing our market penetration in existing markets, expanding our customer base, exploring new markets and increasing recognition of our KTL corporate brand name worldwide. We intend to implement the following strategies to capitalize on our strengths so as to enhance our business prospects and financial performance: Further diversify our markets to the United States and the PRC In light of the gradual recovery from the economic downturn in the United States in the recent years and eyeing on the sheer size of its retail market of fine jewellery products, we plan to explore more growth opportunities in the United States where we believe would benefit from the integrated services that we offer. In addition, we intend to further strengthen our business relationships with our customers in the United States by offering a wider range of styles and designs tailored for the United States market, and adjusting our production resources, capacity and cycle to better cater the product lead time, consumer preferences and festive shopping practices of the United States market. According to the IPSOS Report, the GDP per capita of the PRC is expected to grow from US$6,723 in 2013 to US$10,950 in 2018, whereas the retail sales value of fine jewellery in the PRC is expected to grow from HK$68 billion to HK$96 billion from 2014 to 2018, representing a CAGR of approximately 9.0%. In view of such growth potential, we intend to leverage on our established corporate brand name and our proven design capability, and increase resources to attract jewellery wholesalers or chain stores which focus on the PRC market. In this connection, we intend to increase our sales and marketing resources to promote our products and to participate in various trade exhibitions in the PRC, and devote additional product development and design resources to offer a wider range of designs tailored for the taste and preferences of the PRC market. Enhance our efforts to offer products together with integrated services to broaden customer base We aim to broaden our customer base by enhancing our efforts to offer products together with integrated services. – 104 –
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BUSINESS Customers’ needs and preferences vary. Some only require manufacturing support whereas more customers need other customized services and support such as differentiating product designs, product series theme creation, product showcasing strategies and product positioning. We believe that jewellers in the PRC markets are generally keen for designs, marketing and product positioning support, whereas emerging markets are generally keen for manufacturing supports as well. In this respect, we plan to devote our sales force with an added focus in identifying and soliciting new customers that are themselves jewellery suppliers but do not have strong product development and design and/or production capabilities to broaden our customer base. In addition, we anticipate that an increasing customers will desire, if not demand, for tailored services going forward. We also believe offering varying value-added, tailored services is an effective mechanism to win new customers and to forge stronger and more stable business relationships with existing and strategic customers. Therefore we plan to expand our resources and efforts to enhance our capability to provide more quality, value-added services, including: •
setting up an exhibition centre with multiple showrooms at Yuwotou Premises to showcase our product series theme creation, product display designs and marketing layout strategies to better assist our customers in visualizing different design and layout appeals at an earlier stage of product pre-launch preparation; and
•
setting up cross departmental project team to work on exploring feasible business plans for both existing customers and potential customers.
Strengthen our design capability We believe our ability to create new product designs and develop innovative production techniques in response to market trends and customers’ preference contributes to the success of our products. In light of the global market trend to offer diversified jewellery products in terms of purposes and price position to capture more market demand, we have been offering customers with a wide range of products with appealing designs at affordable prices, made with various kinds of precious metals and diamonds and gem stones with various specifications to cater for a wider bandwidth of market demand. Our design team currently produces design graphics in manuscript and/or computer graphics. We plan to apply more resources on product development and design as follows to further strengthen our design capability: •
conduct researches on the latest fashion trend on both apparels and accessories as we believe the trend of our products goes with those of the apparels;
•
invest in additional software and hardware for graphic design; and
•
employ more jewellery designers who master computer designs. – 105 –
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BUSINESS We trust that enhancing our computer design capability helps us work out designs more meticulously and effectively. We will continue to strive for having design patents registered in addition to our “Diamonds in Snowflake” (冰花鑽) design patent. We believe striving for such an edge would lead us towards becoming a fashion leader in the fine jewellery market. Continue to strengthen our sales and operating capabilities by enhancing our ERP system Our operation, from acceptance of purchase orders to production and delivery of final products, are maintained and monitored through our ERP system. The sales data stored in our ERP system will assist our sales and marketing team in analysing sales trends of our products, which in turn will assist our management in formulating suitable business plans to capture market opportunities. To better support our future business expansion, we plan to upgrade our centralized ERP system over the next three years to further enhance our operating efficiency. These upgrades are aimed to enhance the management of our customer database and sales and marketing activities, thereby enabling us to offer better services to our customers and strengthen our business relationships with them, and enabling us to enhance the accuracy and efficiency of our production plan, reduce production lead time and improve our product development cycle. The upgrades will also allow us to perform real-time management of our financial data and enhance our cost management, reduce logistical bottlenecks as well as enhance our supply chain management. OUR BUSINESS MODEL As an export oriented fine jewellery manufacturer and wholesaler, we strive to achieve long-term success and distinguish ourselves from our peers by promoting a business model that encompasses not only production capability, quality craftsmanship and design capability, but also synergistic, value-added services we view as collaborating efforts with our customers to promote their end consumer sales. To be able to constantly generate new, trendy jewellery design ideas and sample products to capture customer demands and sales orders, we conduct research on market and design trend and produce sample jewellery products from time to time. We showcase our sample products at large-scale international and local exhibitions and expositions to introduce and demonstrate to potential customers our capability in terms of designs, diamond and gem stone setting skills and quality. We also hold meetings with our major customers from time to time to present our new product designs and exchange design ideas. Customers may order jewelleries with our readily available designs or request customized designs or modifications based on our original designs.
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BUSINESS For selected customers which require tailored jewellery series and our value-added services, we share our observation on market trend, conduct discussions and interactive sessions with them to come up with ideas and proposals covering product series themes and story-lines, product designs in sets/series, product positioning, product showcasing and product launch strategies. We also pay visits to the points of sales of certain of our key customers that operate their own branded retail chains to gauge end consumer responses to our products, and to observe their store and product layout designs to formulate advice for these customers on their retail showcase strategies. We strive to collaborate with our customers to enhance overall consumer appeal of their jewellery products and promote stronger retail sales. Our sales and marketing team communicates with our production planning and material control team from time to time on available production capacity and production lead time to ensure customers’ orders and the required delivery schedules are met. We typically provide product samples or prototypes for our customers’ confirmation before proceeding with mass production. Occasionally, we provide processing services for customers by reprocessing their obsolete jewellery products into new ones or use diamonds provided by our customers in producing jewellery products for them. During the Track Record Period, sales were conducted by our Hong Kong subsidiary and recognized in Hong Kong. When KTL Jewellery Trading received a purchase order, it would channel the purchase order to KTL (Guangzhou) for production and KTL (Guangzhou) would receive processing fees from KTL Jewellery Trading for the processing services. Finished products for overseas customers were delivered by KTL (Guangzhou) to KTL Jewellery Trading for onward sales and export to overseas customers. Products sold within PRC were sold by Guangzhou KTL. PRODUCTS We offer a wide range of fine jewellery products in karat gold, including rings, earrings, pendants, necklaces, bracelets, bangles, cufflinks, brooches and anklets. Our products are generally priced on a cost-plus basis and vary depending on factors including our estimated cost of materials such as diamonds, gold and gem stones (which, particularly for diamonds and gold, are affected by market prices from time to time), our estimated production and labor costs (which vary depending on the complexity of design and craftsmanship), the required production lead time, our then production capacity, and our expected margins. For the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014, the average wholesale price of our products was approximately HK$1,359, HK$1,245, HK$1,231 and HK$1,133 per piece respectively.
– 107 –
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BUSINESS The following table sets out the breakdown of our revenue and percentage of our total revenue by product types for the periods indicated: Year ended 31 March
Ring . . . . . Earrings. . . . Pendant . . . . Necklace . . . Bracelet/bangle. Other gold fine jewelleries(1). Silver jewellery/ watch(2) . .
Three months ended 30 June
2012
2013
2014
2013
2014
Percentage of total Revenue revenue
Percentage of total Revenue revenue
Percentage of total Revenue revenue
Percentage of total Revenue revenue
Percentage of total Revenue revenue
HK$’000
(%)
HK$’000
(%)
HK$’000
(%)
HK$’000
(%)
HK$’000
(%)
444,403 407,125 170,255 40,850 47,542
39.9 36.5 15.3 3.6 4.3
604,648 525,034 220,159 45,246 35,914
42.2 36.6 15.3 3.2 2.5
553,774 477,292 221,611 40,642 47,293
41.1 35.5 16.5 3.0 3.5
199,450 191,373 64,995 12,082 13,436
41.3 39.6 13.5 2.5 2.8
156,127 122,802 44,677 8,229 11,756
45.3 35.6 13.0 2.4 3.4
4,539
0.4
3,363
0.2
5,210
0.4
1,361
0.3
977
0.2
–
–
–
–
–
–
−
−
246
0.1
100.0 1,345,822
100.0
482,697
100.0
344,814
100.0
Total . . . . . 1,114,714
100.0 1,434,364
Notes: (1)
Other gold fine jewelleries include cufflink, brooch and anklet etc.
(2)
Since April 2014, we commenced trading of watches, silver jewelleries and non-precious metal (such as ceramic and steel) jewelleries with or without semi-precious and artificial stones as an ancillary product type to satisfy customers’ requests.
The following table sets out the average wholesale price and sales volume by product types for the periods indicated: Year ended 31 March 2012
Three months ended 30 June
2013
2014
2013
2014
Average Average Average Average Average Wholesale Wholesale Wholesale Wholesale Wholesale Quantity price Quantity price Quantity price Quantity price Quantity price (piece)
(HK$)
(piece)
(HK$)
(piece)
(HK$)
(piece)
(HK$)
(piece)
(HK$)
Ring . . . . . 321,557 Earrings. . . . 273,076 Pendant . . . . 184,084 Bracelet/Bangle. 14,761 Necklace . . . 25,084 Other gold fine 1,782 jewelleries(1). Silver jewellery/ – Watch(2) . .
1,382 1,491 925 3,221 1,629
474,928 357,747 272,204 13,437 31,912
1,273 1,468 809 2,673 1,418
465,807 333,882 242,744 15,960 31,958
1,189 1,430 913 2,963 1,272
148,050 125,914 78,886 4,271 9,262
1,347 1,520 824 3,146 1,304
135,977 97,834 54,477 3,694 7,387
1,148 1,255 820 3,183 1,114
2,547
2,192
1,534
2,779
1,875
1,042
1,305
501
1,945
–
–
–
–
–
–
–
4,410
56
Total . . . . .
1,359 1,152,420
1,245 1,093,130
1,231
367,425
1,314
304,280
1,133
820,344
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BUSINESS We offer a wide range of fine jewellery products in karat gold, including rings, earrings, pendants, necklaces, bracelets, bangles, cufflinks, brooches and anklets. Below are some of the products that we offer: Ring
Ring set with diamonds in 14 karat white gold
Ring set with diamonds in 14 karat rose/yellow gold
Ring set with ruby and diamonds in 14 karat rose gold
Earrings
Earrings set with smoky quartz and brown diamonds, diamonds in 14 karat white gold
Earrings set with black and white diamonds in 14 karat rose gold
Earring set with sapphire and diamonds in 14 karat white gold
Earring set with ruby and diamonds in 14 karat rose gold
Necklace and pendant
Pendant set with blue topaz, smoky quartz, garnet and brown diamonds, treated green diamonds, diamonds in 14 karat yellow gold
Pendant set with smoky quartz and brown diamonds in 14 karat white gold
Bracelet/bangle
Bangle set with black and white diamonds in 14 karat rose gold
Pendant set with diamonds in 14 karat white gold
Others
Bangle set with black and white diamonds in 14 karat white gold
Bangle set with diamonds in 14 karat rose gold
– 109 –
Brooch set with diamonds in 14 karat white gold
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BUSINESS DESIGN AND CRAFTSMANSHIP We believe that the success of our products vests in our ability to continuously create and produce appealing designs referencing changing market trend and customer preferences, and develop innovative production techniques to facilitate quantity production of products bearing our variety of designs. As at the Latest Practicable Date, our design team comprises a total of about 79 staff, including about 24 designers and about 55 craftsmen, who together are responsible for product design and production technique development. We encourage our staff to attend courses and workshops to strengthen their knowledge on fine jewellery design and production. We constantly study changes in the fashion industry and the general consumer market for quick responses to new trends and participate actively in jewellery design competitions. Our designers conduct research on trends, formulate product theme and create designs in the form of sketches and graphics. They work closely with our craftsmen who provide inputs on the choices and specifications of raw materials used including types, quantity, size and colour, as well as the production techniques and craftsmanship to be adopted to achieve the desirable light reflections and appeal to materialise the designs in the form of prototypes, all the while taking into consideration the corresponding costs of raw materials and production to ensure we produce appealing products with maximum cost efficiency. Unless otherwise agreed with our customers, we generally own the intellectual property rights in the design that we create for the production of our products. Our designers and craftsmen have received important recognitions for their skills and techniques in fine jewellery craftsmanship. Below are the major accreditations received by them:
Time of issue
Name
Years of serving our Group
February 2012
Li Chunhua (李春華)
February 2012
Wang Liang (王良)
Accreditation
Issuing body
Over 12 years since 2002
Guangdong Province Jewellery and Jade Industry Expert Technician Fugleman (廣東省珠寶玉石首飾行 業崗位技術能手標兵)
Guangdong Province Jewellery and Jade Industry Association (廣東省珠寶玉石首飾行 業協會)
Over 7 years since 2006
Guangdong Province Jewellery and Jade Industry Expert Technician Fugleman (廣東省珠寶玉石首飾行 業崗位技術能手標兵)
Guangdong Province Jewellery and Jade Industry Association (廣東省珠寶玉石首飾行 業協會)
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BUSINESS Years of serving our Group
Accreditation
Issuing body
Over 13 years since 2000
Jewellery Design Senior Technician (珠寶設計高級技師)
Guangzhou Municipal Human Resources and Social Security Bureau (廣州市人力資源和社會 保障局)
Li Hui (李慧)
See above
Guangzhou Expert Technician (廣州市技術能手)
Guangzhou Municipal Human Resources and Social Security Bureau (廣州市人力資源和社會 保障局)
October 2013
Zhu Yubin (朱旭斌)
Over 6 years since 2008
Jewellery Design Senior Technician (珠寶設計高級技師)
Guangzhou Municipal Human Resources and Social Security Bureau (廣州市人力資源和社會 保障局)
December 2013
Zhu Yubin (朱旭斌)
See above
Guangzhou Expert Technician (廣州市技術能手)
Guangzhou Municipal Human Resources and Social Security Bureau (廣州市人力資源和社會 保障局)
Time of issue
Name
October 2013
Li Hui (李慧)
December 2013
Our designers conduct design and market research through various sources including industrial magazines and internet and participate in design competitions to gather inspirations worldwide and monitor the latest fine jewellery product trends. They also work with our sales and marketing team and management team to analyze past sales performance and customers feedback to create design concepts. We utilise and mix and match various materials including karat gold, diamonds, gem stones, pearls, crystals and semi-precious stones in order to provide a wide variety of product designs that match with the evolving fashion trends and the preferences of customers. According to the IPSOS Report, the boundaries between fine jewellery products and fashion jewellery products are becoming less clear. We believe that new products of more fashionforward designs at more affordable prices would be more appealing to younger consumers and that a diversified product range can cater for a wider bandwidth of market demand. In this regard, we have been offering a variety of products with appealing designs at affordable prices with an aim to capture more market demand.
– 111 –
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BUSINESS Our designs are well-recognized by industry associations and well-received by our customers in various regions around the globe. Over the years, we have won various design awards including: Year
Award
Issuing body
2011
Hong Kong Buyers’ Most Favourable Jewellery Design Competition – Silver Prize of Free Style
Hong Kong Jewellery Manufacturers’ Association
2011
Hong Kong Buyers’ Most Favourable Jewellery Design Competition – Bronze Prize of Free Style
Hong Kong Jewellery Manufacturers’ Association
2011
Hong Kong Buyers’ Most Favourable Jewellery Design Competition – Silver Prize of Pendant and brooch
Hong Kong Jewellery Manufacturers’ Association
2011
Hong Kong Buyers’ Most Favourable Jewellery Design Competition – Bronze Prize of Pendant and brooch
Hong Kong Jewellery Manufacturers’ Association
2012
Hong Kong Buyers’ Most favourable Jewellery Design Competition – Bronze Prize of Rings
Hong Kong Jewellery Manufacturers’ Association
For the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014, our design expenses amounted to approximately HK$43.8 million, HK$36.3 million, HK$27.3 million and HK$5.9 million respectively, comprising principally staff costs and relevant administrative, selling and distribution expenses which were recorded in our combined income statements as part of our costs of sales, administrative expenses and selling and distribution expenses.
– 112 –
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BUSINESS Our patented design “Diamonds in Snowflake” (冰花鑽) “Diamonds in Snowflake” (冰花鑽) is one of our designs that we take pride in. Inspired by the brilliance of an art-piece of snowflake, “Diamonds in Snowflake” (冰花鑽) is an innovative stone-setting technique involving the setting of diamonds in multiple layers. The round-shaped setting used in the setting technique consists of two inward-tilted layers of diamonds. Parts of the setting between the surrounding diamonds set in the outer area are hand carved to create reflection of light, thereby enlarging the area of reflection of light and creating an appearance of one single diamond with larger table size.
Luci di Gala series Series products which applied our patented design “Diamonds in Snowflake” (冰花鑽)
Our “Diamonds in Snowflake” (冰花鑽) design has been granted with design patent by the Patents Registry of the Intellectual Property Department of Hong Kong and the State Intellectual Property Office of the PRC in February 2012 and January 2013 respectively. For details of the relevant patent and other intellectual property rights of our Group, please refer the subsection headed “Appendix V – Statutory and General Information – B. Further information about the business of our Group – 2. Intellectual property rights of our Group” in this [REDACTED].
– 113 –
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BUSINESS SALES AND MARKETING We are primarily engaged in manufacturing and exporting fine jewelleries to jewellery wholesalers and retailers mainly in Russia, Americas, other European countries and increasingly so in recent years, the PRC. We started our business in 1990 with an initial customer network mainly in the United States and Italy, and made a strategic move to tapped into the Russia fine jewellery market in 2006. Since then our geographical coverage has continued to expand and now covers customers around the globe including Russia, Americas, other European countries, the PRC and the Middle East. The table below sets out a breakdown of our revenue by geographical locations of our customers for the periods indicated: Year ended 31 March
Countries/ Territories
Russia . . . . Americas . . . Europe (other than Russia) . . . PRC . . . . . Middle East . . Others . . . .
Three months ended 30 June
2012
2013
2014
2013
2014
Percentage of total Revenue revenue
Percentage of total Revenue revenue
Percentage of total Revenue revenue
Percentage of total Revenue revenue
Percentage of total Revenue revenue
HK$’000
(%)
HK$’000
(%)
HK$’000
(%)
HK$’000
(%)
HK$’000
(%)
634,938 234,126
57.0 21.0
989,174 220,993
69.0 15.4
838,056 283,866
62.3 21.1
360,740 75,364
74.7 15.6
208,784 74,678
60.6 21.7
115,585 43,851 51,650 34,564
10.4 3.9 4.6 3.1
89,325 64,766 43,620 26,486
6.2 4.5 3.0 1.9
74,038 84,315 23,377 42,170
5.5 6.3 1.7 3.1
12,320 16,982 12,034 5,257
2.6 3.5 2.5 1.1
22,217 24,247 2,506 12,382
6.4 7.0 0.7 3.6
100.0 1,345,822
100.0
482,697
100.0
344,814
100.0
Total . . . . . 1,114,714
100.0 1,434,364
Notes: (1) (2) (3) (4)
Americas mainly includes the United States and Canada. Europe (other than Russia) mainly includes Italy, France, Holland and Turkey. Middle East mainly includes United Arab Emirates. Others mainly include Hong Kong, Indonesia, Japan and Africa.
Our sales and marketing team comprises over 70 employees who are organised into various cell groups targeting and serving customers in various jurisdictions. Sales leads are generally generated from our marketing activities and participations in major international and local jewellery trade exhibitions or expositions, including the JCK Show in the United States, Choice, Charm and Ente Fiera de Vicenza in Italy, BaselWorld in Switzerland, and Hong Kong Jewellery & Gem Fair and Hong Kong International Jewellery Show in Hong Kong. In addition to typical sales services, our sales and marketing team participates in exhibitions around the world from time to time, exchanges ideas with selected potential and existing customers and collaborate with them on areas such as product series theme creation, product design and development. Senior officers of our sales and marketing team also pay visits to the points of sales of certain of our key customers that operate their own branded retail chains to gauge end consumer responses to our products, and to observe their points of sales and product layout designs to formulate advice for these customers on their retail showcase strategies. – 114 –
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BUSINESS Below is a picture of a recent exhibition that we participated in:
Hong Kong Jewellery & Gem Fair (Hong Kong), 2014
In order to enhance market awareness of our fine jewellery products and to increase their exposure to new customers, we also place advertisements on industrial magazines and trade exhibition booklets. Our customers Our customers are mainly wholesalers and retailers of jewellery products. Our five largest customers had maintained three to 12 years of business relationship with our Group. For the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014, sales to our five largest customers amounted to approximately HK$713.1 million, HK$1,091.6 million, HK$1,062.7 million and HK$271.1 million and accounted for approximately 64.0%, 76.1%, 79.0% and 78.6% of our total sales, respectively. Sales to our largest customer amounted to approximately HK$447.8 million, HK$724.6 million, HK$566.4 million and HK$160.1 million and accounted for approximately 40.2%, 50.5%, 42.1% and 46.4% of our total sales, respectively for the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014, respectively. Our five largest customers for the year ended 31 March 2014 included three Russia based retailers and wholesalers who operate branded chain stores in Russia selling jewellery products, a wholesaler in the United States which sells its products to local chain stores and a retailer with jewellery chain stores in PRC and Hong Kong. For the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014 respectively, sales to these three Russian customers amounted to approximately HK$603.9 million, HK$970.2 million, HK$829.2 million and HK$202.7 million, representing approximately 54.2%, 67.6%, 61.6% and 58.8% of our total sales. During the Track Record Period, we typically received 20% to 30% deposits upfront for every sales order from these three Russian customers, and entered into a without recourse factoring arrangement with banks in a range of 60% to 90% for the remaining invoice value of these three customers. – 115 –
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BUSINESS For details of risks relating to the geographical concentration of our sales, reliance on our largest customer and certain practices of our customers in Russia, please refer to the section headed “Risk Factors” in this [REDACTED]. To the best knowledge of our Directors, none of our Directors and their respective associates or any of the Shareholders holding more than 5% of our Company’s share capital as of the Latest Practicable Date has any interest in any of our five largest customers during the Track Record Period. Agreements relating to sales During the Track Record Period, we had entered into some legally binding framework agreements and incentive arrangements with some of our customers, the salient terms of which are summarised below. Framework agreement with a customer in Russia Date of agreement:
13 May 2014
Term:
1 April 2014 to 31 March 2015, subject to termination or renewal pursuant to the terms of the agreement.
Main provisions and minimum purchase amount:
Subject to the availability of our products, we will supply to the customer and the customer will purchase from us fine jewellery products of a minimum purchase amount of US$81 million with an estimated quantity of 850,000 pieces in the period from 1 April 2014 to 31 March 2015. Specific terms including price, payment, packaging and delivery are to be separately agreed in writing.
Intellectual property rights:
The intellectual property rights in the fine jewellery products including samples, designs, recommendations, specifications, drawings, technical data, sketches and information shall be our property and the customer undertakes not to use or infringe or allow any use or infringement of such intellectual property rights.
Exclusivity:
Subject to specific terms of the sale and purchase of the fine jewellery products, we grant to the customer the right to sell and distribute fine jewellery products supplied by us in Russia exclusively.
– 116 –
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BUSINESS Termination clause:
The agreement may be terminated by any party by giving 30 days prior written notice to other party if the other party commits a material breach of the agreement that cannot be cured or has cause irreparable harm to the non-breaching party.
Remarks:
The agreement is legally binding. There is no clause relating to price adjustment provision, sales return, volume discounts or product guarantee.
Framework agreement with a customer in the United States Date of agreement:
6 March 2014
Term:
1 April 2014 to 31 March 2015, subject to termination or renewal pursuant to the terms of the agreement.
Main provisions and minimum purchase amount:
Subject to the availability of our products, we will supply to the customer and the customer will purchase from us fine jewellery products of a minimum amount of US$35 million with an estimated quantity of 150,000 pieces in the period from 1 April 2014 to 31 March 2015. Specific terms including price, payment, packaging and delivery are to be separately agreed in writing.
Intellectual property rights:
The intellectual property rights in the fine jewellery products including samples, designs, recommendations, specifications, drawings, technical data, sketches and information shall be our property and the customer undertakes not to use or infringe or allow any use or infringement of such intellectual property rights.
Exclusivity:
We grant to the customer the right to sell and distribute fine jewellery products to be designated by us and the customer in the United States exclusively.
Termination clause:
The agreement may be terminated by any party by giving 30 days prior written notice to other party if the other party commits a material breach of the agreement that cannot be cured or has cause irreparable harm to the non-breaching party.
Remarks:
The agreement is legally binding. There is no clause relating to price adjustment provision, sales return, volume discounts or product guarantee.
– 117 –
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BUSINESS Framework agreement with a customer in Europe Date of agreement:
23 June 2014
Term:
1 January 2014 to 31 December 2014 or up to 27 February 2015 subject to the parties’ agreement.
Main provisions:
We supply selected jewellery products upon receipt of purchase order at pre-determined prices of the jewellery products (except which the gold rate is to be fixed within 1 business day from the date of the purchase order).
Place and terms of delivery:
Products are delivered at costs, insurance and freight (CIF). Liability for the goods shall not be transferred until delivery is accepted.
Sales return:
Unsold products of up to a prescribed percentage of the total turnover of sales may be returned to us during the term of the agreement.
Quality guarantee:
All defective products can be returned to us within two years of the date of invoice.
Return of sold products:
Products that had been sold and became defective as a result of misuse may be returned to us, for credit notes at a reduction rate of 50% of the purchase amount, within two years from the date of invoice.
Payment term:
Payments shall be made within 90 days from the end of the month of the invoice date by bank transfer.
Volume discounts:
If annual purchase amount reaches a prescribed amount, scale discounts will be provided calculated based on the total purchase amounts (excluding sales returns).
Termination clause:
The agreement may be terminated upon mutual agreement between the parties.
Remarks:
The agreement is legally binding. There is no clause relating to sales target, price adjustment provision or minimum purchase amount.
– 118 –
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BUSINESS The captioned customer was one of our 10 largest customers for the years ended 31 March 2013 and 2014 and the three months ended 30 June 2014, contributing approximately 1.5%, 3.1% and 3.8%, respectively of our total revenue for the relevant periods. As at the Latest Practicable Date, no unsold non-defective product or sold misused product had been returned to us under the above framework agreement. Our policy relating to framework agreements From time to time we may enter into framework agreements with selected customers with strategic values to us, as we consider appropriate, with the aim of forging closer and long-term business relationships. Terms of such framework agreements are typically negotiated on normal commercial terms on a case by case basis taking into factors including the scale of business, sales network, historical purchase amounts, creditworthiness, brand image and business prospects of the relevant customer or potential customer. Incentive arrangements In addition to framework agreements, from time to time we also enter into incentive arrangements with selected customers with strategic values to us to provide incentive rebates, generally calculated based on the total invoice amount, for volume orders exceeding some prescribed amount within a specified period. In the event the relevant customer has any overdue trade receivables owed to us, payment of rebates will only be made after setting off the overdue balance. Such incentive arrangements are typically negotiated on normal commercial terms taking into factors such as the customer’s strategic values to us, its scale of operation and sales growth potential, and are considered on a case-by-case basis. Pricing policy We generally maintain our diamond inventory at aggregate dollar value of approximately HK$50 million to HK$60 million, roughly approximating to the dollar value of two to three months worth of production consumption. We only order gold after the corresponding sales orders are confirmed, as prices of gold exhibited considerable fluctuations in the past. The purchase price of our gold is set by reference to the prevailing market prices at TLGMFL (for gold purchased in Hong Kong) and the Shanghai Gold Exchange (for gold purchase in the PRC). We price our products generally on a cost-plus basis taking into account, among other factors, our estimated cost of materials such as diamonds, gold and gem stones (which, particularly for diamonds and gold, are affected by market prices from time to time), our estimated production and labor costs (which vary depending on the complexity of design and craftsmanship), the required production lead time, our then production capacity, and our expected margins. Credit control policy We adopt a closely monitored credit control policy on our trade receivables. Credit checks are typically conducted before accepting a new customer, and we normally do not grant credit terms to new customers and would request for 30% deposit and payment of remaining balance before delivery. – 119 –
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BUSINESS For existing customers, we generally grant credit terms ranging from 90 days to 120 days, some with a 30% deposit payable within 10 days by telegraphic transfer after a purchase order is confirmed or before delivery. We also set credit limits for customers whom we grant credit terms, which are reviewed on a semi-annual basis by our sales team and our finance team or when our sales team or finance team considers appropriate. Credit terms and credit limit vary on a case-by-case basis depending on our business relationship with and the creditworthiness of the relevant customers. Upon receipt of an order from a customer, our finance team would monitor the credit limit utilized by the customer. Before delivery of the products, we would confirm internally with our finance team that the outstanding credit is within the credit limit of the relevant customer. Approval from both of our finance manager and sales manager must be obtained if the outstanding credit exceeds the relevant credit limit. We periodically assess impairment of our trade receivables based on our analysis of collectability and aging status of the receivables. In determining whether impairment is required, we take into account the aging and recoverability of the trade receivables. As at 31 March 2012, 2013 and 2014 and 30 June 2014, provisions for impaired trade receivables were approximately HK$0.9 million, HK$0.9 million, HK$7.4 million and HK$7.4 million, respectively, which mainly related to customers who were in unexpected financial difficulties and only a portion of the trade receivables was expected to be recovered. Sales recognition and return policy We sell our products on an outright basis, and recognize our sales upon delivery of the products. Generally, products sold can only be returned if our products are defective or do not meet our customers’ specification. If our customers request for sales returns, the products will be delivered back to us. Our quality control team will check on the quality of the products and confirm if the returned products are defective or fail to meet customers’ specifications as a result of our default. Some products may be repaired and re-delivered to our customers. If the products cannot be repaired, replacement products will be delivered to our customers to the extent possible. We generally do not provide after-sales product guarantee. However, occasionally we may, upon request by customers and considered by us on a case-by-case basis at our discretion, agree to provide product guarantee for after-sales products. During the Track Record Period, we only had one occasion whereby we agreed to offer after-sales product guarantee and sales return for unsold, non-defective products up to a prescribed percentage of total sales as well as sales return for misused sold products for a period of two years to one of our customers in Europe. As at the Latest Practicable Date, no unsold non-defective product or misused sold product had been returned to us under the said arrangement. Please refer to the subsection headed “Business – Sales and Marketing – Agreements relating to sales – Framework agreement with a customer in Europe” for details. For the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014, our costs for repairing defective products were approximately HK$105,000, HK$95,000, HK$106,000 and HK$20,000 respectively, and we recorded sales returns for defective products totalling approximately HK$3.8 million, HK$2.9 million, HK$4.7 million and HK$0.3 million respectively. – 120 –
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BUSINESS Seasonality The traditional peak season for sales of jewellery products to customers is between September and March. This may be due to an increase in demand for jewellery products by jewellery chain stores or other retailers in preparation for sale of jewelleries on or around Thanksgiving, Christmas, New Year, Valentine’s Day and particularly for Russia, the Women’s Day. Our revenue during the Track Record Period did not accord much to such pattern, but rather fluctuated according to the timing of order placements from our major customers. PRODUCTION Our production facilities are strategically located in Panyu, Guangdong Province of the PRC, one of the major bases of fine jewellery manufacturing in the PRC which offers us the advantages of having convenient access to skilled labors and ancillary materials for the production of our products. Production process Generally, the production process of our fine jewellery products involves wax injection and setting, gold casting, filing, stone matching, stone setting, polishing, electroplating, quality control and assurance and packaging. The following diagram illustrates the general production process of our fine jewellery products: Design and mould making
Procurement of and inspection on raw materials
Sales order QC √
Wax injection and setting
QC X
Gold casting Repair Team QC √
Filing QC X
Repair Team QC √ QC X
Stone setting
Repair Team QC √ QC X
Polishing
QC √ QC X
Electroplating
QC √ QC X
Quality control and assurance
Repair Team
Repair Team
Repair Team Packaging QC √
Delivery
Note:
QC means quality control.
– 121 –
Stone matching
Supplier QC X
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BUSINESS Design and mould making Designs are created using computer aided design software in form of computer sketches which are then processed into wax masterpieces using laser wax prototype making machine. A silver masterpiece is created by using a wax masterpiece through the mould making process, which is then refined by goldsmiths to create a refined silver masterpiece. Once a refined silver masterpiece has been created, rubber sheets are pressed against the refined silver masterpiece and melted at a high temperature to form a master rubber mould which, once cooled, is cut lengthwise into halves to retrieve the refined silver masterpiece, leaving behind a cavity which is a replica of the refined silver masterpiece. Purchase of and inspection on raw materials We check our raw material inventory upon receiving a confirmed sales order and purchase raw materials based on the specifications of the sales order if necessary. We inspect the raw materials that we purchase to ensure they fulfil the specifications of the sales order and our quality standard. Raw materials that failed to meet our specification and quality standard would be returned to the suppliers. For details regarding our purchase of raw materials, please refer to the subsection headed “Business – Raw materials and suppliers” in this [REDACTED]. Wax injection and setting Once a sales order is confirmed, we commence mass production by creating wax moulds. To create a wax mould, wax is injected into a master rubber mould and let cooled. The wax moulds are then attached to a main wax stem on a wax tree. The wax tree is placed in a flask and liquid plaster is then poured into the flask. A vacuuming machine is used to remove air bubbles in the plaster. The flask is then placed into a furnace to melt the wax in it and leaves behind a hardened plaster mould, the cavities of which are in the shape of the masterpieces, connected together by a hollow stem. Stone matching Diamonds and gem stones (collectively referred to as stones) are manually sorted into various groups based on their characteristics such as size/weight, colour, clarity, quality, shape, etc. and are matched with and assigned to each order based on the specification of the order. The process of stone matching is performed again after the gold casting process whereby gold settings have been produced to ensure stones have been correctly matched and assigned. Gold casting The cavities in the plaster are filled with melted karat gold via the hollow stem. Once casting is completed, the plaster mould is removed and the karat gold jewellery settings are cut from the gold tree. Filing Gold jewellery settings are filed to ensure smooth surface and refined shapes. – 122 –
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BUSINESS Stone setting Stones such as diamonds, gem stones, pearls, etc. are securely set into gold jewellery settings. Polishing Stone-set jewellery products are polished to ensure a smooth and shiny surface. Electroplating Polished stone-set jewellery products are electroplated with gold to give a shiny appearance. Quality control and assurance Quality control and assurance inspection is performed at various steps of the production process and at the final stage to ensure each jewellery product meets our specifications and quality standard. Any item which failed to meet our specifications and quality standard would be sent back to our production team to repair before it enters into the next step of the production process and before it is packed for delivery to our customers. Packaging Jewellery products which have passed our quality control and assurance inspection are packed in accordance with our customers’ packaging requirement. Production facilities and capacity We manufactured our products at our production facilities in Panyu, Guangdong Province, the PRC. Below are the details of our production facilities during the Track Record Period: Gross floor area (square meters)
Facilities
Location
Yinping Premises . . . . . . . . . .
No. 1 Yinping Road, Shatou Street, Panyu District, Guangzhou City, the PRC
11,973.83
Units 701 and 702, 7/F, No. 17 Yinping Road, Shatou Street, Panyu District, Guangzhou City, the PRC (leased units used during the Track Record Period and up to May 2014)
2,026.4
– 123 –
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BUSINESS We consider our production process, and generally production of fine jewellery products, to be manpower intensive and relies on craftsmanship and skills. Therefore we are of the view that the availability of skilled labor for certain critical production steps and the capacity of our production premises to house such skilled labor very much determine our overall production capacity. We believe stone processing, a production step which relies very much on the experience and accumulated skill-sets of labor, has been the bottleneck of our overall production process and accordingly defines our production capacity during the Track Record Period. The following table sets out the estimated production capacity and utilization rate of our production facilities during the Track Record Period:
Year ended 31 March 2012 . Year ended 31 March 2013 . Year ended 31 March 2014 . Three months ended 30 June
. . . . . . . . . . . . 2014
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
Total actual output (Note 1)
Estimated maximum output (Note 2)
Piece
Piece
746,532 1,316,671 1,028,479 221,088
961,344 1,365,600 1,150,899 240,613
Utilization rate (Note 3)
77.7% 96.4% 89.4% 91.9%
Notes: (1)
The total actual output refers to the total number of products that our Group actually produced in the period as stated.
(2)
The estimated maximum output is based on, among other things, the actual number of stone processing workers that our production premises housed in each month, and the assumptions that (i) our production operations were carried on eight hours a day and 22 working days a month plus 22 hours overtime a month (except in the month of Chinese New Year in which production operations were carried on 17 working days); and (ii) each of our stone processing workers could handle 8 pieces of product per hour notwithstanding variation in stone types, colours, sizes and the number of stone materials used in different product.
(3)
Utilization rate equals to the total actual output divided by the estimated maximum output.
Fine jewellery production is labour intensive and our production capacity highly depends on the number of hours that our staff works and the number of staff that we employ. Taking into account that we have sufficient space and machineries in our Yinping Premises, our Directors believe we would be able to increase our production capacity by allocating more overtime works among our existing staff and/or hiring additional staff to meet any potential substantial increase in sales orders in the foreseeable future. Subcontracting We engage subcontractors to handle certain steps of our production process such as mould making, gold casting, filing, stone setting, polishing and electroplating, for better production schedule management, resource utilization and cost efficiency purposes, particularly in case of urgent orders from customers. These subcontractors are Independent Third Parties and are production houses typically with jewellery manufacturing facilities in Panyu, the PRC that are situated within reasonable proximity to our Yinping Premises. The use of subcontractors and the specific step(s) of production to be outsourced are determined by our management on a case-by-case basis with respect to each sales order, taking into account the corresponding production schedule, our then spared production capacity and cost efficiency. The subcontracting – 124 –
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BUSINESS fees are determined on a case-by-case basis, taking into account the complexity of the production steps, delivery time and the quantity of the order. Once subcontractors are engaged, raw materials and/or semi-finished products were provided by us to subcontractors for processing and finished products would be sent back to our production facilities for quality control check. Finished products which fail to pass our quality control check would be sent back to the subcontractors for repair. As at the Latest Practicable Date, we have five subcontractors, which had maintained business relationships with our Group from five to 12 years. For the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014, processing fees incurred amounted to approximately HK$42.8 million, HK$68.0 million, HK$66.4 million and HK$13.4 million, representing approximately 4.9%, 5.8%, 6.0% and 4.9% of our total costs of sales, respectively. We generally select subcontractors based on the quality of their craftsmanship, their processing fees, their ability to meet our delivery requirements and our past dealings with them. To maintain flexibility, we do not enter into long-term agreements with our subcontractors and we place orders with them on an order-by-order basis. QUALITY CONTROL We place strong emphasis on quality control and assurance. We have implemented stringent quality control and assurance procedures which is carried out by our quality control team in various aspects of our operation. Quality control team As at the Latest Practicable Date, our quality control team comprised about 43 staff who are responsible for (i) inspecting raw materials and components before such materials and component are accepted for use; (ii) performing sample tests at various stages of the production process to ensure that the quality of our products are of high standard; and (iii) inspecting finished products to ensure they meet the specifications of the orders and the quality requirements. Quality control over raw materials, production process and finished products We have a comprehensive set of inspection system to ensure the quality of raw materials that we procure. Based on the ISO 9001: 2008 quality management system standard, we perform regular assessment on selected suppliers in respect of the quality of raw materials, time of delivery and services. If we find any non-compliance in the raw materials supplied by a supplier, the credit scores of such supplier in the record maintained by us will be deducted. If the credit scores of any supplier fall short of our minimum requirements, such supplier will be rejected and will cease to be our Group’s qualified supplier.
– 125 –
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BUSINESS Our quality control team works closely with our procurement team and stone matching team for the procurement of raw materials such as diamonds, gem stones and pearls. All incoming raw materials are subject to inspection by our quality control team to ensure these raw materials match our Group and our customers’ requirements and specifications before we confirm orders with our suppliers and before such raw materials enter into the production process. Our quality control team also performs quality inspection at various stages of the production process. Defective work-in-progress is either rejected or subject to repair and refinement before entering into the next stage of the production process. To ensure that all finished products meet our Group’s quality standards and our customers’ requirements and specifications, our quality control team conducts a full quality check on every piece of the finished products before they are delivered to our customers. For further details of our quality control in the production process, please refer to the paragraphs headed “Production – Production process” in this section of the [REDACTED]. We have enacted an internal quality standard, which specifies the standards for our products and a specialized inspection standard for certain key customers and provides guidance for our quality control team for carrying out their works. We conduct internal assessment on our quality control system periodically. If requested by our customers, we would send our finished products to be sold in the PRC for inspections and certification by National Gemstone Testing Centre (國家珠寶玉石質量監督檢驗中心). Quality control over subcontracted production steps To ensure the quality of subcontracted production steps, we require our subcontractors to adopt our Group’s quality control standards and procedures. Our quality control team visits the production premises of the subcontractors and communicates with the subcontractors regularly to supervise their production quality. Products processed by our subcontractors are subject to inspection by our quality control team. Any unsatisfactory products would be returned to the subcontractors for repair. INVENTORY CONTROL Our inventory comprises raw materials, work-in-progress and finished products. We have in place a robust security system to safeguard our inventory, which include vaults, closed circuit television surveillance on our production facilities, insurance coverage and regular stock count. Our vaults in which our inventory is kept can only be accessed by a limited number of senior staff. Passwords and keys to our vaults are kept by two different groups of senior staff.
– 126 –
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BUSINESS Our inventory system is fully computerized. Through this system, each of our inventory item could be tracked and monitored through the lifespan of the item with us. We perform inventory counts on a daily basis. Our management monitors our Group’s inventory level of raw materials and coordinates the transfer of raw materials and finished products between the warehouses in our Hong Kong office and the warehouses in Yinping Premises. Our inventory control procedures generally involve the following: •
each inventory withdrawal must be recorded and justified by the person making the withdrawal and the withdrawer must sign a pre-numbered inventory withdrawal notice to acknowledge receipt of the inventory, which must be witnessed by another staff;
•
at the beginning of each working day, the inventory control team distributes raw materials and work-in-progress to the supervisors of the production workshops and records all distributions;
•
the supervisors of the production workshop then distributes raw materials and work-in-progress to the workers in his/her production workshop and records all distributions;
•
at the end of the working day or when the workers leave the production areas, the workers must return all inventories distributed to him/her to the supervisors of the production workshops who will check against his/her record to ensure the inventories returned matches the particulars stated in the record;
•
the supervisors of the production workshops then return the inventories to the inventory control team who performs inventory check on the returned inventories against its record and performs inventory counts at the end of the working day to ensure the inventories and the records are proper and in order.
Our fine jewellery products are manufactured mainly based on confirmed purchase orders from our customers, therefore we generally do not have a significant amount of obsolete stock. We will produce a small quantity for each design we create but we do not procure gold nor commence mass production until receipt of confirmed purchase orders from our customers. We review our inventory levels of raw materials regularly in order to ensure that the level of raw materials and finished products is maintained at a reasonable and sufficient level to meet the demand of our customers. In respect of diamonds, we generally maintain our diamond inventory at aggregate dollar value of approximately HK$50 million to HK$60 million, roughly approximating to the dollar value of two to three months worth of production consumption. In respect of gold, we generally purchase gold within two business days after receipt of a confirmed purchase order. – 127 –
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BUSINESS RAW MATERIALS AND SUPPLIERS The principal raw materials purchased by our Group are gold, diamonds and gem stones. The table below sets out our purchases of principal raw materials during the Track Record Period: Year ended 31 March Raw materials
2012
Three months ended 30 June
2013
2014
2013
2014
HK$’000
(%)
HK$’000
(%)
HK$’000
(%)
HK$’000
(%)
HK$’000
(%)
. . . . .
441,203 204,056 21,819 2,259 12,020
64.8 29.9 3.2 0.3 1.8
803,283 314.369 49,726 2,620 24,310
67.2 26.3 4.2 0.2 2.1
493,171 245,714 30,113 3,207 15,728
62.6 31.2 3.8 0.4 2.0
100,602 44,840 8,756 997 4,690
62.9 28.0 5.5 0.6 3.0
104,791 77,740 8,447 442 4,159
53.6 39.7 4.3 0.2 2.2
Total . . . . . . .
681,357
100.0
1,194,508
100.0
787,933
100.0
159,885
100.0
195,579
100.0
Gold . . . . Diamonds . Gem stones. Pearls . . . Others . . .
. . . . .
. . . . .
Note: Others include crystals, jade, silver, etc.
Purchase of gold We purchase gold from companies in the precious metals business in Hong Kong and the Shanghai Gold Exchange in the PRC as and when required for production. We do not enter into long-term agreements with our gold suppliers and we generally place orders with our gold suppliers within two business days after receipt of confirmed orders from our customers when required. Our average purchase price of gold was approximately US$1,680 per ounce, US$1,697 per ounce, US$1,354 per ounce and and US$1,308 per ounce for the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014, respectively. The average price of gold in the global market increased from about US$973.0 per ounce in 2009 to about US$1,411.5 per ounce in 2013 at a CAGR of about 9.7%. There was continuous growth in demand for gold used for jewellery and investment purpose. Generally, we are able to pass on any increase in the costs of gold to our customers as we price our products on a cost-plus basis and set the price of our products based on, among other things, the market price of gold at the time our customers place an order. Purchase of diamonds All diamonds that we purchase for the production of our products are polished diamonds. The prices of diamonds vary depending on their specifications such as size, colour, clarity and cut. About 99% of the diamonds that we purchased during the Track Record Period were below 0.03 carat, with the majority lies in the range of 0.002 to 0.004 carat. Our average purchase price of diamonds was approximately HK$1,912 per carat, HK$2,035 per carat, HK$1,994 per carat and HK$2,232 per carat for the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014, respectively. – 128 –
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BUSINESS To the best of our Directors’ knowledge and information, while there are market references for diamonds in the size of 0.1 carat or above, there is no publicly available market reference for diamonds in the size under 0.1 carat. According to the IPSOS Report, the average price of polished in 2012, 2013 and 2014 was about US$378.8 per carat, US$362.3 per carat and US$378.0 per carat respectively. These average prices were in respect of polished diamonds in the range of 0.01 to 0.40 carat with clarity in the range of I-1 to I-3, that is, with inclusions visible under 10 times magnification, which may not be comparable to the diamonds that we purchased as a majority of diamonds that we purchased were between 0.002 and 0.004 carat and vary in terms of colour, clarity and cut. We are able to purchase diamonds flexibly as we do not enter into long-term agreements with our diamonds suppliers. We place individual orders by specifying the quantity and specifications required. Our suppliers then deliver the required diamonds to our Hong Kong office at which point the rough weight of diamonds delivered to us is confirmed. Within one month after delivery of the diamonds to our Hong Kong office, we transport the diamonds to Yinping Premises for inspection and selection after which we confirm the purchase with our suppliers for the diamonds we selected, and return those that we rejected. Our suppliers then issue invoices to us only for those we retained, and generally do not accept further subsequent returns. Our procurement of diamonds largely depends on our existing level of diamonds inventory and confirmed orders from our customers. We generally maintain our diamond inventory at aggregate dollar value of approximately HK$50 million to HK$60 million, roughly approximating to the dollar value of two to three months worth of production consumption. During the Track Record Period, we were able to obtain stable supplies of diamonds. Suppliers Our major suppliers include suppliers of raw materials and processing services. During the Track Record Period, our five largest suppliers mainly include wholesalers and trade dealers of gold, diamonds and gem stones in Hong Kong, as well as the Shanghai Gold Exchange. Our largest supplier during the Track Record Period was for purchase of gold, and we usually pay for our purchases upon delivery. For purchases of diamonds and gem stones from our other major suppliers, we pay for our purchases either upon delivery or on credit terms ranging from 30 to 180 days. We generally settle our purchases and subcontracting fees by telegraphic transfer, cheque or cash. In respect of diamond purchases, we select suppliers based on price, quality and the suppliers’ operating history and reputation. We generally require our diamond suppliers to provide guarantee in respect of the legality and legitimacy of their source. For the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014, purchases and subcontracting fees (if any) from our five largest suppliers amounted to approximately HK$509.9 million, HK$919.7 million, HK$582.8 million and HK$130.9 million, which accounted for approximately 70.4%, 72.8%, 68.2% and 62.6% of our total purchases and subcontracting fees during the relevant periods, respectively. Purchases from our largest supplier amounted to approximately HK$399.4 million, HK$760.9 million, HK$444.2 and HK$90.7 million for the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014, which accounted for approximately 55.2%, 60.3%, 52.0% and 43.4% of our total purchases and subcontracting fees during the relevant periods, respectively. – 129 –
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BUSINESS We have well-established relationships with our key suppliers. Our five largest suppliers during the Track Record Period had been with us for a period of five to 12 years. We were able to secure a stable supply of raw materials as well as subcontracting services during the Track Record Period. To the best knowledge of our Directors, none of the Directors and their respective associates or any of the Shareholders holding more 5% of our Company’s share capital as at the Latest Practicable Date have any interest in any of the five largest suppliers during the Track Record Period. INTELLECTUAL PROPERTY RIGHTS We recognise the importance of protecting and enforcing our intellectual property rights, in particular our trade name “三和珠寶” (KTL Jewellery), the trademarks for our corporate logos “ ” and “ ” and the patents for our innovated designs and/or stone setting techniques. To protect our intellectual property rights, the standard employment agreement for our employees in Hong Kong and the standard confidentiality agreement for our employees in the PRC contain terms which provide that the intellectual property rights of all inventions, technology and information created by our employees during their term of employment shall belong to our Group. As at the Latest Practicable Date, we had registered 17 trademarks in Hong Kong, the PRC and Italy and six patents in Hong Kong and the PRC; and applied for one trademark and two patents in the PRC. We have two registered patents for our “Diamonds in Snowflake” (冰花鑽) design. For details, please refer to the subsection headed “Business – Design and craftsmanship – Our patented design “Diamonds in Snowflake” (冰花鑽)”. Details of our intellectual property rights, which are material to our business and operations, are more particularly set out under the subsection headed “Appendix V – Statutory and General Information – B. Further Information about the business of our Group” in this [REDACTED]. As of the Latest Practicable Date, we had not been subject to any material intellectual property claims against us. In December 2012, we issued a letter to a jewellery company in the PRC requesting such company to stop using our registered trademark on its website without our authorization. As the said jewellery company had stopped using our registered trademark, no legal action has been taken in respect of such infringement of our intellectual property rights. Save as disclosed in the foregoing, we had not experienced any dispute in relation to the infringement on our intellectual property rights during the Track Record Period and as at the Latest Practicable Date.
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BUSINESS AWARDS AND ACCREDITATION Our achievements over the years have been recognised by numerous awards and accreditations, including the following: Year
Awards/Accreditation
Issuer
2011
Hong Kong Buyer’s Favourite Jewellery Design Competition – Bronze Prize of Pendant & Brooch
Hong Kong Jewellery Manufacturers’ Association
2011
Hong Kong Buyer’s Favourite Jewellery Design Competition-Silver Prize of Pendant & Brooch
Hong Kong Jewellery Manufacturers’ Association
2011
Hong Kong Buyer’s Favourite Jewellery Design Competition – Bronze Prize of Free Style
Hong Kong Jewellery Manufacturers’ Association
2011
Hong Kong Buyer’s Favourite Jewellery Design Competition – Silver Prize of Free Style
Hong Kong Jewellery Manufacturers’ Association
2012
Hong Kong Buyer’s Favourite Jewellery Design Competition – Bronze Prize of Ring
Hong Kong Jewellery Manufacturers’ Association
2013
Advanced Corporation concerning Import and Export Business of Panyu District in 2012 (2012年度番禺區外貿進出口工 作先進企業)
Guangzhou Panyu Economic and Trade Promotion Bureau (廣州市番禺區經濟 貿易促進局)
COMPETITION Historically, the fine jewellery industry was concentrated on the European and the United States markets. In recent years, demand for fine jewellery products has grown in developing markets such as Russia and the PRC. Our Directors believe that the global jewellery market will grow and retail sales growth in fine jewellery will be stable in the United States and tend to be higher in emerging markets Russia and the PRC, where economic growth will also be higher. Our Directors believe that there are certain entry barriers to the fine jewellery industry, as the fine jewellery industry in Hong Kong is based upon industry reputation on good track record of products and services provided to existing customers and experiences in handling design and manufacturing procedures, which take a considerate amount of time to accumulate. The fine jewellery industry is also largely dependent on established business networks and trusts, which may be an entry barrier to new entrants. Further, labors equipped with in-depth knowledge about fine jewellery, characteristics of metals and gemstones, skilled in design and craftsmanship are vital and valuable to the business. Such skilled labor may be relatively expensive to hire and may be hesitant in considering moving to a newly established business.
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BUSINESS According to the IPSOS Report, the majority of fine jewellery manufacturers in Hong Kong focus on export businesses. As of 2013, there were over 640 fine jewellery manufacturers in Hong Kong, the majority of which focus on fine jewellery export. The top five fine jewellery manufacturers in Hong Kong which engage in export businesses accounted for about 8.9% of the total value of fine jewellery industry in Hong Kong. Most of these fine jewellery manufacturers produced their products in the PRC. Our Directors consider that jewellery manufacturers and exporters in Hong Kong typically compete on the basis of reputation in the jewellery industry, design and craftsmanship, manufacturing capability, quality consistency and pricing. We strive to distinguish ourselves over our peers through our ability to offer competitive edges that encompass not only on production capability, quality craftsmanship and design capability, but also our ability to offer synergistic, value-added services which we view as collaborating efforts with our customers to promote their end consumer sales. We collaborate with selected customers with strategic values to us, which are typically branded retail chain operators, on area such as product designs in sets and/or series, product positioning, product showcasing and product launch strategies, all aiming to enhance overall consumer appeal of their jewellery products and promote retail sales. Going forward in the near term, we expect competition for the Russia market will more likely be based on price and design variability, where competition for the United States market will likely be weighted more on the scope of value-added services provided. To this end, we aim to offer products with more variety in design at more affordable prices for our Russian customers to assist them in attracting a wider bandwidth of end consumers, while focusing more on satisfying the tailored needs of the United States customers to promote increasing orders. For PRC market, we aim to more aggressively promote our design and production capability to capture new customers, and introduce our synergistic, value-added services to selected existing customers to promote closer business relationship and increasing orders. We are confident that with our established reputation and our production capability with consistent, quality craftsmanship and design capability, we are well equipped to compete and continue to excel as one of the top fine jewellery providers in Hong Kong serving customers around the globe. ENVIRONMENTAL PROTECTION We are subject to certain PRC environmental laws and regulations. For details, please refer to the sub-section headed “Regulations – Regulatory Overview” in this [REDACTED]. For the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014, we paid approximately HK$136,000, HK$123,000, HK$226,000 and HK$44,000, respectively, as costs of compliance with the applicable environmental rules and regulations. We expect our cost of compliance with applicable environmental rules and regulations for the year ending 31 March 2015 to remain at a relatively comparable level as that for the year ended 31 March 2014. HEALTH AND WORK SAFETY CONTROL We have implemented internal policies and rules to maintain effective health and safety control, including safe production work requirements, safe production fire control and management rules, electricity safety management rules, dangerous chemicals management rules, work safety and health management rules, emergency management rules, and accidents reporting rules. – 132 –
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BUSINESS We conduct internal assessments and engage third party consultants to conduct assessments on our health and safety control system. During the Track Record Period, there was no material accident recorded. We have received the following certificates in respect of our work safety control: Certificate
Issued to
Issuer
Issued on
Valid until
Work Safety Standardization Certificate (Work Safety Standardization Level Three Enterprise (Nonferrous metal and Other))
KTL (Guangzhou)
Guangzhou City Production Safety Association
22 January 2013
January 2016
Work Safety Standardization Certificate (Work Safety Standardization Level Three Enterprise (Commerce and Other))
Guangzhou KTL
Guangzhou City Production Safety Association
28 February 2013
February 2016
EMPLOYEES As at the Latest Practicable Date, our Group had a total of about 1,098 employees, of which about 84 were in Hong Kong and about 1,014 were in the PRC. The following table sets forth a breakdown of the number of our employees by function: As at the Latest Practicable Date Hong Kong
PRC
Total
. . . . . . . . . . . . .
5 25 3 12 7 2 1 1 3 5 15 4 1
– 50 76 73 273 314 42 3 27 6 131 17 2
5 75 79 85 280 316 43 4 30 11 146 21 3
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
84
1,014
1,098
Senior management . . . . . . . . . . . . . . . Sales and marketing. . . . . . . . . . . . . . . Design and craftsmanship . . . . . . . . . . . Procurement and logistics . . . . . . . . . . . Production planning and material control . Production . . . . . . . . . . . . . . . . . . . . . Quality control . . . . . . . . . . . . . . . . . . Project management . . . . . . . . . . . . . . . Finance . . . . . . . . . . . . . . . . . . . . . . . Planning and capital management . . . . . . Human resource and administration. . . . . Information technology. . . . . . . . . . . . . Internal audit and project . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
During the Track Record Period, we did not fully comply with the relevant PRC laws and regulations in relation to housing provident fund and social insurance contributions. For further details, please refer to the subsection headed “Litigation and Legal Compliance” in this section of the [REDACTED]. – 133 –
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BUSINESS Labor union The following is a list of labor unions in relation to our Group and their respective functions: Labor union
Function
雅和(廣州)首飾有限公司工會委員會 (KTL (Guangzhou) labor union committee*)
safeguard the lawful rights and interests of the workers in accordance with applicable laws
雅和(廣州)首飾有限公司工會勞動調節 委員會 (KTL (Guangzhou) labor union labor mediation committee*)
mediate labor disputes
雅和(廣州)首飾有限公司工會女職工委 員會 (KTL (Guangzhou) labor union women workers’ committee*)
safeguard the lawful rights and interests of the female workers in accordance with the laws, and participate in the formulation and perfection of laws and regulations in relation to the protection of female workers’ rights, etc.
Labor disputes During the Track Record Period, we were not involved in any material labor disputes with our employees which had a material adverse effect on our operation or financial condition. Staff training We believe our employees are the most valuable resources to achieve our success. In particular, certain key production processes of our products, such as stone matching, stone setting, filing and quality control are highly technical and require high precision, hence experiences and enhanced skills. Quality control and inspection on raw materials such as diamonds and stone matching, which involves selecting suitable diamonds in terms of size, colour, clarity and cut for specific design and product, can only be performed by experienced labors who have built up considerable knowledge and experience, as these processes are highly manual and skill-orientated. To maintain the quality of our production, we provide continuous hands-on training to our production staff in various areas including stone matching, stone setting, quality control and raw material inspection. To secure a stable supply of future generations of management personnel, we also organise comprehensive training programs for our management personnel. The goal of the training programs is to train our employees and to identify talent, with the aim of providing upward mobility within our Company and fostering employee and corporate development. For newly recruited employees, we offer compulsory training mainly focuses on hard skills like company introduction and working procedure which enable the employees to adapt into the new working environment. We also provide tailored training to our existing employees on specialised industry knowledge and skills according to their respective roles. We believe our training programs help to promote internal upward mobility, which not only increase employee retention rates, but also produce the type and quality of management personnel needed for our expanding business. – 134 –
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BUSINESS Recruitment and bonus system We have adopted a variety of initiatives to facilitate recruitment of new staff and maintenance of existing staff, such as staff referral incentive scheme, sales incentive scheme and discretionary bonus system. LICENSES AND PERMITS As at the Latest Practicable Date, our Group has obtained all material requisite licenses, permits and approvals for our operation. The table below sets out the details of the material licenses, permits and approvals obtained by our Group: Licenses/permits/approvals
Issuing body
Issued on
Valid until
KTL (Guangzhou)’s PRC Customs Import and Export Commodity Consignee and Consigner Customs Declaration Registration Certificate
PRC Panyu Customs
21 June 2010
21 June 2016
KTL (Guangzhou)’s Drainage Permit
Guangzhou Panyu Water Affairs Bureau
13 January 2014
12 January 2015
KTL (Guangzhou)’s Guangdong Province Pollutant Discharge Permit
Panyu Branch of Guangzhou Environmental Protection Bureau
26 February 2014
31 December 2017
KTL (Guangzhou)’s Processing Enterprise Operation and Production Capacity Certificate
Guangzhou Panyu District Economic and Trade Promotion Bureau
31 July 2014
30 July 2015
PRC Panyu Customs
25 August 2009
25 August 2015
Radiation Board, Hong Kong
28 February 2014
14 April 2015
KTL (Guangzhou)
Guangzhou KTL Guangzhou KTL’s PRC Customs Import and Export Commodity Consignee and Consigner Customs Declaration Registration Certificate KTL Jewellery Trading Irradiating apparatus licence
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BUSINESS LITIGATION AND LEGAL COMPLIANCE During the Track Record Period and up to the Latest Practicable Date, we were not engaged in any material litigation, arbitration or claim which had a material adverse effect on our operation or financial condition, and no litigation, arbitration or claim is known to our Directors to be pending or threatened by or against us, that could have a material adverse effect on our operation or financial condition. Our Directors confirm that, save as disclosed below, we have complied with all relevant Hong Kong laws and regulations in all material respects and had obtained the relevant approvals, permits, consents, licences and certificates for conducting our businesses. As advised by our PRC Legal Advisers, save as disclosed below, we have complied with all relevant PRC laws and regulations in all material respects. For additional information on laws and regulations applicable to our operations in the PRC, please refer to the section headed “Regulations” in this [REDACTED].
– 136 –
1.
As of 31 March 2012, 2013 and 2014 and 30 June 2014, the aggregate amount of outstanding social insurance contribution was approximately HK$7.6 million, HK$11.1 million, HK$15.8 million and HK$17.0 million respectively.
During the Track Record Period and up until August 2014, KTL (Guangzhou) and Guangzhou KTL did not make full social insurance contribution in compliance with the applicable PRC laws and regulations, as our local management team in the PRC at the relevant time was not familiar with the local government’s implementation and interpretation of the relevant regulations.
Summary of non-compliance incidents and reasons for non-compliance
Since 1 July 2011, for non-compliances that occurred after 1 July 2011, according to the Social Insurance Law of the PRC, the social insurance authorities are entitled to order the employer to pay the outstanding social insurance (including pension, medical, work injury, unemployment and maternity insurance), and impose a late charge of 0.05% and a fine ranging from one to three times of the outstanding social insurance.
Prior to the implementation of the Social Insurance Law of the PRC, which came into effect on 1 July 2011, the social insurance authorities are entitled to order the employer to pay the outstanding social insurance within or without a time limit and impose a late charge of 0.05% and a fine ranging from one to three times of the outstanding amount for work-related injury insurance and the late charge of 0.2% for the other four types of social insurance if the employer fails to rectify the breach of social insurance contribution.
Legal consequences
– 137 –
Our PRC Legal Advisers advised that based on the above, the noncompliance incidents will not have a material adverse impact on us.
We have made adequate provisions in respect of the outstanding amount of social insurance contributions in our audited financial statements for the three years ended 31 March 2014 and the three months ended 30 June 2014.
Our Directors confirmed that KTL (Guangzhou) and Guangzhou KTL have made full social insurance contribution for all their employees in compliance with the applicable PRC laws and regulations since August 2014 and that we had not received any complaints from our employees in respect of the previous non-compliance incidents.
On 25 July 2014, Mr. Kei and Mr. Li, as the Controlling Shareholders, signed an undertaking letter to undertake that they will (i) ensure both KTL (Guangzhou) and Guangzhou KTL will pay social insurances for all their employees in accordance with the applicable laws in August 2014, and (ii) bear all liabilities and risks if any administrative penalty is imposed on KTL (Guangzhou) or Guangzhou KTL.
On 25 July 2014, KTL (Guangzhou) and Guangzhou KTL signed two undertaking letters to undertake that they will pay social insurances for all their employees in accordance with the applicable laws in August 2014.
On 17 June 2014, KTL (Guangzhou) and Guangzhou KTL respectively obtained from the Panyu Office of Guangzhou Municipal Human Resources and Social Security Bureau (廣州市番禺區人力資源和社會保 障局), being the competent and responsible authority for administering the social insurance fund related affairs in Guangzhou City Panyu District, two written confirmation letters, which confirmed that there had been no penalties imposed on KTL (Guangzhou) or Guangzhou KTL for non-compliance of the relevant labor and social insurance laws and regulations.
Remedial measures and risks
During the Track Record Period and as at the Latest Practicable Date, our Group was involved in a number of non-compliance matters which our Directors consider not to have constituted material or systematic non-compliance as set out below:
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BUSINESS
2.
As at 31 March 2012, 2013 and 2014 and 30 June 2014, the aggregate amount of outstanding housing provident fund contribution was approximately HK$6.3 million, HK$6.1 million, HK$8.2 million and HK$8.2 million respectively.
During the Track Record Period and up until August 2014, KTL (Guangzhou) and Guangzhou KTL did not make housing provident fund contribution for some of their employees and up until May 2014, Guangzhou Dihe failed to register for housing provident fund within the specified period in accordance with the applicable PRC laws and regulations, as some of our employees refused to register for and participate in housing provident fund contribution and our local management team in the PRC at the relevant time was not familiar with the applicable laws and regulations.
Summary of non-compliance incidents and reasons for non-compliance According to the Regulation on Management of Housing Provident Fund (住房公積金管理 條例), if employers fail to pay housing provident fund in accordance with the relevant rules, they may be ordered to rectify the non-compliance; if employers fail to comply with such orders within a certain period prescribed by the relevant authorities, the relevant housing provident fund authorities may apply for a court order requiring employers to make such payment.
Legal consequences
– 138 –
Our PRC Legal Advisers advised that based on the above, the noncompliance incidents will not have a material adverse impact on us.
We have made adequate provisions in respect of the outstanding amount of housing provident fund contributions in our audited financial statements for the three years ended 31 March 2014 and the three months ended 30 June 2014.
Our Directors confirmed that both KTL (Guangzhou) and Guangzhou KTL have registered for and made housing provident fund contribution for all their employees in compliance with the applicable PRC laws and regulations since August 2014 and that we had not received any complaints from our employees in respect of the previous noncompliance incidents.
On 25 July 2014, Mr. Kei and Mr. Li, as the Controlling Shareholders, signed an undertaking letter to undertake that they will (i) ensure both KTL (Guangzhou) and Guangzhou KTL make housing provident fund contribution for all their employees; and (ii) bear all liabilities and risks if any administrative penalty is imposed on KTL (Guangzhou), Guangzhou KTL and Guangzhou Dihe.
On 25 July 2014, KTL (Guangzhou) and Guangzhou KTL signed two undertaking letters to undertake that they will start to make housing provident fund contribution for all their employees since August 2014.
On 25 June 2014, KTL (Guangzhou), Guangzhou KTL and Guangzhou Dihe obtained from Guangzhou Housing Provident Fund Management Centre (廣州住房公積金管理中心), being the competent and responsible authority for administering the housing provident fund related affairs in Guangzhou City, written confirmations, which confirmed that there had been no administrative penalties imposed on KTL (Guangzhou), Guangzhou KTL and Guangzhou Dihe, rspectively since the opening of the housing provident fund accounts.
On 21 May 2014, Guangzhou Dihe completed the housing provident fund registration and has made housing provident fund contribution for all its employees since May 2014.
Remedial measures and risks
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BUSINESS
4.
3.
Guangzhou KTL failed to obtain the Pollutants Emission Permit (污染物排放許可 證) and the Drainage Permit (排水許可證) pursuant to the relevant PRC laws, due to oversight and lack of professional advice in respect of the applicable laws.
During the period from April 2013 to May 2014, seven fines in the total sum of approximately RMB117,560 were imposed on KTL (Guangzhou) as it released waste water in excess of the permitted level during 2013.
Summary of non-compliance incidents and reasons for non-compliance
According to Guangdong Pollutants Emission Permit Management Measures (廣東省排污 許可證管理辦法), if an enterprise discharges pollutants without the Permit, the environmental protection department at or above the county level shall have the right to order the enterprise to stop the pollutants discharge and impose a fine ranging from RMB50,000 to RMB100,000. If the pollutants discharge causes serious pollution or the enterprise does not stop the pollutants discharge within the time limit, the people’s government at or above the county level shall have the right to order the suspension of production operation.
According to the Water Pollution Prevention and Control Law of the PRC (中華人民共和 國水污染防治法), which was revised and became effective on 1 June 2008, where any entity discharges water pollutants beyond the permitted level, the administrative department of environmental protection under the people’s government at or above the county level shall order it to remedy within a specified period and impose a fine of not less than twice the amount of pollutant discharge fee it should pay but not more than five times the amount.
Legal consequences
– 139 –
Our PRC Legal Advisers advised that, based on the above, the non-compliance incident will not have a material impact on us.
On 18 July 2014, Guangzhou KTL obtained from the Guangzhou City Panyu District Environmental Protection Bureau a written confirmation letter which confirmed that there had been no administrative penalties imposed on Guangzhou KTL since its establishment.
Guangzhou KTL had stopped all its production activities and pollutants discharge since 1 June 2014. According to the Guangdong Pollutants Emission Permit Management Measures (廣東省排污許可證管理辦法), since Guangzhou KTL had stopped all its production activities and pollutants discharge, it was not required to apply for and obtain the Pollutants Emission Permit for its future due operation of business.
Our PRC Legal Advisers advised that, based on the above, the non-compliance incidents will not have a material adverse impact on us.
Our Directors believe that the waste water disposal system update completed in December 2013 is adequate to minimise the possibility of KTL (Guangzhou) releasing waste water in excess of the permitted level.
On 12 February 2014 and 20 May 2014, Guangzhou Panyu Environmental Monitoring Station (廣州市番禺區環境監測站) conducted tests on the level of waste water discharged by KTL (Guangzhou). It was confirmed that the level of waste water discharged had not exceeded the permitted level.
On 24 June 2014, KTL (Guangzhou) obtained from Guangzhou City Panyu District Environmental Protection Bureau (廣州市番禺區環境保 護局), being the competent and responsible authority for administering the environmental protection affairs in Guangzhou City Panyu District, a written confirmation, which confirmed that the past seven administrative penalties and fines did not amount to major breach of the environmental laws. Based on the confirmations acquired from the Guangzhou Panyu Environmental Protection Bureau through on-site visit by the Company and our PRC Legal Advisers, it was confirmed that there had been no other administrative penalties imposed on KTL (Guangzhou) during the Track Record Period except for the past 7 times.
In December 2013, KTL (Guangzhou) completed the upgrade of its waste water disposal system, which was inspected and approved by the Guangzhou Panyu Water Affairs Bureau (廣州市番禺區水務局).
Remedial measures and risks
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BUSINESS
6.
5.
During the Track Record Period, nine of our subsidiaries incorporated in Hong Kong failed to comply with the above requirements on a total of 26 occasions due to unintended and inadvertent omissions by the then general manager in charge.
Pursuant to section 158 of the then in force Companies Ordinance, a company incorporated in Hong Kong is required to file notice of change of director/secretary (or notice of change of particulars of director/secretary) within 14 days.
During the Track Record Period, one of our subsidiaries incorporated in Hong Kong failed to comply with the above requirements on one occasion due to unintended and inadvertent omissions by the then general manager in charge.
Pursuant to sections 111 and 122 of the then in force Companies Ordinance, directors of a company incorporated in Hong Kong are required to convene annual general meeting, lay profit and loss accounts and balance sheets at its general meeting within the prescribed time.
Summary of non-compliance incidents and reasons for non-compliance
The relevant subsidiaries and their respective officers, and each director of the relevant subsidiaries incorporated in Hong Kong, who fails to take all reasonable steps to comply with this duty, shall be liable to maximum fines of HK$10,000 and a maximum daily default fine of HK$300 for continued default under section 158.
The relevant subsidiary and its officers, and each director of the relevant subsidiary incorporated in Hong Kong, who fails to take all reasonable steps to comply with this duty, shall be liable to maximum fines of respectively HK$50,000 for non-compliance with section 111 and HK$300,000 and 12month imprisonment for non-compliance with section 122.
Legal consequences
Our Directors confirmed, after consulting a barrister practicing in Hong Kong, that it is unlikely that the maximum penalties be imposed on the relevant officers and directors in respect of the non-compliance incidents.
As at the Latest Practicable Date, all notices of change required to be filed had been submitted to the Companies Registry for filing. We have also adopted the internal control measures set forth in the subsection headed “Internal Control/Risk Management” below to prevent recurrence of non-compliance.
Our Directors confirmed, after consulting a barrister practicing in Hong Kong, that it is unlikely that the maximum penalties, and in particular, sentence of the relevant directors to imprisonment, be imposed on the relevant officers and directors in respect of the non-compliance incidents.
We have adopted the internal control measures set forth in the subsection headed “Internal Control/Risk Management” below to prevent recurrence of non-compliance.
Remedial measures and risks
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
BUSINESS
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
BUSINESS INTERNAL CONTROL/RISK MANAGEMENT We have put in place various internal control policies and measures to ensure continuing compliance with applicable laws and regulations and to control our Group’s business and financial risks. In respect of our previous failure to comply with the PRC laws and regulations in relation to social insurance contribution, housing provident fund contribution and environment protection, we have taken the remedial actions and measures as set out in the subsection headed “Business – Litigation and Legal Compliance” above. We have further sought legal advice from our PRC Legal Advisers and will consult PRC legal advisers from time to time. To prevent recurrence of the non-compliance incidents, our PRC human resources and administration team will check the number of employees whom we are making social insurance and housing provident fund contributions for against the number of employees as recorded by our human resource team every time before making contributions; and Mr. Li, our executive Director and Chief Operating Officer, will regularly review our Group’s record in respect of social insurance contribution and housing provident fund contribution. In respect of our previous failure to comply with the then in force Companies Ordinance in relation to the convening of annual general meeting and laying accounts at the annual general meeting and statutory filing with the Companies Registry of Hong Kong within the prescribed time, we have sought advice from Hong Kong legal advisers and our Directors, senior management and company secretary have attended trainings provided by Hong Kong legal advisers in relation to the statutory filing requirements under the Companies Ordinance. To prevent recurrence of the non-compliance incidents, an audit committee comprising our independent non-executive Directors will be established upon [REDACTED] to oversee our Group’s financial reporting as well internal control procedures. A company secretary, who possesses relevant qualifications as required under the [REDACTED], has been appointed to oversee compliance with statutory requirements and to act as the principal channel to seek advices from legal advisers from time to time after [REDACTED] in respect of compliance matters. We have also adopted internal policies setting out the policies devised for the purpose of monitoring all legal and regulatory compliance matters and statutory filings and our finance department will publish documents internally and educate our staff on compliance matters, and answer queries received from our other departments concerning our Group’s legal affairs. To control and manage various business and financial risks, we have: •
adopted a project investment policy which covers the risk assessment procedures for potential investment opportunity, the review and approval process for potential investment and the monitoring and post evaluation of investments;
•
established policy and procedures regarding risk management, which cover the identification and evaluation of significant risks associated with the operation of our Group, developing remedial measures to mitigate identified risks, etc.; – 141 –
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BUSINESS •
adopted an internal procedure which provides that (i) sales order and price quotation should be reviewed and approved by sales manager via email before being sent to customers and sales department staff should obtain formal confirmation or agreement from customers on the sales orders; (ii) our management should sign sales agreements with our customers and the terms and conditions of the sales agreements including any sales discount and rebate should be reviewed and approved by the management; and (iii) the evaluation process and results for potential and existing customers should be properly documented and reviewed by the management.
For the purpose of compliance with tax related laws, rules and regulations including those relevant to transfer pricing, we have engaged an independent tax consultant and have established a tax filing workflow to ensure compliance with the applicable tax rated laws and regulations. The finance managers of KTL (Guangzhou) and KTL Jewellery Trading have been in accounting and finance field for approximately 10 years, respectively. In respect of anti-money laundering, we: •
require customers to settle through bank system and do not accept cash payment for purchase of our products for transactions over RMB5,000 (for PRC customers) or HK$50,000 (for customers outside PRC);
•
put in place procedures to monitor and analyse cash flows to detect unusual cash flow and these include matching each bank receipts to sales invoice by our finance team, monitoring of trade receivables by our treasury manager and sales manager and reporting to our Directors and general manager any un-matched or unknown receipts;
•
conduct standard due diligence on our customers, including obtaining credit reports from search agents against new customers;
•
provide regular training and awareness programs to keep staff apprised of and updated on indicators of suspicious activity; and
•
put in place procedures to report suspicious transactions.
To control pricing and manage fluctuation of raw material prices: •
we price our products based on expenses, costs of raw materials and target margins;
•
costs for diamonds and gem stones are derived with reference to the purchase costs and market prices of diamonds and gem stones;
•
costs for gold are fixed with reference to prevailing market price traded at TLGMFL (for gold purchased in Hong Kong) and the Shanghai Gold Exchange (for gold purchased in the PRC) on the date that order is confirmed; and
•
we generally purchase gold necessary for the order within two business days after receipt of a confirmed order from our customers. – 142 –
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BUSINESS We also adopted certain procedures to control our inventory. For details, please refer to the sub-section headed “Business – Inventory Control” in this [REDACTED]. Views of our Directors and the Joint Sponsors Our Directors are of the view that the non-compliance incidents are not of a serious nature and each of them is an isolated event, which was primarily due to inadequate legal knowledge and/or inadvertent oversight of the relevant laws and regulations by our local management team in the PRC and Hong Kong. Accordingly, our Directors do not consider those non-compliance incidents to have constituted material or systematic non-compliances. Based on the aforementioned, our Directors are of the view that we have taken reasonable steps to improve the internal control system and procedures, and the enhanced internal control measures adopted by us are adequate and effective in significantly reducing the risk of future non-compliance with the relevant legal and regulatory requirements. The Joint Sponsors, after considering the above, concur with our Directors’ view that our Directors have the character, experience, and integrity and the level of competence required of a director under Rules 3.08 and 3.09 of the [REDACTED] and our Company and business is suitable for [REDACTED] under Rule 8.04 of the [REDACTED]. PROPERTIES As of the Latest Practicable Date, we owned three properties in the PRC and Hong Kong which are mainly used as our production base, dormitory and offices. We own and carry out production in the factory at Yinping Premises. Yuwotou Premises are currently under construction and it is currently expected that the construction will complete in late 2015. As advised by our PRC Legal Advisers, we have obtained the land use right and building ownership certificates for the Yinping Premises. We have also obtained the land use right certificate for the Yuwotou Premises and will apply for the building ownership certificate for the Yuwotou Premises following the completion of its construction. A brief overview of Yinping Premises, Yuwotou Premises and our property in Hong Kong is set out below: Yinping Premises Address:
No. 1 Yinping Road, Shatou Street, Panyu District, Guangzhou City, the PRC
Gross floor area:
approximately 11,973.83 sq.m.
Site area:
approximately 4,314.60 sq.m.
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BUSINESS Current use:
production base, dormitory and offices
Restriction on use:
no storage of prohibited items such as firearms, ammunition, explosives, kerosene or other explosive, inflammable or dangerous goods or other items prohibited by laws
Term of land use right certificate:
until 5 March 2051
Yuwotou Premises Address:
South of Yuwotou Road, Dongshen Village, Dongyong Town, Nansha District, Guangzhou City, the PRC (中國廣州市南沙區東涌鎮東深村魚窩頭大道南側)
Status:
under construction, construction expected to be completed in late 2015. For details, please refer to the valuation report in Appendix III to this [REDACTED].
Gross floor area:
approximately 20,086.00 sq.m.
Site area:
approximately 33,333.00 sq.m.
Intended use:
exhibition dormitory
Restriction on use:
no storage of prohibited items such as firearms, ammunition, explosives, kerosene or other explosive, inflammable or dangerous goods or other items prohibited by laws
Encumbrances:
The land use right has been used as the mortgage for banking facilities from Guangzhou Panyu Branch of China Guangfa Bank Co., Ltd. on 20 March 2014.
Term of land use right certificate:
until 10 August 2053
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centre,
staff
training
centre
and
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
BUSINESS Our property in Hong Kong Address:
Unit 1205, 1206 and 1207 on 12/F, Fu Hang Industrial Building, No. 1 Hok Yuen Street East, Kowloon, Hong Kong
Total saleable area:
approximately 557.61 sq.m. or 6,217 square feet
Current use:
office
Leased properties We leased certain properties from Independent Third Parties, and KTL (Guangzhou) and Guangzhou KTL leased part of Yinping Premises from Guangzhou Dihe for use as offices, car park, warehouse and dormitory. As advised by our PRC Legal Advisers, the leases in respect of our leased properties have been registered with the competent housing management authority in accordance with the relevant PRC laws and we have the legal rights to use these leased properties. Plan for Yuwotou Premises Yuwotou Premises have a total gross floor area of approximately 20,086 sq.m. comprising of five levels and are owned by our Group for long-term development purposes. Based on our current plan, part of Yuwotou Premises, as and when it is put into operation, will include: •
exhibition centre – the exhibition centre is expected to comprise multiple showrooms which we may showcase our design concepts and products. Our customers may invite their business partners and wholesale customers to view their products, discuss design concepts and negotiate sales orders. We believe that the exhibition centre will serve as another extension of our value-added services for our customers; and
•
staff training centre for our jewellery designers and craftsmen – as the fine jewellery industry is competitive and skill-orientated, the wages for and the mobility of designers and craftsmen working in the fine jewellery industry are relatively higher as compared to those working in other industries. To maintain our competitive edge and the stability of our production operations, we will continue to provide training to our existing and new staff.
Valuation report The valuation report in respect of our owned properties are set out in Appendix III to this [REDACTED]. – 145 –
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BUSINESS INSURANCE Our Directors consider that the insurance policies maintained by us are sufficient to cover the potential losses and damages of our inventory (including inventory in transit). We also maintain insurance policies covering potential loss or damages of our production facilities and factory in the PRC and our property in Hong Kong. Our Directors believe that the coverage from the insurance policies maintained by us is adequate for our present operations and is in line with the industry norm. However, significant damage to our operations or any of our properties, whether as a result of fire and/or other causes, may still have a material adverse impact on the results of our operations or financial condition.
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
RELATIONSHIP WITH CONTROLLING SHAREHOLDERS Immediately following completion of the [REDACTED] and the [REDACTED] (taking no account of Shares which may be issued pursuant to the exercise of the [REDACTED] and the options that may be granted under the Share Option Scheme), KTL International (BVI) will directly own approximately [REDACTED] of the issued share capital of our Company. KTL International (BVI) is owned by Universe Master as to 55.57% and Husheng Holdings as to 44.43%. Universe Master is owned by Mr. Kei as to 79.97% and Mr. Kei Yeuk Lun Calan as to 20.03%. The entire issued share capital of Husheng Holdings, is owned by Mr. Li. KTL International (BVI), Universe Master, Husheng Holdings, Mr. Li, Mr. Kei and Mr. Kei Yeuk Lun Calan are directly or indirectly entitled to exercise or control the exercise of 30% or more of the voting power of our general meeting collectively, and thus, each of them is regarded as our Controlling Shareholder. COMPETING INTERESTS As confirmed by our Directors, our Controlling Shareholders and their respective associates do not have any interests in any business, apart from the business operated by members of our Group, that competes or is likely to compete, directly or indirectly, with the business of our Group. DEED OF NON-COMPETITION To better safeguard our Group from any potential competition, each of the Covenantors [has entered] into a deed of non-competition with our Company whereby each of the Covenantors irrevocably and unconditionally, undertakes with our Company that with effect from the [REDACTED] Date and for as long as our Shares remain listed on the [REDACTED] and (i) the Covenantors collectively are, directly or indirectly, interested in not less than 30% of our Shares in issue; or (ii) the relevant Covenantor remains as our executive Director, each of the Covenantors shall, and shall procure that its/his respective associates shall: (a)
not directly or indirectly engage, participate or hold any right or interest in or render any services to or otherwise be involved in any business in competition with or likely to be in competition with the existing business activities of our Group or any business activities which our Group may undertake in the future;
(b) not take any direct or indirect action which constitutes an interference with or a disruption to the business activities of our Group including, but not limited to, solicitation of customers, suppliers and staff of our Group; (c)
keep our Board informed of any matter of potential conflicts of interests between the relevant Covenantor (including its/his associates) and our Group, in particular, a transaction between any of the relevant Covenantor (including its/his associates) and our Group; and
(d) provide as soon as practicable upon our Company’s request a written confirmation in respect of compliance by it with the terms of the deed of non-competition and their respective consent to the inclusion of such confirmation in our Company’s annual report and all such information as may be reasonably requested by the Company for its review. – 147 –
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RELATIONSHIP WITH CONTROLLING SHAREHOLDERS In addition, each of the Covenantors hereby irrevocably and unconditionally, undertakes that if any new business opportunity relating to any products and/or services of our Group (the “Business Opportunity”) is made available to it/him or its/his associates (other than members of our Group), it or he will direct or procure the relevant associate to direct such Business Opportunity to our Group with such required information to enable our Group to evaluate the merits of the Business Opportunity. The relevant Covenantor shall provide or procure its/his associates to provide all such reasonable assistance to enable our Group to secure the Business Opportunity. If he or it (or his/its associates) plans to participate or engage in any new activities or new business which may, directly or indirectly, compete with the existing business activities of our Group, he or it shall give our Company a first right of refusal to participate or engage in the Business Opportunity and will not participate or engage in these activities unless with the prior written consent of our Company. None of the Covenantors and their respective associates (other than members of our Group) will pursue the Business Opportunity until our Group decides not to pursue the Business Opportunity because of commercial reasons. Any decision of our Company will have to be approved by our independent non-executive Directors taking into consideration the prevailing business and financial resources of our Group, the financial resources required for the Business Opportunity and, where necessary, any expert opinion on the commercial viability of the Business Opportunity. Each of the Covenantors further irrevocably and unconditionally, undertakes that it or he will (i) provide to our Group all information necessary for the enforcement of the undertakings contained in the deed of non-competition; and (ii) confirm to our Company on an annual basis as to whether it or he has complied with such undertakings. The deed of non-competition will cease to have any effect on the earliest of the date on which: (a)
our Company becomes wholly-owned by any of the Covenantor and/or its/his associates;
(b) the aggregate beneficial shareholding (whether direct or indirect) of the Covenantors and/or its/his associates in the Shares in issue falls below 30% of the number of Shares in issue and the relevant Covenantor shall cease to be our executive Director; or (c)
the Shares cease to be [REDACTED] on the [REDACTED].
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RELATIONSHIP WITH CONTROLLING SHAREHOLDERS INDEPENDENCE FROM OUR CONTROLLING SHAREHOLDERS Having taken into account of the following factors, our Directors are satisfied that our Group can carry on its business independently of our Controlling Shareholders following the [REDACTED]: Management independence Our Group’s management and operational decisions are made by our Board and a team of senior management. Our Board consists of six members, comprising three executive Directors and three independent non-executive Directors. Each of our Directors is aware of his fiduciary duties as a Director of our Company which requires, among other things, that he acts for the benefit and in the best interests of our Company and does not allow any conflict between his duties as a Director and his personal interests. In the event that there is a potential conflict of interests arising out of any transaction to be entered into between our Group and our Directors or their respective associates, the interested Director(s) shall abstain from voting at the relevant board meetings of our Company in respect of such transactions and shall not be counted in the quorum. Further, the independent non-executive Directors will bring independent judgment to the decision making process of our Board. The senior management team possesses in-depth experience and understanding of the industry in which our Group is engaged. In this regard, our Directors are of the view that our Group can be managed independently notwithstanding that Mr. Kei and Mr. Li being Controlling Shareholders, are our executive Directors. Operational independence The organisational structure of our Group is made up of a number of departments, comprising sales and marketing, design and craftsmanship, procurement and logistics, production planning and material control, production quality control, project management, finance, planning & capital management, human resource and administration, internal audit and project departments. Each department takes a specific role in our Group’s operations. There are internal control procedures to ensure effective operation of our Group’s business. Furthermore, our Group has its own production lines and its own sources of independent suppliers and customers. Accordingly, our Group can carry out its business operations independently. Financial independence Our Directors are of the view that our Group does not unduly rely on the advances from our Controlling Shareholders and related parties for its business operations. Our Directors believe that our Group will be capable of obtaining financing from external sources without reliance on our Controlling Shareholders upon [REDACTED]. Furthermore, our Group has its own finance department and has established its own financial accounting system independent of our Controlling Shareholders. Our Group has its own bank accounts, makes its tax registrations and has employed a sufficient number of financial accounting and treasury personnel. Accordingly, our Directors consider that our Group is capable of operating independently from a financial perspective. – 149 –
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RELATIONSHIP WITH CONTROLLING SHAREHOLDERS NON-DISPOSAL UNDERTAKINGS GIVEN SHAREHOLDERS UNDER THE [REDACTED]
BY
OUR
CONTROLLING
Pursuant to Rule 10.07 of the [REDACTED], each of our Controlling Shareholders has, jointly and severally, undertaken with our Company and the [REDACTED] that each of them shall not and shall procure that the relevant registered holder(s) shall not: (a)
in the period commencing on the date of by reference to which disclosure of the shareholding of our Controlling Shareholders is made in this [REDACTED] and ending on the date which is six months from the [REDACTED] (the “First Six-Month Period”), dispose of, nor enter into any agreement to dispose of or otherwise create any options, rights, interests or encumbrances in respect of, any of the Shares in respect of which it/he is shown by this [REDACTED] to be the beneficial owner(s); and
(b) in the period of six months commencing on the date on which the First Six-Month Period expires, dispose of, nor enter into any agreement to dispose of or otherwise create any options, rights, interests or encumbrances in respect of, any of the Shares if, immediately following such disposal or upon the exercise or enforcement of such options, rights, interests or encumbrances, our Controlling Shareholders would cease to be our Controlling Shareholders of our Company, i.e. they cease to control 30% or more of the voting power at general meetings of our Company. Further, each of our Controlling Shareholders has, jointly and severally, undertaken with our Company and the [REDACTED] that within a period commencing on the date by reference to which disclosure of the shareholding of our Controlling Shareholders is made in this [REDACTED] and ending on the date on which is 12 months from the [REDACTED], he or it shall: (a)
when he or it pledges or charges any securities beneficially owned by he or it in favour of an authorised institution (as defined under the Banking Ordinance (Chapter 155 of the Laws of Hong Kong)) for a bona fide commercial loan, immediately inform our Company of such pledge or charge together with the number of securities so pledged or charged; and
(b) when he or it receives indications, either verbal or written, from the pledgee or chargee that any of the pledged or charged securities will be disposed of, immediately inform our Company of such indications. OTHER UNDERTAKINGS AMONGST OUR CONTROLLING SHAREHOLDERS Subject to and only applied to the extent as permitted by applicable laws, rules and regulations, each of Universe Master, Husheng Holdings, Mr. Kei, Mr. Li and Mr. Kei Yeuk Lun Calan has undertaken to each, among others, that: (a)
during the period commencing from the [REDACTED] and ending on the fourth anniversary from the [REDACTED] (both days inclusive), each of Universe Master and Husheng Holdings undertakes to each other that it shall not transfer any of its shares (including any interests thereon) it holds in KTL International (BVI); – 150 –
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RELATIONSHIP WITH CONTROLLING SHAREHOLDERS (b) during the period commencing after the expiry of the fourth anniversary from the [REDACTED] and ending on the sixth anniversary from the [REDACTED] (both days inclusive), each of Universe Master and Husheng Holdings shall not transfer any of the shares it holds in KTL International (BVI) unless, among other things, (i) the intended transferor has offered the shares it wished to transfer to other shareholders in KTL International (BVI) and such offer is not subsequently accepted by other shareholder in KTL International (BVI) or lapses by affluxion of time; and (ii) the aggregate number of shares in KTL International (BVI) transferred by each of Universe Master and Husheng Holdings does not exceed 5% of the effective interests in our Company in each of the fifth and sixth anniversary year from the [REDACTED] and not exceed 1.25% of the effective interests in our Company in each quarter of the relevant anniversary year; (c)
at any time after the expiry of the sixth anniversary from the [REDACTED], each of Universe Master and Husheng Holdings shall not transfer any of the shares it holds in KTL International (BVI) unless, among other things, (i) the intended transferor has offered the shares it wished to transfer to other shareholders in KTL International (BVI) and such offer is not subsequently accepted by other shareholder in KTL International (BVI) or lapses by affluxion of time; and (ii) the aggregate number of shares in KTL International (BVI) transferred by each of Universe Master and Husheng Holdings does not exceed 10% of its effective interests in our Company in the seventh anniversary year from the [REDACTED] and in each anniversary year thereafter and not exceed 2.5% of its effective interests in our Company in each quarter of the relevant anniversary year; and
(d) at any time after the [REDACTED], in the event that Mr. Li, Mr. Kei and/or Mr. Kei Yeuk Lun Calan holds Shares in our Company, each of them shall not transfer any of the Shares he directly holds in our Company unless the intended transfer has been offered to each other and such offer is not subsequently accepted by the other or lapses by affluxion of time. CORPORATE GOVERNANCE MEASURES Our Company will adopt the following corporate governance measures to manage the potential conflict of interests between us and our Controlling Shareholders, and to safeguard the interests of our Shareholders: (i)
our independent non-executive Directors will review, at least on an annual basis, compliance and enforcement of the terms of the Deed of Non-Competition;
(ii) we will disclose any decisions on matters reviewed by our independent non-executive Directors relating to compliance and enforcement of the Deed of Non-Competition either through our annual report or by way of announcement; – 151 –
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RELATIONSHIP WITH CONTROLLING SHAREHOLDERS (iii) we will disclose in the corporate governance report of our annual report on how the terms of the Deed of Non-Competition have been complied with and enforced; and (iv) in the event that any of our Directors and/or their respective associates has material interest in any matter to be deliberated by our Board in relation to compliance and enforcement of the Deed of Non-Competition, he/she may not vote on the resolutions of our Board approving the matter and shall not be counted towards the quorum for the voting pursuant to the applicable provisions in the Articles. Our Directors consider that the above corporate governance measures are sufficient to manage any potential conflict of interests between our Controlling Shareholders and their respective associates and our Group and to protect the interests of our Shareholders, in particular, the minority Shareholders.
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SUBSTANTIAL SHAREHOLDERS So far as our Directors are aware, immediately following completion of the [REDACTED] and the [REDACTED] (but without taking into account of any Shares which may be allotted and issued upon the exercise of the [REDACTED] and any options which may be granted under the Share Option Scheme), the following persons will have an interest or short position in Shares or underlying Shares which would fall to be disclosed to our Company and the [REDACTED] under the provisions of [REDACTED] of the SFO, or who are, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of our Group:
Name of Shareholder KTL International (BVI) (note 1) . . . . . . . . . . . Universe Master (note 2). . Husheng Holdings (note 3) . . . . . . . . . . . Mr. Kei (note 2) . . . . . . . Mr. Li (note 3) . . . . . . . .
Approximate percentage of shareholding in our Company
Capacity/Nature of Interest
Number of Shares
Beneficial owner
[REDACTED]
[REDACTED]
Interest of a corporation Interest of a corporation Interest of a corporation Interest of a corporation
controlled
[REDACTED]
[REDACTED]
controlled
[REDACTED]
[REDACTED]
controlled
[REDACTED]
[REDACTED]
controlled
[REDACTED]
[REDACTED]
Notes: 1.
KTL International (BVI) is a company incorporated in the BVI, the issued share capital of which is held by Universe Master as to 55.57% and Husheng Holdings as to 44.43%.
2.
Universe Master is a company incorporated in the BVI, the issued share capital of which is held by our executive Directors, Mr. Kei as to 79.97% and Kei Yeuk Lun Calan as to 20.03%. Universe Master and Mr. Kei are deemed to be interested in the Shares held by KTL International (BVI) under the SFO.
3.
The [REDACTED] of Husheng Holdings is owned by Mr. Li. Husheng Holdings and Mr. Li are deemed to be interest in the Shares held by KTL International (BVI) under the SFO.
Should the [REDACTED] be exercised in full, each of KTL International (BVI), Universe Master, Husheng Holdings, Mr. Kei and Mr. Li will be interested in [REDACTED], [REDACTED], [REDACTED], [REDACTED] and [REDACTED], respectively, in our Company. Save as disclosed herein, our Directors are not aware of any person who will, immediately following the [REDACTED] and [REDACTED] (but without taking into account of any Shares which may be allotted and issued upon the exercise of the [REDACTED] and any options which may be granted under the Share Option Scheme), have an interest or short position in Shares or underlying Shares which would fall to be disclosed to our Company and the [REDACTED] under the provisions of [REDACTED] of the SFO, or be directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of our Group. – 153 –
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DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES DIRECTORS Date of joining our Date of Principal responsibilities appointment Group
Name
Age
Position
Mr. Kei York Pang Victor (紀若鵬)
53
Founder
Overseeing our Group’s overall strategic planning and business development
Mr. Li Man Chun (李文俊)
54
Founder
Overseeing our Group’s overall strategy and general operation
Mr. Kei Yeuk Lun Calan (紀若麟)
49
6 June 2014 Co-Chairman, executive Director and Chief Executive Officer 6 June 2014 Co-Chairman, executive Director and Chief Operating Officer Executive Director, 21 July 2014 sales and marketing director of our Group
1992
Mr. Ting Tit Cheung (丁鐵翔)
59
Independent nonexecutive Director
[●]
[●]
Mr. Chan Chi Kuen (陳志權)
53
Independent nonexecutive Director
[●]
[●]
Mr. Lo Chun Pong (盧振邦)
42
Independent nonexecutive Director
[●]
[●]
Overseeing the business development of our Group, primarily responsible for sales and stone procurement Supervising our Group’s compliance and corporate governance matters, providing independent judgement to our Board Supervising our Group’s compliance and corporate governance matters, providing independent judgement to our Board, chairman of our audit committee Supervising our Group’s compliance and corporate governance matters, providing independent judgement to our Board
Executive Directors Mr. Kei York Pang Victor (紀若鵬), aged 53, is our Co-Chairman, executive Director, and Chief Executive Officer. Mr. Kei co-founded K.T.L. Jewellery with Mr. Li in 1990. Mr. Kei is responsible for the overall strategic planning and business development of our Group. Mr. Kei has over 24 years of experience in jewellery industry with extensive business and client network. Mr Kei has invaluable experience in sales and marketing, customer serving, product innovation and management, significantly contributed to long-term client relationship maintenance and business expansion. Mr Kei serves as the Standing General Committee Member and Executive Committee Member of Hong Kong Jewellery Manufacturers’ Association for the years 2013 to 2015. Mr. Kei is a member of Chinese People’s Political Consultative Conference Guangzhou Committee. Mr. Kei is the brother of Mr. Kei Yeuk Lun Calan, one of our executive Directors.
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DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Under code provision A.2.1 of the Corporate Governance Code and Corporate Governance Report (the “CG Code”) as set out in Appendix 14 to the [REDACTED], the responsibilities between the Chairman and chief executive officer should be separate and should not be performed by the same individual. Mr. Kei is our Chief Executive Officer, and he also performs as the Co-Chairman of the Board as he has considerable experience in the fine jewellery industry. The Board believes that vesting the roles of both the Co-Chairman and the Chief Executive Officer in the same person has the benefit of ensuring consistent leadership within our Group and enables more effective and efficient overall strategic planning for our Group. Mr. Li Man Chun (李文俊), aged 54, is our Co-Chairman, executive Director, and Chief Operating Officer. Mr. Li was one of the co-founders of K.T.L. Jewellery in 1990. Mr. Li is responsible for the overall strategic planning and general operations. Mr. Li has over 24 years of experience in the jewellery industry with in-depth technical knowledge in the manufacturing of fine jewellery and practical operations experience. Mr. Li has been serving as Vice President of the Hong Kong Gold & Silver Ornament Workers & Merchants General Union from 2007. Since 2010, Mr Li has served as Honorary Life President and General Member of the Guangzhou Panyu Jewellery Manufacturers Association. Mr. Li is a member of Chinese People’s Political Consultative Conference Panyu District Committee and Vice President, the 5th Session of the Council, Guangzhou Association of Enterprises with Foreign Investment. Mr. Kei Yeuk Lun Calan (紀若麟), aged 49, is our executive Director and sales and marketing director of our Group. Mr. Kei Yeuk Lun Calan is responsible of business development, product development and innovation, branding, sales and marketing activities. Mr. Kei Yeuk Lun Calan has accumulated over 22 years of experience in jewellery industry. In 1992, Mr. Kei Yeuk Lun Calan co-founded and served as director of Alan’s Jewellery engaging in trading of jewellery. In 2003, Mr. Kei Yeuk Lun Calan was assigned to lead a team to market our Group’s jewellery products, coordination of trade shows and product development in the United States. From 2006 to 2009, Mr. Kei Yeuk Lun Calan was also dedicated to liaise with the local business partners on brand-building and product image in Italy, promoting brand awareness and reputation. Since 2009, Mr. Kei Yeuk Lun Calan has taken charge of product development with focus on China wholesales market. Mr. Kei Yeuk Lun Calan is the brother of Mr. Kei, one of our executive Directors. Independent non-executive Directors Mr. Ting Tit Cheung (丁鐵翔), aged 59, was appointed as our independent non-executive Director on [●] 2014. Mr. Ting is the senior representative officer in Hong Kong of Banque Cantonale de Genève and has been as an independent non-executive director of National Agricultural Holdings Limited (Stock code: 1236), a company listed on the Stock Exchange, since 2013. Mr. Ting graduated from the Technicum Neuchatelois in Switzerland in 1978 before he obtained his Master degree in Business Administration in University of East Asia (Macau) in 1991. Mr. Ting currently serves as a member of the Chinese People’s Political Consultative Conference Committee of Putuo District in Shanghai. – 155 –
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DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Mr. Chan Chi Kuen (陳志權), aged 53, was appointed as our independent non-executive Director on [●] 2014. Mr. Chan is a Certified Public Accountant (Practising) in Hong Kong. Mr. Chan obtained a diploma from the Department of Accounting of the Hong Kong Shue Yan College (香港樹仁學院) in 1991. He further obtained a Master degree in Accounting from the Jinan University (暨南大學) in 2006. Mr. Chan has over 25 years of experience in the accounting and taxation consultancy disciplines and has worked in a number of accounting firms in Hong Kong, including K.K. Young & Co., Leung Po Yee & Co., Shom & Yu CPA Limited, and Y.K. Yu & Co. He is currently practising in his own name. Mr. Chan was admitted as a fellow of the Association of Chartered Certified Accountants in 2004, an associate of the Taxation Institute of Hong Kong in 2010 and a fellow of the Hong Kong Institute of Certified Public Accountants. He is also a Certified Tax Adviser registered at the Taxation Institute of Hong Kong. Mr. Lo Chun Pong (盧振邦), aged 42, was appointed as our independent non-executive Director on [●] 2014. Mr. Lo is a practicing solicitor in Hong Kong and a member of The Law Society of Hong Kong. Mr. Lo is a partner of Raymond C.P. Lo & Co., Solicitors and was previously the sole proprietor of same firm. Mr. Lo has been an accredited mediator of the Hong Kong Medication Centre since April 2010 and a civil celebrant of marriages since 2006. Mr. Lo graduated from the University of Hull with a degree of Bachelor of Laws in 1994. Mr. Lo was admitted as a solicitor of the High Court of Hong Kong in 1998. Save as disclosed in this [REDACTED], each of our Directors confirmed that he (i) did not hold any directorships in the last three years prior to the Latest Practicable Date in public companies, the securities of which are listed on any securities market in Hong Kong or overseas; (ii) does not hold any other positions with us or other members of our Group; and (iii) does not have any relationship with other Directors, senior management or Controlling Shareholders, if any, of our Company or any interest in our Shares within the meaning of Part XV of the SFO. Save as disclosed herein, to the best of the knowledge, information and belief of our Directors having made all reasonable enquiries, there was no other matter with respect to the appointment of our Directors that needs to be brought to the attention of our Shareholders and there was no information relating to our Directors that is required to be disclosed pursuant to Rules 13.51(2)(h) to (v) of the [REDACTED] as at the Latest Practicable Date. Each of our Directors confirmed that he is not interested in any business apart from the Company’s business, which competes or is likely to compete, either directly or indirectly, with the Company’s business.
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DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES SENIOR MANAGEMENT Date of joining our Group
Name
Age
Position
Mr. Tang Wai Yip (鄧偉業)
56
Sales and marketing director of our Group
Mr. Lam Pak Kan (林柏勤)
35
3 May 2007 Financial controller and company secretary of our Group
1 April 2014
Principal responsibilities Overseeing our PRC sales, merchandising and procurement divisions Overseeing operations of finance and information technology department, financial planning, company secretarial and legal compliance work
The biographies of our senior management are set forth below: Mr. Tang Wai Yip (鄧偉業), aged 56, is the sales and marketing director of our Group, responsible for overseeing our PRC sales, merchandising and procurement departments. Mr. Tang first joined our Group in September 2008 and left us in April 2011. From September 2008 to April 2011, Mr. Tang worked in our Group as the general sales manager. Mr. Tang returned to our Group in April 2014. Mr. Tang has close to 30 years of experience in the sales and marketing and managerial sector and held senior management positions in companies in a spectrum of industries that included telecommunications, electronics, watches and fine jewellery, specialising in sales and marketing strategic planning, business and product development, logistics and customer service. Mr. Tang graduated from the University of London with a Bachelor’s degree in Science in 1979. Mr. Lam Pak Kan (林柏勤), aged 35, is the financial controller and company secretary of our Group and is primarily responsible for operations of our finance department and information technology department, financial planning, company secretarial and legal compliance work. Mr. Lam first joined our Group in May 2007 as an accounting manager and was promoted as the financial controller in October 2008. He was redesignated in October 2011 as the general manager of our finance department and then further promoted as the financial controller and company secretary of our Group. Mr. Lam has over 12 years of experience auditing and financial management in accounting firms, asset management company and listed companies. Mr. Lam graduated from the Hong Kong University of Science and Technology with a Bachelor’s degree of Business Administration in Accounting in 2001. Mr. Lam is a member of the Association of Chartered Certified Accountants and the Hong Kong Institute of Certified Public Accountant. Mr. Lam is also a Chartered Financial Analyst (CFA) charterholder.
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DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES BOARD COMMITTEES AND OTHER COMMITTEE Audit Committee An audit committee was established by our Company on [●] 2014 with written terms of reference in compliance with Rule 3.21 of the [REDACTED]. The primary duties of our audit committee are to review and approve our Group’s financial reporting process and internal control system. Our audit committee comprises all independent non-executive Directors, namely, Mr. Ting Tit Cheung, Mr. Chan Chi Kuen and Mr Lo Chun Pong. Mr. Chan Chi Kuen is the chairman of our audit committee. Remuneration Committee A remuneration committee was established by our Company on [●] 2014 with written terms of reference in compliance with Rule 3.25 of the [REDACTED]. The primary duties of our remuneration committee include reviewing and determining the terms of remuneration packages, bonuses and other compensation payable to Directors and senior management of our Group. Our remuneration committee is chaired by Mr. Ting Tit Cheung, an independent non-executive Director, and other members are Mr. Li, Mr. Kei Yeuk Lun Calan, Mr. Chan Chi Kuen and Mr. Lo Chun Pong. Nomination Committee A nomination committee was established by our Company on [●] 2014 with written terms of reference in compliance with paragraph A.5.1 of Appendix 14 of the [REDACTED]. The primary duties of our nomination committee are to make recommendations to our Board on the appointment of Directors and the senior management of our Group. The members of our nomination committee are Mr. Li, Mr. Ting Tit Cheung, Mr. Chan Chi Kuen and Mr. Lo Chun Pong. Mr. Kei is the chairman of our nomination committee. DIRECTORS AND SENIOR MANAGEMENT’S REMUNERATION The aggregate amount of fees, salaries, housing allowances, other allowances, benefits in kind (including contribution to the pension scheme on behalf of our Directors) and discretionary bonuses paid by us to our Directors for the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014 were approximately HK$9.6 million, HK$9.9 million, HK$13.5 million and HK$2.4 million, respectively. The aggregate amount of fees, salaries, housing allowances, other allowances, benefits in kind (including contribution to the pension scheme on behalf of our Directors) and discretionary bonuses paid to the five highest paid individuals of our Group (including two of our Directors) for the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014 were approximately HK$[17.2] million, HK$22.4 million, HK$19.1 million and HK$4.4 million, respectively. – 158 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES During the Track Record Period, no remuneration was paid by us to, or receivable by, our Directors or the five highest paid individuals as an inducement to join or upon joining our Group or as a compensation for loss of office as a director of any member of our Group or of any other office in connection with the management of the affairs of any member of our Group. In addition, none of our Directors has waived any emoluments. Save as disclosed above, no other payments have been paid, or are payable, by our Group to our Directors during the Track Record Period. Under the arrangements currently in force as at the date of this [REDACTED], the aggregate remuneration payable to our Directors (including our independent non-executive Directors) in respect of the year ending 31 March 2015 is estimated to be approximately HK$9.6 million. SHARE OPTION SCHEME We have conditionally adopted a Share Option Scheme pursuant to which selected participants may be granted options to subscribe for Shares as incentives or rewards for their service rendered to our Group and any entity in which any member of our Group holds any equity interest. Our Directors believe that the implementation of the Share Option Scheme enables our Group to recruit and retain high calibre executives and employees. The principal terms of the Share Option Scheme are summarised under the paragraph headed “Statutory and General Information – D. Other information – 1. Share Option Scheme” in Appendix V to this [REDACTED]. COMPLIANCE ADVISER We intend to appoint Guotai Junan Capital Limited as our compliance adviser pursuant to Rule 3A.19 of the [REDACTED]. Pursuant to Rule 3A.23 of the [REDACTED], the compliance adviser will advise us in the following circumstances: (i)
before the publication of any regulatory announcement, circular or financial report;
(ii) where a transaction, which might be a notifiable or connected transaction, is contemplated, including share issues and share repurchases; (iii) if we propose to use the proceeds of the [REDACTED] in a manner different from that detailed in this [REDACTED] or if the business activities, developments or results of our Group deviate from any forecast, estimate or other information in this [REDACTED]; and (iv) if the [REDACTED] makes an inquiry of our Group under Rule 13.10 of the [REDACTED]. The term of appointment of the compliance adviser shall commence on the [REDACTED] and end on the date on which we comply with Rule 13.46 of the [REDACTED] in respect of our financial results for the first full financial year ending 31 March 2016. – 159 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
SHARE CAPITAL The authorised and issued share capital of our Company is as follows: Number of Shares comprised in the authorised share capital 1,000,000,000
Shares
HK$ 10,000,000.0
Assuming that the [REDACTED] is not exercised, the share capital of our Company immediately following the [REDACTED] will be as follows: HK$ [REDACTED] [REDACTED] [REDACTED]
Shares in issue as at the date of this [REDACTED] Shares to be issued under the [REDACTED] Shares to be issued under the [REDACTED]
[REDACTED] [REDACTED] [REDACTED]
[REDACTED]
Shares
[REDACTED]
Assuming that the [REDACTED] is exercised, the share capital of our Company immediately following the [REDACTED] will be as follows: HK$ [REDACTED] [REDACTED] [REDACTED]
[REDACTED] [REDACTED] [REDACTED]
[REDACTED]
Shares in issue as at the date of this [REDACTED] Shares to be issued under the [REDACTED] Shares to be issued under the [REDACTED] Shares to be issued upon exercise of the [REDACTED] in full
[REDACTED]
Shares
[REDACTED]
[REDACTED]
ASSUMPTIONS The above tables assume that the [REDACTED] has become unconditional and the issues of Shares pursuant to the [REDACTED] and the [REDACTED] are made. They take no account of any Shares which may be allotted and issued upon the exercise of any options that may be granted under the Share Option Scheme; or any Shares which may be allotted and issued or repurchased by our Company pursuant to the Issuing Mandate and the Repurchase Mandate. RANKING The [REDACTED], including the Shares issuable pursuant to the [REDACTED], will rank pari passu with all Shares in issue or to be issued as mentioned in this [REDACTED] and will qualify for all dividends or other distributions declared, made or paid after the date of this [REDACTED] save for the entitlement under the [REDACTED]. – 160 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
SHARE CAPITAL ISSUING MANDATE Subject to the [REDACTED] becoming unconditional, our Directors have been granted a general unconditional mandate to allot or issue and deal with unissued Shares with an aggregate nominal value of not more than: (a)
20 per cent. of the total nominal amount of Shares in issue immediately following completion of the [REDACTED] and the [REDACTED]; and
(b) the total nominal amount of Shares repurchased by our Company pursuant to the mandate referred to in the paragraph headed “Share Capital – Repurchase mandate” of this [REDACTED]. This mandate will expire: •
at the conclusion of the next annual general meeting of our Company; or
•
at the expiration of the period within which our Company required by the Articles of Association or any applicable laws of the Cayman Islands to hold its next annual general meeting; or
•
when varied or revoked by an ordinary resolution of our Shareholders in general meeting,
whichever is the earliest. Particulars of this general mandate are set forth in the paragraph headed “Statutory and General Information – A. Further information about our Company and its subsidiaries – 3. Resolutions in writing of all our Shareholders passed on [●] 2014” in Appendix V to this [REDACTED]. REPURCHASE MANDATE Subject to the [REDACTED] becoming unconditional, our Directors have been granted a general mandate to exercise all the powers of our Company to repurchase Shares with a total nominal value of not more than 10 per cent. of the total nominal amount of the Shares in issue immediately following completion of the [REDACTED] and the [REDACTED] (excluding Shares that may be allotted and issued pursuant to exercise of the [REDACTED] or the Share Option Scheme). This mandate only relates to repurchases made on the [REDACTED], or on any other [REDACTED] on which the Shares are listed (and which are recognised by the SFC and the [REDACTED] for this purpose), and which are in accordance with the [REDACTED]. A summary of the relevant [REDACTED] is set forth in the paragraph headed “Statutory and General Information – A. Further information about our Company and its subsidiaries – 6. Repurchase of Share by our Company” in Appendix V to this [REDACTED]. – 161 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
SHARE CAPITAL This mandate will expire: •
at the conclusion of the next annual general meeting of our Company; or
•
at the expiration of the period within which our Company is required by its Articles of Association or any applicable laws of the Cayman Islands to hold its next annual general meeting; or
•
when varied or revoked by an ordinary resolution of our Shareholders in general meeting,
whichever is the earliest. Particulars of this general mandate are set forth in the paragraph headed “Statutory and General Information – A. Further information about our Company and its subsidiaries – 3. Resolutions in writing of all our Shareholders passed on [●] 2014” in Appendix V to this [REDACTED]. SHARE OPTION SCHEME Subject to the [REDACTED] becoming unconditional, our Company have approved and adopted the Share Option Scheme. For detailed information of the Share Option Scheme, please refer to the paragraph headed “Statutory and General Information – D. Other information – Share Option Scheme” in Appendix V to this [REDACTED]. GENERAL INFORMATION For details of circumstances under which our Shareholders’ general meeting are required, please refer to the paragraph headed “Summary of the Constitution of the Company and Cayman Islands Company Law – 2. Articles of Association – (j) Notices of meetings and business to be conducted thereat” in Appendix IV to this [REDACTED].
– 162 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
FINANCIAL INFORMATION
You should read the following discussion and analysis in conjunction with our combined financial statements together with the accompanying notes, set forth in the Accountant’s Report in Appendix I to this [REDACTED]. Our combined financial statements have been prepared in accordance with HKFRS, which may differ in certain material respects from generally accepted accounting principles in other jurisdictions. You should read the whole of the Accountants’ Report included as Appendix I to this [REDACTED] and not rely merely on the information contained in this section. The following discussion contains certain forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements due to various factors, including those set forth in the sections headed “Forward-looking Statements” and “Risk Factors”. Unless the context otherwise requires, financial information described in this section is described on a combined basis. OVERVIEW We are an integrated fine jewellery provider with a well-established operating history in Hong Kong, and are primarily engaged in designing, manufacturing and exporting fine jewelleries to jewellery wholesalers and retailers mainly in Russia, Americas and other European countries. We offer a wide range of fine jewellery products in karat gold, including rings, earrings, pendants, necklaces, bracelets, bangles, cufflinks, brooches and anklets. Our products are generally priced on a cost-plus basis and vary depending on factors such as product type, complexity of design and craftsmanship, raw materials used and our expected margins. For the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014, the average wholesale price of our products was approximately HK$1,359, HK$1,245, HK$1,231 and HK$1,133 per piece, respectively. We believe that the success of a fine jewellery provider vests in its capability of providing integrated services to its customers. In addition to product design and production, we provide synergistic, value-added services to selected customers with strategic values to us, which are typically branded retail chain operators. For these selected customers, we share our observation on market trend and conduct discussion and interactive sessions with them, and collaborate with them on areas such as product series theme creation, product design in sets and/or series, product positioning, product showcasing and product launch strategies, which we view as collaborating efforts with them to promote their end consumer sales. Our revenue increased from approximately HK$1,114.7 million for the year ended 31 March 2012 to approximately HK$1,345.8 million for the year ended 31 March 2014, with a CAGR of 9.9% over the three-year period, and decreased by 28.6% from approximately HK$482.7 million for the three months ended 30 June 2013 to approximately HK$344.8 million for the three months ended 30 June 2014. During the Track Record Period, our net profit was approximately HK$68.8 million, HK$33.8 million, HK$37.6 million and HK$17.4 million, respectively, for the years ended 31 March 2012, 2013, 2014 and the three months ended 30 June 2014, respectively. – 163 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
FINANCIAL INFORMATION BASIS OF PRESENTATION Pursuant to the Reorganisation as more fully described in the section “History, Development and Reorganisation – Reorganisation” in this [REDACTED], our Company became the holding company of the companies now comprising our Group subsequent to the end of the Track Record Period on 29 July 2014. The companies now comprising our Group were under the common control of the Controlling Shareholder before and after the Reorganisation. Accordingly, the financial information set out in the Accountants’ Report in Appendix I to this [REDACTED] has been prepared on a combined basis by applying the principles of merger accounting as if the Reorganisation had been completed as at the beginning of the Track Record Period. The combined statements of profit or loss and other comprehensive income, combined statements of changes in equity and combined statements of cash flows of our Group for the Track Record Period include the results and cash flows of all companies now comprising our Group from the earliest date presented or since the date when the subsidiaries first came under the common control of the Controlling Shareholder, where this is a shorter period. The combined statements of financial position of our Group as at 31 March 2012, 2013 and 2014 and 30 June 2014 have been prepared to present the assets and liabilities of the subsidiaries using the existing carrying values from the perspective of the Controlling Shareholder. No adjustments are made to reflect fair values, or recognise any new assets or liabilities as a result of the Reorganisation. All intra-group transactions and balances have been eliminated on combination. KEY FACTORS AFFECTING OUR RESULTS OF OPERATIONS Our results of operations have been and will continue to be affected by a number of factors, including those set out below: General economic conditions and levels of consumer spending Our turnover and profitability are affected by general economic conditions and economic conditions in our principal markets. Economic conditions in the countries and regions in which we operate, particularly Russia, affect the levels of disposable income and consumer spending. An economic downturn or recession in one or more of our principal markets could adversely affect our customers’ purchasing power and demands which could have a material effect on our business, results of operations and financial condition. According to the IPSOS Report, the revenue of fine jewellery export manufacturing industry in Hong Kong increased from about HK$38,079.9 million in 2009 to about HK$76,875.0 million in 2013 at a CAGR of about 19.2% which mainly due to the increase in export to Russia and Middle East, and the revenue of fine jewellery export manufacturing industry in Hong Kong is expected to increase from HK$76,875.0 million in 2013 to about HK$152,831.4 million in 2018 at a CAGR of about 14.7%, with the stable recovery of the United States economy and continuous strong demand for fine jewellery from Russia and the Middle East. We have historically been relying heavily on the Russia market, which was our largest sales market during the Track Record Period. For the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014, sales to Russia accounted for approximately 57.0%, 69.0%, 62.3% and 60.6% of our total revenue, respectively. While it is a strategy of our Group to further diversify our market to the United States and the PRC and we have achieved a certain degree of initial momentum with these markets in 2014, our geographical sales contribution is – 164 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
FINANCIAL INFORMATION still and is expected to be in the near term to remain skewed significantly towards the Russian market. The recent military interventions in Ukraine may bring uncertainty to or even adversely affect the economy of Russia which could potentially affect the business of our customers in Russia. In such event, the demand for our products can drop drastically and our business, financial condition and results of operation can be materially adversely affected. Changes in general economic conditions, including due to political factors, trade disputes or natural events, have affected, and will continue to affect, our businesses. Reliance on our major customers For the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014, sales to our five largest customers amounted to approximately HK$713.1 million, HK$1,091.6 million, HK$1,062.7 million and HK$271.1 million and accounted for approximately 64.0%, 76.1%, 79.0% and 78.6% of our total sales, respectively; and sales to the largest customer amounted to approximately HK$447.8 million, HK$724.6 million, HK$566.4 million and HK$160.1 million and accounted for approximately 40.2%, 50.5%, 42.1% and 46.4% of our total sales, respectively. We have maintained three to 12 years of business relationship with our five largest customers during the Track Record Period. Our major customers are not obligated in any way to continue placing orders with our Group at the same historical level or at all. There is no assurance that our business relationship with any of our major customers will continue in the future. If any of these customers, in particular our largest customer, ceases to do business with us, or substantially reduces the volume of its business with us for whatever reason, and if we are unable to secure new customers with comparable sales volume and profit margins to minimise the effects brought by such cessation of or reduction in businesses with our major customers, our profitability and financial results may be materially and adversely affected. Competition The fine jewellery industry is highly competitive. We compete on the basis of quality, designs and price with our competitors. Some of our competitors may have larger customer bases, greater financial, sales and marketing resources or greater production capability. As such, we have been collaborating with selected customer with strategic values to us, which are typically branded retail chain operators, in various aspects such as product series theme creation, product design in sets and/or series, product positioning, product showcasing and product launch strategies, which we view as collaborating efforts with them to promote their end consumer sales. We have been successful in offering a wide range of product solutions to our customers, for the mutual benefits of our customers and ourselves. Nevertheless, we aim to constantly improve ourselves in all other aspects in order to maintain our market share and profitability. Our results of operations are affected by our ability to remain competitive, which in turn depends on our ability to increase our brand awareness and differentiate our products from those offered by our competitors in ways that will appeal to consumers.
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
FINANCIAL INFORMATION Fluctuations of prices in raw materials Cost of raw materials represented the largest component of our cost of goods sold during the Track Record Period. The principal raw materials purchased by our Group are gold and diamonds. The table below sets out our purchases of principal raw materials during the Track Record Period: Year ended 31 March Raw materials
2012
Three months ended 30 June
2013
2014
2013
2014
HK$’000
(%)
HK$’000
(%)
HK$’000
(%)
HK$’000
(%)
HK$’000
(%)
. . . . .
441,203 204,056 21,819 2,259 12,020
64.8 29.9 3.2 0.3 1.8
803,283 314,369 49,926 2,620 24,310
67.2 26.3 4.2 0.2 2.1
493,171 245,714 30,113 3,207 15,728
62.6 31.2 3.8 0.4 2.0
100,602 44,840 8,756 997 4,690
62.9 28.0 5.5 0.6 3.0
104,791 77,740 8,447 442 4,159
53.6 39.7 4.3 0.2 2.2
Total . . . . . . .
681,357
100.0
1,194,508
100.0
787,933
100.0
159,885
100.0
195,579
100.0
Gold . . . . Diamonds . Gem stones. Pearls . . . Others . . .
. . . . .
. . . . .
Note: Others include crystals, jade, silver, etc.
For the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014, our purchase of gold accounted for approximately 64.8%, 67.2%, 62.6% and 53.6% of our total purchase of principal raw materials, respectively; the average purchase prices of gold were approximately US$1,680 per ounce, US$1,697 per ounce, US$1,354 per ounce and US$1,308 per ounce, respectively, which were relatively volatile during the Track Record Period. The purchase price of gold is set by reference to the prevailing market prices at TLGMFL (for gold purchase in Hong Kong) and the Shanghai Gold Exchange (for gold purchase in the PRC). We did not enter into any hedging arrangements during the Track Record Period to mitigate any associated risk in relation to price fluctuations of gold. Our purchase of diamonds accounted for approximately 29.9%, 26.3%, 31.2% and 39.7% of our total purchase of principal raw materials, respectively, for the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014. The prices of diamonds vary depending on their specifications such as size, colour, clarity and cut. About 99% of the diamonds that we purchased during the Track Record Period were below 0.03 carat, with the majority lies in the range of 0.002 to 0.004 carat. The average purchase prices of diamonds were approximately HK$1,912 per carat, HK$2,035 per carat, HK$1,994 per carat and HK$2,232 per carat for the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014, respectively. The increase in the average purchase price of diamonds for the three months ended 30 June 2014 was mainly attributable to the increased demand for usage of more expensive diamonds in the three months ended 30 June 2014 compared to the previous period. To the best of our Directors’ knowledge and information, while there are market references for diamonds in the size of 0.1 carat or above, there is no publicly available market reference for diamonds under the size 0.1 carat. According to the IPSOS Report, the average price of polished diamond in the global market in 2012, 2013 and 2014 was about US$378.8 per carat, US$362.3 per carat and US$378.0 per carat respectively. These average prices of polished diamond in the global market were in respect of polished diamonds in the range of 0.01 to 0.40 carat with clarity in the range of I-1 to I-3, that is, with inclusions visible under 10 times magnification and may not be comparable to the diamonds that we purchased, as a majority of diamonds that we purchased were 0.002 to 0.004 carat and vary in terms of colour, clarity and cut. – 166 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
FINANCIAL INFORMATION We generally price our products on a cost-plus basis with reference to, among others, our cost of production for each batch of confirmed sales order. The purchase price of our raw material is set by reference to the prevailing market prices. However, if the prices of the raw materials continue to increase or fluctuate to such an extent beyond customers’ expectations or we are unable to pass on such increases to our customers, our cost of sales will increase which could have an adverse impact on our results of operation. Sensitivity analysis For illustrative purposes only, the following table sets out a sensitivity analysis of: (1) the effect of fluctuations of our per unit purchase price of gold; and (2) the effect of fluctuations of our per unit purchase price of diamonds on our net profit for the year/period during the Track Record Period. Fluctuations in our cost of raw materials from our cost of sales are assumed to be 5% and 10%. Impact on net profit for the year/period Period ended 30 June
Year ended 31 March
Per unit purchase price of gold +/-5% . . . . . . . . . . . . . . . . . +/-10% . . . . . . . . . . . . . . . .
2012
2013
2014
2013
2014
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
-/+22,879 -/+45,757
-/+31,534 -/+63,068
-/+27,479 -/+54,957
-/+10,447 -/+20,893
-/+6,849 -/+13,698
Impact on net profit for the year/period Period ended 30 June
Year ended 31 March
Per unit purchase price of diamonds +/-5% . . . . . . . . . . . . . . . . . +/-10% . . . . . . . . . . . . . . . .
2012
2013
2014
2013
2014
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
-/+8,702 -/+17,405
-/+11,831 -/+23,662
-/+12,682 -/+25,363
-/+4,078 -/+8,157
-/+3,132 -/+6,263
The above sensitivity analysis is for illustrative purpose only. We generally price our products on a cost-plus basis with reference to, among others, our cost of production for each batch of confirmed sales order. The purchase price of our raw materials is set by reference to the prevailing market prices. Despite the changes in prices of gold and diamond during the Track Record Period, we generally could price our products on a cost-plus basis and maintain our profitability. Tax concessionary treatment During the Track Record Period, KTL Jewellery Trading had entered into processing arrangements with our subsidiary, KTL(Guangzhou). Pursuant to Departmental Interpretation and Practice Notes No. 21 (Revised in July 2012) (“DIPN 21”) issued by the Inland Revenue – 167 –
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FINANCIAL INFORMATION Department of Hong Kong (“IRD”), in the event of a Hong Kong manufacturing company enters into a contract processing arrangement with a PRC entity where the production processes are carried out at a processing facility situated in the PRC and such Hong Kong manufacturing company provides raw materials and machinery without consideration and the technical and managerial know-how according to the processing arrangements, profits of the Hong Kong manufacturing company generated from the sale of goods that are manufactured/processed by such PRC entity can be apportioned on a 50:50 basis and 50% of the chargeable profits so apportioned can be treated as non-taxable in Hong Kong. In order to be entitled to the concessionary tax treatment under DIPN 21, we are required to provide a full range of information and records to the IRD in accordance with the specific requirements under DIPN 21, including, among others, the prescribed mechanism on internal reporting and recording financial transactions. KTL Jewellery Trading was entitled to the concessionary tax treatment under the DIPN 21 during the Track Record Period. Our income tax expenses arising from taxable profits of KTL Jewellery Trading were approximately HK$4.0 million, HK$2.4 million, HK$3.0 million and HK$1.3 million for the year ended 31 March 2012, 2013, 2014 and the three months ended 30 June 2014, respectively, accounted for 56.9%, 50.9%, 47.4% and 37.1% of total income tax expenses for the same periods. Our directors consider that the processing arrangements will continue to comply with the requirements for the concessionary tax treatment under DIPN 21. However, if we fail to comply with the aforesaid requirements for the concessionary tax treatment under DIPN 21 in the future, we will incur additional income tax expenses, and our results of operations and profitability may be adversely affected. Currency fluctuations As our sales of products and purchases of raw materials are primarily dominated in US dollar whereas our payment of wages and salaries to the PRC workers and subcontracting fees are dominated in RMB and/or HK dollar, we are exposed to exchange rate risk. During the Track Record Period, our Group has experienced net exchange losses of approximately HK$0.8 million, HK$3.5 million, HK$2.3 million and net exchange gains of approximately HK$0.1 million, respectively, for the year ended 31 March 2012, 2013, 2014 and the three months ended 30 June 2014. During the Track Record Period, we did not use derivative financial instruments to hedge currency risk although we may consider so in the future to hedge risks arising from fluctuation in foreign currency exchange rates. Since HK$ is pegged into US$, we do not expect significant movements in HK$/US$ exchange rate. If RMB as at 31 March 2012, 2013, 2014 and 30 June 2014 had strengthened/weakened by 5% against HK$ with all other variables held constant, our profit after tax would have been increased/decreased for approximately HK$1.2 million, HK$4.1 million, HK$4.2 million and HK$4.3 million, respectively. Our profit margins will be negatively affected to the extent that we are unable to increase the US dollar selling prices of the products we sell to our overseas customers to account for any appreciation of the RMB against the US dollar. Further, any future significant fluctuations in exchange rates will result in increases or decreases in our reported costs and earnings, and also adversely affect the carrying value of our non-Hong Kong dollar-denominated assets and the amount of our equity, and, accordingly, our business, financial condition, results of operations and prospects. – 168 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
FINANCIAL INFORMATION CRITICAL ACCOUNTING POLICIES AND ESTIMATES We set forth below those accounting policies, estimates and judgments used in the preparation of our financial statements. Our significant accounting policies, estimates and judgements, which are important for an understanding of our financial condition and results of operations, are set forth in detail in Note 2.4 and Note 3 to our combined financial statements included in “Appendix I – Accountant’s Report”. Accounting policies Revenue recognition Revenue is recognised when it is probable that the economic benefits will flow to our Group and when the revenue can be measured reliably, on the following bases: (a)
from the sale of goods, when the significant risks and rewards of ownership have been transferred to the buyer, provided that our Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold;
(b) interest income, on an accrual basis using the effective interest method by applying the rate that exactly discounts the estimated future cash receipts over the expected life of the financial instrument or a shorter period, when appropriate, to the net carrying amount of the financial asset. Income tax Income tax comprises current and deferred tax. Income tax relating to items recognised outside profit or loss is recognised outside profit or loss, either in other comprehensive income or directly in equity. Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period, taking into consideration interpretations and practices prevailing in the countries in which the Group operates. Deferred tax is provided, using the liability method, on all temporary differences at the end of the reporting period between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised for all taxable temporary differences, except: •
when the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
•
in respect of taxable temporary differences associated with investments in subsidiaries, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. – 169 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
FINANCIAL INFORMATION Deferred tax assets are recognised for all deductible temporary differences, the carryforward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, the carryforward of unused tax credits and unused tax losses can be utilised, except: •
when the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
•
in respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at the end of each reporting period and are recognised to the extent that it has become probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. Dividend income derived from our PRC subsidiaries is subject to a withholding tax under the prevailing tax rules and regulations of the PRC. Property, plant and equipment and depreciation Property, plant and equipment, other than construction in progress (“CIP”), are stated at cost less accumulated depreciation and any impairment losses. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to profit or loss in the period in which it is incurred. In situations where the recognition criteria are satisfied, the expenditure for a major inspection is capitalised in the carrying amount of the asset as a replacement. Where significant parts of property, plant and equipment are required to be replaced at intervals, the Group recognises such parts as individual assets with specific useful lives and depreciates them accordingly. – 170 –
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FINANCIAL INFORMATION Depreciation is calculated on a straight-line basis to write off the cost of each item of property, plant and equipment to its residual value over its estimated useful life. The principal annual rates used for this purpose are as follows: Leasehold land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leasehold improvement . . . . . . . . . . . . . . . . . . . . . . . Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . Office equipment and computers. . . . . . . . . . . . . . . . Plant and machinery . . . . . . . . . . . . . . . . . . . . . . . . . Motor vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Over the lease terms 2% to 2.5% Over the shorter of the lease terms and 20% 20% 20% to 331⁄3% 20% 20%
Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately. Residual values, useful lives and the depreciation method are reviewed, and adjusted if appropriate, at least at each financial year end. An item of property, plant and equipment including any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognised in profit or loss in the year the asset is derecognised is the difference between the net sales proceeds and the carrying amount of the relevant asset. CIP represents a building under construction, which is stated at cost less any impairment losses, and is not depreciated. Cost comprises the direct costs of construction and capitalised borrowing costs on related borrowed funds during the period of construction. CIP is reclassified to the appropriate category of property, plant and equipment when completed and ready for use. Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined on the first-in, first-out basis and, in the case of work in progress and finished goods, comprises direct materials, direct labor and an appropriate proportion of overheads. Net realisable value is based on estimated selling prices less any estimated costs to be incurred to completion and disposal. Impairment of financial assets Our Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. An impairment exists if one or more events that occurred after the initial recognition of the asset have an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that a debtor or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. – 171 –
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FINANCIAL INFORMATION Financial assets carried at amortised cost For financial assets carried at amortised cost, our Group first assesses whether impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If our Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment. The amount of any impairment loss identified is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced through the use of an allowance account and the loss is recognised in profit or loss. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Loans and receivables together with any associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to our Group. If, in a subsequent period, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a write-off is later recovered, the recovery is credited to other expenses in profit or loss. Estimates and judgements Impairment of property, plant and equipment Items of property, plant and equipment are tested for impairment if there is any indication that the carrying value of these assets may not be recoverable and the assets are subject to an impairment loss. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. The calculation of the fair value less costs to sell is based on available data from binding sales transactions in an arm’s length transaction of similar assets or observable market prices less incremental costs for disposing of the asset. Net realisable value of inventories Net realisable value of inventories is based on estimated selling price less any estimated costs to be incurred to completion and disposal with reference to prevailing market information. These estimates are based on the current market condition and the historical experience in selling goods of similar nature. It could change significantly as a result of changes in market conditions. Our Group reassesses the estimation at the end of each reporting period. – 172 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
FINANCIAL INFORMATION Impairment of trade receivables Our Group maintains an allowance for the estimated loss arising from the inability of its customers to make the required payments. Our Group makes its estimates based on the ageing of its trade receivable balances, customers’ creditworthiness and historical write-off experience. If the financial condition of its customers was to deteriorate so that the actual impairment loss might be higher than expected, our Group would be required to revise the basis of making the allowance. Deferred tax assets Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. RESULTS OF OPERATIONS The following table summarises the combined statements of profit or loss from our combined financial statements during the Track Record Period, details of which are set out in the Accountants’ Report in Appendix I to this [REDACTED]. Three months ended 30 June
Year ended 31 March 2012
2013
2014
2013
2014
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
(Unaudited) Revenue . . . . . . . . . . . . . . . . Cost of sales . . . . . . . . . . . . .
1,114,714 (875,517)
1,434,364 (1,170,480)
1,345,822 (1,101,706)
482,697 (398,575)
344,814 (275,224)
. . . .
239,197 6,724 (64,302) (133,733)
263,884 4,353 (66,654) (145,715)
244,116 5,555 (50,627) (132,113)
84,122 1,806 (16,324) (38,940)
69,590 2,246 (12,152) (27,643)
Operating profit . . . . . . . . . . . Other gains/(expenses), net . . . . Finance costs . . . . . . . . . . . . .
47,886 38,429 (10,465)
55,868 (4,158) (13,167)
66,931 (10,246) (12,779)
30,664 (6,892) (3,270)
32,041 (8,469) (2,592)
Profit before tax . . . . . . . . . . . Income tax expense . . . . . . . . .
75,850 (7,067)
38,543 (4,771)
43,906 (6,334)
20,502 (2,407)
20,980 (3,626)
Profit for the year/period . . . . .
68,783
33,772
37,572
18,095
17,354
Gross profit . . . . . . . . . Other income . . . . . . . . Selling expenses . . . . . . Administrative expenses .
. . . .
. . . .
. . . .
. . . .
– 173 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
FINANCIAL INFORMATION DESCRIPTION OF SELECTED ITEMS IN COMBINED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Revenue Our revenue represents gross sales generated from the sales of jewellery products, less returns and allowances. For the years ended 31 March 2012, 2013 and 2014, our revenue amounted to approximately HK$1,114.7 million, HK$1,434.4 million and HK$1,345.8 million, respectively, with a CAGR of 9.9% from the year ended 31 March 2012 to the year ended 31 March 2014. While our revenue decreased from approximately HK$482.7 million for the three months ended 30 June 2013 to approximately HK$344.8 million for the three months ended 30 June 2014. We offer a wide range of fine jewellery products in karat gold. There has been no major change in our products offering during the Track Record Period. The majority of our jewellery products provided include rings, earrings and pendants/necklaces, with an aggregate amount of revenue of approximately HK$1,062.6 million, HK$1,395.1 million, HK$1,293.3 million and HK$331.8 million for the years ended 31 March 2012, 2013, 2014 and the three months ended 30 June 2014, respectively, which represented approximately 95.3%, 97.3%, 96.1% and 96.2% of our total revenue for the same period, respectively. The following table sets forth the breakdown of our revenue by product type during the Track Record Period: Three months ended 30 June
Year ended 31 March 2012
2013
Revenue
Percentage of total revenue
HK$’000
(%)
2014
Revenue
Percentage of total revenue
HK$’000
(%)
2013
Revenue
Percentage of total revenue
HK$’000
(%)
2014
Revenue
Percentage of total revenue
Revenue
Percentage of total revenue
HK$’000
(%)
HK$’000
(%)
(Unaudited) Ring . . . . . Earrings . . . Pendant. . . . Necklace . . . Bracelet/bangle. Other gold fine jewelleries(1) . Silver jewellery/ Watch(2) . .
. . . . .
. . . . .
444,403 407,125 170,255 40,850 47,542
39.9 36.5 15.3 3.6 4.3
604,648 525,034 220,159 45,246 35,914
42.2 36.6 15.3 3.2 2.5
553,774 477,292 221,611 40,642 47,293
41.1 35.5 16.5 3.0 3.5
199,450 191,373 64,995 12,082 13,436
41.3 39.6 13.5 2.5 2.8
156,127 122,802 44,677 8,229 11,756
45.3 35.6 13.0 2.4 3.4
. .
4,539
0.4
3,363
0.2
5,210
0.4
1,361
0.3
977
0.2
. .
−
−
−
−
−
−
−
−
246
0.1
Total . . . . . . .
1,114,714
100.0
1,434,364
100.0
1,345,822
100.0
482,697
100.0
344,814
100.0
– 174 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
FINANCIAL INFORMATION The following table sets forth our sales volume and average wholesale price of our products during the Track Record Period: Three months ended 30 June
Year ended 31 March 2012
2013
Quantity
(HK$)
(piece)
321,557 273,076 184,084 14,761 25,084
1,382 1,491 925 3,221 1,629
. .
1,782
. .
Total . . . . . . .
. . . . .
(piece) . . . . .
2014 Average Wholesale price
Ring . . . . . Earrings . . . Pendant. . . . Bracelet/Bangle Necklace . . . Other gold fine jewelleries(1) . Silver jewellery/ Watch(2) . .
Quantity
Average Wholesale price
2013
Quantity
Average Wholesale price
(HK$)
(piece)
474,928 357,747 272,204 13,437 31,912
1,273 1,468 809 2,673 1,418
2,547
2,192
–
–
820,344
1,359
2014
Quantity
Average Wholesale price
Quantity
Average Wholesale price
(HK$)
(piece)
(HK$)
(piece)
(HK$)
465,807 333,882 242,744 15,960 31,958
1,189 1,430 913 2,963 1,272
148,050 125,914 78,886 4,271 9,262
1,347 1,520 824 3,146 1,304
135,977 97,834 54,477 3,694 7,387
1,148 1,255 820 3,183 1,114
1,534
2,779
1,875
1,042
1,305
501
1,945
–
–
–
–
–
–
4,410
56
1,152,420
1,245
1,093,130
1,231
367,425
1,314
304,280
1,133
Notes: (1) Other gold fine jewelleries include cufflink, brooch and anklet etc. (2) Since April 2014, we commenced trading of watches, silver jewelleries and non-precious metal (such as ceramic and steel) jewelleries with or without semi-precious and artificial stones as an ancillary product type to satisfy customers’ requests.
During the Track Record Period, the sales volume of our products increased by 40.5% for the year ended 31 March 2013 compared to the year ended 31 March 2012, which was primarily driven by a higher demand of our products from our major customers in Russia. Our sales volume remained relatively stable for the years ended 31 March 2013 and 2014, which was mainly due to (i) the decreased sales volume from one of our largest customers in Russia as which slowed down its expansion of business in the year ended 31 March 2014, and (ii) the increase in sales volume from Americas and the PRC which was in line with our strategy to further diversify our markets in the United States and the PRC. While our sales volume decreased by 17.2% from the three months ended 30 June 2013 to the three months ended 30 June 2014, which was mainly due to the decreased sales orders from Russia as a result of the economy uncertainty of Russia due to military intervention in Ukraine during the three months ended 30 June 2014, and was partially offset by enlarged sales volume contributed to certain customers in Europe and PRC during the period. The average wholesale price of our products decreased from approximately HK$1,359 per piece for the year ended 31 March 2012 to approximately HK$1,245 per piece for the year ended 31 March 2013, which was primarily due to a higher demand for gold embedded in products in the year ended 31 March 2012. The average wholesale price of our products remained relatively stable for the year ended 31 March 2013 and 2014 respectively. The average wholesale price of our products decreased by 13.8% from the three months ended 30 June 2013 to the three months ended 30 June 2014, which was mainly due to the change of our product mix with higher proportion of products with simple designs sold to Russia and Europe and the decrease in average purchase price of gold in the three months ended 30 June 2014 compared to the previous period. – 175 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
FINANCIAL INFORMATION The following table sets forth the breakdown of our revenue by geographical region for the periods indicated: Three months ended 30 June
Year ended 31 March 2012 Countries/ Territories
2013
Revenue
Percentage of total revenue
HK$’000
(%)
2014
Revenue
Percentage of total revenue
HK$’000
(%)
2013
Revenue
Percentage of total revenue
HK$’000
(%)
2014
Revenue
Percentage of total revenue
Revenue
Percentage of total revenue
HK$’000
(%)
HK$’000
(%)
(Unaudited) Russia . . . . . Americas . . . . Europe (other than Russia) . . . . PRC . . . . . . Middle East . . . Others . . . . .
. .
634,938 234,126
57.0 21.0
989,174 220,993
69.0 15.4
838,056 283,866
62.3 21.1
360,740 75,364
74.7 15.6
208,784 74,678
60.6 21.7
. . . .
115,585 43,851 51,650 34,564
10.4 3.9 4.6 3.1
89,325 64,766 43,620 26,486
6.2 4.5 3.0 1.9
74,038 84,315 23,377 42,170
5.5 6.3 1.7 3.1
12,320 16,982 12,034 5,257
2.6 3.5 2.5 1.1
22,217 24,247 2,506 12,382
6.4 7.0 0.7 3.6
Total . . . . . . .
1,114,714
100.0
1,434,364
100.0
1,345,822
100.0
482,697
100.0
344,814
100.0
Notes: (1) Americas mainly includes the United States and Canada. (2) Europe (other than Russia) mainly includes Italy, France, Holland and Turkey. (3) Middle East mainly includes United Arab Emirates. (4) Others mainly include Hong Kong, Indonesia, Japan and Africa.
Since we tapped into the fine jewellery market in Russia in 2006, Russia remained the most important sales region to us during the Track Record Period and our revenue derived from Russia were approximately HK$634.9 million, HK$989.2 million, HK$838.1 million and HK$208.8 million for the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014, respectively, which represented approximately 57.0%, 69.0%, 62.3% and 60.6% of our total revenue, respectively, for the same period. Our sales to customers in Russia increased by 55.8% for the year ended 31 March 2013 as compared with the year ended 31 March 2012, which was mainly attributable to a higher demand of our products from our major customers in Russia; and for the year ended 31 March 2014, our largest customer in Russia slowed down its expansion of business, which led to our sales in Russia decreased by approximately 15.3% for the year ended 31 March 2014 as compared with the year ended 31 March 2013. Our sales in Russia decreased by 42.1% for the three months ended 30 June 2014 compared to the same period in 2013, which was mainly due to the economy uncertainty in Russia and the change of product mix with more products with simple design sold to Russia.
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FINANCIAL INFORMATION Americas was our second largest market. Sales in Americas remained relatively stable with the amount of approximately HK$234.1 million and HK$221.0 million for the years ended 31 March 2012 and 2013, respectively. Our sales in Americas increased by 28.5% from the year ended 31 March 2013 to the year ended 31 March 2014, as a result of our efforts in promoting our synergistic value-added services to our major customers in Americas. Sales in Americas remained relatively stable with the amount of approximately HK$75.4 million and HK$74.7 million for the three months ended 30 June 2013 and 2014 respectively. Russia and Americas were our two major markets during the Track Record Period, which contributed aggregately approximately 78.0%, 84.4%, 83.4% and 82.2% of our sales for the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014, respectively. Sales in Europe (other than Russia) decreased from approximately HK$115.6 million for the year ended 31 March 2012 to approximately HK$89.3 million for the year ended 31 March 2013, and further decreased to approximately HK$74.0 million for the year ended 31 March 2014, which was mainly attributable to the sluggish European economy during the periods. However, our sales in Europe increased from approximately HK$12.3 million for the three months ended 30 June 2013 to approximately HK$22.2 million for the three months ended 30 June 2014 mainly due to a large batch of sales orders confirmed by one of our major customers in Europe during the period. Our sales in the PRC recorded approximately HK$43.9 million, HK$64.8 million, HK$84.3 million, respectively, for the years ended 31 March 2012, 2013 and 2014, and approximately HK$17.0 million and HK$24.2 million, respectively, for the three months ended 30 June 2013 and 2014. Such sales in the PRC achieved a CAGR of approximately 38.7% for the three-year period from the year ended 31 March 2012 to the year ended 31 March 2014 and a growth rate of 42.8% for the period from the three months ended 30 June 2013 to the three months ended 30 June 2014 as a result of our strategy to expand our business in the PRC. Our sales in Middle East experienced a continuous decrease during the Track Record Period, from approximately HK$51.7 million for the year ended 31 March 2012 to approximately HK$43.6 million for the year ended 31 March 2013 and further decreased to HK$23.4 million for the year ended 31 March 2014, and decreased from approximately HK$12.0 million for the three months ended 30 June 2013 to approximately HK$2.5 million for the three months ended 30 June 2014, primarily attributable to the continuous decrease in sales to our major customer in Middle East because the relevant customer changed its business focus to streamline retail networks and reduce excess inventories since 2013 and our switch of focus in the United States and the PRC markets. Our Directors consider that expansion of business in the United States and the PRC would reduce our reliance in Russia market.
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FINANCIAL INFORMATION Cost of sales Our cost of sales comprises mainly cost of raw materials, staff costs, factory overheads, subcontracting fees and others. Raw materials mainly represented gold, diamonds and gem stones, which accounted for approximately 83.8%, 86.0%, 84.8% and 84.8% of our total cost of sales for the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014, respectively. Staff costs mainly comprise salaries, wages and welfare expenses for staff involved in our production and research and development activities. Subcontracting fees primarily represents expenses paid to our subcontractors to handle certain steps of the production process. Other expenses mainly include write-down of inventories to net realisable value and other miscellaneous expenses directly related to our production such as consumables utilised in our production of our products. For the details of write-down of inventories please refer to “Description of Certain Items of Combined Statements of Financial Position − Inventories” in this section. The following table sets forth, for the periods indicated, a breakdown of our cost of sales by nature: Year ended 31 March 2012 HK$’000
Three months ended 30 June
2013 %
HK$’000
2014 %
HK$’000
2013 %
HK$’000
2014 %
HK$’000
%
(Unaudited) Raw materials . Staff costs . . . Factory overhead . . . Depreciation . . Subcontracting fees . . . . . Other expenses .
733,269 73,197
83.8 8.4
1,006,270 82,699
86.0 7.1
934,009 76,150
84.8 6.9
340,341 22,492
85.4 5.6
233,389 17,901
84.8 6.5
5,841 1,589
0.7 0.2
6,453 1,199
0.6 0.1
5,731 792
0.5 0.1
3,938 294
1.0 0.1
499 127
0.2 0.0
42,823 18,798
4.9 2.0
67,982 5,877
5.8 0.4
66,417 18,607
6.0 1.7
20,776 10,734
5.2 2.7
13,408 9,900
4.9 3.6
Total . . . . . .
875,517
100.0
1,170,480
100.0
1,101,706
100.0
378,575
100.0
275,224
100.0
Gross profit and gross profit margin As a result of the foregoings, for the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014, our gross profit amounted to approximately HK$239.2 million, HK$263.9 million, HK$244.1 million and HK$69.6 million, respectively, and our overall gross profit margin was approximately 21.5%, 18.4%, 18.1% and 20.2%, respectively. Our fluctuation in the gross profit margin during the Track Record Period was primarily attributable to various factors including the product mix with different composition and complexity of design for customized products ordered by our customers, the competitive landscape in different markets and our Group’s strategy to further diversify our market to the United States.
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FINANCIAL INFORMATION Other income The following table sets out the breakdown of our other income during the periods indicated: The three months ended 30 June
Year ended 31 March 2012
2013
2014
2013
2014
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
(Unaudited) Interest income from bank deposits . . . . . Government grant . . . . Sales of scrap . . . . . . . Sales of loose diamond, Others. . . . . . . . . . . .
. . . . . . . . . net. . . .
. . . . .
. . . . .
. . . . .
43 2,008 85 3,954 634
1,210 1,963 392 15 773
2,196 2,182 321 6 850
675 620 6 2 503
554 1,468 110 65 49
Total. . . . . . . . . . . . . . . . . . .
6,724
4,353
5,555
1,806
2,246
Other income mainly represents interest income from bank deposits, government grants, sales of scrap, net sales of loose diamonds and others. Government grants mainly represent compensations for export insurance expenses from the PRC government received by our certain PRC subsidiaries. Net sales of loose diamonds mainly relate to those loose diamonds with no use which are generally mixed with the raw materials received from our suppliers. Others mainly include income from processing services provided to customers for processing their obsolete jewellery products into new ones and sales of marketing materials to customers. Other income amounted to approximately HK$6.7 million, HK$4.4 million, HK$5.6 million and HK$2.2 million for the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014, respectively. Selling expenses Our selling expenses consist primarily of staff costs for our sales and marketing personnel, sales commissions to agents, export credit insurance expenses, advertising and exhibition expenses, travelling expenses, custom duty and freight charges, and others. Sales commissions to agents relate to payments to certain agents based on a percentage of the actual sales to customers introduced by them. The decrease in the sales commissions to agents during the Track Record Period was mainly driven by the decrease in number of sales agents engaged by our Group mainly as a result of less reliance with agents for our sales. Export credit insurance expenses relate to expenses incurred to protect our Group as an exporter of goods against the risk
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FINANCIAL INFORMATION of delay in payment or non-payment from our customers located in different countries. Advertising and exhibition expenses relate to expenses incurred in our participation in various industry exhibition and for advertising and marketing of our products. The following table sets forth, for the periods indicated, a breakdown of our cost of sales by nature: Three months ended 30 June
Year ended 31 March 2012
2013
2014
2013
2014
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
(Unaudited) Staff costs . . . . . . . . . . . . Sales commissions to agents Export credit insurance expenses. . . . . . . . . . . . Advertising and exhibition expenses. . . . . . . . . . . . Travelling expenses . . . . . . Custom duty and freight charges . . . . . . . . . . . . Others. . . . . . . . . . . . . . .
. . . . . .
37,493 7,968
43,528 3,725
31,549 1,805
10,191 270
7,089 307
. . .
5,154
8,365
8,609
2,882
2,140
. . . . . .
5,841 3,444
4,925 2,344
4,760 1,753
1,883 568
1,140 890
. . . . . .
2,969 1,433
2,348 1,419
1,571 580
427 103
425 161
Total. . . . . . . . . . . . . . . . . . .
64,302
66,654
50,627
16,324
12,152
Our selling expenses amounted to approximately HK$64.3 million, HK$66.7 million, HK$50.6 million and HK$12.2 million for the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014, respectively. As a percentage of total revenue, our selling expenses accounted for approximately 5.8%, 4.6%, 3.8% and 3.5% during the respective periods. Administrative expenses Administrative expenses primarily comprise staff costs paid to our administrative personnel, depreciation and amortisation, office and utility expenses, legal and professional fees, rental expenses, entertainment expenses, travelling expenses, automotive expenses, insurance expenses, bank charges, other taxes and surcharges, repair and maintenance expenses, allowances for doubtful debts, compensation expenses and other miscellaneous expenses related to administrative activities. Motor vehicle expenses represent motor vehicles related expenses such as fuel expenses and toll. We recorded non-recurring compensation expenses of approximately HK$6.5 million and HK$4.1 million for the year ended 31 March 2013 and 2014, respectively, which mainly related to expenses paid to our subcontractor as compensation for the delay in the construction of the Yuwotou Premises. Others mainly represent miscellaneous expenses related to administrative activities including staff training expenses and consumable materials.
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FINANCIAL INFORMATION The following table sets forth a breakdown of our administrative expenses for the periods indicated: Year ended 31 March 2012 HK$’000
Three months ended 30 June
2013 %
HK$’000
2014 %
HK$’000
2013 %
HK$’000
2014 %
HK$’000
%
(Unaudited) Staff costs. . . . . . Depreciation and amortisation. . . . Office and utility expenses . . . . . Legal and professional fees . Rental expenses . . . Entertainment expenses . . . . . Travelling expenses . Motor vehicle expenses. . . . . . Bank charges . . . Other taxes and surcharges . . . . Insurance expenses . Repair and maintenance expenses . . . . . Allowances for doubtful debts . . Compensation expenses . . . . . Others. . . . . . . .
70,194
52.5
79,922
54.9
74,091
56.1
20,423
52.4
16,378
59.2
18,687
14.0
19,791
13.6
15,665
11.9
4,663
12.0
3,548
12.8
9,630
7.2
10,693
7.3
7,859
5.9
2,230
5.7
2,036
7.4
5,154 5,643
3.9 4.2
5,110 5,615
3.5 3.8
4,591 2,598
3.5 2.0
686 700
1.8 1.8
1,074 473
3.9 1.7
4,340 1,684
3.2 1.3
3,910 1,283
2.7 0.9
3,373 2,156
2.6 1.6
755 569
1.9 1.5
734 492
2.7 1.8
2,460 2,068
1.8 1.5
2,349 3,154
1.6 2.2
1,822 3,203
1.4 2.4
514 994
1.3 2.6
473 1,012
1.7 3.7
5,561 1,304
4.2 1.0
1,204 1,334
0.8 0.9
1,548 1,127
1.2 0.9
395 324
1.0 0.8
244 270
0.9 1.0
1,608
1.2
2,069
1.4
1,769
1.3
232
0.6
298
1.1
2,177
1.6
–
–
6,444
4.9
5,834
15.0
–
–
– 3,223
– 2.4
6,466 2,815
4.4 2.0
4,104 1,763
3.1 1.2
– 622
– 1.6
– 611
– 2.1
Total . . . . . . . .
133,733
100.0
145,715
100.0
132,113
100.0
38,940
100.0
27,643
100.0
Administrative expenses amounted to approximately HK$133.7 million, HK$145.7 million, HK$132.1 million and HK$27.6 million for the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014, respectively. As a percentage of total revenue, our administrative expenses accounted for approximately 12.0%, 10.2%, 9.8% and 8.0% during the respective periods.
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FINANCIAL INFORMATION Other gains/(expenses), net The following table sets out the breakdown of our net other gains/(expenses) during the periods indicated: The three months ended 30 June
Year ended 31 March 2012
2013
2014
2013
2014
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
(Unaudited) Gain/(loss) on disposal of items of property, plant and equipment. . . . . . . . . . . . . . Foreign exchange differences, net . . . . . . . . . . . . . . . . . . Impairment loss of CIP . . . . . . [REDACTED] expenses . . . . . . Total. . . . . . . . . . . . . . . . . . .
39,211 (782) – – 38,429
(623)
105
(33)
300
(3,535) – –
(2,283) (8,068) –
(362) (6,497) –
113 – (8,882)
(4,158)
(10,246)
(6,892)
(8,469)
Other net gains and expenses recorded net gains of approximately HK$38.4 million for the year ended 31 March 2012, and net expenses of HK$4.2 million, HK$10.2 million and HK$8.5 million for the years ended 31 March 2013 and 2014 and the three months ended 30 June 2014, respectively. Other net gains/(expenses) mainly include gain or loss on disposal of property, plant and equipment, net foreign exchange differences and impairment loss of CIP. We included a one-off gain on disposal of property, plant and equipment of approximately HK$39.1 million for the year ended 31 March 2012 mainly related to our sales of two properties of our Group in Hong Kong to a third party and a shareholder and his spouse respectively for the purpose of restructuring our Group’s asset profile. We recorded the impairment loss of CIP of approximately HK$6.5 million and HK$8.1 million for the three months ended 30 June 2013 and the year ended 31 March 2014 mainly derived from the difference from the carrying amount and the fair value of the CIP for the Yuwotou Premises. We recorded approximately HK$8.9 million of [REDACTED] expenses during the three months ended 30 June 2014, which mainly related to professional fees incurred in connection with the [REDACTED].
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FINANCIAL INFORMATION Finance costs The following table sets out the breakdown of our finance costs during the periods indicated: The three months ended 30 June
Year ended 31 March 2012
2013
2014
HK$’000
HK$’000
HK$’000
2013
2014
HK$’000
HK$’000
(Unaudited) Interest on bank borrowings wholly repayable within five years . . . . . . . . . . . . . . Interest on factoring of trade receivables . . . . . . . . . . . . . Interest on finance lease . . . . . .
8,886
9,907
9,320
2,186
2,367
1,467 112
3,064 196
4,639 117
1,152 36
913 31
10,465
13,167
14,076
3,374
3,311
Less: Capitalised in CIP . . . . . .
–
–
Total. . . . . . . . . . . . . . . . . . .
10,465
13,167
(1,297) 12,779
(104) 3,270
(719) 2,592
Finance costs comprise mainly interest charges on our interest-bearing bank borrowings, factoring of trade receivables and finance leases, net of interest charges capitalised in CIP. Our finance leases comprise leases for motor vehicles and office equipment. Finance costs amounted to approximately HK$10.5 million, HK$13.2 million, HK$12.8 million and HK$2.6 million, respectively for the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014. Income tax expense Our Group is subject to income tax on an individual legal entity basis on profits arising in or derived from the tax jurisdictions in which companies comprising our Group domicile or operate. (i)
Cayman Island profits tax Our Group has not been subject to any tax in the Cayman Island.
(ii) Hong Kong profits tax Except as further explained below, Hong Kong profits tax has been provided at the rate of 16.5%, in the year ended 31 March 2012, 2013 and 2014 on the estimated assessable profit for the Track Record Period. – 183 –
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FINANCIAL INFORMATION During the Track Record Period, KTL Jewellery Trading was entitled to the concessionary tax treatment under DIPN 21. For further details please refer to “Key Factors Affecting Our Results of Operations – Tax Concession Treatment” in this section to this [REDACTED]. Accordingly, a portion of KTL Jewellery Trading’s profits were not subject to Hong Kong profits tax. Further, in the opinion of our directors, that portion of KTL Jewellery Trading’s profits were not subject to taxation in any other jurisdiction in which KTL Jewellery Trading operated during the Track Record Period. (iii) PRC enterprise income tax (“EIT”) During the Track Record Period, our PRC subsidiaries were subject to a tax rate of 25% for each of the three years ended 31 March 2014 and the three months ended 30 June 2013 and 2014 on the assessable profits arising in or derived from the PRC except the following: As a foreign invested enterprise in the PRC, KTL (Guangzhou) was entitled to tax concessions whereby the profits for the first two financial years beginning on 1 January 2008 was exempted from income tax in the PRC and the profit for each of the subsequent three years was taxed at 50% of the prevailing tax rate prescribed by the PRC government. Accordingly, the applicable tax rate for KTL(Guangzhou) was 12.5% for 2011 and 2012, and 25% from 1 January 2013. Our income tax expenses recorded approximately HK$7.1 million, HK$4.8 million, HK$6.3 million and HK$3.6 million for the year ended 31 March 2012, 2013, 2014 and the three months ended 30 June 2014, respectively, and the effective income tax rate was 9.3%, 12.4%, 14.4% and 17.3% for the same periods, respectively. Further details are set out in note 12 to the Accountants’ Report in Appendix I to this [REDACTED]. Our Directors confirm that our Group has made all required tax filings under relevant tax law and regulations in applicable jurisdictions, has paid all tax demanded and our Directors are not aware of any dispute or potential dispute with the relevant tax authorities. REVIEW OF HISTORICAL RESULTS OF OPERATION Three months ended 30 June 2014 compared to three months ended 30 June 2013 Revenue Our revenue decreased by approximately HK$137.9 million or 28.6% to approximately HK$344.8 million for the three months ended 30 June 2014 from approximately HK$482.7 million for the three months ended 30 June 2013, which was mainly due to (i) a decrease in sales in Russia of approximately HK$152.0 million as a result of the economy uncertainty of Russia and the decrease in average wholesale price as higher portion of products with simple designs sold to Russia in the three months ended 30 June 2014, (ii) a continuous decrease in sales of approximately HK$9.5 million in Middle East mainly because our major customer in the region changed its business focus to streamline retail networks and reduce excess inventories since 2013, which was partially offset by (i) an increase in sales in Europe (other than Russia) of – 184 –
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FINANCIAL INFORMATION approximately HK$9.9 million mainly attributable to the increase in sales to one of our major customers in Europe as a result of a larger batch of sales orders from the customer, (ii) an increase in sales in the PRC as a result of our strategic cooperation and established closer business relationship with certain customers in the PRC; and (iii) the increase in sales in Hong Kong of approximately HK$6.8 million mainly due to our strategic cooperation and established closer business relationship with one of our customers in Hong Kong for the three months ended 30 June 2014 compared to the previous period. Cost of sales Cost of sales decreased by approximately HK$123.4 million or 30.9% to approximately HK$275.2 million for the three months ended 30 June 2014 from approximately HK$398.6 million for the three months ended 30 June 2013. Such decrease was mainly due to the decrease in cost of raw materials of approximately HK$107.0 million and the decrease in subcontracting fees of approximately HK$7.4 million which were mainly attributable to the decrease in sales in the three months ended 30 June 2014 and our implementation of organisational restructure since August 2013. Gross profit and gross profit margin As a result of the foregoing, our gross profit declined by approximately HK$14.5 million or 17.3% from approximately HK$84.1 million for the three months ended 30 June 2013 to approximately HK$69.6 million for the three months ended 30 June 2014. Our gross profit margin increased from 17.4% for the three months ended 30 June 2013 to 20.2% for the three months ended 30 June 2014, which was mainly due to (i) our implementation of organisational restructuring in August 2013 which enhanced overall production efficiency; (ii) the change in product mix with more jewellery products with complex design sold to Americas during the three months ended 30 June 2014 which contributed a relatively higher gross profit margin as a result of more craftsmanship involved in the production; and (iii) certain jewellery products introduced to one of our major customers in Russia with relatively lower gross profit margin in the three months ended 30 June 2013 for business development purpose but no longer sold in the three months ended 30 June 2014. Other income Other income increased by approximately HK$0.4 million or 24.4% to approximately HK$2.2 million for the three months ended 30 June 2014 from approximately HK$1.8 million for the three months ended 30 June 2013. The increase in other income was mainly due to the increase in government grants of approximately HK$0.8 million in the three months ended 30 June 2014.
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FINANCIAL INFORMATION Selling expenses Selling expenses decreased by approximately HK$4.2 million or 25.6% to HK$12.2 million for the three months ended 30 June 2014 from HK$16.3 million for the three months ended 30 June 2013. The decrease was primarily attributable to (i) the decrease in staff costs of approximately HK$3.1 million mainly as a result of our implementation of organisational restructure since August 2013; (ii) the decrease in export credit insurance expenses of approximately HK$0.7 million mainly as a result of our decrease in sales in the three months ended 30 June 2014; and (iii) the decrease in advertising and exhibition expenses of approximately HK$0.7 million as we reduced our participation in trade exhibitions in the three months ended 30 June 2014 as compared to the previous period. Administrative expenses Administrative expenses decreased by approximately HK$11.3 million or 29.0% to approximately HK$27.6 million for the three months ended 30 June 2014 from approximately HK$38.9 million for the three months ended 30 June 2013. Such decrease was primarily due to (i) the decrease in staff costs of approximately HK$4.0 million mainly resulting from our implementation of organisational restructure; and (ii) the decrease in allowance for doubtful debts of approximately HK$5.8 million as no provisions were made for trade receivables during the three months ended 30 June 2014. Other expenses, net Other net expenses increased by approximately HK$1.6 million to approximately HK$8.5 million for the three months ended 30 June 2014 from approximately HK$6.9 million for the three months ended 30 June 2013. The increase was mainly due to the [REDACTED] of approximately HK$8.9 million incurred in the three months ended 30 June 2014, and partially offset by the non-recurring impairment loss of CIP of approximately HK$6.5 million related to Yuwotou Premises recognised in the three months ended 30 June 2013. Finance costs Finance costs decreased by approximately HK$0.7 million from approximately HK$3.3 million for the three months ended 30 June 2013 to approximately HK$2.6 million for the three months ended 30 June 2014. The decrease was mainly due to (i) the increase in interest charges capitalized in CIP for the Yuwotou Premises of approximately HK$0.6 million in the three months ended 30 June 2014, and (ii) the decrease in interest charges on factoring of trade receivables of approximately HK$0.2 million mainly as a result of decrease in sales in the three months ended 30 June 2014. Income tax expense Income tax expense increased by approximately HK$1.2 million or 50.7% to approximately HK$3.6 million for the three months ended 30 June 2014 from HK$2.4 million for the three months ended 30 June 2013. The effective tax rate increased from 11.7% for the three months ended 30 June 2013 to 17.3% for the three months ended 30 June 2014. The increase was mainly due to the tax losses not recognised for the three months ended 30 June 2013. – 186 –
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FINANCIAL INFORMATION Profit for the year As a result of the foregoing, profit for the period decreased by approximately HK$0.7 million or 4.1% to approximately HK$17.4 million for the three months ended 30 June 2014 from approximately HK$18.1 million for the three months ended 30 June 2013. Our net profit margin increased from 3.7% for the three months ended 30 June 2013 to 5.0% for the three months ended 30 June 2014, mainly attributable to the increase in gross profit margin as explained above. Year ended 31 March 2014 compared to year ended 31 March 2013 Revenue Our revenue decreased by approximately HK$88.5 million or 6.2% to approximately HK$1,345.8 million for the year ended 31 March 2014 from approximately HK$1,434.4 million for the year ended 31 March 2013, which was mainly due to a decrease in sales in Russia of approximately HK$151.1 million primarily resulting from that one of our largest customers in Russia slowed down its business expansion and focused on the optimization of its distribution network during the year ended 31 March 2014, which was partially offset by an increase in sales to Americas of approximately HK$62.9 million primarily resulting from our efforts in providing tailored services to one of our largest customers in Americas. Cost of sales Cost of sales decreased by approximately HK$68.8 million or 5.9% to approximately HK$1,101.7 million for the year ended 31 March 2014 from approximately HK$1,170.5 million for the year ended 31 March 2013. Such decrease was mainly in line with the decrease in revenue for the year ended 31 March 2014. As a percentage of revenue, our cost of sales remained relatively stable at approximately 81.6% and 81.9% for the two years ended 31 March 2013 and 2014 respectively. Gross profit and gross profit margin As a result of the foregoing, our gross profit decreased by approximately HK$19.8 million or 7.5% from approximately HK$263.9 million for the year ended 31 March 2013 to approximately HK$244.1 million for the year ended 31 March 2014. Our gross profit margin remained relatively stable at approximately 18.4% and 18.1% for the two years ended 31 March 2013 and 2014 respectively. Other income Other income increased by approximately HK$1.2 million or 27.6% to approximately HK$5.6 million for the year ended 31 March 2014 from approximately HK$4.4 million for the year ended 31 March 2013. The increase in other income was mainly attributable to the increase in interest income of approximately HK$1.0 million primarily due to the increase in the RMB bank deposits during the year ended 31 March 2014 which earned a higher interest rate than HKD bank deposits. – 187 –
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FINANCIAL INFORMATION Selling expenses Selling expenses decreased by approximately HK$16.0 million or 24.0% to HK$50.6 million for the year ended 31 March 2014 from HK$66.7 million for the year ended 31 March 2013. The decrease was primarily attributable to (i) the decrease in staff costs of approximately HK$12.0 million mainly due to our implementation of organisational restructure since August 2013, resulting in our headcounts from sales and marketing departments decreased from 261 for the year ended 31 March 2013 to 183 for the year ended 31 March 2014; and (ii) the decrease in sales commissions to agents of approximately HK$1.9 million mainly as a result of reduced reliance on agents for our sales. Administrative expenses Administrative expenses decreased by approximately HK$13.6 million or 9.3% to approximately HK$132.1 million for the year ended 31 March 2014 from approximately HK$145.7 million for the year ended 31 March 2013. Such decrease was primarily due to our organisational restructuring resulting in the (i) the decrease in staff costs of approximately HK$5.8 million; and (ii) decrease in depreciation and amortisation, rental expenses and office and utility expenses with an aggregate amount of approximately HK$10.0 million mainly attributable to the closedown of our Shanghai retail business during the year ended 31 March 2014 to focus on our wholesale business which is more profitable and cessation of the rental of a Hong Kong office in February 2014. Other expenses, net Other net expenses increased by approximately HK$6.1 million to approximately HK$10.2 million for the year ended 31 March 2014 from approximately HK$4.2 million for the year ended 31 March 2013. The increase was mainly due to a one-off impairment loss of approximately HK$8.1 million incurred in the CIP for the Yuwotou Premises, based on the impairment review of the CIP during the year ended 31 March 2014, primarily attributable to our prolonged construction of the premises due to the financial crisis in 2008 as the prospect was not clearly foreseeable during that period; and was partially offset by the decrease in foreign exchange loss of approximately HK$1.3 million for the year ended 31 March 2014. Finance costs Finance costs decreased by approximately HK$0.4 million from approximately HK$13.2 million for the year ended 31 March 2013 to approximately HK$12.8 million for the year ended 31 March 2014. The decrease was mainly due to (i) interest charges capitalized in CIP for the Yuwotou Premises of approximately HK$1.3 million in the year ended 31 March 2014, (ii) the increase in interest charges on factoring of trade receivables of approximately HK$1.6 million mainly resulted from our strategy to increase sales by providing longer credit periods for our certain customers in respect of those sales with large sales amounts and high growth potential, and (iii) decrease in interest charges on bank borrowings of approximately HK$0.6 million mainly resulted from lower utilisation of general bank borrowings due to lower sales volume for the year ended 31 March 2014. – 188 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
FINANCIAL INFORMATION Income tax expense Income tax expense increased by approximately HK$1.6 million or 32.8% to HK$6.3 million for the year ended 31 March 2014 from approximately HK$4.8 million for the year ended 31 March 2013. The effective tax rate increased from 12.4% for the year ended 31 March 2013 to 14.4% for the year ended 31 March 2014. The increase was mainly due to the decrease in the deferred tax assets recognised in the year ended 31 March 2014. Profit for the year As a result of the foregoing, profit for the year increased by approximately HK$3.8 million or 11.2% to HK$37.6 million for the year ended 31 March 2014 from approximately HK$33.8 million for the year ended 31 March 2013. Our net profit margin remained relatively stable at approximately 2.4% and 2.8% for the year ended 31 March 2013 and 2014 respectively. Year ended 31 March 2013 compared to year ended 31 March 2012 Revenue Our revenue increased by approximately HK$319.7 million or 28.7% to approximately HK$1,434.4 million for the year ended 31 March 2013 from approximately HK$1,114.7 million for the year ended 31 March 2012, which was mainly due to the increase in the sales to our customers in Russia of approximately HK$354.2 million primarily resulting from the increase in sales orders from a major customer in Russia which expanded its business during the year ended 31 March 2013. Cost of sales Cost of sales increased by approximately HK$295.0 million or 33.7% to approximately HK$1,170.5 million for the year ended 31 March 2013 from approximately HK$875.5 million for the year ended 31 March 2012. Such increase was mainly due to the increase in cost of raw materials of approximately HK$273.2 million and the increase in subcontracting fees of approximately HK$25.2 million as a result of the increase in sales and the change in composition of products sold for the year ended 31 March 2013. As a percentage of total revenue, our cost of raw materials was also increased from approximately 65.8% for the year ended 31 March 2012 to approximately 70.2% for the year ended 31 March 2013. Gross profit and gross profit margin As a result of the foregoing, our gross profit rose by approximately HK$24.7 million or 10.3% from approximately HK$239.2 million for the year ended 31 March 2012 to approximately HK$263.9 million for the year ended 31 March 2013. Our gross profit margin decreased from 21.5% for the year ended 31 March 2012 to 18.4% for the year ended 31 March 2013, which was mainly due to (i) the lower gross profit margin derived from businesses with certain major customers in Russia taken into account their enlarged sales volumes in the year ended 31 March 2013 in view of the increasing competitiveness in the Russian market; and (ii) our strategy to increase our market share in the United States which resulted in lower gross profit margin derived from the United States. – 189 –
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FINANCIAL INFORMATION Other income Other income decreased by approximately HK$2.4 million or 35.3% to approximately HK$4.4 million for the year ended 31 March 2013 from approximately HK$6.7 million for the year ended 31 March 2012. The decrease in other income was mainly due to the decrease in the net sales of loose diamonds of approximately HK$3.9 million primarily resulted from the improvement in the management efficiency of those loose diamonds with no use in the year ended 31 March 2012; and was partially offset by the increase in interest income from bank deposits of approximately HK$1.2 million primarily resulted from the increase in the pledged deposits resulting from our certain bank loans were secured by pledged deposits in the year ended 31 March 2013 instead of the mortgages over our two properties sold in the year ended 31 March 2012 and the increase in the average deposit interest rate that mainly resulting from transferring certain HKD pledged bank deposits to RMB pledged bank deposits in November 2012. Selling expenses Selling expenses increased by approximately $2.4 million or 3.7% to approximately HK$66.7 million for the year ended 31 March 2013 from approximately HK$64.3 million for the year ended 31 March 2012. The increase was primarily due to (i) the increase in staff costs of approximately HK$6.0 million as a result of the increase in average salary rate and bonus expenses for the year ended 31 March 2013; (ii) the increase in export credit insurance expenses of approximately HK$3.2 million in line with the sales to Russia and was partially offset by (i) the decrease in sales commission paid to agents of approximately HK$4.2 million as a result in the decrease in number of agents mainly because we gradually reduced our reliance on agents and switched to direct sales; and (ii) the decrease in the travelling expenses and advertising and exhibition expenses at an aggregate amount of approximately HK$2.0 million primarily resulted from the partial closedown of Shanghai retail business to focus on our wholesale business which is more profitable. As a percentage of revenue, our selling expenses recorded at approximately 5.8% and 4.6% for the year ended 31 March 2012 and 2013, respectively. Administrative expenses Administrative expenses increased by approximately HK$12.0 million or 9.0% to approximately HK$145.7 million for the year ended 31 March 2013 from approximately HK$133.7 million for the year ended 31 March 2012. The increase was primarily due to the increase in staff costs mainly resulting from the increase in average salary rate in the year ended 31 March 2013. As a percentage of revenue, our administrative expenses recorded at approximately 12.0% and 10.2% for the year ended 31 March 2012 and 2013, respectively. Other gains/(expenses), net We recorded net other gains of approximately HK$38.4 million for the year ended 31 March 2012, whereas net other expenses of approximately HK$4.2 million for the year ended 31 March 2013. The change was mainly due to the gain on disposal of two properties of approximately HK$39.1 million incurred in the year ended 31 March 2012. – 190 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
FINANCIAL INFORMATION Finance costs Finance costs increased by approximately HK$2.7 million or 25.8% from approximately HK$10.5 million for the year ended 31 March 2012 to approximately HK$13.2 million for the year ended 31 March 2013. The increase was mainly attributable to the interest charges on factoring of trade receivables resulted from our increased sales and more utilisation of factoring loans in the year ended 31 March 2013. Income tax expense Income tax expense decreased by approximately HK$2.3 million or 32.5% to approximately HK$4.8 million for the year ended 31 March 2013 from HK$7.1 million for the year ended 31 March 2012. The decrease was mainly due to the increase in deferred tax recognised in the year ended 31 March 2013. The effective tax rate increased from 9.3% in 2012 to 12.4% in the year ended 31 March 2013 which was mainly due to our capital gains on disposal of the two properties in the year ended 31 March 2012 which were not subject to income tax. Profit for the year As a result of the foregoing, profit for the year decreased by approximately HK$35.0 million or 50.9% to HK$33.8 million for the year ended 31 March 2013 from approximately HK$68.8 million for the year ended 31 March 2012. Our net profit margin decreased from 6.2% for the year ended 31 March 2012 to 2.4% for the year ended 31 March 2013 which was mainly due to the one-off gains on disposal of the two properties incurred during the year ended 31 March 2012. LIQUIDITY AND CAPITAL RESOURCES Our primary uses of cash are for the payment of purchases from suppliers, staff costs, various operating expenses and capital expenditure and have been funded through a combination of cash generated from our operations, bank borrowings and fund from our immediate holding company. Our Directors are not aware of any material change to the sources of cash of our Group and the use of cash by our Group during the Track Record Period. As of 31 August 2014, we had cash and bank balances of approximately HK$42.5 million, pledged bank deposits of HK$107.9 million, and we had banking facilities in an aggregate amount of approximately HK$710.4 million, of which approximately HK$272.3 million was unutilised. General economic conditions may affect our ability to secure credit facilities to settle our payment obligations. In the event of any cancellation of purchase orders and/or default on payment obligations by our customers, our cash flow, business operation and profitability would be adversely affected.
– 191 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
FINANCIAL INFORMATION CASH FLOWS The following table summarises, for the periods indicated, our statements of cash flows: Three months ended 30 June
Year ended 31 March 2012
2013
2014
2013
2014
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
(Unaudited) Net cash flows generated from/(used in) operating activities . . . . . . . . . . . . . . Net cash flows used in investing activities . . . . . . . . . . . . . . Net cash flows (used in)/from financing activities . . . . . . . . Net increase/(decrease) in cash and cash equivalents . . . . . . . Cash and cash equivalents at beginning of year . . . . . . . . . Effect of foreign exchange rate changes, net . . . . . . . . . . . . Cash and cash equivalents at end of year/period . . . . . . . .
188,480
(84,613)
149,050
23,026
(11,664)
(41,220)
(42,149)
(28,718)
(1,261)
(12,334)
(109,155)
112,657
(63,903)
3,725
9,604
38,105
(14,105)
56,429
25,490
(14,394)
23,398
60,734
46,206
46,206
103,481
846
761
103,481
72,457
(769)
60,734
(423)
46,206
(324)
88,763
Operating activities During our Track Record Period, our cash inflow from operating activities was principally from the receipt of proceeds for our products and services. Our cash outflow used in operating activities was principally for purchases of raw materials. For the three months ended 30 June 2014, our Group had net cash used in operating activities of approximately HK$11.7 million, which was mainly attributable to the increase in trade receivables of approximately HK$40.3 million primarily resulting from our arrangement with one of our major customers in Russia for its early settlement of trade receivables near the financial year end of 2014 and no such arrangement existed for the three months ended 30 June 2014, and the increase in prepayments, deposits and other receivables of approximately HK$30.8 million mainly due to prepayments for the purchase of gold of approximately HK$17.5 million and increase in receivables from the diamond import service provider of approximately HK$10.3 million as a result of the increase in demand for diamonds, which was partially offset by our profit before tax of approximately HK$21.0 million and decrease in inventories of approximately HK$47.2 million primarily resulting from the decreased sales order from Russia closing to the period end of 30 June 2014 as a result of the uncertainty of the economy in Russia.
– 192 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
FINANCIAL INFORMATION For the year ended 31 March 2014, our Group had net cash generated from operating activities of approximately HK$149.1 million, mainly as a result of the profit before tax of approximately HK$43.9 million generated in this year, which was primarily adjusted for the decrease in inventories of approximately HK$153.5 million, the decrease in trade receivables of approximately HK$77.5 million, and partially offset by the decrease in trade and other payables of approximately HK$143.6 million. These were primarily attributable to the larger sales order received near the year ended 31 March 2013. For the year ended 31 March 2013, our Group had net cash used in operating activities of approximately HK$84.6 million, mainly as a result of the increase in inventories of approximately HK$198.6 million primarily as a result of the increase in the purchase for the year ended 31 March 2013, and the increase in trade receivables of approximately HK$96.0 million primarily resulting from the increased sales in the year ended 31 March 2013. This is partially offset by the profit before tax of approximately HK$38.5 million generated in this year, and the increase in trade and other payables of approximately HK$145.5 million mainly due to the increase in trade payables primarily as a result of the increase in purchase for the year ended 31 March 2013. For the year ended 31 March 2012, our Group had net cash generated from operating activities of approximately HK$188.5 million, mainly as a result of the profit before tax of approximately HK$75.9 million generated in this year, which was primarily adjusted for the decrease in inventories of approximately HK$93.3 million and the increase in trade and other payables of approximately HK$44.8 million as a result of the larger sales orders received near 31 March 2011. This is partially offset by the gains on disposal of items of property, plant and equipment of approximately HK$39.2 million in the year ended 31 March 2012. Investing activities During the Track Record Period, our cash inflow from investing activities was principally proceeds from disposal of items of property, plant and equipment and interest received from bank deposits. Our cash outflow used in investing activities was principally for purchases of property, plant and equipment. For the three months ended 30 June 2014, our Group had net cash used in investing activities of approximately HK$12.3 million primarily attributable to the purchase of items of property, plant and equipment used for the construction of Yuwotou Premises and renovation for our Yinping Premises during the three months ended 30 June 2014. For the year ended 31 March 2014, our Group had net cash used in investing activities of approximately HK$28.7 million primarily attributable to the purchase of items of property, plant and equipment used for the construction of Yuwotou Premises.
– 193 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
FINANCIAL INFORMATION For the year ended 31 March 2013, our Group had net cash used in investing activities of approximately HK$42.1 million primarily attributable to purchase of property, plant and equipment used for the construction of Yuwotou Premises and leasehold improvement, and the increase in pledged bank deposits mainly resulted from our certain bank loans were secured by pledged deposits as a replacement of the security over our two properties sold in the year ended 31 March 2012; which was partially offset by the proceeds received from disposal of the two properties during the year ended 31 March 2012. For the year ended 31 March 2012, our Group had net cash used in investing activities of approximately HK$41.2 million primarily attributable to the purchase of items of property, plant and equipment of approximately HK$41.8 million primarily resulting from the construction of Yuwotou Premises and purchase of computer system. Financing activities During the Track Record Period, our cash inflow from financing activities was principally from proceeds from bank borrowings. Our cash outflow used in financing activities was principally for the repayment of borrowings. For the three months ended 30 June 2014, our Group had net cash generated from financing activities of approximately HK$9.6 million, primarily attributable to the proceeds from bank borrowings of approximately HK$400.9 million, and was partially offset by the repayment of bank borrowings of approximately HK$386.8 million. For the year ended 31 March 2014, our Group had net cash used in financing activities of approximately HK$63.9 million, primarily attributable to the repayment of bank borrowings of approximately HK$1,702.1 million, and was partially offset by the proceeds from bank borrowings of approximately HK$1,651.9 million. For the year ended 31 March 2013, our Group had net cash generated from financing activities of approximately HK$112.7 million, primarily attributable to the proceeds from bank borrowings of approximately HK$1,629.4 million, and was partially offset by the repayment of bank borrowings of approximately HK$1,502.4 million. For the year ended 31 March 2012, our Group had net cash used in financing activities of approximately HK$109.2 million, primarily attributable to the repayment of bank borrowings of approximately HK$1,225.9 million, and was partially offset by the proceeds from bank borrowings of approximately HK$1,122.1 million.
– 194 –
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FINANCIAL INFORMATION NET CURRENT (LIABILITIES)/ASSETS We recorded net current liabilities of approximately HK$37.6 million, HK$27.0 million, HK$4.8 million as at 31 March 2012, 2013, 2014, respectively. Our net current liabilities position during the three years ended 31 March 2014 was primarily attributable to the bank borrowings and the advances from our immediate holding company we used to finance our working capital requirements. The balance of the bank borrowings in aggregate accounted for approximately 37.4%, 40.9% and 46.2% of our total current liabilities as at 31 March 2012, 2013 and 2014, respectively, and the amounts due to our immediate holding company accounted for approximately 24.2%, 15.2% and 18.2% of our total current liabilities as at the end of the same periods, respectively. Our net current liabilities position improved and recorded net current assets of approximately HK$5.8 million as at 30 June 2014 mainly as a result of the increase in trade and other receivables. Our net current assets further improved to approximately HK$113.3 million as at 31 August 2014 as the amount due to our immediate holding company was fully capitalised on 28 July 2014. The table below sets out selected information for our current assets and current liabilities as at 31 March 2012, 2013, 2014, 30 June 2014 and 31 August 2014, respectively:
2012
2013
2014
As at 30 June 2014
HK$’000
HK$’000
HK$’000
HK$’000
As at 31 March
As at 31 August 2014 HK$’000 (Unaudited)
Current Assets Inventories. . . . . . . . . . . . . . . Trade receivables . . . . . . . . . . Prepayments, deposits and other receivables . . . . . . . . . . . . . Tax recoverable . . . . . . . . . . . Prepaid land lease payments . . . Due from a shareholder . . . . . . Pledged bank deposits . . . . . . . Cash and bank balances . . . . . .
Current Liabilities Due to the immediate holding company. . . . . . . . . . . . . . . Trade and other payables . . . . . Interest-bearing bank borrowings . . . . . . . . . . . . . Tax payable . . . . . . . . . . . . . . Obligations under finance leases.
Net Current Assets/(Liabilities) . . . . . . . .
200,159 154,243
396,943 250,245
242,295 166,335
195,332 206,599
242,934 255,193
63,146 245 426 34,990 29,347 60,734
12,005 2,399 426 – 105,374 46,206
7,854 3,057 437 – 107,534 103,481
38,480 3,119 434 – 107,713 88,763
17,254 900 435 – 107,854 42,464
543,290
813,598
630,993
640,440
667,034
140,603 216,160
127,571 361,678
115,580 223,186
111,366 214,227
– 212,224
217,058 6,561 463
344,057 6,063 1,184
293,923 2,007 1,054
305,884 1,728 1,430
337,800 2,702 1,010
580,845
840,553
635,750
634,635
553,736
(37,555)
(26,955)
5,805
113,298
– 195 –
(4,757)
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FINANCIAL INFORMATION Our Group’s net current liabilities decreased from approximately HK$37.6 million as at 31 March 2012 to approximately HK$27.0 million as at 31 March 2013. The decrease was primarily due to (i) the increase in inventories of approximately HK$196.8 million due to the increase in purchase for the year ended 31 March 2013; (ii) the increase in trade and other receivables of approximately HK$44.9 million as a result of increased sales for the year ended 31 March 2013; (iii) the increase in pledged bank deposits of approximately HK$76.0 million resulting from our certain bank loans secured by pledged deposits in the year ended 31 March 2013 as a replacement of the mortgages over our two properties sold in the year ended 31 March 2012; and was partially offset by (i) the increase in bank borrowings of approximately HK$127.0 million; (ii) the increase in trade and other payables of approximately HK$145.5 million as a result of the increased purchase for 2013; and (iii) the decrease in amounts due from a shareholder of approximately HK$35.0 million as a result of our settlement in the year ended 31 March 2013. Our Group’s net current liabilities decreased from approximately HK$27.0 million as at 31 March 2013 to approximately HK$4.8 million as at 31 March 2014. The decrease was primarily due to (i) the decrease in trade and other payables of approximately HK$138.5 million mainly attributable to the decrease in purchase of raw materials resulting from one of our largest customers slowed down its expansion plan in the year ended 31 March 2014; and (ii) the decrease in bank borrowings of approximately HK$50.1 million mainly attributable to early repayment of trade receivables from one of our largest customers which reduced our factoring loans; and was partially offset by (i) the decrease in inventories of approximately HK$154.6 million as a result of our sales increased significantly from one of our largest customers in Russia closing to the financial year end of 2013; (ii) the decrease in trade receivables of approximately HK$83.9 million as a result of the accelerated repayment from one of our largest customers in Russia in the year ended 31 March 2014. Our net current liabilities of approximately HK$4.8 million as at 31 March 2014 improved to net current assets of approximately HK$5.8 million as at 30 June 2014. The improvement was primarily due to (i) the increase in trade receivables of approximately HK$40.3 million mainly attributable to no early repayment arrangement with one of our largest customers for the three months ended 30 June 2014; (ii) the increase in prepayments, deposits and other receivables of approximately HK$30.6 million mainly attributable to the increase in deposits paid for purchasing gold and diamonds as at 30 June 2014; and was partially offset by the decrease in inventories of approximately HK$47.0 million mainly attributable to fewer purchase orders received for May and June 2014. Our net current assets increased from approximately HK$5.8 million as at 30 June 2014 to approximately HK$113.3 million. The increase was mainly due to the full capitalisation of amount due to our immediate holding company during the two months ended 31 August 2014.
– 196 –
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FINANCIAL INFORMATION WORKING CAPITAL Our Directors confirm that, taking into consideration the financial resources presently available to us, including banking facilities and other internal resources, and the estimated [REDACTED] from the [REDACTED], we have sufficient working capital for our present requirements and for at least the next 12 months commencing from the date of this [REDACTED]. After due consideration and discussions with our Company’s management and based on the above, the Joint Sponsors have no reason to believe that our Company cannot meet the working capital requirements for the 12 month period from the date of this [REDACTED]. DESCRIPTION OF CERTAIN ITEMS OF COMBINED STATEMENTS OF FINANCIAL POSITION Inventories The following table sets forth the components of our inventories (net of provision) as of the dates indicated. As at 30 June
As at 31 March
Raw materials. . . . . . . . . . . . . . . . . . . Work in progress. . . . . . . . . . . . . . . . . Finished goods . . . . . . . . . . . . . . . . . .
2012
2013
2014
2014
HK$’000
HK$’000
HK$’000
HK$’000
93,360 39,222 67,577
127,655 139,265 130,023
82,889 64,222 95,184
89,094 39,001 67,237
200,159
396,943
242,295
195,332
Raw materials primarily consist of gold, diamonds, and gemstones. Work in progress mainly comprises semi-finished products. Finished goods mainly represent products ready to be sold. We adopt stringent inventory control and endeavour to maintain low inventory level required for our operations through effective inventory management. Each inventory item is recorded in our computer system and is tracked and monitored through the lifespan of the item with us, from delivery of raw materials to us, production to delivery of products to our customers. We also periodically review our inventory levels for slow moving inventories, obsolescence or declines in market value. We generally do not have a significant amount of obsolete stocks as our products are manufactured in response to purchase orders. Allowance is made against when the net realisable value of inventories falls below the cost or any of the inventories is identified obsolete. Our Group had provisions for inventories of approximately HK$1.2 million, HK$1.8 million, HK$1.1 million and nil for the three years ended 31 March 2014 and the three months ended 30 June 2014, mainly in respect of write-down of inventories to net realisable value for sample products produced from time to time but remained unsold as at the year/period end. – 197 –
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FINANCIAL INFORMATION We generally maintain our diamond inventory at aggregate dollar value of approximately HK$50 million to HK$60 million, roughly approximating to the dollar value of two to three months worth of production consumption. We do not procure gold until after receipt of confirmed purchase orders from our customers. We review our inventory levels of raw materials regularly in order to ensure that the level of raw materials and finished products is maintained at a reasonable and sufficient level to meet the demand of our customers and our production schedule. We produce samples for our designs for showcasing purpose. Our aged inventories mainly include samples made of gold and diamonds, for which we perform dismantling and melting to reuse the gold and diamond for new orders when we consider appropriate. Our balances of inventories recorded at approximately HK$200.2 million, HK$396.9 million, HK$242.3 million and HK$195.3 million as at 31 March 2012, 2013, 2014 and 30 June 2014, respectively. Our higher balance of inventories as at 31 March 2013 was primarily due to increased sales order received from one of our largest customers closing to the financial year end of 2013 in response to its expansion plan. The following table sets forth the average inventory turnover days for the periods indicated. Three months ended 30 June
Year ended 31 March
Average inventory turnover days(1) . . . . .
(1)
2012
2013
2014
2014
103
93
106
73
Calculated by dividing average balances of inventories by cost of sales and multiplying the resulting value by 365/91 days for the respective years/period; average balances of inventories equal the average of inventories at the beginning of the year plus inventories as at the end of the year/period.
Our average inventory turnover days were 103 days, 93 days, 106 days and 73 days for the years ended 31 March 2012, 2013, 2014 and the three months ended 30 June 2014. The shorter average inventory turnover days for the year ended 31 March 2013 was primarily due to the significant increase in sales orders received during the year ended 31 March 2013. Our average inventory turnover days decreased from 106 days for the year ended 31 March 2014 to 73 days for the three months ended 30 June 2014, mainly attributable to the decrease in work in progress and finished goods primarily due to decreased sales orders from Russia for July 2014 in view of the economy uncertainty in Russia. As at 30 September 2014, approximately HK$135.8 million or 69.5% of our inventories as at 30 June 2014 had been sold or used.
– 198 –
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FINANCIAL INFORMATION Trade receivables Our balance of trade receivables was approximately HK$154.2 million, HK$250.2 million, HK$166.3 million and HK$206.6 million as at 31 March 2012, 2013, 2014 and 30 June 2014, respectively. The increase in trade receivables of approximately HK$96.0 million from 31 March 2012 to 31 March 2013 was mainly due to the increased sales to one of our largest customers in Russia due to its business expansion in the year ended 31 March 2013. The decrease in trade receivables of approximately HK$83.9 million from 31 March 2013 to 31 March 2014 was mainly due to our arrangement with one of our major customers in Russia for its early settlement of trade receivables in view of Russia’s economy uncertainty in the first quarter of 2014. Our trade receivables increased by approximately HK$40.3 million from 31 March 2014 to 30 June 2014 mainly resulted from no such arrangement existed for the three months ended 30 June 2014. Out of our total trade receivables, approximately 52.8%, 46.2%, 85.8% and 59.9% were insured as at 31 March 2012, 2013, 2014 and 30 June 2014, respectively. Our Group’s trading terms with our customers are mainly on credit, except for new customers. Before accepting any new customers, our Group will apply an internal credit assessment policy to assess the potential customer’s credit quality and define credit limit by customer. The credit period is generally for a period of 60 to 120 days for major customers. Each customer has a maximum credit limit which is reviewed regularly. Our Group seeks to maintain strict control over its outstanding receivables and has a treasury department to minimise the credit risk. Overdue balances are reviewed regularly by senior management and relevant controls and actions are imposed for customers with indication of slowing payments. The following table sets forth our trade receivables as of the dates indicated. As at 30 June
As at 31 March 2012
2013
2014
2014
HK$’000
HK$’000
HK$’000
HK$’000
Trade receivables . . . . . . . . . . . . . . . . Less: Allowance for doubtful debts . . . . .
155,176 (933)
251,157 (912)
173,691 (7,356)
213,955 (7,356)
Trade receivables – net. . . . . . . . . . . . .
154,243
250,245
166,335
206,599
Our policy for impairment on trade receivables is based on an evaluation of collectability and aging analysis of the receivables that requires the use of judgment and estimates of our management. Provisions would apply to the receivables when where are events or changes in circumstances which indicate that the balances may not be collectible. Our management closely reviews the trade receivables balances and any overdue balances on an ongoing basis, and assessments are made by our management on the collectability of overdue balances. After fully considering the nature of trade receivables and their collectability on a case-by-case basis, we have made provisions for certain long overdue trade receivables in order to reflect the quality of our assets. As at 31 March 2012, 2013, 2014 and 30 June 2014, respectively, provisions for individually impaired trade receivables were approximately HK$0.9 million, HK$0.9 million, – 199 –
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FINANCIAL INFORMATION HK$7.4 million and HK$7.4 million , respectively, which mainly related to customers who were in unexpected financial difficulties and only a portion of the trade receivables was expected to be recovered. Our Group did not hold any collateral or other credit enhancements over these balances. The following table sets forth the aging analysis of our net trade receivables, as at the dates indicated. As at 30 June
As at 31 March
Within 1 month. . . . . . . . . . 1 to 2 months . . . . . . . . . . . 2 to 3 months . . . . . . . . . . . Over 3 months but within one
. . . . . . . . . . . . year .
. . . .
. . . .
. . . .
. . . .
2012
2013
2014
2014
HK$’000
HK$’000
HK$’000
HK$’000
65,797 27,215 33,672 27,559
120,734 65,477 19,107 44,927
49,637 20,663 48,420 47,615
53,908 67,906 43,342 41,443
154,243
250,245
166,335
206,599
The aging analysis of our net trade receivables as at 31 March 2012, 2013, 2014 and 30 June 2014 which were neither individually nor collectively considered to be impaired is as follows: As at 30 June
As at 31 March
Neither past due or impaired Less than 61 days past due . 61 to 120 days past due . . . Over 120 days past due . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
2012
2013
2014
2014
HK$’000
HK$’000
HK$’000
HK$’000
140,044 11,082 2,941 176
223,494 23,113 1,561 2,077
146,052 20,130 153 –
182,141 23,669 99 690
154,243
250,245
166,335
206,599
As of 31 March 2012, 2013, 2014 and 30 June 2014, trade receivables due from external customers of approximately HK$14.2 million, HK$26.8 million, HK$20.3 million and HK$24.5 million, respectively, were past due but not impaired. These related to independent customers that had a good track record with our Group and based on our experience, our Directors were of the view that no impairment allowance was necessary in respect of these overdue balances as there had not been significant change in credit quality of our customers and the balances were considered fully recoverable. As at 30 September 2014, approximately HK$127.5 million or 61.7% of our trade receivables outstanding as at 30 June 2014 were settled.
– 200 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
FINANCIAL INFORMATION The table below sets forth a summary of average turnover days of trade receivables for the periods indicated: Three months ended 30 June
Year ended 31 March
Average turnover days of trade receivables (1) . . . . . . . . . . . . . . . .
2012
2013
2014
2014
53
51
56
49
Note: (1)
Calculated by dividing average net trade receivables by turnover and multiplying the resulting value by 365/91 days for the respective years/period; average gross trade receivables equals the average of net trade receivables at the beginning of the year plus net trade receivables as at the end of the year/period.
Our average turnover days of trade receivables remained relatively stable at 53 days and 51 days for the years ended 31 March 2012 and 2013, respectively. Our average turnover days of trade receivables increased from 51 days for the year ended 31 March 2013 to 56 days for the year ended 31 March 2014, mainly due to granting longer credit periods granted to certain customers. Our average turnover days of trade receivables decreased from 56 days for the year ended 31 March 2014 to 49 days for the three months ended 30 June 2014, mainly due to the higher balance of trade receivables as at 31 March 2013 mainly attributable to increased sales to one of our largest customers in Russia in the year ended 31 March 2013. Prepayments, deposits and other receivables The following table sets forth the breakdown of our prepayments, deposits and other receivables as of the dates indicated. As at 30 June
As at 31 March 2012
2013
2014
2014
HK$’000
HK$’000
HK$’000
HK$’000
Non-current Prepayments for CIP . . . . . . . . . . . . . .
2,149
–
3,346
312
Current Prepayments . . . . . . . . . . . . . . . . . . . Deposits . . . . . . . . . . . . . . . . . . . . . . Other receivables . . . . . . . . . . . . . . . .
2,835 2,399 57,912
2,325 3,034 6,646
3,161 2,120 2,573
24,222 1,166 13,092
65,295
12,005
11,200
38,792
– 201 –
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FINANCIAL INFORMATION Our prepayments for CIP amounted to approximately HK$2.1 million, nil, HK$3.3 million and HK$0.3 million for the three years ended 31 March 2012, 2013, 2014 and the three months ended 30 June 2014, which mainly related to purchase of fixed assets for the construction of Yuwotou Premises during the Track Record Period. Our Group’s prepayments mainly consist of prepayments for the purchase of gold, prepaid insurance and other prepaid expenses. During the Track Record Period, our prepayments amounted to HK$2.8 million, HK$2.3 million, HK$3.2 million and HK$24.2 million as at 31 March 2012, 2013, 2014 and 30 June 2014, respectively. Our decrease by approximately HK$0.5 million from 31 March 2012 to 31 March 2013 was mainly due to settlement in prepayments related to computer system and inventory insurance. Our increase by approximately HK$0.8 million from 31 March 2013 to 31 March 2014 was mainly attributable to the renovation for the Yinping Premises. Our significant increase in prepayments by approximately HK$21.1 million from 31 March 2014 to 30 June 2014 was mainly attributable to prepayment of approximately HK$17.5 million for the purchase of gold for July 2014 and prepaid expenses of approximately HK$2.1 million related to the [REDACTED] during the three months ended 30 June 2014. Our deposits mainly represent rental and utility deposits, exhibition deposits and others. Our deposits increased from approximately HK$2.4 million as at 31 March 2012 to approximately HK$3.0 million as at 31 March 2013, mainly due to the increase in exhibition deposits primarily resulting from time difference of the date for one of our exhibitions organised in 2013 compared to the previous year, and was partially offset by the decrease in rental and utility deposits primarily resulting from the partial closedown of Shanghai retail stores during the year ended 31 March 2013. Our deposits decreased by approximately HK$1.0 million from 31 March 2014 to 30 June 2014, which was mainly attributable to (i) the decrease in rental deposits related to the lease of certain plants which was terminated during the three months ended 30 June 2014; and (ii) the decrease in exhibition deposits related to certain exhibitions which we participated during the three months ended 30 June 2014. Our other receivables mainly represent staff advance, receivables from the diamond import service provider, other tax receivables and others. Receivables from the diamond import service provider relate to the diamond import services provided by a registered member of Shanghai Diamond Exchange (“SDE”) of the PRC (the “SDE Member”), who is an Independent Third Party. According to Notice of the Ministry of Finance, the General Administration of Customs and the State Administration of Taxation about Adjusting the Relevant Tax Policies on Diamonds and SDE on 6 July 2006, for the polished diamonds sold by a taxpayer in the domestic market via the SDE, the portion of the actual tax burden of value-added tax for the import link in excess of 4% shall be refunded immediately upon payment. We import the polished diamonds which are sourced by our Hong Kong subsidiary into the PRC and sell the same to the SDE Member who on-sell the relevant polished diamonds to our PRC subsidiary for production, which entitled us to benefit under the relevant tax policy. The balance decreased by approximately HK$51.3 million or 88.5% from approximately HK$57.9 million as at 31 March 2012 to approximately HK$6.6 million as at 31 March 2013 which was mainly attributable to the decrease in receivables for the disposal of one of the two properties of approximately HK$35.0 million in the year ended 31 March 2012 and the decrease in the receivables of approximately HK$17.4 million from the diamond import service provider – 202 –
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FINANCIAL INFORMATION primarily resulting from the settlement in the year ended 31 March 2013. The balances decreased from approximately HK$6.6 million as at 31 March 2013 to approximately HK$2.6 million as at 31 March 2014 which was primarily attributable to the decrease in receivables from the diamond import service provider primarily resulting from the settlement in the year ended 31 March 2014. The balance increased by approximately HK$10.5 million from 31 March 2014 to 30 June 2014, which was mainly attributable to the increase in receivables from the diamond import service provider as a result of the increase in purchase order for diamonds for the two months ended 31 August 2014. Trade and other payables Trade and other payables as at 31 March 2012, 2013 and 2014 were approximately HK$216.2 million, HK$361.7 million and HK$223.2 million, respectively, of which a breakdown is set out below: As at 30 June
As at 31 March
Trade payables . . . . . . . . . . . . . . . . . . Other payables . . . . . . . . . . . . . . . . . .
2012
2013
2014
2014
HK$’000
HK$’000
HK$’000
HK$’000
110,475 105,685
224,319 137,359
109,992 113,194
131,960 82,267
216,160
361,678
223,186
214,227
Our trade payables are related to the purchase of raw materials used in our production of jewellery products. Our balance of trade payables was approximately HK$110.5 million, HK$224.3 million. HK$110.0 million and HK$132.0 million as at 31 March 2012, 2013, 2014 and 30 June 2014, respectively. The higher balance as at 31 March 2013 was mainly due to the increased purchase of raw materials in line with the increased sales to one of our largest customers in Russia due to its business expansion in the year ended 31 March 2013. Our trade payables increased by approximately HK$22.0 million from 31 March 2014 to 30 June 2014 was mainly due to higher portions of purchase for diamonds were paid upon delivery in the three months ended 30 June 2014.
– 203 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
FINANCIAL INFORMATION Our suppliers generally offer us trade credit periods from 30 to 180 days. The table below sets forth, as of the end of reporting periods indicated, the aging analysis of our trade payables based on the invoice date: As at 30 June
As at 31 March
Within 1 month. . . . . . . . . . 1 to 2 months . . . . . . . . . . . 2 to 3 months . . . . . . . . . . . Over 3 months but within one
. . . . . . . . . . . . year .
. . . .
. . . .
. . . .
. . . .
2012
2013
2014
2014
HK$’000
HK$’000
HK$’000
HK$’000
39,691 24,688 6,757 39,339
82,044 21,412 22,755 98,108
46,068 13,331 18,280 32,313
42,657 12,032 5,501 71,770
110,475
224,319
109,992
131,960
The following table sets out the average trade payables turnover days for the Track Record Period: Three months ended 30 June
Year ended 31 March 2012
2013
2014
2014
35
52
55
40
Average trade payables turnover days . . . . . .
Note: Calculated by dividing average trade payables by cost of sales and multiplying the resulting value by 365/91 days for the respective year/period. Average trade payables equal the average of trade payables at the beginning of the year and trade payables at the end of the year/period.
Average trade payables turnover days increased from 35 days for the year ended 31 March 2012 to 52 days for the year ended 31 March 2013, which was because of the higher balance of trade payables as at 31 March 2013 mainly resulting from the increased purchase of diamonds for the year ended 31 March 2013. Average trade payables turnover days remained relatively stable with 52 days and 55 days respectively for the year ended 31 March 2013 and 2014. Average trade payables turnover days decreased from 55 days for the year ended 31 March 2014 to 40 days for the three months ended 30 June 2014, mainly due to the decreased purchase from one of our major customers in Russia in line with the decreased sales. As at 30 September 2014, approximately HK$69.9 million or 53.0% of trade payables outstanding as at 30 June 2014 had been fully settled. Our Group had no material defaults with regard to payments of trade payables during the Track Record Period.
– 204 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
FINANCIAL INFORMATION The following table sets out the details of other payables as at 31 March 2012, 2013, and 30 June 2014: As at 30 June
As at 31 March
Receipt in advance from customers . . . . Accrued expenses . . . . . . . . . . . . . . . Payables to the diamond import service provider . . . . . . . . . . . . . . . . . . . . Others. . . . . . . . . . . . . . . . . . . . . . .
2012
2013
2014
2014
HK$’000
HK$’000
HK$’000
HK$’000
. .
31,101 51,580
71,399 55,549
46,450 53,702
12,033 48,640
. .
18,322 4,682
2,620 7,791
920 12,122
9,940 11,654
105,685
137,359
113,194
82,267
Our other payables mainly represent receipt in advance from customers, accrued expenses related to various expenses including payroll and welfare expenses, audit fees, and export and sales commissions to agents and others including mainly payables for property, plant and equipment. Other payables increased by approximately HK$31.7 million or 30.0% from 31 March 2012 to 31 March 2013, which was mainly due to the increase in receipt in advance from customers of approximately HK$40.3 million primarily resulting from more sales orders received from one of our largest customers closing to the year end of 2013, and was partially offset by the decrease in the payables to the diamond import service provider of approximately HK$15.7 million mainly resulting from the settlement. Other payables decreased by approximately HK$24.2 million or 17.6% from 31 March 2013 to 31 March 2014 mainly due to the decrease in receipt in advance from customers of approximately HK$24.9 million primarily resulting from fewer sales orders received from one of our largest customers closing to the financial year end of 2014. Other payables decreased by approximately HK$30.9 million or 27.3% from 31 March 2014 to 30 June 2014, which was mainly due to (i) the decrease in receipt in advance of approximately HK$34.4 million primarily resulting from the decreased sales orders from one of our largest customers in June 2014 compared to March 2014, (ii) the decrease in accrued payroll and welfare expenses of approximately HK$5.2 million primarily as a result of our settlement of year-end bonus expenses in the three months ended 30 June 2014, and was partially offset by the increase in payables to the diamond import service provider of approximately HK$9.0 million in line with the increase in the receivables from the diamond import service provider as at 30 June 2014.
– 205 –
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FINANCIAL INFORMATION KEY FINANCIAL RATIOS The following table sets forth our key financial ratios as at each of the dates indicated: Three months ended 30 June
Year ended 31 March
Gross Profit Margin (%)(1) . Net Profit Margin (%)(2) . . . Return on equity (%)(3) . . . Return on total assets (%)(4) Interest coverage(5) . . . . . .
. . . . .
. . . . .
. . . . .
2012
2013
2014
2013
2014
21.5% 6.2% 57.1% 9.8% 8.2
18.4% 2.4% 22.0% 3.4% 3.9
18.1% 2.8% 19.2% 4.5% 4.4
17.4% 3.7% 10.3% 2.0% 7.3
20.2% 5.0% 8.2% 2.0% 9.1
As at 30 June
As at 31 March
Current ratio(6) . . . . . . . . . . . . . . . . . . Gearing ratio (%)(7) . . . . . . . . . . . . . . . Net debt to equity ratio (%)(8) . . . . . . . .
2012
2013
2014
2014
0.9 56.7% 131.0%
1.0 66.3% 196.5%
1.0 49.6% 98.4%
1.0 51.0% 104.2%
Notes: (1)
Gross profit margin is calculated on gross profit divided by revenue for the respective year/period. See the section headed “Review of Historical Results of Operation” for more details on our gross profit margins.
(2)
Net profit margin is calculated on profit for the year/period divided by revenue for the respective year/period. See the section headed “Review of Historical Results of Operation” for more details on our net profit margins.
(3)
Return on equity is calculated based on the profit for the respective year/period divided by the total equity as of the respective dates and multiplied by 100%.
(4)
Return on total assets is calculated based on the profit for the respective year/period divided by the total assets of the respective dates and multiplied by 100%.
(5)
Interest coverage is calculated on profit before interest and tax divided by finance costs arising from interest-bearing bank borrowings and obligations under finance leases for the respective years/period.
(6)
Current ratio is calculated based on the total current assets as of the respective dates divided by the total current liabilities as of the respective dates.
(7)
Gearing ratio is calculated based on net debts (being interest-bearing bank borrowings and obligations under finance lease net of cash and bank balances) as of the respective dates divided by capital (being the sum of total equity and net debts) as of the respective dates and multiplied by 100%.
(8)
Net debt to equity ratio is calculated based on net debts as of the respective dates divided by total equity as of the respective dates.
Return on equity Our return on equity was 57.1%, 22.0%, 19.2%, 10.3% and 8.2% for the years ended 31 March 2012, 2013, 2014 and the three months ended 30 June 2013 and 2014, respectively. The decrease from 57.1% for the year ended 31 March 2012 to 22.0% for the year ended 31 March 2013 was mainly due to the decrease in profit for the year ended 31 March 2013 primarily resulting from the one-off gain on disposal of the two properties of approximately HK$39.1 million incurred in the year ended 31 March 2012. Our return on equity decreased from 22.0% in the year ended 31 March 2013 to 19.2% in the year ended 31 March 2014 which was mainly – 206 –
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FINANCIAL INFORMATION due to the increase in our total equity as a result of profit accumulation in the year ended 31 March 2014. Our return on equity decreased from 10.3% for the three months ended 30 June 2013 to 8.2% for the three months ended 30 June 2014 mainly due to the increase in our total equity as a result of profit accumulation in the three months ended 30 June 2014. Return on total assets Our return on total assets was 9.8%, 3.4%, 4.5%, 2.0% and 2.0% for the years ended 31 March 2012, 2013, 2014 and the three months ended 30 June 2013 and 2014, respectively. The decrease from 9.8% in the year ended 31 March 2012 to 3.4% in the year ended 31 March 2013 was primarily attributable to the one-off gain on disposal of the two properties of approximately HK$39.1 million incurred for the year ended 31 March 2012. The increase from 3.4% in the year ended 31 March 2013 to 4.5% in the year ended 31 March 2014 was primarily attributable to (i) the decrease in inventories as at 31 March 2014 mainly resulting from more sales orders received from one of our largest customers closing to the financial year end of 2013; and (ii) the decrease in trade receivables as at 31 March 2014 mainly as a result of the early settlement of trade receivables from one of our major customers in Russia in view of economy uncertainty in Russia in the first quarter of 2014. Our return on total assets remained relatively stable for the three months ended 30 June 2013 and 2014 respectively. Interest coverage Our interest coverage was 8.2, 3.9, 4.4, 7.3 and 9.1 for the years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2013 and 2014, respectively. The decrease in our interest coverage from 8.2 for the year ended 31 March 2012 to 3.9 for the year ended 31 March 2013 mainly due to the decreased profit before interest and tax primarily resulting from the other gains related to the disposal of the two properties recognised in the year ended 31 March 2012. The increase in our interest coverage from 3.9 for the year ended 31 March 2013 to 4.4 for the year ended 31 March 2014 mainly due to our improved financial performance with the decrease in average bank borrowing balance for the year ended 31 March 2014. The increase in our interest coverage from 7.3 for the three months ended 30 June 2013 to 9.1 for the three months ended 30 June 2014, mainly due to the decrease in finance costs for the three months ended 30 June 2014 primarily as a result of the decrease in average bank borrowing balance for the three months ended 30 June 2014.
– 207 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
FINANCIAL INFORMATION Current ratio Our current ratio was 0.9, 1.0, 1.0 and 1.0 as at 31 March 2012, 2013, 2014 and 30 June 2014, respectively, which remained relatively stable. Gearing ratio Our gearing ratio was 56.7%, 66.3%, 49.6% and 51.0% as at 31 March 2012, 2013, 2014 and 30 June 2014, respectively. The increase in our gearing ratio from 56.7% as at 31 March 2012 to 66.3% as at 31 March 2013 was mainly due to the increase in bank borrowings in the year ended 31 March 2013 primarily resulting from the increased utilisation of bank facilities as more sales orders were received from one of our largest customers closing to the financial year end of 2013. The fall in our gearing ratio from 66.3% as at 31 March 2013 to 49.6% as at 31 March 2014 was mainly due to the repayment of bank borrowings and the increase in our total equity as a result of profit accumulation for the year ended 31 March 2014. Our gearing ratio remained relatively stable as at 31 March 2014 and 30 June 2014 respectively. Net debt to equity ratio Our net debt to equity ratio was 131.0%, 196.5%, 98.4% and 104.2% as at 31 March 2012, 2013, 2014 and 30 June 2014, respectively. The increase in net debt to equity ratio from 131.0% as at 31 March 2012 to 196.5% as at 31 March 2013 was mainly due to our increase in bank borrowings in 2013 primarily resulting from the increased utilisation of bank facilities for the increased sales orders in the year ended 31 March 2013. The decrease in our net debt to equity ratio from 196.5% as at 31 March 2013 to 98.4% as at 31 March 2014 was mainly due to the decrease in net debt primarily attributable to the decrease in bank borrowings as at 31 March 2014 resulting from the early repayment of trade receivables from one of our largest customers in Russia which reduced our demand for the bank borrowings and improved our cash position. The increase in net debt to equity ratio from 31 March 2014 to 30 June 2014 was mainly due to the increase in our net debt primarily attributable to the increase in bank borrowings as at 30 June 2014 as no such early repayment arrangement of trade receivables with the customer as in the year ended 31 March 2014 during the three months ended 30 June 2014.
– 208 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
FINANCIAL INFORMATION CONTRACTUAL AND CAPITAL COMMITMENTS Operating lease commitments During the Track Record Period, our Group did not have any material operating lease commitments. Capital commitments We had the following capital commitments, which were contracted but not provided for in our combined financial statements: As at 30 June
As at 31 March 2012
2013
2014
2014
HK$’000
HK$’000
HK$’000
HK$’000
Construction of Yuwotou Premises . . . . . Acquisition of property, plant and equipment. . . . . . . . . . . . . . . . . . . .
18,852
28,737
13,491
8,646
221
–
–
−
Total. . . . . . . . . . . . . . . . . . . . . . . . .
19,073
28,737
13,491
8,646
Capital expenditures during the Track Record Period The following table sets out our capital expenditures for the periods indicated: Three months ended 30 June
Year ended 31 March
Capital expenditure Property, plant and equipment . . . . . . . .
2012
2013
2014
2014
HK$’000
HK$’000
HK$’000
HK$’000
41,762
38,160
30,172
13,150
Our Group’s capital expenditures have principally consisted of expenditures on acquisitions of property, plant and equipment in our operations. During the Track Record Period, our Group incurred capital expenditures of approximately HK$41.8 million, HK$38.2 million, HK$30.2 million and HK$13.2 million, respectively, for the years ended 31 March 2012, 2013, 2014 and the three months ended 30 June 2014, majority of which came from the construction of the Yuwotou Premises. Planned capital expenditure For the year ending 31 March 2015, we estimate that the capital expenditures will amount to approximately HK$41.8 million primarily for the construction of Yuwotou Premises and leasehold improvement for Yinping Premises. For the year ending 31 March 2016, we estimate that capital expenditures will amount to approximately HK$32.0 million primarily for upgrade of ERP and IT infrastructure, and purchasing software for producing three-dimensional design sketches and equipment for producing design prototypes to enhance our design capability. – 209 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
FINANCIAL INFORMATION Our Group’s projected capital expenditures are subject to revision based upon any future changes in our business plan, market conditions, and economic and regulatory environment. Please refer to the section headed “Future plans and use of proceeds” in this [REDACTED] for further information. We expect to fund our contractual commitments and capital expenditures principally through the net proceeds we receive from the [REDACTED] and cash generated from our operating activities. We believe that these sources of funding will be sufficient to finance our contractual commitments and capital expenditure needs for the next 12 months. INDEBTEDNESS The following table sets out our total debts as at 31 March 2012, 2013, 2014, 30 June 2014 and 31 August 2014: As at 31 March
Bank borrowings – secured . . . . . . . . . . . . . . – unsecured. . . . . . . . . . . . .
Obligations under finance lease – current . . . . . . . . . . . . . . – non-current. . . . . . . . . . . .
As at 30 June
As at 31 August
2012
2013
2014
2014
2014
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000 (Unaudited)
207,141 9,917
327,482 16,575
284,523 9,400
297,484 8,400
329,800 8,000
217,058
344,057
293,923
305,884
337,800
463 1,032
1,184 2,850
1,054 1,300
1,430 2,551
1,010 2,307
1,495
4,034
2,354
3,981
3,317
Amount due to the immediate holding company . . . . . . . . .
140,603
127,571
115,580
111,366
–
Total . . . . . . . . . . . . . . . . . .
359,156
475,662
411,857
421,231
341,117
Bank borrowings We obtained financing from the banks in the form of bank overdraft, bank loans and factoring loans during the Track Record Period. Our bank overdraft are revolving borrowing drawn down against bank facility provided by the banks without fixed repayment schedule, our bank loans are drawn down against bank facility provided by the banks with repayment schedule and our factoring loans are provided by the bank drawn down against sales invoices with fixed repayment schedule. During the Track Record Period, our factoring loans were secured by our trade receivable on a recourse basis with a maximum payment terms of 120 days. Our factoring loans were granted by the banks as a financing tool to support our daily operation and we will continue to use this tool to support our daily operation in the future. – 210 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
FINANCIAL INFORMATION The following table sets out our total bank borrowings as at 31 March 2012, 2013, 2014, 30 June 2014 and 31 August 2014:
As at 31 March
As at 30 June
As at 31 August
2012
2013
2014
2014
2014
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000 (Unaudited)
Bank borrowings – bank overdrafts . . . . . . . . . – bank loans . . . . . . . . . . . . – factoring loans . . . . . . . . .
– 214,641 2,417
– 273,790 70,267
11,070 270,879 11,974
– 249,982 55,902
– 267,602 70,198
Total. . . . . . . . . . . . . . . . . . .
217,058
344,057
293,923
305,884
337,800
Our bank borrowings were denominated in HK$, US$ and RMB. As at 31 March 2012, 2013, 2014, 30 June 2014 and 31 August 2014, our interest-bearing bank borrowings of HK$217.1 million, HK$344.1 million, HK$293.9 million, HK$305.9 million and HK$337.8 million, respectively, contained a repayment on demand clause under the relevant loan agreements, among which HK$33.2 million, HK$39.0 million, HK$11.2 million, HK$10.1 million and HK$9.4 million that was repayable after one year from the end of the reporting period were classified as current liabilities. The following table sets out the range of effective contractual interest rates for our borrowings as at 31 March 2012, 2013, 2014, 30 June 2014 and 31 August 2014:
As at 31 March
Bank overdraft . . . . . . . . . Bank loans . . . . . . . . . . . . Factoring loans . . . . . . . . .
As at 30 June
As at 31 August
2012
2013
2014
2014
2014
N/A 2.0%-8.4% 2.9%
N/A 2.0%-8.2% 2.1%-2.7%
5.0% 2.0%-8.9% 4.1%-4.2%
N/A 2.5%-8.0% 2.4%-3.6%
N/A 2.5%-8.1% 2.6%-3.5%
During the Track Record Period, certain of our Group’s bank loans and overdrafts were secured by mortgages over certain of our Group’s leasehold land, buildings, CIP, prepaid lease payments, and a pledge of our Group’s bank deposits. In addition, certain of our Group’s bank loans were guaranteed by our certain directors, certain companies controlled by directors and the immediate holding company. At the close of business on 31 August 2014, being the latest practicable date for the purpose of this indebtedness statement, we had outstanding bank borrowings of approximately HK$337.8 million which was guaranteed by our certain subsidiaries, directors and our immediate holding company, and secured by certain assets of our Group. All guarantees provided by our directors and our immediate holding company will be released upon the [REDACTED]. As at the Latest Practicable Date, we have no material covenants relating to our outstanding debts, save for three bank facilities provided by certain financial institutions which include financial covenant that the – 211 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
FINANCIAL INFORMATION tangible net worth of our Company shall not be less than HK$230.0 million, HK$200.0 million and HK$150.0 million, respectively. Our Directors confirm that there were no breach of any covenants under our bank borrowings during the Track Record Period and up to the Latest Practicable Date. Our bank borrowings increased from approximately HK$217.1 million as at 31 March 2012 to approximately HK$344.1 million as at 31 March 2013. This was primarily attributable to increase in the factoring loans utilised for customers from Russia in line with the increased revenue from these customers. Our bank borrowings decreased from approximately HK$344.1 million as at 31 March 2013 to approximately HK$293.9 million as at 31 March 2014. This was primarily attributable to the decrease in the factoring loans utilised. Our bank borrowings increased from approximately HK$293.9 million as at 31 March 2014 to approximately HK$305.9 million as at 30 June 2014. This was primarily attributable to the increase in the utilisation of factoring loans. Our bank borrowings increased from approximately HK$305.9 million as at 30 June 2014 to approximately HK$337.8 million as at 31 August 2014. This was primarily attributable to the increase in the utilisation of bank loans and factoring loans. During the Track Record Period, we did not experience any delay or default in repayment of bank and other borrowings nor experience any difficulties in obtaining banking facilities with terms that are commercially acceptable to us. As of the date of this [REDACTED], we did not have any plan for material external debt financing. Obligations under finance lease Our Group leases certain motor vehicles and office equipment under finance lease arrangements. As at 31 August 2014, the aggregated outstanding principal amount was approximately HK$3.3 million. The table below sets out our obligations under finance lease as at the dates indicated: As at 31 March
Within one year . . . . . . . . . . . In the second year . . . . . . . . . . In the third to fifth years, inclusive. . . . . . . . . . . . . . .
As at 30 June
As at 31 August
2012
2013
2014
2014
2014
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000 (Unaudited)
463 408
1,184 1,209
1,054 820
1,430 1,087
1,010 1,015
624
1,641
480
1,464
1,292
1,495
4,034
2,354
3,981
3,317
– 212 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
FINANCIAL INFORMATION The following table sets out the range of effective interest rates for our obligations under finance lease as at the dates indicated:
As at 31 March
Obligations under finance lease .
As at 30 June
As at 31 August
2012
2013
2014
2014
2014
4.3%-6.6%
2.8%-6.9%
2.8%-6.4%
2.7%-6.5%
2.7%-6.5%
Our obligations under finance lease were denominated in HK$ and RMB and were secured by the relevant motor vehicle and office equipment. Amount due to the immediate holding company We recorded outstanding balances due to our immediate holding company, KTL International (BVI) in the amount of approximately HK$140.6 million, HK$127.6 million, HK$115.6 million and HK$111.4 million as at 31 March 2012, 2013, 2014 and 30 June 2014, respectively. The balances were unsecured, interest free and repayable on demand. Such outstanding amounts were due by Landclick Properties to KTL International (BVI) and were fully capitalised by issue and allotment of shares of Landclick Properties to KTL International (BVI) on 28 July 2014. As at the Latest Practicable Date, our Group had no outstanding balances due to our immediate holding company or other Shareholders. Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities, our Group did not have at the close of business on 31 August 2014, any loan capital issued and outstanding or agreed to be issued, bank overdrafts, loans or other similar indebtedness, liabilities under acceptances (other than normal trade bills) or acceptable credits, debentures, mortgages, charges, finance leases or hire purchases commitments, guarantees or other material contingent liabilities. Contingent liabilities As at the Latest Practicable Date, we did not have contingent liabilities that would have a material adverse effect on our financial position, liquidity or result of operation. Our Directors confirm that we had not defaulted or delayed in any payment during the Track Record Period and up to the Latest Practicable Date. Our Directors confirm that, up to the Latest Practicable Date, there have been no material change in indebtedness, capital commitment and contingent liabilities of our Group since 31 August 2014, being latest practicable date for ascertaining our Group’s indebtedness prior to the printing of this [REDACTED]. Our Directors further confirm that as at the Latest Practicable Date, our Group did not have any plans to raise any material debt financing shortly after [REDACTED].
– 213 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
FINANCIAL INFORMATION TRANSACTIONS WITH RELATED PARTIES With respect to the related party transactions set forth in the Accountants’ Report in Appendix I to this [REDACTED], our Directors confirm that these transactions were conducted on an arm’s length basis, normal commercial terms and/or terms that were no less favourable to our Group than those available to Independent Third Parties and were fair and reasonable and in the interest of our Shareholders as a whole and would not distort our results of operations during the Track Record Period or make the results of operations not reflective of our future performance. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS We are exposed to market risks from changes in market rates and prices, such as interest rates, foreign currency, credit and liquidity. Interest rate risk Our Group’s exposure to interest rate risk relates principally to our Group’s bank borrowings which are based on the Hong Kong Interbank Offered Rate. Our Group mitigates the risk by monitoring closely the movements in interest rates and reviewing its banking facilities regularly. Our Group has not used any interest rate swap to hedge its exposure to interest rate risk. As at 31 March 2012, 2013, 2014 and 30 June 2014, if the interest rates on borrowings had been 50 basis points higher/lower, which was considered reasonably possible by management, with all other variables held constant, the profit after tax for the year would have been decreased/increased by approximately HK$0.8 million, HK$1.0 million, HK$1.4 million and HK$0.5 million, respectively, as a result of higher/lower interest expenses on bank borrowings. Foreign currency risk Our Group has transactional currency exposures. Such exposures arise from sales or purchases by operating units in currencies other than the units’ functional currencies. Our Group manages its foreign currency risk by closely monitoring the level of foreign currency balances. Our Group did not enter into any foreign currency forward contracts to hedge against foreign currency risk during the Track Record Period. Management will consider hedging foreign currency exposure should the need arise. The carrying amounts of our Group’s monetary assets and monetary liabilities denominated in foreign currencies, i.e. currency other than the functional currency of the respective group entities, which are mainly trade receivables, other receivables, bank balances, trade and other payables, obligations under finance leases and bank borrowings. Since HK$ is pegged to US$, our Group does not expect any significant movements in HK$/US$ exchange rate. We are exposed to foreign exchange risk primarily with respect to RMB. If RMB as at 31 March 2012, 2013, 2014 and 30 June 2014 had strengthened/weakened by 5% against HK$ with all other variables held constant, our profit after tax would have been decreased/increased by approximately HK$1.2 million, HK$4.1 million, HK$4.2 million and HK$4.3 million, respectively. – 214 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
FINANCIAL INFORMATION Credit risk The carrying amounts of cash and cash equivalents and trade receivables represent our Group’s maximum exposure to credit risk in relation to financial assets. All our Group’s cash and cash equivalents are held in major financial institutions located in the PRC and Hong Kong, which management believes are of high credit quality. Our Group has policies in place to evaluate credit risk when accepting new business and to limit its credit exposure to individual customers. The directors consider that our Group does not have a significant concentration of credit risk. Liquidity risk Liquidity risk is the risk that we will not be able to meet our financial obligations as they become due. Our Group aims to maintain sufficient cash and credit lines to meet its liquidity requirements. Our Group finances our working capital requirements through a combination of funds generated from operations and other borrowings. DISCLOSURE REQUIRED UNDER THE [REDACTED] Our Directors confirm that, as at the Latest Practicable Date, there were no circumstances that would give rise to a disclosure requirement under [REDACTED] of the [REDACTED].
[REDACTED]
DIVIDEND POLICY During the Track Record Period, we declared and paid dividends of approximately HK$4.5 million for the year ended 31 March 2012, nil for the year ended 31 March 2013, nil for the year ended 31 March 2014 and nil for the three months ended 30 June 2014. The foregoing should not be viewed as a reference or basis to determine the level of dividends that may be declared or paid by us in the future.
– 215 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
FINANCIAL INFORMATION The recommendation of the payment of dividend is subject to the absolute discretion of our Board, and, after [REDACTED], any declaration of final dividend for the year will be subject to the approval of our Shareholders. Our Directors may recommend a payment of dividend in the future after taking into account our operations, earnings, financial condition, cash requirements and availability, capital expenditure and future development requirements and other factors as it may deem relevant at such time. Any declaration and payment as well as the amount of the dividend will be subject to our constitutional documents and the Companies Law, including the approval of our Shareholders. Future dividend payments will also depend upon the availability of dividends received from our foreign-invested subsidiary in the PRC. The PRC laws require that dividends be paid only out of the net profit calculated according to the PRC accounting principles, which differ in many aspects from generally accepted accounting principles in other jurisdictions, including IFRS. The PRC laws also require foreign-invested enterprises to set aside part of their net profit as statutory reserves, which are not available for distribution as cash dividends. Distributions from our foreign invested subsidiary may also be restricted if it incurs debt or losses or pursuant to any restrictive covenants in bank credit facilities, convertible bond instruments or other agreements that we or our subsidiaries and associated companies may enter into in the future. Any distributable profits that are not distributed in any given year will be retained and available for distribution in subsequent years. To the extent profits are distributed as dividends, such portion of profits will not be available to be reinvested in our operations. Subject to the factors above, our Directors currently intend to recommend, at the relevant shareholders’ meetings of our Company, an annual dividend around 30% of the net profit available for distribution to the Shareholders in the foreseeable future. Such intention does not amount to any guarantee or representation or indication that we must or will declare and pay dividends in such manner or declare and pay dividends at all. Cash dividends on the Shares, if any, will be paid in Hong Kong dollars. Our dividend distribution record in the past may not be used as a reference or basis to determine the level of dividends that may be declared or paid by us in the future. DISTRIBUTABLE RESERVES Our Company was incorporated on 6 June 2014 and is an investment holding company. There were no reserves available for distribution to the Shareholders as of 30 June 2014. SUBSEQUENT EVENT Please refer to Note 34 to the Accountants’ Report in Appendix I to this [REDACTED] for details relating to subsequent event.
– 216 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
FINANCIAL INFORMATION UNAUDITED PRO FORMA ADJUSTED NET TANGIBLE ASSETS The following unaudited pro forma statement of adjusted combined net tangible assets prepared in accordance with [REDACTED] of the [REDACTED] is set out to illustrate the effect of the [REDACTED] on our net tangible assets as of 30 June 2014 as if it had taken place on 30 June 2014. The unaudited pro forma statement of adjusted combined net tangible assets has been prepared for illustration purpose only and, because of its hypothetical nature, it may not give a true picture of our net tangible assets as of 30 June 2014 or any future date following the [REDACTED]. It is prepared based on our net assets as of 30 June 2014 as set out in the Accountants’ Report in Appendix I to this [REDACTED], and adjusted as described below. The unaudited pro forma statement of adjusted combined net tangible assets does not form part of the Accountants’ Report in Appendix I to this [REDACTED]. Combined net tangible assets attributable to owners of the Company as at 30 June 2014
Estimated net [REDACTED] from the [REDACTED]
Unaudited pro forma adjusted combined net tangible assets
Unaudited pro forma adjusted combined net tangible assets per Share
HK$’000
HK$’000
HK$’000
HK$
(Note 1)
(Note 2)
(Note 3)
Based on an [REDACTED] of HK$[REDACTED] per Share . . . . . . . .
208,527
[REDACTED]
[REDACTED]
[REDACTED]
Based on an [REDACTED] of HK$[REDACTED] per Share . . . . . . . .
208,527
[REDACTED]
[REDACTED]
[REDACTED]
Notes: 1.
The combined net tangible assets attributable to owners of the Company as at 30 June 2014 is extracted from the Accountants’ Report as set out in Appendix I to this [REDACTED], which is based on the audited combined net assets attributable to owners of the Company of HK$[REDACTED] as of 30 June 2014 less deferred tax assets of HK$[REDACTED] as of the same date.
2.
The estimated net proceeds from the [REDACTED] are based on the minimum and maximum indicative [REDACTED] of HK$[REDACTED] and HK$[REDACTED] per Share, after deduction of the [REDACTED] fees and other related expenses payable by the Company, taking no account of any Shares which may be issued upon the exercise of the [REDACTED].
3.
The unaudited pro forma adjusted combined net tangible assets per Share are determined after the adjustments as described in note 2 above and on the basis that [REDACTED] Shares (being the number of shares expected to be in issue immediately after completion of the [REDACTED], without taking into account of any shares which may be issued upon the exercise of the [REDACTED]) are issued and outstanding.
OFF-BALANCE SHEET ARRANGEMENT As at the Latest Practicable Date, we did not have any material off-balance sheet arrangements or contingencies except as disclosed under the paragraphs headed “Contractual and capital commitments” and “indebtedness” in this section. – 217 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
FINANCIAL INFORMATION RECONCILIATION OF APPRAISED PROPERTY VALUES WITH NET BOOK VALUES Further information on our property interest is set out in Appendix III to this [REDACTED]. The Valuer has valued the properties owned by us as at 31 July 2014. The text of its letter, summary of valuations and valuation certificate are set forth in Appendix III to this [REDACTED]. The table below shows the reconciliation of the net book value of the property interests from our audited financial statements as at 30 June 2014 to the valuation of the property interests as at 31 July 2014: HK$’000 Reference value as at 31 July 2014 (as included in the Valuation Report in Appendix III to this [REDACTED]) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
237,840
Net book value as at 30 June 2014(Note) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
164,269
Additions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,616
Movements for the one month ended 31 July 2014 – Depreciation and amortisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – Exchange realignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(114) 382
Net book value as at 31 July 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
166,153
Valuation surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
71,687
Note: The net book value represents the sum of the closing net book amount of prepaid land lease payments, leasehold land, buildings and CIP in relation to properties held by our group as at 30 June 2014 as stated in the Accountants’ Report set out in Appendix I to this [REDACTED].
RECENT DEVELOPMENTS OF OUR GROUP SUBSEQUENT TO THE TRACK RECORD PERIOD AND NO MATERIAL ADVERSE CHANGE Based on our unaudited financial information for the two months ended 31 August 2014, our monthly average revenue slightly decreased when compared with the monthly average revenue for the three months ended 30 June 2014. The decrease in revenue was mainly attributable to the recent slowdown of the Russia market as a result of the recent military intervention in Ukraine, which was partially offset by the increase in sales in the United States as a result of the continuous economic recovery of the United States. Since April 2014, we commenced trading of silver jewelleries. The average wholesale price of our products decreased for the two months ended 31 August 2014 due to the increase in our sales of silver jewelleries, which have a substantially lower average wholesale price. Our Directors confirmed that, up to the date of this [REDACTED], there has been no material adverse change in our financial or trading position since 30 June 2014, the end of the period reported in the Accountants’ Report set out in Appendix I to this [REDACTED], and there has been no event since 30 June 2014 which would materially affect the information shown in the Accountants’ Report set out in Appendix I to this [REDACTED]. – 218 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
FUTURE PLANS AND USE OF PROCEEDS FUTURE PLANS AND PROSPECTS Please see the sub-section headed “Business – Our business strategies” in this [REDACTED] for a detailed description of our future plans. USE OF PROCEEDS The aggregate [REDACTED] from the [REDACTED] (after deducting [REDACTED] fees and estimated expenses in connection with the [REDACTED] and assuming an [REDACTED] of HK$[REDACTED] per Share, being the mid-point of the indicative range of the [REDACTED] of HK$[REDACTED] to HK$[REDACTED] per Share, and assuming the [REDACTED] is not exercised) will be approximately HK$[REDACTED]. Our Directors intend to apply the [REDACTED] from the [REDACTED] as follows: (1) approximately HK$[REDACTED] (representing approximately [REDACTED]% of the [REDACTED]) will be used for the fitting out and decoration of Yuwotou Premises, which are contemplated to include (i) an exhibition centre with multiple showrooms to showcase our design concepts and products; and (ii) a staff training centre. For details of the plan for Yuwotou Premises, please refer to the sub-section headed “Business – Properties” in the [REDACTED]. The fitting of Yuwotou Premises is expected to commence in late 2015 upon completion of the construction of Yuwotou Premises and receiving of the relevant approvals and permits from the PRC authorities; (2) approximately HK$[REDACTED] (representing approximately [REDACTED]% of the [REDACTED]) will be used for purchasing of raw materials, more specifically diamonds. Suppliers of diamonds generally offer discounts for orders without credit terms. We believe that it would be beneficial for our Group to allocate part of the proceeds to facilitate purchases of diamonds on a cash-on-delivery basis to take advantage of purchase discounts generally provided by our suppliers for orders without credit terms to enable us to offer products at more competitive prices and/or increase our gross profit margin; (3) approximately HK$[REDACTED] (representing approximately [REDACTED]% of the [REDACTED]) will be used for upgrading our ERP system, providing an enhanced integrated interface which supports our operation from placing order to receiving payment, including automatic and electronic order making system, sales support system, logistic and quality control system, together with IT infrastructure upgrade; (4) approximately HK$[REDACTED] (representing approximately [REDACTED]% of the [REDACTED]) will be used for [the development and enhancement of our design capability including, among others, (i) purchasing of software for producing threedimensional design sketches and equipment for producing design prototypes and (ii) employing additional designers and craftsmen; and (5) the remaining balance of approximately HK$[REDACTED] (representing [REDACTED]% of the [REDACTED]) will be used for additional working capital and other general corporate purposes. – 219 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
FUTURE PLANS AND USE OF PROCEEDS If the [REDACTED] is fixed at the high-end of the indicative range of the [REDACTED], being HK$[REDACTED] per Share, the [REDACTED] we receive from the [REDACTED] will increase by approximately HK$[REDACTED]. We intend to apply the additional [REDACTED] for the above purposes on a pro-rata basis. If the [REDACTED] is set at the low-end of the indicative range of the [REDACTED], being HK$[REDACTED] per Share, the [REDACTED] we receive from the [REDACTED] will decrease by approximately HK$[REDACTED]. We intend to reduce the [REDACTED] for the above purposes on a pro-rata basis. If the [REDACTED] is exercised in full, we estimate that the additional [REDACTED] from the [REDACTED] to be received by us, after deducting [REDACTED] fees and estimated expenses payable by it, will be approximately (i) HK$[REDACTED], assuming the [REDACTED] is fixed at the high-end of the indicative range of the [REDACTED], being HK$[REDACTED] per Share; (ii) HK$[REDACTED], assuming the [REDACTED] is fixed at the mid-point of the indicative range of the [REDACTED], being HK$[REDACTED] per Share; and (iii) HK$[REDACTED], assuming the [REDACTED] is fixed at the low-end of the indicative range of the [REDACTED], being HK$[REDACTED] per Share. Any additional proceeds received by us from the exercise of the [REDACTED] will also be allocated to the above businesses and projects on a pro-rata basis. To the extent that the [REDACTED] are not immediately applied to the above purposes and to the extent permitted by applicable laws and regulations, we intend to deposit the [REDACTED] into short-term demand deposits with authorised financial institutions and/or licensed banks in Hong Kong.
– 220 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
UNDERWRITING
[REDACTED]
– 221 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
UNDERWRITING
[REDACTED]
– 222 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
UNDERWRITING
[REDACTED]
– 223 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
UNDERWRITING
[REDACTED]
– 224 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
UNDERWRITING
[REDACTED]
– 225 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
UNDERWRITING
[REDACTED]
– 226 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
UNDERWRITING
[REDACTED]
– 227 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
UNDERWRITING
[REDACTED]
– 228 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
UNDERWRITING
[REDACTED]
– 229 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
UNDERWRITING
[REDACTED]
– 230 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
STRUCTURE AND CONDITIONS OF THE [REDACTED]
[REDACTED]
– 231 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
STRUCTURE AND CONDITIONS OF THE [REDACTED]
[REDACTED]
– 232 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
STRUCTURE AND CONDITIONS OF THE [REDACTED]
[REDACTED]
– 233 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
STRUCTURE AND CONDITIONS OF THE [REDACTED]
[REDACTED]
– 234 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
STRUCTURE AND CONDITIONS OF THE [REDACTED]
[REDACTED]
– 235 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
STRUCTURE AND CONDITIONS OF THE [REDACTED]
[REDACTED]
– 236 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
STRUCTURE AND CONDITIONS OF THE [REDACTED]
[REDACTED]
– 237 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
STRUCTURE AND CONDITIONS OF THE [REDACTED]
[REDACTED]
– 238 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
STRUCTURE AND CONDITIONS OF THE [REDACTED]
[REDACTED]
– 239 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
STRUCTURE AND CONDITIONS OF THE [REDACTED]
[REDACTED]
– 240 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
HOW TO APPLY FOR THE HONG KONG PUBLIC [REDACTED]
[REDACTED]
– 241 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
HOW TO APPLY FOR THE HONG KONG PUBLIC [REDACTED]
[REDACTED]
– 242 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
HOW TO APPLY FOR THE HONG KONG PUBLIC [REDACTED]
[REDACTED]
– 243 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
HOW TO APPLY FOR THE HONG KONG PUBLIC [REDACTED]
[REDACTED]
– 244 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
HOW TO APPLY FOR THE HONG KONG PUBLIC [REDACTED]
[REDACTED]
– 245 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
HOW TO APPLY FOR THE HONG KONG PUBLIC [REDACTED]
[REDACTED]
– 246 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
HOW TO APPLY FOR THE HONG KONG PUBLIC [REDACTED]
[REDACTED]
– 247 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
HOW TO APPLY FOR THE HONG KONG PUBLIC [REDACTED]
[REDACTED]
– 248 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
HOW TO APPLY FOR THE HONG KONG PUBLIC [REDACTED]
[REDACTED]
– 249 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
HOW TO APPLY FOR THE HONG KONG PUBLIC [REDACTED]
[REDACTED]
– 250 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
HOW TO APPLY FOR THE HONG KONG PUBLIC [REDACTED]
[REDACTED]
– 251 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
HOW TO APPLY FOR THE HONG KONG PUBLIC [REDACTED]
[REDACTED]
– 252 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
HOW TO APPLY FOR THE HONG KONG PUBLIC [REDACTED]
[REDACTED]
– 253 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
HOW TO APPLY FOR THE HONG KONG PUBLIC [REDACTED]
[REDACTED]
– 254 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
HOW TO APPLY FOR THE HONG KONG PUBLIC [REDACTED]
[REDACTED]
– 255 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
HOW TO APPLY FOR THE HONG KONG PUBLIC [REDACTED]
[REDACTED]
– 256 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
HOW TO APPLY FOR THE HONG KONG PUBLIC [REDACTED]
[REDACTED]
– 257 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
HOW TO APPLY FOR THE HONG KONG PUBLIC [REDACTED]
[REDACTED]
– 258 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
HOW TO APPLY FOR THE HONG KONG PUBLIC [REDACTED]
[REDACTED]
– 259 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
HOW TO APPLY FOR THE HONG KONG PUBLIC [REDACTED]
[REDACTED]
– 260 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX I
ACCOUNTANTS’ REPORT
The following is a text of a report, prepared for the purpose of incorporation in the [REDACTED], received from the Company’s reporting accountants, Ernst & Young, Certified Public Accountants, Hong Kong. [Date] The Directors KTL International Holdings Group Limited CCB International Capital Limited China Galaxy International Securities (Hong Kong) Co., Limited Dear Sirs, We set out below our report on the financial information of KTL International Holdings Group Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) comprising the combined statements of profit or loss and other comprehensive income, combined statements of changes in equity and combined statements of cash flows of the Group for each of the years ended 31 March 2012, 2013 and 2014, and the three months ended 30 June 2014 (the “Track Record Period”), and the combined statements of financial position of the Group as at 31 March 2012, 2013 and 2014 and 30 June 2014 and the statement of financial position of the Company as at 30 June 2014, together with the notes thereto (the “Financial Information”), and the comparative combined statement of profit or loss and statement of comprehensive income, statement of changes in equity and statement of cash flows of the Group for the three months ended 30 June 2013 (the “Interim Comparative Information”), prepared on the basis of presentation set out in note 2.1 of Section II below, for inclusion in the [REDACTED] of the Company dated [Date] (the “[REDACTED]”) in connection with the [REDACTED] of the shares of the Company on the [REDACTED]. The Company was incorporated as an exempted company with limited liability in the Cayman Islands on 6 June 2014. Pursuant to a group reorganisation (the “Reorganisation”) as described in the paragraph headed “Reorganisation” in the section headed “History, Development and Reorganisation” to the [REDACTED], the Company became the holding company of the subsidiaries comprising the Group. Apart from the Reorganisation, the Company has not commenced any business or operation since its incorporation. As at the date of this report, no statutory financial statements have been prepared for the Company, as the Company has not been involved in any significant business transaction other than the Reorganisation described above and it is not subject to statutory audit requirements under the relevant rules and regulations in its jurisdiction of incorporation. As at [date] of this report, the Company has direct and indirect interests in the subsidiaries as set out in note 1 of Section II below. All companies now comprising the Group have adopted 31 March as their financial year end date. The statutory financial statements of the companies now comprising the Group were prepared in accordance with the relevant accounting principles applicable to these companies in the countries in which they were incorporated and/or established. Details of their statutory auditors during the Track Record Period are set out in note 1 of Section II below. – I-1 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX I
ACCOUNTANTS’ REPORT
For the purpose of this report, the directors of the Company (the “Directors”) have prepared the combined financial statements of the Group (the “Underlying Financial Statements”) in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”), which include all Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). The Underlying Financial Statements for each of the years ended 31 March 2012, 2013 and 2014, and the three months ended 30 June 2014 were audited by us in accordance with Hong Kong Standards on Auditing issued by the HKICPA. The Financial Information set out in this report has been prepared from the Underlying Financial Statements with no adjustments made thereon. Directors’ responsibility The Directors are responsible for the preparation of the Underlying Financial Statements and the Financial Information that give a true and fair view in accordance with HKFRSs, and for such internal control as the Directors determine is necessary to enable the preparation of the Underlying Financial Statements and the Financial Information that are free from material misstatement, whether due to fraud or error. Reporting accountants’ responsibility It is our responsibility to form an independent opinion and a review conclusion on the Financial Information and the Interim Comparative Information, respectively, to report our opinion and review conclusion thereon to you. For the purpose of this report, we have carried out procedures on the Financial Information in accordance with Auditing Guideline [REDACTED] issued by the HKICPA. We have also performed a review of the Interim Comparative Information in accordance with Hong Kong Standard on Review Engagements 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the HKICPA. A review consists principally of making enquiries of management and applying analytical procedures to the financial information and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets and liabilities and transactions. It is substantially less in scope than an audit and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an opinion on the Interim Comparative Information. Opinion in respect of the Financial Information In our opinion, for the purpose of this report and on the basis of presentation set out in [note 2.1] of [Section II] below, the Financial Information gives a true and fair view of the state of affairs of the Company as at 30 June 2014, and the Group as at 31 March 2012, 2013 and 2014 and 30 June 2014 and of the combined results and cash flows of the Group for each financial year during the Track Record Period. – I-2-A –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX I
ACCOUNTANTS’ REPORT
Review conclusion in respect of the Interim Comparative Information Based on our review which does not constitute an audit, for the purpose of this report, nothing has come to our attention that causes us to believe that the Interim Comparative Information is not prepared, in all material respects, in accordance with the same basis adopted in respect of the Financial Information.
– I-2-B –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX I I.
ACCOUNTANTS’ REPORT
FINANCIAL INFORMATION
COMBINED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Three months ended 30 June
Year ended 31 March Notes
REVENUE . . . . . . . . . . . . . . . . . Cost of sales . . . . . . . . . . . . . . . .
5
Gross profit . . . . . . . . . . . . . . . . . Other income . . . . . . . . . . . . . . . . Selling expenses . . . . . . . . . . . . . . Administrative expenses. . . . . . . . . .
6
OPERATING PROFIT . . . . . . . . . . .
2012
2013
2014
2013
2014
HK$’000
HK$’000
HK$’000
HK$’000 (Unaudited)
HK$’000
1,114,714 (875,517)
1,434,364 (1,170,480)
1,345,822 (1,101,706)
482,697 (398,575)
344,814 (275,224)
239,197
263,884
244,116
84,122
69,590
6,724 (64,302) (133,733)
4,353 (66,654) (145,715)
5,555 (50,627) (132,113)
1,806 (16,324) (38,940)
2,246 (12,152) (27,643)
47,886
55,868
66,931
30,664
32,041
Other gains/(expenses), net . . . . . . . . Finance costs . . . . . . . . . . . . . . . .
7 8
38,429 (10,465)
(4,158) (13,167)
(10,246) (12,779)
(6,892) (3,270)
(8,469) (2,592)
PROFIT BEFORE TAX . . . . . . . . . .
9
75,850
38,543
43,906
20,502
20,980
Income tax expense . . . . . . . . . . . .
12
(7,067)
(4,771)
(6,334)
(2,407)
(3,626)
68,783
33,772
37,572
18,095
17,354
4,090
3,582
(1,150)
694
–
4,784
3,582
(1,150)
PROFIT FOR THE YEAR/PERIOD . . .
OTHER COMPREHENSIVE INCOME/(LOSS) TO BE RECLASSIFIED TO PROFIT OR LOSS IN SUBSEQUENT PERIODS, NET OF TAX Exchange differences on translation of foreign operations . . . . . . . . . . . . Release of exchange fluctuation reserve upon deregistration of a subsidiary . .
4,065 –
(575) –
–
OTHER COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR/PERIOD . . . . . . . . . . . . .
4,065
TOTAL COMPREHENSIVE INCOME FOR THE YEAR/PERIOD . . . . . . .
72,848
33,197
42,356
21,677
16,204
N/A
N/A
N/A
N/A
N/A
EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT Basic and diluted . . . . . . . . . . . .
13
(575)
Details of dividends payable and proposed during the Track Record Period are disclosed in note 14 to the Financial Information. – I-3 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX I
ACCOUNTANTS’ REPORT
COMBINED STATEMENTS OF FINANCIAL POSITION 31 March Notes
NON-CURRENT ASSETS Property, plant and equipment. . . . . . . . Prepaid land lease payments . . . . . . . . . Prepayments for construction in progress . Deferred tax assets . . . . . . . . . . . . . .
. . . .
15 16 24
Total non-current assets . . . . . . . . . . . . CURRENT ASSETS Inventories . . . . . . . . . . . . . Trade receivables . . . . . . . . . Prepayments, deposits and other receivables . . . . . . . . . . . . Tax recoverable . . . . . . . . . . Prepaid land lease payments . . . Due from a shareholder . . . . . Pledged bank deposits . . . . . . Cash and bank balances . . . . .
30 June
2012
2013
2014
2014
HK$’000
HK$’000
HK$’000
HK$’000
140,293 16,665 2,149 –
162,246 16,222 – 4,991
176,952 16,205 3,346 5,564
188,961 16,000 312 3,697
159,107
183,459
202,067
208,970
. . . . . . . . . . . . . .
17 18
200,159 154,243
396,943 250,245
242,295 166,335
195,332 206,599
. . . . . .
19
63,146 245 426 34,990 29,347 60,734
12,005 2,399 426 – 105,374 46,206
7,854 3,057 437 – 107,534 103,481
38,480 3,119 434 – 107,713 88,763
543,290
813,598
630,993
640,440
140,603 216,160 217,058 6,561 463
127,571 361,678 344,057 6,063 1,184
115,580 223,186 293,923 2,007 1,054
111,366 214,227 305,884 1,728 1,430
Total current liabilities . . . . . . . . . . . . .
580,845
840,553
635,750
634,635
NET CURRENT ASSETS/(LIABILITIES) .
(37,555)
(26,955)
TOTAL ASSETS LESS CURRENT LIABILITIES . . . . . . . . . . . . . . . . .
121,552
156,504
197,310
214,775
1,032 63
2,850 –
1,300 –
2,551 –
Total non-current liabilities . . . . . . . . . .
1,095
2,850
1,300
2,551
Net assets . . . . . . . . . . . . . . . . . . . . .
120,457
153,654
196,010
212,224
– 120,457
– 153,654
– 196,010
10 212,214
120,457
153,654
196,010
212,224
. . . . . .
. . . . . .
. . . . . .
. . . . . .
. . . . . .
. . . . . .
16 30(b) 20 20
Total current assets . . . . . . . . . . . . . . . CURRENT LIABILITIES Due to the immediate holding company . Trade and other payables. . . . . . . . . . Interest-bearing bank borrowings . . . . . Tax payable . . . . . . . . . . . . . . . . . . Obligations under finance leases . . . . .
. . . . .
. . . . .
NON-CURRENT LIABILITIES Obligations under finance leases . . . . . . . Deferred tax liabilities . . . . . . . . . . . . .
30(b) 21 22 23
23 24
(4,757)
5,805
EQUITY Equity attributable to owners of the parent Issued capital . . . . . . . . . . . . . . . . . . . Reserves . . . . . . . . . . . . . . . . . . . . . . Total equity . . . . . . . . . . . . . . . . . . . .
25 26
– I-4 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX I
ACCOUNTANTS’ REPORT
COMBINED STATEMENTS OF CHANGES IN EQUITY Attributable to the owners of the parent Issued capital
Statutory surplus reserve
Merger reserve
Exchange fluctuation reserve
Retained profits
Total
HK$’000 (note 25)
HK$’000 (note 26)
HK$’000 (note 26)
HK$’000
HK$’000
HK$’000
At 1 April 2011 . . . . . . . . . . . . . . . . . .
–
4,550
1,950
9,048
36,587
52,135
Profit for the year . . . . . . . . . . . . . . . . . Other comprehensive income for the year: Exchange differences on translation of foreign operations . . . . . . . . . . . . . . . . . . .
–
–
–
–
68,783
68,783
–
–
–
4,065
–
4,065
Total comprehensive income for the year . . . . .
–
–
–
4,065
68,783
72,848
– –
(3,188) –
– –
– –
3,188 (4,526)
– (4,526)
At 31 March 2012 and 1 April 2012 . . . . . . . .
–
1,362*
104,032*
120,457
Profit for the year . . . . . . . . . . . . . . . . . Other comprehensive loss for the year: Exchange differences on translation of foreign operations . . . . . . . . . . . . . . . . . . .
–
–
–
–
33,772
33,772
–
–
–
(575)
–
(575)
Total comprehensive (loss)/income for the year . .
–
–
–
(575)
33,772
Transfer from retained profits . . . . . . . . . . .
–
821
–
–
At 31 March 2013 and 1 April 2013 . . . . . . . .
–
2,183*
Profit for the year . . . . . . . . . . . . . . . . . Other comprehensive income for the year: Exchange differences on translation of foreign operations . . . . . . . . . . . . . . . . . . . Release of exchange fluctuation reserve upon deregistration of a subsidiary . . . . . . . . .
–
–
–
–
–
–
Total comprehensive income for the year . . . . .
Note
Transfer from retained profits . . . . . . . . . . . Interim dividend to the shareholders . . . . . . . .
14
1,950*
13,113*
33,197
(821)
–
136,983*
153,654
–
37,572
37,572
–
4,090
–
4,090
–
–
694
–
694
–
–
–
4,784
37,572
42,356
Transfer from retained profits . . . . . . . . . . .
–
1,802
–
–
(1,802)
–
At 31 March 2014 and 1 April 2014 . . . . . . . .
–
3,985
1,950
17,322
172,753
196,010
– I-5 –
1,950*
12,538*
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX I
ACCOUNTANTS’ REPORT Attributable to the owners of the parent
Note
Issued capital
Statutory surplus reserve
Merger reserve
HK$’000 (note 25)
HK$’000 (note 26)
HK$’000 (note 26)
Total
HK$’000
HK$’000
HK$’000
–
172,753*
196,010
Profit for the period . . . . . . . . . . . . . . . . Other comprehensive income for the period: Exchange differences arising on translation of foreign operations . . . . . . . . . . . . . . .
–
–
–
–
17,354
17,354
–
–
–
(1,150)
–
(1,150)
Total comprehensive income for the period . . . .
–
–
–
(1,150)
17,354
16,204
Issuance of shares . . . . . . . . . . . . . . . . .
10
–
–
–
–
10
At 30 June 2014 . . . . . . . . . . . . . . . . . .
10
3,985*
1,950*
16,172*
190,107*
212,224
At 31 March 2013 and 1 April 2013 . . . . . . . .
–
2,183*
1,950*
12,538*
136,983*
153,654
Profit for the period (unaudited) . . . . . . . . . . Other comprehensive income for the period: Exchange differences arising on translation of foreign operations (unaudited) . . . . . . . . .
–
–
–
–
18,095
18,095
–
–
–
3,582
–
3,582
Total comprehensive income for the period (unaudited). . . . . . . . . . . . . . . . . . . .
–
–
–
3,582
18,095
21,677
At 30 June 2013 (unaudited) . . . . . . . . . . . .
–
16,120*
155,078*
175,331
2,183*
1,950*
Retained profits
At 31 March 2014 and 1 April 2014 . . . . . . . .
*
3,985*
Exchange fluctuation reserve
1,950*
17,322*
These reserve accounts comprise the reserves of HK$120,457,000, HK$153,654,000, HK$196,010,000 and HK$212,214,000 in the combined statements of financial position as at 31 March 2012, 2013 and 2014 and 30 June 2014, respectively.
– I-6 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX I
ACCOUNTANTS’ REPORT
COMBINED STATEMENTS OF CASH FLOWS Three months ended 30 June
Year ended 31 March Notes
CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax . . . . . . . . . . . . . . . . . . . . Adjustments for: Finance costs . . . . . . . . . . . . . . . . . . . . Interest income . . . . . . . . . . . . . . . . . . . (Gain)/loss on disposal of items of property, plant and equipment. . . . . . . . . . . . . . . . . . . Depreciation . . . . . . . . . . . . . . . . . . . . . Amortisation of prepaid land lease payments . . . . Write-off for an amount due from a related company . . . . . . . . . . . . . . . . . . . . . . Allowance for an amount due from a related company . . . . . . . . . . . . . . . . . . . . . . Write-down/(write-back) of inventories to net realisable value . . . . . . . . . . . . . . . . . . Allowance for doubtful debts . . . . . . . . . . . . Impairment loss of construction in progress . . . . Write-off for other receivables . . . . . . . . . . .
2012
2013
2014
2013
2014
HK$’000
HK$’000
HK$’000
HK$’000 (Unaudited)
HK$’000
75,850
38,543
43,906
20,502
20,980
8 6
10,465 (43)
13,167 (1,210)
12,779 (2,196)
3,270 (675)
2,592 (554)
7 9 9
(39,211) 19,857 418
623 20,565 425
(105) 16,025 432
33 4,851 107
(300) 3,566 109
9
29
–
–
–
–
9
495
–
–
–
–
9 9 9 9
1,164 257 – 1,410
1,769 – – 375
1,120 6,444 8,068 –
2,582 5,834 6,497 –
70,691
74,257
86,473
43,001
26,123
(270) – – –
Decrease/(increase) in inventories . . . . . . . . . . Decrease/(increase) in trade receivables . . . . . . . (Increase)/decrease in prepayments, deposits and other receivables. . . . . . . . . . . . . . . . . . Decrease in an amount due from a related company Increase/(decrease) in trade and other payables . . .
. .
93,254 12,017
(198,553) (96,002)
153,528 77,467
170,769 (58,780)
47,233 (40,265)
. . .
(19,818) 14 44,774
15,808 – 145,518
805 – (143,550)
(9,930) – (115,852)
(30,776) – (8,716)
Cash generated from/(used in) operations . . . . . Interest paid . . . . . . . . . . . . . . . . . . . . Interest element on finance lease rental payments Income tax paid . . . . . . . . . . . . . . . . . .
. . . .
200,932 (10,353) (112) (1,987)
(58,972) (12,971) (196) (12,474)
174,723 (13,976) (117) (11,580)
29,208 (3,303) (36) (2,843)
(6,401) (3,097) (31) (2,135)
188,480
(84,613)
149,050
23,026
(11,664)
43 (41,762)
1,210 (38,160)
2,196 (30,172)
675 (3,002)
554 (13,150)
. .
502 (3)
70,828 (76,027)
1,418 (2,160)
Net cash flows used in investing activities . . . . . .
(41,220)
(42,149)
(28,718)
(1,261)
(12,334)
1,122,067 (1,225,906)
1,629,379 (1,502,379)
1,651,856 (1,702,062)
410,264 (399,574)
400,948 (386,811)
(150) (640) (4,526)
(13,032) (1,311) –
(11,991) (1,706) –
(6,692) (273) –
(4,214) (319) –
112,657
(63,903)
3,725
9,604
. . . .
8
Net cash flows from/(used in) operating activities . . CASH FLOWS FROM INVESTING ACTIVITIES Interest received . . . . . . . . . . . . . . . . . . . Purchases of items of property, plant and equipment Proceeds from disposal of items of property, plant and equipment . . . . . . . . . . . . . . . . . . . Decrease/(increase) in pledged bank deposits . . . .
. .
6
CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from bank borrowings . . . . . . . . . . . . Repayment of bank borrowings . . . . . . . . . . . . Decrease in an amount due to the immediate holding company . . . . . . . . . . . . . . . . . . . . . . . Capital element of finance lease rental payments . . . Dividends paid . . . . . . . . . . . . . . . . . . . . .
718 348
441 (179)
Net cash flows (used in)/from financing activities . .
(109,155)
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . Cash and cash equivalents at beginning of year. . . . Effect of foreign exchange rate changes, net . . . . .
38,105 23,398 (769)
(14,105) 60,734 (423)
56,429 46,206 846
25,490 46,206 761
(14,394) 103,481 (324)
CASH AND CASH EQUIVALENTS AT END OF YEAR/PERIOD . . . . . . . . . . . . . . . . . . .
60,734
46,206
103,481
72,457
88,763
60,734
46,206
103,481
72,457
88,763
ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances as stated in the combined statements of financial position . . . . . . . . . . .
20
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APPENDIX I
ACCOUNTANTS’ REPORT
STATEMENTS OF FINANCIAL POSITION OF THE COMPANY Notes
30 June 2014 HK$’000
CURRENT ASSETS Cash and bank balances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30
10
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
NET CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
TOTAL ASSETS LESS CURRENT LIABILITIES . . . . . . . . . . . . . .
10
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
EQUITY Issued capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– I-8 –
25
10 10
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APPENDIX I
ACCOUNTANTS’ REPORT
II.
NOTES TO THE FINANCIAL INFORMATION
1.
CORPORATE INFORMATION
The Company was incorporated as an exempted company with limited liability in the Cayman Islands on 6 June 2014. The registered office of the Company is located at Clifton House, 75 Fort Street, Grand Cayman KY1-1108, Cayman Islands. The Company is an investment holding company. During the Track Record Period, the Company’s subsidiaries were involved in the manufacture and sale of jewellery products. In the opinion of the Directors, the immediate holding company of the Company is KTL International Holdings Limited, which was incorporated in the British Virgin Islands (“BVI”). The Company and its subsidiaries now comprising the Group underwent the Reorganisation as set out in paragraph headed “Reorganisation” in the section headed “History, Development and Reorganisation” to the [REDACTED]. [As at the date of this report], the Company had direct and indirect interests in its subsidiaries, all of which are private limited liability companies (or, if incorporated outside Hong Kong, have substantially similar characteristics to a private company incorporated in Hong Kong), the particulars of which are set out below:
Name
Place and date of incorporation/ establishment and place of operations
Nominal value of issued ordinary share capital/paid-up/ registered share capital
Percentage of equity attributable to the Company Direct
Indirect Principal activities
HK$100,000
–
100 Investment holding and provision of car rental services
HK$10,000
–
100 Investment holding and provision of car rental services
HK$128,000,000
–
100 Manufacture of jewellery
K.T.L. Jewellery Manufacturer Hong Kong Limited (note (c)) . . . . . . . 29 June 1990
HK$500,000
–
100 Trading of jewellery
Alan’s Jewellery Company Hong Kong Limited (note (c)) . . . . . . . 18 June 1992
HK$10,000
–
100 Trading of jewellery
HK$39,000,000
–
100 Manufacture and trading of jewellery
KTL Jewellery Trading Limited Hong Kong (“KTL Trading”) 31 December 2008 (note (c)) . . . . . . . . . . . .
HK$10,000
–
100 Manufacture and trading of jewellery and investment holding
Info Dragon Trading Limited BVI (note (d)) . . . . . . . . . . . . 12 February 2002
US$50,000
100
– Investment holding
Techno City Trading Limited BVI (note (d)) . . . . . . . . . . . . 31 January 2002
US$50,000
–
100 Investment holding
Golden Charter Management BVI Corp. (note (d)) . . . . . . . . 7 February 2002
US$50,000
100
– Investment holding
Chinagrow Development Hong Kong Limited (note (a)) . . . . . . . 18 April 2007
HK$10,000
–
100 Investment holding
BVI Landclick Properties Limited (note (d)) . . . . . . . . . . . . 26 March 2002
US$50,000
100
– Investment holding
KTL Brilliant Limited Hong Kong (note (a)) . . . . . . . . . . . . 24 November 1997
K.T.L. Development Co., Hong Kong Limited (note (a)) . . . . . . . 21 April 2004 雅和(廣州)首飾有限公司 Mainland China (“雅和”) (note (b)) . . . . . . . 4 June 2004
廣州市卡締爾首飾有限公司 Mainland China (“卡締爾”) (note (b)) . . . . . 5 January 2008
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APPENDIX I
Name
ACCOUNTANTS’ REPORT
Place and date of incorporation/ establishment and place of operations
Nominal value of issued ordinary share capital/paid-up/ registered share capital
Percentage of equity attributable to the Company Direct
Indirect Principal activities
廣州締和首飾有限公司 Mainland China (“締和”) (note (b)) . . . . . . . 22 February 2011
HK$30,000,000
–
100 Dormant
三和(廣州番禺)首飾有限公司 Mainland China (“三和”) (note (e)) . . . . . . . 6 April 1998
HK$15,400,000
–
100 Manufacture and trading of jewellery
Rich Delta Resources Limited BVI (note (d) . . . . . . . . . . . . . 31 January 2002
US$50,000
100
KTL Marketing Limited Hong Kong (note (a)) . . . . . . . . . . . . 30 May 2007
HK$10,000
–
100 Dormant
Lucigala Jewellery Hong Kong (Hong Kong) Limited 21 July 2005 (note (a)) . . . . . . . . . . . .
HK$100,000
–
100 Dormant
True Success International BVI Limited (note (d)) . . . . . . . 10 March 1999
US$50,000
100
– Investment holding
KTL Management Limited Hong Kong (note (a)) . . . . . . . . . . . . 28 November 1996
HK$10,000
–
100 Investment holding
Erax Development Limited Hong Kong (note (f)) . . . . . . . . . . . . 11 November 1998
HK$10,000
–
100 Dormant
Bright Favour Development Hong Kong Limited (note (f)) . . . . . . . 18 November 1998
HK$10,000
–
100 Dormant
Wealth Logistics Limited Hong Kong (note (f)) . . . . . . . . . . . . 20 May 2006
HK$10,000
–
100 Dormant
– Investment holding
Notes: *
露思珈蘭首飾貿易(上海)有限公司, a former subsidiary of the Group established in Mainland China on 22 April 2009, was deregistered during the year ended 31 March 2014, so it is not included in the above list of subsidiaries of the Company as at the date of this report.
(a)
The statutory financial statements of these subsidiaries for the years ended 31 March 2012 and 2013 prepared under HKFRSs were audited by Patrick Wong C.P.A. Limited, certified public accountants registered in Hong Kong; and as at the date of this report, the statutory financial statements of these subsidiaries for the year ended 31 March 2014 are not available.
(b)
The statutory financial statements of these subsidiaries for the years ended 31 December 2011, 2012 and 2013 prepared under the relevant accounting principles applicable to enterprises in the People’s Republic of China (the “PRC”) (the “PRC GAAP”) were audited by 廣州業勤會計師事務所有限公司 (“Guangzhou Yeqin Certified Public Accountants Co., Ltd.”), certified public accountants registered in the PRC.
(c)
The statutory financial statements of these subsidiaries prepared under HKFRSs: (i) for the year ended 31 March 2012 were audited by Deloitte Touche Tohmatsu, Hong Kong; (ii) for the years ended 31 March 2013 and 2014 were audited by Ernst & Young, Hong Kong.
(d)
No audited financial statements have been prepared for these subsidiaries for the years ended 31 March 2012, 2013 and 2014, as these subsidiaries were not subject to any statutory audit requirements under the relevant rules and regulations in the jurisdictions of their incorporation.
(e)
The statutory financial statements of this subsidiary for the year ended 31 December 2011 prepared under PRC GAAP were audited by 廣州業勤會計師事務所有限公司 (“Guangzhou Yeqin Certified Public Accountants Co., Ltd.”), certified public accountants registered in the PRC. No audited financial statements have been prepared for this entity for the years ended 31 December 2012 and 2013 as it is in the process of deregistration since 2011.
(f)
The statutory financial statements of these subsidiaries for the years ended 31 March 2012, 2013 and 2014 prepared under HKFRSs were audited by Patrick Wong C.P.A. Limited, certified public accountants registered in Hong Kong. These subsidiaries are in the process of deregistration.
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APPENDIX I 2.1
ACCOUNTANTS’ REPORT
BASIS OF PRESENTATION
Pursuant to the Reorganisation as more fully explained in the paragraph headed [“Reorganisation” in the section headed “History, Development and Reorganisation”] to the [REDACTED], the Company became the holding company of the companies now comprising the Group subsequent to the end of the Track Record Period on 29 July 2014. The companies now comprising the Group were under the common control of KTL International Holdings Limited (“the Controlling Shareholder”) before and after the Reorganisation. Accordingly, for the purpose of this report, the Financial Information has been prepared on a combined basis by applying the principles of merger accounting as if the Reorganisation had been completed as at the beginning of the Track Record Period. The combined statements of profit or loss and other comprehensive income, combined statements of changes in equity and combined statements of cash flows of the Group for the Track Record Period include the results and cash flows of all companies now comprising the Group from the earliest date presented or since the date when the subsidiaries first came under the common control of the Controlling Shareholder, where this is a shorter period. The combined statements of financial position of the Group as at 31 March 2012, 2013 and 2014 and 30 June 2014 have been prepared to present the assets and liabilities of the subsidiaries using the existing carrying values from the perspective of the Controlling Shareholder. No adjustments are made to reflect fair values, or recognise any new assets or liabilities as a result of the Reorganisation. All intra-group transactions and balances have been eliminated on combination. 2.2
BASIS OF PREPARATION
The Financial Information has been prepared in accordance with HKFRSs (which include all Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations) issued by the HKICPA and accounting principles generally accepted in Hong Kong. All HKFRSs effective for the accounting period commencing from 1 April 2013, together with the relevant transitional provisions, have been early adopted by the Group in the preparation of the Financial Information throughout the Track Record Period. The Financial Information has been prepared under the historical cost convention. The Financial Information is presented in Hong Kong dollars (“HK$”) and all values are rounded to the nearest thousands (“HK$’000”), except when otherwise indicated. Notwithstanding the Group had combined net current liabilities of HK$37,555,000, HK$26,955,000 and HK$4,757,000 as at 31 March 2012, 2013 and 2014, respectively, the Financial Information has been prepared by the Directors on a going concern basis. The net current liabilities mainly resulted from an amount due to the immediate holding company of the Company of HK$140,603,000, HK$127,571,000 and HK$115,580,000 as at 31 March 2012, 2013 and 2014, respectively. Having considered the additional capital injection in one of the subsidiaries of the Group of HK$105,366,040 in form of offsetting the amount due to the immediate holding company of the Company on 28 July 2014, and the cash flows to be generated by the Group from operations, the Directors are satisfied that the Group is able to meet in full its financial obligations as they fall due in the foreseeable future. Accordingly, the Financial Information has been prepared on a going concern basis. 2.3
ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS
The Group has not applied the following new and revised HKFRSs, that have been issued but are not yet effective, in the Financial Information, which may be relevant to the Group. HKFRS 9 . . . . . . . . . . . . . . . . . . . HKFRS 11 Amendments . . . . . . . . . . . HKFRS 14. . . . . . . . . . . . . . . . . HKFRS 15. . . . . . . . . . . . . . . . . HKAS 16 and HKAS 41 Amendments HKAS 16 and HKAS 38 Amendments .
. . . .
. . . .
HKAS 19 Amendments . . . . . . . . . . . Annual Improvements 2010-2012 Cycle Annual Improvements 2011-2013 Cycle HKAS 27 (2011) Amendments . . . . . HKFRS 10 and HKAS 28 Amendments
1 2 3 4
Effective Effective Effective Effective
for for for for
annual annual annual annual
periods periods periods periods
. . . .
. . . .
beginning beginning beginning beginning
Financial Instruments 2 Amendments to HKFRS11 Joint Arrangements – Accounting for Acquisitions of Interest in Joint Operations 3 Regulatory Deferral Accounts 3 Revenue from Contracts with Customers 4 Amendments to HKAS 16 and HKAS 41 – Bearer Plants 3 Amendments to HKAS16 and HKAS38 – Clarification of Acceptable methods of Depreciation and Amortisation 3 Amendments to HKAS 19 Employee Benefits – Defined Benefit Plans: Employee Contributions 1 Amendments to a number of HKFRSs issued in January 2014 1 Amendments to a number of HKFRSs issued in January 2014 1 Equity Method in Separate Financial Statements 3 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture 3 on on on on
or or or or
after after after after
1 1 1 1
July 2014 January 2018 January 2016 January 2017
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APPENDIX I
ACCOUNTANTS’ REPORT
The Group is in the process of making an assessment of the impact of these new and revised HKFRSs upon initial application. The Group is not yet in a position to state whether they would have a significant impact on the Group’s results of operations and financial positions.
– I-11-B –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX I 2.4
ACCOUNTANTS’ REPORT
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of combination The combined financial statements include the financial statements of the Company and its subsidiaries (collectively referred to as the “Group”) for the Track Record Period. The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. The results of subsidiaries are combined from the date on which the Group obtains control, and continue to be combined until the date that such control ceases. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on combination. The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control described in the accounting policy for subsidiaries below. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it derecognises (i) the assets and liabilities of the subsidiary, (ii) the carrying amount of any non-controlling interest and (iii) the cumulative translation differences recorded in equity; and recognises (i) the fair value of the consideration received, (ii) the fair value of any investment retained and (iii) any resulting surplus or deficit in the profit or loss. The Group’s share of components previously recognised in other comprehensive income is reclassified to profit or loss or retained profits, as appropriate, on the same basis as would be required if the Group had directly disposed of the related assets or liabilities. Subsidiaries A subsidiary is an entity (including a structured entity), directly or indirectly, controlled by the Company. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee (i.e., existing rights that give the Group the current ability to direct the relevant activities of the investee). When the Company has, directly or indirectly, less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including: (a)
the contractual arrangement with the other vote holders of the investee;
(b)
rights arising from other contractual arrangements; and
(c)
the Group’s voting rights and potential voting rights.
The results of subsidiaries are included in the Company’s profit or loss to the extent of dividends received and receivable. The Company’s investments in subsidiaries that are not classified as held for sale in accordance with HKFRS 5 are stated at cost less any impairment losses. Business combinations Business combinations are accounted for using the acquisition method. The consideration transferred is measured at the acquisition date fair value which is the sum of the acquisition date fair values of assets transferred by the Group, liabilities assumed by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree that are present ownership interests and entitle their holders to a proportionate share of net assets in the event of liquidation at fair value or at the proportionate share of the acquiree’s identifiable net assets. All other components of non-controlling interests are measured at fair value. Acquisition-related costs are expensed as incurred. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree. If the business combination is achieved in stages, the previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss is recognised in profit or loss. Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of HKAS 39 is measured at fair value with changes in fair value either recognised in profit or loss or as a change to other comprehensive income. If the contingent consideration is not within the scope of HKAS 39, it is measured in accordance with the appropriate HKFRS. Contingent consideration that is classified as equity is not remeasured and subsequent settlement is accounted for within equity.
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APPENDIX I
ACCOUNTANTS’ REPORT
Fair value measurement The Group measures its derivative financial instruments at fair value at the end of each reporting period. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: Level 1
–
based on quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2
–
based on valuation techniques for which the lowest level input that is significant to the fair value measurement is observable, either directly or indirectly
Level 3
–
based on valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. Impairment of non-financial assets Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories and financial assets), the asset’s recoverable amount is estimated. An asset’s recoverable amount is the higher of the asset’s or cash-generating unit’s value in use and its fair value less costs of disposal, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs. An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to profit or loss in the period in which it arises in those expense categories consistent with the function of the impaired asset. An assessment is made at the end of each reporting period as to whether there is an indication that previously recognised impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation) had no impairment loss been recognised for the asset in prior years. A reversal of such an impairment loss is credited to profit or loss in the period in which it arises. Related parties A party is considered to be related to the Group if: (a)
the party is a person or a close member of that person’s family and that person (i)
has control or joint control over the Group;
(ii)
has significant influence over the Group; or
(iii)
is a member of the key management personnel of the Group or of a parent of the Group;
or
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APPENDIX I (b)
ACCOUNTANTS’ REPORT
the party is an entity where any of the following conditions applies: (i)
the entity and the Group are members of the same group;
(ii)
one entity is an associate or joint venture of the other entity (or of a parent, subsidiary or fellow subsidiary of the other entity);
(iii)
the entity and the Group are joint ventures of the same third party;
(iv)
one entity is a joint venture of a third entity and the other entity is an associate of the third entity;
(v)
the entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group;
(vi)
the entity is controlled or jointly controlled by a person identified in (a); and
(vii)
a person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).
Property, plant and equipment and depreciation Property, plant and equipment, other than construction in progress (“CIP”), are stated at cost less accumulated depreciation and any impairment losses. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to profit or loss in the period in which it is incurred. In situations where the recognition criteria are satisfied, the expenditure for a major inspection is capitalised in the carrying amount of the asset as a replacement. Where significant parts of property, plant and equipment are required to be replaced at intervals, the Group recognises such parts as individual assets with specific useful lives and depreciates them accordingly. Depreciation is calculated on a straight-line basis to write off the cost of each item of property, plant and equipment to its residual value over its estimated useful life. The principal annual rates used for this purpose are as follows: Leasehold land . . . . . . . . . . Buildings . . . . . . . . . . . . . Leasehold improvement . . . . . Furniture and fixtures . . . . . . Office equipment and computers Plant and machinery . . . . . . . Motor vehicles . . . . . . . . . .
. . . . . . .
. . . . . . .
. . . . . . .
. . . . . . .
. . . . . . .
. . . . . . .
. . . . . . .
. . . . . . .
. . . . . . .
. . . . . . .
. . . . . . .
. . . . . . .
. . . . . . .
. . . . . . .
. . . . . . .
. . . . . . .
. . . . . . .
. . . . . . .
. . . . . . .
Over the lease terms 2% to 2.5% Over the shorter of the lease terms and 20% 20% 20% to 331⁄3% 20% 20%
Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately. Residual values, useful lives and the depreciation method are reviewed, and adjusted if appropriate, at least at each financial year end. An item of property, plant and equipment including any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognised in profit or loss in the year the asset is derecognised is the difference between the net sales proceeds and the carrying amount of the relevant asset. CIP represents a building under construction, which is stated at cost less any impairment losses, and is not depreciated. Cost comprises the direct costs of construction and capitalised borrowing costs on related borrowed funds during the period of construction. CIP is reclassified to the appropriate category of property, plant and equipment when completed and ready for use. Leases Leases that transfer substantially all the rewards and risks of ownership of assets to the Group, other than legal title, are accounted for as finance leases. At the inception of a finance lease, the cost of the leased asset is capitalised at the present value of the minimum lease payments and recorded together with the obligation, excluding the interest element, to reflect the purchase and financing. Assets held under capitalised finance leases, including prepaid land lease payments under finance leases, are included in property, plant and equipment, and depreciated over the shorter of the lease terms and the estimated useful lives of the assets. The finance costs of such leases are charged to profit or loss so as to provide a constant periodic rate of charge over the lease terms. Assets acquired through hire purchase contracts of a financing nature are accounted for as finance leases, but are depreciated over their estimated useful lives.
– I-14 –
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APPENDIX I
ACCOUNTANTS’ REPORT
Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Group is the lessor, assets leased by the Group under operating leases are included in non-current assets, and rentals receivable under the operating leases are credited to profit or loss on the straight-line basis over the lease terms. Where the Group is the lessee, rentals payable under operating leases net of any incentives received from the lessor are charged to profit or loss on the straight-line basis over the lease terms. Prepaid land lease payments under operating leases are initially stated at cost and subsequently recognised on the straight-line basis over the lease terms. Investments and other financial assets Initial recognition and measurement Financial assets are classified, at initial recognition, as loans and receivables. When financial assets are recognised initially, they are measured at fair value plus transaction costs that are attributable to the acquisition of the financial assets, except in the case of financial assets recorded at fair value through profit or loss. All regular way purchases and sales of financial assets are recognised on the trade date, that is, the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace. Subsequent measurement-loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such assets are subsequently measured at amortised cost using the effective interest rate method less any allowance for impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and includes fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in other income and gains in profit or loss. The loss arising from impairment is recognised in finance costs for loans and in other expenses for receivables in profit or loss. Derecognition of financial assets A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e., removed from the Group’s combined statement of financial position) when: •
the rights to receive cash flows from the asset have expired; or
•
the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a “pass-through” arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risk and rewards of ownership of the asset. When it has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the Group continues to recognise the transferred asset to the extent of the Group’s continuing involvement. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained. Impairment of financial assets The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. An impairment exists if one or more events that occurred after the initial recognition of the asset have an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that a debtor or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. Financial assets carried at amortised cost For financial assets carried at amortised cost, the Group first assesses whether impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.
– I-15 –
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APPENDIX I
ACCOUNTANTS’ REPORT
The amount of any impairment loss identified is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced through the use of an allowance account and the loss is recognised in profit or loss. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Loans and receivables together with any associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Group. If, in a subsequent period, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a write-off is later recovered, the recovery is credited to other expenses in profit or loss. Financial liabilities Initial recognition and measurement Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings, net of directly attributable transaction costs. The Group’s financial liabilities include trade payables, financial liabilities included in other payables, an amount due to the immediate holding company, interest-bearing bank borrowings and obligations under finance leases. Subsequent measurement The subsequent measurement of financial liabilities depends on their classification as follows: Loans and borrowings After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost, using the effective interest rate method unless the effect of discounting would be immaterial, in which case they are stated at cost. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the effective interest rate amortisation process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in finance costs in profit or loss. Financial guarantee contracts Financial guarantee contracts issued by the Group are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. A financial guarantee contract is recognised initially as a liability at its fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee. Subsequent to initial recognition, the Group measures the financial guarantee contract at the higher of: (i) the amount of the best estimate of the expenditure required to settle the present obligation at the end of the reporting period; and (ii) the amount initially recognised less, when appropriate, cumulative amortisation. Derecognition of financial liabilities A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and a recognition of a new liability, and the difference between the respective carrying amounts is recognised in profit or loss. Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount is reported in the combined statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.
– I-16 –
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APPENDIX I
ACCOUNTANTS’ REPORT
Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined on the first-in, first-out basis and, in the case of work in progress and finished goods, comprises direct materials, direct labor and an appropriate proportion of overheads. Net realisable value is based on estimated selling prices less any estimated costs to be incurred to completion and disposal. Provisions A provision is recognised when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation. When the effect of discounting is material, the amount recognised for a provision is the present value at the end of the reporting period of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in finance costs in profit or loss. Revenue recognition Revenue is recognised when it is probable that the economic benefits will flow to the Group and when the revenue can be measured reliably, on the following bases: (a)
from the sale of goods, when the significant risks and rewards of ownership have been transferred to the buyer, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold;
(b)
interest income, on an accrual basis using the effective interest method by applying the rate that exactly discounts the estimated future cash receipts over the expected life of the financial instrument or a shorter period, when appropriate, to the net carrying amount of the financial asset.
Cash and cash equivalents For the purpose of the combined statement of cash flows, cash and cash equivalents comprise cash on hand and demand deposits, and short term highly liquid investments that are readily convertible into known amounts of cash, are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Group’s cash management. For the purpose of the combined statement of financial position, cash and cash equivalents comprise cash on hand and at banks, including term deposits, and assets similar in nature to cash, which are not restricted as to use. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, i.e., assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised as part of the cost of those assets. The capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs capitalised. All other borrowing costs are expensed in the period in which they are incurred. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. Dividends Final dividends proposed by the directors are classified as a separate allocation of retained profits within the equity section of the combined statement of financial position, until they have been approved by the shareholders in a general meeting. When these dividends have been approved by the shareholders and declared, they are recognised as a liability. Interim dividends are simultaneously proposed and declared, because the Company’s memorandum and articles of association grant the directors the authority to declare interim dividends. Consequently, interim dividends are recognised immediately as a liability when they are proposed and declared. Foreign currencies These financial statements are presented in Hong Kong dollars, which is the Company’s functional and presentation currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Foreign currency transactions recorded by the entities in the Group are initially recorded using their respective functional currency rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency rates of exchange ruling at the end of the reporting period. Differences arising on settlement or translation of monetary items are recognised in profit or loss.
– I-17 –
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APPENDIX I
ACCOUNTANTS’ REPORT
Differences arising on settlement or translation of monetary items are recognised in profit or loss with the exception of monetary items that are designated as part of the hedge of the Group’s net investment of a foreign operation. These are recognised in other comprehensive income until the net investment is disposed of, at which time the cumulative amount is reclassified to profit or loss. Tax charges and credits attributable to exchange differences on those monetary items are also recorded in other comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was measured. The gain or loss arising on translation of a non-monetary item measured at fair value is treated in line with the recognition of the gain or loss on change in fair value of the item (i.e., translation difference on the item whose fair value gain or loss is recognised in other comprehensive income or profit or loss is also recognised in other comprehensive income or profit or loss, respectively). The functional currencies of certain overseas subsidiaries are currencies other than the Hong Kong dollar. As at the end of the reporting period, the assets and liabilities of these entities are translated into the presentation currency of the Company at the exchange rates prevailing at the end of the reporting period and their profit or loss are translated into Hong Kong dollars at the weighted average exchange rates for the year. The resulting exchange differences are recognised in other comprehensive income and accumulated in the exchange fluctuation reserve. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognised in profit or loss. Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on acquisition are treated as assets and liabilities of the foreign operation and translated at the closing rate. For the purpose of the combined statement of cash flows, the cash flows of overseas subsidiaries are translated into Hong Kong dollars at the exchange rates ruling at the dates of the cash flows. Frequently recurring cash flows of overseas subsidiaries which arise throughout the year are translated into Hong Kong dollars at the weighted average exchange rates for the year. Other employee benefits Pension scheme The Group operates a defined contribution Mandatory Provident Fund retirement benefit scheme (the “MPF Scheme”) under the Mandatory Provident Fund Schemes Ordinance for its employees in Hong Kong. Contributions are made based on a percentage of the employees’ basic salaries and are charged to profit or loss as they become payable in accordance with the rules of the MPF Scheme. The assets of the MPF Scheme are held separately from those of the Group in an independently administered fund. The Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme. The employees of the Group’s subsidiary which operates in Mainland China are required to participate in a central pension scheme operated by the local municipal government. This subsidiary is required to contribute a percentage of its payroll costs to the central pension scheme. The contributions are charged to profit or loss as they become payable in accordance with the rules of the central pension scheme. Termination benefits Termination benefits are recognised at the earlier of when the Group can no longer withdraw the offer of those benefits and when the Group recognises restructuring costs involving the payment of termination benefits. Income tax Income tax comprises current and deferred tax. Income tax relating to items recognised outside profit or loss is recognised outside profit or loss, either in other comprehensive income or directly in equity. Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period, taking into consideration interpretations and practices prevailing in the countries in which the Group operates. Deferred tax is provided, using the liability method, on all temporary differences at the end of the reporting period between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised for all taxable temporary differences, except: •
when the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
– I-18 –
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APPENDIX I •
ACCOUNTANTS’ REPORT
in respect of taxable temporary differences associated with investments in subsidiaries, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognised for all deductible temporary differences, the carryforward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, the carryforward of unused tax credits and unused tax losses can be utilised, except: •
when the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
•
in respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at the end of each reporting period and are recognised to the extent that it has become probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. Dividend income derived from the Company’s Mainland China subsidiaries is subject to a withholding tax under the prevailing tax rules and regulations of the PRC. Government grants Government grants are recognised at their fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised as income on a systematic basis over the periods that the costs, which it is intended to compensate, are expensed. Where the grant relates to an asset, the fair value is credited to a deferred income account and is released to profit or loss over the expected useful life of the relevant asset by equal annual instalments or deducted from the carrying amount of the asset and released to profit or loss by way of a reduced depreciation charge. Where the Group receives grants of non-monetary assets, the grants are recorded at the fair value of the non-monetary assets and released to profit or loss over the expected useful lives of the relevant assets by equal annual instalments. Where the Group receives government loans granted with no or at a below-market rate of interest for the construction of a qualifying asset, the initial carrying amount of the government loans is determined using the effective interest rate method, as further explained in the accounting policy for “Financial liabilities” above. The benefit of the government loans granted with no or at a below-market rate of interest, which is the difference between the initial carrying value of the loans and the proceeds received, is treated as a government grant and released to profit or loss over the expected useful life of the relevant asset by equal annual instalments. 3.
SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES
The preparation of the Group’s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and their accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amounts of the assets or liabilities affected in the future. Judgements In the process of applying the Group’s accounting policies, management has made the following judgements apart from those involving estimations, which have the most significant effect on the amounts recognised in the financial statements. Income taxes Significant judgements on the future tax treatment of certain transactions are required in determining income tax provisions. The Group carefully evaluates tax implications of transactions and tax provisions are recorded accordingly. The tax treatment of such transactions is reconsidered periodically to take into account all changes in tax legislation.
– I-19 –
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APPENDIX I
ACCOUNTANTS’ REPORT
Estimation uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. (a)
Impairment of property, plant and equipment
Items of property, plant and equipment are tested for impairment if there is any indication that the carrying value of these assets may not be recoverable and the assets are subject to an impairment loss. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. The calculation of the fair value less costs to sell is based on available data from binding sales transactions in an arm’s length transaction of similar assets or observable market prices less incremental costs for disposing of the asset. (b)
Net realisable value of inventories
Net realisable value of inventories is based on estimated selling price less any estimated costs to be incurred to completion and disposal with reference to prevailing market information. These estimates are based on the current market condition and the historical experience in selling goods of similar nature. It could change significantly as a result of changes in market conditions. The Group reassesses the estimation at the end of each reporting period. (c)
Impairment of trade receivables
The Group maintains an allowance for the estimated loss arising from the inability of its customers to make the required payments. The Group makes its estimates based on the ageing of its trade receivable balances, customers’ creditworthiness, and historical write-off experience. If the financial condition of its customers was to deteriorate so that the actual impairment loss might be higher than expected, the Group would be required to revise the basis of making the allowance. (d)
Deferred tax assets
Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. 4.
SEGMENT INFORMATION
The Group is primarily engaged in manufacture and sale of jewellery products. Management has determined the operating segments based on the reports reviewed by the chief operating decision makers, who have been identified as [the executive directors of the Company]. Information reported to the Group’s chief operating decision makers, for the purpose of resources allocation and performance assessment, focuses on the operating results of the Group as a whole as the Group’s resources are integrated. Accordingly, the Group has identified one reportable operating segment, i.e. manufacture and sale of jewellery products, and no further analysis thereof is presented. Geographical information Information about the Group’s revenue by geographical locations presented based on the area or country in which the external customer is operated. Year ended 31 March
Russia . . . . . . . Americas . . . . . Europe (other than Middle East . . . . Mainland China. . Other countries . .
. . . . . . . . . . Russia) . . . . . . . . . . . . . . .
. . . . . .
. . . . . .
Three months ended 30 June
2012
2013
2014
2013
2014
HK$’000
HK$’000
HK$’000
HK$’000 (Unaudited)
HK$’000
[634,938] 234,126 115,585 51,650 43,851 34,564
[989,174] 220,993 89,325 43,620 64,766 26,486
[838,056] 283,866 74,038 23,377 84,315 42,170
360,740 75,364 12,320 12,034 16,982 5,257
208,784 74,678 22,217 2,506 24,247 12,382
482,697
344,814
1,114,714
1,434,364
– I-20 –
1,345,822
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX I
ACCOUNTANTS’ REPORT
Information about the Group’s non-current assets, excluding deferred tax assets, is presented based on the locations of the assets. 31 March
Mainland China. . . . . . . . . . . . . . . Hong Kong . . . . . . . . . . . . . . . . .
30 June
2012
2013
2014
2014
HK$’000
HK$’000
HK$’000
HK$’000
130,535 28,572
144,444 34,024
166,272 30,231
176,845 28,428
159,107
178,468
196,503
205,273
The Company is domiciled in the Cayman Islands while the Group operates its business in Hong Kong and Mainland China. During the Track Record Period, no revenue was generated from any customer in the Cayman Islands and no assets were located in the Cayman Islands. Information about major customers Revenue from continuing operations were derived from sales to several major customers which accounted for 10% or more of the Group’s revenue, including sales to a group of entities which are known to be under common control with that customer, for each of the Track Record Period as set out below: Year ended 31 March
Customer Customer Customer Customer
* 5.
A B C D
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
Three months ended 30 June
2012
2013
2014
2013
2014
HK$’000
HK$’000
HK$’000
HK$’000 (Unaudited)
HK$’000
447,798 N/A* N/A* N/A*
724,607 N/A* N/A* N/A*
566,387 138,747 160,862 N/A*
287,846 N/A* N/A* N/A*
160,142 N/A* N/A* 42,563
Less than 10% of revenue
REVENUE
Revenue, which is also the Group’s turnover, represents the net amounts received and receivable arising from sale of jewellery products during the Track Record Period. Year ended 31 March
Sale of jewellery products. . . . . . .
Three months ended 30 June
2012
2013
2014
2013
2014
HK$’000
HK$’000
HK$’000
HK$’000 (Unaudited)
HK$’000
1,114,714
1,434,364
1,345,822
482,697
344,814
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX I 6.
ACCOUNTANTS’ REPORT
OTHER INCOME An analysis of the Group’s other income is as follows: Year ended 31 March
Interest income from bank deposits Government grants (Note) . . . . . . Sales of scrap . . . . . . . . . . . . . Sales of loose diamonds, net . . . . Others . . . . . . . . . . . . . . . . .
. . . . .
Three months ended 30 June
2012
2013
2014
2013
2014
HK$’000
HK$’000
HK$’000
HK$’000 (Unaudited)
HK$’000
43 2,008 85 3,954 634
1,210 1,963 392 15 773
2,196 2,182 321 6 850
675 620 6 2 503
554 1,468 110 65 49
6,724
4,353
5,555
1,806
2,246
Note: Government grants were received by certain subsidiaries of the Company in the PRC as compensation for expenses already incurred. There are no unfulfilled conditions or contingencies in relation to the grants. 7.
OTHER GAINS/(EXPENSES), NET Other gains/(expenses), net, include the following: Year ended 31 March
Gain/(loss) on disposal of items of property, plant and equipment # . . Foreign exchange differences, net . [REDACTED] expenses . . . . . . Impairment loss of CIP . . . . . . .
#
8.
. . . .
Three months ended 30 June
2012
2013
2014
2013
2014
HK$’000
HK$’000
HK$’000
HK$’000 (Unaudited)
HK$’000
39,211 (782) – –
(623) (3,535) – –
105 (2,283) – (8,068)
(33) (362) – (6,497)
300 113 (8,882) –
38,429
(4,158)
(10,246)
(6,892)
(8,469)
A gain on sales of two properties of the Group of HK$39,054,000 is included in “gain on disposal of items of property, plant and equipment” for the year ended 31 March 2012.
FINANCE COSTS An analysis of the Group’s finance costs is as follows: Year ended 31 March
Interest on bank borrowings wholly repayable within five years . . . . . Interest on factoring of trade receivables . . . . . . . . . . . . . . Interest on finance leases . . . . . . .
Less: Capitalised in CIP . . . . . . . .
Three months ended 30 June
2012
2013
2014
2013
2014
HK$’000
HK$’000
HK$’000
HK$’000 (Unaudited)
HK$’000
8,886
9,907
9,320
2,186
2,367
1,467 112
3,064 196
4,639 117
1,152 36
913 31
10,465
13,167
14,076
3,374
3,311
–
–
10,465
13,167
– I-22 –
(1,297) 12,779
(104) 3,270
(719) 2,592
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX I 9.
ACCOUNTANTS’ REPORT
PROFIT BEFORE TAX The Group’s profit before tax is arrived at after charging/(crediting): Three months ended 30 June
Year ended 31 March Notes
Cost of inventories sold . . . . . . Depreciation . . . . . . . . . . . . . Amortisation of prepaid land lease Foreign exchange differences, net . Auditors’ remuneration . . . . . . . Staff costs (including directors’ remuneration (note 10)): Salaries and other benefits. . . . Pension scheme contributions . .
. . . . . . . . . . . . payment . . . . . . . . . . . . .
. . . . . . . . . . . .
Allowance for doubtful debts . . . . . . . . . Allowance for an amount due from a related company . . . . . . . . . . . . . . . . . . . . Write-off for an amount due from a related company . . . . . . . . . . . Write-off other receivables . . . . . . . . . . . Write-down/(Write-back) of inventories to net realisable value . . . . . . . . . . . . . . Minimum lease payments under operating leases . . . . . . . . . . . . . . . . . . . . . . (Gain)/loss on disposal of items of property, plant and equipment . . . . . . . . . . . . . Impairment loss of CIP . . . . . . . . . . . . .
10.
15 16 7
2012
2013
2014
2013
2014
HK$’000
HK$’000
HK$’000
HK$’000 (Unaudited)
HK$’000
745,109 19,857 418 782 2,560
1,002,456 20,565 425 3,535 1,364
943,066 16,025 432 2,283 1,380
349,009 4,851 107 362 347
241,191 3,566 109 (113) 375
161,394 19,489
186,706 19,443
160,628 21,163
47,233 5,883
36,527 4,842
180,883
206,149
181,791
53,116
41,369
257
–
6,444
5,834
–
495
–
–
–
–
29 1,410
– 375
– –
– –
– –
1,164
1,769
1,120
2,582
(270)
6,541
6,522
4,112
1,065
579
(105) 8,068
33 6,497
(300) –
18
17
7 7
(39,211) –
623 –
DIRECTORS’ REMUNERATION
Mr. Kei York Pang Victor, Mr. Li Man Chun and Mr. Kei Yeuk Lun Calan were appointed as executive directors of the Company on 6 June 2014, 6 June 2014 and 21 July 2014, respectively. Mr. Lo Chun Pong, Mr. Chan Chi Kuen and Mr. Ting Tit Cheung were appointed as independent non-executive directors of the Company on [date]. Certain of the directors received remuneration from the subsidiaries now comprising the Group for their appointment as directors of these subsidiaries. The remuneration of each of these directors as recorded in the financial statements of the subsidiaries is set out below: Year ended 31 March 2012
Kei York Pang Victor . . . . . . . . . . . . . . . Li Man Chun . . . . . . . . . . . . . . . . . . . .
Fees
Salaries, allowances and benefits in kind
Pension scheme contributions
Total
HK$’000
HK$’000
HK$’000
HK$’000
600 600
4,408 3,958
12 12
5,020 4,570
1,200
8,366
24
9,590
– I-23 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX I
ACCOUNTANTS’ REPORT Year ended 31 March 2013
Kei York Pang Victor . . . . . . . . . . . . . . . Li Man Chun . . . . . . . . . . . . . . . . . . . .
Fees
Salaries, allowances and benefits in kind
Pension scheme contributions
Total
HK$’000
HK$’000
HK$’000
HK$’000
600 600
4,359 4,359
15 15
4,974 4,974
1,200
8,718
30
9,948
Fees
Salaries, allowances and benefits in kind
Pension scheme contributions
Total
HK$’000
HK$’000
HK$’000
HK$’000
2,210 2,210
6,019 3,019
15 15
8,244 5,244
4,420
9,038
30
13,488
Year ended 31 March 2014
Kei York Pang Victor . . . . . . . . . . . . . . . Li Man Chun . . . . . . . . . . . . . . . . . . . .
Three months ended 30 June 2014
Kei York Pang . . . . . . . . . . . . . . . . . . . Li Man Chun . . . . . . . . . . . . . . . . . . . .
Fees
Salaries, allowances and benefits in kind
Pension scheme contributions
Total
HK$’000
HK$’000
HK$’000
HK$’000
696 696
501 501
4 4
1,201 1,201
1,392
1,002
8
2,402
Three months ended 30 June 2013 – (unaudited)
Kei York Pang . . . . . . . . . . . . . . . . . . . Li Man Chun . . . . . . . . . . . . . . . . . . . .
Fees
Salaries, allowances and benefits in kind
Pension scheme contributions
Total
HK$’000
HK$’000
HK$’000
HK$’000
150 150
750 750
4 4
904 904
300
1,500
8
1,808
There was no arrangement under which a director waived or agreed to waive any remuneration during the Track Record Period.
– I-24 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX I 11.
ACCOUNTANTS’ REPORT
FIVE HIGHEST PAID EMPLOYEES
The five highest paid individuals during the Track Record Period included two, two and two directors for years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2013 and 2014, respectively, details of whose remuneration are set out in note 10 above. Details of the remuneration of the remaining non-director, highest paid employees during the Track Record Period, respectively, are as follows: Year ended 31 March
Fees . . . . . . . . . . . . . . . . . . . Other emoluments: Salaries, allowances and benefits in kind . . . . . . . . . . . . . . . Pension scheme contributions . . .
Three months ended 30 June
2012
2013
2014
2013
2014
HK$’000
HK$’000
HK$’000
HK$’000 (Unaudited)
HK$’000
1,200
908
–
–
–
6,342 36
11,464 40
5,577 45
1,357 11
2,011 12
7,578
12,412
5,622
1,368
2,023
The number of non-director, highest paid employees during the Track Record Period whose remuneration fell within the following bands is as follows: Year ended 31 March
Nil to HK$1,000,000. . . . . . . HK$1,000,001 to HK$1,500,000 HK$1,500,001 to HK$2,500,000 HK$2,500,001 to HK$3,000,000 HK$3,500,001 to HK$4,000,000 HK$7,500,001 to HK$8,000,000
12.
. . . . . .
. . . . . .
. . . . . .
Three months ended 30 June
2012
2013
2014
2013
2014
HK$’000
HK$’000
HK$’000
HK$’000 (Unaudited)
HK$’000
– 1 1 – 1 –
– – 1 1 – 1
– – 3 – – –
3 – – – – –
3 – – – – –
3
3
3
3
3
INCOME TAX EXPENSE
The statutory income tax rates for Hong Kong and Mainland China are 16.5% and 25%, respectively. Certain subsidiaries of the Group enjoyed lower profit tax rates during the Track Record Period as further explained below. The profits tax of the Group has been provided at the applicable tax rates on estimated assessable profits arising in Hong Kong and Mainland China during the Track Record Period. Year ended 31 March
Three months ended 30 June
2012
2013
2014
2013
2014
HK$’000
HK$’000
HK$’000
HK$’000 (Unaudited)
HK$’000
1,759
2,222
Current – Hong Kong Charge for the year . . . . . . . . . Current – the PRC Charge for the year . . . . . . . . . Deferred (note 24) . . . . . . . . . . .
6,497
6,524
4,324
2,322 (1,752)
3,388 (5,141)
2,459 (449)
Total tax charge for the year . . . . .
7,067
4,771
6,334
– I-25 –
(346) 994 2,407
(430) 1,834 3,626
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX I
ACCOUNTANTS’ REPORT
Pursuant to the Corporate Income Tax (“CIT”) Circular Guofa 2007 No. 39 on Implementing of Transitional Preferential Policies in respect of CIT (“Guofa”) promulgated by the State Council in December 2007, as of 1 January 2008, enterprises that previously enjoy preferential tax treatment in the form of tax deductions and exemptions within specified periods may, after the implementation of the new CIT Law, continue to enjoy the relevant preferential treatments under the preferential measures in the time period prescribed in the old CIT law, administrative regulations and relevant circulars until the expiration of the statutory time period. However, if such enterprises have not enjoyed the preferential treatments yet because the enterprises have not yet make profit before 2008, their preferential time period shall be calculated from 2008. The first profit-making year of 三和 is the year ended 31 December 2006 and therefore 三和 is exempt from PRC CIT for the two years from 1 January 2006 and its PRC CIT rate is 12.5% the three years from 1 January 2008. For 雅和, because no profit was generated before the year ended 31 March 2008, the deemed first profit-making year would be 2008 pursuant to Guofa above and therefore, 雅和 is exempt from PRC CIT for 2008 and 2009 and the PRC CIT rate of 雅和 is 12.5% for the three years from 1 January 2010, and 25% from 1 January 2013. Other entities of our Group established in the PRC are subject to CIT rate of 25% during the Track Record Period. In relation to the Departmental Interpretation and Practice Notes No. 21 (Revised) (apportionment under a 50:50 basis) of the Inland Revenue Department Hong Kong, a portion of KTL Trading’s profits is considered neither arisen in, nor derived from Hong Kong. Accordingly, that portion of KTL Trading’s profit is not subject to Hong Kong Profits Tax. Further, in the opinion of the directors of the Company, that portion of KTL Trading’s profit is not subject to taxation in any other jurisdiction in which KTL Trading operates during the Track Record Period. A reconciliation of the tax expense applicable to profit before tax at the statutory rates for the jurisdictions in which the Company and the majority of its subsidiaries are domiciled to the tax expense at the effective tax rates, and a reconciliation of the statutory tax rates to the effective tax rates, are as follows: Year ended 31 March
Profit before tax . . . . . . . . . . . .
Tax at the statutory tax rate of 16.5% . . . . . . . . . . . . . . . . . Different tax rate(s) for specific provinces or enacted by local authority . . . . . . . . . . . . . . . Income not subject to tax . . . . . . . Expenses not deductible for tax . . . Tax losses not recognised . . . . . . . Effect of tax impact of apportionment under a 50:50 basis . . . . . . . . . . . . . . . . . . Utilisation of temporary differences previously not recognised. . . . . . Tax effect of temporary differences not recognised . . . . . . . . . . . . Effect on deferred tax of increase in tax rates . . . . . . . . . . . . . . . . Utilisation of tax losses previously not recognised . . . . . . . . . . . . Adjustments in respect of current tax of previous periods . . . . . . . . . Others . . . . . . . . . . . . . . . . . . Tax charge at effective rate . . . . . .
13.
Three months ended 30 June
2012
2013
2014
2013
2014
HK$’000
HK$’000
HK$’000
HK$’000 (Unaudited)
HK$’000
75,850
38,543
43,906
20,500
20,980
12,515
6,360
7,244
3,383
3,462
(832) (6,762) 3,243 1,742
(1,252) (196) 2,479 2,814
973 (268) 2,736 –
(729) (132) 1,122 2,111
398 (13) 1,857 43
(4,144)
(1,890)
(3,145)
(1,915)
(1,749)
(69)
(201)
(75)
(17)
65
–
(2,386)
–
(1,050)
– 1,391
– 28
7,067
4,771
–
(438)
620
375
(40)
–
–
(995)
(921)
(718) (38)
– (887)
6,334
2,407
– (2) – 108 3,626
EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT
Earnings per share information is not presented as its inclusion, for the purpose of this report, is not considered meaningful due to the Reorganisation and the preparation of the results of the Group for the Track Record Period on a combined basis as disclosed in note 2.1 above.
– I-26 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX I 14.
ACCOUNTANTS’ REPORT
DIVIDEND The dividend declared by a subsidiary of the Group to the then shareholders during the Track Record Period are as follows: Year ended 31 March
Interim dividend . . . . . . . . . . . .
Three months ended 30 June
2012
2013
2014
2013
2014
HK$’000
HK$’000
HK$’000
HK$’000 (Unaudited)
HK$’000
4,526
–
–
–
–
The rate of dividend and the number of shares ranking for dividend are not presented as such information is not considered meaningful for the purpose of this report. 15.
PROPERTY, PLANT AND EQUIPMENT
Leasehold land
Leasehold Buildings improvement
Furniture and fixtures
Office equipment and computers
Plant and machinery
Motor vehicles
CIP
Total
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
31 March 2012 At 31 March 2011 and 1 April 2011: Cost . . . . . . . Accumulated depreciation . .
46,077
37,587
33,956
4,877
24,074
21,371
9,268
35,570
212,780
(10,826)
(8,589)
(9,347)
(1,985)
(13,983)
(15,581)
(6,317)
–
(66,628)
Net carrying amount . . . . .
35,251
28,998
24,609
2,892
10,091
5,790
2,951
35,570
146,152
35,251 260 –
28,998 606 –
24,609 3,643 457
2,892 982 118
10,091 7,892 –
5,790 580 –
2,951 463 –
35,570 25,333 (575)
146,152 39,759 –
(957) (22,446)
(781) (7,008)
(7,250) (304)
(988) (5)
(6,282) (27)
(2,188) (2)
(1,411) –
– –
(19,857) (29,792)
–
889
1,017
94
184
67
56
1,724
4,031
12,108
22,704
22,172
3,093
11,858
4,247
2,059
62,052
140,293
15,588
29,735
39,018
6,086
32,070
22,033
9,825
62,052
216,407
(3,480)
(7,031)
(16,846)
(2,993)
(20,212)
(17,786)
(7,766)
–
(76,114)
12,108
22,704
22,172
3,093
11,858
4,247
2,059
62,052
140,293
At 1 April 2011, net of accumulated depreciation . . . Additions . . . . . Transfers . . . . . . Depreciation provided during the year . . . . . Disposals . . . . . Exchange realignment . . . At 31 March 2012, net of accumulated depreciation . . .
At 31 March 2012: Cost . . . . . . . Accumulated depreciation . . Net carrying amount . . . . .
– I-27 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX I
ACCOUNTANTS’ REPORT
Leasehold land
31 March 2013 At 31 March 2012 and 1 April 2012: Cost . . . . . . . Accumulated depreciation . . Net carrying amount . . . . .
At 1 April 2012, net of accumulated depreciation . . . Additions . . . . . Depreciation provided during the year . . . . . Disposals . . . . . Exchange realignment . . . At 31 March 2013, net of accumulated depreciation . . .
At 31 March 2013: Cost . . . . . . . Accumulated depreciation . . Net carrying amount . . . . .
Leasehold Buildings improvement
Furniture and fixtures
Office equipment and computers
Plant and machinery
Motor vehicles
CIP
Total
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
15,588
29,735
39,018
6,086
32,070
22,033
9,825
62,052
216,407
(3,480)
(7,031)
(16,846)
(2,993)
(20,212)
(17,786)
(7,766)
–
(76,114)
12,108
22,704
22,172
3,093
11,858
4,247
2,059
62,052
140,293
12,108 –
22,704 –
22,172 7,096
3,093 838
11,858 4,563
4,247 2,228
2,059 5,160
62,052 24,233
140,293 44,118
(344) –
(596) –
(7,532) (1,058)
(1,082) (91)
(7,228) (54)
(1,811) (2)
(1,972) (259)
– –
(20,565) (1,464)
–
(20)
(36)
(4)
(9)
(4)
(3)
(60)
(136)
11,764
22,088
20,642
2,754
9,130
4,658
4,985
86,225
162,246
15,588
29,709
41,273
6,358
36,227
24,019
14,427
86,225
253,826
(3,824)
(7,621)
(20,631)
(3,604)
(27,097)
(19,361)
(9,442)
–
(91,580)
11,764
22,088
20,642
2,754
9,130
4,658
4,985
86,225
162,246
– I-28 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX I
ACCOUNTANTS’ REPORT
Leasehold land
31 March 2014 At 31 March 2013 and at 1 April 2013: Cost . . . . . . . Accumulated depreciation . . Net carrying amount . . . . .
At 1 April 2013, net of accumulated depreciation . . . Additions . . . . . Depreciation provided during the year . . . . . Disposals . . . . . Impairment. . . . . Exchange realignment . . . At 31 March 2014, net of accumulated depreciation and impairment. . . .
At 31 March 2014: Cost . . . . . . . Accumulated depreciation . . Impairment . . . Net carrying amount . . . . .
Leasehold Buildings improvement
Furniture and fixtures
Office equipment and computers
Plant and machinery
Motor vehicles
CIP
Total
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
15,588
29,709
41,273
6,358
36,227
24,019
14,427
86,225
253,826
(3,824)
(7,621)
(20,631)
(3,604)
(27,097)
(19,361)
(9,442)
–
(91,580)
11,764
22,088
20,642
2,754
9,130
4,658
4,985
86,225
162,246
11,764 –
22,088 –
20,642 871
2,754 367
9,130 2,944
4,658 234
4,985 3,746
86,225 28,377
162,246 36,539
(344) – –
(610) – –
(4,542) (503) –
(1,159) (23) –
(6,112) (34) –
(1,756) (1) –
(1,502) (752) –
– – (8,068)
(16,025) (1,313) (8,068)
–
469
364
46
50
64
35
2,545
3,573
11,420
21,947
16,832
1,985
5,978
3,199
6,512
109,079
176,952
15,588
30,348
39,637
6,775
38,441
24,133
15,428
117,147
287,497
(4,168) –
(8,401) –
(22,805) –
(4,790) –
(32,463) –
(20,934) –
(8,916) –
– (8,068)
(102,477) (8,068)
11,420
21,947
16,832
1,985
5,978
3,199
6,512
109,079
176,952
– I-29 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX I
ACCOUNTANTS’ REPORT
Leasehold land
30 June 2014 At 31 March 2014 and at 1 April 2014: Cost . . . . . . . Accumulated depreciation . . Impairment . . . Net carrying amount . . . . .
At 1 April 2014, net of accumulated depreciation . . . Additions . . . . . Depreciation provided during the year . . . . . Disposals . . . . . Impairment. . . . . Exchange realignment . . . At 30 June 2014, net of accumulated depreciation and impairment. . . .
At 30 June 2014: Cost . . . . . . . Accumulated depreciation . . Impairment . . . Net carrying amount . . . . .
Leasehold Buildings improvement
Furniture and fixtures
Office equipment and computers
Plant and machinery
Motor vehicles
CIP
Total
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
15,588
30,348
39,637
6,775
38,441
24,133
15,428
117,147
287,497
(4,168) –
(8,401) –
(22,805) –
(4,790) –
(32,463) –
(20,934) –
(8,916) –
– (8,068)
(102,477) (8,068)
11,420
21,947
16,832
1,985
5,978
3,199
6,512
109,079
176,952
11,420 –
21,947 –
16,832 9,858
1,985 29
5,978 343
3,199 –
6,512 –
109,079 6,411
176,952 16,641
(86) – –
(154) – –
(887) (59) –
(264) (10) –
(1,409) (1) –
(343) (2) –
(423) (67) –
– – –
(3,566) (139) –
–
(109)
(108)
(8)
(7)
(13)
(9)
(673)
(927)
11,334
21,684
25,636
1,732
4,904
2,841
6,013
114,817
188,961
15,588
30,197
45,291
6,734
38,676
24,055
13,723
122,836
297,100
(4,254) –
(8,513) –
(19,655) –
(5,002) –
(33,772) –
(21,214) –
(7,710) –
– (8,019)
(100,120) (8,019)
11,334
21,684
25,636
1,732
4,904
2,841
6,013
114,817
188,961
– I-30 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX I
ACCOUNTANTS’ REPORT
The net carrying amounts of the Group’s property, plant and equipment held under finance leases as at 31 March 2012, 2013 and 2014 and 30 June 2014 are as follows: 31 March
Office equipment . . . . . . . . . . . . . . . . . . Motor vehicles . . . . . . . . . . . . . . . . . . .
30 June
2012
2013
2014
2014
HK$’000
HK$’000
HK$’000
HK$’000
1,407 460
954 3,604
574 2,113
470 4,038
1,867
4,558
2,687
4,508
The Group’s leasehold land is situated in Hong Kong and is held under a medium term lease. The net carrying amounts of the Group’s property, plant and equipment that were pledged to secure the banking facilities and the bank borrowings granted to the Group as at 31 March 2012, 2013 and 2014 and 30 June 2014 are as follows (note 22(a)): 31 March
Leasehold land . . . . . . . . . . . . . . . . . . . Buildings . . . . . . . . . . . . . . . . . . . . . . CIP . . . . . . . . . . . . . . . . . . . . . . . . . .
30 June
2012
2013
2014
2014
HK$’000
HK$’000
HK$’000
HK$’000
12,108 22,704 –
11,764 22,088 86,225
11,420 21,947 109,079
11,334 21,684 114,817
34,812
120,077
142,446
147,835
For the year ended 31 March 2014, an impairment loss of approximately HK$8,068,000 was provided in the profit or loss for the Group’s CIP. The recoverable amount was determined based on its fair value less cost of disposal. Fair value was determined using the direct comparison method by making reference to comparable land evidence available in the relevant markets as at the date of valuation and taking into account the development costs already incurred as well as those costs to be incurred in order to accurately reflect the quality of the completed development. 16.
PREPAID LAND LEASE PAYMENTS 31 March
Carrying amount at the beginning of the year/period . . . . . . . . . . . . . . . Recognised during the year/period . . . . . . . Exchange realignment . . . . . . . . . . . . . . Carrying amount at the end of the year/period Current portion . . . . . . . . . . . . . . . . . .
. . . . .
Non-current portion . . . . . . . . . . . . . . . .
30 June
2012
2013
2014
2014
HK$’000
HK$’000
HK$’000
HK$’000
16,708 (418) 801 17,091 (426)
17,091 (425) (18) 16,648 (426)
16,648 (432) 426 16,642 (437)
16,642 (109) (99) 16,434 (434)
16,665
16,222
16,205
16,000
The leasehold land is situated in the PRC and is held under a long term lease. Certain of the Group’s prepaid land lease payments with a net carrying amount of approximately HK$3,565,000, HK$16,648,000, HK$16,642,000 and HK$16,434,000 were pledged to secure the bank borrowings granted to the Group as at 31 March 2012, 2013 and 2014 and 30 June 2014, respectively (note 22(a)).
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX I 17.
ACCOUNTANTS’ REPORT
INVENTORIES 31 March
Raw materials . . . . . . . . . . . . . . . . . . . . Work in progress . . . . . . . . . . . . . . . . . . Finished goods . . . . . . . . . . . . . . . . . . .
30 June
2012
2013
2014
2014
HK$’000
HK$’000
HK$’000
HK$’000
93,360 39,222 67,577
127,655 139,265 130,023
82,889 64,222 95,184
89,094 39,001 67,237
200,159
396,943
242,295
195,332
The write-down of inventories to net realisable value of approximately HK$1,164,000, HK$1,769,000 and HK$1,120,000 for the years ended 31 March 2012, 2013 and 2014, respectively, and write-back of HK$270,000 for the three months ended 30 June 2014 were included in “cost of sales” in the combined statements of profit or loss and other comprehensive income. 18.
TRADE RECEIVABLES 31 March
Trade receivables . . . . . . . . . . . . . . . . . . Less: Allowance for doubtful debts . . . . . . .
30 June
2012
2013
2014
2014
HK$’000
HK$’000
HK$’000
HK$’000
155,176 (933)
251,157 (912)
173,691 (7,356)
213,955 (7,356)
154,243
250,245
166,335
206,599
The Group’s trading terms with its customers are mainly on credit, except for new customers. Before accepting any new customer, the Group will apply an internal credit assessment policy to assess the potential customer’s credit quality and define credit limits by customer. The credit period is generally for a period of 60 to 120 days for major customers. Each customer has a maximum credit limit. The Group seeks to maintain strict control over its outstanding receivables and has a treasury department to minimise the credit risk. Overdue balances are reviewed regularly by senior management. Trade receivables are non-interest-bearing. An aged analysis of the trade receivables at the end of each of the Track Record Period, based on the invoice date and net of provisions, is as follows: 31 March
Within 1 month . . 1 to 2 months . . . 2 to 3 months . . . Over 3 months but
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . within one year
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
30 June
2012
2013
2014
2014
HK$’000
HK$’000
HK$’000
HK$’000
65,797 27,215 33,672 27,559
120,734 65,477 19,107 44,927
49,637 20,663 48,420 47,615
53,908 67,906 43,342 41,443
154,243
250,245
166,335
206,599
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX I
ACCOUNTANTS’ REPORT
Trade receivables of approximately HK$933,000, HK$912,000, HK$7,356,000 and HK$7,356,000 as at 31 March 2012, 2013 and 2014 and 30 June 2014 were individually determined to be impaired, respectively. The individually impaired trade receivables relate to customers that were in unexpected financial difficulties and it is assessed that only a portion of the receivables is expected to be recovered. The Group does not hold any collateral or other credit enhancements over these balances. Movements in the allowance for doubtful debts are as follows: 31 March
At the beginning of the year/period . . Allowance for doubtful debts (note 9) . Amount written off as uncollectible . . Exchange realignment . . . . . . . . . .
. . . .
. . . .
. . . .
. . . .
30 June
2012
2013
2014
2014
HK$’000
HK$’000
HK$’000
HK$’000
. . . .
676 257 – –
933 – (21) –
912 6,444 – –
7,356 – – –
At the end of the year/period . . . . . . . . . . .
933
912
7,356
7,356
The ageing analysis of trade receivables at the end of the Track Record Period that are not individually nor collectively considered to be impaired is as follows: 31 March
Neither past due or impaired Less than 61 days past due . 61 to 120 days past due . . . Over 120 days past due . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
30 June
2012
2013
2014
2014
HK$’000
HK$’000
HK$’000
HK$’000
140,044 11,082 2,941 176
223,494 23,113 1,561 2,077
146,052 20,130 153 –
182,141 23,669 99 690
154,243
250,245
166,335
206,599
Trade receivables that were past due but not impaired relate to a number of independent customers that have a good track record with the Group. Based on past experience, the Directors are of the opinion that no provision for impairment is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable. The Group does not hold any collateral or other credit enhancements over these balances. 19.
PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES 31 March
Prepayments. . . . . . . . . . . . . . . . . . . . . Deposits . . . . . . . . . . . . . . . . . . . . . . . Other receivables . . . . . . . . . . . . . . . . . .
30 June
2012
2013
2014
2014
HK$’000
HK$’000
HK$’000
HK$’000
2,835 2,399 57,912
2,325 3,034 6,646
3,161 2,120 2,573
24,222 1,166 13,092
63,146
12,005
7,854
38,480
None of the above assets is either past due or impaired. The financial assets included in the above balances relate to receivables for which there was no recent history of default.
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX I 20.
ACCOUNTANTS’ REPORT
CASH AND BANK BALANCES AND PLEDGED BANK DEPOSITS 31 March
30 June
2012
2013
2014
2014
HK$’000
HK$’000
HK$’000
HK$’000
Total cash and bank balances, including pledged bank deposits . . . . . . . . . . . . . .
90,081
151,580
211,015
196,476
Less: Pledged bank deposits for bank borrowings and facilities (note 22(a)) . . . . . . . .
(29,347)
(105,374)
(107,534)
(107,713)
Non-pledged cash and bank balances . . . . . .
60,734
46,206
103,481
88,763
Denominated in: HK$ . . . . . . . . . Renminbi (“RMB”). US$ . . . . . . . . . Euro . . . . . . . . .
28,173 8,255 24,306 –
27,414 4,849 13,943 –
36,577 23,847 43,057 –
34,186 26,085 28,481 11
60,734
46,206
103,481
88,763
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
Cash at banks earns interest at floating rates based on daily bank deposit rates. Short term time deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the Group, and earn interest at the respective short term time deposit rates. The bank balances and pledged deposits are deposited with creditworthy banks with no recent history of default. RMB is not freely convertible into other currencies. However, under Mainland China’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for other currencies through banks authorised to conduct foreign exchange business. 21.
TRADE AND OTHER PAYABLES 31 March
Trade payables . . . . . . . . . . . . . . . . . . . Other payables . . . . . . . . . . . . . . . . . . .
30 June
2012
2013
2014
2014
HK$’000
HK$’000
HK$’000
HK$’000
110,475 105,685
224,319 137,359
109,992 113,194
131,960 82,267
216,160
361,678
223,186
214,227
An aged analysis of the trade payables at the end of the Track Record Period, based on the invoice date, is as follows: 31 March
Within 1 month . . 1 to 2 months . . . 2 to 3 months . . . Over 3 months but
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . within one year
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
30 June
2012
2013
2014
2014
HK$’000
HK$’000
HK$’000
HK$’000
39,691 24,688 6,757 39,339
82,044 21,412 22,755 98,108
46,068 13,331 18,280 32,313
42,657 12,032 5,501 71,770
110,475
224,319
109,992
131,960
The trade payables are non-interest-bearing and the credit period of purchases ranges from 30 to 180 days. Other payables are non-interest-bearing and have an average term of one to three months. The Group has financial risk management policies in place to ensure that all payables are paid within the credit timeframe.
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX I 22.
ACCOUNTANTS’ REPORT
INTEREST-BEARING BANK BORROWINGS 31 March 2012 Effective contractual interest rate (%)
Current: Bank overdraftsecured . . . . Bank loanssecured . . . . . Bank loansunsecured . . .
Maturity profile: On demand . . . .
31 March 2013
31 March 2014
30 June 2014
Effective contractual interest Amount rate (%)
Effective contractual interest Amount rate (%)
Effective contractual interest Amount rate (%)
Amount
HK$’000
HK$’000
HK$’000
HK$’000
–
–
–
–
5.0
11,070
–
–
2.03-8.42
207,141
2.03-8.22
327,482
1.97-8.85
273,453
2.36-7.97
297,484
4.92-5.85
9,917
2.50-5.10
16,575
2.47-5.17
9,400
3.06-4.27
8,400
217,058
344,057
293,923
305,884
217,058
344,057
293,923
305,884
HK Interpretation 5 “Presentation of Financial Statements – Classification by the Borrower of a Term Loan that Contains a Repayment on Demand Clause” requires that a loan which includes a clause that gives the lender the unconditional right to call the loan at any time (“repayment on demand clause”) shall be classified in total by the borrower as current in the statement of financial position. As at 31 March 2012, 2013, 2014 and 30 June 2014 , bank borrowings of the Group in the amount of approximately HK$217,058,000, HK$344,057,000, HK$293,923,000 and HK$305,884,000, respectively, include a repayment on demand clause under the relevant loan agreements, among which approximately HK$33,219,000, HK$38,951,000, HK$11,243,000 and HK$10,107,000 that are repayable after one year from the end of the reporting periods have been classified as current liabilities. For the purpose of the above analysis, such loans are included within current bank loans and analysed into bank loans repayable on demand. (a)
Certain of the bank borrowings and overdrafts are secured by: (i)
mortgages over certain of the Group’s leasehold land, which had a net carrying amount of approximately HK$12,108,000, HK$11,764,000, HK$11,420,000 and HK$11,334,000 as at 31 March 2012, 2013 and 2014 and 30 June 2014, respectively (note 15). mortgages over certain of the Group’s buildings, which had a net carrying amount of approximately HK$22,704,000, HK$22,088,000, HK$21,947,000 and HK$21,684,000 as at 31 March 2012, 2013 and 2014 and 30 June 2014, respectively (note 15). mortgages over the Group’s CIP, which had a net carrying amount of approximately HK$86,225,000, HK$109,079,000 and HK$114,817,000 as at 31 March 2013 and 2014 and 30 June 2014, respectively (31 March 2012: nil) (note 15).
(ii)
mortgages over certain of the Group’s prepaid lease payments, which had a net carrying amount of approximately HK$3,565,000, HK$16,648,000, HK$16,642,000 and HK$16,434,000 as at 31 March 2012, 2013 and 2014 and 30 June 2014, respectively (note 16); and
(iii)
a pledge of the Group’s bank deposits amounting to approximately HK$29,347,000, HK$105,374,000, HK$107,534,000 and HK$107,713,000 as at 31 March 2012, 2013 and 2014 and 30 June 2014, respectively (note 20).
In addition, certain of the Group’s bank loans: (i)
with carrying amount of approximately HK$217,058,000, HK$344,057,000, HK$293,923,000 and [HK$305,844,000] as at 31 March 2012, 2013 and 2014 and 30 June 2014, respectively (note 30(d)) were guaranteed by certain directors of the Group.
(ii)
with carrying amount of approximately HK$195,814,000, HK$336,111,000, HK$255,598,000 and [HK$268,185,000] as at 31 March 2012, 2013, 2014 and 30 June 2014, respectively (note 30(d)) were guaranteed by the immediate holding company of the Company.
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX I (b)
ACCOUNTANTS’ REPORT
The bank borrowings and overdrafts are denominated in the following currencies: 31 March
HK$ . . . . . . . . . . . . . . . . . . . . . US$ . . . . . . . . . . . . . . . . . . . . . RMB . . . . . . . . . . . . . . . . . . . . .
23.
30 June
2012
2013
2014
2014
HK$’000
HK$’000
HK$’000
HK$’000
124,770 85,733 6,555
167,578 173,709 2,770
140,577 115,421 37,925
125,803 142,382 37,699
217,058
344,057
293,923
305,884
OBLIGATIONS UNDER FINANCE LEASES
The Group leases certain of its motor vehicles and office equipment. These leases are classified as finance leases and have remaining lease terms ranging from two to three years as at the end of the Track Record Period. As at 31 March 2012, 2013, 2014 and 30 June 2014, the total future minimum lease payments under finance leases and their present values were as follows: Present value of minimum lease payments
Minimum lease payments 31 March
31 March
30 June
30 June
2012
2013
2014
2014
2012
2013
2014
2014
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
Amounts payable: Within one year. . . . . . . In the second year . . . . . In the third to fifth years, inclusive . . . . . . . . .
543 461
1,314 1,287
1,121 845
1,539 1,147
463 408
1,184 1,209
1,054 820
1,430 1,087
654
1,681
486
1,518
624
1,641
480
1,464
Total minimum finance lease payments . . . . . . . . . .
1,658
4,282
2,452
4,204
1,495
4,034
2,354
3,981
Future finance charges . . . . Total net finance lease payables . . . . . . . . . . . Portion classified as current liabilities . . . . . . . . . . Non-current portion . . . . . .
(163)
1,495
(463) 1,032
(248)
(98)
(223)
4,034
2,354
3,981
(1,184)
(1,054)
(1,430)
2,850
1,300
2,551
The fair value of the Group’s non-current finance lease liabilities amounted to approximately HK$1,032,000, HK$2,850,000, HK$1,300,000 and HK$2,551,000 as at 31 March 2012, 2013 and 2014 and 30 June 12014, respectively. The fair value was determined by discounting the expected future cash flows at prevailing interest rates. The Group’s obligations under finance leases are secured by the lessor’s charge over the leased assets.
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX I 24.
ACCOUNTANTS’ REPORT
DEFERRED TAX ASSETS/(LIABILITIES) The movement in deferred tax assets/(liabilities) during the Track Record Period is as follows:
At 1 April 2011 . . . . . . . . . . . PRC withholding tax paid . . . . . Deferred tax credited/(charged) during the year (note 12) . . . . At 31 March 2012 and 1 April 2012 . . . . . . . . . . . . . . . PRC withholding tax paid . . . . Deferred tax credited during the year (note 12) . . . . . . . . . Exchange realignment . . . . . .
. . . .
Provisions
Loss available for offsetting future taxable profits
Withholding tax
Impairment loss
Total
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
(2,064) –
345 –
2,082
(330)
– –
(2,049) 234
–
–
1,752
15 –
(96) 96
– –
(63) 96
5,082 (183)
59 –
– –
– –
5,141 (183)
18 –
(330) 234
At 31 March 2013 and 1 April 2013 . . . . . . . . . . . . . . . . Deferred tax (charged)/ credited during the year (note 12) . . . . Exchange realignment . . . . . . .
4,917
74
–
–
4,991
(1,735) 124
167 –
– –
2,017 –
449 124
At 31 March 2014 . . . . . . . . .
3,306
241
–
2,017
5,564
Deferred tax (charged)/credited during the year (note 12) . . . . Exchange realignment . . . . . . .
(1,840) (33)
6 –
– –
– –
At 30 June 2014 . . . . . . . . . .
1,433
247
–
2,017
(1,834) (33) 3,697
Pursuant to the PRC Corporate Income Tax Law, a 10% withholding tax is levied on dividends declared to foreign investors from the foreign investment enterprises established in the PRC. The requirement is effective from 1 January 2008 and applies to earnings after 31 December 2007. A lower withholding tax rate may be applied if there is a tax treaty between the PRC and the jurisdiction of the foreign investors. As at 31 March 2012, 2013 and 2014 and 30 June 2014, no deferred tax has been recognised for withholding taxes that would be payable on the unremitted earnings that are subject to withholding taxes of the Group’s subsidiaries established in the PRC. In the opinion of the directors, it is not probable that these subsidiaries will distribute such earnings in the foreseeable future. The aggregate amount of temporary differences associated with investments in subsidiaries in the PRC for which deferred tax liabilities have not been recognised totalled approximately HK$11,648,000, HK$21,158,000, HK$25,306,000 and HK$26,971,000 as at 31 March 2012, 2013 and 2014 and 30 June 2014, respectively. As at 31 March 2012, 2013 and 2014 and 30 June 2014, the Group has deductible temporary differences of approximately HK$703,000, HK$452,000, HK$3,755,000 and HK$2,915,000, respectively, which are mainly contributed by the Hong Kong subsidiaries. No deferred tax asset has been recognised in relation to such deductible temporary differences as it is not certain whether taxable profit will be available against which the deductible temporary differences can be utilised. As at 31 March 2012, 2013 and 2014 and 30 June 2014, the Group has unused tax losses of approximately HK$26,731,000, HK$34,157,000, HK$12,819,000 and HK$12,783,000 of which approximately HK$18,888,000, HK$28,585,000, HK$7,462,000 and HK$7,462,000, respectively, attributable to the PRC subsidiaries will expire after five years of accounting year when the losses were incurred. The remaining balance can be carried forward indefinitely. Deferred tax assets of approximately HK$15,000, HK$74,000, HK$241,000 and HK$247,000 have been recognised in respect of unused tax losses of approximately HK$91,000, HK$448,000, HK$1,458,000 and HK$1,497,000 as at 31 March 2012, 2013 and 2014 and 30 June 2014, respectively, available for offsetting against future profit. The Group did not have any other significant unprovided deferred taxation arising during or at the end of the Track Record Period.
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX I 25.
ACCOUNTANTS’ REPORT
ISSUED CAPITAL 30 June 2014 HK$’000 Authorised: 38,000,000 ordinary shares of HK$0.01 each . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
380
Issued and fully paid: 1,000,000 ordinary shares of HK$0.01 each . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
The Company is a limited liability company incorporated in the Cayman Islands on 6 June 2014 with an authorised share capital of HK$380,000 divided into 38,000,000 ordinary shares of a par value of HK$0.01 each. There was no authorised and issued capital as at 31 March 2012, 2013 and 2014 since the Company has not yet been incorporated. On the date of incorporation, one ordinary share of HK$0.01 was issued and credited as fully paid to the Company’s initial subscriber, and was subsequently transferred to KTL International Holdings Limited, and on the same day, 999,999 ordinary shares of a par value of HK$0.01 each were issued and allotted by the Company to KTL International Holdings Limited. 26.
RESERVES
The amounts of the Group’s reserves and the movements therein for the Track Record Period are presented in the combined statements of changes in equity of the Financial Information. Statutory surplus reserve In accordance with the Company Law of the PRC, each of the subsidiaries of the Company that was registered in the PRC is required to appropriate 10% of the annual statutory profit after tax (after offsetting any prior years’ losses), determined in accordance with the PRC General Accepted Accounting Principles, to the statutory reserve until the balance of the reserve funds reaches 50% of the entity’s registered capital. The statutory reserve can be utilised to offset prior years’ losses or to increase capital, provided the remaining balance of the statutory reserve is not less than 25% of the registered capital. Merger reserve The merger reserve of the Group represents the reserve arose pursuant to the Reorganisation as mentioned in note 2.1 of Section II to the Financial Information. The amounts of the merger reserve represent the paid-up capital of the subsidiaries of the Company for each of the Track Record Period. 27.
MAJOR NON-CASH TRANSACTIONS
The Group entered into finance lease arrangements in respect of items of property, plant and equipment with a total capital value at the inception of the leases of approximately HK$104,000, HK$3,850,000 and HK$1,950,000 during the years ended 31 March 2012 and 2013 and the three months ended 30 June 2014 (31 March 2014: nil), respectively. 28.
OPERATING LEASE ARRANGEMENTS
The Group leases certain of its premises and office equipment under operating lease arrangements. The leases are negotiated for terms ranging from one to five years with fixed monthly rentals. At the end of each of the Track Record Period, the Group had total future minimum lease payments under non-cancellable operating leases falling due as follows: 31 March
Within one year. . . . . . . . . . . . . . . . . . . In the second to fifth years, inclusive . . . . . .
30 June
2012
2013
2014
2014
HK$’000
HK$’000
HK$’000
HK$’000
3,801 3,055
2,103 951
1,546 40
960 30
6,856
3,054
1,586
990
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX I 29.
ACCOUNTANTS’ REPORT
COMMITMENTS
In addition to the operating lease commitments detailed in note 28 above, the Group had the following capital commitments at the end of the Track Record Period: 31 March
Contracted, but not provided for: Construction of Yuwotou Premises . . . . . . Acquisition of property, plant and equipment . . . . . . . . . . . . . . . . . . .
30.
30 June
2012
2013
2014
2014
HK$’000
HK$’000
HK$’000
HK$’000
18,852
28,737
13,491
8,646
221
–
–
–
19,073
28,737
13,491
8,646
RELATED PARTY TRANSACTIONS (a)
(b)
In addition to the transactions detailed elsewhere in this report, the Group had the following material transactions with related parties during the Track Record Period: (i)
During the year ended 31 March 2012, the Group sold a property with a carrying amount of HK$15,898,000 to a shareholder and his spouse at a consideration of HK$35,000,000, which was determined in accordance with the contract terms and conditions mutually agreed between the related parties.
(ii)
During the three months ended 30 June 2014 and the year ended 31 March 2014, total service fees of HK$985,000 and HK$1,872,000 were paid to an entity, which is controlled by a close family member of a director of the Company, respectively, for provision of reservation services for tickets and hotel accommodation etc. to a subsidiary of the Group. The service charges were based on the terms and conditions mutually agreed between both parties. As at 30 June 2014, a service fee of nil (31 March 2014: approximately HK$465,000) was prepaid to this related party and included in “Prepayments, deposits and other receivables” on the face of the combined statement of financial position.
Outstanding balances with the related parties: Amount due from a shareholder
1 April 2011
Maximum amount outstanding
31 March 2012
Maximum amount outstanding
31 March 2013
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
–
34,990
34,990
34,990
–
Due from a shareholder Mr. Li Man Chun . . . . . .
The amount due from the shareholder as at 31 March 2012, representing the consideration receivable from disposal of a property as detailed in note(a)(i) above, was unsecured, interest-free and repayable within one year. The amount was fully settled during the year ended 31 March 2013. Amount due from a related company
Due from a related company . .
*
1 April 2013
Maximum amount outstanding
31 March 2014
Maximum amount outstanding
30 June 2014
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
–
465
465
–
465*
The balance was included in “Prepayments, deposits and other receivables” on the face of the combined statement of financial position.
Amount due to the immediate holding company As disclosed in the combined statements of financial position, the Group had outstanding balances due to the immediate holding company of HK$140,603,000, HK$127,571,000, HK$115,580,000 and HK$111,366,000, respectively, as at 31 March 2012, 2013 and 2014 and 30 June 2014. The balances were unsecured, interest-free and repayable on demand.
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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX I (c)
ACCOUNTANTS’ REPORT
Compensation of key management personnel of the Group: Three months ended 30 June
31 March
(d)
2012
2013
2014
2013
2014
HK$’000
HK$’000
HK$’000
HK$’000 (Unaudited)
HK$’000
Salaries, allowances and benefits in kind . . . . . . . Pension scheme contributions .
16,894 60
22,288 68
13,458 30
1,800 8
4,539 24
Total compensation paid to key management personnel .
16,954
22,356
13,488
1,808
4,563
Guarantees provided by related parties
During the Track Record Period, the immediate holding company of the Company, certain directors and certain companies controlled by directors directly or indirectly, executed guarantees or pledged their assets in favour of banks for banking facilities extended to the Group at no consideration. At the end of each of the Track Record Period, details of the guarantees outstanding are: 31 March
Directors of the Group. . . . . . . . . . . Companies controlled by the Directors . Immediate holding company . . . . . . .
30 June
2012
2013
2014
2014
HK$’000
HK$’000
HK$’000
HK$’000
409,887 118,725 389,178
735,690 – 699,708
739,172 – 637,896
780,354 – 679,825
As the 31 March 2012, 2013 and 2014 and 30 June 2014, the above guarantees provided by the related parties were in favour of the banking facilities granted to the Group amounting to HK$409,887,000, HK$735,690,000, HK$758,087,000 and HK$799,203,000, respectively. The relevant banking facilities that have not been utilised as at 31 March 2012, 2013 and 2014 and 30 June 2014 were HK$150,974,000, HK$305,650,000, HK$409,374,000 and HK$356,218,000, respectively. The above guarantees have been released on [Date] and no guarantee is provided by the Directors, the companies controlled by the Directors and the immediate holding company of the Company since then. 31.
FINANCIAL INSTRUMENTS BY CATEGORY
The carrying amounts of each of the categories of financial instruments at the end of each of the Track Record Period are as follows: Financial assets 31 March
Loans and receivables: Trade receivables . . . . . . . . . . . . . . . Financial assets included in prepayments, deposits and other receivables . . . . . . Due from a shareholder . . . . . . . . . . . Pledged bank deposits . . . . . . . . . . . . Cash and bank balances . . . . . . . . . . .
. . . . . . .
. . . .
. . . .
30 June
2012
2013
2014
2014
HK$’000
HK$’000
HK$’000
HK$’000
154,243
250,245
166,335
206,599
58,033 34,990 29,347 60,734
6,434 – 105,374 46,206
2,139 – 107,534 103,481
12,172 – 107,713 88,763
337,347
408,259
379,489
415,247
– I-40 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX I
ACCOUNTANTS’ REPORT
Financial liabilities 31 March
Financial liabilities at amortised cost: Trade payables . . . . . . . . . . . . . . . . . . . Financial liabilities included in other payables . Interest-bearing bank borrowings . . . . . . . . . Due to the immediate holding company . . . . . Obligations under finance leases . . . . . . . . .
32.
30 June
2012
2013
2014
2014
HK$’000
HK$’000
HK$’000
HK$’000
110,475 74,583 217,058 140,603 1,495
224,319 65,961 344,057 127,571 4,034
109,992 66,744 293,923 115,580 2,354
131,960 70,235 305,884 111,366 3,981
544,214
765,942
588,593
623,426
FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS
Management has assessed that the fair values of cash and bank balances, pledged bank deposits, the amount due from a shareholder, trade receivables, financial assets included in prepayment, deposits and other receivables, trade payables, interestbearing bank borrowings, an amount due to the immediate holding company, obligations under finance leases and financial liabilities included in other payables approximate to their carrying amounts largely due to the short term maturities of these instruments. As at 31 March 2012, 2013 and 2014 and 30 June 2014, the Group had no financial assets or financial liabilities measured at fair value. 33.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The Group’s principal financial instruments, comprise interest-bearing bank borrowings, finance leases, cash and short term bank deposits. The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations. The Group’s exposure to market risk (including interest rate risk and foreign currency risk), credit risk and liquidity risk arises in the normal course of its business. These risks are managed by the Group’s financial management policies and practices described below: Interest rate risk The Group’s exposure to interest rate risk relates principally to the Group’s bank borrowings which are based on the Hong Kong Interbank Offered Rate. The Group mitigates the risk by monitoring closely the movements in interest rates and reviewing its banking facilities regularly. The Group has not used any interest rate swap to hedge its exposure to interest rate risk. As at 31 March 2012, 2013 and 2014 and 30 June 2014, if the interest rates on borrowings had been 50 basis points higher/lower, which was considered reasonably possible by management, with all other variables held constant, the profit after tax for the year would have been decreased/increased by HK$784,000, HK$997,000, HK$1,377,000 and HK$450,000, respectively, as a result of higher/lower interest expenses on bank borrowings. Foreign currency risk The Group has transactional currency exposures. Such exposures arise from sales or purchases by operating units in currencies other than the units’ functional currencies. The Group manages its foreign currency risk by closely monitoring the level of foreign currency balances. The Group currently has not entered into any foreign currency forward contracts to hedge against foreign currency risk. Management will consider hedging foreign currency exposure should the need arise.
– I-41 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX I
ACCOUNTANTS’ REPORT
The carrying amounts of the Group’s monetary assets and monetary liabilities denominated in foreign currencies, i.e. currency other than the functional currency of the respective group entities, which are mainly trade receivables, other receivables, bank balances, trade and other payables, obligations under finance leases and bank borrowings, at the end of the Track Record Period are approximately as follows : 31 March Assets
US$ . . . . . . . . . . . . . . . RMB . . . . . . . . . . . . . . .
30 June
2012
2013
2014
2013
2014
HK$’000
HK$’000
HK$’000
HK$’000 (Unaudited)
HK$’000
164,282 22,130
241,580 133,214
150,906 102,422
324,105 99,821
194,991 103,559
31 March Liabilities
US$ . . . . . . . . . . . . . . . RMB . . . . . . . . . . . . . . .
30 June
2012
2013
2014
2013
2014
HK$’000
HK$’000
HK$’000
HK$’000 (Unaudited)
HK$’000
199,192 49,757
440,073 35,813
249,073 918
280,060 451
243,575 607
Since HK$ is pegged to US$, the Group does not expect any significant movements in HK$/US$ exchange rate. The following table demonstrates the sensitivity at the end of each of the Track Record Period to a reasonably possible change in the RMB exchange rate, with all other variables held constant, of the Group’s profit after tax due to changes in fair value of monetary assets and liabilities. Increase/ (decrease) in RMB rate
Increase/ (decrease) in profit after tax
%
HK$’000
Year ended 31 March 2012 If the Hong Kong dollar weakens against the RMB . . . . . . . . . . If the Hong Kong dollar strengthens against the RMB . . . . . . . .
5% (5%)
(1,168) 1,168
Year ended 31 March 2013 If the Hong Kong dollar weakens against the RMB . . . . . . . . . . If the Hong Kong dollar strengthens against the RMB . . . . . . . .
5% (5%)
4,066 (4,066)
Year ended 31 March 2014 If the Hong Kong dollar weakens against the RMB . . . . . . . . . . If the Hong Kong dollar strengthens against the RMB . . . . . . . .
5% (5%)
4,238 (4,238)
Three months ended 30 June 2014 If the Hong Kong dollar weakens against the RMB . . . . . . . . . . If the Hong Kong dollar strengthens against the RMB . . . . . . . .
5% (5%)
4,298 (4,298)
Three months ended 30 June 2013 (unaudited) If the Hong Kong dollar weakens against the RMB . . . . . . . . . . If the Hong Kong dollar strengthens against the RMB . . . . . . . .
5% (5%)
4,168 (4,168)
Credit risk The carrying amounts of cash and cash equivalents and trade receivables represent the Group’s maximum exposure to credit risk in relation to financial assets. All the Group’s cash and cash equivalents are held in major financial institutions located in the PRC and Hong Kong, which management believes are of high credit quality. The Group has policies in place to evaluate credit risk when accepting new business and to limit its credit exposure to individual customers. The directors consider that the Group does not have a significant concentration of credit risk.
– I-42 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX I
ACCOUNTANTS’ REPORT
Liquidity risk The Group aims to maintain sufficient cash and credit lines to meet its liquidity requirements. The Group finances its working capital requirements through a combination of funds generated from operations and other borrowings. The tables below summarise the maturity profile of the Group’s financial liabilities at the end of the Track Record Period based on contractual undiscounted payments including interest payments computed using contractual rates.
31 March 2012
Non-interest bearing payables. . . . . . . . . . . . . . . Interest-bearing bank borrowings . . . . . . . . . . . . . Obligations under finance lease . . . . . . . . . . . . .
31 March 2013
Non-interest bearing payables. . . . . . . . . . . . . . . Interest-bearing bank borrowings . . . . . . . . . . . . . Obligations under finance lease . . . . . . . . . . . . .
31 March 2014
Non-interest bearing payables. . . . . . . . . . . . . . . Interest-bearing bank borrowings . . . . . . . . . . . . . Obligations under finance lease . . . . . . . . . . . . .
30 June 2014
Non-interest bearing payables. . . . . . . . . . . . . . . Interest-bearing bank borrowings . . . . . . . . . . . . . Obligations under finance lease . . . . . . . . . . . . .
– I-43 –
On demand or less than 1 year
Over 1 year
Total
HK$’000
HK$’000
HK$’000
325,661 217,058 543
– – 1,115
325,661 217,058 1,658
543,262
1,115
544,377
On demand or less than 1 year
Over 1 year
Total
HK$’000
HK$’000
HK$’000
417,851 344,057 1,314
– – 2,968
417,851 344,057 4,282
763,222
2,968
766,190
On demand or less than 1 year
Over 1 year
Total
HK$’000
HK$’000
HK$’000
292,316 293,923 1,121
– – 1,331
292,316 293,923 2,452
587,360
1,331
588,691
On demand or less than 1 year
Over 1 year
Total
HK$’000
HK$’000
HK$’000
308,784 305,884 1,539
– – 2,665
308,784 305,884 4,204
616,207
2,665
618,872
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX I
ACCOUNTANTS’ REPORT
As detailed in note 22 to the financial statements, as at 31 March 2012, 2013 and 2014 and 30 June 2014, bank borrowings in the amount of HK$217,058,000, HK$344,057,000, HK$293,923,000 and HK$305,884,000, respectively, are included in the current portion of the interest-bearing bank borrowings. The relevant loan agreements of these borrowings include a repayment on demand clause which gives the bank the unconditional right to call the loan at any time and therefore, for the purpose of the above maturity profile, the said amount is classified as “On demand or less than one year”. Notwithstanding the repayment on demand clause, the directors believe that the loans will not be called in their entirety within one year, and consider that the borrowings will be repaid in accordance with the maturity date as set out in the loan agreements. In accordance with the terms of the loan agreements, the maturity profiles of the loans as at 31 March 2012, 2013 and 2014 and 30 June 2014 were spread with, based on the contractual undiscounted payments, as below: 31 March
On demand or within one year . . . In the second year . . . . . . . . . . In the third to fifth years, inclusive After five years . . . . . . . . . . . .
. . . .
. . . .
. . . .
30 June
2012
2013
2014
2014
HK$’000
HK$’000
HK$’000
HK$’000
183,839 11,446 17,228 4,545
305,106 11,526 27,425 –
282,680 4,543 6,700 –
295,777 4,543 5,564 –
217,058
344,057
293,923
305,884
Capital management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and to maintain an optimal capital structure to reduce the cost of capital. The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders, or sell assets to reduce debt. No changes in the objectives, policies or processes for managing capital were made during the Track Record Period. The management of the Group reviews the capital structure on a regular basis. As part of this review, the management considers the cost of capital and the risks associated with each class of capital. Based on recommendations of the management, the Group will balance its overall capital structure through the payment of dividends as well as issue of new debt or the redemption of the debt. The Group monitors capital using, inter alias, a gearing ratio which is net debt divided by total equity plus net debt. Net debt includes interest-bearing bank borrowings and obligations under finance leases, less cash and bank balances. The gearing ratio as at the end of the reporting period is as follows: 31 March
30 June
2012
2013
2014
2014
HK$’000
HK$’000
HK$’000
HK$’000
Interest-bearing bank borrowings . . . . . Obligations under finance leases . . . . . Cash and bank balances . . . . . . . . . .
217,058 1,495 (60,734)
344,057 4,034 (46,206)
293,923 2,354 (103,481)
305,884 3,981 (88,763)
Net debt . . . . . . . . . . . . . . . . . . .
157,819
301,885
192,796
221,102
Equity attributable to owners of the parent . . . . . . . . . . . . . . . . . . .
120,457
153,654
196,010
212,224
Total equity plus net debt . . . . . . . . .
278,276
455,539
388,806
433,326
Gearing ratio . . . . . . . . . . . . . . . .
56.7%
– I-44 –
66.3%
49.6%
51.0%
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX I 34.
ACCOUNTANTS’ REPORT
SUBSEQUENT EVENTS
Erax Development Limited, Bright Favour Development Limited, Wealth Logistics Limited and 三和(廣州番禺)首飾有限公 司 were deregistered on [date], respectively. 35.
SUBSEQUENT FINANCIAL STATEMENTS
No audited financial statements have been prepared by the Group, the Company or any of its subsidiaries in respect of any period subsequent to 30 June 2014.
Yours faithfully, Ernst & Young Certified Public Accountants Hong Kong
– I-45 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX II
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The information set out in this appendix does not form part of the Accountants’ Report prepared by Ernst & Young, Certified Public Accountants, Hong Kong, the reporting accountants of our Company, as set forth in Appendix I to this [REDACTED], and is included herein for illustrative purpose only. The unaudited pro forma financial information should be read in conjunction with the section headed “Financial Information” in this [REDACTED] and the Accountants’ Report set out in Appendix I to this [REDACTED]. (A) UNAUDITED PRO FORMA STATEMENT OF ADJUSTED COMBINED NET TANGIBLE ASSETS The following is an illustrative statement of unaudited pro forma adjusted combined net tangible assets of the Group prepared in accordance with paragraph 4.29 of the [REDACTED] and on the basis of the notes set out below for the purpose of illustrating the effect of the [REDACTED] on the combined net tangible assets of the Group attributable to owners of the Company as if the [REDACTED] had taken place on 30 June 2014. It has been prepared based on our combined net tangible assets as at 30 June 2014 as set out in the Accountants’ Report as set out in Appendix I to this [REDACTED], and adjusted as described below. This unaudited pro forma statement of adjusted combined net tangible assets of the Group has been prepared for illustrative purposes only and, because of its hypothetical nature, it may not give a true picture of the combined net tangible assets of the Group had the [REDACTED] been completed as at 30 June 2014 or any future dates. Combined net tangible assets attributable to owners of the Company as Estimated at [REDACTED] 30 June from the 2014 [REDACTED] HK$’000
HK$’000
(Note 1)
(Note 2)
Unaudited pro forma adjusted combined net tangible assets
Unaudited pro forma adjusted combined net tangible assets per Share
HK$’000
HK$ (Note 3)
Based on an [REDACTED] of HK$[REDACTED] per Share . . . . . . . . . . .
208,527 [REDACTED] [REDACTED] [REDACTED]
Based on an [REDACTED] of HK$[REDACTED] per Share . . . . . . . . . . .
208,527 [REDACTED] [REDACTED] [REDACTED] – II-1 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX II
UNAUDITED PRO FORMA FINANCIAL INFORMATION
Notes: 1.
The combined net tangible assets attributable to owners of the Company as at 30 June 2014 is extracted from the Accountants’ Report as set out in Appendix I to this [REDACTED], which is based on the audited combined net assets attributable to owners of the Company of HK$212,224,000 as of 30 June 2014 less deferred tax assets of HK$3,697,000 as of the same date.
2.
The estimated [REDACTED] from the [REDACTED] are based on the minimum and maximum indicative [REDACTED] of HK$[REDACTED] and HK$[REDACTED] per Share, after deduction of the [REDACTED] fees and other related expenses payable by the Company, taking no account of any Shares which may be issued upon the exercise of the [REDACTED].
3.
The unaudited pro forma adjusted combined net tangible assets per Share are determined after the adjustments as described in note 2 above and on the basis that 80,000,000 Shares (being the number of shares expected to be in issue immediately after completion of the [REDACTED], without taking into account of any shares which may be issued upon the exercise of the [REDACTED]) are issued and outstanding.
– II-2 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX II
UNAUDITED PRO FORMA FINANCIAL INFORMATION
(B) INDEPENDENT REPORTING ACCOUNTANTS’ ASSURANCE REPORT ON THE COMPILATION OF PRO FORMA FINANCIAL INFORMATION
[REDACTED]
– II-3 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX II
UNAUDITED PRO FORMA FINANCIAL INFORMATION
[REDACTED]
– II-4 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX III
PROPERTY VALUATION
The following is the text of a letter, summary of value and valuation certificate, prepared for the purpose of incorporation in this [REDACTED] received from CBRE Limited, an independent valuer, in connection with its valuation as at [31 July] 2014 of the property interests of our Group. CBRE Limited
[●] 2014 KTL International Holdings Group Limited 1207, Fu Hang Industrial Building, No. 1 Hok Yuen Street East, Kowloon, Hong Kong
12/F Three Exchange Square 8 Connaught Place Central, Hong Kong T 852 2820 2800 F 852 2810 0830 香港中環康樂廣場八號交易廣場第三期十二樓 電話 852 2820 2800 傳真 852 2810 0830 www.cbre.com.hk 地產代理 (公司) 牌照號碼 Estate Agent’s Licence No: C-004065
Attn: The Board of Directors Dear Sirs, In accordance with the instruction to us to value the property interests held by KTL International Holdings Group Limited (the “Company”) and its subsidiaries (hereinafter together known as the “Group”) in the People’s Republic of China (the “PRC”) and Hong Kong, details of which are set out in the attached valuation certificate for public circular purpose. We confirm that we have carried out inspections, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the Market Values of such property interests as at [31 July] 2014 (the “date of valuation”). Our valuation is our opinion of Market Value which is defined by the HKIS Valuation Standards on Properties to mean “the estimated amount for which an asset should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.” Unless otherwise stated, this valuation is prepared in accordance with the “HKIS Valuation Standards” published by The Hong Kong Institute of Surveyors (the “HKIS”). In addition to the above, this valuation has been prepared in accordance with the RICS Valuation – Professional Standard issued by the Royal Institution of Chartered Surveyors. We have also complied with all the requirements contained in [REDACTED] and [REDACTED] of the [REDACTED]. Our valuation has been made on the assumption that the owners sell the properties on the open markets without any benefit or burden of a deferred term contract, leaseback, joint venture, management agreement or any similar arrangement, which would serve to affect the values of the property interests. – III-1 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX III
PROPERTY VALUATION
Unless otherwise stated, all the property interests are valued by the direct comparison method on the assumption that each property can be sold in their existing state with the benefit of vacant possession. Comparison is based on prices realized on actual transactions and/or asking prices of comparable properties. Comparable properties with similar locations, characters and sizes are analyzed, and carefully weighed against all respective advantages and disadvantages of each property in order to arrive at a fair comparison of value. For the property interests in Group II, which are held by the Group under development in the PRC, we have valued the property interests on the basis that the property will be developed and completed in accordance with the Group’s latest development scheme provided to us. In arriving at our opinion of value, we have adopted the direct comparison method by making reference to comparable land evidence available in the relevant markets as at the date of valuation and have also taken into account the development costs already incurred as well as those costs to be incurred in order to reflect the quality of the completed development. For the property interests in Group II, we reserve the rights to change of the Market Value opinion if there is a material change of the state of the property interests concerned. The change of the approvals, including the development parameters approved, and any delay on getting the approvals from the relevant authorities are considered the potential risks that may render a material change on the state and the Market Value of the property interests. In valuing the property interests in Group III and Group V which are rented by the Group in the PRC and Hong Kong, we considered they have no commercial value primarily due to the prohibition against assignment or sub-letting and/or due to the lack of substantial profit rent. In the course of our valuation for the property interests held by the Group in the PRC, we have relied on the legal opinions provided by the Group’s PRC legal advisor, Tian Yuan Law Firm. We have also been provided with extracts from title documents relating to such property interests. We have not, however, searched the original documents to verify ownership or any amendment which did not appear on the copies handed to us. All documents have been used for reference only. We have relied to a considerable extent on information given by the Group, in particular but not limited to, planning approvals, development scheme and schedule, incurred and outstanding development costs, statutory notices, easements, tenancies, floor areas, site area, construction cost, expected building completion date, etc. No on-site measurement has been taken. Dimensions, measurements and areas included in the valuation certificate are only approximations. We have taken every reasonable care both during inspecting the information provided to us and in making relevant enquiries. We have no reason to doubt the truth and accuracy of the information provided to us by the Group, which is material to the valuation. We were also advised by the Group that no material facts have been omitted from the information provided to us. This report and valuation shall be used only in its entirety and no part shall be used without making reference to the whole report. Our report is to be used only for the specific purpose stated herein and any other use is invalid. No reliance may be made by any third party without our prior written consent. – III-2 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX III
PROPERTY VALUATION
The liability of CBRE Limited and its directors and employees is limited to the addressee of this report only. No accountability, obligation or liability to any third parties is accepted. The Company agrees to indemnify and hold us harmless against and from any and all losses, claims, actions, damages, expenses, or liabilities, including reasonable attorneys’ fees, to which we may become subjects in connection with this engagement. The Company’s obligation for indemnification and reimbursement shall extend to any controlling person of CBRE Limited, including any director, officer, employee, subcontractor, affiliate or agent. In the event we are subject to any liability in connection with this engagement, regardless of legal theory advanced, such liability will be limited to the 3 times of the amount of fees we received for this engagement. We have inspected the properties to such extent as for the purpose of this valuation. In the course of our inspection, we did not notice any serious defects. However, we have not carried out any structural survey or any tests on the building services. Therefore, we are not able to report whether the properties are free of rot, infestation or any other structural defects. We have not carried out investigations on the site to determine the suitability of the ground conditions and the services etc. for the existing structures or any future development. We do not commission site surveys and a site survey has not been provided to us. We have assumed there are no encroachments by or on the property. No allowance has been made in our valuation neither for any charges, mortgages or amounts owing on the property interests nor for any expenses or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the property interests are free of encumbrances, restrictions and outgoings of onerous nature which could affect their values. The monetary amounts are stated in Hong Kong Dollars (“HK$”). The exchange rate adopted in our valuation is approximately Renminbi (“RMB”) 1 = HK$0.79663, which was the prevailing exchange rate at the date of valuation as sourced from Bloomberg. We enclose herewith a summary of values and our valuation certificate. Yours faithfully, For and on behalf of CBRE Limited Alex PW Leung MHKIS MRICS RPS(GP) Senior Director Valuation & Advisory Services, Greater China Encl. Note: Mr. Leung is a member of Royal Institution of Chartered Surveyors and a corporate member of the Hong Kong Institute of Surveyors. He has over 18 years’ valuation experience in the Greater China Region.
– III-3 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX III
PROPERTY VALUATION SUMMARY OF VALUES
Property Interests in the PRC
Property interests
Market Value in existing state as at 31 July 2014
Interests attributable to the Company
Market Value attributable to the Company as at 31 July 2014
GROUP I – Property interests held by the Group for Occupation/Operation in the PRC 1.
A dormitory building and composite building, No. 1 Yinping Road, Shatou Street, Panyu District, Guangzhou, Guangdong Province, the PRC
HK$66,320,000
100%
HK$66,320,000
GROUP II – Property interests held by the Group Under Development in the PRC 2.
An Industrial Property Located at South of Yuwotou Road, Dongshen Village, Dongyong Town, Nansha District, Guangzhou Guangdong Province, the PRC
HK$128,810,000
100%
HK$128,810,000
GROUP III – Property interests Rented by the Group in the PRC 3.
Units 502, 1102, 1607, 1702, 1902, 2002, 2202, 2602 and 3301, Tower 8, Clifford Noble Court Apartment, Blessing New Village, Guangzhou, Guangdong Province, the PRC
No Commercial Value
4.
Unit 1702, Block 28, Ai Rong Jie, Golden Valley Garden, Guangzhou, Guangdong Province, the PRC
No Commercial Value
5.
Levels 2 and 4, No. 12 Xichang Road, Yunxing Zhukeng Village, Shiqiao Town, Guangzhou, Guangdong Province, the PRC
No Commercial Value
– III-4 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX III
PROPERTY VALUATION
GROUP IV – Property interests held by the Group for Occupation/Operation in Hong Kong 6.
Units 1205, 1206 and 1207 on 12/F, Private Car Parking Space Nos. 10, 32 and 58 on LB/F, Fu Hang Industrial Building, No. 1 Hok Yuen Street East, Kowloon, Hong Kong
HK$42,710,000
100%
HK$42,710,000
GROUP V – Property interests Rented by the Group in Hong Kong 7.
No Commercial Value
Private Car Parking Space No. 9 on LB/F, Fu Hang Industrial Building, No. 1 Hok Yuen Street East, Kowloon, Hong Kong Total:
– III-5 –
HK$237,840,000
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX III
PROPERTY VALUATION
GROUP I – Property interests held by the Group for Occupation/Operation in the PRC VALUATION CERTIFICATE
1.
Property
Description and tenure
Details of occupancy
A dormitory building and composite building, No. 1 Yinping Road, Shatou Street, Panyu District, Guangzhou City, Guangdong Province, the PRC
Completed in 2000, the property comprises one block of industrial building and one block of dormitory building with a total Gross Floor Area (“GFA”) of 11,973.83 sq.m. approximately, erected on a land parcel for industrial use with a site area of 4,314.60 sq.m..
The subject property is used by the Group as manufacturing, R&D and design, office administration, etc.
The land use rights of the site were granted for mixed uses for a term to be expired on 5 March 2051.
Market Value as at 31 July 2014 HK$66,320,000 (RMB52,800,000 RENMINBI FIFTY TWO MILLION EIGHT HUNDRED THOUSAND) (100% interests attributable to the Company: HK$66,320,000)
Notes: (a)
According to the Yue Real Estate Ownership Certificate Sui Zi No. 0210187519 and 0210187520 dated 10 January 2012, the land use rights of the site were granted to Guangzhou Dihe Jewellery Limited (廣州締和首飾有限公司) for mixed uses for a term to be expired on 5 March 2051. The total gross floor area of the property is approximately 11,973.83 sq.m..
(b)
As informed by the Group, the owner is a subsidiary of the Company which is directly owned by the Company in which the Company has a 100% attributable interest.
(c)
We have been provided with a legal opinion on the property prepared by the Group’s PRC legal advisor, which contains, inter alia, the following information: Guangzhou Dihe has a proper legal title to the property and has the rights to use, transfer and mortgage of the property.
(d)
An inspection was carried out by Mr. Luckson Chen on 25 April 2014.
(e)
In our valuation, we have made reference to asking prices of similar industrial premises in Panyu which have characteristics comparable to the property. The unit rates of those asking price references were in the region of RMB4,000 to 6,500/ sq.m.. Adjustments to the unit rates have been made to reflect differences between the comparable and the subject property in factors including but not limited to time, location, size and quality in arriving our conclusion. In our valuation, we have taken unit rates of about RMB5,300/ sq.m. for industrial and about RMB3,500/ sq.m. for dormitory. The adopted unit rates are in line with the asking price references.
– III-6 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX III
PROPERTY VALUATION
GROUP II – Property interests held by the Group Under Development in the PRC VALUATION CERTIFICATE
2.
Property
Description and tenure
Details of occupancy
An Industrial Property Located at South of Yuwotou Road, Dongshen Village, Dongyong Town, Nansha District, Guangzhou, Guangdong Province, the PRC
The property comprises two blocks of industrial building with a total Gross Floor Area (“GFA”) of 20,086.00 sq.m. approximately, to be erected on a land parcel for industrial use with a site area of 33,333.00 sq.m..
According to our recent inspection, the property was under construction and is expected to be completed by late 2015.
Market Value as at 31 July 2014 HK$128,810,000 (RMB103,000,000 RENMINBI ONE HUNDRED AND THREE MILLION) (100% interests attributable to the Company: HK$128,810,000)
The land use rights of the site were granted for mixed uses for a term to be expired on 10 August 2053.
Notes: (a)
According to the State-owned Land Use Rights Grant Contract No. G18-000573 dated 24 October 2005, the land use rights of the site where the development erected/to be erected with a land area of approximately 33,333 sq.m. were granted to KTL (Guangzhou) Jewellery Limited, a wholly-owned subsidiary of the Group.
(b)
As informed by the Group, the Company owns an attributable interest of [100%] in the property.
(c)
According to the Construction Engineering Planning Permit No. Sui Gui Jian Zheng (2009) 347 and (2008) 3557, the total construction scale is approximately 20,086 sq.m..
(d)
As provided by the Group, the incurred and the outstanding construction costs, as at the valuation date, were approximately RMB99,000,000 and RMB10,000,000 respectively.
(e)
We are of the opinion that the gross development value of the proposed development assumed it were just completed was in the sum of RMB115,000,000.
(f)
We have been provided with a legal opinion on the property prepared by the Group’s PRC legal advisor, which contains, inter alia, the following information:
(g)
(i)
KTL (Guangzhou) is the legal land user of the property and has the rights to use, transfer and mortgage of the property.
(ii)
There is no situation, compulsory acquisition, major lawsuits, major dispute or any other situation that would seriously affect the land ownership of the property.
(iii)
The property has been mortgaged to Panyu Branch of China Guangfa Bank.
A summary of major certificates/approvals is shown as follows: (i) (ii) (iii) (iv) (v) (vi)
State-owned Land Use Rights Grant Contract State-owned Land Use Rights Certificate Construction Land Use Permit Construction Engineering Planning Permit Construction Works Commencement Permit Construction Works Completion Certified Report
N/A Yes Yes Yes Yes N/A
(h)
An inspection was carried out by Mr. Luckson Chen on 1 April 2014.
(i)
In our valuation, we have made reference to some industrial land sales in Guangzhou which have characteristics comparable to the property. The prices of those land sales are in the region of RMB740 to 770/ sq.m.. Adjustments to the unit rates of those land sales prices have been made to reflect differences between the comparable and the subject property in factors including but not limited to time, location, size and permitted development density in arriving our conclusion. In our valuation, we have taken a site value of about RMB752/ sq.m.. The unit rate assumed by us is in line with the comparable land sale prices.
– III-7 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX III
PROPERTY VALUATION
GROUP III – Property interests Rented by the Group in the PRC VALUATION CERTIFICATE
3.
Property
Description and tenure
Details of occupancy
Units 502, 1102, 1607, 1702, 1902, 2002, 2202, 2602 and 3301, Tower 8, Clifford Noble Court Apartment, Blessing New Village, Guangzhou, Guangdong Province, the PRC
The property comprises nine residential units with a total Gross Floor Area of 1,540.51 sq.m. in a 34-storey residential building. The building was completed in 2007.
The property is occupied by the Group as staff dormitories.
Market Value as at 31 July 2014 No Commercial Value
The gross floor areas of the units are as below: Unit 502 1102 1607 1702 1902 2002 2202 2602 3301
Gross floor area 154.72 154.72 154.72 154.72 154.72 157.72 154.72 154.72 299.75
sq.m. sq.m. sq.m. sq.m. sq.m. sq.m. sq.m. sq.m. sq.m.
The property is leased from Guangzhou Yihu Property Co., Ltd. to the Group for various terms with the latest expiry date on 30 November 2015 with a total monthly rent of RMB61,200 inclusive of management fees. Notes: (a)
As informed by the Group, Guangzhou Yihu Property Co., Ltd., is an independent third party of the Group.
(b)
An external inspection was carried out by Ms. Chris Wu on 14 July 2014.
– III-8 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX III
PROPERTY VALUATION VALUATION CERTIFICATE
4.
Property
Description and tenure
Details of occupancy
Unit 1702, Block 28, Ai Rong Jie, Golden Valley Garden, Guangzhou, Guangdong Province, the PRC
The property comprises a residential unit with Gross Floor Area of 254.13 sq.m. in a 22-storey residential building. The building was completed in 2010.
The property is occupied by the Group as staff dormitory.
The property is leased from Huang He Qing to the Group for a term from 1 June 2013 to 31 May 2017 with a monthly rent of RMB11,788 exclusive of management fees and utility fees.
Notes: (a)
As informed by the Group, Huang He Qing is an independent third party of the Group.
(b)
An external inspection was carried out by Ms. Chris Wu on 14 July 2014.
– III-9 –
Market Value as at 31 July 2014 No Commercial Value
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX III
PROPERTY VALUATION VALUATION CERTIFICATE
5.
Property
Description and tenure
Details of occupancy
Levels 2 and 4, No. 12 Xichang Road, Yunxing Zhukeng Village, Shiqiao Town, Guangzhou, Guangdong Province, the PRC
The property comprises two floors of warehouse with Gross Floor Area of 568 sq.m. in a 4-storey building completed in the 90’s.
The property is occupied by the Group as warehouse.
Market Value as at 31 July 2014 No Commercial Value
The property is leased from Liu Xue Chun and Chen Chang Xun to the Group for a term from 1 April 2014 to 31 August 2014 with a monthly rent of RMB5,000.
Notes: (a)
As informed by the Group, Liu Xue Chun and Chen Chang Xun are independent third parties of the Group.
(b)
An external inspection was carried out by Ms. Chris Wu on 14 July 2014.
– III-10 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX III
PROPERTY VALUATION
GROUP IV – Property interests held by the Group for Occupation/Operation in Hong Kong VALUATION CERTIFICATE
6.
Property
Description and tenure
Details of occupancy
Units 1205, 1206 and 1207 on 12/F, Private Car Parking Space Nos. 10, 32 and 58 on LB/F, Fu Hang Industrial Building, No. 1 Hok Yuen Street East, Kowloon, Hong Kong
The property comprises three units on 12/F and three car parking spaces in a 13-storey industrial building with two basement levels, completed in 1984.
The subject property is used by the Group as office and car parking spaces.
18/3442 undivided shares of and in Section A of Kowloon Marine Lot No. 113
The saleable area of the three units is measured as below: Unit
Saleable area
1205 1206 1207
208.27 sq.m. 201.89 sq.m. 167.45 sq.m.
Total
577.61 sq.m. (6,217 sq.ft.)
Market Value as at 31 July 2014 HK$42,710,000 (HONG KONG DOLLARS FORTY TWO MILLION SEVEN HUNDRED AND TEN THOUSAND) (100% interests attributable to the Company: HK$42,710,000)
The property is held under Conditions of Exchange No. UB11128 for a term from 15 September 1972 until 14 September 2047. The annual Government Rent is HK$4,228 for the whole Section A of Kowloon Marine Lot No. 113. Notes: (a)
The registered owner of Unit 1205 is Joint Sense International Limited vide Memorial No. 07073002550368 dated 10 July 2007.
(b)
The registered owner of Units 1206 and 1207, Private Car Parking Space Nos. 10, 32 and 58 is K.T.L. Jewellery Manufacturer Limited vide Memorial No. UB6245363 dated 27 February 1995, Memorial No. UB5830117 dated 7 October 1993, Memorial No. 11082302780232 dated 11 August 2011, Memorial No. 09052702380059 dated 13 May 2009 and Memorial No. UB7190498 dated 30 May 1997 respectively.
(c)
As informed by the Group, Joint Sense International Limited and K.T.L. Jewellery Manufacturer Limited are subsidiaries of the Group.
(d)
The property is subject to the below encumbrances: i.
Deed of Mutual Covenant vide Memorial No. UB2729297 dated 8 February 1985.
ii.
Certificate of Compliance from District Lands Office, Kowloon West vide Memorial No. UB2697757 dated 9 January 1985.
(e)
The property lies within an area zone for “Other Specified Uses (Business)” under Approved Hung Hom Outline Zoning Plan No. S/K9/24 approved on 5 October 2010.
(f)
An inspection was carried out by Mr. Alex Leung on 13 October 2014.
(g)
In undertaking our valuation of the property, we have made reference to some industrial unit and car parking space sales references in Hung Hom which have characteristics comparable to the property. The prices of those comparable sales are in the region of HK$5,600 to 6,900/ sq.ft. for industrial and HK$1.30 million to 1.42 million for each car parking space. Adjustments to the unit rates of those sale prices have been made to reflect differences between the comparable and the subject property in factors including but not limited to time, location, size and quality in arriving at our conclusion. In our valuation, we have taken unit rates of about HK$6,210/ sq.ft. for industrial unit and about HK$1.37 million each for car parking space. The adopted unit rates are in line with the comparable sale prices.
– III-11 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX III
PROPERTY VALUATION
GROUP V – Property interests Rented by the Group in Hong Kong VALUATION CERTIFICATE
7.
Property
Description and tenure
Details of occupancy
Private Car Parking Space No. 9 on LB/F, Fu Hang Industrial Building, No. 1 Hok Yuen Street East, Kowloon, Hong Kong
The property comprises a car parking space on the LB floor of a 13-storey industrial building with two basement levels, completed in 1984.
The property is occupied by the Group as car parking space.
2/3442 undivided shares of and in Section A of Kowloon Marine Lot No. 113
Market Value as at 31 July 2014 No Commercial Value
The property is leased from Zhu Yong Xiang and Sun Jia Xing to the Group for a term from 22 March 2014 to 21 March 2016 with a monthly rent of HK$3,300 inclusive of Rates, Government Rent and management fees. The property is held under Conditions of Exchange No. UB11128 for a term from 15 September 1972 until 14 September 2047. The annual Government Rent is HK$4,228 for the whole Section A of Kowloon Marine Lot No.113.
Notes: (a)
The registered owners of the subject property is Chan Sau Lan. As informed by the Group, the registered owner is an independent third party of the Group.
(b)
An external inspection was carried out by Mr. Alex Leung on 13 October 2014.
– III-12 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
Set out below is a summary of certain provisions of the Memorandum and Articles of Association of the Company and of certain aspects of Cayman Islands company law. The Company was incorporated in the Cayman Islands as an exempted company with limited liability on 6 June 2014 under the Companies Law. The Company’s constitutional documents consist of its Amended and Restated Memorandum of Association (the “Memorandum”) and the Amended and Restated Articles of Association (the “Articles”). 1.
MEMORANDUM OF ASSOCIATION (a)
The Memorandum provides, inter alia, that the liability of members of the Company is limited and that the objects for which the Company is established are unrestricted (and therefore include acting as an investment company), and that the Company shall have and be capable of exercising any and all of the powers at any time or from time to time exercisable by a natural person or body corporate whether as principal, agent, contractor or otherwise and since the Company is an exempted company that the Company will not trade in the Cayman Islands with any person, firm or corporation except in furtherance of the business of the Company carried on outside the Cayman Islands.
(b) By special resolution the Company may alter the Memorandum with respect to any objects, powers or other matters specified therein. 2.
ARTICLES OF ASSOCIATION
The Articles were adopted on [Date] and effective from the [REDACTED]. The following is a summary of certain provisions of the Articles: (a) Shares (i)
Classes of shares The share capital of the Company consists of ordinary shares.
(ii) Share certificates Every person whose name is entered as a member in the register of members shall be entitled to receive a certificate for his shares. No shares shall be issued to bearer. Every certificate for shares, warrants or debentures or representing any other form of securities of the Company shall be issued under the seal of the Company, and shall be signed autographically by one Director and the Secretary, or by 2 Directors, or by some other person(s) appointed by the Board for the purpose. As regards any certificates for shares or debentures or other securities of the Company, the Board may – IV-1 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
by resolution determine that such signatures or either of them shall be dispensed with or affixed by some method or system of mechanical signature other than autographic or may be printed thereon as specified in such resolution or that such certificates need not be signed by any person. Every share certificate issued shall specify the number and class of shares in respect of which it is issued and the amount paid thereon and may otherwise be in such form as the Board may from time to time prescribe. A share certificate shall relate to only one class of shares, and where the capital of the Company includes shares with different voting rights, the designation of each class of shares, other than those which carry the general right to vote at general meetings, must include the words “restricted voting” or “limited voting” or “non-voting” or some other appropriate designation which is commensurate with the rights attaching to the relevant class of shares. The Company shall not be bound to register more than 4 persons as joint holders of any share. (b) Directors (i)
Power to allot and issue shares and warrants
Subject to the provisions of the Companies Law, the Memorandum and Articles and without prejudice to any special rights conferred on the holders of any shares or class of shares, any share may be issued with or have attached thereto such rights, or such restrictions, whether with regard to dividend, voting, return of capital, or otherwise, as the Company may by ordinary resolution determine (or, in the absence of any such determination or so far as the same may not make specific provision, as the Board may determine). Any share may be issued on terms that upon the happening of a specified event or upon a given date and either at the option of the Company or the holder thereof, they are liable to be redeemed. The Board may issue warrants to subscribe for any class of shares or other securities of the Company on such terms as it may from time to time determine. Where warrants are issued to bearer, no certificate thereof shall be issued to replace one that has been lost unless the Board is satisfied beyond reasonable doubt that the original certificate thereof has been destroyed and the Company has received an indemnity in such form as the Board shall think fit with regard to the issue of any such replacement certificate. Subject to the provisions of the Companies Law, the Articles and, where applicable, the rules of any [REDACTED] of the Relevant Territory (as defined in the Articles) and without prejudice to any special rights or restrictions for the time being attached to any shares or any class of shares, all unissued shares in the Company shall be at the disposal of the Board, which may offer, allot, grant options over or otherwise dispose of them to such persons, at such times, for such consideration and on such terms and conditions as it in its absolute discretion thinks fit, but so that no shares shall be issued at a discount. – IV-2 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
Neither the Company nor the Board shall be obliged, when making or granting any allotment of, offer of, option over or disposal of shares, to make, or make available, any such allotment, offer, option or shares to members or others whose registered addresses are in any particular territory or territories where, in the absence of a registration statement or other special formalities, this is or may, in the opinion of the Board, be unlawful or impracticable. However, no member affected as a result of the foregoing shall be, or be deemed to be, a separate class of members for any purpose whatsoever. (ii) Power to dispose of the assets of the Company or any subsidiary While there are no specific provisions in the Articles relating to the disposal of the assets of the Company or any of its subsidiaries, the Board may exercise all powers and do all acts and things which may be exercised or done or approved by the Company and which are not required by the Articles or the Companies Law to be exercised or done by the Company in general meeting, but if such power or act is regulated by the Company in general meeting, such regulation shall not invalidate any prior act of the Board which would have been valid if such regulation had not been made. (iii) Compensation or payments for loss of office Payments to any present Director or past Director of any sum by way of compensation for loss of office or as consideration for or in connection with his retirement from office (not being a payment to which the Director is contractually or statutorily entitled) must be approved by the Company in general meeting. (iv) Loans and provision of security for loans to Directors There are provisions in the Articles prohibiting the making of loans to Directors and their close associates which are equivalent to provisions of Hong Kong law prevailing at the time of adoption of the Articles. The Company shall not directly or indirectly make a loan to a Director or a director of any holding company of the Company or any of their respective close associates, enter into any guarantee or provide any security in connection with a loan made by any person to a Director or a director of any holding company of the Company or any of their respective close associates, or if any one or more of the Directors hold (jointly or severally or directly or indirectly) a controlling interest in another company, make a loan to that other company or enter into any guarantee or provide any security in connection with a loan made by any person to that other company. – IV-3 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX IV
(v)
SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
Disclosure of interest in contracts with the Company or with any of its subsidiaries
With the exception of the office of auditor of the Company, a Director may hold any other office or place of profit with the Company in conjunction with his office of Director for such period and, upon such terms as the Board may determine, and may be paid such extra remuneration therefor (whether by way of salary, commission, participation in profits or otherwise) in addition to any remuneration provided for by or pursuant to any other Articles. A Director may be or become a director or other officer or member of any other company in which the Company may be interested, and shall not be liable to account to the Company or the members for any remuneration or other benefits received by him as a director, officer or member of such other company. The Board may also cause the voting power conferred by the shares in any other company held or owned by the Company to be exercised in such manner in all respects as it thinks fit, including the exercise thereof in favour of any resolution appointing the Directors or any of them to be directors or officers of such other company. No Director or intended Director shall be disqualified by his office from contracting with the Company, either as vendor, purchaser or otherwise, nor shall any such contract or any other contract or arrangement in which any Director is in any way interested be liable to be avoided, nor shall any Director so contracting or being so interested be liable to account to the Company for any profit realised by any such contract or arrangement by reason only of such Director holding that office or the fiduciary relationship thereby established. A Director who is, in any way, materially interested in a contract or arrangement or proposed contract or arrangement with the Company shall declare the nature of his interest at the earliest meeting of the Board at which he may practically do so. There is no power to freeze or otherwise impair any of the rights attaching to any Share by reason that the person or persons who are interested directly or indirectly therein have failed to disclose their interests to the Company. A Director shall not vote (nor shall he be counted in the quorum) on any resolution of the Board in respect of any contract or arrangement or other proposal in which he or his associate(s) is/are materially interested, and if he shall do so his vote shall not be counted nor shall he be counted in the quorum for that resolution, but this prohibition shall not apply to any of the following matters namely: (aa) the giving of any security or indemnity to the Director or his close associate(s) in respect of money lent or obligations incurred or undertaken by him or any of them at the request of or for the benefit of the Company or any of its subsidiaries; – IV-4 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
(bb) the giving of any security or indemnity to a third party in respect of a debt or obligation of the Company or any of its subsidiaries for which the Director or his close associate(s) has/have himself/themselves assumed responsibility in whole or in part whether alone or jointly under a guarantee or indemnity or by the giving of security; (cc) any proposal concerning an offer of shares or debentures or other securities of or by the Company or any other company which the Company may promote or be interested in for subscription or purchase, where the Director or his close associate(s) is/are or is/are to be interested as a participant in the [REDACTED] or [REDACTED] of the offer; (dd) any proposal or arrangement concerning the adoption, modification or operation of a share option scheme, a pension fund or retirement, death or disability benefits scheme or other arrangement which relates both to Directors, his associate(s) and employees of the Company or of any of its subsidiaries and does not provide in respect of any Director, or his close associate(s), as such any privilege or advantage not generally accorded to the employees to which such scheme or fund relates; or (ee) any contract or arrangement in which the Director or his close associate(s) is/are interested in the same manner as other holders of shares or debentures or other securities of the Company by virtue only of his/their interest in shares or debentures or other securities of the Company. (vi) Remuneration The Directors shall be entitled to receive, as ordinary remuneration for their services, such sums as shall from time to time be determined by the Board, or the Company in general meeting, as the case may be, such sum (unless otherwise directed by the resolution by which it is determined) to be divided amongst the Directors in such proportions and in such manner as they may agree or failing agreement, equally, except that in such event any Director holding office for only a portion of the period in respect of which the remuneration is payable shall only rank in such division in proportion to the time during such period for which he has held office. The Directors shall also be entitled to be repaid all travelling, hotel and other expenses reasonably incurred by them in attending any Board meetings, committee meetings or general meetings or otherwise in connection with the discharge of their duties as Directors. Such remuneration shall be in addition to any other remuneration to which a Director who holds any salaried employment or office in the Company may be entitled by reason of such employment or office.
– IV-5 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
Any Director who, at the request of the Company performs services which in the opinion of the Board go beyond the ordinary duties of a Director may be paid such special or extra remuneration (whether by way of salary, commission, participation in profits or otherwise) as the Board may determine and such extra remuneration shall be in addition to or in substitution for any ordinary remuneration as a Director. An executive Director appointed to be a managing director, joint managing director, deputy managing director or other executive officer shall receive such remuneration (whether by way of salary, commission or participation in profits or otherwise or by all or any of those modes) and such other benefits (including pension and/or gratuity and/or other benefits on retirement) and allowances as the Board may from time to time decide. Such remuneration shall be in addition to his ordinary remuneration as a Director. The Board may establish, either on its own or jointly in concurrence or agreement with other companies (being subsidiaries of the Company or with which the Company is associated in business), or may make contributions out of the Company’s monies to, such schemes or funds for providing pensions, sickness or compassionate allowances, life assurance or other benefits for employees (which expression as used in this and the following paragraph shall include any Director or former Director who may hold or have held any executive office or any office of profit with the Company or any of its subsidiaries) and former employees of the Company and their dependents or any class or classes of such persons. In addition, the Board may also pay, enter into agreements to pay or make grants of revocable or irrevocable, whether or not subject to any terms or conditions, pensions or other benefits to employees and former employees and their dependents, or to any of such persons, including pensions or benefits additional to those, if any, to which such employees or former employees or their dependents are or may become entitled under any such scheme or fund as mentioned above. Such pension or benefit may, if deemed desirable by the Board, be granted to an employee either before and in anticipation of, or upon or at any time after, his actual retirement. (vii) Appointment, retirement and removal At any time or from time to time, the Board shall have the power to appoint any person as a Director either to fill a casual vacancy on the Board or as an additional Director to the existing Board subject to any maximum number of Directors, if any, as may be determined by the members in general meeting. Any Director appointed by the Board to fill a casual vacancy shall hold office only until the first general meeting of the Company after his appointment and be subject to re-election at such meeting. Any Director appointed by the Board as an addition to the existing Board shall hold office only until the next following annual general meeting of the Company and shall then be eligible for re-election. – IV-6 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
At each annual general meeting, one third of the Directors for the time being will retire from office by rotation. However, if the number of Directors is not a multiple of three, then the number nearest to but not less than one third shall be the number of retiring Directors. The Directors who shall retire in each year will be those who have been longest in the office since their last re-election or appointment but as between persons who become or were last re-elected Directors on the same day those to retire will (unless they otherwise agree among themselves) be determined by lot. No person, other than a retiring Director, shall, unless recommended by the Board for election, be eligible for election to the office of Director at any general meeting, unless notice in writing of the intention to propose that person for election as a Director and notice in writing by that person of his willingness to be elected shall have been lodged at the head office or at the registration office. The period for lodgment of such notices will commence no earlier than the day after the despatch of the notice of the meeting appointed for such election and end no later than 7 days prior to the date of such meeting and the minimum length of the period during which such notices to the Company may be given must be at least 7 days. A Director is not required to hold any shares in the Company by way of qualification nor is there any specified upper or lower age limit for Directors either for accession to the Board or retirement therefrom. A Director may be removed by an ordinary resolution of the Company before the expiration of his term of office (but without prejudice to any claim which such Director may have for damages for any breach of any contract between him and the Company) and the Company may by ordinary resolution appoint another in his place. The number of Directors shall not be less than two. In addition to the foregoing, the office of a Director shall be vacated: (aa) if he resigns his office by notice in writing delivered to the Company at the registered office or head office of the Company for the time being or tendered at a meeting of the Board; (bb) if he dies or becomes of unsound mind as determined pursuant to an order made by any competent court or official on the grounds that he is or may be suffering from mental disorder or is otherwise incapable of managing his affairs and the Board resolves that his office be vacated; (cc) if, without special leave, he is absent from meetings of the Board for six (6) consecutive months, and the Board resolves that his office is vacated;
– IV-7 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
(dd) if he becomes bankrupt or has a receiving order made against him or suspends payment or compounds with his creditors generally; (ee) if he is prohibited from being a director by law; (ff) if he ceases to be a director by virtue of any provision of law or is removed from office pursuant to the Articles; (gg) if he has been validly required by the [REDACTED] of the Relevant Territory (as defined in the Articles) to cease to be a Director and the relevant time period for application for review of or appeal against such requirement has lapsed and no application for review or appeal has been filed or is underway against such requirement; or (hh) if he is removed from office by notice in writing served upon him signed by not less than three-fourths in number (or, if that is not a round number, the nearest lower round number) of the Directors (including himself) then in office. From time to time the Board may appoint one or more of its body to be managing director, joint managing director, or deputy managing director or to hold any other employment or executive office with the Company for such period and upon such terms as the Board may determine and the Board may revoke or terminate any of such appointments. The Board may also delegate any of its powers to committees consisting of such Director or Directors and other person(s) as the Board thinks fit, and from time to time it may also revoke such delegation or revoke the appointment of and discharge any such committees either wholly or in part, and either as to persons or purposes, but every committee so formed shall, in the exercise of the powers so delegated, conform to any regulations that may from time to time be imposed upon it by the Board. (viii) Borrowing powers Pursuant to the Articles, the Board may exercise all the powers of the Company to raise or borrow money, to mortgage or charge all or any part of the undertaking, property and uncalled capital of the Company and, subject to the Companies Law, to issue debentures, debenture stock, bonds and other securities of the Company, whether outright or as collateral security for any debt, liability or obligation of the Company or of any third party. The provisions summarized above, in common with the Articles of Association in general, may be varied with the sanction of a special resolution of the Company.
– IV-8 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
(ix) Register of Directors and officers Pursuant to the Companies Law, the Company is required to maintain at its registered office a register of directors, alternate directors and officers which is not available for inspection by the public. A copy of such register must be filed with the Registrar of Companies in the Cayman Islands and any change must be notified to the Registrar within 30 days of any change in such directors or officers, including a change of the name of such directors or officers. (x) Proceedings of the Board Subject to the Articles, the Board may meet anywhere in the world for the despatch of business and may adjourn and otherwise regulate its meetings as it thinks fit. Questions arising at any meeting shall be determined by a majority of votes. In the case of an equality of votes, the chairman of the meeting (who will be appointed in accordance with the Articles) shall have a second or casting vote. (c)
Alterations to the constitutional documents
To the extent that the same is permissible under Cayman Islands law and subject to the Articles, the Memorandum and Articles of the Company may only be altered or amended, and the name of the Company may only be changed by the Company by special resolution. (d) Variation of rights of existing shares or classes of shares Subject to the Companies Law, if at any time the share capital of the Company is divided into different classes of shares, all or any of the special rights attached to any class of shares may (unless otherwise provided for by the terms of issue of the shares of that class) be varied, modified or abrogated either with the consent in writing of the holders of not less than three-fourths in nominal value of the issued shares of that class or with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of that class. To every such separate general meeting the provisions of the Articles relating to general meetings shall mutatis mutandis apply, but so that the necessary quorum (other than at an adjourned meeting) shall be not less than two persons together holding (or in the case of a shareholder being a corporation, by its duly authorized representative) or representing by proxy not less than one-third in nominal value of the issued shares of that class. Every holder of shares of the class shall be entitled on a poll to one vote for every such share held by him, and any holder of shares of the class present in person or by proxy may demand a poll. Any special rights conferred upon the holders of any shares or class of shares shall not, unless otherwise expressly provided in the rights attaching to the terms of issue of such shares, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith. – IV-9 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX IV
(e)
SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
Alteration of capital
The Company may, by an ordinary resolution of its members, (a) increase its share capital by the creation of new shares of such amount as it thinks expedient; (b) consolidate or divide all or any of its share capital into shares of larger or smaller amount than its existing shares; (c) divide its unissued shares into several classes and attach thereto respectively any preferential, deferred, qualified or special rights, privileges or conditions; (d) subdivide its shares or any of them into shares of an amount smaller than that fixed by the Memorandum; and (e) cancel shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person and diminish the amount of its share capital by the amount of the shares so cancelled; (f) make provision for the allotment and issue of shares which do not carry any voting rights; (g) change the currency of denomination of its share capital; and (h) reduce its share premium account in any manner authorized and subject to any conditions prescribed by law. Reduction of share capital – subject to the Companies Law and to confirmation by the court, a company limited by shares may, if so authorised by its Articles of Association, by special resolution, reduce its share capital in any way. (f)
Special resolution – majority required
In accordance with the Articles, a special resolution of the Company must be passed by a majority of not less than three-fourths of the votes cast by such members as, being entitled so to do, vote in person or by proxy or, in the case of members which are corporations, by their duly authorised representatives or, where proxies are allowed, by proxy at a general meeting of which not less than 21 clear days’ notice, specifying the intention to propose the resolution as a special resolution, has been duly given. However, except in the case of an annual general meeting, if it is so agreed by a majority in number of the members having a right to attend and vote at such meeting, being a majority together holding not less than 95% in nominal value of the shares giving that right and, in the case of an annual general meeting, if so agreed by all members entitled to attend and vote thereat, a resolution may be proposed and passed as a special resolution at a meeting of which less than 21 clear days’ notice has been given. Under Companies Law, a copy of any special resolution must be forwarded to the Registrar of Companies in the Cayman Islands within 15 days of being passed. An “ordinary resolution”, by contrast, is defined in the Articles to mean a resolution passed by a simple majority of the votes of such members of the Company as, being entitled to do so, vote in person or, in the case of members which are corporations, by their duly authorised representatives or, where proxies are allowed, by proxy at a general meeting of which not less than 14 clear days’ notice has been given and held in accordance with the Articles. A resolution in writing signed by or on behalf of all members shall be treated as an ordinary resolution duly passed at a general meeting of the Company duly convened and held, and where relevant as a special resolution so passed. – IV-10 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
(g) Voting rights (generally and on a poll) and right to demand a poll Subject to any special rights, restrictions or privileges as to voting for the time being attached to any class or classes of shares at any general meeting on a show of hands, every member who is present in person or by proxy or being a corporation, is present by its duly authorised representative shall have one vote, and on a poll every member present in person or by proxy or, in the case of a member being a corporation, by its duly authorised representative shall have one vote for every share which is fully paid or credited as fully paid registered in his name in the register of members of the Company but so that no amount paid up or credited as paid up on a share in advance of calls or instalments is treated for the foregoing purpose as paid up on the share. Notwithstanding anything contained in the Articles, where more than one proxy is appointed by a member which is a Clearing House (as defined in the Articles) (or its nominee(s)), each such proxy shall have one vote on a show of hands. On a poll, a member entitled to more than one vote need not use all his votes or cast all the votes he does use in the same way. At any general meeting a resolution put to the vote of the meeting is to be decided on a show of hands unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded or otherwise required under the rules of the [REDACTED] of the Relevant Territory (as defined in the Articles). A poll may be demanded by: (i)
the chairman of the meeting; or
(ii) at least two members present in person or, in the case of a member being a corporation, by its duly authorised representative or by proxy for the time being entitled to vote at the meeting; or (iii) any member or members present in person or, in the case of a member being a corporation, by its duly authorised representative or by proxy and representing not less than one-tenth of the total voting rights of all the members having the right to vote at the meeting; or (iv) a member or members present in person or, in the case of a member being a corporation, by its duly authorised representative or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid equal to not less than one-tenth of the total sum paid up on all the shares conferring that right. Should a Clearing House or its nominee(s), be a member of the Company, such person or persons may be authorised as it thinks fit to act as its representative(s) at any meeting of the Company or at any meeting of any class of members of the Company provided that, if more than one person is so authorised, the authorisation shall specify the number and class of shares in respect of which each such person is so authorised. A person authorised – IV-11 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
in accordance with this provision shall be deemed to have been duly authorised without further evidence of the facts and be entitled to exercise the same rights and powers on behalf of the Clearing House or its nominee(s), as if such person were an individual member including the right to vote individually on a show of hands. Where the Company has knowledge that any member is, under the [REDACTED], required to abstain from voting on any particular resolution of the Company or restricted to voting only for or only against any particular resolution of the Company, any votes cast by or on behalf of such member in contravention of such requirement or restriction shall not be counted. (h) Annual general meetings The Company must hold an annual general meeting each year. Such meeting must be held not more than 15 months after the holding of the last preceding annual general meeting, or such longer period as may be authorised by the [REDACTED] at such time and place as may be determined by the Board. (i)
Accounts and audit
The Board shall cause proper books of account to be kept of the sums of money received and expended by the Company, and the matters in respect of which such receipt and expenditure take place, and of the assets and liabilities of the Company and of all other matters required by the Companies Law necessary to give a true and fair view of the state of the Company’s affairs and to show and explain its transactions. The books of accounts of the Company shall be kept at the head office of the Company or at such other place or places as the Board decides and shall always be open to inspection by any Director. No member (other than a Director) shall have any right to inspect any account or book or document of the Company except as conferred by the Companies Law or ordered by a court of competent jurisdiction or authorised by the Board or the Company in general meeting. The Board shall from time to time cause to be prepared and laid before the Company at its annual general meeting balance sheets and profit and loss accounts (including every document required by law to be annexed thereto), together with a copy of the Directors’ report and a copy of the auditors’ report not less than 21 days before the date of the annual general meeting. Copies of these documents shall be sent to every person entitled to receive notices of general meetings of the Company under the provisions of the Articles together with the notice of annual general meeting, not less than 21 days before the date of the meeting.
– IV-12 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
Subject to the rules of the [REDACTED] of the Relevant Territory (as defined in the Articles), the Company may send summarized financial statements to shareholders who has, in accordance with the rules of the [REDACTED] of the Relevant Territory (as defined in the Articles), consented and elected to receive summarized financial statements instead of the full financial statements. The summarized financial statements must be accompanied by any other documents as may be required under the rules of the [REDACTED] of the Relevant Territory (as defined in the Articles), and must be sent to the shareholders not less than 21 days before the general meeting to those shareholders that have consented and elected to receive the summarized financial statements. The Company shall appoint auditor(s) to hold office until the conclusion of the next annual general meeting on such terms and with such duties as may be agreed with the Board. The auditors’ remuneration shall be fixed by the Company in general meeting or by the Board if authority is so delegated by the members. The auditors shall audit the financial statements of the Company in accordance with generally accepted accounting principles of Hong Kong, the International Accounting Standards or such other standards as may be permitted by the [REDACTED]. (j)
Notices of meetings and business to be conducted thereat
An annual general meeting and any extraordinary general meeting at which it is proposed to pass a special resolution must be called by at least 21 days’ notice in writing, and any other extraordinary general meeting shall be called by at least 14 days’ notice in writing. The notice shall be exclusive of the day on which it is served or deemed to be served and of the day for which it is given, and must specify the time, place and agenda of the meeting, and particulars of the resolution(s) to be considered at that meeting, and, in the case of special business, the general nature of that business. Except where otherwise expressly stated, any notice or document (including a share certificate) to be given or issued under the Articles shall be in writing, and may be served by the Company on any member either personally or by sending it through the post in a prepaid envelope or wrapper addressed to such member at his registered address as appearing in the Company’s register of members or by leaving it at such registered address as aforesaid or (in the case of a notice) by advertisement in the newspapers. Any member whose registered address is outside Hong Kong may notify the Company in writing of an address in Hong Kong which for the purpose of service of notice shall be deemed to be his registered address. Where the registered address of the member is outside Hong Kong, notice, if given through the post, shall be sent by prepaid airmail letter where available. Subject to the Companies Law and the [REDACTED], a notice or document may be served or delivered by the Company to any member by electronic means to such address as may from time to time be authorised by the member concerned or by publishing it on a website and notifying the member concerned that it has been so published. – IV-13 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
Although a meeting of the Company may be called by shorter notice than as specified above, such meeting may be deemed to have been duly called if it is so agreed: (i)
in the case of a meeting called as an annual general meeting, by all members of the Company entitled to attend and vote thereat; and
(ii) in the case of any other meeting, by a majority in number of the members having a right to attend and vote at the meeting, being a majority together holding not less than 95% in nominal value of the issued shares giving that right. All business transacted at an extraordinary general meeting shall be deemed special business and all business shall also be deemed special business where it is transacted at an annual general meeting with the exception of the following, which shall be deemed ordinary business: (aa) the declaration and sanctioning of dividends; (bb) the consideration and adoption of the accounts and balance sheet and the reports of the directors and the auditors; (cc) the election of Directors in place of those retiring; (dd) the appointment of auditors; (ee) the fixing of the remuneration of the Directors and of the auditors; (ff) the granting of any mandate or authority to the Board to offer, allot, grant options over, or otherwise dispose of the unissued shares of the Company representing not more than 20% in nominal value of its existing issued share capital (or such other percentage as may from time to time be specified in the rules of the [REDACTED]) and the number of any securities repurchased by the Company since the granting of such mandate; and (gg) the granting of any mandate or authority to the Board to repurchase securities in the Company. (k) Transfer of shares Subject to the Companies Law, all transfers of shares shall be effected by an instrument of transfer in the usual or common form or in such other form as the Board may approve provided always that it shall be in such form prescribed by the [REDACTED] and may be under hand or, if the transferor or transferee is a Clearing House or its nominee(s), under hand or by machine imprinted signature or by such other manner of execution as the Board may approve from time to time. – IV-14 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
Execution of the instrument of transfer shall be by or on behalf of the transferor and the transferee provided that the Board may dispense with the execution of the instrument of transfer by the transferor or transferee or accept mechanically executed transfers in any case in which it in its discretion thinks fit to do so, and the transferor shall be deemed to remain the holder of the share until the name of the transferee is entered in the register of members of the Company in respect thereof. The Board may, in its absolute discretion, at any time and from time to time remove any share on the principal register to any branch register or any share on any branch register to the principal register or any other branch register. Unless the Board otherwise agrees, no shares on the principal register shall be removed to any branch register nor shall shares on any branch register be removed to the principal register or any other branch register. All removals and other documents of title shall be lodged for registration and registered, in the case of shares on any branch register, at the relevant registration office and, in the case of shares on the principal register, at the place at which the principal register is located. The Board may, in its absolute discretion, decline to register a transfer of any share (not being a fully paid up share) to a person of whom it does not approve or any share issued under any share option scheme upon which a restriction on transfer imposed thereby still subsists, and it may also refuse to register any transfer of any share to more than four joint holders or any transfer of any share (not being a fully paid up share) on which the Company has a lien. The Board may decline to recognize any instrument of transfer unless a fee of such maximum sum as the [REDACTED] may determine to be payable or such lesser sum as the Board may from time to time require is paid to the Company in respect thereof, the instrument of transfer is properly stamped (if applicable), is in respect of only one class of share and is lodged at the relevant registration office or the place at which the principal register is located accompanied by the relevant share certificate(s) and such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer (and if the instrument of transfer is executed by some other person on his behalf, the authority of that person so to do). The register of members may, subject to the [REDACTED] (as defined in the Articles), be closed at such time or for such period not exceeding in the whole 30 days in each year as the Board may determine.
– IV-15 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
Fully paid shares shall be free from any restriction with respect to the right of the holder thereof to transfer such shares (except when permitted by the [REDACTED]) and shall also be free from all liens. (l)
Power of the Company to purchase its own shares
The Company is empowered by the Companies Law and the Articles to purchase its own shares subject to certain restrictions and the Board may only exercise this power on behalf of the Company subject to any applicable requirement imposed from time to time by the Articles, code, rules or regulations issued from time to time by the [REDACTED] and/or the Securities and Futures Commission of Hong Kong. Where the Company purchases for redemption a redeemable Share, purchases not made through the market or by tender shall be limited to a maximum price, and if purchases are by tender, tenders shall be available to all members alike. (m) Power of any subsidiary of the Company to own shares in the Company There are no provisions in the Articles relating to the ownership of shares in the Company by a subsidiary. (n) Dividends and other methods of distribution The Company in general meeting may declare dividends in any currency to be paid to the members but no dividend shall be declared in excess of the amount recommended by the Board. Except in so far as the rights attaching to, or the terms of issue of, any share may otherwise provide: (i)
all dividends shall be declared and paid according to the amounts paid up on the shares in respect whereof the dividend is paid, although no amount paid up on a share in advance of calls shall for this purpose be treated as paid up on the share; and
(ii) all dividends shall be apportioned and paid pro rata in accordance with the amount paid up on the shares during any portion or portions of the period in respect of which the dividend is paid. The Board may deduct from any dividend or other monies payable to any member all sums of money (if any) presently payable by him to the Company on account of calls, instalments or otherwise.
– IV-16 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
Where the Board or the Company in general meeting has resolved that a dividend should be paid or declared on the share capital of the Company, the Board may resolve: (aa) that such dividend be satisfied wholly or in part in the form of an allotment of shares credited as fully paid up, provided that the members entitled thereto will be entitled to elect to receive such dividend (or part thereof) in cash in lieu of such allotment; or (bb) that the members entitled to such dividend will be entitled to elect to receive an allotment of shares credited as fully paid up in lieu of the whole or such part of the dividend as the Board may think fit. Upon the recommendation of the Board, the Company may by ordinary resolution in respect of any one particular dividend of the Company determine that it may be satisfied wholly in the form of an allotment of shares credited as fully paid up without offering any right to members to elect to receive such dividend in cash in lieu of such allotment. Any dividend, bonus or other sum payable in cash to the holder of shares may be paid by cheque or warrant sent through the post addressed to the holder at his registered address, but in the case of joint holders, shall be addressed to the holder whose name stands first in the register of members of the Company in respect of the shares at his address as appearing in the register, or addressed to such person and at such address as the holder or joint holders may in writing so direct. Every such cheque or warrant shall be made payable to the order of the person to whom it is sent and shall be sent at the holder’s or joint holders’ risk and payment of the cheque or warrant by the bank on which it is drawn shall constitute a good discharge to the Company. Any one of two or more joint holders may give effectual receipts for any dividends or other monies payable or property distributable in respect of the shares held by such joint holders. Whenever the Board or the Company in general meeting has resolved that a dividend be paid or declared, the Board may further resolve that such dividend be satisfied wholly or in part by the distribution of specific assets of any kind. The Board may, if it thinks fit, receive from any member willing to advance the same, and either in money or money’s worth, all or any part of the money uncalled and unpaid or instalments payable upon any shares held by him, and in respect of all or any of the monies so advanced may pay interest at such rate (if any) not exceeding 20% per annum, as the Board may decide, but a payment in advance of a call shall not entitle the member to receive any dividend or to exercise any other rights or privileges as a member in respect of the share or the due portion of the shares upon which payment has been advanced by such member before it is called up. All dividends, bonuses or other distributions unclaimed for one year after having been declared may be invested or otherwise made use of by the Board for the benefit of the Company until claimed and the Company shall not be constituted a trustee in respect thereof. All dividends, bonuses or other distributions unclaimed for six years after having been declared may be forfeited by the Board and, upon such forfeiture, shall revert to the Company. – IV-17 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
No dividend or other monies payable by the Company on or in respect of any share shall bear interest against the Company. The Company may exercise the power to cease sending cheques for dividend entitlements or dividend warrants by post if such cheques or warrants remain uncashed on two consecutive occasions or after the first occasion on which such a cheque or warrant is returned undelivered. (o) Proxies Any member of the Company entitled to attend and vote at a meeting of the Company is entitled to appoint another person as his proxy to attend and vote instead of him. A member who is the holder of two or more shares may appoint more than one proxy to represent him and vote on his behalf at a general meeting of the Company or at a class meeting. A proxy need not be a member of the Company and shall be entitled to exercise the same powers on behalf of a member who is an individual and for whom he acts as proxy as such member could exercise. In addition, a proxy shall be entitled to exercise the same powers on behalf of a member which is a corporation and for which he acts as proxy as such member could exercise if it were an individual member. On a poll or on a show of hands, votes may be given either personally (or, in the case of a member being a corporation, by its duly authorized representative) or by proxy. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing, or if the appointor is a corporation, either under seal or under the hand of an officer or attorney duly authorised. Every instrument of proxy, whether for a specified meeting or otherwise, shall be in such form as the Board may from time to time approve, provided that it shall not preclude the use of the two-way form. Any form issued to a member for use by him for appointing a proxy to attend and vote at an extraordinary general meeting or at an annual general meeting at which any business is to be transacted shall be such as to enable the member, according to his intentions, to instruct the proxy to vote in favour of or against (or, in default of instructions, to exercise his discretion in respect of) each resolution dealing with any such business. (p) Calls on shares and forfeiture of shares The Board may from time to time make such calls as it may think fit upon the members in respect of any monies unpaid on the shares held by them respectively (whether on account of the nominal value of the shares or by way of premium) and not by the conditions of allotment thereof made payable at fixed times. A call may be made payable either in one sum or by instalments. If the sum payable in respect of any call or instalment is not paid on or before the day appointed for payment thereof, the person or persons from whom the sum is due shall pay interest on the same at such rate not exceeding 20% per annum as the Board shall fix from the day appointed for the payment thereof to the time of actual payment, but the Board may waive payment of such interest wholly or in part. The Board – IV-18 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
may, if it thinks fit, receive from any member willing to advance the same, either in money or money’s worth, all or any part of the money uncalled and unpaid or instalments payable upon any shares held by him, and in respect of all or any of the monies so advanced the Company may pay interest at such rate (if any) not exceeding 20% per annum as the Board may decide. If a member fails to pay any call or instalment of a call on the day appointed for payment thereof, the Board may, at any time thereafter during such time as any part of the call or instalment remains unpaid, serve not less than 14 days’ notice on him requiring payment of so much of the call or instalment as is unpaid, together with any interest which may have accrued and which may still accrue up to the date of actual payment. The notice will name a further day (not earlier than the expiration of 14 days from the date of the notice) on or before which the payment required by the notice is to be made, and it shall also name the place where payment is to be made. The notice shall also state that, in the event of non-payment at or before the time appointed, the shares in respect of which the call was made will be liable to be forfeited. If the requirements of any such notice are not complied with, any share in respect of which the notice has been given may at any time thereafter, before the payment required by the notice has been made, be forfeited by a resolution of the Board to that effect. Such forfeiture will include all dividends and bonuses declared in respect of the forfeited share and not actually paid before the forfeiture. A person whose shares have been forfeited shall cease to be a member in respect of the forfeited shares but shall, nevertheless, remain liable to pay to the Company all monies which, at the date of forfeiture, were payable by him to the Company in respect of the shares together with (if the Board shall in its discretion so require) interest thereon from the date of forfeiture until payment at such rate not exceeding 20% per annum as the Board may prescribe. (q) Inspection of corporate records Members of the Company have no general right under the Companies Law to inspect or obtain copies of the register of members or corporate records of the Company. However, the members of the Company will have such rights as may be set forth in the Articles. The Articles provide that for so long as any part of the share capital of the Company is [REDACTED] on the [REDACTED], any member may inspect any register of members of the Company maintained in Hong Kong (except when the register of member is closed) without charge and require the provision to him of copies or extracts thereof in all respects as if the Company were incorporated under and were subject to the Hong Kong Companies Ordinance. An exempted company may, subject to the provisions of its articles of association, maintain its principal register of members and any branch registers at such locations, whether within or outside the Cayman Islands, as its directors may, from time to time, think fit. – IV-19 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX IV
(r)
SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
Quorum for meetings and separate class meetings
No business shall be transacted at any general meeting unless a quorum is present when the meeting proceeds to business, and continues to be present until the conclusion of the meeting. The quorum for a general meeting shall be two members present in person (or in the case of a member being a corporation, by its duly authorised representative) or by proxy and entitled to vote. In respect of a separate class meeting (other than an adjourned meeting) convened to sanction the modification of class rights the necessary quorum shall be two persons holding or representing by proxy not less than one-third in nominal value of the issued shares of that class. (s)
Rights of minorities in relation to fraud or oppression
There are no provisions in the Articles concerning the rights of minority members in relation to fraud or oppression. However, certain remedies may be available to members of the Company under Cayman Islands law, as summarized in paragraph 3(f) of this Appendix. (t)
Procedures on liquidation
A resolution that the Company be wound up by the court or be wound up voluntarily shall be a special resolution. Subject to any special rights, privileges or restrictions as to the distribution of available surplus assets on liquidation for the time being attached to any class or classes of shares: (i)
if the Company shall be wound up and the assets available for distribution amongst the members of the Company shall be more than sufficient to repay the whole of the capital paid up at the commencement of the winding up, then the excess shall be distributed pari passu amongst such members in proportion to the amount paid up on the shares held by them respectively; and
(ii) if the Company shall be wound up and the assets available for distribution amongst the members as such shall be insufficient to repay the whole of the paid-up capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the members in proportion to the capital paid up, on the shares held by them respectively.
– IV-20 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
In the event that the Company is wound up (whether the liquidation is voluntary or compelled by the court) the liquidator may, with the sanction of a special resolution and any other sanction required by the Companies Law divide among the members in specie or kind the whole or any part of the assets of the Company whether the assets shall consist of property of one kind or shall consist of properties of different kinds and the liquidator may, for such purpose, set such value as he deems fair upon any one or more class or classes of property to be divided as aforesaid and may determine how such division shall be carried out as between the members or different classes of members and the members within each class. The liquidator may, with the like sanction, vest any part of the assets in trustees upon such trusts for the benefit of members as the liquidator shall think fit, but so that no member shall be compelled to accept any shares or other property upon which there is a liability. (u) Untraceable members The Company may exercise the power to cease sending cheques for dividend entitlements or dividend warrants by post if such cheques or warrants remain uncashed on two consecutive occasions or after the first occasion on which such a cheque or warrant is returned undelivered. In accordance with the Articles, the Company is entitled to sell any of the shares of a member who is untraceable if: (i)
all cheques or warrants, being not less than three in total number, for any sum payable in cash to the holder of such shares have remained uncashed for a period of 12 years;
(ii) upon the expiry of the 12 years and 3 months period (being the 3 months notice period referred to in sub-paragraph (iii)), the Company has not during that time received any indication of the existence of the member; and (iii) the Company has caused an advertisement to be published in accordance with the rules of the stock exchange of the Relevant Territory (as defined in the Articles) giving notice of its intention to sell such shares and a period of three months has elapsed since such advertisement and the [REDACTED] of the Relevant Territory (as defined in the Articles) has been notified of such intention. The [REDACTED] of any such sale shall belong to the Company and upon receipt by the Company of such [REDACTED], it shall become indebted to the former member of the Company for an amount equal to such [REDACTED]. (v) Subscription rights reserve Pursuant to the Articles, provided that it is not prohibited by and is otherwise in compliance with the Companies Law, if warrants to subscribe for shares have been issued by the Company and the Company does any act or engages in any transaction which would result in the subscription price of such warrants being reduced below the par value of the shares to be issued on the exercise of such warrants, a subscription rights reserve shall be established and applied in paying up the difference between the subscription price and the par value of such shares. – IV-21 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX IV
3.
SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
CAYMAN ISLANDS COMPANY LAW
The Company was incorporated in the Cayman Islands as an exempted company on [●] subject to the Companies Law. Certain provisions of Cayman Islands company law are set out below but this section does not purport to contain all applicable qualifications and exceptions or to be a complete review of all matters of the Companies Law and taxation, which may differ from equivalent provisions in jurisdictions with which interested parties may be more familiar. (a) Company operations As an exempted company, the Company must conduct its operations mainly outside the Cayman Islands. Moreover, the Company is required to file an annual return each year with the Registrar of Companies of the Cayman Islands and pay a fee which is based on the amount of its authorized share capital. (b) Share capital In accordance with the Companies Law, a Cayman Islands company may issue ordinary, preference or redeemable shares or any combination thereof. The Companies Law provides that where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount or value of the premiums on those shares shall be transferred to an account, to be called the “share premium account”. At the option of a company, these provisions may not apply to premiums on shares of that company allotted pursuant to any arrangements in consideration of the acquisition or cancellation of shares in any other company and issued at a premium. The Companies Law provides that the share premium account may be applied by the company subject to the provisions, if any, of its memorandum and articles of association, in such manner as the company may from time to time determine including, but without limitation, the following: (i)
paying distributions or dividends to members;
(ii) paying up unissued shares of the company to be issued to members as fully paid bonus shares; (iii) any manner provided in section 37 of the Companies Law; (iv) writing-off the preliminary expenses of the company; and (v) writing-off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company. Notwithstanding the foregoing, the Companies Law provides that no distribution or dividend may be paid to members out of the share premium account unless, immediately following the date on which the distribution or dividend is proposed to be paid, the company will be able to pay its debts as they fall due in the ordinary course of business. – IV-22 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
It is further provided by the Companies Law that, subject to confirmation by the court, a company limited by shares or a company limited by guarantee and having a share capital may, if authorized to do so by its articles of association, by special resolution reduce its share capital in any way. The Articles include certain protections for holders of special classes of shares, requiring their consent to be obtained before their rights may be varied. The consent of the specified proportions of the holders of the issued shares of that class or the sanction of a resolution passed at a separate meeting of the holders of those shares is required. (c)
Financial assistance to purchase shares of a company or its holding company
There are no statutory prohibitions in the Cayman Islands on the granting of financial assistance by a company to another person for the purchase of, or subscription for, its own, its holding company’s or a subsidiary’s shares. Therefore, a company may provide financial assistance provided the directors of the company when proposing to grant such financial assistance discharge their duties of care and acting in good faith, for a proper purpose and in the interests of the company. Such assistance should be on an arm’s-length basis. (d) Purchase of shares and warrants by a company and its subsidiaries A company limited by shares or a company limited by guarantee and having a share capital may, if so authorized by its articles of association, issue shares which are to be redeemed or are liable to be redeemed at the option of the company or a member and, for the avoidance of doubt, it shall be lawful for the rights attaching to any shares to be varied, subject to the provisions of the company’s articles of association, so as to provide that such shares are to be or are liable to be so redeemed. In addition, such a company may, if authorized to do so by its articles of association, purchase its own shares, including any redeemable shares. Nonetheless, if the articles of association do not authorize the manner and terms of purchase, a company cannot purchase any of its own shares without the manner and terms of purchase first being authorized by an ordinary resolution of the company. A company may not redeem or purchase its shares unless they are fully paid. Furthermore, a company may not redeem or purchase any of its shares if, as a result of the redemption or purchase, there would no longer be any issued shares of the company other than shares held as treasury shares. In addition, a payment out of capital by a company for the redemption or purchase of its own shares is not lawful unless immediately following the date on which the payment is proposed to be made, the company shall be able to pay its debts as they fall due in the ordinary course of business.
– IV-23 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
Under Section 37A(1) the Companies Law, shares that have been purchased or redeemed by a company or surrendered to the company shall not be treated as cancelled but shall be classified as treasury shares if (a) the memorandum and articles of association of the company do not prohibit it from holding treasury shares; (b) the relevant provisions of the memorandum and articles of association (if any) are complied with; and (c) the company is authorised in accordance with the company’s articles of association or by a resolution of the directors to hold such shares in the name of the company as treasury shares prior to the purchase, redemption or surrender of such shares. Shares held by a company pursuant to section 37A(1) of the Companies Law shall continue to be classified as treasury shares until such shares are either cancelled or transferred pursuant to the Companies Law. A Cayman Islands company may be able to purchase its own warrants subject to and in accordance with the terms and conditions of the relevant warrant instrument or certificate. Thus there is no requirement under Cayman Islands law that a company’s memorandum or articles of association contain a specific provision enabling such purchases. The directors of a company may under the general power contained in its memorandum of association be able to buy and sell and deal in personal property of all kinds. Under Cayman Islands law, a subsidiary may hold shares in its holding company and, in certain circumstances, may acquire such shares. (e)
Dividends and distributions
With the exception of sections 34 and 37A(7) of the Companies Law, there are no statutory provisions relating to the payment of dividends. Based upon English case law which is likely to be persuasive in the Cayman Islands, dividends may be paid only out of profits. In addition, section 34 of the Companies Law permits, subject to a solvency test and the provisions, if any, of the company’s memorandum and articles of association, the payment of dividends and distributions out of the share premium account (see subparagraph 2(n) of this Appendix for further details). Section 37A(7)(c) of the Companies Law provides that for so long as a company holds treasury shares, no dividend may be declared or paid, and no other distribution (whether in cash or otherwise) of the company’s assets (including any distribution of assets to members on a winding up) may be made to the company, in respect of a treasury share. (f)
Protection of minorities and shareholders’ suits
It can be expected that the Cayman Islands courts will ordinarily follow English case law precedents (particularly the rule in the case of Foss v. Harbottle and the exceptions thereto) which permit a minority member to commence a representative action against or derivative actions in the name of the company to challenge: (i)
an act which is ultra vires the company or illegal; – IV-24 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
(ii) an act which constitutes a fraud against the minority and the wrongdoers are themselves in control of the company; and (iii) an irregularity in the passing of a resolution the passage of which requires a qualified (or special) majority which has not been obtained. Where a company (not being a bank) is one which has a share capital divided into shares, the court may, on the application of members thereof holding not less than one-fifth of the shares of the company in issue, appoint an inspector to examine the affairs of the company and, at the direction of the court, to report thereon. Moreover, any member of a company may petition the court which may make a winding up order if the court is of the opinion that it is just and equitable that the company should be wound up. In general, claims against a company by its members must be based on the general laws of contract or tort applicable in the Cayman Islands or be based on potential violation of their individual rights as members as established by a company’s memorandum and articles of association. (g) Disposal of assets There are no specific restrictions in the Companies Law on the power of directors to dispose of assets of a company, although it specifically requires that every officer of a company, which includes a director, managing director and secretary, in exercising his powers and discharging his duties must do so honestly and in good faith with a view to the best interest of the company and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. (h) Accounting and auditing requirements Section 59 of the Companies Law provides that a company shall cause proper records of accounts to be kept with respect to (i) all sums of money received and expended by the company and the matters with respect to which the receipt and expenditure takes place; (ii) all sales and purchases of goods by the company and (iii) the assets and liabilities of the company. Section 59 of the Companies Law further states that proper books of account shall not be deemed to be kept if there are not kept such books as are necessary to give a true and fair view of the state of the company’s affairs and to explain its transactions. If the Company keeps its books of account at any place other than at its registered office or at any other place within the Cayman Islands, it shall, upon service of an order or notice by the Tax Information Authority pursuant to the Tax Information Authority Law (2013 Revision) of the Cayman Islands, make available, in electronic form or any other medium, at its registered office copies of its books of account, or any part or parts thereof, as are specified in such order or notice. – IV-25 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX IV
(i)
SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
Exchange control
There are no exchange control regulations or currency restrictions in effect in the Cayman Islands. (j)
Taxation
Pursuant to section 6 of the Tax Concessions Law (2011 Revision) of the Cayman Islands, the Company has obtained an undertaking from the Governor-in-Cabinet: (i)
that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits or income or gains or appreciation shall apply to the Company or its operations; and
(ii) in addition, that no tax be levied on profits, income gains or appreciations or which is in the nature of estate duty or inheritance tax shall be payable by the Company: (aa) on or in respect of the shares, debentures or other obligations of the Company; or (bb) by way of withholding in whole or in part of any relevant payment as defined in section 6(3) of the Tax Concessions Law (2011 Revision). The undertaking for the Company is for a period of twenty years from [Date]. The Cayman Islands currently levy no taxes on individuals or corporations based upon profits, income, gains or appreciations and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to the Company levied by the Government of the Cayman Islands save certain stamp duties which may be applicable, from time to time, on certain instruments. (k) Stamp duty on transfers There is no stamp duty payable in the Cayman Islands on transfers of shares of Cayman Islands companies save for those which hold interests in land in the Cayman Islands. (l)
Loans to directors
The Companies Law contains no express provision prohibiting the making of loans by a company to any of its directors. However, the Articles provide for the prohibition of such loans under specific circumstances. – IV-26 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
(m) Inspection of corporate records The members of the company have no general right under the Companies Law to inspect or obtain copies of the register of members or corporate records of the company. They will, however, have such rights as may be set out in the company’s articles of association. (n) Register of members A Cayman Islands exempted company may maintain its principal register of members and any branch registers in any country or territory, whether within or outside the Cayman Islands, as the company may determine from time to time. The Companies Law contains no requirement for an exempted company to make any returns of members to the Registrar of Companies in the Cayman Islands. The names and addresses of the members are, accordingly, not a matter of public record and are not available for public inspection. However, an exempted company shall make available at its registered office, in electronic form or any other medium, such register of members, including any branch register of member, as may be required of it upon service of an order or notice by the Tax Information Authority pursuant to the Tax Information Authority Law (2013 Revision) of the Cayman Islands. (o) Winding up A Cayman Islands company may be wound up either by (i) an order of the court; (ii) voluntarily by its members; or (iii) under the supervision of the court. The court has authority to order winding up in a number of specified circumstances including where, in the opinion of the court, it is just and equitable that such company be so wound up. A voluntary winding up of a company occurs where the Company so resolves by special resolution that it be wound up voluntarily, or, where the company in general meeting resolves that it be wound up voluntarily because it is unable to pay its debt as they fall due; or, in the case of a limited duration company, when the period fixed for the duration of the company by its memorandum or articles expires, or where the event occurs on the occurrence of which the memorandum or articles provides that the company is to be wound up. In the case of a voluntary winding up, such company is obliged to cease to carry on its business from the commencement of its winding up except so far as it may be beneficial for its winding up. Upon appointment of a voluntary liquidator, all the powers of the directors cease, except so far as the company in general meeting or the liquidator sanctions their continuance. In the case of a members’ voluntary winding up of a company, one or more liquidators shall be appointed for the purpose of winding up the affairs of the company and distributing its assets. – IV-27 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
As soon as the affairs of a company are fully wound up, the liquidator must make a report and an account of the winding up, showing how the winding up has been conducted and the property of the company has been disposed of, and thereupon call a general meeting of the company for the purposes of laying before it the account and giving an explanation thereof. When a resolution has been passed by a company to wind up voluntarily, the liquidator or any contributory or creditor may apply to the court for an order for the continuation of the winding up under the supervision of the court, on the grounds that (i) the company is or is likely to become insolvent; or (ii) the supervision of the court will facilitate a more effective, economic or expeditious liquidation of the company in the interests of the contributories and creditors. A supervision order shall take effect for all purposes as if it was an order that the company be wound up by the court except that a commenced voluntary winding up and the prior actions of the voluntary liquidator shall be valid and binding upon the company and its official liquidator. For the purpose of conducting the proceedings in winding up a company and assisting the court, there may be appointed one or more persons to be called an official liquidator or official liquidators; and the court may appoint to such office such person or persons, either provisionally or otherwise, as it thinks fit, and if more than one persons are appointed to such office, the court shall declare whether any act required or authorized to be done by the official liquidator is to be done by all or any one or more of such persons. The court may also determine whether any and what security is to be given by an official liquidator on his appointment; if no official liquidator is appointed, or during any vacancy in such office, all the property of the company shall be in the custody of the court. (p) Reconstructions Reconstructions and amalgamations are governed by specific statutory provisions under the Companies Law whereby such arrangements may be approved by a majority in number representing 75% in value of members or creditors, depending on the circumstances, as are present at a meeting called for such purpose and thereafter sanctioned by the courts. Whilst a dissenting member would have the right to express to the court his view that the transaction for which approval is being sought would not provide the members with a fair value for their shares, nonetheless the courts are unlikely to disapprove the transaction on that ground alone in the absence of evidence of fraud or bad faith on behalf of management and if the transaction were approved and consummated the dissenting member would have no rights comparable to the appraisal rights (i.e. the right to receive payment in cash for the judicially determined value of their shares) ordinarily available, for example, to dissenting members of a United States corporation.
– IV-28 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX IV
SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
(q) Take-overs Where an offer is made by a company for the shares of another company and, within four months of the offer, the holders of not less than 90% of the shares which are the subject of the offer accept, the offeror may at any time within two months after the expiration of the said four months, by notice require the dissenting members to transfer their shares on the terms of the offer. A dissenting member may apply to the court of the Cayman Islands within one month of the notice objecting to the transfer. The burden is on the dissenting member to show that the court should exercise its discretion, which it will be unlikely to do unless there is evidence of fraud or bad faith or collusion as between the offeror and the holders of the shares who have accepted the offer as a means of unfairly forcing out minority members. (r)
Indemnification
Cayman Islands law does not limit the extent to which a company’s articles of association may provide for indemnification of officers and directors, save to the extent any such provision may be held by the court to be contrary to public policy, for example, where a provision purports to provide indemnification against the consequences of committing a crime. 4.
GENERAL
Appleby, the Company’s legal adviser on Cayman Islands law, has sent to the Company a letter of advice which summarises certain aspects of the Cayman Islands company law. This letter, together with a copy of the Companies Law, is available for inspection as referred to in the paragraph headed “Documents Available for Inspection” in Appendix VI. Any person wishing to have a detailed summary of Cayman Islands company law or advice on the differences between it and the laws of any jurisdiction with which he is more familiar is recommended to seek independent legal advice.
– IV-29 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX V
STATUTORY AND GENERAL INFORMATION
A.
FURTHER INFORMATION ABOUT OUR COMPANY AND ITS SUBSIDIARIES
1.
Incorporation
Our Company was incorporated in the Cayman Islands under the Companies Law as an exempted company with limited liability on 6 June 2014. Our Company has established a principal place of business in Hong Kong at Flat 1207, Fu Hang Industrial Building, 1 Hok Yuen Street East, Hung Hom, Kowloon, Hong Kong and was registered with the Registrar of Companies in Hong Kong as a non-Hong Kong company under Part 16 of the Companies Ordinance on 5 August 2014. Mr. Lam Pak Kan has been appointed as the authorised representative of our Company for acceptance of service of process and notices on behalf of our Company in Hong Kong. As our Company was incorporated in the Cayman Islands, it operates subject to the Companies Law and its constitution which comprises the Memorandum of Association and Articles of Association. A summary of certain provisions of our Company’s constitution and relevant aspects of the Companies Law is set forth in Appendix IV to this [REDACTED]. 2.
Change in share capital of our Company
As at the date of incorporation, the authorised share capital of our Company was HK$380,000 divided into 38,000,000 Shares of HK$0.01 each. One Share was allotted and issued to the initial subscriber on 6 June 2014 which was transferred to KTL International (BVI) on the same date. On 6 June 2014, our Company also allotted and issued 999,999 Shares to KTL International (BVI). As part of the Reorganisation, our Company allotted and issued a total of 1,000,000 Shares to KTL International (BVI) on 29 July 2014, in return for the transfer of the entire equity interests in each of Info Dragon, Golden Charter, Landclick Properties, Rich Delta and True Success by KTL International (BVI). On 10 September 2014, as part of the Reorganisation, our Company allotted and issued to six minority Shareholders a total of 49,180 Shares, credited as fully paid at par. Pursuant to resolutions in writing of all our Shareholders passed on [●] 2014, our authorised share capital was increased from HK$380,000 divided into 38,000,000 Shares of HK$0.01 each to HK$[10,000,000] divided into [1,000,000,000] Shares of HK$[0.01] each by the creation of an additional [962,000,000] Shares. Immediately following completion of the [REDACTED] and the [REDACTED] but taking no account of any Shares which may be allotted and issued pursuant to the exercise of the [REDACTED] and any options which may be granted under the Share Option Scheme, the issued share capital of our Company will be HK$[REDACTED] divided into [REDACTED] Shares, all fully paid or credited as fully paid and [REDACTED] Shares will remain unissued. Save for aforesaid and as mentioned in the paragraph headed “Resolutions in writing of all our Shareholders passed on [●] 2014” below, there has been no alteration in the share capital of our Company since its incorporation. – V-1 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX V 3.
STATUTORY AND GENERAL INFORMATION
Resolutions in writing of all our Shareholders passed on [●] 2014
On [●] 2014, resolutions in writing were passed by all our Shareholders, pursuant to which, among other things: (a)
the authorised share capital of our Company was increased from HK$380,000 to HK$[10,000,000] by the creation of an additional [962,000,000] Shares;
(b) our Company approved and adopted its new Articles of Association; (c)
conditional on (i) the [REDACTED] granting the [REDACTED] of, and permission to deal in, the Shares in issue and to be issued as mentioned in this [REDACTED] (including any additional Shares which may be issued pursuant to the exercise of the [REDACTED] and options which may be granted under the Share Option Scheme); (ii) the entering into of the agreement on the [REDACTED] between the [REDACTED] and our Company on or before the [REDACTED]; and (iii) the obligations of the [REDACTED] under the [REDACTED] becoming unconditional and not being terminated in accordance with the terms therein or otherwise, in each case on or before such dates as may be specified in the [REDACTED]: (i)
the [REDACTED] was approved and our Directors were authorised to allot and issue the new Shares pursuant to the [REDACTED];
(ii) the [REDACTED] was approved and our Directors were authorised to effect the same and to allot and issue the Shares upon exercise of the [REDACTED]; (iii) the rules of the Share Option Scheme, the principal terms of which are set forth in the paragraph headed “D. Other information – 1. Share Option Scheme” in this Appendix, were approved and adopted and our Directors were authorised to grant options to subscribe for Shares thereunder and to allot, issue and deal with Shares pursuant to the exercise of options granted under the Share Option Scheme and to take all such steps as may be necessary and/or desirable to implement and give effect to the Share Option Scheme; and (iv) conditional on the share premium account of our Company being credited as a result of the issue of the [REDACTED] by our Company pursuant to the [REDACTED], our Directors were authorised to capitalise an amount of HK$[●] standing to the credit of the share premium account of our Company by applying such sum in paying up in full at par [REDACTED] Shares, such Shares to be allotted and issued to our Shareholders whose names appearing on the register of members of our Company at the close of business on [●] 2014 (or as such Shareholders may direct) in proportion (as nearly as possible without fractions) to their then respective shareholdings in our Company. – V-2 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX V
STATUTORY AND GENERAL INFORMATION
(d) a general unconditional mandate was given to our Directors to allot, issue and deal with (including the power to make an offer or agreement, or grant securities which would or might require Shares to be allotted and issued), otherwise than pursuant to a rights issue or pursuant to any scrip dividend schemes or similar arrangements providing for the allotment and issue of Shares in lieu of the whole or part of a dividend on Shares in accordance with the Articles of Association or pursuant to the grant of options under the Share Option Scheme or other similar arrangement or pursuant to a specific authority granted by our Shareholders in general meeting, unissued Shares with a total nominal value not exceeding 20% of the aggregate nominal value of the share capital of our Company in issue immediately following completion of the [REDACTED] and [REDACTED] (excluding any Shares which may be issued pursuant to the [REDACTED] and any Shares which may be issued upon exercise of any options that may be granted under the Share Option Scheme), such mandate to remain in effect until the conclusion of the next annual general meeting of our Company, or the expiration of the period within which the next annual general meeting of our Company is required by the Articles of Association or any applicable laws of Cayman Islands to be held, or until revoked or varied or renewed by an ordinary resolution of our Shareholders at a general meeting of our Company, whichever occurs first;
4.
(e)
a general unconditional mandate was given to our Directors authorising them to exercise all powers of our Company to repurchase on the [REDACTED] or on any other approved [REDACTED] on which the securities of our Company may be [REDACTED] and which is recognised by the [REDACTED] and the [REDACTED] for this purpose such number of Shares as will represent up to 10% of the aggregate nominal amount of the share capital of our Company in issue immediately following completion of the [REDACTED] and the [REDACTED] (excluding any Shares which may be issued pursuant to the [REDACTED] and any Shares which may be issued upon exercise of any options that may be granted under the Share Option Scheme), such mandate to remain in effect until the conclusion of the next annual general meeting of our Company, or the expiration of the period within which the next annual general meeting of our Company is required by the Articles of Association or any applicable laws of Cayman Islands to be held, or until revoked or varied or renewed by an ordinary resolution of our Shareholders at a general meeting of our Company, whichever occurs first; and
(f)
the general unconditional mandate mentioned in paragraph (d) above was extended by the addition to the aggregate nominal value of the share capital of our Company which may be allotted or agreed conditionally or unconditionally to be allotted by our Directors pursuant to such general mandate of an amount representing the aggregate nominal value of the share capital of our Company repurchased by our Company pursuant to the mandate to repurchase Shares referred to in paragraph (e) above.
Corporate reorganisation
Details of the Reorganisation are set forth in the section headed “History, Development and Reorganisation” of this [REDACTED]. – V-3 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX V 5.
STATUTORY AND GENERAL INFORMATION
Changes in share capital of subsidiaries of our Group
Subsidiaries of our Company are referred to in the Accountant’s Report, the text of which is set forth in Appendix I to this [REDACTED]. Save as disclosed in the section headed “History, Development and Reorganisation” of this [REDACTED], there are no changes in the registered capital of our Company’s subsidiaries during the two years preceding the date of this [REDACTED]. 6.
Repurchase of Shares by our Company (a) Provisions of the [REDACTED] The [REDACTED] permit companies whose primary [REDACTED] is on the [REDACTED] to repurchase their securities on the [REDACTED] subject to certain restrictions, the most important of which are summarised below: (i)
Shareholders’ approval
All proposed repurchases of securities on the [REDACTED] by a company with a primary [REDACTED] on the [REDACTED] must be approved in advance by an ordinary resolution of shareholders, either by way of general mandate or by specific approval of a particular transaction. Pursuant to a resolution passed by our Shareholders on [●] 2014, the Repurchase Mandate was granted to our Directors authorising the repurchase by our Company on the [REDACTED], or on any other [REDACTED] on which the securities of our Company may be [REDACTED] and which is recognised by the [REDACTED] and the [REDACTED] for this purpose, of Shares with an aggregate nominal value not exceeding 10% of the aggregate nominal amount of the share capital of our Company in issue immediately following completion of the [REDACTED] and the [REDACTED] (excluding any Shares which may be issued pursuant to the exercise of the [REDACTED] and options that may be granted under the Share Option Scheme), at any time until the conclusion of the next annual general meeting of our Company, the expiration of the period within which the next annual general meeting of our Company is required by any applicable law of the Cayman Islands or the Articles of Association to be held or when such mandate is revoked or varied or renewed by an ordinary resolution of our Shareholders of our Company in general meeting, whichever is the earliest. (ii) Source of funds Repurchases must be funded out of funds legally available for the purpose in accordance with the Articles of Association and the laws of the Cayman Islands. A listed company may not repurchase its own securities on the [REDACTED] for a consideration other than cash or for settlement otherwise than in accordance with the [REDACTED] of the [REDACTED] from time to time. – V-4 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX V
STATUTORY AND GENERAL INFORMATION
(b) Reasons for repurchases Our Directors believe that it is in the best interests of our Company and its Shareholders for our Directors to have a general authority from our Shareholders to enable our Company to repurchase Shares in the market. Repurchases of Shares will only be made when our Directors believe that such repurchases will benefit our Company and its members. Such repurchases may, depending on market conditions and funding arrangements at the time, lead to an enhancement of the net value of our Company and its assets and/or its earnings per Share. (c)
Funding of repurchases
In repurchasing securities, our Company may only apply funds legally available for such purpose in accordance with the Articles of Association and the applicable laws of the Cayman Islands. It is presently proposed that any repurchase of Shares will be made out of the profits of our Company or from sums standing to the credit of the share premium account of our Company or the proceeds of a fresh issue of shares made for the purpose of the purchase or, subject to the Companies Law and if so authorised by the Articles, out of capital and, in the case of any premium payable on the purchase, out of the profits of our Company or from sums standing to the credit of the share premium account of our Company or, subject to the Companies Law and if so authorised by the Articles, out of capital. Our Directors do not propose to exercise the Repurchase Mandate to such an extent as would, in the circumstances, have a material adverse effect on the working capital requirements of our Company or its gearing levels which, in the opinion of our Directors, are from time to time appropriate for our Company. (d) General None of our Directors or, to the best of their knowledge, having made all reasonable enquiries, any of their respective associates (as defined in the [REDACTED]), has any present intention to sell any Shares to our Company or its subsidiaries. Our Directors have undertaken to the [REDACTED] that, so far as the same may be applicable, they will exercise the Repurchase Mandate in accordance with the [REDACTED] and the applicable laws of the Cayman Islands. Our Company has not repurchased any Shares in the previous six months. No connected person (as defined in the [REDACTED]) has notified our Company that he/she or it has a present intention to sell Shares to our Company, or has undertaken not to do so, if the Repurchase Mandate is exercised. If as a result of a securities repurchase pursuant to the Repurchase Mandate, a shareholder’s proportionate interest in the voting rights of our Company increases, such increase will be treated as an acquisition for the purpose of the Hong Kong Code on – V-5 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX V
STATUTORY AND GENERAL INFORMATION
Takeovers and Mergers (the “Code”). Accordingly, a Shareholder, or a group of Shareholders acting in concert, depending on the level of increase of our Shareholders’ interest, could obtain or consolidate control of our Company and become obliged to make a mandatory offer in accordance with Rule 26 of the Code as a result of any such increase. Our Directors are not aware of any consequences which may arise under the Code if the Repurchase Mandate is exercised. B.
FURTHER INFORMATION ABOUT THE BUSINESS OF OUR GROUP
1.
Summary of material contracts
The following contracts (not being contracts in the ordinary course of business) have been entered into by our Company or any of its subsidiaries within the two years preceding the date of this [REDACTED] and are or may be material: (a)
the deed of indemnity dated [●] 2014 and entered into by our Controlling Shareholders in favour of our Company (for itself and as trustee for each of its present subsidiaries) to provide indemnities on a joint and several basis in respect of, among other matters, taxation resulting from income, to which our Group may be subject on or before the [REDACTED];
(b) the agreement for sale and purchase of shares dated 29 July 2014 and entered into by our Controlling Shareholders, KTL International (BVI) and our Company; and (c) 2.
the Hong Kong [REDACTED].
Intellectual property rights of our Group 1.
Trademarks (i)
As at the Latest Practicable Date, our Group had the following registered trademarks which are material in relation to our business:
Trademark
Place of Trademark Category registration holder
Trademark number
Registration date Expiry date
14, 35
Hong Kong KTL Jewellery Trading
302088027
17 November 16 November 2011 2021
35
Hong Kong KTL Jewellery Trading Hong Kong KTL Jewellery Trading
302088036AB 17 November 16 November 2011 2021
14
– V-6 –
302088018AA 17 November 16 November 2011 2021
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX V
Trademark
STATUTORY AND GENERAL INFORMATION Place of Trademark Category registration holder
Trademark number
Registration date Expiry date
14, 35
Hong Kong Lucigala Jewellery
301493857
8 December 2009
7 December 2019
14,35
Hong Kong Lucigala Jewellery
301493875
8 December 2009
7 December 2019
14, 35
Hong Kong Lucigala Jewellery
301493839
8 December 2009
7 December 2019
14
Hong Kong KTL Marketing
301193779
3 September 2008
2 September 2018
14
PRC
KTL 10781746 (Guangzhou)
28 June 2013 27 June 2023
14
PRC
KTL 5787184 (Guangzhou)
14 October 2009
13 October 2019
14
PRC
Guangzhou KTL
9885937
14 March 2013
13 March 2023
14, 35
PRC
Lucigala Jewellery
7853786/
14 January 2011 14 February 2011 14 January 2011 14 February 2011
13 January 2021 13 February 2021 13 January 2021 13 February 2021
14 January 2011 14 February 2011 12 February 2010
13 January 2021 13 February 2021 11 February 2020
12 February 2010
11 February 2020
7853788 14, 35
PRC
Lucigala Jewellery
7853789/ 7853452
14, 35
PRC
Lucigala Jewellery
7853785/ 7853787
14, 35
Italy
Lucigala Jewellery
0001397741
14, 35
Italy
Lucigala Jewellery
0001397751
– V-7 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX V
STATUTORY AND GENERAL INFORMATION
Trademark
Place of Trademark Category registration holder
Trademark number
Registration date Expiry date
14, 35
Italy
Lucigala Jewellery
0001397752
12 February 2010
11 February 2020
14
PRC
Lucigala Jewellery
11580369
14 March 2014
13 March 2024
(ii) As at the Latest Practicable Date, our Group had applied for registration of the following trademarks:
Trademark
2.
Class
Place of application
Application number
Name of applicant
Application date
14
PRC
12931442
KTL (Guangzhou)
17 July 2013
Patents (i)
As at the Latest Practicable Date, our Group had the following registered patents:
Patent
Place of registration
Type
Patent number
Effective period
Diamonds in snowflake style (6 encircle 1) (冰花鑽(六圍一)). . . . .
Hong Kong
Short-term patent
12101522.1
16 February 2012 to 15 February 2020
Diamonds in kaleidoscopic art (12 encircle 1) (萬花鑽(十二圍一)) . . .
Hong Kong
Short-term patent
12101523.0
16 February 2012 to 15 February 2020
Jewellery setting . . . . . .
Hong Kong
Design
1200245.3M001
16 February 2012 to 15 February 2037
Jewellery setting . . . . . .
Hong Kong
Design
1200245.3M002
16 February 2012 to 15 February 2037
– V-8 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX V
STATUTORY AND GENERAL INFORMATION Place of registration
Type
Patent number
Diamonds in snowflake style (6 encircle 1) (冰花鑽(六圍一)). . . . .
PRC
Design
ZL201230029961.7
16 February 2012 to 15 February 2022
Diamonds in kaleidoscopic art (12 encircle 1) (萬花鑽(十二圍一)) . . .
PRC
Design
ZL201230029962.1
16 February 2012 to 15 February 2022
Patent
Effective period
(ii) As at the Latest Practicable Date, our Group had applied for registration of the following patents: Place of registration
Type
Application number
Application date
Diamonds in snowflake style (6 encircle 1) (冰花鑽(六圍一)) . . . . . . .
PRC
Invention
2012100345008
16 February 2012
Diamonds in kaleidoscopic art (12 encircle 1) (萬花鑽(十二圍一)) . . . . . .
PRC
Invention
2012100345120
16 February 2012
Patent
3.
Domain names
As at the Latest Practicable Date, our Group was the registered proprietor of the following domain names: Domain name lucidigala.com.hk . . ktljew.com . . . . . . ldgjewellery.com . . 1314jew.com . . . . ktljewelry.com.cn . . ktljewellery.com.cn. ktljewelry.com. . . . ktljcw.com . . . . . . rossoacademy.com . ktl.com.hk . . . . . .
. . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . .
Registered proprietor
Date of registration
Expiry date
KTL Jewellery Trading K.T.L. Jewellery Lucigala Jewellery KTL Jewellery Trading KTL Jewellery Trading KTL Jewellery Trading KTL Jewellery Trading KTL Marketing Lucigala Jewellery K.T.L. Jewellery
30 December 2013 9 May 2013 17 September 2012 1 August 2011 17 February 2011 17 February 2011 17 February 2011 26 July 2010 25 July 2008 6 January 1999
30 December 2015 9 May 2015 17 September 2015 1 August 2015 17 February 2015 17 February 2015 17 February 2015 26 July 2015 25 July 2015 Null
– V-9 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX V
STATUTORY AND GENERAL INFORMATION
C.
FURTHER INFORMATION ABOUT OUR DIRECTORS AND SUBSTANTIAL SHAREHOLDERS OF OUR COMPANY
1.
Directors (a) Disclosure of interests – interests and short positions of our Directors and the chief executives of our Company in the Shares, underlying Shares and debentures of our Company and its associated corporations Immediately following completion of the [REDACTED] and the [REDACTED] without taking into account the Shares which may be issued pursuant to the exercise of the [REDACTED] and the options which may be granted under the [REDACTED], the interests or short positions of Directors or chief executives of our Company in the Shares, underlying Shares and debentures of our Company or its associated corporations (within the meaning of [REDACTED] of the SFO) which will be required to be notified to our Company and the [REDACTED] pursuant to [REDACTED] of the SFO (including interest or short positions which they were taken or deemed to have under such provisions of the SFO) or which will be required, pursuant to [REDACTED] of the SFO, to be entered in the register referred to therein, or which will be required, pursuant to [REDACTED] contained in the [REDACTED], to be notified to our Company and [REDACTED], once the Shares are listed are as follows: Interests in our Company
Name of Director
Capacity/Nature of interest
Mr. Kei (note 1) . . . . . . . . . . . Interest of a controlled corporation Mr. Li (note 2) . . . . . . . . . . . . Interest of a controlled corporation
Number of Shares
Approximate percentage of shareholding in our Company
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
Notes: 1.
These Shares are held by KTL International (BVI), [REDACTED] shareholding of which is owned by Universe Master. Universe Master is owned by Mr. Kei as to [REDACTED]. Mr. Kei is deemed to be interested in the Shares held by KTL International (BVI) under the SFO.
2.
These Shares are held by KTL International (BVI), [REDACTED] shareholding of which is owned by Husheng Holdings. The entire issued share capital of Husheng Holdings is owned by Mr. Li. Mr. Li is deemed to be interested in the Shares held by KTL International (BVI) under the SFO.
– V-10 –
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APPENDIX V
STATUTORY AND GENERAL INFORMATION
Interests in our associated corporation
Name of associated corporation
Name of Director
Universe Master . . . . . Mr. Kei KTL International Mr. Kei (BVI) . . . . . . . . . . KTL International Mr. Li (BVI) . . . . . . . . . . Universe Master . . . . . Mr. Kei Yeuk Lun Calan
Capacity/Nature of interest Beneficial owner Interest of a controlled corporation Interest of a controlled corporation Beneficial owner
Number of shares
Approximate percentage of shareholding
[REDACTED] [REDACTED]
[REDACTED] [REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
(b) Particulars of our Directors’ service contracts Each of the executive Directors has entered into a service contract with our Company for a term of three years commencing from [●] 2014, which may be terminated by not less than three months’ notice in writing served by either party on the other and is subject to termination provisions therein and provisions on retirement by rotation of our Directors as set forth in the Articles of Association. Each of the executive Directors is entitled to a director’s fee. Each executive Director shall be paid a remuneration on the basis of twelve months in a year. In addition, each of the executive Directors is also entitled to bonus as determined by our Board based on the recommendations made by our remuneration committee. The current annual director’s fees and remuneration of our executive Directors are as follows: Approximate annual Director’s fee and remuneration
Name of Directors Mr. Kei . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Li . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Kei Yeuk Lun Calan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
HK$4,000,000 HK$4,000,000 HK$1,400,000
The independent non-executive Directors [have been] appointed for a term of three years. Our Company intends to pay a director’s fee of HK$[200,000] per annum to each of the independent non-executive Directors.
– V-11 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX V 2.
STATUTORY AND GENERAL INFORMATION
Substantial Shareholders
So far as our Directors are aware, immediately following the completion of the [REDACTED] and the [REDACTED] without taking into account the Shares which may be issued pursuant to the exercise of the [REDACTED] and the options which may be granted under the Share Option Scheme, the following persons (other than a Director or chief executive of our Company) will have or be deemed or taken to have an interest and/or short position in the Shares or the underlying Shares which would fall to be disclosed under the provisions of [REDACTED] of the SFO or are directly or indirectly, interested in 10% or more of the nominal value of any class of the share capital carrying rights to vote in all circumstances at general meetings of any other member of our Group:
Name of Shareholder KTL International (BVI) (note 1) . . Universe Master (note 2) . . . . . . . Husheng Holdings (note 3) . . . . . .
Capacity/Nature of Interest Beneficial owner Interest of a controlled corporation Interest of a controlled corporation
Number of Shares
Approximate percentage of shareholding in our Company
[REDACTED] [REDACTED]
[REDACTED] [REDACTED]
[REDACTED]
[REDACTED]
Notes:
3.
1
KTL International (BVI) is a company incorporated in the BVI, the issued share capital of which is held by Universe Master as to [REDACTED] and Husheng Holdings as to [REDACTED].
2
Universe Master is a company incorporated in the BVI, the issued share capital of which is held by Mr. Kei as to [REDACTED] and Mr. Kei Yeuk Lun Calan as to [REDACTED].
3
Husheng Holdings is a company incorporated in the BVI, the entire issued share capital of which is held by Mr. Li.
Agency fees or commissions received
Save as disclosed in this [REDACTED], no commissions, discounts, brokerages or other special terms were granted within the two years preceding the date of this [REDACTED] in connection with the issue or sale of any capital of any member of our Group. 4.
Disclaimers Save as disclosed herein: (a)
none of our Directors or chief executives of our Company has any interest or short position in the Shares, underlying Shares or debentures of our Company or any of its associated corporation (within the meaning of the SFO) which will have to be notified to our Company and the [REDACTED] pursuant to [REDACTED] of the SFO or which will be required, pursuant to [REDACTED] of the SFO, to be entered in the register referred to therein, or which will be required to be notified to our Company and the [REDACTED] pursuant to the [REDACTED] once the Shares are [REDACTED]; – V-12 –
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APPENDIX V
STATUTORY AND GENERAL INFORMATION
(b) none of our Directors or experts referred to under the paragraph headed “D. Other information – 7. Consents of experts” in this Appendix has any direct or indirect interest in the promotion of our Company, or in any assets which have within the two years immediately preceding the date of this [REDACTED] been acquired or disposed of by or leased to any member of our Group, or are proposed to be acquired or disposed of by or leased to any member of our Group; (c)
none of our Directors is materially interested in any contract or arrangement subsisting at the date of this [REDACTED] which is significant in relation to the business of our Group taken as a whole;
(d) none of our Directors has any existing or proposed service contracts with any member of our Group (excluding contracts expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation)); (e)
taking no account of Shares which may be issued upon the exercise of the [REDACTED] and the options which may be granted under the Share Option Scheme, none of our Directors are aware of any person (not being a Director or chief executive of our Company) who will, immediately following completion of the [REDACTED] and the [REDACTED], have an interest or short position in the Shares or underlying Shares of our Company which would fall to be disclosed to our Company under the provisions of [REDACTED] of SFO or be interested, directly or indirectly, in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of our Group;
(f)
none of the experts referred to under the paragraph headed “D. Other information – 7. Consents of experts” in this Appendix has any shareholding in any member of our Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of our Group; and
(g) none of our Directors has any direct or indirect interest in the promotion of, or in any assets which have been, within the two years immediately preceding the date of this [REDACTED], acquired or disposed of by or leased to any member of our Group.
– V-13 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX V D.
OTHER INFORMATION
1.
Share Option Scheme
STATUTORY AND GENERAL INFORMATION
The following is a summary of the principal terms of the Share Option Scheme conditionally adopted by the resolutions in writing of our Shareholders of our Company passed on [●] 2014. (a) Purpose The Share Option Scheme is a share incentive scheme and is established to recognise and acknowledge the contributions the Eligible Participants (as defined in paragraph (b) below) had or may have made to our Group. The Share Option Scheme will provide the Eligible Participants an opportunity to have a personal stake in our Company with the view to achieving the following objectives: (i)
motivate the Eligible Participants to optimise their performance efficiency for the benefit of our Group; and
(ii) attract and retain or otherwise maintain on-going business relationship with the Eligible Participants whose contributions are or will be beneficial to the long-term growth of our Group. (b) Who may join Our Board may, at its discretion, offer to grant an option to subscribe for such number of new Shares as our Board may determine at an exercise price determined in accordance with paragraph (e) below to the following (the “Eligible Participants”): (i)
any full-time or part-time employees, executives or officers of our Company or any of its subsidiaries;
(ii) any directors (including executive, non-executive directors and independent non-executive directors) of our Company or any of its subsidiaries; and (iii) any advisers, consultants, suppliers, customers, agents and related entities to our Company or any of its subsidiaries. Upon acceptance of the option, the grantee shall pay HK$1.00 to our Company by way of consideration for the grant. Any offer to grant an option to subscribe for Shares may be accepted in respect of less than the number of Shares for which it is offered provided that it is accepted in respect of a board lot of dealing in Shares on the [REDACTED] or an integral multiple thereof and such number is clearly stated in the duplicate offer document constituting the acceptance of the option. To the extent that the offer to grant an option is not accepted by any prescribed acceptance date, it shall be deemed to have been irrevocably declined. – V-14 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX V (c)
STATUTORY AND GENERAL INFORMATION
Maximum number of Shares
The maximum number of Shares in respect of which options may be granted under the Share Option Scheme and under any other share option schemes of our Company must not in aggregate exceed 10% of the total number of Shares in issue immediately following completion of the [REDACTED], being [REDACTED] Shares, excluding for this purpose Shares which would have been issuable pursuant to the [REDACTED] and options which have lapsed in accordance with the terms of the Share Option Scheme (or any other share option schemes of our Company). Subject to the issue of a circular by our Company and the approval of our Shareholders in general meeting and/or such other requirements prescribed under the [REDACTED] from time to time, our Board may: (i)
renew this limit at any time to 10% of the Shares in issue as of the date of the approval by our Shareholders in general meeting; and/or
(ii) grant options beyond the 10% limit to Eligible Participants specifically identified by our Board. The circular issued by our Company to our Shareholders shall contain a generic description of the specified Eligible Participants who may be granted such options, the number and terms of the options to be granted, the purpose of granting options to the specified Eligible Participants with an explanation as to how the options serve such purpose, the information required under Rule 17.02(2)(d) and the disclaimer required under Rule 17.02(4) of the [REDACTED]. Notwithstanding the foregoing, the Shares which may be issued upon exercise of all outstanding options granted and yet to be exercised under the Share Option Scheme and any other share option schemes of our Company at any time shall not exceed 30% of the Shares in issue from time to time. No options shall be granted under any schemes of our Company (including the Share Option Scheme) if this will result in the 30% limit being exceeded. The maximum number of Shares in respect of which options may be granted shall be adjusted, in such manner as the auditors of our Company or an approved independent financial adviser shall certify to be appropriate, fair and reasonable in the event of any alteration in the capital structure of our Company in accordance with paragraph (q) below whether by way of consolidation, capitalisation issue, rights issue, sub-division or reduction of the share capital of our Company but in no event shall exceed the limit prescribed in this paragraph.
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APPENDIX V
STATUTORY AND GENERAL INFORMATION
(d) Maximum number of options to any one individual The total number of Shares issued and which may fall to be issued upon exercise of the options granted under the Share Option Scheme and any other share option schemes of our Company (including both exercised and outstanding options) to each Eligible Participant in any 12-month period up to the date of grant shall not exceed 1% of the Shares in issue as of the date of grant. Any further grant of Options in excess of this 1% limit shall be subject to: (i)
the issue of a circular by our Company containing the identity of the Eligible Participant, the numbers of and terms of the options to be granted (and options previously granted to such participant) the information as required under Rules 17.03(4) and 17.06 of the [REDACTED] and/or such other requirements as prescribed under the [REDACTED] from time to time; and
(ii) the approval of our Shareholders in general meeting and/or other requirements prescribed under the [REDACTED] from time to time with such Eligible Participant and his associates (as defined in the [REDACTED]) abstaining from voting. The numbers and terms (including the exercise price) of options to be granted to such participant must be fixed before our Shareholders’ approval and the date of our Board meeting at which our Board proposes to grant the options to such Eligible Participant shall be taken as the date of grant for the purpose of calculating the subscription price of the Shares. Our Board shall forward to such Eligible Participant an offer document in such form as our Board may from time to time determine. (e)
Price of Shares
The subscription price of a Share in respect of any particular option granted under the Share Option Scheme shall be such price as our Board in its absolute discretion shall determine, save that such price will not be less than the highest of: (i)
the official closing price of the Shares as stated in the [REDACTED] daily quotation sheets on the date of grant, which must be a day on which the Stock Exchange is open for the business of dealing in securities;
(ii) the average of the official closing prices of the Shares as stated in the [REDACTED] daily quotation sheets for the five business days immediately preceding the date of grant; and (iii) the nominal value of a Share.
– V-16 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX V (f)
STATUTORY AND GENERAL INFORMATION
Granting options to connected persons
Any grant of options to a director, chief executive or substantial shareholder (as defined in the [REDACTED]) of our Company or any of their respective associates (as defined in the [REDACTED]) is required to be approved by the independent non-executive Directors (excluding any independent non-executive Director who is the grantee of the Options). If our Board proposes to grant options to a substantial shareholder or any independent non-executive Director or their respective associates (as defined in the [REDACTED]) which will result in the number of Shares issued and to be issued upon exercise of options granted and to be granted (including options exercised, cancelled and outstanding) to such person in the 12-month period up to and including the date of such grant: (i)
representing in aggregate over 0.1% or such other percentage as may be from time to time provided under the [REDACTED] of the Shares in issue; and
(ii) having an aggregate value in excess of HK$5 million or such other sum as may be from time to time provided under the [REDACTED], based on the official closing price of the Shares at the date of each grant, such further grant of options will be subject to the issue of a circular by our Company and the approval of our Shareholders in general meeting on a poll at which all connected persons (as defined in the [REDACTED]) of our Company shall abstain from voting in favour, and/or such other requirements prescribed under the [REDACTED] from time to time. Any vote taken at the meeting to approve the grant of such options shall be taken as a poll. The circular to be issued by our Company to our Shareholders pursuant to the above paragraph shall contain the following information: (i)
the details of the number and terms (including the exercise price) of the options to be granted to each selected Eligible Participant which must be fixed before our Shareholders’ meeting and the date of Board meeting for proposing such further grant shall be taken as the date of grant for the purpose of calculating the exercise price of such options;
(ii) a recommendation from the independent non-executive Directors (excluding any independent non-executive Director who is the grantee of the options) to the independent shareholders as to voting; (iii) the information required under Rule 17.02(2)(c) and (d) and the disclaimer required under Rule 17.02(4) of the [REDACTED]; and (iv) the information required under Rule 2.17 of the [REDACTED]. – V-17 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX V
STATUTORY AND GENERAL INFORMATION
(g) Restrictions on the times of grant of Options A grant of options may not be made after a price sensitive event has occurred or a price sensitive matter has been the subject of a decision until such price sensitive information has been published pursuant to the requirements of the [REDACTED]. In particular, no options may be granted during the period commencing one month immediately preceding the earlier of: (i)
the date of our Board meeting (as such date to first notified to the [REDACTED] in accordance with the [REDACTED]) for the approval of our Company’s annual, half-year, quarterly or other interim period results (whether or not required under the [REDACTED]); and
(ii) the deadline for our Company to publish an announcement of its annual results or half-year, or quarterly or other interim period (whether or not required under the [REDACTED]), and ending on the date of actual publication of the results announcement. (h) Rights are personal to grantee An option is personal to the grantee and may be exercised or treated as exercised, as the case may be, in whole or in part. No grantee shall in any way sell, transfer, charge, mortgage, encumber or create any interest (legal or beneficial) in favour of any third party over or in relation to any option or attempt so to do. (i)
Time of exercise of Option and duration of the Share Option Scheme
An option may be exercised in accordance with the terms of the Share Option Scheme at any time after the date upon which the Option is deemed to be granted and accepted and prior to the expiry of 10 years from that date. The period during which an option may be exercised will be determined by our Board in its absolute discretion, save that no option may be exercised more than 10 years after it has been granted. No option may be granted more than 10 years after the date of approval of the Share Option Scheme. Subject to earlier termination by our Company in general meeting or by our Board, the Share Option Scheme shall be valid and effective for a period of 10 years from the date of its adoption. There is no minimum period for which an option must be held before it can be exercised. (j)
Performance target
A grantee may be required to achieve any performance targets as our Board may then specify in the grant before any options granted under the Share Option Scheme can be exercised. – V-18 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX V
STATUTORY AND GENERAL INFORMATION
(k) Rights on ceasing employment or death If the grantee of an option ceases to be an employee of our Company or any of its subsidiaries (i)
by any reason other than death or termination of his employment on the grounds specified in paragraph (l) below, the option to the extent not already exercised on the date of cessation shall lapse automatically on the date of cessation; or
(ii) by reason of death, his personal representative(s) may exercise the option within a period of 12 months from such cessation, which date shall be the last actual working day with our Company or the relevant subsidiary whether salary is paid in lieu of notice or not, failing which it will lapse. (l)
Rights on dismissal
If the grantee of an Option ceases to be an employee of our Company or any of its subsidiaries on the grounds that he has been guilty of serious misconduct, or in relation to an employee of our Group (if so determined by our Board) on any other ground on which an employee would be entitled to terminate his employment at common law or pursuant to any applicable laws or under the grantee’s service contract with our Group, or has been convicted of any criminal offence involving his integrity or honesty, his Option will lapse and not be exercisable after the date of termination of his employment. (m) Rights on takeover If a general offer is made to all our Shareholders (or all such shareholders other than the offeror and/or any person controlled by the offeror and/or any person acting in concert with the offeror (as defined in the Takeovers Codes)) and such offer becomes or is declared unconditional during the option period of the relevant option, the grantee of an option shall be entitled to exercise the option in full (to the extent not already exercised) at any time within 14 days after the date on which the offer becomes or is declared unconditional. (n) Rights on winding-up In the event a notice is given by our Company to its members to convene a general meeting for the purposes of considering, and if thought fit, approving a resolution to voluntarily wind-up our Company, our Company shall forthwith give notice thereof to all grantees and thereupon, each grantee (or his legal personal representative(s)) shall be entitled to exercise all or any of his options (to the extent not already exercised) at any time not later than two business days prior to the proposed general meeting of our Company referred to above by giving notice in writing to our Company, accompanied by a remittance for the full amount of the aggregate subscription price for the Shares in respect of which the notice is given, whereupon our Company shall as soon as possible and, in any event, no later than the business day immediately prior to the date of the proposed general meeting, allot the relevant Shares to the grantee credited as fully paid. – V-19 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX V
STATUTORY AND GENERAL INFORMATION
(o) Rights on compromise or arrangement between our Company and its members or creditors If a compromise or arrangement between our Company and its members or creditors is proposed for the purposes of a scheme for the reconstruction of our Company or its amalgamation with any other companies pursuant to the laws of jurisdictions in which our Company was incorporated, our Company shall give notice to all the grantees of the options on the same day as it gives notice of the meeting to its members or creditors summoning the meeting to consider such a scheme or arrangement and each grantee shall be entitled to exercise all or any of his options in whole or in part at any time prior to 12 noon (Hong Kong time) on the business day immediately preceding the date of the meeting directed to be convened by the relevant court for the purposes of considering such compromise or arrangement and if there are more than one meeting for such purpose, the date of the first meeting. With effect from the date of such meeting, the rights of all grantees to exercise their respective options shall forthwith be suspended. Upon such compromise or arrangement becoming effective, all options shall, to the extent that they have not been exercised, lapse and determine. If for any reason such compromise or arrangement does not become effective and is terminated or lapses, the rights of grantees to exercise their respective options shall with effect from such termination be restored in full but only upon the extent not already exercised and shall become exercisable. (p) Ranking of Shares The Shares to be allotted upon the exercise of an option will not carry voting rights until completion of the registration of the grantee (or any other person) as the holder thereof. Subject to the aforesaid, Shares allotted and issued on the exercise of options will rank pari passu in all respects and shall have the same voting, dividend, transfer and other rights, including those arising on liquidation as attached to the other fully paid Shares in issue on the date of issue. (q) Effect of alterations to capital In the event of any alteration in the capital structure of our Company whilst any option may become or remains exercisable, whether by way of capitalisation issue, rights issue, open offer, consolidation, sub-division or reduction of share capital of our Company, or otherwise howsoever, such corresponding alterations (if any) shall be made in the number or nominal amount of Shares subject to any options so far as unexercised and/or the subscription price per Share of each outstanding option as the auditors of our Company or an independent financial adviser shall certify in writing to our Board to be in their/his opinion fair and reasonable in compliance with Rule 17.03(13) of the [REDACTED] and the note thereto and the supplementary guidance issued by the [REDACTED] on 5 September 2005 and any future guidance and interpretation of the [REDACTED] issued by [REDACTED] from time to time. – V-20 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX V
STATUTORY AND GENERAL INFORMATION
Any such alterations will be made on the basis that a grantee shall have the same proportion of the issued share capital of our Company for which any grantee of an Option is entitled to subscribe pursuant to the Options held by him before such alteration and the aggregate subscription price payable on full exercise of any option is to remain as nearly as possible the same (and in any event not greater than) as it was before such event. No such alteration will be made the effect of which would be to enable a Share to be issued at less than its nominal value. The issue of securities as consideration in a transaction is not to be regarded as a circumstance requiring any such alterations. (r)
Expiry of option
An option shall lapse automatically and not be exercisable (to the extent not already exercised) on the earliest of: (i)
the date of expiry of the option as may be determined by our Board;
(ii) the expiry of any of the periods referred to in paragraphs (k), (l), (m), (n) or (o); (iii) the date on which the scheme of arrangement of our Company referred to in paragraph (o) becomes effective; (iv) subject to paragraph (n), the date of commencement of the winding-up of our Company; (v) the date on which the grantee ceases to be an Eligible Participant by reason of such grantee’s resignation from the employment of our Company or any of its subsidiaries or the termination of his or her employment or contract on any one or more of the grounds that he or she has been guilty of serious misconduct, or has been convicted of any criminal offence involving his or her integrity or honesty, or has become insolvent, bankrupt or has made arrangements or compositions with his or her creditors generally, or in relation to an employee of our Group (if so determined by our Board) or any other ground on which an employee would be entitled to terminate his employment at common law or pursuant to any applicable laws or under the grantee’s service contract with our Group. A resolution of our Board to the effect that the employment of a grantee has or has not been terminated on one or more of the grounds specified in this paragraph shall be conclusive; or (vi) the date on which our Board shall exercise our Company’s right to cancel the option at any time after the grantee commits a breach of paragraph (h) above or the options are cancelled in accordance with paragraph (t) below.
– V-21 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX V (s)
STATUTORY AND GENERAL INFORMATION
Alteration of the Share Option Scheme
The Share Option Scheme may be altered in any respect by resolution of our Board except that: (i)
any alteration to the advantage of the grantees or the Eligible Participants (as the case may be) in respect of the matters contained in Rule 17.03 of the [REDACTED]; and
(ii) any material alteration to the terms and conditions of the Share Option Scheme or any change to the terms of options granted, shall first be approved by our Shareholders in general meeting provided that if the proposed alteration shall adversely affect any option granted or agreed to be granted prior to the date of alteration, such alteration shall be further subject to the grantees’ approval in accordance with the terms of the Share Option Scheme. The amended terms of the Share Option Scheme shall still comply with Chapter 17 of the [REDACTED] and any change to the authority of our Board in relation to any alteration to the terms of the Share Option Scheme must be approved by shareholders in general meeting. (t)
Cancellation of Options
Subject to paragraph (h) above, any cancellation of options granted but not exercised must be approved by the grantees of the relevant options in writing. (u) Termination of the Share Option Scheme Our Company may by resolution in general meeting or our Board at any time terminate the Share Option Scheme and in such event no further option shall be offered but the provisions of the Share Option Scheme shall remain in force to the extent necessary to give effect to the exercise of any option granted prior thereto or otherwise as may be required in accordance with the provisions of the Share Option Scheme. Options granted prior to such termination but not yet exercised at the time of termination shall continue to be valid and exercisable in accordance with the Share Option Scheme. (v)
Administration of our Board
The Share Option Scheme shall be subject to the administration of our Board whose decision as to all matters arising in relation to the Share Option Scheme or its interpretation or effect (save as otherwise provided herein) shall be final and binding on all parties. (w) Condition of the Share Option Scheme The Share Option Scheme is conditional on: (i)
the [REDACTED] of the [REDACTED] granting the [REDACTED] of and permission to deal in the Shares which may fall to be issued pursuant to the exercise of options to be granted under the Share Option Scheme; – V-22 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX V
STATUTORY AND GENERAL INFORMATION
(ii) the obligations of the [REDACTED] under the [REDACTED] becoming unconditional (including, if relevant, as result of the waiver of any such condition(s)) and not being terminated in accordance with the terms of the [REDACTED] or otherwise; (iii) the approval of the rules of the Share Option Scheme by our Shareholders in general meeting; and (iv) the commencement of dealings in the Shares on the [REDACTED]. (x) Disclosure in annual and interim reports Our Company will disclose details of the Share Option Scheme in its annual and interim reports including the number of options, date of grant, exercise price, exercise period and vesting period during the financial year/period in the annual/interim reports in accordance with the [REDACTED] in force from time to time. (y)
Present status of the Share Option Scheme
As at the Latest Practicable Date, no option had been granted or agreed to be granted under the Share Option Scheme. Application has been made to the [REDACTED] of the [REDACTED] for the [REDACTED] of and permission to deal in the Shares which may fall to be issued pursuant to the exercise of the options to be granted under the Share Option Scheme, being [REDACTED] Shares in total. 2.
Estate duty, tax and other indemnities
Each of the Covenantors have entered into a deed of indemnity with and in favour of our Company (for itself and as trustee for each of its present subsidiaries) (being the contract referred to in sub-paragraph (a) of the paragraph headed “Summary of material contracts” in this Appendix) to provide indemnities on a joint and several basis in respect of, among other matters, Hong Kong estate duty which might be payable by any member of our Group, by reason of any transfer of property (within the meaning of Section 35 of the Estate Duty Ordinance, Chapter 111 of the Laws of Hong Kong, as amended by the Revenue (Abolition of Estate Duty) Ordinance) to any member of our Group on or before the [REDACTED]. The deed of indemnity also contain, amongst other things, indemnities given by the Covenantors in respect of (a) taxation resulting from income, profits or gains earned, accrued or received as well as any property claim to which our Group may be subject on or before the [REDACTED]; and (b) claims and liabilities arising from the non-compliances of our Group, including but not limited to the non-compliance incidents set out in the paragraph headed “Business – Litigation and Legal Compliance” of this [REDACTED]. 3.
Litigation
As at the Latest Practicable Date, no member of our Group was engaged in any litigation or arbitration of material importance and, so far as our Directors are aware, no litigation or claim of material importance is pending or threatened by or against any member of our Group. – V-23 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX V 4.
STATUTORY AND GENERAL INFORMATION
Preliminary expenses
The preliminary expenses of our Company are estimated to be approximately HK$[31,775] and are payable by our Company. 5.
Promoter Our Company has no promoter for the purpose of the [REDACTED].
6.
Qualification of experts
The following are the qualifications of the experts who have given opinion or advice which are contained in this [REDACTED]:
7.
Name
Qualifications
CCB International Capital Limited
A corporation licensed to conduct type 1 (dealing in securities), type 4 (advising on securities) and type 6 (advising on corporate finance) regulated activities under the SFO, being one of the Joint Sponsors to the [REDACTED]
China Galaxy International Securities (Hong Kong) Co., Limited
A corporation licensed to conduct type 1 (dealing in securities), type 4 (advising on securities) and type 6 (advising on corporate finance) regulated activities under the SFO, being one of the Joint Sponsors to the [REDACTED]
Ernst & Young
Certified Public Accountants
Tian Yuan Law Firm
PRC legal advisers
Appleby
Legal adviser as to Cayman Islands law
CBRE Limited
Property valuer
Ipsos Hong Kong Limited
Industry consultant
Consents of experts
Each of the experts referred to in paragraph 6 above has given and has not withdrawn its written consent to the issue of this [REDACTED] with the inclusion of its report and/or letter and/or valuation certificate and/or opinion and/or the references to its name included herein in the form and context in which it is respectively included. – V-24 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX V 8.
STATUTORY AND GENERAL INFORMATION
Binding effect
This [REDACTED] shall have the effect, if an application is made in pursuance hereof, of rendering all persons concerned bound by all of the provisions (other than the penal provisions) of Sections 44A and 44B of the [REDACTED] Ordinance so far as applicable. 9.
Miscellaneous (a)
Save as disclosed in this [REDACTED], within the two years immediately preceding the date of this [REDACTED]: (i)
no share or loan capital of our Company or any of its subsidiaries has been issued or agreed to be issued or is proposed to be fully or partly paid either for cash or a consideration other than cash;
(ii) no share or loan capital of our Company or any of its subsidiaries is under option or is agreed conditionally or unconditionally to be put under option; (iii) our Group has no outstanding convertible debt securities or debentures; (iv) no commissions, discounts, brokerages or other special terms have been granted or agreed to be granted in connection with the issue or sale of any share or loan capital of our Company or any of its subsidiaries; (v) no founders, management or deferred shares of our Company or, any of its subsidiaries have been issued or agreed to be issued; (vi) no commission has been paid or is payable for subscription, agreeing to subscribe, procuring subscription or agreeing to procure subscription of any share in our Company or any of its subsidiaries; (b) none of the persons named in the paragraph headed “D. Other information – 7. Consents of experts” in this Appendix is interested beneficially or otherwise in any shares of any member of our Group or has any right or option (whether legally enforceable or not) to subscribe for or nominate persons to subscribe for any securities in any member of our Group; (c)
our Directors confirm that there has been no material adverse change in the financial or trading position or prospects of our Group since 30 June 2014 (being the date to which the latest audited combined financial statements of our Group were made up);
(d) there has not been any interruption in the business of our Group which may have or has had a significant effect on the financial position of our Group in the 12 months preceding the date of this [REDACTED]; – V-25 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX V
STATUTORY AND GENERAL INFORMATION
(e) [REDACTED]
(f)
no member of our Group is presently listed on any [REDACTED] or traded on any trading system;
(g) there is no arrangement under which future dividends are waived or agreed to be waived; and (h) all necessary arrangements have been made to enable the Shares to be admitted into [REDACTED] for clearing and settlement. 10. Bilingual [REDACTED] The English and Chinese language version of this [REDACTED] are being published separately in reliance upon the exemption provided by section 4 of the [REDACTED]. 11. Joint Sponsors The Joint Sponsors have made an application for and on behalf of our Company to the [REDACTED] for the [REDACTED] of, and permission to deal in, the Shares in issue and to be issued as mentioned in this [REDACTED] and any Shares that may be issued upon the exercise of the [REDACTED] or any Shares to be issued pursuant to the exercise of any options which may be granted under the Share Option Scheme. The Joint Sponsors are independent of our Company in accordance with Rule 3A.07 of the [REDACTED]. The Joint Sponsors’ fees in relation to the [REDACTED] are HK$6.5 million.
– V-26 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX VI
DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES AND AVAILABLE FOR INSPECTION
DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES The documents attached to the copy of this [REDACTED] delivered to the Registrar of Companies in Hong Kong for registration were: (a)
a copy of the [REDACTED];
(b) the written consents referred to in the paragraph headed “D. Other information – 7. Consents of experts” in Appendix V to this [REDACTED]; and (c)
a copy of each of the material contracts referred to in the paragraph headed “B. Further information about the business of our Group – 1. Summary of material contracts” in Appendix V to this [REDACTED].
DOCUMENTS AVAILABLE FOR INSPECTION Copies of the following documents will be available for inspection at the office of Squire Patton Boggs at 29th Floor, Edinburgh Tower, The Landmark, 15 Queen’s Road Central, Hong Kong during normal business hours up to and including the date which is 14 days from the date of this [REDACTED]: (a)
the Memorandum of Association and the Articles of Association;
(b) the Accountant’s Report from Ernst & Young, the text of which is set forth in Appendix I to this [REDACTED]; (c)
the audited consolidated financial statements of our Group for the financial years ended 31 March 2012, 2013 and 2014 and the three months ended 30 June 2014;
(d) the report from Ernst & Young relating to the unaudited pro forma financial information of our Group, the text of which is set forth in Appendix II to this [REDACTED]; (e)
the letter, summary of values and valuation certificates relating to the property interests of our Group prepared by CBRE Limited, the texts of which are set forth in Appendix III to this [REDACTED];
(f)
the letter of advice from Appleby, our Cayman legal adviser, summarising certain aspects of the Cayman Islands company law referred to in Appendix IV to this [REDACTED];
(g) the Companies Law; (h) the material contracts referred to in the paragraph headed “B. Further information about the business of our Group – 1. Summary of material contracts” in Appendix V to this [REDACTED]; – VI-1 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT
APPENDIX VI
DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES AND AVAILABLE FOR INSPECTION
(i)
the written consents referred to in the paragraph headed “D. Other information – 7. Consents of experts” in Appendix V to this [REDACTED];
(j)
the service contracts referred to in the paragraph headed “C. Further information about our Directors and substantial Shareholders of our Company – 1. Directors – (b) Particulars of our Directors’ service contracts” in Appendix V to this [REDACTED];
(k) the PRC legal opinions issued by our PRC Legal Advisers; and (l)
the rules of the Share Option Scheme.
– VI-2 –
